MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS

UNAUDITED STATEMENTS, YEAR END, 2001

FINANCIAL

The following discussion should be read in conjunction with Company’s Consolidated Unaudited Financial Statements and Notes included in this report.

RESULTS OF OPERATIONS, comparison of periods, December 2001 and December 2000

Gross sales remained flat during the current period. However, recent sales solicitations by the Company for its WaterClearÔ equipment have been promising. Those sales are not reflected on the financial reports. Deliveries of our equipment to the two schools were completed last year.

Sales of ZawCAD units have not yet been finalized. Deliveries on previous orders, (those placed prior to the Company obtaining the license, with deposits) are not yet scheduled to be completed nor included in the new sales projections. Those old sales orders may or may not be finalized. It will depend on the current needs of the past customers. Current sales efforts are being made in two primary locations, New Mexico (refineries) and Chicago, (food industry). Additional Research and Development is still being conducted by our engineering partner, EDC Engineering Inc., Santa Fe, New Mexico. The Company has secured an agreement with an Albuquerque company to provide us a location and assistance in operating and demonstrating our ZawCAD equipment in Albuquerque. The Company has secured a lending entity that will fund the construction and delivery of our equipment to any qualified customer. The Company expects to have the customer within the second quarter. Unit prices expect to be in the $800k to $1mm range.

General expenses will show a decrease for the year due to elimination of the auto lease and the IKON office copier lease and the closing of the Sparks office/warehouse facility. Most of the office equipment purchases are complete at this time and it is expected that overall, non-operating, expenses will be stabilized for 2002.

Liquidity: The company’s liquidity did not improve during the past period due to the lack of sufficient equipment sales and delivery. The company has now established a lease/credit line for small equipment purchase – resale use during 2002, which will also allow it to deploy its Cyclo Mill equipment during future quarters of 2002. With the financing program for the construction of the ZawCAD units that will commence with the first confirmed Purchase Order from the new customers, the Company expects to have a better financial year.

Legal: The Company has negotiated a final settlement with the former owner of the ZawCAD license. This suit had gone on for a year. The settlement documents have not yet been finalized, but the terms and conditions have been completed. The Company expects to have the matter closed by the second quarter of 2002. This will remove a major impediment to the Company’s operational abilities.