The following discussion of our financial condition and results of operations for the three and six months ending June 30, 2022 and 2021 and should be read in conjunction with the unaudited condensed consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under Cautionary Statement Regarding Forward Looking Information in this report. We use words such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could," and similar expressions to identify forward-looking statements.





Overview

The Covid-19 pandemic and current economic conditions have hurt our operations significantly. Prior to the Covid-19 pandemic, we experienced significant revenue growth in 2019 mainly through the sale of Voraxial Separator and V-Inline Separators. However, 2020, 2021 and early 2022 proved to be an extremely challenging and disappointing period due to the Covid-19 pandemic and slow economic recovery. The drop in capital expenditures from the overall market, both from the oil industry and industries outside of oil and gas, coupled with the lack of a sales and marketing budget, hindered sales opportunities for the V-Inline Separator. During this period, we drastically decreased our sales and marketing efforts which has resulted in fewer customer inquiries in the current period. We are still experiencing the ramifications of a nominal sales and marketing budget. As such, customer inquiries have not rebounded. As we have reduced our marketing budget for the V-Inline Separator, we have shifted our near-term focus on machining work to help stabilize our cash flow.

We believe there is a market for the V-Inline Separator in the mining, utilities, sewage and industrial wastewater industries, among others. We intend to continue to seek opportunities for the V-Inline Separator through our rights under our Grant Back License. We have branded our licensed products as the V-Inline Separator. In 2021, our customer commissioned a wastewater system at a nuclear facility that consisted of multiple V-Inline Separators to separate solids and oil from their wastewater stream. The system is being used to process and separate oil and solids from a flow of about 100 gallons per minute. The system includes different technologies with the heart of the system being comprised of twoV-Inline 2000 Separators working in parallel with a third V-Inline Separator being utilized to further dewater the reject lines from the System.





Going Concern

For the six months ended June 30, 2022, we reported a net loss of $282,807 and net cash used in operations of $112,004. At June 30, 2022, we had cash on hand of $4,236, a working capital deficit of $1,445,859 and an accumulated deficit of $16,919,328. The report of our independent registered public accounting firm on our consolidated financial statements for the year ended December 31, 2021 contains an explanatory paragraph regarding our ability to continue as a going concern based upon our working capital deficit, accumulated deficit and negative cash flows from operations. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. There are no assurances we will be successful in our efforts to raise capital, develop a source of revenues, report profitable operations or to continue as a going concern, in which event investors would lose their entire investment in our company. We estimate we require approximately $800,000 to maintain our operations over the next 12 months.

Results of Operations for the Three Months and Six Months ended June 30, 2022 and 2020:





Revenue

While our revenues were nominal for the three and six months ended June 30, 2022, our revenues increased by approximately 34% and decreased by 11%, respectively for the three and six months ended June 30, 2022 from the comparable period in 2021. There are no assurances we will be able to increase our revenues to the profitability levels we experienced in fiscal year 2019 before the Covid-19 pandemic or report profitable operations in the future. Further, the lingering economic impact of the Covid-19 pandemic may have a continued negative effect on the potential for sales of V-inline Separators. Our revenues are dependent upon our ability to develop a consistent sales channel for the V-Inline Separators and potentially additional sales of the Voraxial Separator from Schlumberger. As discussed earlier in this report, we believe that our revenues for the six months ended June 30, 2022 and fiscal year 2021 have been adversely impacted by the Covid-19 pandemic and current economic conditions. Even once the effects of the pandemic on our business subsides, it may take longer than expected for business in our target markets to resume normal operations. Accordingly, at this time we are unable to predict the ultimate impact to our revenues for the remaining 2022.





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The majority of our sales in the six months ended June 30, 2022 were a result of manufacturing specific machine parts for our customers, sales to Schlumberger related to the Voraxial Separator, and sales of auxiliary equipment and parts of the V-Inline Separator. The majority of revenues in the first half of 2021 were a result of manufacturing specific machine parts for our customers, sales to Schlumberger related to the Voraxial Separator, and sales of auxiliary equipment and parts of the V-Inline Separator.





Cost of Goods

Our cost of goods increased by approximately 42% and 41%, respectively, for the three and six months ended June 30, 2022 from the comparable period 2021. The increase in our COGS is mainly due to the increase in machining projects and the different manufacturing projects we completed during the three and six months ended June 30, 2022. Our cost of goods continues to be reviewed by management in effort to obtain the best available pricing while maintaining high quality standards.





Costs and Expenses

Total costs and expenses decreased by approximately 19% and 30%, respectively, for the second quarter and first six months of 2022 from the comparable period 2021 as we continue to reduce expenditures as a result of Covid-19 pandemic and current economic conditions. Included in this decrease was a decrease of approximately 36% and 44%, respectively, in general and administrative expenses in the three and six months ended June 30, 2022 from the comparable period in 2021. The decrease is attributable to a decrease in repair and maintenance and insurance expense. In addition, payroll expense decreased approximately 24% in the three and six months ended June 30, 2022 from the comparable period in 2021 as we reduced the number of employees and overtime hours due to slower economic activity. Professional fees increased by approximately 23% for the three months ended June 30, 2022 and decreased by 22% for the six months ended June 30, 2022 from the comparable period in 2021 as we continue to reduce expenses due to the Covid-19 pandemic.

Liquidity and Capital Resources:

Cash at June 30, 2022 was $4,236 as compared to $11,740 at December 31, 2021. Our working capital deficit at June 30, 2022 was $1,445,859 as compared to a working capital deficit at December 31, 2021 of $1,160,325. At June 30, 2022, we had an accumulated deficit of $16,919,328. Our current assets decreased by 9% at June 30, 2022 as compared to December 31, 2021, which reflects decreases in our cash and cash equivalents, prepaid expenses and accounts receivable, partially offset by increase in our inventory, net. Decrease in accounts receivable is due to customers paying timely during the period. Our current liabilities increased by 21% at June 30, 2022 as compared to December 31, 2021, which reflects an increase in accounts payable, loans payable, current portion and accrued expenses and accrued expenses - related party and loan payable- related party. Increase in accrued expenses - related party is due to the accrual of management's salary. Accounts payable and accrued expenses increased due to professional fees. Increases in loans payable - related party is due to the loan the Company received from its CEO, Mr. DiBella and its board member, Mr. Veldman, during the period. Increases in loans payable, current portion is due to the 2020 PPP Loan. FPA believes it used the 2020 PPP Loan amount for qualifying expenses. Under the terms of the PPP Loan, certain amounts of the 2020 PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. We filed the application for forgiveness of the 2020 PPP Loan in accordance with the terms of the CARES Act. We are waiting for an approval from the bank but there are no assurances that the full amount will be forgiven.

From January 2022 through August 12, 2022, our CEO, John Di Bella, and Ray Veldman, a member of our Board of Directors, have advanced the Company an aggregate of $139,500 pursuant to 4% promissory notes due on December 31, 2022.

We do not have any external sources of liquidity and we do not have any capital commitments.





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Summary of cash flows

The following table summarizes our cash flows:



                                                       Six Months Ended
                                                           June 30,
                                                      2022           2021
                                                          (Unaudited)
Cash flow data:
Cash used in operating activities                 $ (112,004 )   $ (239,592 )
Cash provided by investing activities             $       -      $  275,000

Cash provided by (used in) financing activities $ 104,500 $ (100,313 )

Net cash used in operating activities in the six months ended June 30, 2022 was primarily attributable to our net loss for the period, increases in accrued expenses - related party and accounts payable and accrued expenses offset in part by increases in inventory.

Net cash used in operating activities in the six months ended June 30, 2021 was primarily attributable to our net loss for the period, increases in accrued expenses - related party and accounts payable and accrued expenses offset in part by increases in accounts receivable and inventory.

Net cash used in investing activities during the six months ended June 30, 2021 was primarily attributable to the sale of equipment.

Net cash provided by financing activities during the six months ended June 30, 2022 was attributable to the loans the Company received from its CEO, Mr. DiBella and its board member, Mr. Veldman. Net cash used in financing activities during the six months ended June 30, 2021 was primarily attributable to the repayment of the equipment note payable offset by the proceeds from the 2021 PPP loan.

In April 2021, the Company entered into a purchase agreement to sell its CNC machining equipment for $275,000. The machining equipment was received in July 2017 and was used for the manufacture of customer specific projects along with the largest Voraxial and V-Inline Separators. The Company sold the equipment as the utilization of the CNC machining equipment for customer specific projects and the separation equipment decreased due to the Covid-19 pandemic.





Looking Forward

As a result of the uncertainties facing our company as discussed elsewhere in this report, including the impact of the Covid-19 pandemic, we are unable to predict the overall impact in 2022 and beyond on our company at this time. Our loss of revenues will materially impact our liquidity, and we do not expect to be able to access the capital markets for additional working capital in the near future. Our senior management will continue to monitor our situation on a daily basis; however, we expect that these factors and others we have yet to experience will materially adversely impact our company, its business and operations for the foreseeable future. Our management has also begun exploring possible opportunities for the Company involving mergers, acquisitions or other business combination transactions in an effort to diversify our business. We are not currently a party to any agreement or understandings with any third parties, and there are no assurances even if our management locates an opportunity which it believes will be in the best interests of our shareholders what we will ever consummate such a transaction. Accordingly, investors should not place undue reliance on these efforts.





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Our ability to generate future revenues, generate sufficient cash flow to pay our operating expenses and report profitable operations in future periods will depend on a number of factors, many of which are beyond our control. Our independent auditors have included in their audit report an explanatory paragraph that states that our working capital deficits and accumulated deficit raises substantial doubt about our ability to continue as a going concern. If we fail to achieve profitability on a quarterly or annual basis, or to raise additional funds when needed, or do not have sufficient cash flows from sales, we may be required to scale back or cease operations, sell or liquidate our assets and possibly seek bankruptcy protection. As a result of the above, there is substantial doubt about the ability of the Company to continue as a going concern and the accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.

Critical Accounting Estimates

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Note C of the Notes to Consolidated Financial Statements appearing previously in this report describes the significant accounting policies used in the preparation of the consolidated financial statements. Certain of these significant accounting policies are considered to be critical accounting policies, as defined below.

A critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes: 1) we are required to make assumptions about matters that are highly uncertain at the time of the estimate; and 2) different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.

Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they became known. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that our consolidated financial statements are fairly stated in accordance with U.S. GAAP, and present a meaningful presentation of our financial condition and results of operations. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our consolidated financial statements:





Accounts Receivable

Accounts receivable are presented net of an allowance for doubtful accounts. The company maintains allowances for doubtful accounts for estimated losses. The company reviews the accounts receivable on a periodic basis and makes general and specific allowance when there is a doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, customer's historical payment history, and its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collections.





Inventory

Inventory primarily consists of components, including raw material and finished parts for the V-Inline Separator and face shields and is priced at lower of cost or net realizable value. Net realizable value is defined as sales price less cost of completion, disposable and transportation. Provisions have been made to reduce excess or obsolete inventories to their net realizable value.





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Income Taxes

The Company accounts for income taxes under ASC 740-10-25. Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Recent Accounting Pronouncements

All newly issued accounting pronouncements, but not yet effective, have been deemed either immaterial or not applicable.

Off Balance Sheet Arrangements

As of the date of this report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term "off-balance sheet arrangement" generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

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