U.S. Securities and Exchange Commission
                             Washington, D.C. 20549
                                   FORM 10-KSB

(Mark One)

[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF
     1934 For the fiscal year ended DECEMBER 31, 1996

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
     OF 1934

                         Commission file number: 0-5887

                                    RTI INC.
                 (Name of small business issuer in its charter)

                  NEW YORK                             11-2163152
      (State or other jurisdiction of               (I.R.S. Employer
       incorporation or organization)              Identification No.)

            108 LAKE DENMARK ROAD, ROCKAWAY, NEW JERSEY       07866
             (Address of principal executive offices)       (Zip Code)

                    Issuer's telephone number: (203) 656-1004

       Securities registered under Section 12(b) of the Exchange Act: NONE

         Securities registered under Section 12(g) of the Exchange Act:

                          COMMON STOCK, $.08 PAR VALUE
                                (Title of Class)

     Check  whether  the issuer (l) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days. Yes X No

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

     State issuer's revenues for its most recent fiscal year - $122,129.

     State the aggregate market value of the voting stock held by non-affiliates
computed by reference  to the price at which the stock was sold,  or the average
bid and asked  prices of such stock,  as of a specified  date within the past 60
days.

     Approximately $3,173,400, based on the published sale price ($3-3/8) on The
Nasdaq Small-Cap Market on March 24, 1997.

     State the number of shares  outstanding of each of the issuer's  classes of
common equity, as of the latest practicable date:

      As of March 21, 1997 - 1,336,166 shares.

Documents Incorporated by Reference:  None.

Transitional Small Business Disclosure Format. Yes [  ]   No [ X ]


<PAGE>

                                    PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

GENERAL

      RTI Inc., a New York corporation ("RTI"), was incorporated in August 1968.
Since February 24, 1997,  RTI,  through its  wholly-owned  Delaware  subsidiary,
Refrigeration  Technology  Inc.  ("RefTech";   and  collectively  with  RTI  the
"Company"), has been engaged in the manufacture and sale of evaporative coolers,
commercial heat exchange modules and  high-efficiency,  water-cooled central air
conditioners  (collectively,   the  "Coolant  Business")  as  a  result  of  the
acquisition of the business and operations of Quality Air, Inc. See "Acquisition
of QAI."  Prior to August 8, 1996,  the  Company  was  engaged  in the  contract
irradiation  business and owned and operated two  irradiation  facilities in New
Jersey and one irradiation facility in North Carolina.

SALE OF IRRADIATION OPERATIONS

      On August 8, 1996, the Company consummated a transaction (the "SteriGenics
Transaction") with SteriGenics International ("SteriGenics"), pursuant to which,
among other things,  SteriGenics acquired substantially all the operating assets
of the Company, other than cash and cash equivalents and the Company's Rockaway,
New Jersey property and the irradiation  facility located  thereon,  and assumed
substantially  all of the  liabilities  of the Company  (other than  liabilities
(including  environmental  liabilities)  related to the  Rockaway  property  and
liabilities to certain affiliates of the Company),  for aggregate  consideration
of approximately  $4,600,000  (substantially  representing the book value of the
purchased assets less the book value of the assumed  liabilities).  In addition,
SteriGenics  leased  approximately  62 acres  of the  Rockaway  property,  which
includes the Rockaway  facility,  pursuant to a six year lease expiring in 2002.
See Item 2 - "Description of Properties".  In  contemplation of the consummation
of the SteriGenics  Transaction,  the Company sold SteriGenics 118,000 shares of
Series A  Preferred  Stock  for  $236,000  in cash,  which  preferred  stock was
surrendered in payment of a portion of the purchase price.  Upon consummation of
the  SteriGenics  Transaction,  the  Company  ceased  its  contract  irradiation
business.

ACQUISITION OF QAI

      On  February  24,  1997  (the  "Closing"),  the  Company  consummated  the
transactions  (the  "QAI  Transaction")   contemplated  by  the  agreement  (the
"Acquisition Agreement"), dated as of February 24, 1997, among (i) RefTech, (ii)
Quality Air, Inc., a New Mexico corporation  ("QAI"), and (iii) Rick E. Bacchus,
Rockney D. Bacchus,  Ronald A. Bacchus,  Margie J. Bacchus,  Philis  Bacchus and
Opal Simmons, the officers and principal owners of QAI, pursuant to which, among
other things, Reftech purchased the business and substantially all of its assets
of QAI. QAI,  commencing  in January 1996,  was a  manufacturer  of  evaporative
coolers and commercial  heat exchanger  manufactured in Sunland Park, New Mexico
and,  through an  affiliated  Mexican  company,  Industrias  QAI,  S.A.  de C.V.
("Industrias  QAI"), in Ciudad Juarez,  Mexico. In addition,  QAI had developed,
but  not  yet  manufactured,   a   high-efficiency,   residential   central  air
conditioner. QAI was the successor to certain business and operations of Bacchus
Industries,  Inc. ("BII"), an affiliated company,  which had been engaged in the
air coolant business from 1977 until September 1995. See "Company Products."

      In  accordance  with the  terms of the QAI  Transaction,  at the  Closing,
RefTech delivered to QAI 235,000 shares of the Company's common stock, par value
$.08 per share ("Common Stock"), 50,000 shares of which are being held in escrow
for  purposes  of  covering   claims  of  RefTech  which  may  arise  under  the
indemnification  provisions of the Acquisition Agreement.  In addition,  RefTech
has agreed to deliver to QAI (i) an additional  100,000  shares of Common Stock,
if and when the Company's  pre-tax fiscal year earnings from  operations  exceed
$800,000,  and (ii) an additional  125,000  shares of Common Stock,  if and when
such earnings exceed $1,200,000; provided, however, that such events occur prior
to January 1, 2002.

      In the QAI Transaction, RefTech acquired substantially all of the tangible
and intangible assets of QAI. The tangible assets of QAI, as of January 31, 1997
(unaudited),  consisted  primarily of approximately (i) $302,000 of inventory (a
portion of which was at Industrias  QAI), (ii) $159,000 of furniture,  equipment
and vehicles,  (iii) $223,000 of loans to, and receivables from, Industrias QAI,
(iv)  $268,000  of  third  party  receivables,  and (v)  $45,000  of  cash.  The
intangible  assets of QAI,  in  addition to good will,  consisted  primarily  of
know-how and a


                                      2

<PAGE>

pending U.S.  patent  application,  which had been assigned to QAI by Rockney D.
Bacchus,  relating  to high  efficiency  central  air  conditioners.  In the QAI
Transaction, RefTech assumed certain specified liabilities of QAI, consisting of
QAI's  (i)  indebtedness  to  the  Company  aggregating  $670,000  plus  accrued
interest,  which was incurred by QAI prior to its December 1996 letter of intent
with the Company,  (ii) indebtedness to Theo W. Muller,  Chief Executive Officer
and Chairman of the Company, and his affiliated  companies  aggregating $870,000
plus  accrued  interest,  which  loans  were made in  contemplation  of,  and to
facilitate, the Closing, (iii) QAI purchase commitments incurred in the ordinary
course of QAI's  business for  inventories,  supplies  and services  aggregating
approximately  $1,300,000,  and (iv) other QAI scheduled liabilities incurred in
the ordinary course of QAI's business aggregating approximately $45,000.

      As part of the QAI Transaction, on February 19, 1997, RefTech entered into
a  sale  and  purchase  agreement  with  Industrias  QAI  and  its  two  nominal
shareholders,  Opal Simmons and Robert Given (the  "Industrias QAI  Agreement"),
pursuant to which RefTech agreed to acquire, and was given the right to acquire,
either  the  capital  stock of  Industrias  QAI or the  business  and  assets of
Industrias  QAI, at RefTech's  election at any time on or before April 20, 1997.
RefTech paid no additional consideration for its rights under the Industrias QAI
Agreement.  The  purchase  price to be paid upon closing of the  Industrias  QAI
Agreement  will  be the  higher  of the  book  value  of the  capital  stock  of
Industrias  QAI  (which  had a  deficit  book  value  of  approximately  $12,000
(unaudited) as of January 31, 1997) or 1,000 Mexican pesos. RefTech, as of March
15, 1997,  has not yet  determined  whether it will acquire the capital stock or
the assets of Industrias QAI; until the closing under the QAI Agreement, RefTech
has the exclusive  authority to manage  Industrias  QAI, whose only customer had
been QAI. See "Impact of Mexican Operations".

      Prior to the Closing,  the Company amended its By-Laws to provide that the
Company's  Chairman  (currently  Theo W.  Muller) is to be the  Company's  Chief
Executive  Officer.  Effective at the Closing,  (i) the Company  elected Rick E.
Bacchus as President of the Company and Rockney D. Bacchus and Ronald A. Bacchus
as Vice Presidents of the Company,  and (ii) each of such persons  (collectively
the "QAI Principals") entered into five-year employment  agreements with RefTech
(the "Employment  Agreements"),  pursuant to which Rick E. Bacchus was appointed
President  of RefTech  (reporting  to  RefTech's  Chairman  and Chief  Executive
Officer,  currently  Theo W.  Muller),  Rockney D.  Bacchus was  appointed  Vice
President -  Development  of RefTech and Ronald A.  Bacchus was  appointed  Vice
President - Manufacturing of RefTech. See Item 10 "Executive Compensation".  The
Acquisition  Agreement  provides that,  during the period  through  December 31,
2001, the QAI Principals,  as a group, have the non-assignable right to nominate
three of the seven directors constituting the Company's Board of Directors.  See
Item  9  -  "Directors,  Executive  Officers,  Promoters  and  Control  Persons;
Compliance  with Section  16(a) of the Exchange  Act." RefTech (i) has agreed to
lend up to an  aggregate  of  $240,000 to the QAI  Principals,  and (ii) has the
right to purchase from BII certain  equipment and vehicles  previously leased to
QAI for an amount  equal to their  fair  market  value.  See Item 12 -  "Certain
Relationships and Related Transactions". RefTech is leasing from BII the factory
building in Sunland Park, New Mexico, which had been occupied by QAI. See Item 2
- "Description of Properties."

INDUSTRY BACKGROUND

     EVAPORATIVE  COOLERS.  Evaporative coolers operate by forcing air through a
water saturated filter media.  Although the technology of cooling by evaporation
is mature, the efficiency of an evaporative cooler is determined by, among other
things, the thickness and type of filter media used, the amount of air which can
be forced through the filter media and the surface area of the filter media from
which water can be evaporated into the surrounding air.  Evaporative  coolers do
not have  refrigeration  units and are  limited  in the amount by which they can
cool;  however,  in an arid  climate  evaporative  coolers can be up to 70% more
efficient  than  traditional  refrigerated  air  conditioning.  The  market  for
evaporative  coolers in the United  States,  which is  concentrated  in the arid
areas of the Southwest,  is seasonal and totals over $100 million annually. Over
75% of the market consists of replacement units,  which are generally  purchased
by the  homeowners  in retail home  centers and  hardware  and  building  supply
stores.  The largest  retailers are serviced  directly by  manufacturers,  while
smaller retailers buy from distributors.  The remainder of the market, generally
serviced  by  distributors,  consists  of HVAC  and  plumbing  contractors,  and
includes new construction, home building and manufactured housing.

      HEAT EXCHANGERS.  Heat exchangers are utilized primarily for heat recovery
from systems which generate heat, to enable the heat energy to be recycled. In a
heat  exchanger,  the heat is transferred  from one medium (either a liquid or a
gas mixture,  such as air) to another medium (either


                                      3

<PAGE>

a liquid or a gas mixture), without such mediums coming into direct contact with
each other.  Heat  exchangers are used for,  among other things,  recycling heat
generated from an air conditioning  system to other uses within a building where
higher temperatures are needed. The market for heat exchangers  historically has
been small and  undeveloped  because of the high  initial  cost of the  product.
However, compliance with more stringent requirements of state indoor air quality
ventilation  codes,  based on  American  Society of Heating,  Refrigeration  and
Air-Conditioning  Engineers,  Inc.  ("ASHRAE(R)") standard 62 - "Ventilation for
Acceptable Indoor Air Quality", has broadened the market for the product.

      CENTRAL  AIR  CONDITIONERS.   The  market  for  residential   central  air
conditioning  equipment is close to 5.5 million units per year,  including  both
new  construction and replacement  demand.  Central air conditioning had been in
common  use for many  years  and the  products  have  been  standardized  around
accepted performance standards, using air as cooling medium. Standard tests used
to establish  performance,  expressed as an "energy efficiency rating ("EER") or
as a  seasonal  energy  efficiency  rating  ("SEER")  are  certified  by the Air
Conditioning and Refrigeration  Institute ("ARI"), an industry  association.  In
1992, the U.S.  government mandated a minimum SEER of 10 for residential central
air conditioning units.  Residential  central air conditioners  generally have a
EER of 9 to 11 and a SEER of 10 to 13. See "Government Regulations".

COMPANY PRODUCTS

      EVAPORATIVE  COOLERS.  Most evaporative  coolers are  manufactured  with a
square or rectangular  exterior housing,  due to the difficulty in manufacturing
and assembling an exterior  housing of a different  shape.  However,  a circular
exterior  housing,  while more  difficult to produce,  is more energy  efficient
since  it has a  larger  exterior  evaporative  surface  for the  area  which it
occupies. The Company's AIREZE(TM) cooler utilizes a round reinforced fiberglass
cabinet.  While less cosmetically  attractive,  the fiberglass  housing,  unlike
metal,  is rust-free and the circular  nature of the housing  allows greater air
flow,   resulting  in  more  efficient  air  cooling.  The  Company  provides  a
fifteen-year guarantee on the AIREZE cooler's fiberglass cabinet, as compared to
a five-year guarantee typically given by manufacturers of other coolers.

      The AIREZE cooler has been continuously  marketed since 1978, initially by
BII until September 1995 and from January 1996 until the Closing by QAI. QAI and
BII had  been  marketing  the  AIREZE  cooler  primarily  for new  construction,
including factory-built homes, and had an insignificant share of the evaporative
cooler market. Sales of AIREZE coolers were approximately  $2,000,000 during the
year ended December 31, 1996, with no single  customer  accounting for more than
10% of sales.

     During  1997,  the  Company  intends to target  certain  large  retail home
centers and building supply and hardware stores as a new  distribution  channel.
However,  the Company has no  experience  in  marketing  its  products to retail
outlets, some of whom have special problems,  such as inadequate working capital
which may  affect  their  ability  to timely  pay for their  purchases  from the
Company  and  could  require  the  Company  to  grant  extended   credit  terms.
Furthermore,  and irrespective of the contracted payment terms negotiated,  many
retail  outlets  do  not  pay  for  their  merchandise  unless  and  until  such
merchandise  "sells  through"  to the  consumer.  As a  result,  there can be no
assurance  that such  strategy  will be  successful  or will result in increased
sales of AIREZE coolers.

      HEAT EXCHANGERS.  The heat exchanger built by the Company,  primarily sold
under  the  E2PAK(TM)  trade  name,  are  custom  made and are used to  retrofit
sub-assemblies  used in commercial and industrial large central air conditioning
units to give them improved or specialized  performance such as increased energy
recovery.  To date,  the  Company  has sold the  E2PAK  only to two  specialized
contractors,  Spec-Air  and  Cannon  Fabrication  Inc.,  for  inclusion  by such
contractors in large commercial  Carrier,  Trane and McQuay  installations.  See
"Manufacturing."

      The Company  believes  that the E2PAK has a lower  initial cost and higher
performance  than other  similar  heat  exchangers,  but the Company has not yet
initiated  any program to expand  sales  beyond its two present  customers,  and
there  can be no  assurance  as to when,  if  ever,  that  the  Company  will be
successful  in  expanding  such sales.  Sales of E2PAK  units by QAI  aggregated
$648,000 in 1996.



                                      4

<PAGE>

      CENTRAL AIR  CONDITIONERS.  QAI completed  development  of its AC2(TM),  a
water  cooled  central  air  conditioner,  in 1996 and the  Company  anticipates
commencing manufacture in limited quantities by the beginning of April 1997. The
Company has not yet received  energy  efficiency  ratings for its AC2 unit,  but
expects that the AC2 may receive an EER rating of 15;  however,  there can be no
assurance  that  it will be as high  as the  Company  expects.  See  "Government
Regulations".

      Unlike traditional central air conditioners,  the condenser coils of which
are air cooled, the condenser coils in the AC2 air conditioner, using technology
for which  the  Company  has a pending  patent  application,  are water  cooled,
requiring the connection of a separate water line which requires installation by
a plumber.  As a result of the lack of product  and brand name  recognition  and
suggested additional annual maintenance, including cleaning of the water medium,
the Company expects to initially  encounter market  resistance from builders and
homeowners,  and there  can be no  assurance  that the AC2 will gain  sufficient
market acceptance to generate  significant sales within a reasonable  period, if
at all.

      The Company recently began marketing the AC2, mainly through distributors,
who are marketing the AC2 to "authorized"  dealers.  As the design of the AC2 is
different from other available central air conditioning  equipment,  the Company
is requiring air conditioning  contractors  desiring to become  "authorized" AC2
dealers to attend a one-day  installation  class at the Company's  Sunland Park,
New Mexico facility.

      QAI had sold a  central  air  conditioner  and  related  heat  pump  using
unpatented  technology  (related  to  the  technology  in  the  AC2)  under  the
EVAPCON(TM) trade name; however, sales of this product were not significant, and
the Company currently does not intend to emphasize this product line.

      The Company's  personnel  have limited sales,  marketing and  distribution
experience  with  central air  conditioners.  The  introduction  of the AC2 will
require certain sales,  marketing and distribution  capabilities,  some of which
the Company does not currently  possess,  and there can be no assurance that the
Company will be able to establish a sales and marketing  capability  which would
be successful in gaining market  acceptance for the AC2. The Company is devoting
a material portion of its available  resources to the  commercialization  of the
AC2, and failure of the Company to establish the necessary sales,  marketing and
distribution  network  for the AC2 will have a  material  adverse  effect on the
Company's financial condition.

MARKETING

     The Company markets its products mainly through independent  manufacturers'
representatives  and, in the New Mexico and  Western  Texas  markets,  through a
newly organized  sales force.  As of March 21, 1997, the Company  employed three
full   time   sales   persons,   and  had   eight   independent   manufacturers'
representatives covering the western and southwestern United States.

      The  Company  offers a limited  warranty  on its  manufactured  fiberglass
enclosures and housings for 15 years, on its purchased compressors and condenser
coils for five years and on the other components in its products for one year.



                                      5

<PAGE>


BACKLOG AND SEASONALITY

      The market for evaporative  coolers and, to a slightly lesser extent,  for
air conditioners is highly seasonal. Backlogs for these products are limited, as
they are  shipped  from stock upon  demand.  When these units are shipped out of
season to distributors,  the industry  generally defers the payment  obligations
therefor to the beginning of the following cooling and air conditioning  season.
Although the Company obtains written purchase  commitments from its "authorized"
AC2  dealers  before they are allowed to enroll in the  Company's  required  AC2
installation  class,  the Company does not consider such  commitments to be firm
purchase orders and such commitments are not considered as backlog.  As of March
21,  1997,  backlog  for the  AIREZE  evaporative  cooler  and the  EVAPCON  air
conditioner  was  approximately  $593,000  and  $76,000,  respectively,  and the
Company did not have any material backlog for the AC2 air conditioner. The E2PAK
is less seasonal  and,  contrary to the Company's  residential  products,  these
units  are  made  to  order.  As of  March  21,  1997,  the  E2PAK  backlog  was
approximately $160,000.

MANUFACTURING

        The  Company  manufactures  all  fiberglass  components,   such  as  the
enclosures for the AC2, as well as the entire AIREZE  evaporative  cooler in its
Ciudad Juarez,  Mexico facility.  Manufacturing  operations  include  fiberglass
spray up molding to manufacture tops, bases and blower housings,  and fiberglass
weaving to  manufacture  pad frames for the AC2 and  AIREZE.  Final  assembly of
purchased motors, pumps and other components, with manufactured molded parts and
complete fiberglass  baskets,  for the AIREZE also takes place in this facility.
As of March 21,  1997,  this  facility  had a combined  production  capacity  of
approximately 120 enclosures and/or AIREZE evaporative coolers per day.

      The  thermoforming  and  assembly  of  louvers  for  all of the  Company's
residential products, as well as the manufacturing of the E2PAK, is performed at
the  Company's  Sunland  Park,  New  Mexico  facility.  As of  March  21,  1997,
production  capacity  was  approximately  90  louvers  and 20 feet of E2PAK heat
exchanger plates per shift.

      The  assembly  of  purchased  motors,  pumps  and other  components,  with
manufactured  enclosures  and  housings,  for the AC2 will be  performed  at the
Company's facility in Westway, Texas. The Company expects that, after completion
of the start-up phase at this faility, its production capacity will be 100 units
per day.

     The equipment used by the Company for the manufacture of its E2PAK was sold
by BII to  Spec-Air in 1994,  and leased back to BII  pursuant to a 5 year lease
expiring in October  1998,  which lease is expected to be assigned by BII to the
Company in connection  with the QAI  Transaction.  Until the Company is assigned
the lease,  the Company is making the payments  thereunder and BII is permitting
the Company to use the leased  equipment.  The lease requires annual payments of
$48,010  and gives the lessee  the first  right to  purchase  the  equipment  if
Spec-Air  determines to sell or relocate the equipment.  In accordance  with the
lease, Spec-Air (which is the Company's largest customer) has the first right to
purchase  all E2PAK  units  manufactured  by the  Company,  and the  Company  is
required  to deliver a minimum  number of such units to  Spec-Air  monthly.  The
lessee is required to repay to Spec-Air  one-half of the purchase  price of each
unit purchased by Spec-Air until such payments aggregate $100,000,  which amount
is to be held by Spec-Air as a non-refundable deposit against the purchase price
for the equipment if the lessee  exercises its right to purchase the  equipment.
The lease also  requires the lessee to pay Spec-Air a royalty on all E2PAK units
sold by the Company to third  parties and  requires  that any such sales be at a
price at least 25% in excess of the price that the units are sold to Spec-Air.

      QAI, prior to the sale of its business to the Company,  operated at a loss
and had  limited  production  volume;  and  there can be no  assurance  that the
Company will be able to make the  transition  to the higher  production  volumes
needed for commercial success with acceptable profit margins.  In addition,  and
since the Company is only  beginning  to  manufacture  the AC2,  there can be no
assurance that unforeseen  technical or other  difficulties will not arise which
could interfere with the manufacture of such product.

SOURCES OF SUPPLY

      The  fiberglass  and  resin  raw  materials  used in all of the  Company's
products,  as well as the copper coils



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<PAGE>


used in the AC2, are  commodity  products  that have  historically  been readily
available from multiple suppliers. However, the Company relies on a small number
of manufacturers  for the motors,  pumps and air compressors  which it uses, and
has not had a long  standing  relationship  with any of such  manufacturers.  In
addition,  some of these  components  have long lead order  times and  shortages
could  develop,  which  could  hamper the  ability of the Company to produce its
products,  particularly  the AC2, which would have a material  adverse effect on
the Company's operations.

COMPETITION

      In the evaporative  cooler market, the Company believes that the principal
competitive  factors are  appearance,  brand name  recognition,  efficiency  and
price.  The  Company is  attempting  to compete on the basis of  efficiency  and
price. The Company's competitors include three metal enclosed evaporative cooler
manufacturers,  Adobe Air Inc.,  Champion/Essick and Phoenix Manufacturing,  and
one  plastic  enclosed  evaporative  cooler  manufacturer,   Tradewinds,   which
competitors  collectively  control  approximately  95% of the  U.S.  evaporative
cooler   market  and  all  of  whom  have   significantly   greater   financial,
manufacturing and marketing  resources than the Company and benefit from greater
market recognition.

      In the heat  exchanger  market,  the Company  believes  that the principal
competitive factors are efficiency and price.  However, as the Company units are
custom made and sold only to two  customers,  the Company does not have reliable
information  as to the  competitive  factors  which are relevant to this product
line.

      The air  conditioning  industry  is  highly  competitive  and the  Company
believes that the principal  competitive factors in the central air conditioning
market are price, brand recognition and energy efficiency ratings. The Company's
major  competitors  included Carrier,  Rheem/Ruud,  Goodman  (Janitrol),  Trane,
Lennox and York/Coleman,  each of which has a 10% or higher market share. All of
the Company's  competitors have substantially greater  manufacturing,  marketing
and  financial  resources  than the  Company  and benefit  from  greater  market
recognition.  In  addition,  since  the AC2 is  technically  distinct  from  the
equipment  offered by all of the  Company's  competitors,  there is no assurance
that the AC2 will be accepted by the marketplace.

PATENTS AND TRADEMARKS

     The AIREZE  evaporative  cooler and the E2PAK heat  exchanger each embody a
U.S.  patent owned by the Company.  The Company has a patent  pending on the AC2
air  conditioner,  but  there  can be no  assurance  that the  Company's  patent
applications will result in any issued patent. Due to changes in technology, the
Company contemplates that alternative  technological solutions may be devised to
accomplish  the  purposes  of its  patents,  but that  such  patents  may  offer
short-term  protection from third parties.  There can be no assurance that other
parties have not applied for or will not obtain  patents under which the Company
would need to be granted a license or around  which the Company  would be forced
to redesign its products. The Company seeks to protect its intellectual property
rights  through  a  combination  of  trade  secret,   nondisclosure   and  other
contractual arrangements,  and patent, copyright and trademark laws. The Company
generally   enters  into   confidentiality   agreements   with  its   employees,
consultants,  and sales representatives and limits access to and distribution of
its  proprietary  information;  however,  there can be no  assurance  that these
actions will be adequate to deter  misappropriation of the Company's proprietary
information,  or that the Company will be able to detect unauthorized use of its
intellectual  property  rights,  or that the  Company  can  afford the high cost
required to enforce its intellectual property rights. Furthermore,  there can be
no  assurance  that  a  claim  that  the  Company's  products  infringe  on  the
intellectual property rights of others will not be asserted successfully against
the Company in the future.

GOVERNMENT REGULATIONS

      Various  federal and state  statutes,  including  the  National  Appliance
Energy  Conservation Act of 1987 (which  superseded  certain then existing state
requirements)  and the  Energy  Policy  Act of 1992,  impose  energy  efficiency
standards for certain of the Company's  products.  Although the Company products
are believed to meet or exceed such standards to date, stricter standards in the
future could require  substantial  research and development  expense and capital
expenditures  to  maintain  compliance.  If the  Company  is unable to  maintain
compliance  or if it otherwise  determines  that the cost of  compliance  is too
expensive,  it  may be  required  to  discontinue  some  or all of


                                      7

<PAGE>


the  affected  products,  which  could  have a  material  adverse  effect on the
Company.

      The Company's AC2 utilizes HCFCs as its  refrigerant.  HCFCs currently are
an acceptable substitute for CFC refrigerants,  which have a more harmful effect
on the  environment and are being phased out of use. The Company does not expect
that  requirements  to ultimately  phase out HCFCs will have a material  adverse
effect on its  operations,  since it believes that  acceptable  substitutes  are
being  developed by third  parties which will be  commercially  available to the
Company.

EMPLOYEES

      As of March 21, 1997, the Company had 143 employees (including 114 persons
employed by  Industrias  QAI),  of whom 121 were hourly  employees.  None of the
Company's  employees are represented by a labor union,  and the Company believes
that its employee relations are good.

IMPACT OF MEXICAN OPERATIONS

      The Company currently is managing  Industrias QAI (a Mexican company,  all
of  whose  operations  are  conducted  in  Mexico)  and,  as  part  of  the  QAI
Transaction,  will purchase  either the capital stock or the business and assets
of  Industrias  QAI on or  before  April 20,  1997.  See  "Acquisition  of QAI".
Industrias  QAI, as of March 21, 1997,  had 114 employees and  manufactures  all
fiberglass enclosures and housings used by the Company, as well as the Company's
AIREZE evaporative cooler, in its Ciudad Juarez, Mexico facility. The ability to
have manufacturing operations in Mexico is a critical component of the Company's
current  business  plan.  See  "Manufacturing"  and  Item  2 -  "Description  of
Properties".  Accordingly,  any event which has a material adverse impact on the
operations  of  Industrias  QAI should be  expected  to have a material  adverse
impact on the operations of the Company as a whole.

      Industrias QAI operates as a "maquiladora" under the Mexican  government's
Border Industrialization  Program. A maquiladora is a company formed to assemble
components  into finished  products or to carry out  particular  labor-intensive
manufacturing operations,  primarily for export, and are normally formed to take
advantage  of the  inexpensive  labor  available  in Mexico.  Under the program,
machinery,  equipment,  parts, raw materials and other components are allowed to
be imported  duty-free into Mexico,  provided that they are used in the assembly
or manufacture of  semi-finished or finished  products for export.  In addition,
under  current U.S.  law, the Company does not pay any import duties on finished
goods shipped to it by Industrias QAI.

      Substantially  all of the cost of  operations  and  operating  expenses of
Industrias QAI, which  constitute more than an  insignificant  percentage of the
Company's total cost of operations and operating expenses, are peso-denominated.
The Company does not use foreign currency  forward  contracts to offset exposure
to U.S.  dollar/Mexican  peso exchange rates and, as a result,  any  significant
appreciation  of the peso against the dollar would have an adverse effect on the
Company's operating results.  Although there have been significant  fluctuations
in the U.S.  dollar/Mexican  peso exchange rate, the Company does not expect the
peso to appreciate significantly against the dollar in the near term.

      Pursuant  to  Mexican  Federal  Labor  Law,   employees  who  have  served
Industrias QAI for 15 years of more and who  voluntarily  end their  association
with it  (whether  upon  retirement  or  otherwise)  are  entitled to a one-time
seniority-based  payment  currently  equal to three months'  salary plus 20 days
salary  multiplied by the number of years of service.  Industrias QAI, which has
been in existence for less than two years,  has not yet  established any accrual
for such  liability,  based on its estimate that any such  liability,  given its
historic  employee  turn-over  rates,  would not be  material.  Mexican law also
requires  certain  other  payments  to be  made to  employees  in the  event  of
dismissal without serious cause, disability or death. Mexican companies also are
required to set aside for their  employees a share in "business  profits"  based
upon net income;  however,  Industrias  QAI, which had taxable income in 1996 of
407,816 pesos ($54,343), was not subject to employee profit sharing in 1996.

      Over the last few  years,  a  program  of reform  has begun to modify  the
nature of the Mexican  government's  role in the Mexican economy.  Nevertheless,
the Mexican  government  continues to exercise  significant  influence over many
aspects  of  the  Mexican  economy.  Accordingly,   Mexican  government  actions
concerning  the  economy  could  have  significant  effects  on  private  sector
entities,  including  Industrias  QAI.  The  Company  cannot  assure that



                                      8

<PAGE>

future  Mexican  governmental  actions  or future  developments  in the  Mexican
economy,   including  a  continued  slowdown  of  the  Mexican  economy  or  the
development  of any social unrest,  over which the Company has no control,  will
not impair the  operations of  Industrias  QAI or the  operations  and financial
condition of the Company.

      Pursuant to temporary  regulations  issued by Mexican tax  authorities  in
March 1995,  the Company's  Mexican assets may be subject to tax, if the Company
does not comply with certain  transfer  pricing  criteria.  The Company believes
that QAI  previously  was in  compliance  with such rules and that the  Company,
since the QAI Transaction,  has been in compliance with such rules. In the event
that the Company is found to be in non-compliance,  imposition of such tax could
have a material averse effect on the Company.

      In 1993,  Mexico, the United States and Canada approved the North American
Free Trade Agreement ("NAFTA").  NAFTA has, among other things, removed and will
continue to remove, over a transition period, most normal customs duties imposed
on goods traded  among the three  countries.  In addition,  NAFTA will remove or
limit many  investment  restrictions,  liberalize  trade in services,  provide a
specialized  means for settlement  of, and remedies for, trade disputes  arising
under NAFTA, and will result in new laws and regulations to further these goals.
With the enactment of NAFTA, the  MAQUILADORAS  program is expected to be phased
out.  It is  uncertain  what  ultimate  effect,  if any,  NAFTA will have on the
Company's business plans to maintain a manufacturing  operation in Mexico or the
effect, if any, that the phase-out of the MAQUILADORAS  program will have on the
Company's future results of operations.

ENVIRONMENTAL CONSIDERATIONS

     The  Company's   operations   are  subject  to  various  U.S.  and  Mexican
environmental  statutes and regulations.  In addition,  certain of the Company's
operations   are  subject  to  U.S.   federal,   state  and  local  and  Mexican
environmental  laws and regulations that impose  limitations on the discharge of
pollutants  into the air and water and establish  standards  for the  treatment,
storage  and  disposal  of solid and  hazardous  wastes.  Although  the  Company
believes that its present  operations,  and the  operations  of Industrias  QAI,
comply in all material  respects with existing laws and regulations,  compliance
standards change.  Unforseen significant  expenditures required to maintain such
compliance  could have a material  adverse effect on the Company's  business and
financial condition.

     The Company presently is the subject of administrative proceedings relating
to  environmental  matters  arising from its previous  operations.  See Item 3 -
"Legal Proceedings".

ITEM 2. DESCRIPTION OF PROPERTIES

      The following sets forth, as of March 15, 1997, information concerning the
real property owned, leased or managed by the Company:

<TABLE>
<CAPTION>
LOCATION                        FUNCTION                             SQUARE FEET      OWNERSHIP
<S>                             <C>                                  <C>              <C>
Sunland Park, New Mexico        Corporate Offices, Development,      28,000           Leased
                                E2PAK Manufacturing & Warehouse

Westway, Texas                  Warehouse                            54,700           Leased

Ciudad Juarez, Mexico           Fiberglass cabinet &                 22,800           Managed
                                AIREZE Manufacturing
</TABLE>


      The property in Sunland Park, New Mexico, located on a 1.3 acre parcel, is
leased by  RefTech  from  Bacchus  Industries,  Inc.,  pursuant  to a three year
triple-net  lease expiring March 1, 2000, at a monthly rental of $6,500,  with a
right of  RefTech  to extend the lease for an  additional  five year  term.  The
purchase of the property was financed by the U.S. Small Business Administration,
and RefTech has the right to terminate the lease on 120 days prior notice in the
event of a foreclosure of the property.  See Item 1 - "Business - Acquisition of
QAI."

                                      9

<PAGE>
      The property in Westway, Texas, located on a 6.5 acre parcel, is currently
leased by RefTech from an unaffiliated third party pursuant to lease expiring in
April 1997, at an monthly  rental of $5,000.  RefTech has agreed to purchase the
property,  "as is",  subject to inspection,  upon  expiration of the lease,  for
$450,000.  RefTech is  renovating  the  property  to conduct  AC2  manufacturing
operations  thereon,  and  anticipates  that  renovations  will be completed and
manufacturing  will commence  before the property is purchased.  The cost of the
renovations,  aggregating  approximately $25,000, and the purchase price for the
property will be paid by the Company from its available cash resources, although
the Company may obtain  mortgage  financing  subsequent  to its  purchase of the
property.

      The property in Ciudad Juarez,  Mexico,  located on a 1.8 acre parcel,  is
leased by Industrias QAI from an unaffiliated  third party, for the sole purpose
of manufacturing  fiberglass  articles,  pursuant to a five year triplenet lease
expiring in January  2001,  at an annual rental  increasing  from  approximately
$102,500 in 1997 to  approximately  $123,500 in the fifth year of the term, plus
the amount of value-added taxes thereon.

      The  Company  believes  that its  properties  are  adequately  covered  by
insurance  and are suitable  and  adequate for their  present use, and that such
properties  offer the  Company  the  appropriate  capacity  for its  anticipated
operations in the foreseeable future.

     In addition to the properties  used by the Company in the operations of its
business,  the  Company  owns  approximately  263 acres of  property in Rockaway
Township,  New  Jersey,  all of  which  property  (collectively,  the  "Rockaway
property") was acquired from a predecessor of Morton Thiokol,  Inc. ("Thiokol").
The Company has net leased a 62 acre parcel (the  "SteriGenics  parcel"),  which
includes the  Company's  former  30,600  square foot  irradiation  facility,  to
SteriGenics  East  Corporation  ("SteriGenics  East")  pursuant a lease,  for an
initial six year term expiring in August 2002, with a five-year  renewal option,
at a base rent of approximately  $77,000. In addition, as part of the lease, the
Company has granted  SteriGenics East an option,  during the initial term of the
lease,  to  purchase  the  SteriGenics   parcel  at  a  price   decreasing  from
approximately  $405,000 on and after August 1997 to $138,000 in August 2002.  If
the  environmental  remediation  on the  SteriGenics  parcel  (see Item 3 "Legal
Proceedings -- New Jersey  Environmental  Proceedings")  has been  substantially
completed  and the  SteriGenics  parcel  has  been  removed  from  the  national
Priorities List by the expiration of the initial term of the lease,  the Company
has the right to require  SteriGenics East to purchase the SteriGenics parcel in
August 2002 at a price of  approximately  $138,000.  In order to obtain  certain
assurances  from the New Jersey  Department  of  Environmental  Protection  (the
"NJDEP"),  SteriGenics  provided the NJDEP with a $500,000 letter of credit (the
"L/C")  to  secure   certain   obligations   of  the  Company  to  complete  the
environmental  remediation on the SteriGenics  parcel. In connection  therewith,
the Company has agreed that if the NJDEP has not voluntarily  reduced the L/C by
at least  $40,000  by  August  1,  1998,  and by at least  such  amount  by each
anniversary  thereafter  through the end of the initial  term of the lease,  the
Company  will  provide a letter  of  credit  to the NJDEP in the  amount of such
deficiency. The Company also has granted SteriGenics East a right to set off the
rental  payments  on the lease in the event that the NJDEP draws down on the L/C
and the  Company  fails to  reimburse  SteriGenics  therefor  or if the  Company
otherwise   commits  certain   defaults  on  its  obligations  to  complete  the
environmental remediation on the site. In the event that SteriGenics East elects
not to renew the lease,  SteriGenics  has agreed to  continue  to provide to the
NJDEP a letter of credit in an amount  of up to  $300,000  and the  Company  has
agreed to keep in effect its  letter of credit for up to the lesser of  $200,000
or the amount then required by the NJDEP.

      The  remaining  201 acres of the  Rockaway  property,  which  adjoins  the
SteriGenics  parcel,  includes a 65- acre former  industrial park and has a book
value of $50,000.  The Company is delinquent in the payment of local real estate
tax on this property; such delinquency,  with penalties and interest, aggregated
approximately  $191,000  as of  December  31,  1996 and has been  accrued by the
Company in its  financial  statements.  The  failure to make this tax payment is
non-recourse to the Company's remaining Rockaway property and other assets.

      A substantial  portion of the Rockaway property has been pledged to secure
certain  obligations of the Company.  See Item 6 - "Management's  Discussion and
Analysis or Plan of Operation" and Note 8 to Consolidated  Financial  Statements
included under Item 7 - "Financial Statements".

      See also Notes 2, 4, 5 and 8 to Consolidated Financial Statements included
under Item 7 - "Financial Statements".

                                      10

<PAGE>

ITEM 3.    LEGAL PROCEEDINGS

      From  time to  time,  the  Company  has been  involved  in  various  legal
proceedings  which are  incidental  to the conduct of its  business  and are not
expected  to  have a  material  adverse  effect  on the  Company's  consolidated
financial  position or results of its  operations.  In addition,  the Company is
involved in the environmental proceedings described below.

NEW JERSEY ENVIRONMENTAL PROCEEDINGS

      In 1982,  the New  Jersey  Department  of  Environmental  Protection  (the
"NJDEP")  commenced  an action in the  Superior  Court of New  Jersey,  Chancery
Division,  Morris  County  (Docket No.  C-2453-81E)  against the Company and Dr.
Martin A. Welt (the Company's then President), individually, alleging violations
of the New Jersey  Spill  Compensation  and Control Act and the New Jersey Water
Pollution  Control Act and sought  injunctive  relief, by way of clean-up of the
Company's  Rockaway property (which had been purchased from Thiokol),  penalties
and damages.

      In 1983, a Consent Order was entered into  requiring the  installation  of
monitoring wells, groundwater sampling and analysis. As a result of the analysis
of data showing the presence of  halogenated  hydrocarbons  in the  groundwater,
submitted  by the NJDEP to the United  States  Environmental  Protection  Agency
during  this  period,  a portion  of the  Rockaway  property  was  placed on the
National Priorities List as a "superfund site". Such listing was based on a 1984
evaluation  of a 15 acre portion of the Rockaway  property;  however,  the exact
boundaries of the "superfund  site" were not  determined.  The Company  believes
that the  boundaries  encompass  approximately  80 acres of the 263 acres  which
comprise the Rockaway property.

      In 1986,  the NJDEP issued a directive  ordering the Company and Dr. Welt,
individually,  to fund the cost of a Phase I Remedial  Investigation/Feasibility
Study (the "Phase I Study") to determine the nature and extent of  contamination
detected  primarily on the 15 acre operating  portion of the Rockaway  property.
Since failure to comply with the directive  could have  subjected the Company to
triple  damages,  the  Company  agreed  to fund the Phase I Study and to pay the
administrative  costs of the NJDEP.  As a result of such  agreement,  in 1987, a
Stipulation  of Dismissal  regarding  the Company,  only,  was filed in the 1982
action.

      In 1989,  the NJDEP  issued a second  directive to the Company and Thiokol
for a Phase II  Remediation  Investigation/  Feasibility  Study  (the  "Phase II
Study")  primarily with respect to an additional 65 acre portion of the Rockaway
property.  According to the directive, both the Company and Thiokol were jointly
and  severally  liable for all costs of the  clean-up  and removal of  hazardous
substances  discharged on the Rockaway property. In 1991, the Phase II Study was
completed  and the NJDEP  advised the  Company  and Thiokol  that it intended to
perform  additional  groundwater  studies  in order to  delineate  the extent of
groundwater  contamination.  In 1992,  the Company and Thiokol  entered  into an
administrative  consent order (the "ACO") with the NJDEP,  pursuant to which the
Company  (i) agreed to pay all costs  incurred in  connection  with the Phase II
Study,  and (ii)  agreed  to  implement  appropriate  actions  to  complete  the
remediation  of the Rockaway  property under the  supervision  of the NJDEP.  In
connection  with the ACO, the Company,  in 1992,  established an accrual for its
estimated  costs  associated  with the Phase II Study and the remediation of the
Rockaway  property.  During  1993,  the Company was  assessed  additional  costs
related to the Phase II Study, and the Company  completed the surface cleanup of
the Rockaway property, which included, among other things, excavating soils with
PCB levels above NJDEP  non-residential  standards.  In August 1996, the Company
made a  payment  of  $575,000  to the  NJDEP  as  full  settlement  of all  then
outstanding  financial claims asserted under the ACO, as well as all such claims
which could be asserted for the period ended  October 31, 1996 and, as a result,
the NJDEP released the lien it had placed on the Rockaway property.

      During  1994,  the NJDEP  issued a Record of  Decision  (the  "ROD")  with
respect to  approximately  80 acres of the  Rockaway  property,  which  proposed
remedial  action  involving  hydrofracturing  of the  cracked  bedrock  and  the
installation  of a system to pump and treat the  groundwater  under a portion of
the Rockaway  property.  During 1995, the Company  conducted a three-well  pilot
study, using the "Clean-Ox" hydrogen peroxide-based remedial system, to test its
effectiveness in decreasing  contaminant levels in the deep aquifer.  Based upon
the results of the study, in February 1996, the Company petitioned the NJDEP for
a change in the Remedial Action Work Plan under the ROD to permit broader use of
the  "Clean-Ox"  system.  In April 1996,  the NJDEP  responded to the  Company's
petition  and  advised  the  Company  that  the  pilot  test  of the  "Clean-Ox"
remediation  program was not  considered


                                       11

<PAGE>


conclusive.  In September 1996, the Company  completed a second "Clean-Ox" test,
which further reduced the  contamination;  however,  on March 7, 1997, the NJDEP
reaffirmed  its  requirement  that the Company  comply with the ROD and submit a
revised Remedial Action Work Plan proposal in accordance with the ROD.

NASCOLITE SITE

     In August 1994, the U.S. Environmental Protection Agency (the "EPA") issued
an Administrative Order (No. II-CERCLA-94-0124) (the "Order") naming the Company
as a respondent in a proceeding  under Section  106(a) of CERCLA,  alleging that
the Company,  along with two other  respondents and eight previously  identified
potentially responsible parties (collectively the "PRP Group"), arranged for the
disposal or  transport  for  disposal  of one or more  hazardous  substances  to
property  owned  by  Nascolite   Corporation  (a   manufacturer   of  polymethyl
methacrylate  ("MMA") plastic sheet) in Millville and Vineland,  New Jersey (the
"Nascolite  Site").  The  Nascolite  Site was  operated by  Nascolite as a scrap
acrylic  reclamation  facility  from 1953 to 1980 and was placed on the National
Priorities List in 1984. Subsequently,  a Remedial Investigation and Feasibility
Study was  conducted  and various  hazardous  materials  were found to be on the
Nascolite  Site. In 1988, the EPA issued a Record of Decision for operative unit
1 ("OU1"),  which addressed ground water  remediation on the Nascolite Site and,
in 1991, the EPA issued a Record of Decision for operative unit 2 ("OU2"), which
addressed contaminated soils and structures on the Nascolite Site. A Preliminary
Waste-In-List  prepared in 1990 by the EPA indicated  that  5,468,455  pounds of
hazardous materials, primarily liquid waste MMA, was sent to the Nascolite Site.
The  Company  has no  current  record of any such  shipments,  except for a 1978
invoice reflecting that 4,400 pounds of "sludge" was picked up by Nascolite from
the Company for transport to the Nascolite  Site. The Company's  operations have
not used MMA or generated MMA sludge for more than the past five years.

      The Order requires that each of the  respondents  named therein  undertake
and complete all  response  actions to implement  the Record of Decision for OU1
(estimated  to cost  between $7 million and $30  million) as a joint  effort and
that the Company and the PRP Group are to be jointly and  severally  responsible
for  carrying  out all of the  requirements  of the  Order;  and that if the EPA
incurs any future  response  costs due to a failure by the named  respondents to
comply with the Order,  each of the named  respondents  will be responsible  for
triple  damages,  penalties of up to $25,000 per day and other  penalties  under
CERCLA.  The  EPA has not  yet  asserted  any  claims  against  the  Company  in
connection  with the Record of Decision  for OU2. On January 26,  1995,  the EPA
also  notified  the  Company  that  it  had  incurred  previous  response  costs
aggregating  in excess of $3.9  million  with  respect  to the  Nascolite  Site,
demanded  payment  thereof  plus  interest  and offered the Company the right to
enter into  negotiations  with the PRP Group to lead to reimbursement to the EPA
of Response  Costs.  On February 9, 1995,  the Company,  without  admitting  any
liability,  notified  the EPA  that it  elected  to  participate  in good  faith
negotiations  with the PRP Group.  Simultaneously,  the Company  entered  into a
Tolling Agreement with the United States on behalf of the EPA, pursuant to which
the EPA agreed not to institute the alleged cause of action  against the Company
prior to  September  1, 1995 in order to permit the Company to pursue good faith
efforts to settle with the PRP Group the claims  alleged  against the Company in
the Order.

      In 1996,  the Company  entered into a Partial  Consent Decree with the EPA
pursuant to which the Company  agreed to pay the EPA, upon court approval of the
Partial Consent Decree, approximately $32,000 in settlement of all OU1 claims.

      By letter  dated  October 1, 1996,  the NJDEP  advised the Company and the
other members of the PRP Group that the NJDEP is seeking approximately  $285,000
from the PRP Group for its response costs at the Nascolite Site. The Company has
agreed to allow the PRP Group to represent it in negotiations  with the NJDEP as
long as the PRP Group agrees that the "de minims" parties,  such as the Company,
contribute  pro-rata on the same basis as the EPA  settlement  involving OU1 (in
which  instance,  the Company's  pro-rata  share was fixed at 0.09% of the total
cost).

GENERAL

     As of December 31, 1996, the Company had accrued  $779,562 for the possible
implementation  of a  groundwater  remediation  plan  required by the ROD on the
Rockaway  property,  for payment under the Nascolite  Partial Consent Decree and
for response  costs with respect to the  Nascolite  Site. As a result of ongoing
remediation  and NJDEP  involvement in these matters,  there can be no assurance
that the cleanup, remediation and NJDEP

                                      12

<PAGE>


oversight accruals will represent the Company's ultimate  liability.  See Note 8
to  Consolidated  Financial  Statements  included  under  Item  7  -  "Financial
Statements."

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

      No matter was  submitted  to a vote of  securities  holders of the Company
during the fourth quarter of its 1994 fiscal year.

                                    PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

      The Company's  Common Stock is traded on The Nasdaq Small-Cap Market under
the  symbol  "RTII".  The  following  table  sets  forth  the  high  and low bid
quotations  for each  quarterly  period  during  the two  calendar  years  ended
December  31, 1996 for the  Company's  Common  Stock,  as reported by The Nasdaq
Small-Cap Market.  The quotations for the period prior to May 25, 1995 have been
retroactively adjusted to reflect an onefor-eight reverse stock split, effective
as of such date.

                                           HIGH BID           LOW BID

            1st Quarter  1995             $ 4                $3
            2nd Quarter 1995                3-1/4             1-1/2
            3rd Quarter  1995               1-7/8             1-1/4
            4th Quarter  1995               4-7/8             1-11/16

            1st Quarter  1996              2-11/16            1-11/16
            2nd Quarter 1996                3-1/4             2-1/4
            3rd Quarter  1996               3-3/8             2-7/8
            4th Quarter  1996               3-7/8             3-1/4


     As of December 31, 1996,  the C mpany had  approximately  2,000  holders of
record of its Common  Stock.  During the fiscal year ended  December  31,  1996,
there were  transactions in the Company's Common Stock on  approximately  64% of
all trading days.

     The Company has not paid any  dividends.  The payment of cash  dividends by
the Company,  if any, will be made only from assets legally  available  therefor
and will depend  generally  upon the Company's  short-term  and  long-term  cash
availability,  current and anticipated capital requirements,  restrictions under
any then existing credit and other debt  instruments and  arrangements and other
factors deemed relevant by the Company's Board of Directors. The Company's Board
of Directors  does not anticipate the payment of cash dividends on the Company's
Common Stock as long as the Company's  Rockaway property remains on the National
Priorities List as a 'superfund site".


                                      13

<PAGE>


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

      IN REVIEWING  MANAGEMENT'S  DISCUSSION AND ANALYSIS,  REFERENCE IS MADE TO
      THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED AS ITEM 7
      -  "FINANCIAL  STATEMENTS"  IN  THIS  ANNUAL  REPORT  ON FORM  10-KSB.  AS
      DISCUSSED  IN SUCH NOTES,  THE COMPANY  OWNS  PROPERTY  WHICH HAS BEEN THE
      SUBJECT OF AN ENVIRONMENTAL  INVESTIGATION.  SUCH FINANCIAL STATEMENTS, AS
      STATED IN THE REPORT OF INDEPENDENT  CERTIFIED PUBLIC ACCOUNTANTS INCLUDED
      THEREIN,  HAVE  MADE  PROVISION  FOR THE COSTS OF SUCH  INVESTIGATION  AND
      RESULTING  MONITORING,  CLEANUP AND REMEDIATION  OBLIGATIONS IN ACCORDANCE
      WITH EXISTING STUDIES AND CLEANUP PLANS. HOWEVER THERE CAN BE NO ASSURANCE
      THAT SUCH PROVISION CONSTITUTES  THE ULTIMATE  LIABILITY  THAT  MAY RESULT
      UPON THE FINAL  DISPOSITION OF THE  ENVIRONMENTAL  INVESTIGATION,  CLEANUP
      AND REMEDIATION PROGRAMS.

DISCLOSURE CONCERNING FORWARD-LOOKING STATEMENTS

            Certain  statements  contained in this Annual  Report on Form 10-KSB
under  Item 1 -  "Description  of  Business"  and  this  Item 6 -  "Management's
Discussion and Analysis or Plan of Operation" may be considered  forward-looking
statements.  Such  statements  relate,  among  other  things,  to the  plans and
objectives of management for future  operations,  including  plans or objectives
relating to the products of the Company, management's estimate of certain future
costs  and  expenses   and  the  future   performance   of  the  Company.   Such
forward-looking statements are subject to risks, uncertainties and other factors
which could cause the Company's  actual  results to differ  materially  from any
projected results expressed or implied by such forward-looking statements. These
risks,  uncertainties  and other  factors  include,  but are not limited to, the
uncertainties  accompanying new product  marketing,  including market resistance
and the timing and  ability to  establish  the  necessary  sale,  marketing  and
distribution  network, the impact of current and future government  regulations,
the  seasonal  nature of the industry in which the Company  operates,  the risks
associated  with a transition  from  limited  production  volume,  the impact of
competitive  products,  the ability to have  available  projected cash and other
resources on a timely basis,  if at all, the risks involved with a manufacturing
operation  in  Mexico,  as  well  as the  other  factors  discussed  in Item 1 -
"Description of Business" and elsewhere in this Annual Report on Form 10-KSB.

FINANCIAL CONDITION

      Information  with respect to total assets,  long-term debt (net of current
portion and discount),  working capital (deficiency) and certain related ratios,
as of December 31, 1996, 1995 and 1994, is as follows,  however,  as a result of
the sale to SteriGenics  International  ("SteriGenics")  of the Company's former
irradiation  business in August  1996 (the  "SteriGenics  Transaction")  and the
acquisition  of the  business of Quality  Air,  Inc  ("QAI") and its  affiliated
Mexican  company,  Industrias QAI, S.A. de C.V.  ("Industrias  QAI") in February
1997 (the "QAI  Transaction"),  the information set forth herein and in "Results
of Operations" below may be of only limited analytical value:


                                                   1996       1995        1994
                                                   ----       ----        ----

Total assets (in thousands)                      $ 4,244    $ 7,882     $ 7,920

Long-term debt, net of discount (in thousands)   $   265    $ 2,024     $ 2,022

Working capital (deficiency) [current            $ 2,994    ($1,116)    ($  510)
assets less current liabilities] (in
thousands)

Working capital ratio [current assets            32 to 1    .38 to 1    .63 to 1
to current liabilities]

Percentage of total liabilities to
stockholders' equity                                  45%       149%        114%


                                   14

<PAGE>
     At December 31, 1995, the Company had cash and cash  equivalents of $77,631
and a working capital  deficit of $1,116,028.  At December 31, 1996, the Company
had cash and cash  equivalents of $2,578,180 and working  capital of $2,994,640,
primarily as a result of the Sterigenics  Transaction.  During 1996, the Company
used  approximately  $670,000  of its working  capital  for loans to QAI,  which
liability  of  QAI  was  assumed  by  the  Company's  wholly-owned   subsidiary,
Refrigeration  Technology Inc.  ("RefTech") as part of the QAI  Transaction.  In
addition,  Theo W.  Muller,  the  Chairman  and Chief  Executive  Officer of the
Company, and his affiliated companies, loaned $870,000 to QAI, which loans (with
accrued  interest  thereon)  were  assumed by RefTech at the  closing of the QAI
Transaction;  such loans have since been repaid. See Consolidated  Statements of
Cash Flows included under Item 7 - "Financial Statements" and Item 12 - "Certain
Relationships and Related Transactions".

      The Company's  net cash used by operating  activities in 1996 was $78,219;
in 1995,  the  discontinued  irradiation  business  provided  cash of  $493,610.
Investing  activities in 1996 provided net cash of  $2,580,568,  mainly from the
sale by the Company of its  irradiation  business,  offset by purchases of fixed
and  other  assets  and the  $670,000  loan to QAI in  contemplation  of the QAI
Transaction;  in 1995,  investing  activities  used net cash of $93,426  for the
purchase of fixed  assets.  Net cash used in  financing  activities  in 1996 was
$1,800,  which resulted from the sale of preferred stock (which was subsequently
returned to the Company in the  Sterigenics  Transaction  and  retired)  and the
exercise of  warrants,  offset by the  repayment of debt;  in 1995,  net cash of
$494,751 was used, primarily for the repayment of debt.

      The Company  expects to be able to fund its 1997  operations  and budgeted
expenditures,  including budgeted capital expenditures of approximately $970,000
and substantial seasonal buildup of inventory, from (i) currently available cash
and cash  equivalents,  (ii) working capital,  (iii) asset financing by RefTech,
(iv)  forecasted  sales,  and (v) the anticipated  private  placement of 145,000
shares of authorized,  but unissued Common Stock.  The Company has completed the
negotiation  of a private  placement of 145,000  shares of its  authorized,  but
unissued  Common  Stock  for an  aggregate  of  $420,500,  which it  anticipates
consummating on or about March 31, 1997, although there can be no assurance that
such placement will be successfully concluded at such time, if at all.

      The Company  has  obtained  audited  financial  statements  (audited by an
independent  Mexican  accounting  firm)  of  Industrias  QAI,  but does not have
audited  financial  statements for the cooling and air  conditioner  business of
QAI. QAI had been  operating  such business  since January 1996, and assumed the
operations  of a similar  business  operated  by Bacchus  Industries,  Inc.  (an
affiliated  company) until  September  1995.  Although the Company has requested
that QAI use its best efforts to prepare such financial statements,  the Company
recently  has been  advised  that even if such  financial  statements  are fully
prepared,  such financial  statements may not be capable of being audited unless
there is sufficient  available back-up  documentation,  of which there can be no
assurance.  Such lack of audited  financial  statements will prevent the Company
from fulfilling certain  requirements of the Securities and Exchange  Commission
under the Securities Act of 1933 (the "1933 Act"),  which are a pre-condition to
the  registration  for public offering and sale of the Company's  securities and
for the private  placement of its  securities  if the Company  avails  itself of
Regulation D under the 1933 Act ("Regulation D"). As a result, the Company would
not be able to raise funds from the public sale of its  securities,  or from the
private  placement of its  securities  pursuant to Regulation D, until after its
audited  financial  statements  for the year  ending  December  31,  1998 become
available.  In  addition,  if the  Company  is not able to obtain  and file such
audited financial  statements with the Securities and Exchange  Commission under
the  Securities  Exchange  Act of 1934 (the "1934 Act") by no later than May 13,
1997, the Company will become  delinquent in its filings under the 1934 Act, the
principal consequence of which will be the inability of holders of the Company's
Common Stock, whose shares are characterized as "restricted securities" (as such
term is  defined in Rule 144  promulgated  under the 1933  Act),  from  availing
themselves of certain provisions of such Rule to publicly resell such restricted
securities  until after a two-year holding period (assuming such holders are not
deemed to be affiliates of the Company).

      As of March 21, 1997, the Company did not plan to enter into any unsecured
financing  arrangements.  The Company does not have any current  banking  credit
relationships and does not know whether it will have the ability to borrow funds
other than from a related party.

      The Company's  operations  conducted at Industrias QAI are labor intensive
but,  due to the  prevailing  wages paid in Mexico,  the Company does not expect
inflation to have a material  impact on the Company's  business.  Except for the
hiring  of   approximately   15  additional   employees   for  its   anticipated
manufacturing  operations  in Westway,  Texas,  the Company  does not expect any
significant changes in the number of its employees during 1997.

                                      15

<PAGE>
     The  February  24, 1997  acquisition  of the  cooling and air  conditioning
business of Quality Air, Inc. has effected a substantial change in the Company's
consolidated  balance sheet from the Company's  consolidated balance sheet as of
December 31, 1996, which is included in Item 7 - "Financial Statements". The QAI
Transaction  increased the Company's property,  plant and equipment and added an
intangible asset (air  conditioning and related patents and patent  application)
of over one million  dollars which,  in the aggregate and when combined with the
increase  in  liabilities  arising  from the QAI  Transaction,  will result in a
reduction in working capital and a reduced working capital ratio.

      As described in Note 8 to Consolidated Financial Statements included under
Item 7 - "Financial Statements", the Company is obligated to remediate a portion
of its Rockaway property. Costs relating to such activity have been provided for
in accordance with existing  environmental  studies and approved  cleanup plans.
There can be no assurance  that such  provisions  will  constitute  the ultimate
liability of the Company, although the Company believes that such provisions are
adequate.  In  addition,   the  Company  has  been  named  a  respondent  in  an
environmental  proceeding  relating  to a disposal  site,  to which the  Company
shipped a relatively  small  amount of materials  during a period prior to 1982.
The  Company  has  established  an unfunded  reserve  therefor in its  financial
statements;  although  there can be no  assurance  that such  provision  will be
adequate. See Item 3 - "Legal Proceedings".

      The NJDEP has the statutory right to obtain a lien on the Company's assets
in an amount equal to any  unreimbursed  costs incurred by the NJDEP relating to
environmental  remediation  of the Company's  Rockaway  property;  however,  the
Company has paid all amounts owed to the NJDEP  through  October 31,  1996.  See
Item 3 - "Legal Proceedings."

NEW ACCOUNTING PRONOUNCEMENTS

     In October 1995, the Financial  Accounting  Standards Board ("FASB") issued
Statement of Financial  Accounting  Standards  ("SFAS") No. 123  "Accounting for
Stock-Based Compensation".  The Company adopted this pronouncement by making the
required pro forma note disclosure only.  Accordingly,  the adoption of SFAS No.
123 did not impact the Company's results of operation or financial condition.

UNCERTAINTY OF FUTURE OPERATING RESULTS

      Until  August 1996,  the Company was engaged  primarily in the business of
supplying irradiation services, which operations were sold on August 8, 1996. On
February 24,  1997,  the Company  purchased an air cooling and air  conditioning
manufacturing  business.  Prior to such time,  the Company had no  experience in
manufacturing,  marketing and selling air cooling and air conditioning  products
or in marketing and selling any products  through  retail  channels.  Thus,  any
discussion  of the  Company's  results of  operations  for the  periods  through
December 31, 1996 are not a meaningful  indication  of the results of operations
which may be expected  subsequent to such date and should not be relied upon for
such purpose.

     The Company expects that its future operating  results may fluctuate as the
Company gains manufacturing, sales and marketing experience in its new business.
The cooling and air  conditioner  business is highly  seasonal,  and the Company
anticipates that  approximately half of its annual sales will be obtained during
a three month period from late spring to early summer. The Company believes that
its future success,  if any, will be largely  dependent on its ability to market
its newly developed AC2 air conditioner,  of which there can be no assurance. In
addition,  the Company's operating results will be significantly  dependent on a
number of factors, many of which are outside the Company's control. See Item 1 -
"Description  of  Business".   These  factors  include,   among  others:  highly
competitive  market  conditions  and possible new product  introductions  by the
Company's  competitors,  most  of  whom  are  substantially  better  known  with
substantially  greater  financial  and other  resources  and offer  trade  named
products which already have received  significant market acceptance;  changes in
market  demand;  maintaining  adequate  working  capital and cash  resources  to
purchase   necessary  raw  materials  and  components  for  the  manufacture  of
sufficient finished products,  to carry its anticipated  accounts receivable and
to carry out its marketing  plans; the ability to anticipate the mix of customer
orders which may be received and to manufacture products in advance thereof; the
timing of receipt of  customer  orders and the  ability to ship such orders on a
timely  basis;  market  acceptance  of the  Company's  products;  the ability to
successfully carry out its marketing plans;  continued  compliance with industry
standards  and  governmental  regulations;  the  ability to continue to maintain
certain manufacturing operations in Mexico at a reasonable cost; and

                                      16

<PAGE>
general economic conditions. A significant portion of the Company's business may
be derived from orders placed by a limited number of larger  customers,  and the
timing  of such  orders  can cause  significant  fluctuations  in the  Company's
operating results.  In addition,  if anticipated  customer orders fail to timely
materialize and/or delivery schedules are deferred or canceled,  the Company may
not be able to timely  and  adequately  adjust  its  commitments  to  compensate
therefor.

RESULTS OF OPERATIONS

1996 RESULTS OF OPERATIONS COMPARED TO 1995 RESULTS OF OPERATIONS

      After  elimination of sales and expenses for its discontinued  irradiation
business,  the Company's  ongoing  revenues  consisted  entirely of interest and
rental  income.  Total  revenues for 1996 were  $122,129,  of which  $79,199 was
interest  income  and  $42,930  was rental  income.  The  Company  had $9,776 of
interest  income in 1995 and no rental income.  The increase in interest  income
arose from the  investment of the net proceeds  received by the Company from the
sale on August 8, 1996 of its irradiation business,  and the rental income arose
from the rental of a portion of the Company's  Rockaway  property,  included the
irradiation  facility  located thereon,  to the purchaser of such business.  See
Item 1 - "Description of Business -- Sale of Irradiation  Operations" and Item 2
- "Description of Properties".

      General and administrative  expenses were $217,005 in 1996, a 23% decrease
from  $280,604  in  1995.  In  1995,  such  expenses   primarily   consisted  of
professional  fees and public company  maintenance  costs while,  in 1996,  such
expenses  primarily  consisted of  professional  fees (which were  significantly
reduced as compared to 1995),  public  company  maintenance  costs and a $60,000
write-off of an investment.

      Expenses of Rockaway  Industrial  Park  remained  constant.  Environmental
investigation,  remediation and related legal expenses  increased to $610,559 in
1996,  compared to $223,590 in 1995, due almost entirely to a reserve for future
remediation of the Rockaway property.

      Other  income  of  $580,000  in 1996  represented  a  settlement  of prior
environmental  insurance  claims;  in 1995,  other income of $150,819  consisted
primarily of the proceeds of a litigation settlement.

      As a result of the foregoing, the Company sustained a loss from continuing
operations  of  $200,940,  or $.18 per share,  in 1996,  compared to a loss from
continuing operations of $419,104, or $.39 per share in 1995.

      In  1996,  the  Company  sustained  a loss of  $72,000  from  discontinued
irradiation  operations before the final decision to sell such operations and an
additional  loss of $24,242 from the disposal of such  operations.  In 1995, the
Company  sustained  a loss of $105,539  from its  irradiation  operations.  As a
result,  the Company  reported a net loss of $297,182 or $.27 per share in 1996,
as compared with a net loss of $524,643 or $.49 per share in 1995.

1995 RESULTS OF OPERATIONS COMPARED TO 1994 RESULTS OF OPERATIONS

      Net sales in 1995 were  $4,352,027,  a decrease  of 3.1% from net sales of
$4,492,630 in 1994. This decrease,  despite  increased  processing  volume,  was
primarily  due  to  intense   competitive   pricing  pressures   resulting  from
irradiation industry overcapacity within the Company's geographic markets.

      Cost of sales in 1995  increased  19.8% to $2,921,752  from  $2,438,222 in
1994,  as a result of  increased  product  volume in 1995 and the  inclusion  of
operating costs for a full year of the Salem Facility which resumed  irradiation
processing in the fourth quarter of 1994.  Cost of sales  associated with a full
year of operations of the Salem Facility aggregated approximately $736,000. As a
result,  gross profit  decreased  30.4% to $1,430,275 in 1995 from $2,054,408 in
1994.

      Selling, general and administrative expenses decreased 12.1% to $1,556,450
in 1995  from  $1,770,348  in 1994.  The  decrease  was due to  lower  executive
compensation,  legal  and  other  professional  fees,  partially  offset  by the
inclusion  of a full  year  of  selling,  general  and  administrative  expenses
relating to the Salem Facility.

     The  expenses of the Salem  Facility of  $156,138 in 1994  represented  the
costs incurred during the first nine months of 1994,  prior to the resumption of
irradiation processing at the Salem Facility. For the fourth quarter of 1994

                                      17

<PAGE>
and all of 1995,  Salem  Facility  costs  were  recorded  in cost of  sales  and
selling, general and administrative expenses.

      Expenses  of the  Rockaway  Industrial  Park in 1995 were  $75,505,  a 20%
reduction from comparable 1994 expenses due to lower  consultant and maintenance
costs. The loss on abandonment of building and equipment of $374,530 in 1994 was
due to the  elimination  of the net book  value  of  depreciable  assets  at the
Rockaway Industrial Park; no comparable transaction occurred in 1995.

      Environmental  investigation,  remediation  and related legal  expenses in
1995 were $223,590 and  consisted of NJDEP  administrative  costs  recognized in
1995, a $30,000 reserve for future  expenses  related to the Nascolite site, and
related legal  expenses.  Excluding the Nascolite  reserve,  the remaining  1995
environmental expenses (which were related to the Rockaway Industrial Park) were
comparable to 1994 expenses.

      As a  result  of the  foregoing,  the  loss  from  operations  in 1995 was
$425,270 as compared to a loss from operations of $535,976 in 1994.

      Investment  income decreased to $9,776 in 1995 from $18,419 in 1994 due to
lower amounts available for investment during 1995.

      Other  interest  expense of $259,968 in 1995  increased  by $153,587  over
1994,  primarily  due to the interest  rate increase on December 1, 1994 from an
average rate of 4.72% to a fixed rate of 10% on $1,250,000  principal  amount of
City of Salem Municipal Port Authority Port Development  Revenue Bonds ($250,000
principal  amount  of  which  was  paid in  December  1995),  and to  additional
long-term debt incurred  during 1995 related to Cobalt lease  agreements.  Other
income in 1995 of $150,819  consisted  primarily  of  $144,830  of net  proceeds
received in the settlement of all  litigation  with Dr. Martin A. Welt, a former
executive of the Company.

      As a result of the foregoing,  the Company  recorded a loss of $524,643 in
1995 compared to a loss of $623,128 in 1994.

ITEM 7.   FINANCIAL STATEMENTS.

INDEX TO FINANCIAL STATEMENTS
                                                                        PAGE

Independent auditors' report                                              19

Consolidated financial statements:

      Balance sheet                                                       20
      Statements of operations                                            21
      Statements of stockholders' equity                                  22
      Statements of cash flows                                            23
      Notes to consolidated financial statements                          24


                                      18
<PAGE>


INDEPENDENT AUDITORS' REPORT


Board of Directors and Stockholders
RTI Inc.
Rockaway, New Jersey

We have  audited the  accompanying  consolidated  balance  sheet of RTI Inc. and
subsidiaries as of December 31, 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the two years in the
period  ended   December  31,  1996.   These   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

As  discussed in Notes 5 and 8 to the  consolidated  financial  statements,  the
Company  owns  property   which  is  the  subject  of   continuing   significant
environmental investigation and remediation.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position  of RTI Inc.  and
subsidiaries at December 31, 1996, and the results of their operations and their
cash flows for each of the two years in the period  ended  December  31, 1996 in
conformity with generally accepted accounting principles.





                                              /s/ BDO Seidman, LLP
                                             ---------------------
                                                  BDO Seidman, LLP

Woodbridge, New Jersey

March 20, 1997


                                       19
<PAGE>


                                                       RTI INC. AND SUBSIDIARIES


                                                      CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>

==========================================================================================


DECEMBER 31, 1996
------------------------------------------------------------------------------------------
ASSETS
CURRENT:
<S>                                                                           <C>
   Cash and cash equivalents                                                  $  2,578,180
   Prepaid expenses and other                                                       27,760
   Escrow deposit (Note 1)                                                         407,944
   Certificate of financial assurance - restricted (Note 3)                         75,000
------------------------------------------------------------------------------------------
                TOTAL CURRENT ASSETS                                             3,088,884
PROPERTY UNDER LEASE (NOTE 4)                                                      476,235
NOTE RECEIVABLE (NOTE 13)                                                          670,000
OTHER ASSETS                                                                         9,565
------------------------------------------------------------------------------------------
                TOTAL ASSETS                                                  $  4,244,684
==========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
   Accounts payable                                                           $     19,811
   Accrued expenses (Note 6)                                                        74,433
------------------------------------------------------------------------------------------
                TOTAL CURRENT LIABILITIES                                           94,244
LONG-TERM DEBT, NET OF $22,000 DISCOUNT (NOTE 7)                                   265,000
OTHER LIABILITIES (NOTES 6 AND 8)                                                  970,935
------------------------------------------------------------------------------------------
                TOTAL LIABILITIES                                                1,330,179
------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 5, 8 AND 13)
STOCKHOLDERS' EQUITY (NOTE 9):
   Preferred stock, $.05 par value - shares authorized 2,000,000; no shares
      issued and outstanding                                                          --
   Common stock, $.08 par value - shares authorized 15,000,000; issued and
      outstanding 1,101,166                                                         88,094
   Additional paid-in capital                                                   16,053,542
   Deficit                                                                     (13,227,131)
------------------------------------------------------------------------------------------
                TOTAL STOCKHOLDERS' EQUITY                                       2,914,505
------------------------------------------------------------------------------------------
                TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                    $  4,244,684
==========================================================================================
</TABLE>


                    See accompanying notes to consolidated financial statements.


                                       20
<PAGE>



                                                       RTI INC. AND SUBSIDIARIES


                                           CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
================================================================================================
YEAR ENDED DECEMBER 31,                                                      1996           1995
------------------------------------------------------------------------------------------------
REVENUES:
<S>                                                                   <C>            <C>
   Interest income                                                    $    79,199    $     9,776
   Rental income                                                           42,930           --
------------------------------------------------------------------------------------------------
              TOTAL REVENUES                                              122,129          9,776
OPERATING EXPENSES:
   Expenses of Rockaway Industrial Park, including interest expense
      of $22,000 in both years (Notes 5 and 7)                             75,505         75,505
   General and administrative expenses                                    217,005        280,604
   Environmental investigation, remediation and related legal
      expenses (Note 8)                                                   610,559        223,590
   Other income (Note 10)                                                (580,000)      (150,819)
------------------------------------------------------------------------------------------------
              LOSS FROM CONTINUING OPERATIONS                            (200,940)      (419,104)
DISCONTINUED OPERATIONS (NOTE 2):
   Loss from irradiation operations                                       (72,000)      (105,539)
   Loss on disposal of irradiation operations                             (24,242)          --
------------------------------------------------------------------------------------------------
              NET LOSS                                                $  (297,182)   $  (524,643)
================================================================================================
NET LOSS PER SHARE:
   Loss from continuing operations                                    $      (.18)   $      (.39)
   Loss from irradiation operations                                          (.07)          (.10)
   Loss on disposal of irradiation operations                                (.02)          --
------------------------------------------------------------------------------------------------
              NET LOSS PER SHARE                                      $      (.27)   $      (.49)
================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING                    1,090,627      1,076,907
================================================================================================
</TABLE>


                    See accompanying notes to consolidated financial statements.


                                       21
<PAGE>

<TABLE>
<CAPTION>

                                                                                                           RTI INC. AND SUBSIDIARIES


                                                                                     CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                                                                                            (NOTE 9)

YEARS ENDED DECEMBER 31, 1996 AND 1995
---------------------------------------------------------------------------------------------------------------------------------
                                                      PREFERRED STOCK                               COMMON STOCK
                                        -------------------------------------------  -------------------------------------------
                                                    NUMBER OF                                    NUMBER OF
                                                      SHARES               AMOUNT                  SHARES               AMOUNT
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                 <C>              <C>                    <C>
Balance, January 1, 1995                                   -                    -               1,077,189              $86,175
Purchase of partial shares                                 -                    -                   (282)                 (22)
Net loss                                                   -                    -                       -                    -
---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995                                 -                    -               1,076,907               86,153
Purchase of partial shares                                 -                    -                   (741)                 (59)
Exercise of warrants                                       -                    -                  25,000                2,000
Sale of preferred stock                              118,000                5,900                       -                    -
Preferred stock cancelled in
   connection with sale (Note 2)                   (118,000)              (5,900)                       -                    -
Net loss                                                   -                    -                       -                    -
---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996                                 -                                    1,101,166              $88,094
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>

YEARS ENDED DECEMBER 31, 1996 AND 1995
---------------------------------------------------------------------------------------------------

                                            ADDITIONAL
                                             PAID-IN
                                             CAPITAL            DEFICIT                  TOTAL
---------------------------------------------------------------------------------------------------
<S>                                   <C>                    <C>                      <C>
Balance, January 1, 1995               $   $16,014,622        $(12,405,306)            $3,695,491
Purchase of partial shares                       (771)                    -                 (793)
Net loss                                             -            (524,643)             (524,643)
---------------------------------------------------------------------------------------------------
Balance, December 31, 1995                  16,013,851         (12,929,949)             3,170,055
Purchase of partial shares                     (2,059)                    -               (2,118)
Exercise of warrants                            41,750                    -                43,750
Sale of preferred stock                        230,100                    -               236,000
Preferred stock cancelled in
   connection with sale (Note 2)             (230,100)                    -             (236,000)
Net loss                                             -            (297,182)             (297,182)
---------------------------------------------------------------------------------------------------
Balance, December 31, 1996             $   $16,053,542        $(13,227,131)            $2,914,505
---------------------------------------------------------------------------------------------------
</TABLE>



                    See accompanying notes to consolidated financial statements.



                                       22
<PAGE>


                                                       RTI INC. AND SUBSIDIARIES


                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                       (NOTE 12)
<TABLE>
<CAPTION>

=====================================================================================================
YEAR ENDED DECEMBER 31,                                                      1996         1995
-----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                      <C>            <C>
   Net loss                                                              $  (297,182)   $  (524,643)
-----------------------------------------------------------------------------------------------------
   Adjustments to reconcile net loss to net cash provided by (used in)
      operating activities:
        Depreciation and amortization                                        529,276        865,689
        Write-down of other assets                                            60,000           --
        Discounting of note payable                                           22,000         22,000
        Loss on sale of irradiation operations                                24,242           --
        (Increase) decrease in:
           Accounts receivable                                                 1,832        (21,061)
           Certificate of financial assurance - restricted                    75,000           --
           Prepaid expenses and other                                        (21,863)        83,290
           Restricted deposits                                                15,771         23,257
        Increase (decrease) in:
           Accounts payable                                                  (54,254)       (96,994)
           Accrued expenses                                                 (320,172)        94,869
           Other liabilities                                                (112,869)        47,203
-----------------------------------------------------------------------------------------------------
              TOTAL ADJUSTMENTS                                              218,963      1,018,253
-----------------------------------------------------------------------------------------------------
              NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES            (78,219)       493,610
-----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Sale of irradiation operations                                          3,975,781           --
   Purchases of fixed assets                                                (634,971)       (93,426)
   Purchases of other assets                                                 (90,242)          --
   Loans receivable                                                         (670,000)          --
-----------------------------------------------------------------------------------------------------
              NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES          2,580,568        (93,426)
-----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from notes payable                                                  --          200,000
   Payments on notes payable                                                    --          (75,000)
   Payments on long-term debt                                               (279,432)      (618,958)
   Proceeds from exercise of warrant                                          43,750           --
   Payments for partial shares of common stock                                (2,118)          (793)
   Proceeds from exercise of preferred stock                                 236,000           --
-----------------------------------------------------------------------------------------------------
              NET CASH USED IN FINANCING ACTIVITIES                           (1,800)      (494,751)
-----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                       2,500,549        (94,567)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                  77,631        172,198
-----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR                                   $ 2,578,180    $    77,631
=====================================================================================================
</TABLE>

                    See accompanying notes to consolidated financial statements.


                                       23
<PAGE>


                                                       RTI INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


    1.   BUSINESS AND                   PRINCIPLES OF CONSOLIDATION
         SUMMARY OF
         SIGNIFICANT                    The  consolidated  financial  statements
         ACCOUNTING POLICIES            include the accounts of RTI Inc. and its
                                        wholly-owned      subsidiaries      (the
                                        "Company"). All significant intercompany
                                        accounts  and  transactions   have  been
                                        eliminated in consolidation.

                                        BUSINESS ACTIVITIES

                                        Prior to August 8, 1996, the Company was
                                        engaged in supplying  gamma  irradiation
                                        services to the  producers  of a variety
                                        of products,  primarily  medical devices
                                        and  disposable  medical  supplies.   In
                                        addition,  the Company irradiated,  to a
                                        lesser   extent,   cosmetics  and  other
                                        consumer products.  The Company operated
                                        two  facilities in New Jersey and one in
                                        North   Carolina   and   performed   the
                                        majority of its irradiation services for
                                        customers in the respective areas of the
                                        facilities.

                                        On   August   8,   1996,   the   Company
                                        consummated    a    transaction     (the
                                        "SteriGenics      Transaction")     with
                                        SteriGenics                International
                                        ("SteriGenics"),   pursuant   to  which,
                                        among other things, SteriGenics acquired
                                        substantially  all  the  assets  of  the
                                        Company,   other   than  cash  and  cash
                                        equivalents and the Company's  Rockaway,
                                        New Jersey  property and the irradiation
                                        facility  located  thereon,  and assumed
                                        substantially  all of the liabilities of
                                        the  Company  (other  than   liabilities
                                        (including  environmental   liabilities)
                                        related  to the  Rockaway  property  and
                                        liabilities to certain affiliates of the
                                        Company).  A balance of $407,944 remains
                                        in escrow relating to this  transaction,
                                        which was received by the Company in the
                                        first quarter of 1997.

                                        Since February 24, 1997, the Company has
                                        been  engaged  in the  manufacturer  and
                                        sale of evaporative coolers,  commercial
                                        heat      exchange      modules      and
                                        high-efficiency,   water-cooled  central
                                        air  conditioners  as a  result  of  the
                                        acquisition    of   the   business   and
                                        operations of Quality Air, Inc.  ("QAI")
                                        (see Note 13).

                                        REVENUE RECOGNITION

                                        Sales  were  recorded  when  irradiation
                                        services were complete.




                                       24
<PAGE>


                                                       RTI INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

                                        ENVIRONMENTAL EXPENDITURES

                                        Environmental  expenditures  that relate
                                        to an existing  condition caused by past
                                        operations  and which do not  contribute
                                        to  current  or  future   revenues   are
                                        expensed.  Liabilities are recorded when
                                        environmental     assessments     and/or
                                        remediation  are probable and such costs
                                        to  the   Company   can  be   reasonably
                                        estimated.

                                        INCOME TAXES

                                        The  Company  accounts  for  its  income
                                        taxes  in  accordance   with   Financial
                                        Accounting  Standards Statement No. 109,
                                        "Accounting for
                                        Income Taxes" ("SFAS 109").

                                        SFAS 109 requires a company to recognize
                                        deferred tax  liabilities and assets for
                                        the expected future tax  consequences of
                                        events  that have been  recognized  in a
                                        company's  financial  statements  or tax
                                        returns. Under this method, deferred tax
                                        liabilities  and assets  are  determined
                                        based  on  the  difference  between  the
                                        financial statement carrying amounts and
                                        tax  basis  of  assets  and  liabilities
                                        using enacted tax rates in effect in the
                                        years  in  which  the   differences  are
                                        expected  to  reverse.  The  Company has
                                        provided a valuation allowance to offset
                                        the  benefit of any net  operating  loss
                                        carryforwards  or  deductible  temporary
                                        differences.

                                        CASH AND CASH EQUIVALENTS

                                        Cash and cash  equivalents  include  all
                                        cash  balances  and highly  liquid  debt
                                        instruments with an original maturity of
                                        three months or less.

                                        LOSS PER SHARE

                                        Loss per share is  computed on the basis
                                        of the weighted average number of common
                                        shares  outstanding  during the year and
                                        does not  include  the  effect of common
                                        stock     equivalents,     which    were
                                        anti-dilutive.

                                        LONG-TERM DEBT

                                        The  recorded  value  of  the  Company's
                                        long-term debt  approximates  fair value
                                        based on the current rates  available to
                                        the   Company   for  debt  of  the  same
                                        remaining maturities.



                                       25
<PAGE>

                                                       RTI INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

                                        USE OF ESTIMATES

                                        The preparation of financial  statements
                                        in conformity  with  generally  accepted
                                        accounting      principles      requires
                                        management   to   make   estimates   and
                                        assumptions  that  affect  the  reported
                                        amounts  of assets and  liabilities  and
                                        disclosure  of  contingent   assets  and
                                        liabilities at the date of the financial
                                        statements  and the reported  amounts of
                                        revenues   and   expenses   during   the
                                        reporting  period.  The Company has made
                                        various   estimates    including   those
                                        related to the  valuation  allowance  on
                                        deferred   tax  assets   (Note  11)  and
                                        exposure to environmental  matters (Note
                                        8).   The   costs   the   Company   will
                                        ultimately incur and the value of assets
                                        ultimately  realized could differ in the
                                        near  term  from  the  related   amounts
                                        reflected in the accompanying  financial
                                        statements.

                                        LONG-LIVED ASSETS

                                        Statement   of   Financial    Accounting
                                        Standards No. 121,  "Accounting  for the
                                        Impairment of Long-Lived  Assets and for
                                        Long-Lived  Assets  to be  Disposed  Of"
                                        ("SFAS 121"),  was adopted as of January
                                        1,  1996.  SFAS  121   standardized  the
                                        accounting practices for the recognition
                                        and measurement of impairment  losses on
                                        certain  long-lived assets. The adoption
                                        of SFAS 121 had no effect on the results
                                        of operations or financial position.

                                        EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

                                        Effective  January 1, 1996,  the Company
                                        adopted  SFAS No. 123,  "Accounting  for
                                        Stock-Based  Compensation."  The Company
                                        adopted this pronouncement by making the
                                        required pro forma note disclosure only.
                                        Accordingly,  the  adoption  of SFAS No.
                                        123 did not impact the Company's results
                                        of operation or financial condition.

                                        RECLASSIFICATIONS

                                        Certain  items  in  the  1995  financial
                                        statements  have  been  reclassified  to
                                        conform to the 1996 presentation.


                                       26
<PAGE>


                                                       RTI INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

    2.   DISCONTINUED                   On  February  26,   1996,   the  Company
         OPERATIONS                     entered   into  an   asset   acquisition
                                        agreement    with    SteriGenics.     In
                                        connection  with  this  agreement,   the
                                        Company     sold     to      SteriGenics
                                        substantially  all  of  the  assets  and
                                        SteriGenics  assumed certain liabilities
                                        for  an  aggregate   purchase  price  of
                                        $4,601,725.  As a  result,  consolidated
                                        financial  statements  previously issued
                                        have been restated to give effect to the
                                        classification    of   the   irradiation
                                        operations as  discontinued  operations.
                                        The sale,  which was completed on August
                                        8, 1996, resulted in a $24,242 loss.

                                        The land  and  fixed  assets  of the New
                                        Jersey  location  are  being  leased  to
                                        SteriGenics  for a base  annual  rent of
                                        $77,400.  The sale agreement  contains a
                                        purchase option under which  SteriGenics
                                        could  purchase the property under lease
                                        for a price of $405,000 through February
                                        26,  1998  declining  to   approximately
                                        $138,000 on February 26, 2002.  The sale
                                        agreement  also  contains a "put" option
                                        under  which the Company  could  require
                                        SteriGenics  to purchase  this  property
                                        for  approximately  $138,000 on February
                                        26, 2002,  if the Company  completes the
                                        required environmental  remediation (see
                                        Note 8).

                                        Operating  results  of  the  irradiation
                                        operations   for   1996   and  1995  are
                                        summarized as follows:


                                                      1996               1995
--------------------------------------------------------------------------------
Revenues                                         $2,684,565         $4,352,027
Operating loss                                     (72,000)          (105,539)
Net loss                                           (72,000)          (105,539)
================================================================================


                                       27
<PAGE>

                                                       RTI INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

    3.   CERTIFICATES OF                During  1990 and 1994,  the  Company was
         FINANCIAL ASSURANCE            required  by  the   Nuclear   Regulatory
                                        Commission   ("NRC")  to  post   $75,000
                                        Certificates   of  Financial   Assurance
                                        ("CFA")   in    accordance    with   NRC
                                        regulations applicable to companies with
                                        similar  NRC   licenses.   The  CFA  was
                                        intended to provide assurance that funds
                                        would  be   available   if  needed   for
                                        decommissioning  activities  and removal
                                        of   Cobalt   60  used  in  the   former
                                        irradiation  operation.  The Company had
                                        elected  to use trust  funds to  provide
                                        such financial assurance. The funds were
                                        on deposit in restricted  bank accounts.
                                        During  1996,  the NRC  released one CFA
                                        and the other was  released  in February
                                        1997.



    4.   PROPERTY UNDER                 Property  under  lease is stated at cost
         LEASE                          net  of  accumulated   amortization   of
                                        $1,655,500  at December  31,  1996.  The
                                        Company  amortizes  property under lease
                                        using the straight-line  method over the
                                        term of the related lease.



    5.   ROCKAWAY INDUSTRIAL            The  Company  owns a 248 acre  parcel of
         PARK                           land and several buildings  ("Parcel I")
                                        in  Rockaway,  New  Jersey.  Parcel I is
                                        composed  of two  pieces,  Parcel IA and
                                        Parcel  IB.  Parcel  IA,  47  acres,  is
                                        contiguous  to  the  15  acre  operating
                                        parcel  that  is the  site of one of its
                                        irradiation processing facilities, which
                                        is currently leased to SteriGenics.


                                        Since 1985, the Company has been seeking
                                        a buyer  for  Parcel  IB;  however,  the
                                        Company's  ability to sell  Parcel IB is
                                        impaired until an environmental  cleanup
                                        and  remediation  program  is  completed
                                        (see Note 8).  This  property  has a net
                                        book value of $50,000.



    6.   ACCRUED EXPENSES               (a)  Accrued  expenses  consist  of  the
         AND OTHER LIABILITIES               following at December 31, 1996:

--------------------------------------------------------------------------------
Remedial investigation and environmental              $  7,749
   cleanup costs (Note 8)

Professional fees                                       51,625

Other                                                   15,059
--------------------------------------------------------------------------------
        Total                                          $74,433
================================================================================


                                       28
<PAGE>

                                                       RTI INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

                                        (b)  Other  liabilities  consist  of the
                                             following at December 31, 1996:


--------------------------------------------------------------------------------
Remedial investigation and environmental
   cleanup costs - non-current (Note 8)                    $747,315
Real estate taxes on Rockaway property
   (Note 8)                                                 191,373
Environmental proceedings (Note 8)                           32,247
--------------------------------------------------------------------------------
        Total                                              $970,935
================================================================================



    7.   LONG-TERM DEBT                 Long-term debt consists of the following
                                        at December 31, 1996:


--------------------------------------------------------------------------------
Note payable                                     $265,000
Less:  Current portion                               --
--------------------------------------------------------------------------------
           Total long-term debt                  $265,000
================================================================================

                                        In   connection   with   the   Company's
                                        settlement  of certain  litigation  (see
                                        Note 8), New Jersey Economic Development
                                        Authority (the  "Authority")  bonds were
                                        cancelled,  the owner  thereof  acquired
                                        from the Authority the Company's note in
                                        an amount equal to the  cancelled  bonds
                                        and such owner agreed to suspend,  for a
                                        period  of  five  years,  the  Company's
                                        obligation   to   make   principal   and
                                        interest   payments.   As  a  result,  a
                                        $287,000  obligation  was  discounted by
                                        $110,000 to  $177,000  at  December  31,
                                        1992.  The  resulting  credit  from this
                                        discounting  was  applied  to reduce the
                                        Company's  net  environmental  clean  up
                                        expense.  The  debt  will  be  increased
                                        annually by $22,000 during the five year
                                        period the Company is not  obligated  to
                                        make  principal  and interest  payments.
                                        Commencing  January  1,  1998,  the note
                                        will bear  interest  at a rate of 10.61%
                                        per annum and principal payments will be
                                        made in annual  installments  of $41,000
                                        through January 1, 2004.


                                       29
<PAGE>


                                                       RTI INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

                                        Principal amounts due in connection with
                                        long-term  debt  for  each  of the  five
                                        years  subsequent  to December  31, 1996
                                        are as follows:

--------------------------------------------------------------------------------
1997                                                       $          -
1998                                                             41,000
1999                                                             41,000
2000                                                             41,000
2001                                                             41,000
Thereafter                                                      123,000
--------------------------------------------------------------------------------
                                                               $287,000
================================================================================


    8.   ENVIRONMENTAL                  As a result of  engineering  tests  that
         INVESTIGATION,                 commenced   in  1981,   the  New  Jersey
         REMEDIATION AND                Department of  Environmental  Protection
         RELATED LITIGATION             (the "DEP")  issued a directive  in 1986
                                        ordering  the  Company  and  its  former
                                        Chief  Executive  Officer (Dr. Martin A.
                                        Welt), individually, to fund the cost of
                                        a remedial investigation and feasibility
                                        study   (the   "Study")    designed   to
                                        determine   the  nature  and  extent  of
                                        contamination  detected primarily on the
                                        Rockaway, New Jersey operating Parcel II
                                        (see Note 5). The Company  agreed to pay
                                        the costs of the Study and entered  into
                                        an Administrative  Consent Order ("ACO")
                                        with the DEP.  The  Company  accrued the
                                        estimated   cost  of  the  Study  as  of
                                        December 31, 1986.  In  accordance  with
                                        the terms of the ACO, the Company posted
                                        an $825,000  letter of credit  which was
                                        an amount equal to the  estimated  costs
                                        of the Study and the DEP  administrative
                                        costs.  As of  December  31,  1996,  all
                                        amounts due had been paid and the letter
                                        of credit returned.

                                        In June  1989,  the DEP  issued a Second
                                        Directive   ("Directive   II")   seeking
                                        payment  from the  Company and the prior
                                        owner  of  the   property   (the  "Prior
                                        Owner") for approximately  $1,200,000 to
                                        pay    for   a   Phase    II    Remedial
                                        Investigation ("Phase II"). According to
                                        Directive  II,  both the Company and the
                                        Prior Owner were  jointly and  severally
                                        liable for all costs to investigate  and
                                        clean  up  hazardous  substances  on the
                                        property. The Phase II investigation was
                                        designed to conduct  further  studies on
                                        Parcel II and evaluate the nature of and
                                        extent of contamination,  if any, on the
                                        65-acre area of the  property  where the
                                        Prior   Owner   conducted   its  various
                                        testing  activities.  In November  1991,
                                        the    DEP    issued    its    "Remedial
                                        Investigation Report".



                                       30
<PAGE>

                                                       RTI INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

                                        In 1989,  the  Company  filed a  lawsuit
                                        against   the  Prior   Owner  under  the
                                        Comprehensive   Environmental  Response,
                                        Compensation and Liability Act ("CERCLA"
                                        or  "Superfund"),  seeking  contribution
                                        for all costs incurred by the Company in
                                        connection  with  on-site  investigation
                                        and  cleanup  activities.  In 1992,  the
                                        Company  released  the Prior  Owner from
                                        any  liability  under  the  Phase  I and
                                        Phase II  investigations  and the  Prior
                                        Owner  paid the  Company  $900,000  (the
                                        "Settlement  Agreement")  as  a  partial
                                        payment  against  the DEP's  claims  for
                                        reimbursement  of  expenditures  for the
                                        Phase II  investigation.  A  portion  of
                                        these funds was  permitted to be used to
                                        support the surface cleanup  required by
                                        the  DEP.  The  Prior  Owner  will  only
                                        become  subject to further  liability in
                                        the  event  that  the  Company   becomes
                                        unable to perform the cleanup  action(s)
                                        required  by the DEP. In  addition,  the
                                        Prior Owner suspended for five years the
                                        Company's  obligation to make  principal
                                        and interest payments on the note issued
                                        to support the  purchase of a portion of
                                        the Rockaway  Industrial  Park (see Note
                                        7).

                                        The Company has agreed to indemnify  the
                                        Prior Owner against generally all claims
                                        for past or future costs associated with
                                        studies,     cleanups    and/or    other
                                        remediation  activities  to the Rockaway
                                        Industrial   Park.   The   Company   has
                                        executed a mortgage  ("Mortgage") on the
                                        Rockaway  Industrial  Park in the amount
                                        of $900,000  securing the Prior Owner to
                                        the extent the Company does not meet its
                                        obligations    under   the    Settlement
                                        Agreement.  After the  development of an
                                        acceptable   cost   estimate   for   the
                                        implementation of remedial actions,  the
                                        Prior  Owner has  agreed  to adjust  the
                                        Mortgage  to  the  amount  of  the  cost
                                        estimate.  If the cost estimate  exceeds
                                        the actual  fair value of the  mortgaged
                                        property  (minus any other  liens on the
                                        mortgaged  property),  then the  Company
                                        will execute an additional  mortgage for
                                        the difference  which will be secured by
                                        the Company's personal property.  If the
                                        cost  estimate  is less  than  $900,000,
                                        then the Mortgage will be reduced to the
                                        estimated amount.



                                       31
<PAGE>

                                                       RTI INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

                                        In  1993,  and in  conjunction  with the
                                        Settlement  Agreement,  the  Company and
                                        the   Prior   Owner   entered   into  an
                                        Administrative  Consent Order ("ACO II")
                                        with the DEP. In accordance with ACO II,
                                        the   Company   agreed   to  pay   DEP's
                                        investigation  and  oversight  costs for
                                        the Phase II investigation, estimated to
                                        be $1.2  million,  which was  charged to
                                        operations in 1992.  An initial  payment
                                        of  $600,000  was made in 1993 under ACO
                                        II.  The  remaining  liability  for  the
                                        Phase  II  study  was   being   paid  in
                                        quarterly  installments  to be completed
                                        in  June  1997.  In  1993,  the  Company
                                        charged   approximately    $200,000   to
                                        operations for additional  costs related
                                        to the  Phase  II  study  and  deposited
                                        $100,000      in      a       segregated
                                        interest-bearing  account. Funds in this
                                        account  were  withdrawn  after  certain
                                        provisions  of  ACO II  were  met by the
                                        Company.

                                        Both ACO II and the Settlement Agreement
                                        provided    that   the    Company    was
                                        responsible   for  all  further  cleanup
                                        actions  required by the DEP.  Estimated
                                        costs  under  ACO II and the  Settlement
                                        Agreement  were  recorded by the Company
                                        in 1992.  The  Company  and the DEP have
                                        entered into a  Memorandum  of Agreement
                                        ("MOA")     which     stipulated     the
                                        responsibilities  for an  approved  work
                                        plan  for  the   surface   cleanup   and
                                        remediation  required to be performed by
                                        the  Company.  The  Company  accrued and
                                        charged  to   operations   approximately
                                        $200,000  in 1992  for  surface  cleanup
                                        which   was   completed   in  1994   and
                                        additional costs are not expected.

                                        In   connection   with   the   Phase  II
                                        investigation,  the  DEP  filed  a First
                                        Priority  Lien against  Parcel II and 65
                                        acres of Parcel  I. A  general  lien was
                                        placed on all Company  properties in the
                                        State of New Jersey and all  revenues of
                                        the Company. Each lien was in the amount
                                        of $329,670.  In February  1995, the DEP
                                        discharged  all of its liens  except for
                                        its  liens  on  the   revenues   of  the
                                        Company,   on   Parcel  II  and  on  the
                                        Company's property located on Parcel II,
                                        and  reset  its  liens in the  aggregate
                                        amount of $560,490.  In August 1996, the
                                        Company  made a payment of  $575,000  to
                                        the DEP as full  settlement  of all then
                                        outstanding  financial  claims  asserted
                                        under  the ACO II,  as well as all  such
                                        claims  which could be asserted  for the
                                        period ended  October 31, 1996 and, as a
                                        result, the DEP released the lien it had
                                        placed on Parcel II.


                                       32
<PAGE>

                                                       RTI INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

                                        In 1994,  the DEP  issued  its Record of
                                        Decision   ("ROD")   for  the   Rockaway
                                        Industrial Park. The Company is required
                                        by   the   DEP   to   perform    certain
                                        groundwater   remediation   actions  and
                                        implement   a   groundwater   monitoring
                                        program.  A  Remedial  Action  Work Plan
                                        ("RAWP") to  implement  the ROD is being
                                        reviewed by the DEP. As of December  31,
                                        1996,    the    Company    has   accrued
                                        approximately     $747,315    for    the
                                        anticipated    costs   of    groundwater
                                        programs.

                                        Parcel II and a portion of Parcel I (see
                                        Note 5) have been placed on the National
                                        Priorities   List  (the   "List").   The
                                        Company  believes its ability to dispose
                                        of  Parcel I  acreage  will be  impaired
                                        until it has been remediated and removed
                                        from the List.  Additionally,  there can
                                        be no  assurances  that the  cleanup and
                                        remediation  efforts provided for by the
                                        Company  will   represent  its  ultimate
                                        liability.

                                        The Company is delinquent in the payment
                                        of local real estate  taxes on 201 acres
                                        of Parcel IB.  Accordingly,  $191,373 is
                                        accrued at December 31, 1996.

                                        In  addition,  in 1994,  the Company was
                                        named a respondent  in an  environmental
                                        proceeding  relating to a disposal site,
                                        which the Company shipped a small amount
                                        of material during 1982. The Company has
                                        recorded  an accrual  for the  estimated
                                        liability  of $32,247 as of December 31,
                                        1996.   The  Company,   based  upon  all
                                        available information, is of the opinion
                                        that the  accrual is  adequate  and that
                                        the   ultimate   disposition   of   this
                                        environmental proceeding will not have a
                                        material   adverse   effect   on   these
                                        financial statements.

                                        Environmental  accruals at December  31,
                                        1996 are:

--------------------------------------------------------------------------------
Long-term:
   Groundwater remediation                                   $747,315
   Nascolite site                                              32,247
--------------------------------------------------------------------------------
              Total                                          $779,562
================================================================================



                                       33
<PAGE>

                                                       RTI INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


    9.   STOCKHOLDERS' EQUITY  (A)      COMMON AND PREFERRED  STOCK  AUTHORIZED,
                                        ISSUED AND OUTSTANDING

                                        Effective  May 25, 1995,  the  Company's
                                        Certificate of Incorporation was amended
                                        to effect a one for eight  reverse stock
                                        split  of  common  stock  and  authorize
                                        2,000,000  shares of preferred stock. In
                                        connection    with    the    SteriGenics
                                        transaction,     the    Company     sold
                                        SteriGenics,  on March 11, 1996, 118,000
                                        shares of Series A  Preferred  Stock for
                                        $236,000 in cash.  The  preferred  stock
                                        was  surrendered  on  August  8, 1996 in
                                        payment  of a  portion  of the  purchase
                                        price.

                               (B)     STOCK OPTIONS

                                        The  Company's  1987 stock  option  plan
                                        (the "Plan")  authorizes the issuance of
                                        options for common stock until  November
                                        3, 1997. The options granted were either
                                        incentive   stock  options,   which  are
                                        exercisable  one  year or more  from the
                                        date of  grant  or  non-qualified  stock
                                        options,   which   may  be   exercisable
                                        immediately. Pro forma disclosure of the
                                        effects  of the  options  in  accordance
                                        with SGAS 123,  have not been  provided,
                                        as the effect weas not material. Details
                                        of stock option  transactions  under the
                                        1987  Plan  for  the two  years,  are as
                                        follows:


                                                      RANGE OF
                                                    OPTION PRICE
                                     OPTIONS          PER SHARE      EXERCISABLE
--------------------------------------------------------------------------------
Outstanding, January 1,
   1995                               4,625        $6.48 - 7.76        3,208
                                                                 =============
Granted                               1,250                4.00
Cancelled                             (939)         6.48 - 7.76
------------------------------------------------------------------------------
Outstanding, December 31,
   1995                               4,936         4.00 - 7.76        3,686
                                                                 =============
Granted                                   -                   -
Cancelled                           (4,936)         4.00 - 7.76
--------------------------------------------------------------------------------
Outstanding, December 31,
   1996                                   -                   -            -
================================================================================


                                       34
<PAGE>

                                                       RTI INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

   10.   OTHER INCOME           (A)     EXECUTIVE TERMINATION AGREEMENTS AND
                                        LITIGATION

                                        The   Company   and  its  former   Chief
                                        Executive  Officer ("CEO"),  had been in
                                        litigation since 1987,  arising from the
                                        Company  failing  to pay the CEO under a
                                        consulting  agreement  and the Company's
                                        claims   against  the  CEO  for  damages
                                        arising out of actions of the CEO.

                                        In 1995, the Company and the CEO settled
                                        all  litigation,  whereby,  the CEO paid
                                        $144,830 to the Company.

                                (B)     INSURANCE CLAIM SETTLEMENT

                                        On January  29,  1996,  the  Company and
                                        Birmingham   Fire   Insurance    Company
                                        ("Birmingham") entered into a Settlement
                                        Agreement and Release  ("Agreement") for
                                        environmental  claims primarily relating
                                        to the  Company's  Rockaway,  New Jersey
                                        property   covered  under   Birmingham's
                                        insurance  policy for the period May 30,
                                        1980 to May 30,  1983.  On February  20,
                                        1996,  the  Company  received a total of
                                        $580,000 for  settlement  in  accordance
                                        with the Agreement.

   11.   INCOME TAXES                   At December 31, 1995,  the Company had a
                                        deferred   tax  asset   amount-  ing  to
                                        approximately  $4,600,000.  The deferred
                                        tax asset consisted primarily of the tax
                                        benefit    of   net    operating    loss
                                        carryforwards and a temporary difference
                                        resulting  from  environmental  accruals
                                        (see Notes 6 and 8) and is fully  offset
                                        by a  valuation  allowance  of the  same
                                        amount.

                                        The   net   change   in  the   valuation
                                        allowance  for deferred tax assets was a
                                        decrease  of  approximately  $500,000 in
                                        1996. The net change is primarily due to
                                        the  recording of certain  environmental
                                        liabilities  (see Note 8) and expiration
                                        of net operating loss carryforwards.

                                        Recoveries for income taxes differs from
                                        the   amount   of   income    recoveries
                                        determined  by applying  the  applicable
                                        U.S.  statutory  Federal income tax rate
                                        to   pretax    loss   from    continuing
                                        operations  as a result of the  decrease
                                        in the valuation allowance to offset the
                                        decrease in the deferred tax asset.



                                       35
<PAGE>

                                                       RTI INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

                                        At December  31,  1996,  the Company had
                                        net  operating  loss  carry-forwards  of
                                        approximately  $12,000,000  available to
                                        offset future  Federal  taxable  income.
                                        These  carryforwards  will  expire  from
                                        1999 through 2011.

                                        For state income tax purposes, primarily
                                        related to New  Jersey,  the Company has
                                        net  operating  loss   carryforwards  of
                                        approximately  $1,900,000,   which  will
                                        expire from 1997 through 2001.



   12.   STATEMENTS OF CASH             Supplemental  disclosures  of cash  flow
         FLOWS                          information are as follows:

                                                   1996              1995
--------------------------------------------------------------------------------
Interest paid                                  $122,725          $283,000
================================================================================

                                        The Company financed purchases of Cobalt
                                        60 amounting to  approximately  $914,000
                                        in 1995.

   13.   SUBSEQUENT EVENT               On  February  24,   1997,   the  Company
                                        acquired,  through its newly established
                                        subsidiary Refrigeration Technology Inc.
                                        ("RefTech"),  substantially  all  of the
                                        assets and assumed  certain  liabilities
                                        of  Quality  Air,  Inc.   ("QAI")  in  a
                                        business combination  accounted for as a
                                        purchase. The initial purchase price was
                                        $660,938 and consisted of 235,000 shares
                                        of the  Company's  common  stock for net
                                        liabilities  of $543,000 with the excess
                                        of purchase  price over net  liabilities
                                        allocated to  intangibles.  In addition,
                                        the Company has agreed to deliver to QAI
                                        an additional  100,000  shares of common
                                        stock, if and when the Company's  pretax
                                        fiscal  year  earnings  from  operations
                                        exceed   $800,000   and  an   additional
                                        125,000  shares of common stock,  if and
                                        when such earnings exceed  $1,200,000 or
                                        in the event of an unsolicited bona-fide
                                        tender  offer  for  a  majority  of  the
                                        Company's  outstanding common stock. The
                                        additional shares are also contingent on
                                        the  earnings  levels  or  tender  offer
                                        occurring prior to January 1, 2002.


                                       36
<PAGE>

                                                       RTI INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

                                        In  connection  with  the   acquisition,
                                        RefTech     assumed    QAI's    purchase
                                        commitments  for  inventories,  supplies
                                        and  services  aggregating   $1,300,000.
                                        RefTech   has   agreed  to  lend  up  to
                                        $240,000 to the QAI  Principals  and has
                                        the right to purchase certain  equipment
                                        and  vehicles  previously  leased to QAI
                                        from a  related  entity  for  an  amount
                                        equal  to  their  fair   market   value.
                                        Reftech    entered    into    employment
                                        agreements   with   three   of  the  QAI
                                        Principals  for  a  five  year  term  at
                                        annual compensation of $80,000 each.

                                        RefTech   has  also   entered   into  an
                                        agreement  with  Industrias  QAI S.A. de
                                        C.V.   ("Industrias   QAI"),  a  related
                                        entity in Ciudad Juarez, Mexico, for the
                                        right to acquire the  outstanding  stock
                                        or  the   assets  and   liabilities   of
                                        Industrias QAI at RefTech's  election at
                                        any time on or before April 20, 1997 for
                                        a nominal amount.

                                        During  the fourth  quarter of 1996,  in
                                        contemplation  of the  QAI  acquisition,
                                        the Company advanced  $670,000 to QAI to
                                        fund  its   operations.   The  Company's
                                        chairman also advanced  $870,000 to QAI,
                                        which  amount was repaid to the chairman
                                        by the Company at the closing.


                                       37
<PAGE>

ITEM  8.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING AND
          FINANCIAL DISCLOSURE.

      BDO Seidman,  LLP, independent  auditors,  currently is, and for more than
the  Company's  last two  fiscal  years  has  been,  the  Company's  independent
auditors.  Since the  beginning  of such two fiscal year period (i) BDO Seidman,
LLP, has not expressed  reliance,  in its audit report, on the audit services of
any other  accounting  firm and (ii) there have been no  reported  disagreements
between the Company and BDO Seidman, LLP, on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure.

                                   PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(A) OF THE EXCHANGE ACT.

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

      The directors and the Executive Officers of the Company are as follows:

<TABLE>
<CAPTION>
      NAME                          AGE         POSITION WITH THE COMPANY
      <S>                           <C>         <C>
      Rick E. Bacchus               43          Director and President of RTI and President of Reftech
                                                since February 24, 1997

      Rockney D. Bacchus            41          Director and Vice President of RTI and Vice President-
                                                Development of Reftech since February 24, 1997

      Ronald A. Bacchus             39          Director and Vice President of RTI and Vice President-
                                                Manufacturing of Reftech since February 24, 1997

      Sanders Davies                50          Director of RTI since 1986

      C.W. McMillan                 71          Director of RTI since 1985

      Theo W. Muller                58          Director and Chief Executive Officer of RTI since
                                                January 1995, Chairman of RTI since February 24,
                                                1997 and Sole Director, Chairman and Chief Executive
                                                Officer of Reftech since February 24, 1997

      George M. Whitmore, Jr.       69          Director of RTI since 1988
</TABLE>


     Messrs. Davies. McMillan,  Muller and Whitmore were elected as directors at
the Annual  Meeting of  Shareholders  held on August 6,  1996.  Messrs.  Rick E.
Bacchus,  Rockney D.  Bacchus and Ronald A. Bacchus were elected as directors by
the Board of Directors  effective  February 24, 1997.  Each  director  holds his
office until the next Annual Meeting of shareholders  and until his successor is
elected or until his earlier resignation.

      Executive  officers are appointed by, and serve at the  discretion of, the
Board  of  Directors  for a term  beginning  on the  date  of  their  respective
appointments  and until  their  respective  successors  are duly  appointed  and
qualified.

      Rick E.  Bacchus  was  elected  President  of the  Company  and of RefTech
effective  February 24, 1997.  From November 1996 until  February 24, 1997,  Mr.
Bacchus was  president of QAI, and for the ten months prior thereto was employed
by QAI as an  independent  consultant.  Mr Bacchus has been president of Bacchus
Industries,  Inc.  ("BII"),  a  predecessor  of QAI,  since 1977,  although  BII
discontinued its active business operations in September 1995.

      Rockney D.  Bacchus was  elected  Vice  President  of the Company and Vice
President-Development of RefTech effective February 24, 1997. From November 1996
until  February 24, 1997, Mr. Bacchus was vice president

                                       38
<PAGE>

of  QAI,  and for  the  ten  months  prior  thereto  was  employed  by QAI as an
independent consultant.  Mr. Bacchus was a vice president of BII from 1977 until
January 1996.

      Ronald A.  Bacchus  was  elected  Vice  President  of the Company and Vice
President-Manufacturing  of RefTech  effective  February 24, 1997. From November
1996 until February 24, 1997, Mr. Bacchus was vice president of QAI, and for the
ten months prior thereto was employed by QAI as an independent consultant. Mr.
Bacchus was a vice president of BII from 1978 until January 1996.

      Sanders  Davies has been a partner in the firm of O'Connor,  Davies & Co.,
certified public  accountants,  and its predecessor firm,  Davies & Davies,  for
more than the past five years.

     C. W. McMillan has been president of C.W. McMillan Co. and its predecessor,
McMillan & Farrell Associates, Inc., agribusiness consultants, for more than the
past five years.  From 1981 through  March 1985,  Mr.  McMillan was an Assistant
Secretary of Agriculture of the United States.

      Theo W.  Muller has been Chief  Executive  Officer  of the  Company  since
January 1995 and Chairman of the Company since  February 24, 1997. Mr Muller was
President of the Company from  January 1995 until  February 24, 1997,  and was a
director of the Company from May 1990 to November 1993. Mr. Muller also has been
sole director,  Chairman and Chief  Executive  Officer of RefTech since February
24, 1997.  Mr.  Muller has been an  independent  investor for more than the past
five years and is a partner  of Saler  Associates,  a  residential  real  estate
developer.  From 1985 until  December  1994, Mr. Muller was president of Frellum
Corporation  ("Frellum"),  an  aircraft  leasing,  and oil  and  gas  production
company.

      George M. Whitmore,  Jr. has been managing director of Whitmore & Company,
a management consulting firm, for more than the past five years. Previously, Mr.
Whitmore was the chairman of the board and secretary of Rathbone, King & Seeley,
Inc., an insurance  holding company which, on January 8, 1993,  filed a petition
for  liquidation  under  Chapter 7 of the United  States  Bankruptcy  Code;  Mr.
Whitmore's  duties  for such  company  were to chair  meetings  of its  board of
directors, occasionally prepare minutes of such meetings and, from time to time,
attest to actions duly taken by such board.

      Pursuant to the  Acquisition  Agreement in which the Company  acquired the
business of QAI, the Company agreed that,  during the period ending December 31,
2001,  Rick E. Bacchus,  Rockney D. Bacchus and Ronald A.  Bacchus,  as a group,
will have the  non-assignable  right to  nominate  three of the seven  directors
constituting  the  Company's  Board of Directors;  Rick E.  Bacchus,  Rockney D.
Bacchus and Ronald A. Bacchus are  currently  serving as  directors  pursuant to
such agreement.

      The Company  pays its  directors  (other than  full-time  employees of the
Company) at the rate of $5,000 per year and  reimburses  its directors for their
out-of-pocket  expenses  incurred  in  connection  with  their  services  to the
Company.

      No family  relationship  exists  among the  directors  of the  Company  or
between any of such persons and the  executive  officers of the Company,  except
that Rick E. Bacchus, Rockney D. Bacchus and Ronald A. Bacchus are brothers.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

      Section 16(a) of the  Securities  Exchange Act of 1934 requires  executive
officers,  directors and persons who own more than 10% of the  Company's  Common
Stock  to file  within  prescribed  periods  initial  statements  of  beneficial
ownership and  statements of changes in beneficial  ownership of their shares of
Common  Stock  with  the  Securities  and  Exchange  Commission  and The  Nasdaq
Small-Cap  Market,  on which the Company's Common Stock is traded.  Such persons
also are required to furnish the Company with copies of all such statements they
file.  Based on its review of the copies of such  statements  received by it and
written representations from certain of such persons, the Company believes that,
during 1996, all such filing  requirements  applicable to such persons were duly
complied with.

ITEM 10.  EXECUTIVE COMPENSATION.


                                       39
<PAGE>

GENERAL

      No person who was an  executive  officer of the  Company in 1996  received
annual  compensation  exceeding  $100,000  during any of the three  years  ended
December  31,  1996.  The  following  table  sets forth  information  concerning
compensation  for services in all  capacities  awarded or paid to, or earned by,
Theo W. Muller,  the Company's  Chief  Executive  Officer,  during the two years
ended December 31, 1996. No stock  appreciation  rights,  stock options or other
long-term  compensation awards have ever been granted to Mr. Muller.  During the
year ended December 31, 1996, Mr. Muller did not hold any options to acquire any
securities of the Company.

                                                             ANNUAL COMPENSATION
      NAME AND PRINCIPAL POSITION                    YEAR         SALARY

      Theo W. Muller, Chief Executive Officer        1996         $6,000
                                                     1995         $6,000

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS

      Pursuant  to  employment  agreements  between  RefTech and each of Rick E.
Bacchus,  Rockney D.  Bacchus  and Ronald A.  Bacchus,  such  persons  have been
employed    as     President,     Vice     President-Development     and    Vice
President-Manufacturing,   respectively,   of  RefTech  for  a  five  year  term
commencing  February  24,  1997 at an  annual  base  salary of  $80,000.  In his
employment agreement, Rick E. Bacchus also has been employed as President of the
Company  for the term of his  employment  agreement,  and the Company has agreed
that,  subject to its fiduciary duties,  as the sole shareholder of RefTech,  it
will encourage the directors of RefTech to elect Mr. Bacchus as the president of
RefTech during such term. Each of the employment agreements provides that upon a
termination of employment  thereunder without cause, the terminated  employee is
entitled to a  continuation  of salary for a period of two months in lieu of any
other entitlements.

      As set forth  above under Item 1 - "Business  -  Acquisition  of QAI",  on
February 24, 1997,  RefTech acquired the business and  substantially  all of the
assets of QAI. In connection  therewith,  RefTech agreed to deliver to QAI up to
an  additional  225,000  shares of the  Company's  Common  Stock at such time as
certain  operating  results are achieved,  if such results are achieved prior to
January 1, 2002.  The Company has agreed  that,  in the event of an  unsolicited
bona-fide tender offer for a majority of the Company's then  outstanding  Common
Stock initiated prior to January 1, 2002, which the Company's Board of Directors
determines not to recommend to the Company's  shareholders,  such shares will be
delivered  even if such results  have not yet been  achieved.  Rick E.  Bacchus,
Rockney D. Bacchus and Ronald A. Bacchus  currently own substantially all of the
capital stock of QAI.

      Except as aforesaid, the Company does not have any employment agreement or
termination or change in control arrangement with any of its executive officers.

1987 STOCK OPTION PLAN

      The Company's  1987 Stock Option Plan (the "1987 Plan") was adopted by the
Board of  Directors  of the  Company on  November  4, 1987 and  approved  by the
shareholders  of the  Company  on May 25,  1988.  The  1987  Plan,  as  amended,
authorized  the  issuance,  within ten years from the date of its  adoption,  of
options  covering up to 90,625 shares of Common Stock  (subject to adjustment in
certain  circumstances)  to such key employees or other  individuals  (including
executive  officers and  directors of and  consultants  to the Company) who have
performed,  or  reasonably  may be  expected  to  perform,  services  of special
importance to the  management,  operation or  development of the business of the
Company.  As of March 15, 1997, no options were outstanding  under the 1987 Plan
and 16,498 shares of Common Stock were  available,  until  November 3, 1997, for
the grant of future  options  under the 1987 Plan.  The 1987 Plan is intended to
provide an incentive to continued employment of key employees of the Company and
other  individuals  by enabling  them to acquire a  proprietary  interest in the
Company and by offering  comparable  incentives to enable the Company  better to
attract, compete for and retain highly qualified employees and consultants.

      Options  granted  under  the 1987  Plan  may be  either  "Incentive  Stock
Options" as that term is defined in Section 422 of the Internal  Revenue Code of
1986 (the "Code"),  or options  which do not qualify as Incentive  Stock Options
("Non-Qualified Stock Options").  Incentive Stock Options may be granted only to
key individuals,  including

                                       40
<PAGE>

executive officers and directors, who are employees of the Company. An Incentive
Stock  Option  must  expire  within ten years from the date it is granted  (five
years in the case of such  options  granted  to  holders of more than 10% of the
outstanding  Common Stock).  Incentive  Stock Options are first  exercisable not
earlier than one year from the date of grant. The exercise price of an Incentive
Stock Option must be at least equal to the fair market value of the Common Stock
on the date such  Incentive  Stock Option is granted and must be paid in cash or
in capital  stock of the Company  valued at its then fair market  value.  To the
extent the  aggregate  fair market  value of  Incentive  Stock  Options that are
exercisable  for the first time by an optionee  during any calendar year exceeds
$100,000, such options will be treated as Non-Qualified Stock Options.

      In addition,  the Company may issue  Non-Qualified Stock Options under the
1987 Plan to executive officers,  directors and key employees of the Company and
advisors and consultants to the Company.  The exercise price of these options is
not limited and may be below fair market value.

      Incentive  Stock  Options  terminate  three  months  after the  optionee's
relationship  with the  Company is  terminated  (one year if  termination  is by
reason of death or disability). In the case of Non-Qualified Stock Options, such
options terminate as determined by the Board of Directors,  and set forth in the
option agreement between the Company and the optionee.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

      Set forth below is information,  as of March 15, 1997, with respect to (i)
each person who is known by the Company to be the beneficial  owner of more than
5% of the Common Stock, (ii) each of the current  directors of the Company,  and
(iii) the beneficial  ownership of Common Stock by all current directors and all
executive officers of the Company, as a group (seven persons).

                                       NUMBER OF SHARES                 PERCENT
NAME AND ADDRESS OF OWNER              OF COMMON STOCK                 OF CLASS

Quality Air, Inc.                          235,000(a)                   17.6%
c/o Rick E, Bacchus
301 Antone Street
Sunland Park, New Mexico 88063

Theo W. Muller                             155,393(b)                   11.6%
20 Peach Hill Road
Darien, Connecticut 06820

Rick E. Bacchus                             77,942(c)                    5.8%
301 Antone Street
Sunland Park, New Mexico 88063

Rockney D. Bacchus                          77,942(c)                    5.8%
301 Antone Street
Sunland Park, New Mexico 88063

Ronald A. Bacchus                          77,942(c)                     5.8%
301 Antone Street
Sunland Park, New Mexico 88063

Sanders Davies                               1,500                         *

C.W. McMillan                                2,052                         *

George M. Whitmore, Jr.                      3,125                         *

All directors and executive                395,896(d)                   29.6%
officers, as a group



                                       41
<PAGE>


----------
*    Represents  less than 0.1% of the issued and  outstanding  shares of Common
     Stock.

(a)  Includes  50,000  shares of Common  Stock held in escrow to cover  possible
     indemnifications claims, but excludes up to 225,000 additional shares which
     may be issued to QAI if the Company achieves certain operating results. See
     Item 1 - "Business  --  Acquisition  of QAI." Rick E.  Bacchus,  Rockney D.
     Bacchus and Ronald A.  Bacchus,  directors  and  executive  officers of the
     Company,  are  stockholders of QAI. Each of such persons claims  beneficial
     ownership in approximately 33.2% of the shares held by QAI, and although he
     may be deemed to  beneficially  own the remaining  shares held of record by
     QAI, disclaims beneficial ownership in such remaining shares.

(b)  Consists of (i) 130,393 shares  directly owned by Theo W. Muller,  and (ii)
     25,000  shares  directly  owned by  Frellum,  which  is 50.1%  owned by Mr.
     Muller. See Item 12 - "Certain Relationships and Related Transactions."

(c)  Consists of approximately 33.17% of the shares of Common Stock held by QAI.
     See note (a) to this table.

(d)  Includes the shares referenced in notes (b) and (c) above.

      The Company does not know of any arrangements, including any pledge by any
person of securities of the Company, the operation of which at a subsequent date
may result in a change in control of the Company.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      During January 1995, Theo W. Muller settled for $50,000 an account payable
of the Company, which was repaid to Mr. Muller, without interest, in March 1995.

      On November 29, 1995,  Frellum, a Delaware company which is 50.1% owned by
Mr.  Muller,  agreed to make available to the Company a $250,000 line of credit.
The line of credit, which initially was scheduled to expire on October 29, 1996,
has been extended to April 28, 1997 and the line of credit has been increased to
$315,000.  Loans under such credit  line are secured by the  Company's  accounts
receivable,  bear interest at 8% per annum, may be repaid at any time and become
due 30 days after written demand therefor is made,  which demand may not be made
prior to the expiration of such credit line. During the two years ended December
31, 1996,  $315,000 of loans were made by Frellum under the credit line,  all of
which were repaid on February 21, 1996, with accrued interest of $2,931 thereon.
As part of such transaction,  the Company issued to Frellum a warrant,  expiring
November 28, 1997, to acquire  25,000  shares of the  Company's  Common Stock at
$1.75 per share  (104% of the last sale price of the Common  Stock on The Nasdaq
Small-Cap Market on the day immediately prior to such issuance),  which warrants
were  exercised  on June 7, 1996.  Frellum  also was granted  certain  piggyback
registration  rights with  respect to such shares if the Company  registers  its
securities  under  certain   circumstances  with  the  Securities  and  Exchange
Commission prior to November 28, 1997.

      As set forth above under Item 1 - "Business  --  Acquisition  of QAI",  on
February 24, 1997, the Company's  wholly-owned  subsidiary,  RefTech, in the QAI
Transaction,  acquired the business and  substantially  all of the assets of QAI
for the  consideration  set forth  therein.  The Company has been advised by QAI
that  the  stockholders  of  QAI  had a  basis  in  their  investment  in QAI of
approximately $150,000 and that the stockholders of QAI's affiliate,  Industrias
QAI, had a nominal basis in their  investment  in  Industrias  QAI. The tangible
assets of QAI, as of January 31, 1997,  consisted of  furniture,  equipment  and
vehicles which originally cost $181,899  (unaudited) and inventories of $301,920
(unaudited). In addition, QAI had an investment in Industrias QAI, as of January
31, 1997, of $222,684 (unaudited).  The audited balance sheet of Industrias QAI,
as of  December  31,  1996,  reflected  tangible  assets  consisting  solely  of
property,  plant and leasehold  improvements  with an original cost of $155,890.
All of the assets of QAI and  Industrias  QAI were  purchased by such  companies
within the two years prior to February 24, 1997.

      As part of the QAI Transaction, RefTech entered into employment agreements
with Rick E.  Bacchus,  Rockney D. Bacchus and Ronald A.  Bacchus,  each of whom
became a director and executive  officer of the Company upon the consummation of
the  QAI  Transaction.  See  Item 10 -  "Executive  Compensation  --  Employment
Contracts


                                       42
<PAGE>


and  Termination  of  Employment  and  Change-in-Control  Arrangements"  for the
material terms of such employment agreements. In addition, RefTech continued the
employment of Philis Bacchus,  the wife of Rick E. Bacchus, who handled personal
administration  and certain  bookkeeping  functions  for QAI and who has assumed
similar  responsibilities for RefTech, at a salary of $28,730 per annum. RefTech
also agreed to lend Rick E.  Bacchus,  Rockney D. Bacchus and Ronald A. Bacchus,
collectively, up to an aggregate of $240,000, repayable with interest at 1% over
prime during the period ending December 31, 2001,  which loans are to be secured
by their respective  shares of the Company's Common Stock received by QAI in the
QAI Transaction  upon  distribution of such shares to them by QAI in liquidation
of QAI.  As of  March  15,  1997,  an  aggregate  of  $55,000  (in two  separate
transactions)  had been loaned to Rick E. Bacchus and Philis  Bacchus,  jointly,
pursuant to such  arrangement,  except that  repayment  thereof is over the five
year period from the date of the respective loan and the loans are to be secured
by the makers' shares of QAI stock until such time as the Company's Common Stock
is distributed to them by QAI.

     As described under Item 2 - "Description of Properties", RefTech leases its
Sunland Park, New Mexico facility from Bacchus  Industries,  Inc. As part of the
QAI  Transaction,  Bacchus  Industries,  Inc.  granted  the right to  RefTech to
acquire,  at fair market value (which is less than  acquisition  cost),  certain
equipment and vehicles which had been used by QAI. At the present time,  RefTech
has  the use of  such  equipment  and  vehicles,  without  any  cost,  until  it
determines whether to make such acquisition. If all of such acquisition is made,
the Company believes that its purchase price therefor will not exceed $250,000.

      In  contemplation  of the  consummation  of the QAI  Transaction,  Theo W.
Muller,  Chairman and Chief Executive Officer and a director of the Company, and
his  affiliated  companies,  lent QAI an  aggregate  of $870,000  with  interest
thereon at the rate of 8.5% per annum. Upon consummation of the QAI Transaction,
such  indebtedness  was assumed by RefTech,  the principal  amount was repaid in
full on February 24, 1997, and approximately  $5,650 of accrued interest thereon
remains outstanding. See Item 1 - "Business -- Acquisition of QAI".

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

      (a)  EXHIBITS.1

      All  financial  statements  required  to be filed  as part of this  Annual
Report on Form 10-KSB are filed under Item 7 of this Form  10-KSB.  A listing of
such financial  statements is set forth in Item 7, which listing is incorporated
herein by reference.

3.  Articles of incorporation and by-laws.

    3.1   (a)  Certificate of Incorporation, as filed by the New York Department
               of State on August 27, 1968. (1)

          (b)  Certificate  of Amendment of  Certificate  of  Incorporation,  as
               filed by the New York  Department  of State on December 18, 1968.
               (1)

          (c)  Certificate  of Change,  as filed by the New York  Department  of
               State on September 28, 1970. (1)

          (d)  Certificate  of Amendment of  Certificate  of  Incorporation,  as
               filed by the New York  Department  of State on October 15,  1971.
               (1)

          (e)  Certificate  of Amendment of  Certificate  of  Incorporation,  as
               filed by the New York Department of State on July 9, 1983. (1)

          (f)  Certificate  of Amendment to  Certificate  of  Incorporation,  as
               filed by the New York Department of State on June 6, 1988. (2)



--------
1 Footnotes to Exhibits  are at the end of this  listing of Exhibits.  Except as
specifically  noted,  the Exhibits listed herein have been filed  previously and
are incorporated herein by reference.


                                       43
<PAGE>


          (g)  Certificate of Merger of Process  Technology  (NC), Inc. into RTI
               Inc.,  as filed by the New York  Department  of State on December
               20, 1991. (5)

          (h)  Certificate  of Amendment to  Certificate  of  Incorporation,  as
               filed by the New York Department of State on May 25, 1995. (8)

          (i)  Certificate  of Amendment to  Certificate  of  Incorporation,  as
               filed by the New York  Department  of State on February 27, 1996.
               (9)

    3.2   (a)   By-laws, as in effect on February 16, 1997. (7)


          (b)  Amendment  of  Sections  5.6  and 5.7 of the  By-Laws,  effective
               February 17, 1997. (11)

4.  Instruments defining the rights of security holders, including indentures.

    4.1        Form of Common Stock certificate. (1)

9.  Voting trust agreement and amendments -- none

10. Material contracts.

    10.1  (a)  Administration   Consent   Order  in  the  Matter  of   Radiation
               Technology,  Inc.,  dated  March  10,  1987,  of the State of New
               Jersey  Department  of  Environmental   Protection   Division  of
               Hazardous Waste Management. (1)

          (b)  Directive  II, dated June 30, 1989,  from the State of New Jersey
               Department  of Environ-  mental  Protection  in the Matter of the
               Radiation  Technology Site and Morton Thiokol,  Inc. and RTI Inc.
               respondents. (4)

       (c)(i)  Administrative  Consent  Order,  dated  December 7, 1992,  of the
               State of New Jersey  Department of  Environmental  Protection and
               Energy,  in the Matter of RTI Inc.  Site,  RTI Inc.  and  Thiokol
               Corporation. (6)

       (c)(ii) Amendment to Administrative  Consent Order, dated August 2, 1994,
               of the State of New Jersey Department of Environmental Protection
               and Energy. (7)

          (d)  Record of Decision - Radiation Technology Incorporated (RTI) with
               respect  to a site  in  Rockaway  Township,  Morris  County,  New
               Jersey,   issued  in  1994  by  the  New  Jersey   Department  of
               Environmental Protection and Energy. (7)

    10.2  (a)  Credit Agreement,  dated as of December 1, 1978, among New Jersey
               Economic Development  Authority,  Radiation Technology,  Inc. and
               New Jersey National Bank. (1)

          (b)  Bond Purchase Agreement,  dated as of December 1, 1978, among New
               Jersey Economic Development Authority, Radiation Technology, Inc.
               and Thiokol Corporation. (1)

          (c)  Promissory   Note,   dated  December  14,  1978,  from  Radiation
               Technology,  Inc. to New Jersey Economic Development Authority in
               the principal amount of $820,000. (1)

          (d)  Mortgage,  dated December 14, 1978, between Radiation Technology,
               Inc. and New Jersey Economic Development Authority. (1)


          (e)  Assignment  of Leases and Rents,  dated  December 14, 1978,  from
               Radiation Technology, Inc. (1)


                                       44
<PAGE>


          (f)  Settlement  Agreement,  dated December 18, 1992, between RTI Inc.
               and Thiokol Corporation. (6)

          (g)  Mortgage,  dated December 18, 1992,  between RTI Inc. and Thiokol
               Corporation. (6)

          (h)  Escrow Agreement, dated January 18, 1993, among RTI Inc., Thiokol
               Corporation and Archer & Greiner, a Professional Corporation. (6)

          (i)  Assignment  of Mortgage,  Note,  Assignment  of Leases and Rents,
               Credit Agreement and Pledge of Revenues,  dated January 29, 1993,
               by New Jersey National Bank. (6)

   10.3   (a)  Administrative   Order  of  the   United   States   Environmental
               Protection Agency (Index No. II-CERCLA-94-0124),  dated August 9,
               1994, In the Matter of the Nascolite Corporation Site. (7)

          (b)  Nascolite  Corporation  Superfund Site Tolling  Agreement,  dated
               February 2, 1995,  between  the United  States of America and RTI
               Inc. (7)

          (c)  Partial Consent Decree in the Matter of United States of America,
               plaintiff,  v. American Optical Company, B. Jadow and Sons, Inc.,
               Bethlehem Steel  Corporation,  CPS Chemical  Company,  Inc., Cyro
               Industries Inc., Cytec Industries, Dentsply International,  Inc.,
               E.I. DuPont de Nemours & Co., and RTI, inc., defendants.

   10.4   (a)  Asset  Acquisition  Agreement,  dated as of  February  26,  1996,
               between SteriGenics International and RTI Inc. (9)

          (b)  Lease Agreement  between  SteriGenics  International and RTI Inc.
               (10)

   10.5   (a)  Acquisition  Agreement,  dated  February 24,  1997,  by and among
               Refrigeration  Technology,  Inc.,  Quality Air,  Inc.,  Margie J.
               Bacchus, Philis Bacchus, Rick E. Bacchus, Rockney D. Bacchus, Ron
               Bacchus and Opal Simmons. (11)

          (b)  Escrow  Agreement,  dated as of February 24,  1997,  by and among
               Refrigeration  Technology,  Inc.,  Quality Air,  Inc.,  Margie J.
               Bacchus, Philis Bacchus, Rick E. Bacchus, Rockney D. Bacchus, Ron
               Bacchus and Opal Simmons,  and Warshaw Burstein Cohen Schlesinger
               & Kuh, LLP, as escrow agent. (11)

          (c)  Lease,  dated February , 1997,  between  Stanley Jobe and Quality
               Air, Inc. and/or assigns. (11)

          (d)  Employment   Agreement,   dated   February  24,   1997,   between
               Refrigeration Technology, Inc. and Rick E. Bacchus. (11)

          (e)  Employment   Agreement,   dated   February  24,   1997,   between
               Refrigeration Technology, Inc. and Rockney D. Bacchus. (11)

          (f)  Employment   Agreement,   dated   February  24,   1997,   between
               Refrigeration Technology, Inc. and Ron Bacchus.(11)

          (g)  Conditional Sale and Purchase Agreement, dated February 19, 1997,
               by and between  Industrias  Q.A.I.,  S.A. de C.V., Opal Elizabeth
               Simmons Wheeler,  Robert Harvey Given Trackman and  Refrigeration
               Technology, Inc. (11)

          (h)  Contract of Lease,  dated February 1, 1996, between Polifibras de
               Chihuahua, S.A. de C.V. and Industrias Q.A.I., S.A. de C.V.


                                       45
<PAGE>

          (i)  Revolving  Credit Note,  dated December 2, 1996, in the principal
               aggregate amount of $720,000,  between RTI, Inc. and Quality Air,
               Inc. (11)

          (j)  Form of Promissory  Note from Quality Air, Inc. to Theo W. Muller
               and his assigns. (11)

          (k)  Contract of Sale,  dated February 11, 1997,  between Quality Air,
               Inc. and/or assigns and Stanley P. Jobe.

          (l)  Sales  Agreement and Lease (Invoice  #028019),  dated October 21,
               1994, between Bacchus Industries Inc. and Spec-Air.

          (m)  Lease  of  Real  Property;   Improvements;   Other  Assets;   and
               Miscellaneous  Respective  Agreements,   dated  March  13,  1997,
               between Bacchus  Industries,  Inc. and Refrigeration  Technology,
               Inc.

          (n)  Promissory  Note,  dated December 30, 1996, from Rick Bacchus and
               Philis  Bacchus to Quality Air, Inc. in the  principal  amount of
               $5,000.

          (o)  Promissory  Note,  dated March 11,  1997,  from Rick  Bacchus and
               Philis Bacchus to Refrigeration  Technology Inc. in the principal
               amount of $50,000.

   10.6   (a)  1987 Stock Option Plan of Radiation Technology, Inc. (3)

11.  Statement re  computation  of per share  earnings - not required since such
     computation can be determined  clearly from the material  contained in this
     Annual Report on Form 10-KSB.

13.  Annual  report  to  security  holders,  Form  10-Q or  quarterly  report to
     security holders - not applicable.

16.  Letter on change in certifying accountant - not applicable.

18.  Letter on change in accounting principles - none.

21.  Subsidiaries of the small business issuer.

     (a)  Refrigeration Technology Inc. (incorporated in Delaware)

     (b)  Process Technology, Inc. (incorporated in Arkansas) (inactive)

22.  Published report regarding  matters submitted to vote of security holders -
     not applicable.

23.  Consents of experts and counsel.

     (a)  Consent of BDO Seidman,  LLP, to incorporation of financial statements
          in Form S-8 Registration Statement (No. 33-34063).

24.  Power of attorney - none.

27.  Financial Data Schedule

28.  Information   from  reports   furnished  to  state   insurance   regulatory
     authorities - not applicable.

99.  Additional exhibits - none.

--------
     (1)  Incorporated by reference; filed as an Exhibit to the Company's Annual
          Report on Form 10-K for its fiscal year ended December 31, 1986.


                                       46
<PAGE>


     (2)  Incorporated  by  reference;  filed  as an  Exhibit  to the  Company's
          Quarterly  Report on Form 10-Q for its fiscal quarter ended  September
          30, 1987.

     (3)  Incorporated by reference; filed as an Exhibit to the Company's Annual
          Report on Form 10-K for its fiscal year ended December 31, 1987.

     (4)  Incorporated  by  reference;  filed  as an  Exhibit  to the  Company's
          Quarterly  Report on Form 10-Q for its fiscal  quarter  ended June 30,
          1989.

     (5)  Incorporated by reference; filed as an Exhibit to the Company's Annual
          Report on Form 10-K for its fiscal year ended December 31, 1991.

     (6)  Incorporated by reference; filed as an Exhibit to the Company's Annual
          Report on Form 10-KSB for its fiscal year ended December 31, 1992.

     (7)  Incorporated by reference; filed as an Exhibit to the Company's Annual
          Report on Form 10-KSB for its fiscal year ended December 31, 1994.

     (8)  Incorporated  by  reference;  filed  as an  Exhibit  to the  Company's
          Quarterly  Report on Form 10-QSB for its fiscal quarter ended June 30,
          1995.

     (9)  Incorporated by reference; filed as an Exhibit to the Company's Annual
          Report on Form 10-KSB for its fiscal year ended December 31, 1995.

     (10) Incorporated  by  reference;  filed  as an  Exhibit  to the  Company's
          Current Report on Form 8-K, dated August 23, 1996.

     (11) Incorporated  by  reference;  filed  as an  Exhibit  to the  Company's
          Current Report on Form 8-K, dated March 6, 1997.

   (b)  REPORTS  ON FORM 8-K.  No  report on  Form 8-K  was filed by the Company
during the fourth quarter of its fiscal year ended December 31, 1996, although a
report  on Form 8-K  (responding  to Item 2 -  "Acquisition  or  Disposition  of
Assets") was filed by the Company in March 1997.

                                       47
<PAGE>


                                  SIGNATURES

      In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Dated:  March 27, 1997
                              RTI INC.

                              By:                 /S/
                                 ---------------------------------------
                                 Theo W. Muller, Chief Executive Officer



      In accordance  with the Exchange Act, this report has been signed below by
the following  persons on behalf of the  registrant and in the capacities and on
the dates indicated.


Dated:      March 27, 1997          /s/ Rick E. Bacchus
                                   ---------------------------------
                                    Rick E. Bacchus, Director


            March 27, 1997          /s/ Rockney D. Bacchus
                                   ---------------------------------
                                    Rockney D. Bacchus, Director


            March 27, 1997          /s/ Ronald A/ Bacchus
                                   ---------------------------------
                                    Ronald A. Bacchus, Director


            March 27, 1997          /s/ Sanders Davies
                                   ---------------------------------
                                    Sanders Davies, Director


            March 27, 1997          /s/ C.W. McMillan
                                   ---------------------------------
                                    C. W. McMillan, Director


            March 27, 1997          /s/ Theo W. Muller
                                   ---------------------------------
                                    Theo W. Muller, Director


            March 27, 1997          /s/ George M. Whitmore, Jr.
                                   ---------------------------------
                                    George M. Whitmore, Jr., Director


            March 27, 1997          /s/ Theo W. Muller
                                   ---------------------------------
                                    Theo W. Muller
                                    Chief Executive Officer
                                    (Principal Executive, Financial
                                    and Accounting Officer)




                                      48