U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1998

                         Commission File Number: 0-6088

                              Earth Sciences, Inc.
                 (Name of small business issuer in its charter)

         Colorado                                          84-0503749
(State of incorporation)                       (IRS Employer Identification No.)

                     910 12th Street, Golden, Colorado 80401
                     ---------------------------------------
                    (Address of principal executive offices,
                               including Zip Code)

      (Registrant's telephone number, including area code): (303) 279-7641

         Securities registered under Section 12(g) of the Exchange Act:
                        Common Stock, one cent par value
                        --------------------------------
                                 Title of class

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.
[X] Yes [ ] No

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will 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 ]

State issuer's revenues for its most recent fiscal year.  $ 4,893,000

State the  aggregate  market  value of the voting  stock  held by  nonaffiliates
computed by reference  to the price at which the stock was sold,  or the average
bid and asked  prices of such stock,  as of a specified  date within the past 60
days.
As of March 12, 1999 was $18,490,000.


Number of shares outstanding of registrant's Common Stock, one cent par value as
of March 12, 1999 - 23,554,362.


DOCUMENTS INCORPORATED BY REFERENCE :
None


Transitional Small Business Disclosure Format:  Yes __ No  X


<PAGE>

                                     PART I

Item 1. Description of Business

This Annual Report may contain forward-looking  statements within the meaning of
Section 27A of the Securities Act of 1933. In particular,  such  forward-looking
statements  may be found in this section under  "Description  of Business,"  and
below in Item 6.  under  "Management's  Discussion  and  Analysis  of  Financial
Condition  and Results of  Operations."  Actual  events or results  could differ
materially from those discussed in the forward-looking statements as a result of
various   factors   including  those  set  forth  below  or  under  the  heading
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations." .

     (a) Business Development.

Earth  Sciences,   Inc.  ("ESI"  or   "Registrant",   which  term  includes  its
wholly-owned  subsidiaries unless otherwise  indicated) is chemical  processing,
air pollution control and mineral  exploration  company.  Production of purified
phosphate products in Calgary commenced in June 1997. ESI was incorporated under
the name of  Colorado  Central  Mines,  Inc.  in  Colorado  in 1957.  The  major
activities  of the Company  include  the  operation  of its  solvent  extraction
facility in Calgary, Alberta for production of purified phosphate products; flue
gas  conditioning  technology  for  coal-fired  boilers  and other  applications
provided  through  ADA  Environmental  Solutions  LLC  ("ADA"),  a  wholly-owned
subsidiary;  and continued exploration activities for diamond and gold resources
in Venezuela.

During 1998, ESI (1) acquired the remaining  equity  interest in ADA and through
ADA (a)  received  2  patents  for its  flue-gas  conditioning  technology,  (b)
developed  new  products to resolve  treated ash use in cement,  (c) was awarded
several  contracts to demonstrate  various  technologies,  and (d)  successfully
completed the warranty period for its  installation in Wisconsin;  (2) continued
and improved production of purified phosphate products at its solvent extraction
facility in Calgary,  Alberta, Canada; (3) applied for 15 mineral concessions in
Venezuela  covering over 30,000 acres and continued  exploration  activities for
diamond and gold  resources in Venezuela;  (4) issued  $3,081,000 in convertible
debentures to fund its  activities;  and (5)  maintained its position in several
mineral resources and prospects in the Western US.

Thus  far in  1999,  ESI has  (a)  signed  a  letter  of  intent  with  Chemical
Interchange  Company  ("CIC")  to sell  6,000-8,000  tons per  year of  purified
phosphoric  acid ("PPA") for  distribution in the US primarily east of the Rocky
Mountains;  (b) been awarded a third patent for advanced  flue-gas  conditioning
technology;  and (c) won additional  commitments  for  demonstration  of several
technologies related to air pollution control. These activities and those in the
preceding paragraph are described in the succeeding paragraphs of this Item 1(a)
and below in Item 1(b).

In May 1998, ESI acquired the remaining 49% interest in ADA through the issuance
of approximately  1,716,000 of its common shares. ESI's initial 51% interest was
purchased  in 1997 by  payments  to ADA  totaling  $2,500,000.  At that time ESI
obtained  the option to  acquire  the  remaining  49%.  In  December  1997,  ADA
delivered its first three commercial units; one to Alliant Power Company ("APC")
and two to Mississippi  Power Co.  ("MPC"),  in accordance  with contract terms.
Initial  injection of chemical was suspended  earlier in the year after concerns
arose  from the  results  of  co-injection  of other  chemicals.  ADA-34,  a new
chemical  blend,  was  developed  during the summer of 1998 in response to those
concerns.   Injection  of  ADA-34,  commenced  in  September  1998  at  the  APC
installation.  The APC unit has been operating  successfully since that time and
has completed its three-month  warranty period in December 1998. One unit at MPC
commenced  injection  in the first half of March  1998,  while the  second  unit
commenced  operation in May after completion by MPC of necessary  electrical and
piping connections. Injection at both these units was suspended when the treated
fly ash collected  lengthened the set time in cement where it was being recycled
as a filler. ADA-34 addresses that concern and has proven acceptable in tests of
the treated fly ash  generated at the APC unit.  MPC has elected a major capital
conversion for both of its systems and other  modifications  that will alleviate
the current need for ADA's flue-gas  conditioning  technology.  Although  ADA-34
continues  to  perform  well  at  the  installations  where  it is in  use,  the
parameters  and  mechanisms  that  determine its  effectiveness  are complex and
dependent  on  several  factors  outside  the  control  of ADA.  There can be no
assurances that any of the units will continue to perform as anticipated.

<PAGE>


ESI's solvent extraction  facility in Calgary,  Alberta,  recovered uranium from
phosphoric  acid  during  the  period  from 1983  through  1987.  Uranium  oxide
production was suspended in the fall of 1987 when the adjacent  fertilizer plant
from which the  facility  received  its feed  stock  suspended  operations.  The
contract  under  which  the  uranium  was  sold  was  modified  in 1990 to allow
unrestricted  alternative  use of the facility.  Revamp of the facility to allow
production of purified  phosphate  products was  completed in 1997.  The Calgary
facility is routinely  producing technical grade phosphoric acid and evaluations
are in process to select equipment for production of food grade product targeted
for completion in 1999.  Production  and sales of products have been  increasing
monthly as ESI establishes and expands its market position.  ESI also intends to
pursue the recovery of other valuable elements in the feed stock once sufficient
levels of routine production and cash flow are achieved.  Initial  investigation
of such production recovery potential and the equipment required to produce food
grade material are estimated at a combined cost between $200,000-$500,000.  Such
amounts are  expected  to be funded from  equipment  leasing  opportunities  and
internally  generated cash flow. There can be no assurances that Registrant will
be able to achieve its anticipated goals.

During 1998,  through ESI's  Venezuelan  company,  VENESI,  ESI  continued  gold
exploration  and  development  activities  in  Venezuela.  ESI also  owns 83% of
another company, Minera Antabari C.A. ("Antabari"), which received a contract on
a 1200  acre  site on the  Guyana  Shield in March  1992.  VENESI is  discussing
further  exploration work at this contract area with third parties.  Three other
contracts  were  filed  for in 1994 and  refiled  in 1995  with  the  Venezuelan
Ministry of Energy and Mines  ("MEM").  VENESI is awaiting  response from MEM on
these  filings.  Several  other sites with  existing MEM  concessions  are being
evaluated,  and VENESI is  negotiating  with the current  concession  holders to
obtain  rights to further  explore  these  areas.  In 1998  VENESI  filed for 15
concessions covering  approximately 30,000 acres with prospective  interests for
diamonds and gold. In 1999 VENESI expects to conduct surface  exploration on the
concessions,  currently filed for, when they are granted,  and file applications
in other areas of interest.

In January and February 1998, ESI issued $3,080,845 of 4% convertible debentures
(the "1998  Debentures")  for which ESI received  net proceeds of  approximately
$2,830,000. Interest was payable quarterly. The 1998 Debentures were convertible
at any time  following 45 days after the issuance  thereof and mature on January
31, 1999. The Debentures were convertible into shares of common stock based on a
25%  discount  from  the  market  price  of the  common  stock  at the  time  of
conversion,  but not in excess  of $2.00 per  share.  All such  debentures  were
converted to a total of 3,497,981 shares of common stock during 1998.

In February  1999,  ESI sold  1,260,623  shares of common stock and received net
proceeds  of  $1,137,000.  Such  shares are  restricted  from sale until after a
registration  statement becomes  effective  covering their subsequent sale or 90
days after the sale which ever occurs  later.  ESI has  committed to file such a
registration  statement  no later then April 11, 1999 and has an  obligation  to
issue  additional  shares in the event the  market  price at the time of sale is
less than 125% of the purchase price.  Such additional shares are limited to two
and one half times the number of shares originally issued.

     (b) Business of Issuer.

Registrant  is  a  chemical  processing,   air  pollution  control  and  mineral
exploration company.  Registrant owns a processing facility in Calgary, Alberta,
Canada which  recovered  uranium  oxide from  phosphoric  acid and for which the
production  of  purified  phosphate  products  commenced  in June  1997;  a 100%
interest in ADA which provides air pollution control  technologies and services;
alunite  properties  which contain  alumina,  sulfur and potash;  other domestic
properties  containing  gold,  vanadium and  phosphate;  and controls  prospects
containing copper, molybdenum, silver, lead and zinc.

Registrant,  through  its 100%  ownership  of  Recursos  Minerales  VENESI  C.A.
("VENESI"),  83%  ownership in Minera  Antabari  C.A.  ("Antabari")  and its 67%
ownership in Recursos Minerales ESIGEO C.A. ("ESIGEO") is exploring, evaluating,
acquiring and plans to develop diamond and gold resources in Venezuela.

                       Calgary Solvent Extraction Facility

In  1997,  ESI  commenced  production  of  purified  phosphate  products  at the
facility.  The facility currently produces purified  phosphoric acid ("PPA") and
by-products. Earth Sciences Extraction Company ("ESEC"), a wholly-owned Canadian
limited partnership of ESI, operates the solvent extraction facility in Calgary,
Alberta.

<PAGE>

ESEC's Facility

The phosphoric  acid treatment  facility was maintained on a standby basis since
its  uranium  recovery  operations  were  suspended  in 1987  when the  adjacent
fertilizer plant, which had supplied feedstock,  suspended  operations.  Certain
contractual  restraints  and lower  uranium  prices  have  made the  stand-alone
recovery of uranium from other feedstock sources  uneconomic.  ESEC modified the
facility to purify superphosphoric acid ("SPA") to produce a technical grade PPA
and  by-products.  ESI  purchases  SPA  from a  variety  of US  suppliers  under
different supply arrangements and has been able to acquire sufficient quantities
to supply it's estimated  requirements  of SPA. There can be no assurances  that
the Company will be able to obtain  sufficient  quantities  of SPA at reasonable
prices.  In the future,  it is anticipated  that phosphate rock from an open pit
deposit  owned by ESI may be processed  under a tolling  arrangement  to provide
feedstock for the Calgary plant. (See Item 2(a) below).

Market for Purified Phosphoric Acid

Phosphorus  in the form of purified  phosphoric  acid,  H3PO4 (PPA),  is a basic
commercial  chemical  essential to a broad  variety of  industrial  and consumer
applications.  PPA is an important inorganic acid used in foods, cola beverages,
cleaning  solutions,  fertilizers,  fire retardants and metal treatments,  among
other  uses.  ESEC  competes  with four  North  American  PPA  producers  in the
estimated 1.3 million tons PPA industrial market where an estimated 370,000 tons
of direct  consumption  PPA is sold. ESEC is the sole producer in Canada and the
only producer in western North America.  ESEC's targeted market segments include
those where growth is 10% or more per year,  where the predominate  users are in
ESEC's freight  advantage area, and the large  Minneapolis/Chicago  area market.
ESEC is marketing PPA by attempting to match other  producers'  quality but with
lower prices and improved service.  If and when routine levels of production are
achieved,  it is anticipated  that cost advantages will be realized from the use
of less  expensive  purification  through  solvent  extraction and lower freight
costs.  By-products  are  being  sold in local  fertilizer  markets.  All of the
facility's  production is being marketed  through an agreement  dated January 1,
1997 with Twin-Kem  International,  Inc., a Colorado  corporation  ("TKI") whose
principals  have  over 60 years of  combined  experience  in the  marketing  and
distribution of industrial and agricultural  chemicals.  The agreement is for an
automatically  renewing one-year term where TKI receives a commission of between
$2.00-$5.00  per ton of product  sold.  A  prepayment  of  $100,000  toward such
commission was made in 1997, consisting of 50% cash and 50% stock. As additional
compensation, the Company issued 50,000 shares and 80,000 shares of common stock
to TKI in 1998 and 1999,  respectively.  There can be no assurances  that actual
sales recognized by ESEC will equal the anticipated volumes.

The growth and  profitability  of operations at the ESEC facility in Calgary are
dependent upon, among other things,  the sale of purified  phosphate products to
chemical  distributors  and  customers.  ESEC  signed a letter  of  intent  with
Chemical  Interchange  Company ("CIC") to sell  6,000-8,000 tons per year of PPA
for  distribution  in the  US  primarily  east  of the  Rocky  Mountains  and is
presently negotiating a similar contract with another group. However, Registrant
has limited  experience  in  marketing  industrial  chemicals  and is relying on
consultants and others to initiate and maintain other sales contacts. PPA is not
typically sold under long-term contracts, and Registrant does not have any other
significant  long-term  commitments  to purchase its  products.  There can be no
assurances that Registrant will be successful in its future sales efforts.

Solvent Extraction Process

The facility  produces PPA using an  environmentally  clean  solvent  extraction
process employing tributyl  phosphate.  The basic process is well established in
the  industry  and  believed  by ESEC to be free of patent  conflicts.  The ESEC
process was verified for several  feedstocks by numerous  laboratory bench tests
and continuous recycle pilot plant runs. The studies show that a competitive PPA
can be produced  from most  fertilizer  grade  phosphoric  acid  feedstock  with
extraction  efficiencies  of 70 to 90%. The remaining  material is sold in local
markets for its contained  phosphate  values.  ESEC believes that no significant
waste will be generated at the ESEC facility.  However, the ESEC process has not
been proven on a continuing,  long-term  commercial  basis at the Calgary plant.
Although  ESI has  performed  numerous  bench-scale  and pilot plant test of the
process, and has operated the facility on a continuing basis since June of 1997,
there can be no assurances that the process will yield satisfactory results when
employed on a long-term continuous commercial scale.

<PAGE>


Geographic Expansion

The growth and profitability of operations at the solvent extraction facility in
Calgary will be dependent  upon,  among other things,  the ability to become the
predominate  supplier of PPA in the geographic region surrounding Calgary and on
the US West Coast, and to sell on an increasing basis to the Minneapolis/Chicago
area. Although the contract with CIC will move products into the Midwest,  there
can be no assurance that ESEC's efforts to expand sales can be accomplished on a
profitable basis.

Competition

ESEC's  purified  phosphate  products  will be sold in  markets  that are highly
competitive.  The principal  competitive factors include product quality,  price
and distribution capabilities. There can be no assurances that ESEC will be able
to compete  successfully  against current and future  competitors based on these
factors.  ESEC  is  in  competition  with  several  domestic  and  international
producers,  many of  whom  have  substantially  greater  financial,  production,
distribution  and marketing  resources  than ESEC. As ESEC  increases its market
share, further competition could result in price reductions, reduced margins and
loss of market share,  all of which could have a material  adverse affect on the
ESEC business, financial condition and results of operations.

If there is no demand, or the demand is less than projected,  for ADA's services
for flue gas  conditioning  agents using  phosphoric  acid,  Registrant will not
recognize the synergies  expected from its acquisition,  because ADA will not be
able to utilize Registrant's purified phosphate products.

                           ADA Environmental Solutions

In 1997, ESI acquired a majority equity position in ADA Environmental  Solutions
LLC ("ADA") through a combination of stock and cash. The acquisition  agreement,
signed April 30, 1997 provided for (i) an immediate cash payment of $400,000 for
a 4.8% equity interest,  (ii) a combination of $500,000 in cash and $1.6 million
in  notes  to be paid  at the  scheduled  closing,  for  the  acquisition  of an
additional  46.2%  interest in ADA, and (iii) an option to acquire the remaining
equity interests (49%) in ADA. In May 1998 ESI exercised such option,  acquiring
a 100% interest in ADA, by issuance of 1,716,000 shares of stock.

The acquisition  was prompted by synergism  involving  products  produced by the
solvent  extraction  facility in Calgary.  ADA utilizes product from the Calgary
facility and other sources in a new  proprietary  technology  designed to reduce
particulate emissions from plants burning low-sulfur coal.

ADA's Technology and Services

ADA has developed a technology for conditioning flue gas streams from combustion
sources  that allows  existing  air  pollution  control  devices to operate more
efficiently.  ADA,  through  various  suppliers  and  contractors,  manufactures
engineered  skids  for each  individual  application.  The skids  mix,  pump and
monitor the feed of a proprietary  chemical blend. The chemical blend is applied
to the flue gas stream by a pressurized  system of specially designed lances and
nozzles. Such treatment of the flue gas stream alters the physical properties of
the fly ash particles contained therein by decreasing  particle  resistivity and
increasing particle cohesion. These alterations allow the existing electrostatic
precipitator  (ESP)  or  baghouse  to  more  effectively  collect  such  fly ash
particles  that would  otherwise  escape  into the  atmosphere.  ADA also offers
consulting services to assist utilities in planning and implementing  strategies
to meet new government  emission standards  requiring  reductions in both sulfur
dioxide and nitrogen  dioxide.  ADA's  technology  also has  application  in the
cement and petroleum industries where particulate emissions are being or need to
be controlled.

<PAGE>


Market for ADA Services

It is expected that the 1990 Clean Air Act Amendments  will result in as many as
600 coal-fired  utility boilers switching to low-sulfur coal by the year 2000 to
meet the more stringent sulfur dioxide emission standards. Utilities that switch
to low-sulfur  coals will generally  require flue gas  conditioning  to meet the
federal  standards  unless they make costly equipment  changes.  ADA has entered
this market with its proprietary  non-toxic  chemical  conditioner  which offers
both technical and economic  advantages over the hazardous  chemicals  currently
being used.  ADA's own sales staff markets its  technology  through trade shows,
mailings and direct contact with potential customers.

ADA Competition

ADA's primary  competition is the conventional flue gas conditioning  technology
using either sulfur  trioxide or a combination  of sulfur  trioxide and ammonia.
This  technology  has been  available  commercially  since the 1970's and can be
obtained from a variety of suppliers and in a variety of forms.  Conditioning of
fly ash by injecting  small  amounts of sulfur  trioxide  into the flue gas is a
well proven technique for improving performance of the ESP. Such sulfur trioxide
conditioning  loses its  effectiveness in application with temperatures over 350
degrees F. The competitive  advantages of ADA's conditioning  technology include
an  effective  temperature  range of 375  degrees F to 900  degrees  F; a simple
injection  system;  a  non-toxic  conditioner  that will not become a  secondary
pollutant; and chemicals that are safer and easier to handle on site.

ADA Patents

ADA has received three patents  related to different  aspects of its technology.
Although important to protect its continuing business, ADA does not consider any
of such patents to be critical to the ongoing conduct of its business.
(See  also  the  discussion  below  under  the  heading  Patents,  Licenses  and
Franchises.)

                           Venezuelan Gold Activities

ESI commenced initial  exploration  activities in Venezuela in the fall of 1988.
No proven  commercially  viable  reserves have been discovered on the properties
discussed.

The decree which empowered the Corporacion Venezolana de Guyana ("CVG") to issue
land  contracts in the Guyana  Shield has been  determined  to be illegal by the
Venezuelan courts. The Ministry of Energy and Mines ("MEM") is expected to issue
concessions  to  replace  the  over 450  existing  CVG  contracts  after a study
commissioned  to evaluate the existing  contracts'  status is complete and final
legislative  action  annuls the rights  granted CVG.  The SAMI land  contract is
included in this category and it is  anticipated  that its terms will improve as
the new concession terms will be more favorable.  The three applications for new
land  contracts  discussed  below are included with some 300 other  unacted-upon
requests  that have  accumulated  with CVG since  March  1994,  when CVG stopped
signing contracts.  New applications to MEM have been made for these three areas
and assurances have been obtained that they will receive  priority when they are
ultimately  considered.  Due to political  complexities of coordinating land use
between MEM and  designated  regions and states,  it is uncertain when these new
applications  will be acted upon. In 1998, an  additional 15  applications  were
made to MEM  covering  approximately  30,000 acres in  southeastern  Venezuelan,
chiefly of interest for their  diamond and gold  potential.  These  applications
were filed for areas where previous concessions had been granted but had lapsed.
ESI expects MEM to give  consideration  to these  applications  on a more timely
basis since the areas requested underwent a level of scrutiny in the past.

SAMI Area Contract

Antabari  was formed in 1991,  a  Venezuelan  company of which ESI owns 83%.  In
November  1991,  Antabari  filed for a contract  with CVG for 488 hectares to be
explored  and  exploited  for gold.  The area,  called SAMI for San  Miguel,  is
located  southeast of the town of Upata,  Bolivar  state,  Venezuela in the open
country of the savannas,  and is readily  accessible from established roads. The
contract,  which was  issued  in March  1992,  provides  a two year  period  for
exploration work and to prepare a plan for  exploitation.  An extension has been
granted to complete  further  exploration  work. The contract  requires  certain
financial  guarantees with regard to exploration and  reclamation,  and requires
that the area be reduced by one-half at the end of the exploration period.

Antabari has performed  geologic mapping,  geochemistry of drainages,  soils and
old workings,  and trenching of several  mineralized  zones. One such zone has a
continuity of over 600 feet with a width of 40 feet and has yielded values of up
to 1.6 ounces per ton of gold.  Additional  sampling and analysis from extensive
pitting show a large (8 acre) anomalous gold area, clearly open to the north and
east. Drilling and further sampling will be necessary to determine the potential
of the area. ESI is evaluating this next phase and/or a sale to third parties at
this time.

<PAGE>


Pending Applications

In 1994,  formal  applications were made to CVG, which in 1995 have been renewed
in applications to MEM, to acquire exclusive mineral exploration rights on three
new land areas located in the Bolivar state in southeastern  Venezuela.  ESI has
been  advised that the filings  establish  priority  for the areas  sought.  The
Company is very optimistic about the potential these areas hold for further gold
exploration  and  exploitation.  The areas were first  identified  as  potential
targets through regional geochemistry that defined anomalous occurrences of gold
and associated  minerals,  and legends of past  production by primitive  methods
which have  historically  been key to  exploration  in remote areas.  Queries of
natives and  sampling of stream  sediments  has  allowed  selection  of the best
targets from a 130 square km area that was investigated.

Each of the three application areas cover 500 hectares (approx. 1200 acres). The
first concession area is known as Apicharai,  located about 165 km from the town
of La  Paragua  on a small  tributary  to the  Antabari  river with a history of
panning and small scale hydraulic  mining.  The second concession area, known as
Man-cai,  is located in a remote area near the  Brazilian  border  accessible by
boat from the La Paragua river. The third concession area, known as Manaima,  is
located 50 km from the town of La Paragua.  Although specific work programs have
been formalized for initial  detailed  exploration of the above mentioned areas,
such programs are on hold until the Venezuelan government grants the applied for
concessions.

From May through December 1998, VENESI filed for 15 concessions  ranging in size
from 200 to 4,228  hectares  (approx.  480 to 10,150  acres) all  located in the
Bolivar state in southeastern  Venezuela.  The location of the filings  primarly
centers in two areas, one near the Brazil border and the other south of the town
of La  Paragua.  Both of these areas have  historical  diamond  production  from
alluvial materials. ESI believes that there is growing body of geologic evidence
to support the existence of  kimberlitic  sources for such diamonds in Venezuela
and is targeting its exploration effort to acquire concessions with a likelihood
for such  sources.  Thus far  VENESI  has not  confirmed  the  existence  of any
kimberlites  in Venezuela  and there can be no assurances  that its  exploration
efforts will be successful in the future.

The primary objectives of the 1999 plans are to determine as quickly as possible
the nature and extent of diamond and gold  mineralization on the anticipated new
land concessions,  if and when they are granted, and to continue to define those
additional  areas where  future  filings  will be made.  Activities  may include
pitting, surface geochemistry, geologic mapping and trenching.

                  Mineral Properties and Other Business Matters

During 1998 Registrant  maintained its ownership position in the several mineral
interests it holds.  The mineral  interests  maintained  by  Registrant  include
significant resource interests in alumina,  gold,  vanadium,  potash and sulfur,
and  prospects  for  copper/molybdenum  and  silver  (see  Item  2  below). 

Raw Materials.  Raw materials,  as the term is generally used, are not essential
to Registrant's mineral acquisition and development activities performed for its
own  account.  However,  Registrant's  commercialization  of its  properties  is
dependent  upon  securing  adequate  supplies  of energy  and  water.  Continued
production of PPA at the Calgary facility will require adequate  supplies of SPA
feedstock.  Adequate  supplies of this material are  currently  available in the
required  quantities  and at reasonable  prices.  There can be no assurance that
such availability will continue in the future.

Patents,  Licenses  and  Franchises  (See also the  discussion  above  under the
heading "ADA Patents.")  Registrant  holds no patents,  licenses,  franchises or
land contract which it considers material in light of its other assets. However,
Registrant holds for itself,  and in association with others,  Federal Potassium
Prospecting  Permits,   State  Potash  and  Alunite  Leases,  Federal  Potassium
Preference Right Leases and Applications, Federal Phosphate Prospecting Permits,
Federal Phosphate Leases,  State Phosphate Leases,  fee mineral rights and other
exploration and mineral  interests which are the basis for Registrant to explore
and develop the properties  subject thereto.  In certain  instances such mineral
interests  give  preferential  leasing  rights to  Registrant  upon location and
demonstration to the US Geological Survey Conservation Division that the deposit
is a "valuable,  workable  deposit in commercial  quantities".

<PAGE>


Competition  and Scarcity of Mineral Lands.  Many companies and  individuals are
engaged in mineral  exploration and development,  including  large,  established
mining companies with substantial  capabilities and long earnings records. There
is a limited  amount of desirable  mineral lands  available  for claim  staking,
lease or other  acquisition  in the United  States  ("US"),  Venezuela and other
areas where ESI contemplates conducting exploration activities.  ESI may be at a
competitive  disadvantage in acquiring mineral  properties since it must compete
with these  individuals  and  companies,  many of which have  greater  financial
resources  and larger  technical  staffs than ESI.  From time to time,  specific
properties or areas which would  otherwise be attractive to ESI for  exploration
or  acquisition  are  unavailable  due to their  previous  acquisition  by other
companies.

Fluctuation in the Price of Minerals.  The market price of minerals is extremely
volatile and beyond the control of ESI. Gold prices are generally  influenced by
basic  supply/demand  fundamentals.  The market dynamics of supply/demand can be
heavily  influenced by economic  policy,  i.e.,  central banks  sales/purchases,
political  unrest,  conflicts  between nations,  and general  perceptions  about
inflation.  Fluctuating  metal  prices  may have a  significant  impact on ESI's
results of operations  and operating cash flow.  Furthermore,  if the price of a
mineral should drop dramatically,  the value of ESI's properties which are being
explored or developed  for that mineral  could also drop  dramatically,  and ESI
might not be able to recover its investment in those properties. The decision to
put a mine into  production,  and the commitment of the funds necessary for that
purpose,  must be made long before the first  revenues from  production  will be
received.  During the last five years,  the average  annual market price of gold
has  fluctuated  between $285 per ounce and $384 per ounce.  Price  fluctuations
between the time that such a decision is made and the commencement of production
can change  completely  the  economics  of the mine.  Although it is possible to
protect  against price  fluctuations  by hedging in certain  circumstances,  the
volatility  of  mineral  prices  represents  a  substantial  risk in the  mining
industry  generally  which no amount of  planning  or  technical  expertise  can
eliminate.  ESI is not involved in, nor does it expect to enter into any hedging
activities

Environmental  Controls.  Compliance with environmental quality requirements and
reclamation laws imposed by federal, state,  provincial,  and local governmental
authorities may necessitate  significant capital outlays,  may materially affect
the economics of a given  property,  or may cause material  changes or delays in
ESI's intended activities. The Secretary of the Interior has directed the BLM to
propose amendments to surface management  regulations that impose more stringent
reclamation and environmental protection requirements on mining operations.  The
extent of the  changes,  if any,  which may be made by the BLM is not  presently
known, and the potential impact on ESI as a result of future  regulatory  action
is difficult to predict. New or different environmental standards imposed by any
governmental authority in the future may adversely affect the ESI's activities.

United States Federal and state  environmental laws and regulations  potentially
applicable  to mining  exploration,  development  and  operations  of Registrant
include:  (a) the assessment of  environmental  impacts pursuant to the National
Environmental Policy Act and its state counterparts;  (b) the Endangered Species
Act and any comparable state laws; (c) water quality laws and regulations  which
address  impacts  on waters of the  United  States or a state;  (d)  solid,  and
possibly  hazardous,  waste laws and  regulations  to the  extent  that waste is
generated as a result of activities  on the  property;  (e) air quality laws and
regulations  if air emissions  result from site  operations;  and (f) mined land
operational  and  reclamation  requirements.  In addition to the  imposition  of
requirements which may impact operations,  a number of these  environmental laws
and regulations impose permitting requirements related both to the initiation of
certain  mining  activities  as well as to the  ongoing  operation  once  mining
commences.  Local regulations in the U.S.  typically are land use related rather
than environmental.  Although  environmental  regulatory costs to date and those
expected in 1999 are not significant, they may become substantial in the future.
Such costs are considered a part of the ordinary costs of Registrant's business.

Uncertainty of Title.  Several of the ESI's mining  properties  which are in the
United  States are  unpatented  mining claims to which ESI, or those under which
ESI holds its rights,  has only  possessory  title.  Because title to unpatented
mining claims is subject to inherent uncertainties, it is difficult to determine
conclusively  ownership  of such  claims.  Since a  substantial  portion  of all
mineral  exploration,  development and mining in the United States now occurs on
unpatented  mining claims,  this uncertainty is inherent in the mining industry.
In addition,  in order to retain title to an unpatented  mining  claim,  a claim
holder  must have met  annual  assessment  work  requirements  ($100 per  claim)
through  September  1,  1992 and must have  complied  with  stringent  state and
federal  regulations  pertaining  to the filing of assessment  work  affidavits.
Moreover,  after  September  1,  1992,  the right to locate or  maintain a claim
generally is  conditional  upon payment to the United  States of a rental fee of
$100 per  claim  per  year  for  each  assessment  year  instead  of  performing
assessment work. State law may, in some instances,  still require performance of
assessment work.

<PAGE>


The present status of the ESI's  properties as unpatented  mining claims located
on public lands of the U.S.  allows the claimant the exclusive right to mine and
remove  valuable  minerals,  such as  precious  and base  metals and  industrial
minerals,  found  therein,  and also to use the  surface of the land  solely for
purposes  related to mining and processing the  mineral-bearing  ores.  However,
legal  ownership  of the  land  remains  with  the  U.S.  Accordingly,  with  an
unpatented  claim,  the U.S. retains many of the incidents of ownership of land,
the U.S.  regulates use of the surface,  and ESI remains at risk that the claims
may be forfeited either to the U.S. or to rival private claimants due to failure
to comply with  statutory  requirements  as to locations and  maintenance of the
claims.  If there exists a valuable deposit of locatable  minerals (which is the
requirement  for the  unpatented  claim  to be valid in the  first  place),  and
provided  certain  levels of work and  improvements  have been  performed  on an
unpatented  mining claim,  the Mining Law of 1872  authorizes  claimants to then
seek to  purchase  the full title to the  claim,  thereby  causing  the claim to
become the private  property of the claimant.  Such full  ownership  expands the
claimant's  permissible  uses of the property (to any use authorized for private
property)  and  eliminates  the need to comply with  maintenance  and  reporting
requirements  necessary to protect  rights in an  unpatented  claim.  At present
there is a statutory moratorium in effect prohibiting the Department of Interior
from  accepting and  processing  new  applications  for purchase of fee title to
mining claims.  The moratorium is likely to continue  indefinitely  but does not
affect the ability to hold and develop valuable  deposits by means of unpatented
mining claims.

Proposed  Legislation  Affecting  the  Mining  Industry.  For the  last  several
Congressional  sessions,  bills  have  been  repeatedly  introduced  in the U.S.
Congress  which would  supplant or radically  alter the provisions of the Mining
Law of 1872.  As of December  31, 1998,  no such bills have  passed,  although a
number of differing and sometimes conflicting bills are now pending. If enacted,
such legislation  could  substantially  increase the cost of holding  unpatented
mining  claims and could  impair the  ability of  companies  to develop  mineral
resources  on  unpatented  mining  claims.  Under the terms of certain  proposed
legislation,  the ability of companies to obtain a patent on  unpatented  mining
claims would be nullified or substantially impaired.  Moreover, certain forms of
such proposed legislation contain provisions for the payment of royalties to the
federal government in respect of production from unpatented mining claims, which
could  adversely  affect the  potential for  development  of such claims and the
economics of operating existing mines on federal unpatented mining claims. ESI's
financial  performance could therefore be affected  adversely by passage of such
legislation.  It is  impossible  to predict  at this  point what any  legislated
royalties  might  be,  but a  potential  three to four  percent  gross  royalty,
assuming a gold price of $300 per ounce,  would have an  approximated  $9 to $12
per ounce impact on ESI's costs of any production from unpatented mining claims.

Uncertainty of Funding for  Exploration.  ESI has funded much of its exploration
and acquisition  activities through joint venture  arrangements,  which minimize
the cost of such activities to ESI and allow it to explore and acquire a greater
number of  properties  than it would  otherwise be able to explore or acquire on
its own.  ESI has also funded a portion of its  exploration  activities  without
joint venture  participation,  resulting in increased costs to ESI. ESI has been
successful  in raising  such funds for its  exploration  activities.  Additional
funding from existing  partners or third parties,  however,  may be necessary to
conduct detailed and thorough evaluations of, and to develop certain properties.
ESI's ability to obtain this financing will depend upon, among other things, the
price of gold and the  industry's  perception  of its future  price.  Therefore,
availability  of funding is  dependent  largely  upon  factors  outside of ESI's
control, and cannot be accurately predicted. ESI does not know from what sources
it will  derive any  required  funding.  If ESI is not able to raise  additional
funds  (as to  which  there  can be no  assurance),  it will not be able to fund
certain exploration activities on its own.

Uncertainty of Development  and Operating  Property  Economics and Ore Grades at
Development  Properties.  Decisions as to whether any of the mineral development
properties  which ESI now holds or which it may  acquire in the  future  contain
commercially  minable deposits,  and whether such properties should therefore be
sold or brought into production, depend upon the results of exploration programs
and/or feasibility  analyses and the recommendations of duly qualified engineers
or geologists.  Such decisions  involve  consideration and evaluation of several
significant factors,  including, but not limited to, the (a) costs of bringing a
property  into   production,   including   exploration  and  development   work,
preparation of production  feasibility  studies and  construction  of production

<PAGE>


facilities,  (b)  availability  and costs of  financing,  (c)  ongoing  costs of
production, (d) market prices for the mineral to be produced, and (e) the amount
and grades of reserves or mineralized  material.  There can be no assurance that
any of the  development  properties now held by ESI, or which may be acquired by
ESI, contains a commercially minable mineral deposit, and therefore no assurance
that ESI will ever  generate a positive cash flow from the sale of or production
operations  on such  properties.  In  addition,  once a property  is sold with a
retained  royalty or placed into  production,  risks still exist that the amount
and grade of its reserves will not actually be as predicted.  To the extent that
lower amounts and/or grades of reserves are experienced, costs per unit produced
and profitability can be adversely  affected.  Depending upon the extent of such
an  effect  in any of ESI's  properties,  ESI  could  incur a  writedown  on its
investment in any such property.

Seasonality  of Activities.  The activities of Registrant  performed for its own
account are not seasonal, although winter weather may limit certain activities.

Dependence  on Major  Customers.  (See  also the  discussions  above  under  the
headings "Market for Purified Phosphoric Acid" and "Market for ADA Services" and
Note 14 to the Consolidated  Financial Statement submitted in response to Item 7
below.) Registrant's mineral exploration and property acquisition activities are
not  dependent  upon  one  or  a  few  major  customers.   The  search  for  and
commercialization  of economic  mineral  deposits is highly  competitive.  Large
companies  having greater  financial  resources  than  Registrant and many small
mining  companies are active in acquiring,  evaluating  and  developing  mineral
resource prospects in the western United States and Venezuela.

Research and Development Activities.  Registrant spent approximately $19,000 and
$98,000 on research and development activities related to the Calgary extraction
facility during 1998 and 1997, respectively. ADA spent approximately $62,000 and
$127,000 on research and development  activities related to further  development
of its technology during 1998 and 1997, respectively.

Employees.  As of December  31,  1998  Registrant  employed 5  personnel  at its
Golden, Colorado,  offices and 25 full-time at the Calgary facility. ADA employs
12 people at its offices in  Littleton,  Colorado  and 2 others at  locations in
Alabama and New  Hampshire.  In addition,  other  personnel  were  employed on a
contract basis for specific project tasks.


Item 2.  Description of Property.

Registrant  owns,  controls  and  participates  with others in mineral  property
interests and mineral property exploration and development programs in Colorado,
Idaho, Montana, Nevada, Utah, and Venezuela. The following property descriptions
contain deposit references according to the indicated  definitions,  although it
has not been proven that any of these deposits are commercially viable. In-house
studies  for  several  of the  undeveloped  properties  indicate  technical  and
economic feasibility,  although Registrant is not currently pursuing development
of any of its  exploration  properties  at this time.  The  following is summary
information regarding  Registrant's  principal properties.  For purposes of this
item,  Mineral Deposit or Mineralized  Material is a mineralized  body which has
been delineated by appropriately  spaced drilling and/or underground sampling to
support a sufficient tonnage and average grade of metal(s).  Such a deposit does
not qualify as a reserve, until a comprehensive evaluation based upon unit cost,
grade,  recoveries,  and other  material  factors  conclude  legal and  economic
feasibility.

Exploration Properties

(a)Vanadium/Phosphate Properties.

Registrant's  interests in the  properties  consist of fee  ownership,  State of
Idaho mineral  leases,  Federal  leases and lease  applications  and leases with
private parties.  The properties are located near Paris and  Bloomington,  Idaho
and cover  approximately  2,500 acres.  To date,  drill  testing on the southern
portion  of the  deposit  show  tonnage  of  approximately  53  million  tons of
mineralized  material.  The  grade of the  upper  bed  material  of the block is
calculated  to be 25% P2O5 over a thickness of 9 feet and the grade of the lower
(main) bed material is calculated to be 30% P2O5 over a 6 foot thickness.

Metallurgical  test work on the  vanadium  bed has  resulted  in a patent  being
issued to Registrant regarding the extraction techniques which were developed as
a result of such work. Economic feasibility calculations show that production of
vanadium from the property is commercially feasible. Registrant is investigating
plans for  development  of the property,  however there can be no assurance that
marketing and financing arrangements can be obtained. This deposit may provide a
source for the purified  phosphoric acid production at the Calgary facility (See
Item 1(a) above).

<PAGE>


(b)  Emigrant Property.

In 1987 Registrant  acquired fee ownership of two patented lode mining claims in
the Emigrant Peak area, Park County, Montana containing  approximately 38 acres.
Registrant  also owns two other patented  placer claims  containing 37 acres and
holds 13  unpatented  mining  claims in the same area.  This block of contiguous
mining  claims  contains  copper,  molybdenum,   gold,  silver,  lead  and  zinc
mineralization  which has not yet been fully delineated.  All necessary payments
were made to hold the unpatented claims in 1998.

(c)  Alunite Resources.

Alunite is a source of alumina (the raw material of aluminum), potassium sulfate
fertilizer,  sulfuric acid and sulfur.  Acquisition of Federal  alunite  mineral
rights is accomplished  through Federal Potassium Preference Right Leases issued
under Section 4 of the Leasing Act of February 7, 1927.

     (1) "LC" Alunite Property.

The property is located in  southwestern  Colorado,  about 7 miles south of Lake
City, Colorado and consists of approximately 1,667 acres. Results of exploration
work to date show a total of 61.1  million  tons of  mineralized  material.  The
grade of the  material is  calculated  to average  approximately  39.6%  alunite
(approximately 14.7% alumina).

In 1978,  Registrant  applied for a Preference  Right Lease for potassium on the
property (a "PRLA"),  in 1979  submitted the "initial  showing"  required in the
lease  application and in 1982 submitted the operating plan for an environmental
impact  assessment.  Approval of the project was recommended by a Bureau of Land
Management advisory panel. However, in 1985 a Congressional resolution suspended
all  Preference  Right Lease activity in Wilderness  Study Areas.  Until further
Congressional  action is taken,  progress on the project will be restricted.  In
1991, Registrant received notice from the Department of Interior that the Bureau
of Land Management  considers the PRLA as a valid existing right with respect to
any future  wilderness  designation.  Registrant  relinquished its 48 unpatented
mining claims covering the alunite property in 1993.

     (2)"NG" Property and Other Utah Alunite Interests.

The properties are located within the southern end of the Wah Wah Mountain range
in southwestern Utah, approximately 38 miles from Milford, Utah. Registrant owns
Federal  leases on 680 acres.  All required  lease  payments  were made in 1998.
Results of exploration and drilling  programs on the properties to date show 129
million tons of mineralized material with a grade calculated to be 37.9% alunite
(approximately   14.03%   alumina)  with  an  additional  287  million  tons  of
mineralized material with average grades calculated to range from 33.5% to 39.4%
alunite (approximately 12.4% to 14.6% alumina).

Other Properties

(d) San Luis Property.

Registrant  owns an 800 acre site near San Luis,  Colorado  on which gold mining
was conducted from 1991 through 1996 and from which Registrant  received royalty
income during that period. Mining and milling activities were completed in 1996.
The property was reclaimed in accordance  with the plan approved by the State of
Colorado during 1997 and 1998.
Registrant has listed the property for sale with a local real estate company.

(e) Calgary Solvent Extraction Facility.

Registrant owns a hydrometallurgical  solvent extraction facility which produces
purified phosphate products. The facility occupies a 20,000 square foot building
and is located in southeast  Calgary,  Alberta on a 12 acre site leased from the
adjacent landowner.

Item 3. Legal Proceedings.

Registrant knows of no reportable pending legal matters involving  Registrant or
its subsidiaries.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

<PAGE>


                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

(a)  Market Information.

Registrant's common stock trades on The NASDAQ Small-Cap Market under the symbol
ESCI.

                           Price Ranges (high and low sale prices)
                                 1998                     1997
                                 ----                     ----
1st Quarter               $ 2.97   -  1.06          $ 4.05  -  3.00
2nd Quarter                 1.94   -  1.16            3.69  -  2.69
3rd Quarter                 1.38   -  0.53            3.13  -  2.06
4th Quarter                 0.84   -  0.47            2.19  -  1.06

The  price  ranges  shown  are based on NASDAQ  quotations  as  reported  by the
National  Association  of  Securities  Dealers,  Inc.  The sale  prices  reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.  In October 1998, Registrant received notice from
NASDAQ that it failed to meet the minimum bid requirement of $1.00 for continued
listing.  Registrant  requested a written  hearing  before a board  appointed by
NASDAQ to stay the  delisting,  which  hearing was held on February 18, 1999. On
March 24, 1999,  Registrant received written notice from NASDAQ that it has been
granted an  extension  until June 30, 1999 to meet the minimum bid  requirement.
Management  of  Registrant  is  evaluating a reverse  stock  split,  among other
actions, as a means of gaining compliance with the minimum bid requirement.

(b) Holders.

The number of record  holders of common stock,  one cent par value of Registrant
as of  March  12,  1999 was  approximately  1,900,  the  approximate  number  of
beneficial shareholders is estimated at 9,900.

(c) Dividends.

Registrant has not paid dividends since its inception and there are no plans for
paying  dividends  in the  foreseeable  future.  The  terms  of  the  $1,000,000
debenture  with  Tectonic  Construction  Co.  prohibit  the payment of dividends
without obtaining a written waiver.

(d) Recent Sales of Unregistered Securities.

In February 1999,  Registrant sold 1,260,623 shares of its common stock for cash
consideration  of  $1,137,000  to a limited  number of  accredited  investors in
reliance upon the exemption  provided by section 4(2) of the  Securities  Act of
1933.

Item 6. Management's  Discussion and Analysis of Financial Condition and Results
of Operations.

This Annual Report may contain forward-looking  statements within the meaning of
Section 27A of the  Securities Act of 1933. In particular  such  forward-looking
statements  may be found in this section and under the heading  "Description  of
Business." Actual events or results could differ materially from those discussed
in the forward-looking statements as a result of various factors including those
set forth below or under the heading "Description of Business."

                         Liquidity and Capital Resources

Management  believes that existing working capital,  a recently  approved credit
facility and recent  private  placements of common stock are  sufficient to fund
the planned growth in operations until positive cash flow is achieved in Calgary
and at ADA,  which are both  anticipated  during 1999.  The  achievement of such
positive  cash  flow is  dependent  upon  several  factors  including  continued
production of technical grade quality  product,  success in marketing  phosphate
products  and meeting  competition  in the market  place,  the failure in any of
which could delay or frustrate  such  achievement.  For ADA, the  achievement of
positive cash flow is dependent  upon the  successful  ongoing  operation of the
units  currently  operating  at APC and in Oregon,  and the sale of at least two
other units to any of a number of utilities  where  proposals  have been issued.
Significant delay in signing new contracts or  unsatisfactory  operations at the
units operating could delay or frustrate such achievement.  Additional funds may
be required to fund expanded exploration  activities in Venezuela (see Item 1(b)
above) and purchase equipment to produce food-grade product in Calgary.  Private
placements of common stock,  convertible  debentures and bank  borrowings may be
evaluated to fund such requirements.  Registrant  received a net of $1.1 million
from the sale of common stock in the first quarter of 1999 (see Item 1(a) above)
and has received approval,  subject to definitive  documentation,  of a $400,000
credit facility from the Bank of Hongkong  secured by trade accounts  receivable
of ESEC.

<PAGE>


Based on current  estimates,  the Calgary  facility  may require as much as U.S.
$500,000 to initiate and finalize  modification for the production of food grade
phosphoric  acid.  Registrant  expects to finance those  requirements  from bank
borrowings, equipment leasing and/or existing working capital.

Registrant  is  funding  the  majority  of cash  costs  of the  Venezuelan  gold
exploration activities.  Activities planned on the existing SAMI contract and on
those  concessions  expected  to be granted  in the  future  can be met  through
existing working capital.  Registrant may raise the additional  capital,  if and
when needed, through further private placements of stock, convertible debentures
and/or joint venture arrangements, if appropriate.

Cash flow used in operations  totaled  $2,688,000 for 1998 versus $3,178,000 for
1997 and resulted  primarily from the operating losses less non-cash charges for
interest related to convertible debentures.  Cash flow from investing activities
for 1998  includes  proceeds  from sale of  building  of  $337,000  and  capital
expenditures of $729,000.  Cash flow from financing activities in 1998 consisted
of payments on notes payable and long-term  debt of $500,000,  proceeds from the
issuance of stock of $167,000  and  proceeds  from the  issuance of  convertible
debentures  and notes  payable,  net of  $3,203,000.  Cash  flow from  investing
activities  for 1997 included  funding and  collections  on notes  receivable of
$50,000,  and capital  expenditures of $3,154,000 and the purchase of investment
in ADA of $417,000.  Cash flow from  financing  activities in 1997  consisted of
payments on restructuring of extraction plant liability of $1,250,000,  payments
on notes payable and long-term  debt of $886,000,  proceeds from the issuance of
stock of $42,000 and proceeds from the issuance of  convertible  debentures  and
notes payable, net of $8,586,000.

                              Results of Operations

Revenues  from sales totaled  $4,686,000  in 1998 versus  $1,468,000 in 1997. In
1998  $2,818,000 of that amount was generated by ADA and $1,868,000 from Calgary
phosphate sales.  ADA's revenues were less than anticipated due to (1) delays in
the  installation  of units at  Wisconsin  and  Mississippi,  (2)  cessation  of
chemical  injection in Mississippi  when the treated  fly-ash  prolonged the set
time of cement  into  which it was being  recycled,  and (3) less than  expected
additional  sales due to market concern over the recycled  fly-ash issue. In the
summer of 1998,  ADA  developed a new  chemical  blend that has  alleviated  the
cement set time  problem and has  improved  overall  performance  in the several
units  where it has been  utilized.  (See  discussion  of ADA's  Technology  and
Services  above in Item 1.b.) Sales of  phosphate  products  were also less than
targeted because (1) ADA's demand was less than expected as described above, and
(2) product quality problems reduced margins and market acceptance,  restricting
sales.  Additional  filtering and other process changes instituted in the fourth
quarter of 1998 have thus far solved the product quality issue,  and the Calgary
phosphate  production facility has been routinely producing acceptable technical
grade material since that time. Rental income included in other income decreased
slightly in 1998 due to the sale of ESI office  building in September 1998. Also
included  in  other  income  for 1998 is gain on the  sale of that  building  of
$158,000.  Other income in 1997 includes  interest income earned from investment
of funds on hand and a legal settlement in the amount of $30,000.

Operating  expenses  increased  significantly  in 1998 in response to  increased
sales and revenues related to both Calgary phosphate  production  ($1,663,000 of
the increase) and ADA  ($1,157,000  of the  increase).  The Company  experienced
negative gross margins at its Calgary  operations in 1997 and 1998 primarily due
to the start up nature  of the  phosphate  production  and the  product  quality
problem  mentioned  above.  The Company  expects such margins to improve in 1999
with expected  increased sales. ADA experienced  positive gross margins in 1998,
but these were less than expected from routine  operations and resulted from ADA
establishing  its market  acceptance  and market share for its  technology.  The
Company's  ultimate  success will be dependent on  generating  greatly  improved
gross  margins  which in turn are  dependent  upon  increased  sales and  market
penetration.  Consolidated research and development decreased in 1998 to $81,000
from $225,000 in 1997. General and administrative expenses decreased by a net of
approximately  $500,000 in 1998 as a result of increases  in Calgary  related to
increased  production (an increase of $254,000),  ADA's increased activities (an
increase of  $686,000),  decreased  investor  relations  expenses (a decrease of
$1,227,000),  and adoption of a sabbatical leave policy during 1997 not incurred
in 1998 ($200,000 of the decrease).

Registrant's  interest  expense  totaled  approximately  $1,264,000 for 1998 and
$3,062,000 for 1997. Interest expense includes approximately $84,000 and $20,000
in  1998  and  1997,  respectively,  from  the  consolidation  of  the  Canadian
subsidiary's  and ADA's results.  Included in interest expense for 1998 and 1997
is $1,027,000 and $2,595,000,  respectively of non-cash charges representing the
25%  discount  from  market  related to the  convertible  debentures  issued and
convertible in those years.

Extraordinary  gain from debt  restructuring  recognized in 1997  represents the
difference  between the  recorded  liabilities  at the time of  settlement  with
Yankee Companies of $9,382,000 and the settlement  payments totaling  $1,250,000
plus the  remaining  recorded  liability of  $4,850,000,  net of income taxes of
$985,000.

<PAGE>
                            Impact of Year 2000 Issue

The Year 2000  Issue is the  result  of  computer  programs  being  written  and
imbedded chips using two digits rather than four digits to define years.  Any of
Registrant's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a  system  failure  or  miscalculations   causing   disruptions  of  operations,
including,  among other things, a temporary  inability to process  transactions,
send invoices, or engage in similar normal business activities.

Based on recent and ongoing assessments,  Registrant has determined that it will
not be necessary to modify or replace any significant  portions of its equipment
or software so that its computer  systems  will  properly  utilize  dates beyond
December 31, 1999. The Year 2000 Issue is not expected to have a material impact
on the  operations  of  Registrant.  Registrant  does not  expect  to incur  any
material expenses or costs related to the Year 2000 Issue.

Based on a review of the nature and quantity of  transactions  with  significant
suppliers  and large  customers to determine  the extent to which  Registrant is
vulnerable  to those third  parties'  failure to  remediate  their own Year 2000
Issue,  Registrant  has  concluded  that it does  not  materially  rely on third
parties'  systems for the  continuance of its operations  except that Registrant
does rely on  utilities  supplied by  municipalities  and power  companies,  the
disruption of which will cause  Registrant to shut down its affected  operations
until such service is restored.  Extended  disruption  of utility  services will
have a material  adverse effect on Registrant.  With regard to other third party
systems, there can be no guarantee that a failure to convert by another company,
or a conversion that is incompatible with Registrant's systems, would not have a
material adverse effect on Registrant.  Registrant has determined that it has no
material  exposure to contingencies  related to the Year 2000 Issue for products
or services it has sold.


Item 7. Financial Statements.

                         Index to Financial Statements
                         -----------------------------

     Independent Auditor's Report                                            F-2

     Financial Statements:
     Earth Sciences, Inc. and Subsidiaries

     Consolidated Balance Sheet, December 31, 1998                           F-3

     Consolidated Statements of Operations and Comprehensive Loss
          For the Years Ended December 31, 1998 and 1997                     F-4

     Consolidated Statement of Stockholders' Equity,
          For the Period from January 1, 1997 to December 31, 1998           F-5
     
     Consolidated Statements of Cash Flows,
          For the Years Ended  December 31, 1998 and 1997                    F-6
     
     Notes to Consolidated Financial Statements                              F-8


Item  8.  Changes  In and  Disagreements  With  Accountants  on  Accounting  and
Financial Disclosure.

None.




                   (Balance of this page intentionally blank.)
<PAGE>

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act. (1)

<TABLE>
<CAPTION>

                                                                                    Term            First Became
      Name                  Age            Position and Offices                    Expires            Director
      ----                  ---            --------------------                    -------            --------
<S>                         <C>   <C>                                           <C>                    <C> 
Ramon E. Bisque             67    Chairman of the Board of Directors and        Annual Meeting          1963
                                  Member of the Executive Committee               Date, 1999

Duane N. Bloom              65    Director, Secretary, Chairman of the                 "                1963
                                  Executive Committee

Michael D. Durham           49    Director, President of ADA, Member of the            "                1997
                                  Audit Committee

Robert H. Lowdermilk        62    Director, Member of the Audit Committee              "                1990

Mark H. McKinnies           47    Director, President of ESI, Treasurer,               "                1983
                                  Member of the Executive Committee

</TABLE>

(1)  Kristen R.  Armstrong  was a  Director  of  Registrant  from 1991 until her
resignation on March 1, 1999.

     The  appointment  of  Michael  D.  Durham  to the  Board  of  Directors  of
Registrant (the "Board") in 1997 was made pursuant to the ADA Purchase Agreement
whereby  Registrant agreed to make available one seat on the Board between April
30, 1997 and  November 1, 1998,  and so long  thereafter  as the  recipients  of
shares of Registrant in that transaction continue, in the aggregate,  to hold no
less than 1,000,000 shares.  Management  shareholders of Registrant entered into
voting  agreements,  agreeing  to vote  their  shares  of  stock in favor of the
designated individual. There are no other arrangements or understandings between
any directors or executive  officers and any other person or persons pursuant to
which they were selected as director or executive officer.

     Each of the  officers  named above serves from year to year at the pleasure
of the Board of Directors. Drs. Bisque and Bloom were first elected to the Board
of Directors of Earth Sciences,  Inc.`s  predecessor  company as of February 14,
1963. Drs. Bisque and Bloom were first elected to serve in their present offices
on March 22, 1974.  Mr.  McKinnies  was elected  Controller on January 25, 1980,
Secretary  on January 23, 1981 and as a Director  and  President on February 23,
1983.

     Dr. Bisque is Professor  Emeritus at the Colorado School of Mines,  Golden,
Colorado and was a co-founder of Earth  Sciences,  Inc. in 1963.  Dr. Bisque has
been Chairman of the Board of Directors, a member of the Executive Committee and
a full or part time employee of Registrant since 1974.

     Dr. Bloom was a co-founder of Earth  Sciences,  Inc. in 1963. Dr. Bloom has
been employed full time by Registrant since that time.

     Dr.  Durham  was a  co-founder  in  1982  of  ADA  Technologies,  Inc.,  an
Englewood,  Colorado  private company which contracts to the Federal  government
and others for development of emission technologies.  Dr. Durham is president of
ADA-Environmental  Solutions LLC, a majority-owned subsidiary of Registrant. Dr.
Durham was appointed to the Board on April 30, 1997.

     Mr.  Lowdermilk  has been  president of Tectonic  Construction  Company,  a
producer of washed aggregates and specialty sands since 1986. Mr. Lowdermilk has
a long history in construction and engineering projects.
       
     Mr. McKinnies is a CPA and worked for Peat, Marwick,  Mitchell & Co. before
commencing  employment at ESI in 1978.  Mr.  McKinnies was elected  President of
Registrant in February, 1983.
        
     No relationship exists between any individuals named in this Item 9.

<PAGE>


Section 16(a) Beneficial Ownership Reporting Compliance
      
     Section 16(a) of the Securities Exchange Act of 1934 requires  Registrant's
officers  and  directors,  and  persons  who own  more  than  ten  percent  of a
registered  class  of the  Company's  equity  securities,  to  file  reports  of
ownership  with the Securities and Exchange  Commission  (the "SEC").  Officers,
directors  and  greater  than  ten  percent  shareholders  are  required  by SEC
regulation  to furnish the Company  with copies of all Section  16(a) forms they
file.

     Based  solely on its review of the copies of such forms  received by it, or
written representations from certain reporting persons, Registrant believes that
during the  fiscal  year  ended  December  31,  1998,  all  filing  requirements
applicable  to its officers,  directors and greater than ten percent  beneficial
owners  were  complied  with  except Mr.  Lowdermilk  was late filing his Form 5
reporting one transaction.

Item 10.  Executive Compensation.

<TABLE>
<CAPTION>

                               Summary Compensation Table

                                        Annual Compensation            Long Term Compensation
                                        -------------------            ----------------------
                                                                               Awards
                                                                               ------
Name of Individual and                                                       Securities
Principal Position                      Year     Salary      Other(2)  Underlying Options (#)
------------------                      ----     ------      --------  ----------------------
<S>                                     <C>      <C>         <C>              <C>   
Ramon E. Bisque(1)                      1998     $87,884     $12,905          25,000
Chairman of the Board                   1997     $85,175     $12,291          25,000
                                        1996     $81,288     $11,706          50,000

Duane N. Bloom(1)                       1998     $118,638    $17,207          25,000
Chairman of the Executive Committee     1997     $114,564    $16,388          25,000
Secretary and Director                  1996     $107,240    $15,607          50,000

Mark H. McKinnies(1)                    1998     $126,619    $18,900          25,000
Director, President and Treasurer       1997     $116,618    $17,400          25,000
                                        1996     $101,568    $15,142         150,000

</TABLE>

(1)Member of the Executive Committee of Registrant, which performs the duties of
the Chief Executive Officer.

(2)Amounts  represent  pension and matching  401(k) payments made to a qualified
plan by Registrant for the benefit of the named individual.

<TABLE>
<CAPTION>

                            Options/SAR Grants in Last Fiscal Year
                               Individual Grants

                    Number of Securities    % of Total Options
                    Underlying Options      Granted to Employees   Exercise or Base    Expiration
Name                Granted (#)             in Fiscal Year         Price ($/Sh)           Date
-------------------------------------------------------------------------------------------------
<S>                   <C>                     <C>                      <C>              <C>   
Ramon E. Bisque       25,000                  8.3%                     $  .51           10/15/01
Duane N. Bloom        25,000                  8.3%                     $  .51           10/15/01
Mark H. McKinnies     25,000                  8.3%                     $  .51           10/15/01

</TABLE>

All options shown for each individual were exerciseable as of December 31, 1998.

    Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values

                    Number of Securities Underlying       Value of Unexercised
Name                Unexercised Options at FY-End (#)     Options at FY-End
------------------------------------------------------------------------------
Ramon E. Bisque             125,000                           $    2,100
Duane N. Bloom              125,000                           $    2,100
Mark H. McKinnies           225,000                           $    2,100

All options shown for each individual were exerciseable as of December 31, 1998.

<PAGE>


Compensation of Directors

Directors  who are not  also  executive  officers  of  Registrant  are  accruing
compensation  in the  amount of $500 per  quarter,  which  amount may be paid by
issuance of Registrant's  common stock, and are reimbursed for any out-of-pocket
expenses incurred in attendance at meetings. The number of shares of stock which
may be issued will be determined using the quarterly compensation amount and the
average between the bid and asked price quoted during the quarter.


Item 11.  Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth the number of shares of the  Registrant's  common
stock  owned  beneficially  as of  March  12,  1999,  by each  person  known  by
Registrant to have owned beneficially more than five percent of such shares then
outstanding,  by each  person  serving as a named  officer  and/or a director of
Registrant and by all of  Registrant's  officers and directors as a group.  With
the exception of Mr.  Lowdermilk,  each of the individuals  named below has sole
voting and investment power for the respective shares.

<TABLE>
<CAPTION>

                                                     Amount and Nature of
Name and Address                                     Beneficial Ownership    Percent of Class
----------------                                     --------------------    ----------------

<S>                                                      <C>                       <C> 
Ramon E. Bisque (Chairman of the Board of Directors)     433,281 (1)               2.1%
9113 Fern Way 
Golden, CO 

Duane N. Bloom (Director and Secretary)                  648,297 (2)               3.0%
5565 Pine Ridge Rd.
Golden, CO

Michael D. Durham (Director)                             772,269 (3)               3.3%
5252 Lariat Drive
Castle Rock, CO

Robert H. Lowdermilk (Director)                        1,041,889 (4)               4.6%
100 Cherry St.
Denver, CO

Mark H. McKinnies (Director and President)               225,805 (5)               1.1%
10134 S. Pinedale Dr.
Conifer, CO

Directors and Officers as a Group (5 individuals)      3,196,541 (6)              13.1%

</TABLE>

Notes:

(1)  Included in the amount shown are 100,000 shares to which Dr. Bisque has the
     right to acquire  beneficial  ownership  through stock  options,  and 1,000
     registered in the name of Dr. Bisque's wife.

(2)  Included in the amount shown are 100,000  shares to which Dr. Bloom has the
     right to acquire  beneficial  ownership  through stock  options,  and 7,725
     shares registered in the name of Dr. Bloom's wife.

(3)  Included in the amount shown are 30,000  shares to which Dr. Durham has the
     right to acquire beneficial ownership through stock options.

(4)  Included in the amount shown are 125,000  shares  registered in the name of
     Mr.  Lowdermilk's  wife, Ann Gragg Lowdermilk.  Also included in the amount
     shown are 370,115 shares to which Tectonic Construction Co. ("TCC") has the
     right to acquire  beneficial  ownership through  convertible debt and stock
     options. Mr. Lowdermilk is the president and majority shareholder of TCC.

(5)  Included in the amount shown are 200,000 shares to which Mr.  McKinnies has
     the right to acquire beneficial ownership through stock options.

(6)  The amount shown includes 800,115 shares to which  individuals in the group
     have the right to acquire beneficial ownership through convertible debt and
     stock options.

<PAGE>


Item 12. Certain Relationships and Related Transactions.

(a) During 1997,  Dr. Bisque  borrowed a total of $50,000 from  Registrant at an
interest rate of 8%. The loan was paid back to Registrant prior to year end. The
amount borrowed was  collateralized by amounts owing to Dr. Bisque by Registrant
and was made  available  from  funds  that  would  have  otherwise  only  earned
Registrant approximately 5%.

In 1991,  the  Registrant  converted a total of  $366,000  of deferred  salaries
payable to Mssrs.  Bisque, Bloom and McKinnies to notes payable bearing interest
at 9%, payable on demand,  and granted them rights to convert such notes payable
to shares of common  stock at the then  current  market price of $.54 per share.
The notes were  collateralized  by a mining  property.  As of December 31, 1997,
$70,000 was  outstanding  under such notes.  All of that amount was converted to
common stock during the year ended December 31, 1998.

In 1997,  Registrant issued a convertible  debenture in the amount of $1,000,000
(the  "Debenture") to Tectonic  Construction  Co. ("TCC") and borrowed  $500,000
from TCC under a short-term note (the "1997 Note"). Mr.  Lowdermilk,  a director
of Registrant,  is the president and majority  shareholder of TCC. These amounts
were collateralized by a mining property, and buildings, equipment,  receivables
and  inventory in Calgary.  The Debenture and the 1997 Note bear interest at the
greater of prime plus two points or 10% which interest is payable quarterly. The
Debenture, if not converted, is due March 31, 2000. The Debenture is convertible
at any time after  November  30, 1997 into shares of common  stock at a weighted
average rate of $3.12.  The 1997 Note was repaid in full in February,  1998.  In
May 1998  Registrant  borrowed  $250,000  from TCC under a short-term  note (the
"1998 Note") due March 31, 1999. The 1998 Note is  collateralized by receivables
and inventory in Calgary.  The 1998 Note bears  interest at the greater of prime
plus two points or 10% which interest is payable quarterly.

Item 13. Exhibits and Reports on Form 8-K.

(a) Exhibits and Index of Exhibits (all exhibits  except as otherwise  noted are
incorporated  by  reference;  Exhibit  2.1 and 99.1 were  filed as  exhibits  to
Registrant's  April 30, 1997 Form 8K;  Exhibits  3.1, 4.3, and 10.5 through 10.9
were filed as exhibits to Registrant's  1996 Form 10KSB,  Exhibits 4.4, 4.5, and
10.11through  10.13 were filed as exhibits to Registrant's  1997 Form 10KSB, all
other such Exhibits were filed as Exhibits to Registrant's 1993 Form 10KSB).

No.       Description
---       -----------

2.1       Stock Option and Exchange Agreement and exhibits among Earth Sciences,
          Inc.  and  ADA-ES,   Inc.,  ADA   Environmental   Solutions  LLC,  ADA
          Technologies,  Inc.,  C. Jean  Bustard,  John F.  Wurster,  Kenneth E.
          Baldrey and Cameron E. Martin dated April 30, 1997.

2.2       Amended  and  Restated   Operating   Agreement  of  ADA  Environmental
          Solutions LLC, a Colorado Limited Liability Company, April 30, 1997.

3.1*      Articles of Incorporation, as amended and restated.

3.2       By-laws.

4.3       Form of Convertible Debenture due March 31, 1999.

4.4       Form of Convertible Debenture due January 31, 1999.

4.5       Form of Convertible Debenture due March 31, 2000.

10.2      Lease dated April 3, 1978 between  Western  Co-operative  Fertilizers,
          Limited and ESI Resources, Ltd.

10.5      Cerro  Gordo  Letter   Agreement   dated  September  1,  1996  between
          Registrant and Martin Trost Associates.

10.6      Option Agreement dated January 20, 1997 between  Registrant and Yankee
          Atomic Electric Company and Vermont Yankee Nuclear Power Corporation.

10.7      Letter of Intent among ADA Environmental  Solutions LLC, ADA-ES,  Inc.
          their respective members and shareholders and Registrant.

10.8      Securities Purchase Agreement dated March 21, 1997.

10.9      Registration Rights Agreement dated March 21, 1997.

<PAGE>


10.10     Independent   Contractor  Agreement  dated  January  1,  1997  between
          Registrant and Twin-Kem International, Inc.

10.11     Subscription  and  Investment  Agreement  dated June 12, 1997  between
          Tectonic Construction Company and Registrant.

10.12     Assignment  of Net  Profits  Interest  dated  November  1,  1997  from
          Registrant,  ESI  Resource  Limited,  and  Earth  Sciences  Extraction
          Company to Yankee Atomic  Electric  Company and Vermont Yankee Nuclear
          Power Corporation.

10.13     Letter  Agreement  dated  January  9,  1998  between  CODSA  14  S.A.,
          Registrant and Recursos Minerales VENESI C.A.

10.14*    Letter of Intent dated January 28, 1999 between ESI Resource  Limited,
          Earth Sciences Extraction Company and Chemical Interchange Company.

10.15*    Securities Subscription Agreement dated February 1999

21.1*     Subsidiaries of Registrant.

23.1*     Consent of Hein + Associates LLP

27*       Financial Data Schedule.

99.1      Financial Statements of ADA Environmental  Solutions LLC, December 31,
          1996

(*) - filed herewith.

(b) Reports on Form 8-K. None.



SIGNATURES

In accordance  with Section 13 or 15(d) of the Exchange Act, the  Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

Earth Sciences, Inc.
--------------------
 (Registrant)

By /s/ Mark H. McKinnies                   /s/ Duane N. Bloom
------------------------                   ------------------
Mark H. McKinnies, President               Duane N.  Bloom,  Member of
and Principal Financial Officer            Executive Committee

Date   March 26, 1999                      March 26, 1999
       --------------                      --------------

In  accordance  with the Exchange  Act, this report has been signed below by the
following  persons on behalf of the  Registrant and in the capacities and on the
dates indicated.

/s/ Ramon E. Bisque                        /s/ Robert H. Lowdermilk
-------------------                        ------------------------
Ramon E.  Bisque                           Robert H. Lowdermilk
Chairman of The Board of Directors         Director

March 26, 1999                             March 26, 1999
--------------                             --------------
     Date                                       Date

/s/Duane N. Bloom                          /s/ Michael D. Durham
-----------------                          ---------------------
Duane N.  Bloom, Director                  Michael D. Durham, Director

March 26, 1999                             March 26, 1999
--------------                             --------------
     Date                                       Date

/s/ Mark H. McKinnies
---------------------
Mark H. McKinnies, Director

March 26, 1999
--------------
     Date


<PAGE>



                          INDEX TO FINANCIAL STATEMENTS


                                                                            PAGE

Independent Auditor's Report.................................................F-2

Consolidated Balance Sheet - December 31, 1998...............................F-3

Consolidated Statements of Operations and Comprehensive Loss - 
         For the Years Ended December 31, 1998 and 1997......................F-4

Consolidated Statements of Changes in Stockholders' Equity -
         For the Years Ended December 31, 1998 and 1997......................F-5

Consolidated Statements of Cash Flows - 
         For the Years Ended December 31, 1998 and 1997......................F-6

Notes to Consolidated Financial Statements...................................F-8




                                       F-1

<PAGE>


                          INDEPENDENT AUDITOR'S REPORT



To the Board of Directors and Stockholders
Earth Sciences, Inc. and Subsidiaries
Golden, Colorado



We have audited the accompanying  consolidated  balance sheet of Earth Sciences,
Inc. and  subsidiaries  as of December 31,  1998,  and the related  consolidated
statements of operations and comprehensive loss, changes in stockholders' equity
and  cash  flows  for  the  years  ended  December  31,  1998  and  1997.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
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 consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Earth Sciences, Inc.
and  subsidiaries  as of December 31, 1998, and the results of their  operations
and  their  cash  flows for the  years  ended  December  31,  1998 and 1997,  in
conformity with generally accepted accounting principles.




HEIN + ASSOCIATES LLP

Denver, Colorado
March 19, 1999

                                       F-2

<PAGE>

                      EARTH SCIENCES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 1998



                                     ASSETS
                                     ------

CURRENT ASSETS:
    Cash and cash equivalents                                      $    122,000
    Trade receivables, with allowance for doubtful
       accounts $4,000                                                  549,000
    Inventories                                                         508,000
    Prepaid expenses and other                                           81,000
                                                                   ------------
             Total current assets                                     1,260,000

PROPERTY, PLANT AND EQUIPMENT, at cost                               20,763,000
    Less accumulated depreciation and amortization                   (5,333,000)
                                                                   ------------
             Net property, plant and equipment                       15,430,000
                                                                   ------------

OTHER ASSETS                                                             69,000

INTANGIBLE ASSETS, net of $390,000 in amortization                    3,190,000
                                                                   ------------

TOTAL ASSETS                                                       $ 19,949,000
                                                                   ============



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

CURRENT LIABILITIES:
    Accounts payable                                               $    935,000
    Accrued expenses                                                    389,000
    Billings in excess of costs and profits on
      uncompleted contracts                                             170,000
    Note payables:
         Related parties                                                277,000
         Line-of-credit                                                 185,000
    Other current liabilities                                            66,000
                                                                   ------------
             Total current liabilities                                2,022,000

LONG-TERM LIABILITIES:
    Extraction plant liability                                        4,850,000
    Convertible debentures - related parties                          1,000,000
    Other liabilities                                                   590,000
                                                                   ------------
                                                                      6,440,000
COMMITMENTS (Notes 2, 6, 10, and 11)

STOCKHOLDERS' EQUITY:
    Common stock, $.01 par value; 50,000,00
         shares authorized; 22,194,000 shares issued                    222,000
    Additional paid-in capital                                       24,157,000
    Accumulated deficit                                             (12,892,000)
                                                                   ------------
             Total stockholders' equity                              11,487,000
                                                                   ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                         $ 19,949,000
                                                                   ============



       See accompanying notes to these consolidated financial statements.

                                       F-3

<PAGE>

                      EARTH SCIENCES, INC. AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS


                                                        FOR THE YEARS ENDED
                                                            DECEMBER 31,
                                                   ----------------------------
                                                       1998             1997
                                                       ----             ----
NET REVENUES:
    Sales                                          $  4,686,000    $  1,468,000
    Other income                                        208,000         110,000
                                                   ------------    ------------
             Total revenues                           4,894,000       1,578,000

COST AND EXPENSES:
    Operating                                         5,077,000       2,565,000
    General and administrative                        3,074,000       3,557,000
    Research and development                             81,000         225,000
    Depreciation and amortization                       735,000         341,000
                                                   ------------    ------------
             Total expenses                           8,967,000       6,688,000
                                                   ------------    ------------

OPERATING LOSS                                       (4,073,000)     (5,110,000)

OTHER INCOME (EXPENSE):
    Interest expense                                 (1,264,000)     (3,062,000)
    Minority interest in loss of subsidiary                --           297,000
    Other, net                                         (103,000)       (139,000)
                                                   ------------    ------------
             Total other income (expense)            (1,367,000)     (2,904,000)

LOSS BEFORE EXTRAORDINARY ITEMS AND TAXES            (5,440,000)     (8,014,000)

    Income tax benefit                                     --           985,000
                                                   ------------    ------------

LOSS BEFORE EXTRAORDINARY GAIN                       (5,440,000)     (7,029,000)
                                                   ------------    ------------

    Extraordinary gain from debt restructuring
         (net of income tax of $985,000)                   --         2,298,000
                                                   ------------    ------------

NET LOSS                                           $ (5,440,000)   $ (4,731,000)
                                                   ============    ============

OTHER COMPREHENSIVE ITEMS -
    Foreign currency translation adjustment                --            (9,000)
                                                   ------------    ------------

COMPREHENSIVE LOSS                                 $ (5,440,000)   $ (4,722,000)
                                                   ============    ============

NET LOSS PER COMMON SHARE (Basic and Diluted):
    Before extraordinary item                      $       (.27)   $       (.76)
    Extraordinary gain                                     --               .25
                                                   ------------    ------------

             Net loss per common share             $       (.27)   $       (.51)
                                                   ============    ============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING           20,116,000       9,290,000
                                                   ============    ============


       See accompanying notes to these consolidated financial statements.

                                       F-4

<PAGE>
<TABLE>
<CAPTION>
                         EARTH SCIENCES, INC. AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                     FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

                                                                               Additional    
                                                       COMMON STOCK             Paid-in      
                                                   Shares        Amount         Capital      
                                                   ------        ------         -------      

<S>                                               <C>         <C>            <C>         
BALANCES, January 1, 1997                         8,449,000   $     84,000   $  8,645,000

    Debt converted to common stock                2,620,000         26,000      3,900,000
    Officer/director debt converted to
           common stock                             280,000          3,000        148,000
    Stock and options issued for services           507,000          5,000      1,244,000
    Stock issued for cash                            20,000           --           42,000
    Stock issued for acquired subsidiary             36,000          1,000        119,000
    Foreign currency translation adjustment            --             --             --   
    Transfer of foreign currency translation
           adjustment to additional paid-in
           capital                                     --             --       (1,837,000)
    Net loss                                           --             --             --   
                                               ------------   ------------   ------------

BALANCES, December 31, 1997                      11,912,000        119,000     12,261,000

    Debt converted to common stock                8,046,000         80,000      9,467,000
    Officer/director debt converted to
           common stock                              70,000          1,000         37,000
    Stock and options issued for services           150,000          2,000        174,000
    Stock issued for cash                           300,000          3,000        164,000
    Stock issued for interest in
           acquired subsidiary                    1,716,000         17,000      2,054,000
    Net loss                                           --             --             --   
                                               ------------   ------------   ------------

BALANCES, December 31, 1998                      22,194,000   $    222,000   $ 24,157,000
                                               ============   ============   ============


               CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                     FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
                                      (Continued)

                                                                Cumulative               
                                                Accumulated     Translation              
                                                  Deficit       Adjustments        TOTAL 
                                                  -------       -----------        ----- 
                                                
BALANCES, January 1, 1997                      $ (2,721,000)   $ (1,828,000)   $  4,180,000

    Debt converted to common stock                     --              --         3,926,000
    Officer/director debt converted to
           common stock                                --              --           151,000
    Stock and options issued for services              --              --         1,249,000
    Stock issued for cash                              --              --            42,000
    Stock issued for acquired subsidiary               --              --           120,000
    Foreign currency translation adjustment            --            (9,000)         (9,000)
    Transfer of foreign currency translation
           adjustment to additional paid-in
           capital                                     --         1,837,000            --
    Net loss                                     (4,731,000)           --        (4,731,000)
                                               ------------    ------------    ------------

BALANCES, December 31, 1997                      (7,452,000)           --         4,928,000

    Debt converted to common stock                     --              --         9,547,000
    Officer/director debt converted to
           common stock                                --              --            38,000
    Stock and options issued for services              --              --           176,000
    Stock issued for cash                              --              --           167,000
    Stock issued for interest in
           acquired subsidiary                         --              --         2,071,000
    Net loss                                     (5,440,000)           --        (5,440,000)
                                               ------------    ------------    ------------

BALANCES, December 31, 1998                    $(12,892,000)   $       --      $ 11,487,000
                                               ============    ============    ============


           See accompanying notes to these consolidated financial statements.

                                           F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                              EARTH SCIENCES, INC. AND SUBSIDIARIES

                              CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                        FOR THE YEARS ENDED
                                                                            DECEMBER 31,
                                                                    ---------------------------
                                                                        1998           1997
                                                                        ----           ----

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                 <C>            <C>         
    Net loss                                                        $(5,440,000)   $(4,731,000)
    Adjustments to reconcile net loss to net cash used in
        operating activities:
            Depletion, depreciation and amortization                    735,000        341,000
            Minority interest in loss                                      --         (297,000)
            Interest expense related to debt discount                 1,027,000      2,595,000
            Write-down of mineral properties                               --           87,000
            Gain on sale of building                                   (158,000)          --
            Gain on settlement of debt, net of income taxes                --       (2,298,000)
            Income tax benefit                                             --         (985,000)
            Expenses paid with stock and options                        176,000        427,000
            Changes in operating assets and liabilities:
                  (Increase) decrease in:
                       Receivables                                      277,000       (521,000)
                       Inventories                                       12,000       (519,000)
                       Other assets                                     517,000        318,000
                       Sale of marketable securities                       --        1,135,000
                  Increase (decrease) in:
                       Accounts payable                                  59,000        624,000
                       Billings in excess of costs and profits on
                          uncompleted contracts                         508,000           --
                       Accrued expenses                                 191,000        524,000
                       Other liabilities                               (592,000)       122,000
                                                                    -----------    ----------- 
        Net cash used in operating activities                        (2,688,000)    (3,178,000)

CASH FLOWS FROM INVESTING ACTIVITIES:
    Collections on notes receivable                                        --           50,000
    Notes receivable funded                                                --          (50,000)
    Proceeds from sale of building                                      337,000           --
    Capital expenditures                                               (729,000)    (3,154,000)
    Purchase of investment in ADA                                          --         (417,000)
                                                                    -----------    ----------- 
        Net cash used in investing activities                          (392,000)    (3,571,000)



               See accompanying notes to these consolidated financial statements.

                                               F-6

<PAGE>

                            EARTH SCIENCES, INC. AND SUBSIDIARIES

                            CONSOLIDATED STATEMENTS OF CASH FLOWS
                                         (continued)

                                                                      FOR THE YEARS ENDED
                                                                          DECEMBER 31,
                                                                  --------------------------
                                                                      1998           1997
                                                                      ----           ----
                                                                       
CASH FLOWS FROM FINANCING ACTIVITIES:
    Payments on restructuring of extraction plant liability              --       (1,250,000)
    Payments on notes payable and long-term debt                     (500,000)      (886,000)
    Proceeds from convertible debentures and notes payable, net     3,203,000      8,586,000
    Proceeds from issuance of common stock                            167,000         42,000
                                                                  -----------    -----------
        Net cash provided by financing activities                   2,870,000      6,492,000

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                  --            3,000
                                                                  -----------    -----------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                     (210,000)      (254,000)

CASH AND CASH EQUIVALENTS, beginning of year                          332,000        586,000
                                                                  -----------    -----------

CASH AND CASH EQUIVALENTS, end of year                            $   122,000    $   332,000
                                                                  ===========    ===========

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
    Cash payments for interest                                    $   121,000    $   223,000
                                                                  ===========    ===========

    Conversion of notes payable and debentures                    $ 9,585,000    $ 4,077,000
                                                                  ===========    ===========

    Stock and options issued for services                         $   176,000    $ 1,249,000
                                                                  ===========    ===========

    Purchase of property and equipment for debt or leases         $   104,000    $   178,000
                                                                  ===========    ===========

    Stock issued for interest in acquired subsidiary              $ 2,071,000    $   120,000
                                                                  ===========    ===========


             See accompanying notes to these consolidated financial statements.

                                             F-7
</TABLE>

<PAGE>

                      EARTH SCIENCES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.   SUMMARY OF NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:

     Nature of Operations - The accompanying  consolidated  financial statements
     include the accounts of Earth  Sciences,  Inc.  (ESI) and its  wholly-owned
     subsidiaries,  ESI Resources  Limited (ESIR) ADA Environment  Solutions LLC
     (ADA),  Recursos  Minerales Venesi C.A. (Venesi),  and ESI Chemicals,  Inc.
     (ESIC),  and its  majority-owned  subsidiaries,  Minera  Antabari C.A., and
     Recurso Minerales  Esigeo,  C.A. ADA has been consolidated with ESI and its
     subsidiaries since its acquisition,  effective May 1, 1997. ESIC has been a
     dormant  subsidiary since 1983.  ESIR's only asset is its investment in its
     wholly-owned  subsidiary,  Earth Sciences  Extraction  Company (ESEC).  All
     significant intercompany  transactions have been eliminated.  Collectively,
     these entities are referred to as the Company.

     The Company is  principally  engaged in  production  of purified  phosphate
     products (PPA),  providing flue gas conditioning  technology (FGCT) for air
     pollution  abatement and natural resources  exploration.  The Company sells
     PPA and FGCT principally throughout the United States.

     Cash Equivalents - For purposes of the statement of cash flows, the Company
     considers all highly liquid debt  instruments  with original  maturities of
     three months or less to be cash  equivalents.  At December  31, 1998,  cash
     equivalents consisted of money market instruments in the amount of $75,000,
     which are not FDIC insured.

     Inventories  -  Inventories  are  stated  at the  lower of cost or  market,
     determined by the first-in,  first-out  method and consist of the following
     at December 31, 1998:


                          Supplies           $221,000
                          Raw material         84,000
                          Work-in-progress     32,000
                          Finished goods      171,000
                                             --------

                                             $508,000
                                             ========


     Percentage of Completion - ADA follows the percentage of completion  method
     of accounting for all significant  long-term  contracts.  The percentage of
     completion method of reporting income from contracts takes into account the
     cost and revenue to date on contracts not yet  completed.  The Company does
     not  believe  it will  incur any  losses on  contracts  in  progress  as of
     December 31, 1998.

     Revenue  Recognition - ESEC product sales are recognized  when products are
     shipped to customers.

     Property,  Plant and Equipment - Property, plant and equipment is stated at
     cost and  includes  a  solvent  extraction  facility.  Depreciation  on the
     facility and its  equipment,  while in  production,  is provided  using the
     units of production method based on estimated production over the estimated
     life of the facility.  Beginning in fiscal 1999, when the Company estimates
     production will be approaching projected operating levels, the Company will
     begin  depreciating  the plant over the greater of 15 years or the units of
     production  method.  Depreciation  on other  assets is  provided  using the
     

                                       F-8

<PAGE>

                      EARTH SCIENCES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     straight-line  method based on estimated  useful lives ranging from 5 to 15
     years.  Maintenance and repairs are charged to operations as incurred. When
     assets are  retired,  or otherwise  disposed of, the property  accounts are
     relieved of costs and  accumulated  depreciation  and any resulting gain or
     loss is credited or charged to income.

     Intangible Assets - Intangible assets principally consists of the excess of
     the  aggregate  purchase  price  over  the  fair  value  of net  assets  of
     businesses  acquired  (Goodwill) and amounts allocated to patents (see Note
     2).  Goodwill is being  amortized  over a 10-year period and patents over a
     7-year  period  using  the  straight-line  method,  which is less  than the
     remaining legal life of the patents.

     Deferred  Exploration and Development Costs - Land and mineral  properties,
     including related deferred  exploration and development  costs, are carried
     at cost.

     The Company follows the policy of capitalizing all direct costs,  including
     labor,  related to the explora tion and  development of properties  held or
     controlled  by the Company,  which,  in the opinion of  management,  have a
     continuing value.

     Impairment  of  Long-Lived  Assets  -  The  Company  follows  Statement  of
     Financial  Accounting  Standards  (SFAS) No. 121,  Impairment of Long-Lived
     Assets. In the event that facts and circumstances indicate that the cost of
     assets  or   intangible   assets  may  be  impaired,   an   evaluation   of
     recoverability  would be  performed.  If an  evaluation  is  required,  the
     estimated future undiscounted cash flows associated with the asset would be
     compared to the asset's  carrying  amount to determine  if a write-down  to
     market value or discounted cash flow value is required.

     Income Taxes - The Company  accounts  for income taxes under the  liability
     method of SFAS No.  109,  whereby  current  and  deferred  tax  assets  and
     liabilities  are  determined  based on tax rates and laws enacted as of the
     balance sheet date.

     Foreign Currency  Translation - Through September 30, 1997, the accounts of
     ESEC were maintained in Canadian dollars, its functional  currency.  Assets
     and liabilities  were translated into U.S.  dollars at the current exchange
     rate, and earnings or losses were  translated at the average  exchange rate
     for the year; resulting translation adjustments were recorded as a separate
     component of stockholders' equity.

     During 1997, ESEC ended its  construction and start-up phase of the Calgary
     plant and  commenced  significant  production  and sales  activities of its
     primary product.  The Company purchases most of its raw materials and sells
     most of its products from/to U.S. entities in U.S. dollars and as a result,
     ESEC changed its functional  currency from Canadian dollars to U.S. dollars
     during 1997.  Accordingly,  effective  October 1, 1997,  current assets and
     liabilities  denominated in Canadian are translated in U.S.  dollars at the
     current  exchange  rate with any  resulting  gain or loss  recorded  in the
     income  statement.  Property,  plant  and  equipment  is  recorded  at  its
     historical  costs (U.S.  dollars) as of October 1, 1997,  after taking into
     effect the foreign currency translation adjustment from Canadian dollars to
     U.S.  dollars at that date.  Translation  adjustments  that were shown as a
     separate  component  of  stockholders'  equity  have  been  recorded  as  a
     reduction of additional paid-in capital.

                                       F-9

<PAGE>

                      EARTH SCIENCES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     Research and Development Costs - Research and development costs are charged
     to operations in the period incurred.

     Loss Per Share - The loss per common share is presented in accordance  with
     the provisions of SFAS No. 128,  Earnings Per Share.  SFAS No. 128 replaced
     the  presentation  of primary and fully diluted  earnings  (loss) per share
     (EPS)  with a  presentation  of basic  EPS and  diluted  EPS.  Basic EPS is
     calculated by dividing the income or loss available to common  shareholders
     by the weighted average number of common shares outstanding for the period.
     Diluted EPS reflects the potential  dilution that could occur if securities
     or other  contracts to issue common stock were  exercised or converted into
     common stock.  All potential  dilutive  securities  are  antidilutive  as a
     result of the Company's net loss for the years ended  December 31, 1998 and
     1997. Accordingly, basic and diluted EPS are the same for each year.

     Stock-Based  Compensation  - In fiscal 1996,  the Company  adopted SFAS No.
     123, Accounting for Stock- Based Compensation. SFAS No. 123 encourages, but
     does not require, companies to recognize compensation expense for grants of
     stock,  stock options,  and other equity  instruments to employees based on
     fair value.  Companies  that do not adopt the fair value  accounting  rules
     must  disclose  the impact of  adopting  the new method in the notes to the
     financial statements. Transactions in equity instruments with non-employees
     for goods or services must be accounted  for on the fair value method.  The
     Company has elected not to adopt the fair value  accounting  prescribed  by
     SFAS  No.  123  for  employees,  and is  subject  only  to  the  disclosure
     requirements prescribed by SFAS No. 123. For employees, the Company follows
     APB 25 which  requires  expense  to be  recognized  only to the  extent the
     exercise price of the stock-based compensation is below the market price.

     Use of Estimates - The preparation of the Company's  consolidated financial
     statements in conformity  with  generally  accepted  accounting  principles
     requires the Company's  management to make estimates and  assumptions  that
     affect the amounts reported in these financial  statements and accompanying
     notes. Actual results could differ from those estimates.  The Company makes
     significant  assumptions  concerning the realizability of its investment in
     its  extraction  facility,  land and  mineral  properties  and the  amounts
     allocated to Goodwill and patents associated with the acquisition of ADA as
     well  as the  percentage  of  completion  estimates  on ADA  contracts  and
     decommissioning  cost of its  solvent  extraction  facility.  If  operating
     losses  continue  at the  extraction  facility  and at ADA as well as other
     uncertainties  inherent in the estimation  process and the  significance of
     these  costs,  it  is at  least  reasonably  possible  that  the  Company's
     estimates in connection with these items could be materially revised within
     the next year.

     Comprehensive Income - SFAS No. 130 establishes standards for reporting and
     display of comprehensive  income, its components and accumulated  balances.
     Comprehensive  income is defined to include  all  changes in equity  except
     those resulting from investments by owners and distributions to owners.

     Segment Information - In 1998, the Company adopted SFAS No. 131, Disclosure
     About  Segments  of an  Enterprise  and Related  Information.  SFAS No. 131
     establishes  standards on the way that public  companies  report  financial
     information  about operating  segments in annual  financial  statements and
 
                                      F-10

<PAGE>


                      EARTH SCIENCES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     requires  reporting of selected  information  about  operating  segments in
     interim  financial  statements  issued to the public.  It also  establishes
     standards  for  disclosures  regarding  products and  services,  geographic
     areas,  and major  customers.  SFAS No. 131 defines  operating  segments as
     components  of a company  about which  separate  financial  information  is
     available that is evaluated regularly by the chief operating  decisionmaker
     in deciding how to allocate  resources  and in assessing  performance.  The
     Company has identified the following reportable segments:  natural resource
     exploration,  production  of  purified  phosphate  products,  and  flue gas
     conditioning   technology   for  air  pollution   abatement,   sales,   and
     environmental solutions.

     Impact of Recently Issued  Accounting  Pronouncements  - In 1998, SFAS Nos.
     132,  Employers'   Disclosure  about  Pensions  and  Other   Postretirement
     Benefits,  No.  133,  Accounting  for  Derivative  Instruments  and Hedging
     Activities, and No. 134, Accounting for Mortgage-Backed Securities Retained
     After the  Securitization  of  Mortgage  Loans  Held for Sale by a Mortgage
     Banking Enterprises were issued.  These  pronouncements are not expected to
     impact the Company.


2.   LIQUIDITY:

     Management   believes  that  existing  working   capital,   recent  private
     placements of common  stock,  and recent  credit  facility  approval in the
     amount of $400,000 are  sufficient to fund the planned growth in operations
     until  positive  cash flow is achieved  at ESEC and at ADA,  which are both
     anticipated  in 1999.  For ESEC,  the  achievement of positive cash flow is
     dependent upon several factors including continued  production of technical
     grade quality product in Calgary,  success in marketing  phosphate products
     and meeting  competition  in the market place,  the failure in any of which
     could delay such  achievement.  For ADA, the  achievement  of positive cash
     flow is  dependent  upon the  successful  ongoing  operation  of the  units
     currently  installed at two power plants and the sale of at least two other
     units to any of a number of  utilities  where  proposals  have been issued.
     Significant delay in signing new contracts, or unsatisfactory operations at
     any of the units operating could delay such  achievement.  Additional funds
     may be required  to fund  expanded  exploration  activities  in  Venezuela.
     Additional private placements of common stock,  convertible  debentures and
     bank  borrowings  may  be  needed  to  fund   additional   working  capital
     requirements.

     Final  modifications  are  being  made  to the  Calgary  facility  for  the
     production of food grade phosphoric acid. These  modifications are expected
     to be financed  through bank  borrowings,  equipment  and  leasing,  and/or
     existing working capital.


3.   ACQUISITION OF ADA:

     During  February  1997,  the  Company  acquired  a 5%  interest  in ADA for
     $400,000. Effective May 1, 1997, ESI acquired a majority equity position in
     ADA through a combination of stock,  cash, and notes that was accounted for
     under the purchase  method of accounting.  The Company issued 36,000 shares
     of common stock valued at $120,000, paid $500,000 in cash and $1,600,000 in
     notes for an  additional  46%  interest in ADA. As part of the  acquisition
     

                                      F-11

<PAGE>


                      EARTH SCIENCES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     agreement,  the  Company  acquired an option for the  remaining  49% equity
     interests  in ADA. In May 1998,  the Company  acquired  the  remaining  49%
     interest in ADA through the issuance of  approximately  1,716,000 shares of
     stock  valued  at  $2,071,000.  The  tangible  assets  of ADA  acquired  in
     acquisition were recorded at their  historical  value,  which  approximated
     their fair value.  In addition,  approximately  $1,000,000  of the purchase
     price was allocated to the estimated  value of ADA's patents and $2,500,000
     to Goodwill.


4.   COSTS ON UNCOMPLETED CONTRACTS:

     The following  information is applicable to ADA's uncompleted  contracts at
     December 31, 1998:


       Costs incurred and profits recognized on              $   898,000
         uncompleted contracts
       Less billings to date                                  (1,068,000)
                                                             -----------

       Billings in excess of cost on uncompleted contracts   $  (170,000)
                                                             ===========


5.   PROPERTY, PLANT AND EQUIPMENT:

     Property,  plant and  equipment  as of December 31, 1998 is  summarized  as
     follows:

                                                                    Estimated
                                                                   Useful Lives
                                                                   ------------

  Extraction facility                               $17,796,000         15
  Machinery and equipment                               576,000         10
  Furniture and fixtures                                157,000          5
  Land and mineral properties, including deferred  
    exploration and development costs (a)             2,234,000
                                                    -----------

                                                    $20,763,000
                                                    ===========
  ----------

     (a)  These land and mineral properties are not in production.  The recovery
          of the Company's  investment in these assets is dependent  upon future
          production  from  such  assets  or a sale of the  Company's  interests
          therein.


     The Company's  mineral  properties  include patented and unpatented  mining
     claims;  the latter  requiring  annual  rental fees to maintain  possessory
     titles.  Certain  bills have been  introduced  to in both  houses of United
     States  which could  adversely  effect the  potential  for  development  of
     existing  unpatented  mining claims and the economics of operating mines on
     Federal unpatented mining claims if enacted.  All of these bills are in the
     early stages of the  legislative  process and it is not possible to predict
     whether any change in the mining  laws will be enacted or if  enacted,  the
     

                                      F-12

<PAGE>

                      EARTH SCIENCES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     form the changes may take. In addition,  the Company  leases or has options
     to lease various other claims.  Such leases are cancelable at the option of
     the Company.

     Depletion,  depreciation and amortization of property,  plant and equipment
     for the years ended  December 31, 1998 and 1997 was $427,000 and  $241,000,
     respectively.

     During 1998,  the Company sold its corporate  office  building to a company
     owned an adult son of an officer and  director.  The Company  recognized  a
     gain of  approximately  $158,000 on this sale. The Company leases a portion
     of this building on a month-to-month basis. The sales price was verified by
     an independent appraisal.


6.   EXTRACTION PLANT LIABILITY AND EXTRAORDINARY GAIN:

     In January 1997,  ESI  finalized  agreements  with Yankee  Atomic  Electric
     Company  and  Vermont  Yankee  Nuclear  Power   Corporation   (the  "Yankee
     Companies")  and  acquired an option to  liquidate  the  liability to them,
     which at that time totaled $9,382,000. The liability arose from prepayments
     by the Yankee  Companies  for  uranium  during the period  that the Calgary
     plant  operated as a uranium  extraction  facility.  In October  1997,  ESI
     exercised its option by paying the Yankee Companies $1,250,000 and granting
     them a 10-year net profits  royalty on activities at the Calgary  facility.
     Future  payments to the Yankee  Companies  under the royalty  cannot exceed
     $4,850,000.  However, ESI can purchase the royalty interest at December 31,
     1998 for $3,050,000,  which  increases  $50,000 per year, but not to exceed
     $3,250,000.  Under the terms of the agreement, the Company's future royalty
     payments will be 10% of net profits. The Company has recorded the liability
     at the  greater  amount,  until  such  time  as  when  or if,  the  Company
     repurchases the royalty or the  termination of the agreement.  During 1997,
     the  Company  recognized  a  extraordinary  gain  on  debt  restructure  of
     $2,298,000 as a result of this debt restructure.


7.   LONG-TERM DEBT:

                                                                    December 31,
                                                                        1998
                                                                        ----
               
     Related Parties:
     ----------------

     Note payable to a  stockholder/director  at the greater
     of prime  plus 2% or 10% (10% at  December  31,  1998),
     with quarterly  payments of interest,  due in May 1999,
     collateralized by ESEC's assets.                                 $250,000

     Convertible  debenture - to a  stockholder/director  at
     the  greater of prime  plus 2% or 10% (10% at  December
     31,  1998) with  quarterly  payments  of  interest  and
     principal  due in  March  2000,  collateralized  by the
     assets of ESI and ESEC.                                         1,000,000

     Note  payable  to  stockholder  at  9%.  Principal  and
     accrued   interest   payments   are  due  in  1998  and
     convertible  to common  stock at $.54 per share.                   27,000 
                                                                    ---------- 
                                                                     1,277,000

            Less current portion                                      (277,000)
                                                                    ---------- 

     Long-term debt, net of current portion                         $1,000,000
                                                                    ==========

                                      F-13

<PAGE>

                      EARTH SCIENCES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                         

     During 1997, ESI issued  convertible  debentures (the "1997 Debentures") at
     their  face  value  totaling  $8,785,000.  Of the  total  1997  Debentures,
     $7,785,000  were  convertible  into  shares of common  stock based at a 25%
     discount  from  the  market  price  of the  common  stock  at the  time  of
     conversion,  but not in excess of $3.25 per share. During 1997, the Company
     recorded  additional interest expense (premium) totaling $2,595,000 for the
     difference  between the quoted price and the discounted price of the common
     stock that would be issued  upon  conversion  of the 1997  Debentures.  The
     remaining  $1,000,000  was issued to a company  owned by a director and was
     outstanding as of December 31, 1998. This debenture is convertible at $3.12
     per share, which was market value of the Company's common stock at the date
     of the debenture.

     During 1998, ESI issued  convertible  debentures (the "1998 Debentures") at
     their face value totaling $3,081,000.  The 1998 Debentures were convertible
     into shares of common stock based at 25% discount  from the market price of
     the common stock at the time of conversion,  but not in excess of $2.00 per
     share.  During  1998,  the Company  recorded  additional  interest  expense
     (premium) of $1,063,000 for the difference between the quoted price and the
     discounted  price of the common stock that would be issued upon  conversion
     of the 1998 Debentures.  As of December 31, 1998 all of the 1998 Debentures
     had been converted to common stock.

     Line-of-Credit - ADA has a $200,000 line-of-credit with a bank that expires
     in 1999.  The line  has an  interest  rate of  prime  plus  1.75%  (9.5% at
     December  31,  1998 and is  collateralized  by  certain  receivables).  The
     $185,000  borrowed  under  this  line  has  been  classified  with  current
     liabilities.


                                      F-14

<PAGE>


                      EARTH SCIENCES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



8.   INCOME TAXES:

     Deferred  tax  assets  (liabilities)  are  comprised  of the  following  at
     December 31, 1998:

                                               CANADIAN
                                              SUBSIDIARY        U.S.
                                              OPERATIONS     Operations
                                              ----------     ----------
      Deferred assets (liabilities):
        Net operating loss carryforward       $   334,000    $ 2,678,000
        Tax credit carryforwards                    2,000         13,000
        Depreciation differences                 (414,000)        14,000
        Mining properties basis differences          --         (355,000)
        Deferred revenue                        1,528,000           --
        Compensation related deferrals               --          144,000
        Other                                     135,000           --
                                              -----------    -----------
      Net deferred tax assets                   1,585,000      2,494,000
      Less valuation allowance                 (1,585,000)    (2,494,000)
                                              -----------    -----------

      Net deferred tax assets                 $      --      $      --
                                              ===========    ===========


     The  Company  has  remaining  U.S. a net  operating  loss  carryforward  at
     December  31, 1998 of  approximately  $7,176,000,  which if not utilized to
     reduce  taxable  income in future  periods,  will  expire in the years 2003
     through 2018. In addition,  the Company has $13,000 of alternative  minimum
     tax credit which is available to offset future U.S.  regular tax liability.
     The net operating loss carryforward  related to the Canadian subsidiary and
     operations  is  $741,000  (U.S.).   The  Canadian   investment  tax  credit
     carryforward for this subsidiary is $2,000 (U.S.).

     The utilization of these U.S. net operating loss  carryforwards  is subject
     to  restrictions  because  of the  ownership  changes of the  Company  that
     occurred  as a result  of  issuances  of the  Company's  securities.  These
     restrictions  will  limit  the  amount of  utilizable  net  operating  loss
     carryforwards per year.


9.   STOCKHOLDERS' EQUITY:

     Stock Bonus Plan - The Company has reserved 125,000 shares for awards under
     a stock bonus plan  established  in 1978.  As of December 31, 1998,  15,000
     shares remain available for award under the plan.

     Investor Relations - During 1997 and 1996, the Company engaged an entity to
     provide the Company  investor  relation  services over a five-year  period.
     During  1996,  in addition to certain  cash  payments,  the Company  issued
     options to the entity to purchase  300,000 shares of common stock at prices
     ranging from $2.00 to $4.00.  The options  expire at the rate of 60,000 per
     year over each of the  following  three  years with the  remaining  120,000
     expiring in 2001. During 1997 and 1998, 120,000 options expired,  60,000 in
     each year. Additionally, during 1997, in addition to certain cash payments,
     the Company issued  320,000 shares of common stock to the entity.  The cash
     

                                      F-15

<PAGE>


                      EARTH SCIENCES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     payments  and the  related  cost  associated  with the  stock  grants  were
     amortized  over one year,  the  period the  services  were  expected  to be
     performed.

     Private  Placements - Subsequent to Year-End - In February  1999,  ESI sold
     1,260,623  shares of common stock and received net proceeds of  $1,137,000.
     Such shares are restricted  from sale until after a registration  statement
     becomes effective  covering their subsequent sale or 90 days after the sale
     which ever occurs  later.  ESI has  committed  to file such a  registration
     statement  no later  then  April 11,  1999 and has an  obligation  to issue
     additional shares in the event the market price at the time of sale is less
     than 125% of the purchase price.  Such additional shares are limited to two
     and one half times the number of shares originally issued.

     Stock Options - The following is a table of options  issued during 1998 and
     1997:

                                                                      Weighted
                                                                       Average
                                             Employees  Non-employee  Exercise
                                              Options     Options      Price
                                              -------     -------      -----

    OPTIONS OUTSTANDING, December 31, 1996    400,000     339,000    $   2.09

        Options granted:
            Officers                          150,000        --      $   1.57
            Consultants                          --        50,000    $   2.50
        Debenture holder - related party         --        50,000    $   1.88
        Options expired                       (75,000)    (60,000)   $  (1.58)
                                             --------    --------    --------

    OPTIONS OUTSTANDING, December 31, 1997    475,000     379,000    $   2.19

        Options granted:
            Officers                          100,000                $   0.74
            Consultants                          --        50,000    $   1.41
        Other employees                       200,000        --      $   0.54
        Options expired                      (175,000)    (60,000)   $   1.58
                                             --------    --------    --------

    OPTIONS OUTSTANDING, December 31, 1998    600,000     369,000    $   1.86
                                             ========    ========    ========


     For all options  granted during 1997 and 1998, the weighted  average market
     price of the  Company's  common  stock on the grant date was  approximately
     equal  to  the  weighted  average  exercise  price.  The  weighted  average
    

                                      F-16

<PAGE>


                      EARTH SCIENCES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     remaining  contractual  life for all  options as of  December  31, 1998 was
     approximately   2.1  years.   At  December  31,  1998,   all  options  were
     exercisable.  If not previously exercised,  options outstanding at December
     31, 1998, will expire as follows:

                                                                       Weighted
                                                                        Average
                                          Range          Number of     Exercise
                  Year                Low       High      Options        Price
                  ----                ---       ----      -------        -----

                  1999                1.69      1.69      279,000        $1.69
                  1999                2.80      2.80       60,000        $2.80
                  2000                1.50      1.88      135,000        $1.85
                  2000                2.50      2.50       50,000        $2.50
                  2001                 .51       .54      275,000         $.53
                  2001                1.41      1.41       50,000        $1.41
                  2001                3.20      4.00      120,000        $3.60
                                                          -------
                                                          969,000
                                                          =======


     Pro Forma  Stock-Based  Compensation  Disclosures - The Company applies APB
     Opinion 25 and related  interpretations in accounting for its stock options
     and warrants which are granted to employees.  Accordingly,  no compensation
     cost has been  recognized  for grants of options and  warrants to employees
     since  the  exercise  prices  were  not less  than  the  fair  value of the
     Company's  common  stock on the grant  dates.  Had  compensation  cost been
     determined  based on an  estimate  of the fair  value  consistent  with the
     method of FAS 123 at the grant  dates for awards  under  those  plans,  the
     Company's  net  income  and EPS would  have been  reduced  to the pro forma
     amounts indicated below.


                                               Year Ended December 31,
                                           ------------------------------
                                                1998             1997
                                                ----             ----

     Net income (loss) applicable to
      common stockholders:
       As reported                         $  (5,440,000)   $  (4,731,000)
       Pro forma                           $  (5,535,000)   $  (4,803,000)
     Net income (loss) per common share:
       As reported                         $        (.27)   $        (.51)
       Pro forma                           $        (.28)   $        (.52)



                                      F-17

<PAGE>


                      EARTH SCIENCES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     The fair value of each employee option and warrant granted in 1998 and 1997
     was estimated on the date of grant using the  Black-Scholes  option-pricing
     model with the following weighted average assumptions:


                                           Year Ended December 31,
                                           -----------------------
                                                1998  1997
                                                ----  ----

                     Expected volatility         75%   72%
                     Risk-free interest rate      5%   5.7%
                     Expected dividends          --    --
                     Expected terms (in years)    3     3


10.  PROFIT SHARING RETIREMENT PLAN:

     The  Company  has a  defined  contribution  and  401(k)  plan to cover  all
     eligible  employees.   The  Company  paid  $136,000  and  $111,000  as  the
     contributions for 1998 and 1997,  respectively based on a percentage of the
     eligible employees' annual compensation.


11.  COMMITMENT:

     Capital Lease  Obligations - The Company  leases  certain  equipment  under
     agreements classified as capital leases. Equipment under these leases has a
     cost of $421,000 and  accumulated  amortization  of $170,000 as of December
     31, 1998.  The  following is a schedule of future  minimum  lease  payments
     under  capital  leases  at  December  31,  1998.  (The  capitalized   lease
     obligation is classified with other liabilities on the accompanying balance
     sheet.)


          Year                                                Amount
          ----                                                ------

          1999                                               $116,000
          2000                                                111,000
          2001                                                 89,000
          2002                                                 23,000
          2003                                                  1,000
                                                            ---------

              Total Future minimum lease payments             340,000

          Less amount representing interest                   (49,000)
                                                            ---------

              Present value of net minimum lease payments     291,000

          Less current portion                                (65,000)
                                                            --------- 

                                                            $ 226,000
                                                            =========


                                      F-18

<PAGE>


                      EARTH SCIENCES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     Office  Lease  - The  Company  leases  office  space  and  equipment  under
     noncancellable  operating  leases.  Total  rental  expense  was $72,781 and
     $10,000 for the years ended December 31, 1998 and 1997,  respectively.  The
     total minimum rental commitments at December 31, 1998 are as follows:


                  Year
                  ----

                  1999                              $72,000
                  2000                               72,000
                  2001                               73,000
                  2002                               75,000
                  2003                                -
                                                   --------

                                                   $292,000
                                                   ========


     ESEC's  production is being marketed  though one entity.  The agreement was
     executed  January 1, 1997 and renews  automatically  for 1-year terms.  The
     entity receives a commission from $2.00 to $5.00 per ton of product sold. A
     prepayment  of $100,000  was made in 1997,  consisting  of 50% cash and 50%
     stock.

     During 1997,  the Board of Directors  approved a one-year  paid  sabbatical
     leave for employees  who have been employed for 25 years or greater.  As of
     December 31, 1998, the Company has accrued $132,000 in connection with this
     policy.


12.  RELATED PARTY:

     During  1997,  the  Company  made  loans  to an  officer/director  totaling
     $120,000 at an interest rate of 8%. These loan,  and the related  interest,
     were paid back to the Company during 1997. The loan was  collateralized  by
     amounts owing to the officer/director from the Company.


13.  FAIR VALUE OF FINANCIAL INSTRUMENTS:

     The  estimated  fair values for financial  instruments  under SFAS No. 107,
     Disclosures  about Fair value of Financial  Instruments,  are determined at
     discrete points in time based on relevant market information.

                                      F-19

<PAGE>

                      EARTH SCIENCES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     These  estimates  involve  uncertainties  and  cannot  be  determined  with
     precision. The estimated fair values of the Company's financial instruments
     which differ from their recorded  values,  as measured on December 31, 1997
     are as follows:


                                              December 31, 1998
                                           -----------------------
                                            Carrying        Fair
                                             Amount        Value
                                             ------        -----

              Extraction plant liability   $4,850,000   $3,050,000


     The fair value of the extraction  plant liability is estimated based on the
     total payments  which would be required to terminate the  extraction  plant
     liability position as of December 31, 1998.

     The Company believes the fair value of all remaining financial  instruments
     approximates the carrying amount due to their  short-term  nature or actual
     interest rates that approximate the Company's effective borrowing rate.


14.  CONCENTRATIONS  OF  CREDIT  RISK,  MAJOR  CUSTOMERS,  AND  OTHER  RISKS AND
     UNCERTAINTIES:

     Credit risk  represents the accounting loss that would be recognized at the
     reporting  date  if   counterparties   failed   completely  to  perform  as
     contracted. Concentrations of credit risk (whether on or off balance sheet)
     that arise from  financial  instruments  exist for groups of  customers  or
     counterparties when they have similar economic  characteristics  that would
     cause  their  ability  to  meet  contractual  obligations  to be  similarly
     effected by changes in economic or other  conditions  described  below.  In
     accordance  with SFAS No. 105,  Disclosure of Information  about  Financial
     Instruments  with  Off-Balance-Sheet  Risk and Financial  Instruments  with
     Concentrations  of Credit Risk,  the credit risk amounts  shown do not take
     into account the value of any collateral or security. Financial instruments
     that subject the Company to credit risk consist principally of money market
     instruments and receivables.


                                      F-20

<PAGE>


                      EARTH SCIENCES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     Sales  to  unaffiliated  customers  which  represent  10%  or  more  of the
     Company's  sales  for the year  ended  December  31,  1998 and 1997 were as
     follows (as a percentage of sales):


                Customer                       1998           1997
                --------                       ----           ----

                 ESEC
                 ----
                    A                           29%            32%
                    B                           20%            18%
                    C                           13%            15%

                  ADA
                  ---
                    D                           30%            29%
                    E                           30%            22%
                    F                           21%            13%


     At December 31, 1998,  approximately 66% of the Company's trade receivables
     were from three customers.

     In 1998, ESEC purchased the majority of its superphosphoric acid (SPA) from
     three suppliers. SPA is the raw material processed into purified phosphoric
     acid.   There  is  no   assurance   that  the  Company   will  be  able  to
     maintain/extend   its  supply  arrangement  in  the  future  and/or  obtain
     sufficient  quantities of SPA at reasonable prices.  Other suppliers of SPA
     may not be readily available.


15.  BUSINESS SEGMENT INFORMATION:

     The Company  has  identified  its  principal  business  segments as natural
     resource  exploration,   production  of  purified  phosphate  products  and
     providing flue gas conditioning technology for air pollution abatement. The
     accounting  policies of the segments are the same as those described in the
     summary of significant accounting policies. These segments are shown in the
     accompanying table as ESI, ESIR, and ADA, respectively.  ESIR is located in
     Canada.

     ESI's reportable segments are strategic business units that offer different
     products and services.  They are managed  separately  because each business
     requires  different  technology  and  marketing  strategies.  Most  of  the
     businesses  were acquired as a unit,  and the management at the time of the
     acquisition was retained.


                                      F-21

<PAGE>
<TABLE>
<CAPTION>


                                   EARTH SCIENCES, INC. AND SUBSIDIARIES

                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



                                                                                  Eliminating
                                        ESI             ESEC            ADA         Entries        Consolidated
                                        ---             ----            ---         -------        ------------
1998

<S>                                <C>             <C>             <C>            <C>              <C>         
Revenues from external customers   $       --      $  1,868,000    $  2,818,000   $       --       $  4,686,000
Intersegment revenues                      --           244,000            --         (244,000)            --
Other revenue                           201,000            --             7,000           --            208,000
                                   ------------    ------------    ------------   ------------     ------------

  Total revenue                    $    201,000    $  2,112,000    $  2,825,000   $   (244,000)    $  4,894,000
                                   ============    ============    ============   ============     ============

Interest expense                   $ (1,180,000)   $    (40,000)   $    (44,000)           N/A    $ (1,264,000)
Depreciation and amortization      $    (17,000)   $   (286,000)   $   (432,000)           N/A    $   (735,000)

Segment profit (loss)              $ (2,241,000)   $ (2,305,000)   $   (894,000)            *     $ (5,440,000)

Segment assets                     $  1,926,000    $ 13,966,000    $  4,057,000            N/A    $ 19,949,000
Expenditures for segment assets    $      9,000    $    537,000    $    183,000            N/A    $    729,000



------------------------

* There were no profits on intersegment revenues.


                                      F-22
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                    EARTH SCIENCES, INC. AND SUBSIDIARIES

                                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                                    Eliminating
                                        ESI             ESEC             ADA          Entries       Consolidated
                                        ---             ----             ---          -------       ------------
                  1997

<S>                                <C>             <C>             <C>              <C>             <C>         
Revenues from external customers   $      9,000    $    514,000    $     945,000    $       --      $  1,468,000
Intersegment revenues                      --            24,000             --           (24,000)           --
Other revenue                           110,000            --               --              --           110,000
                                   ------------    ------------    -------------    ------------    ------------

  Total revenue                    $    119,000    $    538,000    $     945,000    $    (24,000)   $  1,578,000
                                   ============    ============    =============    ============    ============

Interest expense                   $ (3,038,000)   $     (7,000)   $     (17,000)            N/A    $ (3,062,000)
Depreciation and amortization      $    (20,000)   $   (212,000)   $    (109,000)            N/A    $   (341,000)

Segment profit (loss)              $ (5,530,000)   $ (2,075,000)   $    (409,000)              *    $ (8,014,000)

Segment assets                     $  3,825,000    $ 13,846,000    $   1,618,000             N/A    $ 19,289,000
Expenditures for segment assets    $     33,000    $  2,501,000    $     620,000             N/A    $  3,154,000

------------------------
      
* There were no profits on intersegment revenues.



                                      F-23
</TABLE>