SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

     (Mark One)

     [X]  ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF THE  SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended June 30, 1997

     [ ] TRANSITION  REPORT  PURSUANT TO SECTION 13 OR 15 (d) OF THE  SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from _______ to _______

Commission file number 33-80961-NY

                        THERMO-MIZER ENVIRONMENTAL CORP.
                  (Exact name of small business in its charter)

          Delaware                                       22-2312917
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

528 Oritan Avenue, Ridgefield, NJ                          07657
(Address of principal executive offices)                 (Zip Code)

Issuer's telephone number, including area code: 201-941-5805

Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.001;
Redeemable Warrants

     Check whether the issuer (1) has 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 will not 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]

     Issuer's  revenues  for its most recent  fiscal year were  $2,351,191.  The
aggregate  market  value of common  voting stock held by  non-affiliates  of the
Issuer was approximately $1,953,000 computed by reference to the last sale price
at which the stock was sold on June 30, 1997 as  reported by Nasdaq.  As of June
30, 1997,  2,717,000  shares of common stock and 1,725,000  redeemable  warrants
were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE



<PAGE>



The  information  required in Part III by Items 9, 10, 11 and 12 is incorporated
by reference to the  Registrant's  proxy statement in connection with the annual
meeting of shareholders to be held on December 12, 1997,  which will be filed by
the Company within 120 days after the close of its fiscal year.


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PART I

ITEM 1. DESCRIPTION OF BUSINESS

     Thermo-Mizer  Environmental  Corp.  (the  "Company" or "Thermo"),  based in
Ridgefield,  New  Jersey,  designs,  produces,  and  markets  products  based on
microprocessors which control or monitor temperature,  humidity,  emissions, and
pollutants.  From its  inception,  the Company's  primary  products were chiller
controls for air conditioning systems in large office buildings and institutions
and systems to monitor  temperature  and humidity  conditions  in hospitals  and
pharmaceutical  manufacturing facilities. The Company's products are used in the
manufacturing process of pharmaceutical products. Pursuant to regulations of the
Food and Drug  Administration  (the "FDA"),  pharmaceutical  manufacturers  must
monitor and record the physical  conditions  under which certain  pharmaceutical
products are  manufactured  because such factors as temperature and humidity can
affect the quality and composition of the manufactured  product. The Company had
planned on  introducing  its products into the Continuous  Emissions  Monitoring
market  following  the adoption of  amendments to the Clean Air Act by Congress.
However,  the  specific  rules  and  regulations  to be  issued  by the  various
regulatory  agencies  responsible  therefor have been delayed.  As a result, the
Company made a decision to focus its resources on other market niches.

     In October  1997,  the Company  signed a definitive  Purchase  Agreement to
acquire  all  of  the   outstanding   common  stock  of  Laminaire   Corporation
("Laminaire"),  located in Rahway, New Jersey, a manufacturer and distributor of
clean  room  products  which  also  assembles,  under  contract,  a  variety  of
electronic  circuit boards.  Laminaire has annual sales in excess of $6,000,000.
The closing is scheduled to take place on October 16, 1997.  Management believes
that the Company's technology can enhance the Laminaire product line and intends
to  refocus  substantially  all of the  Company's  technological  resources  and
efforts  in  that  direction.  This  refocusing  will  result  in a  substantial
reduction in the Company's traditional systems business.

General

     The Company was founded in 1978 by Jon J. Darcy to provide energy efficient
products for large heating and cooling systems. Since its inception, the Company
had  changes in  ownership  and  developed a family of  products  and  equipment
related to environmental  services. The Company was sold to a British company in
1981.  In 1984,  Jon J. Darcy and  several  partners  used a  corporation  named
Control  Engineering  that had been a  subsidiary  of the Company to acquire the
Company's assets. The subsidiary's name was changed to Thermo Engineering,  Inc.
In 1987,  Mr. Darcy  increased his ownership  interest and, since that time, has
determined  the direction of the Company.  In 1994,  the name of the Company was
changed to Thermo-Mizer  Environmental Corp., the corporate domicile was changed
from New Jersey to Delaware,  and the capital  structure was changed in that one
share was  exchanged  for 1,000 shares of common  stock.  In January  1996,  the
Company  effected a 1 to .75 reverse stock split of its common  stock.  In March
1996, the Company  completed an initial public  offering of its common stock and
redeemable warrants. In October 1997, the Company acquired Laminaire, located in
Rahway,  New Jersey, a manufacturer and distributor of cleanroom  products which
also assembles a variety of electronic circuit boards.


                                                                               3

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     In 1997,  the  Company  adopted a strategy of seeking  growth by  acquiring
companies in related markets.  In October 1997, the Company  completed the first
step in that strategy by entering into  acquisition  agreements  with  Laminaire
Corporation  ("Laminaire"),  a Rahway,  New Jersey-based  company engaged in the
sale  of  electronic  components,  supplies  and  self  contained  environmental
structures  for the clean room  industry.  Its products are sold to thousands of
customers,  nationally  and  internationally,  through a  combination  of direct
salesmen and representatives.  These customers include electronic manufacturers,
biotechnology companies, and pharmaceutical  manufacturers.  There is an overlap
between the  industries  served by the Company  and those  served by  Laminaire,
which offers both entities the opportunity to cross sell their products.

     Since inception, the Company's primary products related to chiller controls
and  systems  to  monitor   environmental   conditions   in  hospitals  and  the
manufacturing areas of pharmaceutical  companies.  Chillers are an integral part
of the mechanical air conditioning systems in large buildings.

Products

     Prior to the  acquisition  of Laminaire,  the Company had one basic product
line,  products used for data  collection  and analysis,  with users spread over
many industries.  The Company's products are designed to permit users to gather,
analyze,  summarize,  and  store  data  about  certain  aspects  of  a  physical
environment on a real time basis.  Users of these products consist of industries
having smoke stack  emissions,  the  pharmaceutical  industry,  and large office
buildings   and    institutions.    All   of   the   Company's    products   are
microprocessor-based  and use the same  computer  board,  proprietary  operating
system  (an  operating  system  owned  and  developed  for  the  Company),   and
input/output circuit board.

     The Company's  products all use the Company's basic technology and products
which  can be  modified  and  configured  to meet the  particular  needs of each
industry  and can be  modified to comply  with  future  regulatory  requirements
because they are modular in design  requiring only the change of specific boards
to perform different functions. The applications software runs on many platforms
or operating systems of personal computers, including Windows 95 and Windows NT.
The Company  anticipates  adapting to future  changes by revising  software  and
changing the modules.

     The Company's  current  products are designed  around a custom  interpreter
software  kernel  that  has  similar  cross  platform  capabilities  as the JAVA
programming  language.  The interpreter enables the software to be transportable
to different  hardware platforms and be menu driven so that, in many cases, they
can be installed without the assistance of a company engineer.  Its products can
easily be adapted to different  systems,  making them cost effective and easy to
install and use. When regulatory  authorities  make changes in regulations,  the
Company  believes  that it will be able to respond by modifying  the software to
adapt the system so the  customer  can comply with the  changes.  The  operating
system is modular in design and  therefore  flexible  in nature.  As changes are
required the modules can be added,  removed or modified easily without effecting
the rest of the operating system.

     Each  system  is  comprised  of  three  basic  parts.   Data  gathering  is
accomplished  in the target  environment  through sensors and analyzers that are
hardware devices purchased from other  manufacturers.  The sensors and analyzers
are placed in  environmentally-controlled  rooms or in exhaust  outlets.  In the
pharmaceutical manufacturing facilities, the sensors and analyzers are placed in



                                                                               4

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the  manufacturing  area. The analyzers  convert the data to electrical  signals
which are transferred to the microprocessor.  The Company's oldest core product,
the  Thermo-Mizer,  is a  microprocessor  included in all Company  systems which
converts  the real time data  transmitted  from the  analyzers  and  sensors  to
digital  form  which  can then be  processed  by a  computer.  The  Thermo-Mizer
digitizes  the data from the  analyzers  and sensors,  performs all the required
calculations, prepares the data for storage, formats the data, and transmits the
data to a personal computer.  The personal computer is used to store the data in
a database and generates reports as required or needed.

     The microprocessor used in Company products is designed,  manufactured, and
programmed by the Company. It is comprised of a micro-controller  purchased from
an outside  source,  but whose  operating  system is designed  by the  Company's
software development engineers. Application software is written by the Company's
engineers  to  use  the   micro-controller   in  a  Thermo-Mizer   system.   The
micro-controller  chip is placed on a circuit board designed by the Company with
other  electronic  components.  All of the Company's  products  utilize the same
circuit  board,   micro-controller   chip,  and   electronic   components.   The
manufacturing  and testing of circuit  boards is done by contract  manufacturers
(although this work may be performed by Laminaire in the future).  The Company's
engineers do all final assembly, testing and programming.

     The Company offers a fully integrated hardware/software solution for custom
systems.  The  Company's  products can  communicate  the data  gathered from the
sensors and  analyzer  directly to the  personal  computer.  When  developing  a
system, the Company purchases the analyzers and sensors, as well as the personal
computers,  from  outside  sources.  The  Company  sells an  entire  system on a
contractual basis (in which case it integrates the analyzers, monitors, sensors,
and  personal  computer  purchased  from other  manufacturers  into one discrete
system).  The Company also sells the  Thermo-Mizer as the "brains" of the system
to a systems  integrator.  The contractor then  incorporates the Thermo-Mizer as
one of the components of the system.

     Laminaire,   established  in  1964,  has  two  principal  product  lines  -
electronic  component assembly and clean room products.  The Electronic Products
Group  specializes in the assembly of printed  circuit  boards,  wire harnesses,
cables  and  other  electronic  component  assembly.  The  Clean  Room  Division
manufactures  clean room  workstations  and modules,  sells related supplies and
accessories  manufactured  by others and  provides  consulting  services for the
design and  certification  of customers'  clean rooms.  In addition,  Management
believes  that  Thermo's   microprocessor-based   controls   technology  can  be
incorporated into certain Laminaire products to give such products technological
and competitive advantages.

     The Company has introduced three new products to penetrate its marketplace,
the  Maxi-mizer,  the Mini-mizer  Industrial  Environmental  Control System (see
"Management's Discussion and Analysis") and T-Vision Operator Interface and Data
Acquisition Software. The Maxi-mizer is a microcomputer controller that collects
data inputs from electronic  sensors,  digitizes such inputs,  performs  complex
calculations  and uses the  output to  control  various  types of  environmental
equipment in large buildings,  pharmaceutical and microelectronic  manufacturing
facilities  and  healthcare  facilities.  The  Mini-mizer  is  a  smaller,  less
expensive  version of the Maxi-mizer that is designed for use by OEMs and system
integrators.  T-Vision  is a data  acquisition  software  program  that  permits
communications  between a computer and either a  Maxi-mizer  or  Mini-mizer.  It
collects large quantities of data in real time,  performs 



                                                                               5

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complex  calculations,  stores  data and  creates  reports  required  by various
regulatory  bodies.  Management  believes that these  products can be adapted to
enhance Laminaire's product line, as well as fit into the Company's  traditional
product lines.

Chiller Controls

     The oldest  application  of the Company's  products is control  systems for
heating,  ventilating,  and air conditioning  ("HVAC") in large office buildings
and institutions.  This unit monitors pressure flow, temperature and energy. The
chiller  control has similar  technology  but represents a separate and distinct
application.  Approximately  10%--15% of the Company's revenues are generated in
Chiller control applications.

     The product is used  primarily as a chiller  control that regulates the air
conditioner  component of the mechanical system. Many facilities must upgrade or
modify  their  Air  conditioning  systems  because  of the ban on the use in new
systems  of many  chloroflurocarbons  ("CFC's")  after  1995.  CFC's are used in
chiller units in most HVAC  environmental  systems installed in large commercial
facilities prior to 1990. As air conditioning  systems in large office buildings
and  factories  are  modified and  replaced,  the Company  anticipates  that its
chiller  control will be in demand  because of cost savings  benefits  available
through  effective  energy  control.  Changing  refrigerants  causes a change or
modification in the mechanical system.

Pharmaceutical Industry

     The  Company's  products  to  monitor  the  environment  are  used  in  the
pharmaceutical   industry.   Presently  the  Company's  products  are  used  for
approximately   25   environmental    applications   used   for   pharmaceutical
manufacturing and laboratories.  All manufacturers of health and  pharmaceutical
products  are subject to  regulations  promulgated  by the FDA known as the Good
Manufacturing Procedures ("GMP"). GMP requires that a product be made consistent
with a precise  prescribed  method  set down by the  manufacturer  in advance of
production  runs of the  product.  The  manufacturer  then  validates  that  all
parameters,  set forth as monitored conditions for proper manufacture,  are met.
During the manufacturing  process these conditions must be monitored,  recorded,
alarmed and controlled  within specified  parameters to ensure adherence to GMP.
Temperature,  humidity  and pressure are  typically  some of the key  parameters
required to be monitored and controlled as these factors may affect the quality,
quantity, strength and purity of the drug being manufactured.

     The  systems  not only  monitor  environmental  conditions,  but they  also
document the  conditions so that  compliance  can be recorded and verified.  The
Company  sells its products to other  suppliers  who  incorporate  the Company's
products into the entire system.

Warranty

     The  Company's   hardware/software  solutions  have  been  designed  to  be
compatible with most systems configuration requirements.  The Company's flexible
proprietary  operating system allows for easy adaptation to future requirements.
The Company's policy is to warrant parts on new  installations for one year from
the start-up of the system. Cost of the parts used in installations is generally
not a material component of the total installation costs.



                                                                               6

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Marketing

     The Company's  product lines and  proprietary  technology are positioned to
penetrate  markets  that are  affected by  environmental  laws and  regulations.
Management  believes that a substantial portion of its current contract revenues
result  from  referrals  from  existing  or previous  customers.  The  principal
impediments  to  expanding  sales remain as the lack of resources to establish a
national  distribution network and the reluctance of larger contractors to award
major contracts to a small public company.

     Marketing  and sales  materials  for the  Company's  products  include  the
production of brochures and other marketing  related material and an advertising
campaign  directed at creating  name and product  recognition  for the  Company.
Thermo's project and field engineers perform marketing  functions after learning
of anticipated  construction or other needs for the Company's products.  Company
personnel make direct contact with facilities managers, consulting engineers and
primary  contractors  to sell products or systems.  In addition,  the Company is
expanding the scope of its  operations  beyond its present  geographical  market
area  primarily  in the states of New York and New Jersey with new  contracts in
Canada and Georgia.  The Company will continue to develop its marketing  network
on a limited  geographical  basis  unless  an  acquisition  offers a more  rapid
expansion opportunity.  It will develop one geographic location before expanding
into another area or region.  Management has not developed a definitive  plan as
to the order or  priority  of  expansion  into new  geographical  areas.  Market
expansion will continue to be supported by customer demand.

     The Company's marketing efforts are divided into two categories, (i) system
and contract  sales and (ii) product and service  sales.  Laminaire's  marketing
will  include  direct  contact  with  internal  sales  programs  and  include an
electronic menu of products and services  available on an interactive basis over
the  internet.  The company  will  publish a catalog of  proprietary  as well as
distributor products. Extensive participation in nationally attended trade shows
will continue.

System  and  Contract  Sales - System  sales  occur  when the  Company  designs,
assembles,  and  installs  entire  environmental  control  systems  for which it
purchases  and  integrates  equipment  manufactured  by  other  companies.   The
Company's  products are then  designed into the system.  Large system  contracts
generally  require  formal  bids.  At first,  the  Company by request  submits a
proposal. When the customer determines that the products meet the specifications
and  requirements,  the Company  then  submits a formal  bid.  In the past,  the
Company believes it was not awarded certain  contracts  because it was perceived
by the customer to be a small company.  Having greater  resources would increase
its  ability  to  win  bids  based  on  technological  merit,  price,  and  cost
effectiveness.  In the  past,  most  of the  systems  sold by the  Company  have
typically  involved  installation of chiller  control systems or  pharmaceutical
monitoring  systems.  The Company  classifies all contracts and purchase  orders
requiring a relatively large percentage of engineering effort as a "system sale"
regardless of the dollar value of the sale.

     Systems  contracts  involve  the  integration  of  hardware  and  equipment
manufactured by different  companies with the Company's  products.  System sales
comprised more than 90 percent of total revenues in both 1997 and 1996, but will
make up a significantly  smaller percentage of fiscal 1998 consolidated  revenue
because of the acquisition of Laminaire.



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Product and service sales - Product and service  sales require less  engineering
and field support than do system sales.  In addition,  individual  product sales
are easier to manage than are large contracts.  However,  the Company has lacked
the  resources  to  develop a network  and  methodology  to sell and  distribute
individual products. The acquisition of Laminaire will shift the Company's focus
much more strongly towards product sales because of Laminaire's strength in that
area. In addition,  Management  believes that the  Company's  technology  can be
incorporated into certain of Laminaire's products,  thereby increasing the focus
on product  sales.  This change in emphasis  may result in the Company  devoting
larger portions of its engineering resources towards this immediate opportunity.

     Laminaire  currently sells a significant  number of different products that
it either  inventories or "drop ships" from its  distributors for its customers.
These  products  are  sold  primarily  through  an  in-house  sales  group to an
established  customer base which purchase  either through bulk or small quantity
sale.  Thermo's  customer  base  in  pharmaceuticals   will  offer  an  expanded
opportunity for Laminaire's products to be presented into a new market.

Competition

     Competition  in  the  market  niches  in  which  the  Company  operates  is
fragmented.  Competition  in  the  pharmaceutical  industry  consists  of  major
industrial  companies,  including  Landis & Gyr  Power,  Johnson  Controls,  and
Honeywell.  Competitors in the chiller control niche include Carrier, Trane, and
York. The Company  believes that its  competitive  advantage is derived from the
flexibility of its products  which permits users to integrate  equipment made by
more than one  manufacturer.  No market share data is available  for the Company
and its  competitors.  No  assurances  can be given  that large  companies  with
greater financial and marketing resources than are possessed by the Company will
not enter the Company's  market niches as demand  increases for products  needed
for  compliance  with  recently-enacted  regulations  for  continuous  emissions
monitoring.

     Laminaire's  competition  consists  primarily of small  companies with each
having limited market penetration.  Many of these companies also provide general
contracting  services for clean room  construction.  Manufacturers  of cleanroom
equipment are typically  regional product and service  providers.  The Company's
Management believes that incorporating its microprocessor-based  technology into
certain  of  Laminaire's  products  will  provide  Laminaire  with a  meaningful
competitive advantage.

     Competition  in  the  market  niches  in  which  the  Company  operates  is
fragmented.  No firm  dominates the market.  Competition  in the  pharmaceutical
industry are major industrial  companies  including Landis & Gyr Power,  Johnson
Controls,  and Honeywell.  Competition in the chiller control  business  include
Carrier, Trane, and York. The Company believes that its competitive advantage is
derived from the  flexibility  of its products  which permits users to integrate
equipment made by more than one manufacturer.  No market share data is available
for the  Company  and its  competitors.  No  assurances  can be given that large
companies with greater  financial and marketing  resources than are possessed by
the Company will not enter the Company's market niches as demand increases.



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Employees

     At June 30, 1997, the Company had 20 employees,  of which ten are engineers
or have  degrees in applied  science,  and four write  software.  The  remaining
employees  perform  administrative  and  shop  assembly  responsibilities.   The
employees  are not  unionized,  and the  Company  has no  collective  bargaining
agreement. Messrs. Darcy, Scally, Smith, Breitenbach, and Musto as the president
and managers, respectively, are considered as key employees.

     Laminaire has approximately 60 employees, none of whom are unionized.

ITEM 2. FACILITIES

     The Company  leases office and research  facilities of 7,000 square feet in
Ridgefield,  New Jersey under the terms of a verbal lease  expiring in July 1998
which  calls for  monthly  lease  payments  of  approximately  $4,000.  With the
acquisition  of  Laminaire,  the Company plans on  relocating  into  Laminaire's
47,000 square foot facility in Rahway, New Jersey.


Manufacturing

     The Company uses contract  manufacturers to assemble and test subassemblies
and components for its products. Computer hardware and other components used for
systems are purchased from original equipment manufacturers and other suppliers.
The Company's  proprietary software controls the operation of the products.  The
complete system is assembled, tested, and programmed by the Company's engineers.
Depending on the  circumstances  the system is then installed by the end user or
their contractors.

     Management  believes that its sources of equipment,  parts and supplies are
sufficient as all required parts and components are readily available and can be
acquired from alternative sources.

     The Company generally does not commence assembling a system unless it has a
contract  or a  purchase  order  from the  customer.  The  Company  has  limited
inventory.  At August 31,  1997,  its backlog  was  approximately  $  1,125,000,
substantially  all of which is expected to be  completed  during the fiscal year
ending June 30, 1998.

     The  acquisition  of  Laminaire   significantly   increases  the  Company's
manufacturing  capacity.  Laminaire  has adequate  space,  capacity and trained,
experienced technicians to develop and manufacture many standard components used
in Thermo's core products.

Research and Development

     The  Company  operates  in an  industry  subject  to rapid and  significant
technological change. Future growth for the Company's traditional product niches
is  dependent  on its  ability to  innovate  and adapt its  technologies  to the
changing  needs of a  marketplace  defined in large  part by  federal  and state
environmental  regulations.  During  the past  two  years,  most of the  product
development cost was expended for the development of the Mini-mizer, Maxi-mizer,
and T-Vision  products.  The formation of Virtual  Dynamics,  Thermo's  software
development  team,  in June 1996  provides  the Company  with  enhanced  quality
control over the software portions of its product developments.  The integration
of the  Company's  components  with other  control  systems is  important to its



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future  success.  Previously,  much of the  software  effort was  contracted  to
outside vendors.

     Although no precise  dollar  amount has been  determined,  the Company will
continue to  allocate  resources  to develop  and  enhance its current  products
further  and  the  design  of  complementary   products.  The  Company  expenses
development costs as they are incurred. The Company intends to work closely with
its customers and prospective  customers to determine their  requirements and to
design  enhancements  and  new  products  to  meet  changes  in  the  regulatory
environment.   Much  of  this  knowledge  is  derived  from  performing  systems
contracts.

     The Company has one process patent for its chiller control system. However,
the Company  relies on its  proprietary  technology  and know-how to maintain or
establish competitive position or advantage.

     The  acquisition  of  Laminaire  provides  the Company  with new  marketing
opportunities.  The  first of these  opportunities  will  involve  adapting  the
Mini-mizer and T-Vision  products for use with Laminaire's  clean room products.
These two products advance the technology content of Laminaire products.

Item 3.   LEGAL PROCEEDINGS

     The Company is not a party to any material  litigation  and is not aware of
any pending or threatened  litigation that could have a material  adverse effect
on it or its business.


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

          NONE

PART II

Item 5.  MARKET  FOR THE  REGISTRANT'S  COMMON  EQUITY AND  RELATED  STOCKHOLDER
         MATTERS

     The Company's Common Stock and Redeemable Warrants are quoted on the NASDAQ
Small Cap Market  under the  symbols  "THMZ"  and  "THMZW",  respectively.  Both
securities  commenced  trading on February 27, 1996.  The table below sets forth
the high and low sale  prices for the  Company's  Common  Stock and  Warrants as
reported by NASDAQ:


Quarter Ended            Common  Stock                      Redeemable  Warrants
                           High              Low              High           Low
                                                        
March 31, 1996            $8.00        $ 1 31/64           $ 5 3/8       $ 1 1/4
June 30, 1996              3.00            1 3/8             1 1/4           1/8
September 30,1996       2 11/32           1 1/16               1/2           1/8
December 31, 1996        2 7/32            29/32             13/32          3/32
March 31, 1997           2 3/32            11/16              9/16          3/32
June 30, 1997             1 1/4             7/16              1/14          1/16
                                                        
     There are  approximately  96 stockholders of record of the Company's Common
Stock.



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Item 6.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF RESULTS OF  OPERATIONS  AND
FINANCIAL CONDITION

Safe Harbor  Statement  Under the Private  Securities  Litigation  Reform Act of
1995.

     Information set forth herein contains  "forward-looking  statements"  which
can be identified by the use of forward-looking  terminology such as "believes,"
"expects,"  "may," "should" or  "anticipates"  or the negative  thereof or other
variations thereon or comparable terminology,  or by discussions of strategy. No
assurance can be given that the future  results  covered by the  forward-looking
statements will be achieved. The Company cautions readers that important factors
may affect the Company's  actual  results and could cause such results to differ
materially from forward-looking  statements made by or on behalf of the Company.
Such factors include,  but are not limited to, changing market  conditions,  the
impact of competitive products, pricing, acceptance of the Company's products in
development  and other  risks  detailed  herein  and in other  filings  that the
Company makes with the Securities and Exchange Commission.


General

     The Company's  operations are currently dominated by systems contracts with
customers in the pharmaceutical and chiller control industries.  Fluctuations in
sales,  revenues and operating results can and do occur because of the timing of
such  contracts  since  certain  larger  contracts  require  greater  amounts of
vendors' materials and use of subcontractors than do other contracts. Generally,
gross  margins  are lower on those  contracts  which  require  the  purchase  of
significant  amounts of vendor  materials and services  compared with  contracts
which are more  engineering  or labor  intensive.  In  addition,  the  Company's
engineering staff is capable of serving a significant volume of business.  Thus,
engineering costs do not fluctuate at the same rate as revenues. This means that
if revenues increase, gross profits will increase at a faster rate than revenue.
The reverse is true if revenues were to decrease below the break-even point.

     Because  of  the  Company's   historical   emphasis  on  systems  sales,  a
substantial  portion of its revenue is derived from a  relatively  few number of
contracts.  In general,  the Company has less than 50 open contracts in a fiscal
quarter of which fewer than ten  comprise  more than 50 percent of revenues  for
that quarter.  This also means that a small number of customers  make up a large
percentage  of sales.  For the fiscal  year ended  June 30,  1997,  sales to two
customers accounted for 31% of total sales with individual  customers comprising
17% and 14%,  respectively,  of total sales.  For the fiscal year ended June 30,
1996,  sales to six  customers  comprised  87% of total sales  (with  individual
customers  comprising  23%, 20%, 13%, 11%, 10% and 10%,  respectively,  of total
sales). Laminaire has two customers that comprised 23% of its sales for the year
ended December 31, 1996, with the individual  customers  comprising 12% and 11%,
respectively.

     The  Company  believes  that it is  beneficial  to  implement a strategy to
reduce its  dependence  on large  contracts by  increasing  its focus on product
sales and service.  Its product  development efforts have resulted in the recent
introduction  of three new products,  and several others are under  development.
The acquisition of Laminaire  accelerates this strategy  because  Laminaire is a
product-driven  business with a product line that potentially can be enhanced by
Thermo's newly-introduced products. Because of the acquisition of Laminaire,



                                                                              12

<PAGE>



most  historical  relationships  between costs and revenues set forth below will
not be indicative of such relationships in the future.

Results of Operations
Comparison of Fiscal 1997 to 1996


<TABLE>
<CAPTION>
    Caption                                     1997            %             1996           %           Change           %
<S>                                         <C>               <C>       <C>                 <C>      <C>                <C> 
Contract and other revenues                 $ 2,351,191                 $  2,125,959                 $   225,232         10.6%
Cost of revenues                              2,099,873        89.3%       1,437,682        67.6%        662,191         46.1%
Gross profit                                    251,318        10.7%         688,277        32.4%       -436,959        -63.5%
Expenses:                             
Personnel and related costs                     524,401        22.3%         246,489        11.6%        277,912        -63.5%
Selling and administrative                      897,839        38.2%         417,686        19.6%        480,153        -63.5%
Product development costs                       221,429         9.4%         169,667         8.0%         51,762         30.5%
Occupancy costs                                  32,955         1.4%          38,333         1.8%         -5,378        -14.0%
Total                                         1,676,624        71.3%         872,175        41.0%        804,449          2.9%
Operating income                             -1,425,306       -60.6%        -183,898        -8.7%     -1,241,408          
Nonoperating expenses - net                    -478,653       -20.4%          15,117         0.7%       -463,536          
Loss before income taxes                     -1,903,959       -81.0%        -168,781        -7.9%     -1,735,178          
Income taxes - net                              -19,207        -0.8%         -55,643        -2.6%        -74,850          
Net loss                                    ($1,923,166)      -81.8%    ($   113,138)       -5.3%    ($1,810,028)         
</TABLE>


     The Company  completed an initial  public  offering of its common stock and
warrants  in March  1996.  Thereafter,  it  commenced  implementing  a  strategy
designed  to  make  it a  product  and  service,  rather  than a  systems-driven
business.  This strategy  required it to make a variety of  investments in human
resources,  management systems and product development which negatively impacted
earnings  during the fiscal year ended June 30, 1997. The  investments  included
(i) expanding the Company's product and software development capabilities,  (ii)
hiring new  financial,  engineering,  sales and marketing  professionals,  (iii)
conducting  an analysis of the  Company's  marketplace,  and (iv)  acquiring the
rights to certain  new  products  which the Company  believes  fit well into the
Company's  overall  strategy.  Certain  of these  investments  were made late in
fiscal 1996.

     The Company  believed  that it would begin to realize the benefits of these
investments  during fiscal 1997.  However,  operations for the fiscal year ended
June 30,  1997 were  adversely  impacted  by two sets of  circumstances.  First,
certain of the Company's  principal  customers  significantly  and  unexpectedly
reduced their capital spending.  These cutbacks resulted in the Company's actual
volume of work for the period being  significantly  below the level  planned and
was insufficient to cover its overhead. The Company increased it selling efforts
and augmented its marketing resources that resulted in a significant increase in
its bidding and proposal activity.  Although  Management is optimistic about the
Company's  prospects for being awarded certain of these proposed  contracts,  no
assurance can be given that it will be successful in this regard.  Secondly, the
Company  introduced  a new  product  in  fiscal  1997 and  performed  two  major
contracts  that  incorporated  such product.  The Company  required  longer than
expected to identify and correct certain problems which arose in connection with
the operation of this new product  which  resulted in it incurring a substantial
loss  during  the period on one of these  contracts  and  significantly  reduced
margins  on the  other.  The loss was  caused  because  significant  amounts  of
engineering  labor and  subcontractor  assistance  was required on these jobs to
analyze  and address the  problems.  Throughout  fiscal 1997 the Company did not
make  a  meaningful  penetration  into  the  targeted  CEM  business  or  obtain
significant contracts from new customers despite increased marketing efforts. In
part,  this  inability  to  penetrate  the  marketplace  was caused by delays of
governmental bodies to release specific regulations in this area.



                                                                              12

<PAGE>



     In January  1997,  the Company made certain  reductions in its workforce to
permit it to approach  breakeven at lower levels of sales activity.  The Company
also  believes  that  it  has  identified  the  problems  in  its  new  product.
Nevertheless,  the  Company  is  not  receiving  a  sufficient  quantity  of new
ordersand  contracts  to permit its  traditional  core  business to operate at a
profitable level in the next few fiscal quarters. In addition, there are prepaid
expenses of $183,334  associated with a financial  public relations  program.  A
substantial  portion of such prepaid  amount will be amortized  during the first
quarter of fiscal 1998.

     The Company's  strategy is to reduce its  dependence on large  contracts by
increasing  its focus on  product  sales.  No  assurance  can be given  that the
Company  will be  successful  in these  efforts.  However,  in October  1997 the
Company acquired  Laminaire (see Note 14 to "Notes to Financial  Statements" and
"Liquidity  and  Capital  Resources"  below).   Management   believes  that  the
acquisition of Laminaire, a product-driven manufacturer and distributor of clean
room products which also produces a variety of electronic circuit boards and has
annual  sales in excess of  $6,000,000,  represents  a  critical  element in its
effort  to make  this  transition  and  stabilize  its  financial  condition.  A
significant portion of its management, marketing and technical resources will be
focused towards  integrating  and, where  possible,  expanding and enhancing the
Laminaire  business.  This refocusing could result in a transition away from the
Company's core niches and contract orientation.

     Operating  expenses are not comparable  between periods because fiscal 1997
includes  the costs  associated  with.  (i)  expanding  the  Company's  software
development  capabilities,  (ii) hiring new  financial,  engineering,  sales and
marketing  professionals,  (iii)  conducting  a  sophisticated  analysis  of the
Company's  marketplace,  (iv) acquiring the rights to certain new products which
fit well into the  Company's  overall  strategy  and (v)  significant  financial
public  relations and other "public company" related costs. The costs associated
with  being  a  public  company  include  public  relations  costs,   additional
insurance,  professional  fees,  shareholder  and board of director  costs.  The
financial  public  relations  costs  included  in "Selling  and  administrative"
amounted to  $150,633  and were  incurred  to  establish  name  recognition  and
liquidity  for the  Company's  stock  after  the  Company's  underwriter  ceased
operations  shortly  after the  initial  public  offering.  These  factors  were
important for shareholders and to permit the Company to complete the acquisition
of Laminaire (see below).  There were substantially fewer such costs incurred in
1996.  The Company also hired  several new  engineers and incurred the customary
time and costs associated with training.

     Product   development  costs  increased  because  the  Company  hired  four
engineers  who  devote a  significant  portion of their  time to  developing  or
enhancing software and other new products and enhancements to existing products.
In addition,  significant  development efforts were necessary in connection with
the problems encountered with a newly-introduced product.

     In  addition,  operating  results  were  significantly  impacted by several
transactions  which took place  during the fiscal  year ended June 30,  1997 and
related to the  engagement  of a  financial  public  relations  and  acquisition
consultant,  the issuance of nonqualified  stock options and the cancellation of
the Underwriting Agreement with Nationwide Securities,  Inc. Management believes
that each of these expenditures and transactions had the potential to contribute
positively to future  shareholder  value,  although no assurance  thereof can be
given. There were no similar  investments or transactions during the fiscal year



                                                                              13

<PAGE>



ended June 30, 1996. A detailed listing and description of these charges,  which
include noncash items aggregating  approximately  $247,000, is set forth in Note
12 to the Financial  Statements  included elsewhere herein.  Management does not
anticipate incurring similar charges in the future

     The Company has established reserves for the entire benefit associated with
the unused income tax loss carryforwards because the Company must realize income
in the future to utilize such carryforwards.


Comparison of Fiscal 1996 to 1995

     As described  elsewhere  herein,  the Company  completed an initial  public
offering  of its  common  stock  and  warrants  in March  1996.  Thereafter,  it
commenced  implementing  a strategy  designed to make it a product and  service,
rather  than a  systems-driven  business.  This  strategy  required it to make a
variety of  investments  in human  resources,  management  systems  and  product
development  which  negatively  impacted  earnings  following the closing of the
public  offering and will continue to impact  earnings  during fiscal 1997.  The
Company   believes  that  it  will  begin  realizing  the  benefits  from  these
investments  during the  second  half of fiscal  1997,  although  no  assurances
thereof can be given.

     The  investments  include (i) hiring a new chief  financial  officer,  (ii)
expanding the Company's software development capabilities,  (iii) developing and
implementing new management control and reporting  systems,(iv)hiring  new sales
and marketing  professionals,  (v)  conducting a  sophisticated  analysis of the
Company's  marketplace,  and (vi)  acquiring  the rights to certain new products
which fit well into the Company's  overall  strategy.  Many of these investments
were made late in fiscal 1996 and, therefore,  their effect on operating results
will be  greater  during  fiscal  1997 than they were  during  fiscal  1996.  In
addition,   fiscal  1997's  operating   results  will  be  impacted  by  several
transactions  which took place during the three months ending September 30, 1996
and related to the engagement of a financial  public  relations and  acquisition
consultant,  the issuance of  nonqualified  stock options and the termination of
the Underwriting Agreement (see Note 13 of "Notes to Financial Statements").

      A comparison of activity between fiscal 1996 and 1995 is as follows:

<TABLE>
<CAPTION>

Caption                                      1996           %            1995           %       Change
<S>                                    <C>              <C>        <C>              <C>      <C>      
Contract and other revenues            $2,125,959                  $2,548,660                $-422,701
Cost of revenues                        1,437,682       0.676                       0.652     -224,788
                                                                    1,661,470
Gross profit                              688,277       0.324         887,190       0.348     -198,913
Expenses:
   Personnel and related costs            246,489       0.116         233,110       0.091       13,379
   Administration expenses                304,057       0.143         180,039       0.071      124,018
   Product development costs              169,667       0.080         197,978       0.078      -28,311
   Selling expenses                       113,629       0.053          68,344       0.027       45,285
   Occupancy costs                         38,333       0.018          39,593       0.016       -1,260
   Total Expenses                         872,175       0.410         719,064       0.282      153,111
Operating Income (Loss)                  -183,898      -0.087         168,126       0.066     -352,024
Interest-Net                               15,117       0.007          42,572       0.017       57,689
Income before income taxes               -168,781      -0.079         125,554       0.049     -294,335
Income Taxes-Net                           55,643       0.026          30,874       0.012       86,517
Net Income (Loss)                       $-113,138      -0.053         $94,680       0.037    $-207,818
</TABLE>



                                                                              14

<PAGE>



     Sales  decreased by $422,701 (or  16.6%)in  fiscal 1996  compared to fiscal
1995  because  (i) a portion of a major  contract  expected to be  completed  in
fiscal 1996 was delayed by the customer such that it will be completed in fiscal
1997; (ii) service revenues declined by $30,200;  (iii) two large pharmaceutical
customers had unexpected temporary  moratoriums on capital expenditures and (iv)
there was a decrease  in the number of smaller  jobs.  The Company has engaged a
new national sales manager, as well as two salesmen,  to solicit new business in
a more aggressive way in fiscal 1997 and thereafter.

     Cost of sales decreased by $224,788 (or 13.5%) in fiscal 1996 compared with
fiscal 1995. The decrease resulted from the decrease in sales. Cost of sales, as
a  percentage  of sales,  increased to 67.6% in fiscal 1996 from 65.2% in fiscal
1995  principally  because  the  contracts  undertaken  in fiscal 1996 were more
material  intensive  than  were  those in  fiscal  1995.  Material  and  outside
purchases  constituted  27% of cost of sales in fiscal 1996 compared with 20% in
fiscal 1995. A substantial  portion of this change relates to one large hospital
contract in progress. Material-intensive contracts are generally less profitable
than are engineering-intensive contracts.

     The major changes in selling,  general and  administrative  expenses during
fiscal  1996  compared  with  fiscal  1995  relate to:  administrative  expenses
($124,018) and selling expenses  ($153,111).  Administrative  expenses increased
principally because of (i) amortization of the consulting  agreement  associated
with  the  underwriter   ($38,700),   expenses  of  financial  public  relations
($23,224),  increased insurance costs principally caused by director and officer
liability  insurance  ($23,647),  and increased  accounting  and director  costs
caused by being a public  company  ($47,784).  These  increases  were  partially
offset by decreases in software and other office costs.  The increase in selling
expenses was  principally  caused by costs of a comprehensive  marketing  survey
($29,516) and the costs of attending tradeshows ($22,433).  As stated above, the
Company has hired additional finance, marketing, sales and engineering personnel
in order for it to implement its strategic plan. Most of these  individuals were
hired during the fourth  quarter of fiscal 1996 or early in the first quarter of
fiscal 1997. Thus, the impact of their salaries on operations will be greater in
fiscal 1997 than is reflected in fiscal 1996 results.

     The change in  interest-net  is a direct  result of the  Company  realizing
interest  income of $43,092 in fiscal 1996 because it invested the proceeds from
its initial public offering in time deposits.

     The income tax benefit in fiscal 1996 relates to the amount of income taxes
that are  recoverable  from the carryback of the net operating  loss incurred in
fiscal 1996.

Liquidity and Capital Resources

     Subsequent to June 30, 1997, the Company issued convertible debentures (the
"Debentures") to ten investors, in the aggregate principal amount of $1,500,000,
the net  proceeds  from  which,  together  with  the  proceeds  from  additional
financings,  will be used to close the acquisition of Laminaire and repay all of
Laminaire's  obligations  under a term loan  agreement  with a bank. The Company
will pay interest to the holders of the  Debentures at the rate of 5% per annum.
Interest on the Debentures is payable in cash or Common Stock of the Company, at
the Company's  discretion.  The Company's  obligations  under $50,000  principal
amount  of the  Debentures  are  secured  by a lien on the Company's



                                                                              15

<PAGE>



accounts receivable. The Debentures are convertible into shares of the Company's
Common  Stock  at any  time at  dates  ranging  from 41 days  after  the date of
issuance,  at a price per share (the "Conversion  Price") equal to the lesser of
70% of the average  closing bid price for the five trading days  preceding:  (i)
the date of  conversion  or,  (ii) the date of  closing.  In the event  that the
Debentures are not converted prior to the maturity date of the  Debentures,  the
Company has the option to satisfy its obligations under $50,000 principal amount
of the  Debentures  on such maturity date by the payment of cash or the issuance
of Common Stock at the Conversion Price.  Through September 30, 1997, holders of
$250,000  principal  amount of Debentures had converted  their  Debentures  into
501,252 shares of the Company's  Common Stock. All Debentures are convertible by
October 12,1997.

     The  Company  intends to use the  proceeds  of the  Debentures  for working
capital  and to  acquire  Laminaire.  In the  event  that  the  Company  has not
consummated  the  acquisition  of Laminaire on or before  November 10, 1997, the
holders of Debentures  having an aggregate  principal  amount of $1,200,000  are
entitled,  at their  option,  at any time  thereafter to demand that the Company
redeem  any or all  outstanding  principal  amount,  plus all  accrued  interest
thereon.  The redemption  price payable by the Company shall be payable in cash,
provided, however, that the Company shall have the right to pay a maximum of 10%
of the redemption price through the issuance of shares of Common Stock.

     The Company does not have any working  capital or other credit  facilities.
The Company is dependent on revenue from  operations and, to date, has satisfied
its obligations  when due.  However,  it may require credit  facilities or other
source of liquidity to meet the needs of its business. No assurance can be given
that it will obtain such financing or, if available,  on terms acceptable to the
Company.

     The  Company  is  obligated  for a $375,000  short-term  bank loan which is
collateralized by a certificate of deposit. Such loan bears interest at the rate
of 6.4 percent per annum.

Seasonality

     The demand for the  Company's  products is not seasonal.  However,  lengthy
stretches  of inclement  weather can create  delays in the  performance  of some
systems contracts.

New Accounting Pronouncements

     The Financial Accounting Standards Board has issued Statements of Financial
Accounting  Standards  ("SFAS")  No.  128,  "Earnings  Per  Share';  No.  129, "
Disclosure  of  Information  about  Capital  Structure";   No.  130,  "Reporting
Comprehensive  Income"; and No. 131, "Disclosure about Segments of an Enterprise
and Related  Information." These new accounting  pronouncements are not expected
to  have a  significant  impact  on the  Company.  SFAS  No.  128  requires  the
presentation of Basic Earnings Per Share that the Company  believes will, in its
case,  approximate  the  amounts  reported  as Primary  Earning  Per Share.  The
disclosure  requirements  in SFAS No. 129 and 130 are not expected to impact the
Company's  financial  statements.  The  acquisition of Laminaire  Corporation is
expected to result in the Company having to provide segment information.



                                                                              16

<PAGE>



Item 7. FINANCIAL STATEMENTS

     The  financial  statements  are filed as part of this Annual Report on Form
10-KSB.

Item 8. CHANGES AND  DISAGREEMENTS  WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

     None.  The  Company  has not had any  disagreements  with  its  independent
auditors  regarding  the  presentation  of  its  financial   statements  or  the
application of any Generally Accepted Accounting Principles.


PART III.

Item 9. DIRECTORS,  EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS COMPLIANCE
WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

     The executive officers and directors of the Company are as follows:

Name                       Age           Position with Company

Edward A. Sundberg         50            Chairman of the Board
Jon J. Darcy               50            President, Chief Executive Officer, 
                                         Treasurer and Director
Edward A. Heil             46            Director
K. Ivan F. Gothner         39            Director
Steven W. Schuster         43            Secretary

     All  Directors  hold office until the  completion  of their term of office,
which is not longer  than  three  years,  or until  their  successors  have been
elected.  All officers  are  appointed  annually by the Board of Directors  and,
subject to existing employment agreements, serve at the discretion of the Board.

Background of Executive Officers and Directors

     Jon J. Darcy  co-founded the Company in 1978 and has been an executive with
it since inception and President since 1987. He has a Bachelor of Science degree
from the State University of New York Maritime College.

     Edward A. Sundberg has been President of  ConsultAmerica,  Inc., a business
consulting  firm, since 1992. From 1989 to 1992, he was Executive Vice President
of ISS  International  Service  Systems,  Inc. Mr.  Sundberg holds a Bachelor of
Science  degree from the United  States  Naval  Academy and a Master of Business
Administration from Boston University.

     Edward A. Heil is a  certified  public  accountant  and a  principal  since
January 1992 in Independent  Network Group,  Inc., a financial  consulting firm.
From  1984  through  December  1991 he was a  partner  in the  accounting  firm,
Deloitte  &  Touche,  LLP.  From  1973  to  1984  he  was  employed  in  various
professional  capacities by Deloitte & Touche,  LLP. Mr. Heil holds  Bachelor of
Arts and Master of Business Administration degrees from New York University.

     K. Ivan F.  Gothner has been a Managing  Director of The  Adirondack  Group
LLC, a  financial  consulting  firm,  since March 1997.  Prior  thereto,  he was
employed as a managing director of First United Equities,  Inc., a broker-dealer
that is a member of the National Association of Securities Dealers,  Inc., since



                                                                              17

<PAGE>



August 1995.  He was  President of Breasy  Medical  Equipment  (US),  Inc.  from
October 1994 to August 1995.  From  January 1993 through  September  1994 he was
General  Partner of Adirondack  Partners,  LP. From 1990 to 1992 he was a Senior
Vice President at Barclays Bank of New York. Prior thereto, he was a Senior Vice
President at Kleinwort Benson Limited,  an investment  banking firm. Mr. Gothner
holds Bachelor of Arts and Master of Arts degrees from Columbia University.  Mr.
Gothner is also a director of The Ashton Group,  Inc., a  NASDAQ-listed  company
headquartered in Philadelphia.

     Steven W. Schuster has been secretary of the Company since July 1996. He is
a member of McLaughlin & Stern,  LLP,  counsel to the Company,  since 1995.  Mr.
Schuster has practiced  corporate and securities  law for the past 15 years.  He
received a Bachelor of Arts degree from Harvard University and a Juris Doctorate
from  New York  University.  Mr.  Schuster  is a  director  of  ACTV,  Inc.,  an
interactive television company.

     Charles J. Garay,  the founder and  President  of  Laminaire  will become a
member  of  the  Board  of  Directors  upon  the  completion  of  the  Laminaire
acquisition.

     Outside  directors  receive  $4,000  per  year  plus  $350 per  meeting  as
compensation for serving on the Board of Directors. All Directors are reimbursed
by the Company for expenses  incurred in attending  Directors'  meetings.  Firms
associated  with outside  directors an  aggregate of $332,953  (principally  for
professional   fees  associated  with  the  acquisition  of  Laminaire  and  the
negotiation of the financing  therefor,  and in the case of Mr. Schuster,  legal
services)  during the fiscal year ended June 30,  1997. A firm  associated  with
Edward A. Sundberg  received  $125,815;  a firm  associated  with Edward A. Heil
received  $82,746;  a firm associated with Steven W. Schuster  received $76,392,
and Carl Bruno, a former director,  received $12,000.  The law firm in which Mr.
Schuster  is  a  partner  also  received   41,000  shares  of  common  stock  in
satisfaction  of fees owed. In addition,  the  directors  received the following
options at the specified exercise price:

Name                     $.10 (1)         $.83 (2)       $1.00 (2)        Total
Edward A. Sundberg       30,000           38,000         25,000           93,000
K. Ivan. F. Gothner      30,000           38,000         25,000           93,000
Edward A. Heil           80,000           38,000         25,000          143,000
Carl R. Bruno            30,000           38,000         25,000           93,000
Steven W. Schuster       15,000            5,000         15,000           35,000


(1) Messrs. Sundberg, Gothner and Heil have exercised these options. Mr. Bruno's
options were  cancelled.  The market price of the shares on the date of issuance
was $.50.

(2) These  options were granted at the market price of the shares at the date of
issuance. None have been exercised.

Project Managers and Key Employees

     James Scally,  joined the Company in 1982 and is a design  engineer  having
responsibility   for  product  design,   application   engineering  and  systems
installation.  Mr. Scally, who holds a B.S.M.E. degree from New Jersey Institute
of  Technology,  has more  than 25 years of  experience  in the  automation  and
controls industry.



                                                                              18

<PAGE>



     David J. Musto, is a national sales manager,  having  responsibilities  for
the sales and staffing of all the company's systems and product sales. Mr. Musto
holds a Bachelor of Science  degree in Computer  and  Systems  Engineering  from
Rensselear Polytechnic Institute.

     Gregory  Smith,   is  a  project   manager  having   responsibilities   for
installation  of  electronic  systems,  and the  evaluation  of the hardware and
software in existing digital and solid state systems. Mr. Smith holds a Bachelor
of Science degree in engineering from SUNY Maritime College.

     Ernesto  Ramos,   is  a  project   manager  having   responsibilities   for
installation  of  electronic  systems,  and the  evaluation  of the hardware and
software in existing digital and solid state systems. Mr. Ramos holds a B.S.E.E.
from Rensselear Polytechnic Institute.

     John M. Breitenbach,  is research and software development manager,  having
15 years  experience  as a design and software  writer and  troubleshooter  with
extensive work having been done in systems engineering and controls.

     Laminaire separately employs experienced managers, designers and draftsmen.

     The information  required by this Item 9 as to directors is incorporated by
reference to the information captioned "Election of Directors" to be included in
the  Company's  definitive  proxy  statement in  connection  with the meeting of
shareholders scheduled to be held on December 12, 1997.

Item 10. EXECUTIVE COMPENSATION

     Jon J. Darcy, President and Chief Executive Officer,  received compensation
of approximately  $131,000 in each of fiscal 1996 and 1995 (consisting of salary
of  $123,000  and  benefits  having an  estimated  value of $8,000).  Mr.  Darcy
received  options to purchase  95,000  shares at an  exercise  price of $.83 per
share,  the  market  price  of the  shares  on the  date of  issuance.  No other
employee,  officer  or  director  received  annual  compensation  of as  much as
$100,000.  The Board of  Directors  has  established  a  compensation  committee
comprised of outside directors to review compensation matters as well as any new
employment contracts.  The Company has a health and disability plan and a 401(k)
plan for its employees.

Employment Agreements

     In July 1997, the Company  entered into a three-year  employment  agreement
with Jon J. Darcy,  President and Chief Executive Officer of the Company,  under
which he will  receive an annual  salary of  $135,000,  $ 145,000 and $ 155,000,
respectively, during each of the three fiscal years in the period ended June 30,
2000.  The contract also provides for the issuance of stock options based on the
achievement of specified  operating  performance,  the use of a car and that the
Board of Directors may award Mr. Darcy bonuses and other incentive  compensation
as it deems appropriate, based upon the Company's operating performance or other
reasonable  criteria and includes a restrictive  covenant  limiting Mr.  Darcy's
ability to obtain employment with a competitor or potential competitor.

     In June 1996, the Company  entered into  three-year  employment  agreements
with three software engineers under which it is obligated to pay annual salaries
of    $60,000    to    each    such    engineer.    The    agreements    contain
covenants-not-to-




                                                                              19

<PAGE>



compete and confidentiality  agreements, as well as provisions for severance pay
if the Company terminates any or all such agreements for other than cause.

Stock Option Plan

     The  Thermo-Mizer  Environmental  Corp.  1996  Stock  Incentive  Plan  (the
"Plan"),  which expires ten years from the date adopted,  enables the Company to
grant  incentive  stock  options,  nonqualified  options and stock  appreciation
rights  ("SARs")  for up to  500,000  shares  of  the  Company's  Common  Stock.
Incentive  stock  options  granted  under the Plan must  conform  to  applicable
Federal income tax regulations and have an exercise price not less than the fair
market  value of shares at the date of grant (110% of fair market  value for ten
percent or more  stockholders).  Other  options and SARs may be granted on terms
determined by a committee of the Board of Directors.  As of June 30, 1997, there
were 289,000 options  outstanding  under the Plan, all with an exercise price of
$1 per share.

     The  information  required by this Item 10 is  incorporated by reference to
the information captioned  "Remuneration and Other Transactions with Management"
included in the Company's  definitive  proxy  statement in  connection  with the
meeting of shareholders to be held on December 12, 1997.

Item 11. SECURITY OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  following  table sets forth certain  information  known to the Company
regarding  beneficial  ownership of the Company's  Common Stock at September 30,
1997 by (i) each person known by the Company to own,  directly or  beneficially,
more  than 5% of the  Company's  Common  Stock at such  date,  (ii)  each of the
Company's  directors,  and (iii) all officers and  directors of the Company as a
group. Except as otherwise  indicated,  the Company believes that the beneficial
owners of the Common Stock listed below, based on information  furnished by such
owners,  have sole  investment  and voting  power with  respect to such  shares,
subject to community property laws, where applicable.

NAME AND ADDRESS OF                            NUMBER OF             PERCENT Of
BENEFICIAL OWNER (6)                    SHARES OWNED (5)       SHARES OWNED (4)

Jon J. Darcy (1)                                 644,750                   18.5

Edward A. Sundberg                                65,500                    0.1

Edward A. Heil  (2)                               63,000                    0.1

K. Ivan F. Gothner                                63,000                    0.1

Steven W. Schuster (3)                            36,000                    0.1

Continental Capital & Equity Corp. (7)           402,557                   11.9

Blue Chip Securities, Ltd.  (8)                  250,626                    7.4

Bay Bridge International, Ltd. (8)               250,626                    7.4

Austost Anstalt Schaan (9)                       285,000                    7.7

UFH Endowment (9)                                285,000                    7.7

Arcadia Mutual Fund Co., Inc (9)                 715,000                   17.4



                                                                              20

<PAGE>



NAME AND ADDRESS OF                            NUMBER OF             PERCENT Of
BENEFICIAL OWNER (6)                    SHARES OWNED (5)       SHARES OWNED (4)

Directors and Officers
as a Group (5 persons)                           809,250                   18.9


(1)  Excludes  112,500 shares held in trust for Mr. Darcy's  children over which
     Mr. Darcy disclaims beneficial ownership.
(2)  Excludes  80,000  shares  owned by a company in which Mr.  Heil is managing
     director. Mr. Heil disclaims beneficial ownership thereof.
(3)  Excludes  41,000  shares  held by the law firm in which Mr.  Schuster  is a
     partner.
(4)  Excludes the assumed conversion of warrants and options.
(5)  Includes all options held by the respective individuals.
(6)  The address for each officer or director listed above is 528 Oritan Avenue,
     Ridgefield, New Jersey 07657.
(7)  Includes  177,557  shares issued  subsequent to June 30, 1997 pursuant to a
     contract in effect  prior to June 30,  1997.  Continental  Capital & Equity
     Corp.'s address is 2301 Maitland Center Parkway,  Suite 100,  Maitland,  FL
     32751.
(8)  Represents  shares of common stock issued upon  conversion of a Convertible
     Note in the principal amount of $250,000.
(9)  Issuable upon  conversion of Convertible  Debentures at a conversion  price
     equal to 70% of the lesser of the  average  closing  bid price per share of
     the Common Stock for the five trading days prior to the (i) closing date of
     the Convertible Debentures or (ii) conversion date of such Debentures.  For
     the purpose of this calculation, the bid price was assumed to be $1.


     The  information  required by this Item 11 is  incorporated by reference to
the information  captioned  "Voting  Securities" to be included in the Company's
definitive  proxy  statement  in  connection  with the  meeting of  shareholders
scheduled to be held on December 12, 1997.

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The  information  required by this Item 12 is  incorporated by reference to
the information captioned  "Remuneration and Other Transactions with Management"
to be included in the Company's  definitive  proxy  statement in connection with
the meeting of shareholders scheduled to be held on December 12, 1997.

     On July 30, 1996, the Company entered into a one-year financial  consulting
agreement  with Solay,  Inc.  ("Solay")  under which Solay agreed to provide the
Company with  financial  public  relations and  acquisition-related  services in
consideration  for a payment of $165,000 and an option (the  "Option")  granting
Solay the right to purchase  550,000 units at an exercise  price of $1 per unit.
Each unit  consists of one share of common stock and two Class B warrants.  Each
Class B warrant  entitled  the holder  thereof to  purchase  one share of common
stock at an exercise price equal to the greater of (i) $3 per share or (ii) 120%
of the offering price of a share of common stock in a secondary  public offering
which  results in gross  proceeds of at least  $3,000,000.  The Class B warrants
were exercisable for a period of five years commencing on the earlier of (i) one
year from the date that the option was  granted or (ii) the  consummation  of an
acquisition,  as defined, by the Company.  The Company registered all securities
covered by the Option in a Registration Statement on Form S-8. In February 1997,




                                                                              21

<PAGE>



the  Company  and Solay  agreed to modify the terms of the  option  such that it
cancelled  470,000  previously  issued  Class B Warrants  and  Solay's  right to
purchase  30,000 Class B Warrants  and issued an aggregate of 100,000  shares of
Common Stock (one share of Common Stock for each five Class B Warrants).

     Solay is entitled to exercise options for up to 300,000 shares, of which it
exercised  such option for 260,000 such shares,  including  160,000 for which it
issued a note to the Company in the  principal  amount of $160,000.  The note is
interest-free and is nonrecourse to Solay,  except to the extent that an officer
of the Company repays a note due by such officer to Solay.  The remainder of the
Option becomes exercisable at the earlier of (i) the consummation by the Company
of an  acquisition,  as defined,  or (ii) 18 months from the date of grant.  The
Option  expires five years from the date of grant.  Solay granted an irrevocable
proxy to vote all shares  purchased and held by Solay  pursuant to the Option to
the Company's  President.  Such proxy terminates at the time that the shares are
sold, exclusive of a transfer pursuant to a pledge of the shares.

     As  part  of  the  agreement  with  Solay,   Nationwide  Securities,   Inc.
("Nationwide"),  the  underwriter  for the Company's  initial public offering in
March  1996,  agreed  to  terminate  the  underwriting   agreement   effectively
eliminating  all  restrictive  covenants  set forth  therein  and  severing  the
relationship between the Company and Nationwide.  Accordingly,  the Company also
wrote off the  unamortized  portion,  amounting to $100,000,  of the  Nationwide
consulting agreement during the fiscal year ended June 30, 1997.

     The Company issued  nonqualified  options for 180,000 units to officers and
directors.  The units covered by these nonqualified options are identical to the
units included in the Option issued to Solay,  except that they were exercisable
at  estimated  fair  market  value  at the date of grant  ($1.16).  The  Class B
Warrants  included in such units were  treated in the same manner as the Class B
Warrants included in the Solay agreement  described above. The conversion of the
Class B Warrants results in the exercise price per share becoming $.83.

     For financial reporting  purposes,  the Company ascribed a value of $.05 to
each Class B Warrant.  The aggregate difference between the fair market value of
a share of common stock on the date of grant ($1.0623) and the value ascribed to
each share of common stock included in the units  described above ($.90) for the
Solay Options  amounts to $89,375 and was accounted for as an expense during the
fiscal  year ended  June 30,  1997.  There are no  remaining  unamortized  costs
associated with the Solay Agreement at June 30, 1997.

     On April 30, 1997, the Company  entered into an agreement with  Continental
Capital  & Equity  Corporation  ("CCE")  under  which CCE  agreed  to  conduct a
financial public relations campaign and other consulting services to the Company
in  consideration  for the receipt of (i)  $25,000  plus  225,000  shares of the
Company's Common Stock at the commencement of services and (ii) $125,000 payable
in cash or the issuance of Common Stock at a price  equivalent 80 percent of the
closing bid price of such shares on June 15, 1997.  In August 1997,  the Company
issued  177,587  shares of Common Stock to CCE to satisfy this  obligation.  The
Company's  fiscal 1997 financial  statements set forth elsewhere  herein include
$91,666 in the caption "Selling, General and Administrative" and $183,334 in the
caption "Prepaid Expenses" relating to CCE.

     During fiscal 1997 and 1996, the Company paid professional,  consulting and
legal fees amounting to $332,953(of which $153,924 relates to the acquisition of
Laminaire or obtaining  the  financing  therefor)  and $97,095 (of which $40,220
relates to services associated with the initial public offering) to directors or




                                                                              22

<PAGE>



firms  related to  directors or  officers.  The law firm in which the  Company's
Secretary  is  a  partner  also  received  41,000  shares  of  common  stock  in
satisfaction  of fees owed in fiscal 1997. See "DIRECTORS,  EXECUTIVE  OFFICERS,
PROMOTERS AND CONTROL  PERSONS  COMPLIANCE  WITH SECTION 16(a) OF THE SECURITIES
EXCHANGE ACT OF 1934."




PART IV  Exhibits and Reports on Form 8-K

a.   Exhibits

INDEX TO EXHIBITS

1.1   *Release Agreement among Nationwide Securities,  Inc. (and its affiliates)
      and   Thermo-Mizer   Environmental   Corp.   *Planof   Merger  for  Thermo
      Engineering, Certificate of Ownership and
2.    Merger, Certificate of Merger.

3.1   *Certificates of Incorporation.

3.2   *By-Laws.

4.1   *Specimen Certificate of Common Stock.

4.2   *Form of Underwriter's Warrant Purchase Option.

4.3   **Form of Option issued to Solay, Inc. and Crystal Line, Inc.

4.4   **Form  of  Options  issued  to  Officers,   Directors,   Consultants  and
      Employees.

4.5   **Form of Class B Warrant.

4.6   ***Thermo-Mizer Environmental Corp. 1996 Incentive Plan.

10.2  ****Agreement with D.R. Maruster & Co. dared December 10, 1996.

10.2  *Premium Reduction Option Cafeteria Plan.

10.3  *Lease Agreement

10.4  *401(k) Retirement Plan and Profit Sharing Plan.

10.5  ***Thermo-Mizer Environmental Corp. 1996 Stock Incentive Plan.

10.6  Employment Agreement - Thomas B. Lewis

10.7  Employment Agreement - Jeffrey A. Buser

10.8  Employment Agreement - Eric W. Stark

10.9  ***Agreement between the Registrant and Enersave, Inc. dated July 1996



                                                                              23

<PAGE>



10.10 *** Agreement between the Registrant and American Process Controls, Inc.

10.11 **Consulting Agreement with Solay, Inc.

10.12 *****Amendment to Consulting  Agreement between Registrant and Solay, Inc.
      dated as of February 21, 1997.

10.13 ******Agreement  with Continental Capital & Equity Corporation dated April
      29th, 1997.

10.14 *******Form of Convertible Debenture regarding July 7th, 1997 issuance.

10.15 *******Form of Subscription Agreement.

10.16 *******Form of Escrow Agreement.

10.17 *******Form of Registration.

10.18 Form of Employment Agreement.

10.19 Purchase Agreement with Laminaire Corporation dated October 9th, 1997

14.   *Assignment of Patent.

27.   Financial  Data  Schedule,   which  is  submitted  electronically  to  the
      Securities and Exchange Commission for information only and not filed.

*Include in, and  incorporated  by reference to, the  Registrant's  Registration
Statement on Form SB-2.
**Included in, and incorporated by reference to, the  Registrant's  Registration
Statement on Form S-8, filed on September 26, 1996.
***Included in, and incorporated by reference to, the Registrant's  Registration
Statement on Form S-8, filed on June 30, 1996.
****Included in, and incorporated by reference to, the Registrant's Registration
Statement on Form S-8, filed on January 21, 1997.
*****Included   in,  and   incorporated   by  reference  to,  the   Registrant's
Registration Statement on Form S-8, filed on March 11, 1997.
******Included   in,  and   incorporated  by  reference  to,  the   Registrant's
Registration Statement on Form S-8, filed on May 12, 1997.
*******Included   in,  and   incorporated  by  reference  to,  the  Registrant's
Registration Statement on Form S-8, filed on July 22, 1997.

b.Reports on Form 8-k

  During the last fiscal quarter, the Company did not file a report on Form 8-k.



                                                                              24
<PAGE>



Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities  and
Exchange  Act of 1934,  the  Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.

                                        /s/ JonJ Darcy
                                        ----------------------------------------
                                        JON J. DARCY
                                             Title: President, Chief  Executive
                                             Officer and Treasurer
(Principal Executive and                                                   
 Financial Officer)
                                             Date:     10/8/97
                                                     ---------------


         Directors

                                             /S/ Edward A. Sundberg
                                             -----------------------------
                                             EDWARD A. SUNDBERG
                                             Title:  Director and Chairman
                                             Date:     10/8/97
                                                     ---------------



                                             /S/ Edward A. Heil
                                             -----------------------------
                                             EDWARD A. HEIL
                                             Title: Director
                                             Date:     10/8/97
                                                     ---------------



                                             /S/ K. Ivan F. Gothner
                                             -----------------------------
                                             K. IVAN F. GOTHNER
                                             Title: Director
                                             Date:     10/8/97
                                                     ---------------




                                                                              25
<PAGE>






THERMO-MIZER ENVIRONMENTAL CORP.


TABLE OF CONTENTS

                                                                          Page

     INDEPENDENT AUDITORS' REPORT                                          27

     FINANCIAL  STATEMENTS:

     Balance Sheet at June 30, 1997                                        28

     Statements of Operations for the Years Ended June 30,                 30
     1997 and 1996

     Statements of Cash Flows for the Years Ended June 30,                 31
      1997 and 1996

     Statements of Stockholders' Equity for the Years Ended June 30,       32
      1997 and 1996

     Notes to Financial Statements                                         33



                                                                              26


<PAGE>



To the Board of Directors
 Thermo-Mizer Environmental Corp.
 Ridgefield, New Jersey


     We  have   audited  the   accompanying   balance   sheet  of   Thermo-Mizer
Environmental  Corp.  as  of  June  30,  1997  and  the  related  statements  of
operations, stockholders' equity and cash flows for each of the two years in the
period ended June 30, 1997. 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.

     In our  opinion,  the  financial  statements  referred  to above  represent
fairly,  in all  material  respects,  the  financial  position  of  Thermo-Mizer
Environmental  Corp. as of June 30, 1997 and the results of its  operations  and
its cash  flows for each of the two years in the period  ended June 30,  1997 in
conformity with generally accepted accounting principles.



Eichler Bergsman & Co., LLP
New York, NY
October 9, 1997


                                                                              27

<PAGE>



                        THERMO-MIZER ENVIRONMENTAL CORP.

                                  BALANCE SHEET
                                  JUNE 30, 1997

                                     ASSETS
                                     ------




Current Assets:
     Cash                                                             $  234,006
     Other time deposits                                                 375,000
     Contracts receivable-net of allowance of $30,000                    960,045
     Inventories                                                         378,284
     Unbilled receivables                                                 27,976
     Prepaid expenses and other                                          258,894
                                                                      ----------
              Total Current Assets                                     2,234,205

Property and Equipment - net                                             135,209

Other Assets                                                             750,182
                                                                      ----------

Total Assets                                                          $3,119,596
                                                                      ==========





                       See Notes to Financial Statements.


                                                                              28

<PAGE>



                        THERMO-MIZER ENVIRONMENTAL CORP.


                                  BALANCE SHEET
                                  JUNE 30, 1997

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------



Current Liabilities:
      Note payable - bank                                           $   375,000
      Accounts payable - trade                                          381,988
      Billings in excess of costs                                        82,653
      Accrued expenses and other                                        259,899
                                                                    -----------

             Total Current Liabilities                                1,099,540
                                                                    -----------

Commitments and Contingencies

Stockholders' Equity:
      Common Stock, $.001 par value;
      25,000,000 shares authorized; 2,717,500 shares issued               2,717
      Additional paid-in capital                                      3,831,094
      Deficit                                                        (1,619,675)
                                                                    -----------
   Total                                                              2,214,136
   Less - Note receivable                                              (160,000)
          Treasury stock-at cost (35,100 shares)                        (34,080)
                                                                    -----------
Stockholders' Equity-net                                              2,020,056
                                                                    -----------

Total Liabilities and Stockholders' Equity                          $ 3,119,596
                                                                    ===========


                       See Notes to Financial Statements.


                                                                              29

<PAGE>

                        THERMO-MIZER ENVIRONMENTAL CORP.

                            STATEMENTS OF OPERATIONS
                FOR THE FISCAL YEARS ENDED JUNE 30, 1997 AND 1996


                                                         1997           1996
                                                         ----           ----

Contract and other revenues                          $ 2,351,191    $ 2,125,959
Cost of revenues                                       2,099,873      1,437,682
                                                     -----------    -----------
Gross profit                                             251,318        688,277
                                                     -----------    -----------
Expenses:
   Personnel and related costs                           524,401        246,489
   Selling and administration expenses                   897,839        417,686
   Product development costs                             221,429        169,667
   Occupancy costs                                        32,955         38,333
   Nonrecurring expenses-net                             478,653        (15,117)
                                                     -----------    -----------
Total expenses                                         2,155,277        857,058
                                                     -----------    -----------
Loss before income taxes                              (1,903,959)      (168,781)
Income taxes                                              19,207         55,643
                                                     -----------    -----------
Net loss                                             $(1,923,166)   $  (113,138)
                                                     ===========    ===========
Loss per share                                       $      (.86)   $      (.08)
                                                     ===========    ===========
Weighted average number of shares of common stock      2,231,372      1,387,000
                                                     ===========    ===========



                       See Notes to Financial Statements.


                                                                              30

<PAGE>



                        THERMO-MIZER ENVIRONMENTAL CORP.

                            STATEMENTS OF CASH FLOWS
                   FOR THE YEARS ENDED JUNE 30, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                   1997           1996
                                                                   ----           ----
<S>                                                            <C>            <C>         
OPERATING ACTIVITIES:

 Net loss                                                      $(1,923,166)   $  (113,138)
 Adjustments to reconcile net income to net cash provided 
  by operating activities
   Depreciation                                                     41,551         22,342
   Loss on disposal of assets                                       27,756
   Nonoperating writeoffs and charges                              204,555
   Provision for doubtful accounts                                  15,000
(Increase) decrease in assets:
   Contract receivables                                           (184,594)      (185,012)
   Inventories                                                     (62,832)      (162,362)
   Unbilled receivables                                            226,862       (204,207)
   Prepaid expenses and other                                     (497,633)      (209,391)
 Increase (decrease) in liabilities:
   Accounts payable                                                121,896        168,878
   Billings in excess of costs                                      82,653         (7,419)
   Accrued expenses and other                                      191,185        (41,943)
                                                               -----------    -----------
Net cash used in operating activities                           (1,756,767)      (732,252)
                                                               -----------    -----------
INVESTING ACTIVITIES:

   Purchase of property and equipment                             (104,112)       (56,730)
                                                               -----------    -----------
FINANCING ACTIVITIES:

   Issuance of common stock and warrants                           428,764      3,222,600
   Payments on debt                                                              (311,839)
   Proceeds from debt                                                             375,000
   Deferred acquisition and finance costs                         (282,272)
   Investment in other  time deposit                                             (375,000)
   Other investments                                              (198,619)
   Purchase of treasury stock                                      (34,080)
                                                               -----------    -----------
   Net cash provided by (used in) financing activities             (86,207)     2,910,761
                                                               -----------    -----------
Net increase (decrease)in cash and cash equivalents             (1,947,086)     2,121,779
Cash --beginning                                                 2,181,092         59,313
                                                               -----------    -----------
Cash --ending                                                  $   234,006    $ 2,181,092
                                                               ===========    ===========
</TABLE>


                       See Notes to Financial Statements.


                                                                              31

<PAGE>



                        THERMO-MIZER ENVIRONMENTAL CORP.

                       STATEMENTS OF STOCKHOLDERS' EQUITY
                   FOR THE YEARS ENDED JUNE 30, 1997 AND 1996


<TABLE>
<CAPTION>
                                                         Common Stock                        
                                                         ------------                Additional        
                                                                                        Paid-in         Retained
                                                  Shares              Amount            Capital         Earnings              Total
                                                  ------              ------            -------         --------              -----
<S>                                             <C>              <C>                <C>               <C>               <C>        
Balance, July 1,1995                            1,125,000        $     1,125        $   129,375       $   416,629       $   547,129
Sale of Common Stock and                          771,500                771          3,113,776                           3,114,547
Warrants--net
Net Loss                                                                                                 (113,138)         (113,138)
                                              -----------        -----------        -----------       -----------       -----------
Balance, June 30,1996                           1,896,500              1,896          3,243,151           303,491         3,548,538
Sale of Common Stock                              821,000                821            587,943                             588,764
Net loss                                                                                               (1,923,166)       (1,923,166)
                                              -----------        -----------        -----------       -----------       -----------

Balance, June 30, 1997                          2,717,500        $     2,717        $ 3,831,094       $(1,619,675)        2,214,136
                                              ===========        ===========       ===========        ===========
Less - Note receivable                                                                                                     (160,000)
- Treasury stock - at cost                                                                                                  (34,080)
                                                                                                                        -----------
Total                                                                                                                   $ 2,020,056
                                                                                                                        ===========
</TABLE>

Note - All amounts  give  retroactive  effect to a .75 to 1 reverse  stock split
declared in January 1996.


                        See Notes to Financial Statement


                                                                              32

<PAGE>



THERMO-MIZER ENVIRONMENTAL CORP.

NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996

NOTE 1--NATURE OF BUSINESS

     Thermo-Mizer Environmental Corp. (the "Company"),  based in Ridgefield, New
Jersey,  designs,  assembles  and sells a family of products and systems used to
monitor a wide variety of environmental  conditions.  These products and systems
have the capability of monitoring and  summarizing  factory  emissions on a real
time  basis  to  assist  companies  to  comply  with   environmental   laws  and
regulations,   as  well  as  specific   applications   in  industries   such  as
pharmaceuticals,  hospitals,  commercial real estate,  energy  conservation  and
power generation.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the Company's principal accounting and financial reporting policies
is as follows:

Revenue Recognition

     Contract revenues are recognized on the percentage-of-completion  method by
multiplying  total  contract  revenue by the  estimated  percentage  of contract
completion.   Changes  in  job  performance,   job  conditions,   and  estimated
profitability,  including  those arising from contract  penalty  provisions  and
final contract settlements,  may result in revisions to costs and income and are
recognized  in the period in which the revisions  are  determined.  Earnings are
also  charged  with a  provision  for  doubtful  accounts  based on a review  of
collectibility.

     Service  revenue  amounted to $232,223 in 1997 and  $184,029 in 1996 and is
recognized when the service is performed.

Inventories

     Inventories  consist  principally  of  parts  and  components  for  use  in
contracts  and are  stated at the lower of cost or  market.  Cost is  determined
using the first-in, first-out cost flow assumption.

Property and Equipment

     Property and  equipment are stated at cost less  accumulated  depreciation.
Depreciation is computed using  straight-line and accelerated methods based upon
the estimated useful lives of the related assets as follows:

Furniture and fixtures                            5 years
Vehicles                                          7 years
Machinery and equipment                           5-7 years


                                                                              33

<PAGE>




Expenditures for repairs and maintenance are charged to expense as incurred.

     In 1995,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No.  121("SFAS  121"),   "Accounting  For  the
Impairment of Long-Lived  Assets and For  Long-Lived  Assets To Be Disposed Of."
SFAS 121  prescribes  the  accounting  treatment  for  cases in which  there are
indications  that  the  carrying  values  of  long-lived  assets,   identifiable
intangibles and goodwill may not be fully recoverable.  The adoption of SFAS 121
did not have a material  effect on the  Company's  results of  operations or its
financial position at June 30, 1997.

Statement of Cash Flows

     Interest  paid for the years  ended June 30,  1997 and 1996 was $22,697 and
$28,527,  respectively.  Income  taxes paid for the year ended June  30,1997 was
$19,207.  For the  purposes of this  statement,  investments  and time  deposits
having an initial term of 90 days or less are considered to be cash equivalents.

Product Development Costs

     Product development costs are charged to operations as incurred. During the
fiscal year ended June 30, 1997,  such charges  include the cost of  engineering
labor and overhead.  Substantially all charges during the fiscal year ended June
30, 1996 were paid to consultants and contractors.

Loss Per Share

     Loss per common and common  equivalent share are calculated by dividing net
income by the weighted  average  number of common and common  equivalent  shares
outstanding  during the period,  after giving retroactive effect to the .75 to 1
reverse  stock  split  effected  in  January  1996.  The  assumed   exercise  of
outstanding  warrants and options would have been antidilutive  and,  therefore,
were excluded from the calculation of loss per share in all periods presented.

Warranty Costs

     The Company's policy is to warrant parts on new  installations for one year
from  start-up  of the  system.  The  cost of  parts  used in  installations  is
generally  not a  material  component  of  the  total  installation  costs.  The
Company's  policy is to accrue expenses  related warranty costs when the related
revenue is recognized.

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 at the
date of the  financial  statements  and the  reported  amounts of  revenues  and
expenses during the reporting periods. The principal assumptions inherent in the
accompanying  financial  statements relate to estimated  percentages of contract
completion  and the  realizability  of deferred  costs  associated  with planned
business  combinations.  Actual  results  may differ from those  estimates.  All
liabilities are recorded at approximate fair values. 

                                                                              34

<PAGE>



Revenue and Credit Concentration

     A  significant  portion of the  Company's  revenue is derived  from a small
number of systems contracts  performed for customers located  principally in the
New York Metropolitan Area. Accordingly,  a substantial portion of the Company's
accounts receivable at June 30, 1997 is due from customers in the pharmaceutical
or commercial real estate industry operating in the New York Metropolitan area.

Reclassifications

     Certain 1996 amounts and balances have been  reclassified to conform to the
1997 presentation.

NOTE 3 -- CONTRACTS RECEIVABLE

     Contracts  receivable at June 30, 1997 exclude  retainages  of $223,424,  a
substantial  portion of which may not be collected during the fiscal year ending
June 30, 1998.

NOTE 4--PROPERTY AND EQUIPMENT

     Property and equipment consist of the following at June 30, 1997:

           Furniture, fixtures and office equipment                $ 329,326
           Machinery and equipment                                    75,952
           Leasehold Improvements                                     74,890
           Vehicles                                                   14,152
                                                                      ------
           Total                                                     494,320
           Less - accumulated depreciation                           359,111
                                                                     -------
           Property and equipment - net                             $135,209
                                                                    ========

NOTE 5--OTHER ASSETS

         Other assets consist of the following at June 30, 1997:

           Retainages (note 3)                                     $ 223,424
           Deferred costs (note 14)                                  282,272
           Rights and miscellaneous                                  198,619
           Other                                                      45,867
                                                                   ---------

           Total                                                   $ 750,182
                                                                   =========


Rights and miscellaneous consist of:

           American Process Controls, Inc.                         $ 114,299
           Enersave, Inc.                                             84,320
                                                                   ---------

           Total                                                   $ 198,619
                                                                   =========


                                                                              35

<PAGE>



     In August  1996,  the Company  made a  noninterest-bearing  loan of $93,750
(which was subsequently increased to $114,299 to American Process Controls, Inc.
("APC"),  the proceeds from which were used to fund the development of a working
temperature-activated  steam  trap alarm  device  (the  "Product").  The loan is
collateralized by all of APC's assets.  The Company has the right to receive 45%
of APC's common stock in full  satisfaction  of such loan plus the (i) exclusive
right to sell the  Product  in the  Heating,  Ventilation  and Air  Conditioning
market and (ii) nonexclusive right to sell the product in all other markets. APC
is required to sell the Product to the Company at a price  equivalent to 120% of
APC's  manufacturing  costs.  The Company believes that additional costs must be
incurred to complete the  Product's  design and testing and has advised APC that
it is currently  unwilling to advance such funds.  The Company has proposed that
APC obtain  alternative  financing in sufficient  amount as to repay the amounts
due to the Company and complete the Product.  No assurance can be given that APC
will be successful in such efforts.

     In July 1996, the Company and Enersave,  Inc.  ("Enersave") entered into an
agreement  under which the Company  acquired,  for  $100,000,  all of Enersave's
rights to provide  all  necessary  performance  metering  and  billing  services
pursuant to certain energy service contracts between Enersave and certain public
utility  companies.  The  acquisition  price will be  amortized  based on actual
billings.

NOTE 6 -- CASH CONCENTRATION

     Cash in excess of the banks'  depository  insurance  coverage  amounted  to
approximately $60,000 at June 30, 1997.

NOTE 7 -- NOTES PAYABLE

     The  Company has a $375,000  short-term  note  payable to a bank,  which is
collateralized by a certificate of deposit and bears interest at the rate of 6.4
percent per annum.

NOTE 8--INCOME TAXES

     The Company incurred a net operating loss for the year ended June 30, 1997.
The Company has  established an allowance for the full potential  benefit of all
such carryforwards because of doubt as to the realizability of such benefit. The
income tax  benefit for the year ended June 30,  1996  consists  entirely of the
estimated  benefit  available  from the carryback of the Company's net operating
losses. The entire provision in 1997 relates to state franchise taxes and fees.

     A  reconciliation  of income  tax  benefit  calculated  using  the  Federal
statutory rate to the reported income tax benefit for fiscal 1996 is as follows:

           Federal statutory rate applied to pretax income (loss)   $(59,073)
           Investment and research credits                           (17,000)
           Benefit of graduated rates                                 20,430
                                                                    ---------
           Income tax benefit                                       $(55,643)
                                                                    =========


                                                                              36

<PAGE>



     Deferred  income  taxes  will be  recorded  for the  net tax  effects  when
temporary   differences  arise  between  the  carrying  amounts  of  assets  and
liabilities  for  financial  reporting  purposes and amounts used for income tax
purposes.  No deferred  income taxes are recorded at June 30, 1997.  The Company
incurred a net operating loss for the year ended June 30, 1997.

     The  Company  has  net  operating  loss   carryforwards   of  approximately
$1,800,000 expiring in the year 2012 and investment and research and development
credits  amounting to $37,000  which are available to reduce future income taxes
through 2012.

NOTE 9--STOCKHOLDERS' EQUITY

     The Company is a Delaware  corporation.  Its  Certificate of  Incorporation
provides  that its  authorized  capital stock  consists of 25 million  shares of
Common  Stock,  par value $.001 per share.  The holders of the Common  Stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of  stockholders.  Holders of Common Stock are entitled to receive  ratably
such dividends as may be declared by the Board of Directors out of funds legally
available therefor.

Initial Public Offering

     In March 1996, the Company completed an initial public offering in which it
sold 771,500 shares of its common stock and 1,725,000  redeemable  warrants (the
"Redeemable  Warrants") which resulted in net proceeds,  after all expenses,  of
$3,114,547.  Each Redeemable Warrant entitles the holder thereof to purchase one
share of common  stock for $6.00 (120% of the initial  public  offering  price),
subject to  adjustment,  commencing one year from the date of the initial public
offering  and remains  exercisable  for a period of four years  thereafter.  The
Redeemable  Warrants are  redeemable  for $.05 per warrant  commencing two years
from the closing  date of the  offering if the  closing  price of the  Company's
common  stock  equals or exceeds  $7.50 for 20  consecutive  trading  days.  The
Company  also sold,  for  nominal  consideration,  a warrant to the  underwriter
entitling  the holder  thereof to  purchase  75,000  shares of common  stock and
150,000  warrants at a price equal to 165% of the initial public  offering price
thereof.  This warrant becomes exercisable one year from the date of the initial
public offering and remains  exercisable for a period of four years  thereafter.
As part of the initial public offering, the Company also paid, at closing, a fee
of $120,000 for a two-year consulting agreement (see Note 12).

     The transactions  described below, together with certain other issuances of
securities in consideration for services  received,  result in a modification of
the exercise  price of the Redeemable  Warrants  issued as part of the Company's
initial  public  offering  under  the  antidilution  provisions  of the  warrant
agreement.  Such  issuances  result  in the  exercise  price  of the  Redeemable
Warrants  being reduced from $6.00 (the price in effect on the date of issuance)
to $3.12 at June 30, 1997. In addition,  each Redeemable  Warrant,  as adjusted,
will entitle the holder  thereof to purchase  1.92 shares of Common Stock at the
adjusted  purchase  price of $3.12 per  share.  See Note 14 below for the impact
that certain subsequent events have on the exercise price of these Warrants.

Solay Agreement

     On July 30, 1996, the Company entered into a one-year financial  consulting
agreement  with Solay,  Inc.  ("Solay")  under which Solay agreed to provide the
Company with  financial  public  relations and  acquisition-related  services in


                                                                              37

<PAGE>



consideration  for a payment of $165,000 and an option (the  "Option")  granting
Solay the right to purchase  550,000 units at an exercise  price of $1 per unit.
Each unit  consists of one share of common stock and two Class B warrants.  Each
Class B warrant  entitled  the holder  thereof to  purchase  one share of common
stock at an exercise price equal to the greater of (i) $3 per share or (ii) 120%
of the offering price of a share of common stock in a secondary  public offering
which  results in gross  proceeds of at least  $3,000,000.  The Class B warrants
were exercisable for a period of five years commencing on the earlier of (i) one
year from the date that the option was  granted or (ii) the  consummation  of an
acquisition,  as defined, by the Company.  The Company registered all securities
covered by the Option in a Registration Statement on Form S-8. In February 1997,
the  Company  and Solay  agreed to modify the terms of the  option  such that it
cancelled  470,000  previously  issued  Class B Warrants  and  Solay's  right to
purchase  30,000 Class B Warrants  and issued an aggregate of 100,000  shares of
Common Stock (one share of Common Stock for each five Class B Warrants).

     Solay is entitled to exercise options for up to 300,000 shares, of which it
exercised  such option for 260,000 such shares,  including  160,000 for which it
issued a note to the Company in the  principal  amount of $160,000.  The note is
interest-free and is nonrecourse to Solay,  except to the extent that an officer
of the Company repays a note due by such officer to Solay.  The remainder of the
Option becomes exercisable at the earlier of (i) the consummation by the Company
of an  acquisition,  as defined,  or (ii) 18 months from the date of grant.  The
Option  expires five years from the date of grant.  Solay granted an irrevocable
proxy to vote all shares  purchased and held by Solay  pursuant to the Option to
the Company's  President.  Such proxy terminates at the time that the shares are
sold, exclusive of a transfer pursuant to a pledge of the shares.

     As  part  of  the  agreement  with  Solay,   Nationwide  Securities,   Inc.
("Nationwide"),  the  underwriter  for the Company's  initial public offering in
March  1996,  agreed  to  terminate  the  underwriting   agreement   effectively
eliminating  all  restrictive  covenants  set forth  therein  and  severing  the
relationship between the Company and Nationwide.  Accordingly,  the Company also
wrote off the  unamortized  portion,  amounting to $100,000,  of the  Nationwide
consulting agreement during the fiscal year ended June 30, 1997.

     The Company issued  nonqualified  options for 180,000 units to officers and
directors.  The units covered by these nonqualified options are identical to the
units included in the Option issued to Solay,  except that they were exercisable
at  estimated  fair  market  value  at the date of grant  ($1.16).  The  Class B
Warrants  included in such units were  treated in the same manner as the Class B
Warrants included in the Solay agreement  described above. The conversion of the
Class B Warrants results in the exercise price per share becoming $.83.

     For financial reporting  purposes,  the Company ascribed a value of $.05 to
each Class B Warrant.  The aggregate difference between the fair market value of
a share of common stock on the date of grant ($1.0623) and the value ascribed to
each share of common stock included in the units  described above ($.90) for the
Solay Options  amounts to $89,375 and was accounted for as an expense during the
fiscal  year ended  June 30,  1997.  There are no  remaining  unamortized  costs
associated with the Solay Agreement at June 30, 1997.

Continental Capital & Equity Corp.

     On April 30, 1997, the Company  entered into an agreement with  Continental
Capital  & Equity  Corporation  ("CCE")  under  which CCE  agreed  to  conduct a
financial public relations campaign and other consulting services to the Company


                                                                              38

<PAGE>



in  consideration  for the receipt of (i)  $25,000  plus  225,000  shares of the
Company's Common Stock at the commencement of services and (ii) $125,000 payable
in cash or the issuance of Common Stock at a price  equivalent 80 percent of the
closing bid price of such shares on June 15, 1997.  In August 1997,  the Company
issued  177,587  shares of Common Stock to CCE to satisfy this  obligation.  The
accompanying  fiscal 1997 financial  statements  include  $91,666 in the caption
"Selling,  General and  Administrative"  and  $183,334  in the caption  "Prepaid
Expenses" relating to CCE. A substantial  portion of such prepaid amount will be
amortized during the first quarter of fiscal 1998.

Stock Options

     In December 1996, the  shareholders  approved a stock  incentive plan under
which the Company may issue incentive stock options,  nonqualified stock options
and stock  appreciation  rights.  As of June 30,  1997,  the Company has granted
options  covering  314,000 shares of Common Stock,  of which 169,000 options are
vested and the  remaining  vest ratably over four years.  The maximum  number of
shares which may be issued under this plan is 500,000.

     In June 1997, the Company issued stock options for 140,000 shares of Common
Stock  exercisable  at a price of $.10 per share in  consideration  for services
performed by outside  directors in connection with the acquisition of Laminaire.
The  difference  between the exercise price and the market price of these shares
was accounted for as part of the acquisition price of Laminaire (see Note 14).

     The Company  accounts for all options using the  intrinsic  value method in
accordance with Accounting Principles Board Opinion No.25, "Accounting For Stock
Issued To  Employees"  and its related  interpretations.  Effective  with fiscal
1997,  the  Company is subject  to the  provisions  of  Statement  of  Financial
Accounting Standards No. 123,  "Accounting For Stock-Based  Compensation" ("SFAS
123").  SFAS 123  establishes  a fair value method of  determining  compensation
expense relating to stock-based  compensation plans, and requires the disclosure
of the pro forma  effects of recording  such expense using the fair value method
rather than the intrinsic  method.  Under SFAS 123,the fair value of stock-based
awards to employees is calculated using option pricing models,  even though such
models were  developed  to  estimate  the fair value of freely  tradable,  fully
transferable  options without vesting  restrictions,  which significantly differ
from the Company's  stock option  awards.  These models also require  subjective
assumptions,  including  future  stock price  volatility  and  expected  time to
exercise,  which greatly affect the calculated  values.  The Company's pro forma
calculations  were made using the  Black-Scholes  option  pricing model with the
following assumptions:


           Risk-Free Interest Rate                  9%
           Dividend Rate                            0%
           Expected Term of Option In Years     Five years

     On a pro forma  basis,  net loss and loss per common  share for fiscal 1997
and 1996 would not have changed  significantly  if the Company had accounted for
options using the fair value method rather than the intrinsic value method.

     A summary of stock option activity follows:



           Description                       Number             Price Range


                                                                              39

<PAGE>



           Options granted                1,286,000           $.10 to $1.00
           Options exercised                400,000                   $1.00
           Options cancelled                 55,000                   $1.00
           Options outstanding              831,000           $.83 to $1.00

     Of the total options outstanding, 461,000 are exercisable at June 30, 1997.

Shares Reserved for Issuance

     At June 30, 1997, the Company reserved 4,354,000 shares of common stock for
issuance in connection with outstanding options and warrants.

NOTE 10--COMMITMENTS AND CONTINGENCIES

     The Company  leases its principal  office and warehouse  facility under the
terms of a verbal  operating  lease  that  expires  July 31,  1998 and calls for
monthly payments of approximately $4,000. Total rent expense for the years ended
June 30, 1997 and 1996  amounted to $74,985 and  $50,492,  respectively.  Future
minimum lease payments under operating leases,  excluding  escalations,  for the
fiscal year ending June 30, 1998 is $48,000.

     In July 1997, the Company  entered into a three-year  employment  agreement
effective  July 1, 1997,  with its President and Chief  Executive  Officer under
which he will  receive an annual  salary of  $135,000,  $145,000  and  $155,000,
respectively, during each of the three fiscal years in the period ended June 30,
2000.  The contract also provides for the issuance of stock options based on the
achievement of specified  operating  performance,  the use of a car and that the
Board of Directors may award Mr. Darcy bonuses and other incentive  compensation
as it deems appropriate, based upon the Company's operating performance or other
reasonable  criteria and includes a restrictive  covenant  limiting Mr.  Darcy's
ability to obtain employment with a competitor or potential competitor.

     In June 1996, the Company  entered into  three-year  employment  agreements
with three software engineers under which it is obligated to pay annual salaries
of    $60,000    to    each    such    engineer.    The    agreements    contain
covenants-not-to-compete  and confidentiality  agreements, as well as provisions
for severance pay if the Company terminates any or all such agreements for other
than cause.

     The Company's  management does not believe that its products are subject to
any material product liability claims and has no insurance to cover such risk.

     The  Company  has a qualified  401(k)  profit  sharing  plan  available  to
full-time  employees  who meet the  plan's  eligibility  requirements.  The plan
permits  participants  to make  contributions  by salary  reduction  pursuant to
section  401(k) of the Internal  Revenue Code.  In addition,  the Company has no
obligation  to  contribute to the plan,  however,  it can elect a  discretionary
contribution. The Company made no contributions to the plan during the either of
the two years in the period ended June 30, 1997.

NOTE 11--CONCENTRATION OF CREDIT RISK

         The Company's two largest  customers  accounted for 31% of net revenues
in 1997, and its six largest customers accounted for 87% of net revenues in 1996
as follows:
                                                 1997                 1996
                                                 ----                 ----


                                                                              40

<PAGE>



           Customer A                             14%                  23%
           Customer B                              6%                  13%
           Customer C                              7%                  20%
           Customer D                              7%                  11%
           Customer E                             17%                  ---
           Customer F                              1%                  10%
           Customer G                              1%                  10%

No other  customers  accounted  for ten  percent or more of net  revenue  during
either fiscal year. Customer G is located in Canada. No other sales were made to
customers located outside the United States.

     The employees and facilities of the Company service all customers.  Company
costs other than direct material are not related to specific customers.


NOTE 12--NONRECURRING EXPENSES

     Nonrecurring  expenses  consist of the following for the fiscal years ended
June 30, 1997 and 1996:

                                                          1997           1996
                                                          ----           ----

Solay agreement (Note 9)                              $ 294,375
Write-off - Nationwide consulting
agreement (Note 9)                                       95,000
Postemployment cost                                      40,000
Professional fees associated with
nonrecurring transactions                                67,510
Interest - net                                          (43,436)       $  15,117
Disposal of equipment                                    27,756
Other                                                    (2,552)        
                                                      ---------        ---------
Total                                                 $ 478,653        $  15,117
                                                      =========        =========

     The Company agreed to purchase an annuity for an officer who retired during
the fiscal year ended June 30, 1997, the cost of which  ($40,000) was charged to
operations.

NOTE 13--RELATED PARTY TRANSACTIONS

     During fiscal 1997 and 1996, the Company paid professional,  consulting and
legal fees amounting to $332,953(of which $153,924 relates to the acquisition of
Laminaire or obtaining  the  financing  therefor)  and $97,095 (of which $40,220
relates to services associated with the initial public offering) to directors or
firms  related to  directors or  officers.  The law firm in which the  Company's
Secretary  is  a  partner  also  received  41,000  shares  of  common  stock  in
satisfaction of fees owed during fiscal 1997.


NOTE 14--SUBSEQUENT EVENTS (Unaudited)


                                                                              41

<PAGE>



     In October  1997,  the Company  signed a definitive  Purchase  Agreement to
acquire  all  of  the   outstanding   common  stock  of  Laminaire   Corporation
("Laminaire"),  located in Rahway, New Jersey, a manufacturer and distributor of
clean room products which also produces a variety of electronic  circuit boards.
The purchase price, exclusive of expenses, was $3,200,000 (subject to adjustment
based  on  Laminaire's  earnings  during  the  period  immediately  prior to the
closing),   consisting  of  $1,000,000  in  cash  and  a  five-year  convertible
promissory  note in the principal  amount of $2,200,000.  The  promissory  note,
which  bears  interest  at the rate of 10% per  annum and is  collateralized  by
substantially  all of the  Company's  assets,  is  payable  in 60 equal  monthly
instalments  with  a  balloon  payment  of  $1,000,000  due at  maturity.  It is
convertible, subject to certain limitations and restrictions, into shares of the
Company's  Common Stock at the closing sale price of the Company's  common stock
at the closing date of the  Laminaire  acquisition.  The closing is scheduled to
take place on October 16, 1997.

     The  following   unaudited  pro  forma  operating  data  assumes  that  the
acquisition  of  Laminaire  had taken place as of the  beginning  of each period
presented.  The data combines the operating results of the Company's fiscal year
with corresponding  data from Laminaire's  calendar year and gives effect to (i)
the  amortization  of purchase  adjustments  and goodwill  and (ii)  incremental
interest expense associated with the financing arrangements.  No effect has been
giving to assumed cost savings  brought  about by the  consolidation  of the two
entities.


                                                    1997                    1996

Net revenues                                  $8,777,632              $8,185,390
Cost of sales                                  6,635,974               5,712,061
Gross profit                                   2,141,658               2,473,329
Operating expenses                             3,322,865               2,428,859
Nonoperating expenses                            480,221                  18,657
Income (loss) before taxes                    -1,858,292                -136,873
Income taxes-net                                  19,607                  55,493
Net income (loss)                            -$1,877,899                -$81,380


     The  following  unaudited  pro forma  balance  sheet data  assumes that the
acquisition  of  Laminaire  and the  issuance  of the  convertible  debt used to
finance  such  acquisition  had  taken  place on June 30,  1997.  Such pro forma
information gives effect to all known purchase adjustments. The last two columns
assume that the holders of the convertible  debt have exercised their conversion
rights.

Description                    Combined           Proforma     Combined Proforma
Current Assets:
Cash                            297,290                                 $297,290
Receivables - net            $1,784,924                                1,784,924
Inventories                   1,183,710                                1,183,710
Other                           681,760                                  681,760
Total                         3,947,684                                3,947,684


                                                                              42

<PAGE>



Property & Equipment          2,414,467                                2,414,467
Other                         2,346,596          -$356,250             1,990,346

Total                        $8,708,747          -$356,250            $8,352,497

Current Liabilities:
Notes payable                   744,079                                  744,079
Accounts payable                843,351                                  843,351
Accrued expenses                546,815                                  546,815
Other                            88,900                                   88,900
Total                        $2,223,145                               $2,223,145

Long-term Obligations         4,450,000        -$2,450,000             2,000,000

Stockholders' Equity          2,035,602          2,093,750             4,129,352

Total                        $8,708,747          -$356,250            $8,352,497


     Subsequent to June 30, 1997, the Company issued convertible debentures (the
"Debentures") to ten investors, in the aggregate principal amount of $1,500,000,
the net  proceeds  from  which,  together  with  the  proceeds  from  additional
financings,  will be used to close the acquisition of Laminaire and repay all of
Laminaire's  obligations  under a term loan  agreement  with a bank. The Company
will pay interest to the holders of the  Debentures at the rate of 5% per annum.
Interest on the Debentures is payable in cash or Common Stock of the Company, at
the Company's  discretion.  The Company's  obligations  under $50,000  principal
amount  of the  Debentures  are  secured  by a lien  on the  Company's  accounts
receivable.  The Debentures are convertible  into shares of the Company's Common
Stock at any time at dates ranging from 41 days after the date of issuance, at a
price per  share  (the  "Conversion  Price")  equal to the  lesser of 70% of the
average closing bid price for the five trading days  preceding:  (i) the date of
conversion  or, (ii) the date of closing.  In the event that the  Debentures are
not converted prior to the maturity date of the Debentures,  the Company has the
option  to  satisfy  its  obligations  under  $50,000  principal  amount  of the
Debentures  on such  maturity  date by the  payment of cash or the  issuance  of
Common Stock at the Conversion  Price.  Through  September 30, 1997,  holders of
$250,000  principal  amount of Debentures had converted  their  Debentures  into
501,252 shares of the Company's  Common Stock. All Debentures are convertible by
October 12,1997.

     Such  issuances  result in the exercise  price of the  Redeemable  Warrants
being  reduced,  on an estimated pro forma basis,  to $1.99.  In addition,  each
Redeemable  Warrant,  as adjusted,  will entitle the holder  thereof to purchase
three shares of Common Stock at the adjusted purchase price of $1.99 per share.


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