3

The Company, through subsidiaries, mines, processes and markets natural zeolite and aggregate products from properties located in New Mexico.

The Company believes it is the largest producer of natural zeolites in the United States. Although natural zeolites in the United States are not rare, the characteristics of the St. Cloud zeolites offer a competitive advantage over some other zeolites in applications the Company has targeted.

The Company's mining operations are subject to the jurisdiction of federal and state governmental authorities, which have responsibility for environmental matters such as air and water quality, the promotion of occupational safety and mine reclamation. The Company has in the past reclaimed mining areas, tailing impoundments and other associated disturbances and expects to continue to do so in the future. Such costs related to active mines are accrued and charged over the expected operating lives of the mines using a straight-line method. Future reclamation and remediation costs for inactive mines are accrued based on management's best estimate at the end of each period of the costs expected to be incurred at a site. Future costs or capital expenditures relating to the protection of the environment are not expected to have a material adverse effect on the Company's earnings. The Company believes that compliance with mine reclamation laws will not adversely affect the competitive position of its operations since competitors in the mining industry are subject to the same laws. The Company holds federal and state environmental permits and licenses required for the operation of its mining activities.

In December, 2001, the Company hired professional advisors to consider strategic alternatives that may include divestiture of the Company's mining operations. No decision has been made with respect to any such divestiture, nor has any commitment been made to dispose of any segment of the Company's business.

St. Cloud Mining Company, a Florida corporation ("St. Cloud"), is a wholly owned subsidiary of the Company and operates a zeolite mine and processing facility and construction aggregate quarries in New Mexico. It also has non-operating silver mines and real estate holdings in Sierra County, New Mexico.

The zeolite mine and a 500 ton per day processing facility now encompass about 950 acres of fee lands, 192 acre-feet of water rights and about 600 acres of mineral leases estimated to contain 18 million tons of zeolitic resources. The zeolite mineral, clinoptilolite, occurs in flat lying beds and is extracted by conventional open pit mining methods. At the St. Cloud mill, the clinoptilolite mineral is crushed, dried, and sized without beneficiation and shipped in bulk, packaged or modified to a customer's specifications. Most deliveries are by contract motor carriers to manufacturers, brokers, or independent sales agents. Zeolite markets include animal feed supplements, odor control, absorbents, air and water filtration media, environmental products and soil conditioners. The zeolites are also used in other applications where ammonia control or specific cation exchange capacity is required. In 2001, St. Cloud sold 15,951 tons of natural zeolite, compared to 16,422 tons and 15,908 tons in 2000 and 1999, respectively.

As part of the industrial mineral operations, the Company provides off-site construction services utilizing personnel and equipment. Such construction projects have included restoring an endangered species habitat, closure of a municipal landfill, and providing construction aggregates for road projects.

The Company's silver mines have not been operated since 1993 and consist of about 106 acres of patented mining claims and 200 acres of unpatented mining claims within the Gila National Forest. St. Cloud has retained processing and some production equipment from the former silver mining operations. The Company's investment in St. Cloud's silver mines and base and precious metal processing equipment were written-off at the end of 1993.

During 2001, St. Cloud sold surplus real estate and water rights which had been acquired in 2001 as part of the acquisition of fee interests in property formerly leased by the Company in its zeolite operation. The purchase also included 2,200 acres of additional fee land and grazing leases which the Company presently has under contract for sale.

At February 1, 2002, St. Cloud had a total of 22 full-time employees, none of whom are affiliated with trade or labor organizations.

The Lordsburg Mining Company, a wholly owned subsidiary of the Company ("Lordsburg"), owns approximately 1,250 acres of fee lands and an additional 400 acres of mineral leases and 200 acres of unpatented mining claims, all located in Hidalgo County, New Mexico.

Lordsburg sold 8,138 tons of construction aggregate material in 2001, compared to 8,365 tons and 5,152 tons in 2000 and 1999, respectively. Labor for Lordsburg is provided by St. Cloud.

The primary focus of the Company's real estate operations is on the development of small, high-end, waterfront condominium projects. To date, the Company has purchased four sites, three of which are waterfront, in the Cocoa Beach, Florida area. The projects planned are a twelve unit riverfront condominium ("Country Club Point"), a six unit oceanfront condominium ("Riomar") and a sixteen unit oceanfront condominium ("Cape Club"). Plans for the fourth site ("Oak Park") have not yet been finalized. During July 2001, the Company commenced construction on Country Club Point, which is expected to be completed in the summer of 2002. Riomar and Cape Club are expected to be completed in late 2003. All twelve units at Country Club Point are under contract for sale (total aggregate sales price of $4,300,000) with anticipated closings in the third quarter of 2002. All six units at Riomar (total estimated aggregate sales price of $3,850,000) and eleven of the sixteen units at Cape Club (total estimated aggregate sales price of $7,650,000) have been reserved with refundable deposits. Revenue from condominium sales will not be recognized until closings as more fully described in note 1 of notes to consolidated financial statements. As of December 31, 2001, the Company had expended $3,022,453 in land acquisition and development costs on the four projects. Construction financing was secured through conventional real estate bank financing. The Company also holds for resale 19 single-family lots, purchased in 1998 and 1999, in the Fawn Lake subdivision near Mims, Florida.

5

Total revenues in the year ended December 31, 2001 were $23,933,115, compared to $25,231,648 in the year ended December 31, 2000. This decrease in total revenues was mainly attributable to lower revenues in the electrical construction operations.

Electrical construction revenue decreased by 3.9% in the year ended December 31, 2001 to $21,804,496 from $22,696,137 in the year ended December 31, 2000 primarily as a result of a decrease in fiber optic construction. The decrease in fiber optic construction is expected to continue at lower levels for the near term. Personnel previously performing fiber optic cable installation have been reallocated to transmission line construction.

Revenue from mining operations decreased 19.6% to $2,016,074 in the year ended December 31, 2001 from $2,508,278 in the year ended December 31, 2000. This decrease was mostly attributable to a decrease in construction aggregate projects.

Revenue, operating profit and costs and expenses relating to real estate operations through December 31, 2001 were not significant, and were attributable largely to the sale of single-family lots in the Fawn Lake subdivision near Mims, Florida ("Fawn Lake"). However, at December 31, 2001 the Company had investments in real estate of $3,407,180, primarily representing expenditures made in connection with the Company's condominium development projects described below under "Liquidity and Capital Resources." As discussed in the note 1 of notes to consolidated financial statements, revenue from the sale of the condominium projects will be recognized as title is transferred and the purchaser has made the required minimum initial investment. The Company anticipates that the results from these projects will be significant in 2002.

Electrical construction operations had an operating profit of $3,577,992 in the year ended December 31, 2001, compared to an operating profit of $2,320,318 during the year ended December 31, 2000, an increase of 54.2%. As a percentage of revenue, gross margins on electrical construction operations increased to 16.4% for the year ended December 31, 2001 from 10.2% for the year ended December 31, 2000. Operating profit was higher for the year ended December 31, 2001 due primarily to increased margins on transmission work resulting from the greater availability of projects. The Company is unable to determine the profitability on future projects. The varying magnitude and duration of electrical construction projects may result in substantial fluctuation in the Company's backlog from time to time. At February 1, 2002, the approximate value of uncompleted contracts was $12,200,000, compared to $9,000,000 at February 1, 2001.

During the year ended December 31, 2001, mining operations experienced an operating loss of $81,052 compared to an operating profit of $42,166 during the year ended December 31, 2000. As a percentage of revenue, gross margins in the mining operations decreased to (4.0)% for the year ended December 31, 2001 from 1.7% for the year ended December 31, 2000. This decrease in operating results in 2001 was largely due to a single construction aggregate project that was completed during the second quarter of 2000. The operating results from mining included the recovery of $84,932 of previously recorded impairment losses related to a note receivable issued in connection with the sale of a previously owned mine (see note 15 of notes to consolidated financial statements). In addition, the operating results from mining included depreciation expense of $243,928 during the year ended December 31, 2001, compared to $278,187 during the year ended December 31, 2000.

St. Cloud Mining Company, a wholly owned subsidiary of the Company, sold 15,951 tons of natural zeolite during the year ended December 31, 2001, compared to 16,422 tons during the year ended December 31, 2000.

Other income in the year ended December 31, 2001 was $636,729, compared to $2,470,966 in the year ended December 31, 2000. The decrease in other income for 2001 was mainly a result of key-man life insurance proceeds of $2,000,000 recorded in the fourth quarter of 2000. (See note 2 of notes to consolidated financial statements). Other income for the years ended December 31, 2001 and 2000 included $420,014 and $109,117, respectively, from the gain on sale of land in New Mexico earned by the Company's mining subsidiary. Interest expense increased for 2001 due to the longer time certain loans against the cash surrender value of insurance policies were outstanding and the debt incurred for the construction of the first condominium project. The life insurance policy loans were initiated in June 2000.

Total costs and expenses, and the components thereof, decreased to $22,904,765 in the year ended December 31, 2001 from $25,126,817 in the year ended December 31, 2000, primarily as a result of decreased electrical construction costs.

9

Electrical construction costs were $16,969,631 and $19,446,086 in the year ended December 31, 2001 and 2000, respectively. A $3,859,000 decrease in subcontract costs was partially offset by increases in salary and equipment rental expenses. The salary increase was largely attributable to both an increase in the average number of electrical construction field personnel and incentive bonuses incurred due to a higher level of profitability. Certain projects require greater utilization of subcontractors who perform services not normally provided by the Company. These subcontract costs will vary substantially from year to year depending upon the contracts awarded to the Company.

Mining costs were $1,853,197 in the year ended December 31, 2001, compared to $2,272,858 in the year ended December 31, 2000. This decrease was mainly attributable to a decrease in construction aggregate projects.

Depreciation and amortization was $1,568,679 in the year ended December 31, 2001, compared to $1,274,296 in the year ended December 31, 2000. The increase in depreciation and amortization for 2001 was largely a result of recent capital expenditures, most of which have occurred in the company's electrical construction business.

General and administrative expenses of the Company increased to $2,417,330 in the year ended December 31, 2001, from $2,140,859 in the year ended December 31, 2000. This increase was primarily a result of increased proxy solicitation, salary and insurance expense. General and administrative expenses in the year ended December 31, 2001 included approximately $430,000 of additional expenses related to proxy solicitation in connection with the Company's 2001 annual meeting. During the year ended December 31, 2000, general and administrative expenses included a $425,311 net expense related to payments made under Cancellation and Release Agreements pursuant to which the Company's Employee Benefit Agreements were terminated. (See note 7 of notes to consolidated financial statements). General and administrative expenses as a percentage of revenue increased to 10.1% from 8.5% in the year ended December 31, 2001 as compared to the year ended December 31, 2000.

The provision for income taxes was $172,313 in the year ended December 31, 2001, an effective tax rate of 10.3%, as compared to an income tax benefit of $1,106,059 in the year ended December 31, 2000, an effective tax rate (benefit) of (42.9)%. The effective tax rate (benefit) differs from the statutory rate for the year ended December 31, 2001 largely due to the release of the remaining deferred tax asset valuation allowance of $523,000. For the year ended December 31, 2000, the effective tax rate differs from the statutory rate primarily due to a $1,418,000 decrease in the valuation allowance and the receipt of $2,000,000 of non-taxable life insurance proceeds.

The Company had previously recorded a valuation allowance to reduce deferred tax assets to an amount that represented management's best estimate of the amount of deferred tax assets that more likely than not would be realized. The most significant deferred tax asset was a net operating loss ("NOL") carryforward. Based on negative evidence, such as successive years of tax losses, future income projections and NOL carryforward limitations it was determined, based on all information available at the time, that the Company either would not use the NOL carryforward or could not produce, with reasonable accuracy, information to support utilization of the carryforward.

10

During the review of the valuation allowance during 2001 and 2000 it was determined that a total of $523,000 and $1,418,000, respectively, of the valuation allowance should be released based on the following positive evidence:

Sufficient taxable income was generated during the years that was offset by net operating loss carryforwards for which a valuation allowance previously existed. Management determined that it was more likely than not that a significant portion of the NOL's expiring in 2001 and 2002 would be utilized. The taxable income resulted from favorable operating results of the Company's electrical construction subsidiary that could not reasonably have been projected in a prior period.

Total revenues in the year ended December 31, 2000 were $25,231,648 compared to $20,240,524 in the year ended December 31, 1999. A 26% increase in 2000 over 1999 was mainly attributable to electrical construction revenue.

Electrical construction revenue increased by 25% in the year ended December 31, 2000 to $22,696,137 from $18,113,797 in the year ended December 31, 1999 primarily attributable to increases in transmission line and fiber optic cable construction.

Revenue from mining operations increased 21% to $2,508,278 in the year ended December 31, 2000 from $2,073,777 in the year ended 1999. This increase for 2000 was largely attributable to an increase in various construction projects. These projects included land reclamation and construction aggregate projects.

Electrical construction operations had an operating profit of $2,320,318 in the year ended December 31, 2000, compared to operating profits of $3,073,756 during the year ended December 31, 1999. As a percentage of revenue, gross margins on electrical construction operations decreased to 10.2% for the year ended December 31, 2000 from 17.0% for the year ended December 31, 1999. The decrease in operating results in 2000 was mostly a result of increased subcontract costs and inclement weather. As a result of labor shortages, the Company was forced to engage the services of subcontractors at greater costs than our internal costs.

During the year ended December 31, 2000, mining operations experienced an operating profit of $42,166 compared to an operating profit of $108,284 during the year ended December 31, 1999. As a percentage of revenue, gross margins in the mining operations decreased to 1.7% for the year ended December 31, 2000 from 5.2% for the year ended December 31, 1999. The operating results from mining operations in 2000 and 1999 included the recovery of $84,932 and $374,584, respectively of previously recorded impairment losses related to a note receivable issued in connection with the sale of a mine and a coal royalty. This decrease in operating results in 2000 was mainly due to a single construction aggregate project that was completed during the second quarter of 2000. The operating results from mining included depreciation expense of $278,187 during the year ended December 31, 2000, compared to $309,206 during the year ended December 31, 1999.

11

St. Cloud Mining Company sold 16,422 tons of natural zeolite during the year ended December 31, 2000, compared to 15,908 tons during the year ended December 31, 1999.

Other income in the year ended December 31, 2000 was $2,470,966 compared to $220,939 in the year ended December 31, 1999. The increase in other income for 2000 was mostly a result of key-man life insurance proceeds of $2,000,000 recorded in the fourth quarter of 2000. Other income for the year ended December 31, 2000 included $109,117 from the gain on sale of land in New Mexico.

Total costs and expenses, and the components thereof, increased to $25,126,817 in the year ended December 31, 2000 from $18,463,899 in the year ended December 31, 1999, primarily as a result of increased electrical construction costs.

Electrical construction costs were $19,446,086 and $14,302,105 in the year ended December 31, 2000 and 1999, respectively. The increase in costs for the 2000 period was mostly attributable to increased costs associated with increases in transmission line and fiber optic cable construction activity.

Mining costs were $2,272,858 in the year ended December 31, 2000, compared to $2,030,871 in the year ended December 31, 1999. This increase in mining costs for 2000 as compared to 1999 was mainly a result of increased costs associated with increased construction project revenue.

Depreciation and amortization was $1,274,296 in the year ended December 31, 2000, compared to $1,108,931 in the year ended December 31, 1999. The increase in depreciation and amortization for 2000 as compared to 1999 was largely a result of recent capital expenditures, most of which have occurred in the Company's electrical construction segment.

General and administrative expenses of the Company increased to $2,140,859 in the year ended December 31, 2000, from $1,384,817 in the year ended December 31, 1999. General and administrative expenses in the year ended December 31, 2000 included a $425,311 net expense related to payments made under the previously mentioned Cancellation and Release Agreements. The increase in general and administrative expenses also resulted from an increase in professional services relating to computer software upgrades and corporate salaries expense. General and administrative expenses as a percentage of revenue increased to 8.5% in the year ended December 31, 2000 as compared to 6.8% in the year ended December 31, 1999.

The income tax benefit was $1,106,059 in the year ended December 31, 2000 with an effective tax rate (benefit) of (42.9)% as compared to an income tax benefit of $478,671 in the year ended December 31, 1999 and an effective tax rate (benefit) of (24.0)%. The effective tax rate (benefit) differs from the statutory rate due largely to a $1,418,000 decrease in the deferred tax asset valuation allowance and the receipt of $2,000,000 of non-taxable life insurance proceeds. For the year ended December 31, 1999, the effective tax rate differs from the statutory rate primarily due to a $1,324,000 decrease in the valuation allowance.

Selected quarterly financial data (in thousands of dollars except per share and share amounts) follows: