MARKET General Market Overview Market Segmentation Competitive Edge   MARKET SEGMENTATION Stationary Engines Diesel engines utilized for generator sets and welders have a 10-year average life span. As with other market segments, operators of these engines are concerned with meeting emission level regulations and the reducing operating costs (fuel economy). HyPower intends to address this market segment due to its relatively smaller numbers and the ease of application. Transportation/Automotive The North American economy has grown at a moderate rate over the past decade with interest rates and inflation rates being at comparatively low levels. However, North American manufacturers report that car and truck industry volumes have decreased in recent years with most of the decrease being in cars. Even with these current conditions, there is an extensive market for the Hydro Power Pak. Transportation/Automotive Industry United States 1 Canada 2 Automotive 146,314,296 13,477,896 Heavy Duty Trucks 47,094,754 3,647,963 Buses 654,432 64,523 Total 194,063,482 17,190,382 Total U.S. and Canada 211,253,864 Source: 1 Statistics from USDA; 2 Statistics from Statistics Canada Agriculture The following information is compiled from statistics for the reporting period of 1985 to 1995. The agricultural industry continues to be a relatively flat market with industry stats having had little change. The 1985 to 1995 stats are a relative indication of today's market potential. Note: 1.) Number of units are total of 1985-1995 Industry Retail Sales 2.) Agricultural Industry Retail Sales of Power equipment in 1995: approx. $10 Billion USD The most important factor influencing sales of agricultural equipment is the level of total cash receipts, which is reflected by levels of acreage planted, commodity prices, crop yields, farm operating expenses, government subsidies and payments. Sales are also influenced by general economic conditions, interest rates and the availability of financing. Farmers tend to postpone the purchase of new equipment when the farm economy is depressed, and to increase their purchases when economic conditions improve. Weather conditions are the major determinant of crop yields and therefore also effect equipment buying decisions. Major trends in the agricultural industry include a growth in farm size and machinery capacity, concurrent with a decline in the number of farms. Commodity prices, crop yields, interest rates and average age for North American farmers has led to a widespread consolidation of farming operations. Agricultural United States 1 Canada 2 Tractors under 40 hp 518,289 57,249 Tractors 40 - 100 hp 387,996 82,291 2 wheel drive 100 hp plus 202,802 35,452 4 wheel drive 36,469 16,383 Self propelled combines 92.228 21,093 Totals 1,237,784 212,648 Total U.S. and Canada 1,450,432 Average Farm Size United States 1 Canada 2 1960 302 Acres 347 Acres 1995 469 Acres 622 Acres Number of Farms (thousands) 1960 3,948 498 1995 2,073 269 Source: 1 Statistics from USDA; 2 Statistics from Statistics Canada Construction Equipment During the years 1985 to 1995, worldwide manufacturing levels of diesel engines for off-road, heavy duty construction equipment averaged 1,500,000 units per year (*Source Power Systems Research). North American utilization of these engines was approximately 10% (150,000 engines), representing a total North American market of 1.5 million engines. The major North American manufacturers of these engines are CAT, Cummins, Detroit Diesel, Mack and John Deere. According to these manufacturers, they are all working on new engines to reduce emissions and improve fuel economy. Although diesel has been the fuel of choice for off road vehicles, the engine manufacturers are now developing products for alternative fuels such as natural gas, LPG (propane) and methane. The Hydro Power Pak will ultimately increase the efficiency of engines burning these fuels. Other Markets We are aware of other potential applications for the Hydro Power Pak. The technology can be adapted for use in all internal combustion engines and will increase the efficiency of combustion for oil or gas fired furnaces and water heaters. It is our intention to focus on the primary markets initially, and to develop products for specific applications when conditions warrant. © 2006 HYPOWER FUEL, ALL RIGHTS RESERVED.