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

                                   FORM 10-KSB/A
                    Amendment #1 to Items 1, 2, 6, 7, and 12


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

                   For the fiscal year ended December 31, 1996

                         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.  $ 798,000

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 21, 1997 was $21,125,000.

Number of shares outstanding of registrant's Common Stock, one cent par value as
of March 7, 1997 - 8,577,951.

DOCUMENTS INCORPORATED BY REFERENCE
The following  documents are  incorporated  by reference  into PART I, Item 2 of
this  Form  10-KSB:  1974  through  1979,  1981,  1986  and 1988  Forms  10-K of
Registrant

Transitional Small Business Disclosure Format:  Yes       No   X
                                                    -----    -----


                                    
<PAGE>

                                     PART I

Item 1.  Description of Business
         (a) Business Development.
Earth  Sciences,  Inc.  ("ESI" or  "Registrant",  which term includes its wholly
owned  subsidiaries  unless  otherwise   indicated)  is  a  diversified  mineral
exploration  and  development   company  with  planned  production  of  purified
phosphate  products in Calgary.  ESI was incorporated under the name of Colorado
Central  Mines,  Inc. in Colorado in 1957.  During 1996,  ESI (1) continued with
activities  leading to production of purified  phosphate products at its solvent
extraction   facility  in  Calgary,   Alberta,   Canada;   (2)  settled  certain
indebtedness  with Alberta  Treasury and negotiated an option to settle the $9.4
million  deferred revenue  liability both associated with the Calgary  facility;
(3) continued  exploration  activities for gold resources in Venezuela including
its land contract covering approximately 1200 acres; (4) aquired an interest and
commenced  exploration  work on the Cerro  Gordo  gold/silver  property  in Inyo
County,  California,  and (5) maintained its position in several mining deposits
and prospects in the Western US including  its royalty  position in the San Luis
gold mine which  completed  mining in October  1997 and  produced  approximately
52,000  ounces  of gold in 1996.  Thus far in 1997,  ESI has  signed a letter of
intent to acquire a majority equity interest in ADA Environmental Solutions LLC.
These  activities are described in the  succeeding  paragraphs of this Item 1(a)
and below in Item 1(b).

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.  An in-house  feasibility  study,
completed  in  1995,  confirmed  the  technical  and  financial  feasibility  of
conversion of the facility for the  production of purified  phosphate  products.
Revamp of the facility to allow such production is currently underway.  Start-up
activities  are expected to commence in March 1997 with  product  expected to be
available for sale in May 1997. There can be no assurances that the Company will
be able to maintain the expected schedule.

In November  1996,  ESI  reached  agreements  in  principal  with Yankee  Atomic
Electric  Company and Vermont  Yankee  Nuclear  Power  Corporation  (the "Yankee
Companies")  to  purchase a 270 day  option  for  $100,000  to  terminate  their
deferred revenue position in the Calgary facility.  As of December 31, 1996, the
consolidated   financial   statements  of  ESI  reported  Deferred  Revenues  of
$9,382,000  which  represents  prepayments by the Yankee  Companies for uranium.
Under the terms of the option, if exercised,  ESI would pay the Yankee Companies
$1,150,000  and grant them a 10 year  non-cost  bearing net  profits  royalty on
activities at the Calgary  facility.  Payments to the Yankee  Companies would be
capped at a total of $6 million,  excluding the $100,000 option payment, and ESI
could  purchase the royalty  interest for $3 million plus $50,000 per year after
the  exercise  date to a total  of not  more  than  $3,250,000.  The  definitive
document for this agreement was signed in January 1997.

In December  1996,  ESI  reached a final  settlement  with the Alberta  Treasury
("AT") concerning certain  indebtedness  related to the Calgary facility.  As of
November 30, 1996,  ESI had recorded  principal  and accrued  interest  totaling
$600,000  payable to AT. ESI obtained a complete  release from the  indebtedness
and all claims against the Calgary facility by payment to AT of $76,000.

In July 1996,  ESI  entered  into an  agreement  with  Martin  Trost  Associates
("MTA"),  a  Colorado  joint  venture  which  will  allow it to earn up to an 80
percent working interest in the Cerro Gordo property in Inyo County, California.
The property  covers 80 patented and  unpatented  mining  claims.  The agreement
provides  for ESI to arrange  financing  of up to $4.2  million to place the "H"
area into production to earn an 80% working interest in the property. Evaluation
of a 4 hole drilling  program  conducted in December is in progress to determine
further action on the property. See Item 2(f) below.

On November 15,  1996,  ESI received  notice from Battle  Mountain  Gold Comapny
("BMGC")  that they had  completed  mining at the San Luis project at the end of
October  and  that  reclamation  activities  were  continuing  with an  expected
completion date toward the end of March, 1997.

                                       1

<PAGE>


In  March  1997,  ESI  issued  $2,510,000  of  4%  convertible  debentures  (the
"Debentures")  for which ESI received net proceeds of approximately  $2,309,000.
Interest  is payable  quarterly.  The  Debentures  are  convertible  at any time
following  45  days  after  the  issuance  thereof  and  are  all  automatically
convertible on March 31, 1999. The  Debentures  are  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 $3.25 per share. ESI is required
to  register  the shares  underlying  the  Debentures,  and may  repurchase  the
Debentures at a 25% premium under certain circumstances.

On February 18, 1997, ESI signed a Letter of Intent to acquire a majority equity
position in ADA  Environmental  Solutions LLC through a combination of stock and
cash. The closing of the  acquisition,  scheduled for April 30, 1997, is subject
to a number  of  preconditions,  including  the  negotiation  and  execution  of
definitive documentation.

During 1996, through ESI's Venezuelan  company,  ESIGEO,  formed by ESI in joint
venture with GEO C.A.  ("GEO"),  ESI continued gold  exploration and development
activities in Venezuela.  ESI also owns 49% of another company,  Minera Antabari
C.A.  ("Antabari"),  which received a contract on a 1200 acre site on the Guyana
Shield in March 1992.  To date,  geologic  mapping,  geochemistry  of drainages,
soils  and  old  workings,   and  detailed  trenching  and  pitting  of  several
mineralized zones has been performed.  ESIGEO 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").  ESIGEO is awaiting  response  from MEM on these  filings.  ESI reached
agreement in 1996 with certain shareholders in GEO and Antabari to acquire their
holdings in exchange for 20,000 shares of stock. When the transference of shares
is completed in 1997, ESI will have a 67% ownership of GEO, and an effective 83%
ownership  of  Antabari  and  ESIGEO.  Several  other  sites with  existing  MEM
concessions  are being  evaluated,  and ESIGEO is  negotiating  with the current
concession  holders to obtain  rights to further  explore  these areas.  In 1997
ESIGEO  expects to conduct  surface  exploration on the  concessions,  currently
filed for, when they are granted, and other areas, if any, obtained from ongoing
negotiations.

         (b) Business of Issuer.
Registrant is a diversified  mineral  exploration and  development  company with
planned production of purified  phosphate  products in Calgary.  Registrant owns
the San Luis gold mine; a processing facility in Calgary,  Alberta, Canada which
recovered  uranium oxide from  phosphoric  acid and for which the  production of
purified phosphate  products is being pursued;  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 49% ownership in Minera Antabari C.A.  ("Antabari")  and
its 50%  ownership in Recursos  Minerales  ESIGEO C.A.  ("ESIGEO") is exploring,
evaluating, acquiring and plans to develop gold resources in Venezuela.

                               San Luis Gold Mine
As a result of  transactions  in 1987, ESI (1) sold its working  interest in the
San Luis gold mine to BMGC, (2) acquired the underlying property and (3) through
a lease of the property to BMGC, has a 3 1/2% gross royalty on future production
from the mine. Mining and milling activities were completed by BMGC in 1996.

During 1996 approximately 52,400 ounces of gold and 28,000 ounces of silver were
produced by BMGC from the  property,  as  compared to 72,700  ounces of gold and
32,000 ounces of silver in 1995.  ESI  recognized  $692,000 in revenue from that
production in 1996, as compared to $978,000 in 1995. ESI recognized cash flow of
approximately $720,000 from its royalty interest in 1996. ESI does not expect to
recognize  any  significant  royalty  revenue  from the San Luis mine in 1997 or
thereafter.

                       Calgary Solvent Extraction Facility
In 1996, ESI continued  activities for production of purified phosphate products
at the  facility.  The  planned  schedule  to restart  the  facility in Calgary,
Alberta to  produce  purified  phosphoric  acid  (PPA) and  by-products  targets
production commencing in May 1997 assuming the planned construction and start-up
schedule can be  maintained.  Earth  Sciences  Extraction  Company  ("ESEC"),  a
wholly-owned  Canadian limited partnership of ESI, intends to produce PPA at its
solvent   extraction   facility  in  Calgary,   Alberta.   The  facility,   with
modification,  is expected  to have the  capacity to produce in excess of 80,000
tons of P2O5 per year in the form of PPA and recover other valuable constituents
available in the feedstock.

                                       2

<PAGE>


ESEC's Facility The phosphoric acid treatment  facility has been 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 is  modifying  the  facility to purify  superphosphoric  acid  ("SPA") to a
technical  grade PPA and  manufacture  by-products.  The SPA  feedstock is to be
purchased  from  producers in Idaho and Florida for which supply  contracts with
Agrium Inc. and Farmland Industries,  Inc. have been negotiated.  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. At  present  ESEC would  compete  with four  North  American  PPA
producers in the 700,000 ton P2O5  industrial  market where 200,000 tons P2O5 of
direct  consumption PPA is sold. ESEC would be the sole producer in Canada,  and
would be 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. In the first year of production ESEC expects to
capture  approximately  5% of the North  American  PPA market by matching  other
producers' quality but with lower prices. It is anticipated that cost advantages
would be realized from the use of less expensive  purification  through  solvent
extraction and lower freight costs. It is anticipated that by-products  would be
sold in local markets, which ESEC believes are large enough to absorb the volume
without being disrupted. All of the facility's production is being marketed 
through an agreement with Twin-Kem International, Inc., a Colorado corporation 
whose principals have over 60 years of combined experience in the marketing and 
distribution of industrial and agricultural chemicals.  There can be no 
assurances that actual sales recognized by ESEC will equal the anticipated 
volumes.

Solvent Extraction Process
It is  anticipated  that the facility will produce PPA using an  environmentally
clean solvent  extraction  process employing  tributyl phosphate with a kerosene
diluent.  The basic process is well  established in the industry and believed by
ESEC to be free of patent  conflicts.  The ESEC  process has been  verified  for
anticipated  ESEC feedstocks by numerous  laboratory  bench tests and continuous
recycle  pilot  plant  runs.  The  studies  show that a  competitive  PPA can be
produced from any fertilizer  grade  phosphoric  acid feedstock with  extraction
efficiencies  of 70 to 90%. The remaining  material will be sold in local market
for its contained phosphate values. ESEC believes that no significant waste will
be generated at the ESEC facility.

Production Plan and Operating Costs
ESEC  intends to start  production  in 1997 at the rate of 10,000  tons P2O5 per
year of  technical  grade PPA,  carrying  54.4% P2O5,  or 18,400 tons of product
acid.  Associated  with the PPA  will be the  production  of 2,800  tons of P2O5
contained in other  material.  An 8% per year growth is  anticipated  in tonnage
sales.

Future Potential
The upside potential of the ESEC facility in Calgary is substantial.  Management
believes  relatively  minor changes would have to be made to increase the output
from  10,000  tons to 80,000  tons P2O5 per year.  In  addition,  the  
unextracted portion of the feed stock or raffinate contains a large number of 
valuable elements in high  concentrations,  including uranium,  vanadium,  
yttrium,  scandium and the rare earths.  The technology for recovery of these 
elements is available. The plant has a good deal of additional equipment  
including a second solvent extraction circuit that could possibly be utilized 
for that purpose.  ESEC intends to pursue these recovery  opportunities in 
earnest after the commencement of PPA production.

                                    3
<PAGE>

                           Venezuelan Gold Activities
ESI's Venezuelan joint venture with GEO commenced initial exploration activities
in the fall of 1988.  No proven commercially viable reserves have been 
discovered on the properties discussed.

In order to facilitate the  development of the Company's  various  expected land
concessions in Venezuela,  the Venezuelan corporate structure was reorganized in
1994 by  forming  a  holding  company  called  Recursos  Minerales  ESIGEO  C.A.
("ESIGEO") that is controlled  equally by ESI and its Venezuelan  partners,  GEO
C.A. ("GEO").  It is anticipated that each new land concession will be placed in
a separate entity, owned and controlled by ESIGEO. ESI reached agreement in 1996
with  certain  shareholders  in GEO and  Antabari to acquire  their  holdings in
exchange  for  20,000  shares  of  stock.  When the  transference  of  shares is
completed in 1997,  ESI will have a 67%  ownership of GEO, and an effective  83%
ownership of Antabari and ESIGEO.  The joint company will continue in the manner
in which ESI has conducted  exploration for thirty years.  That is to define and
acquire land positions in key areas that have a high probability of being within
the heart of future  mining  districts.  After  minimal  work to define  mineral
potential,  these  prospects are then sold to major mining  companies for a cash
payment and a royalty on future  production.  To facilitate this approach,  each
land  concession is to be held in a separate  company,  wholly-owned  by ESIGEO,
which can be sold without  additional  regulatory  review and delay. The goal of
ESIGEO in Venezuela is to enter into  several  such  agreements  with major gold
producers within the next several years.

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.

SAMI Area Contract
In 1991,  ESI and GEO formed  Antabari,  a Venezuelan  company of which ESI owns
49%. 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. ESIGEO is evaluating this next phase and/or a sale to third parties
at this time.

New Filings
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 ESIGEO's 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.

Apicharai
---------
The first concession area covering 500 hectares  (approx.  1200 acres), is known
as  Apicharai,  located  about 165 km from the town of La  Paragua.  This  small
tributary  to the  Antabari  river  has a history  of  panning  and small  scale
hydraulic  mining.  Apicharai  has an  abundance  of thick  quartz  veins in the
drainage  and gold is commonly  visible.  The  mineralization  of  Apicharai  is
typically  associated  with the quartz  veining in acidic  pyroclastics.  One 80
meter  zone on the river is panned  every  year by the  natives  after the rainy
season.  The gold particles commonly run 0.5mm and angular quartz is dominate in
the creek sediments.  As a result of the stream sediment  sampling,  an area has
been  selected for further work where the source of the gold  mineralization  is
likely to be located.

                                       4

<PAGE>


Man-cai
-------
The second concession area, known as Man-cai, covers 500 hectares, is located in
a remote area near the Brazilian  border  accessible by boat from the La Paragua
river.  Unconfirmed verbal reports are that 100 kilos of gold were taken by 
primitive methods from an area of only a few  hectares.  Sampling and  estimates
of  alluvial-colluvial material show that there is another 50-100 kilos 
available in a very small area.  It is believed that this gold can be easily  
recovered with portable  equipment. The source rock may hold significant  
potential and will be targeted early on in the further exploration program. 
Considerable pyrite exists in the volcanic host rock and upstream, out of the
rhyolite, gold is at background levels, helping to define the source  
material.  The  existence  of easily  obtainable  gold in the surface  
material  and the boundary  definition  of the source rock make this an 
excellent target for significant gold mineralization.

Manaima
-------
The third  concession  area,  known as Manaima,  also covers 500 hectares and is
located  50 Km from the town of La  Paragua.  This is an area rich in history of
small  primitive  mining  operations.  The  hydrothermal  mineralization  on the
property  is  associated  with a fault zone where gold is  typically  found with
copper and manganese.

Specific work programs are being formalized for initial detailed  exploration of
the above mentioned  areas. The plans provide for the building of an airstrip to
facilitate access and  transportation  of equipment into Apicharai,  Man-cai and
other prospects. Access is now being accomplished via river routes.

The primary objectives of the 1997 plans are to determine as quickly as possible
the  nature  and  extent  of gold  mineralization  on the  anticipated  new land
concessions  and to  continue to define  those  additional  areas  where  future
filings will be made.  Activities  will include surface  geochemistry,  geologic
mapping and trenching.

                           ADA Environmental Solutions
On February 18, 1997, ESI signed a Letter of Intent to acquire a majority equity
position in ADA  Environmental  Solutions LLC ("ADA")  through a combination  of
stock and cash. The acquisition was prompted by synergism  involving products to
be produced by the solvent extraction  facility in Calgary.  These products will
be  utilized  by  ADA  in  a  new  proprietary  technology  designed  to  reduce
particulate  emissions from plants burning  low-sulfur coal. It is expected that
the 1990 Clean Air Act Amendments  will result in 600 to 800 coal-fired  boilers
switching  to  low-sulfur  coal by the year 2000.  ADA  anticipates  capturing 
approximately 15% of this  market  with its  proprietary  non-toxic  chemical
conditioner  which  offers  both  technical  and  economic  advantages  over the
hazardous  chemicals  currently  being  used.  The  closing of the  acquisition,
scheduled for April 30, 1997, is subject to a number of preconditions, including
the negotiation and execution of definitive documentation.  ADA estimates a 
capital budget of approximately $1.6 million will be required to achieve a 
commercially viable status.

The Letter of Intent  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 during the six months  following May 1, 1998 for
issuance  of stock  valued at  approximately  $5.8  million.  In  addition,  the
principals of ADA will have an option to require ESI to sell its 51% interest in
ADA for the price paid by ESI plus  interest in the event ESI does not  exercise
its option.

                  Mineral Properties and Other Business Matters
During 1996 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,  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. The planned 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.

                                       5

<PAGE>


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".

Registrant also holds certain of its mineral properties by means of "unpatented"
lode and  placer  mining  claim  locations.  Unpatented  mining  claims  require
compliance  with  certain  Federal and State laws in order to  maintain  mineral
interests thereon. Legislation enacted in October 1992 requires a $100 per claim
rental charge on all unpatented mining claims.

Numerous and in some regards  conflicting bills have been introduced and are now
pending  in  the US  Congress  which  would  supplant  or  radically  alter  the
provisions of the US Mining Law of 1872, under which npatented mining claims are
located. 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 these
bills,  the ability of companies to obtain  patents on unpatented  mining claims
would be nullified or substantially  impaired,  and most 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
unpatented mining claims.  Registrant's financial performance could therefore be
affected  adversely by passage of such  legislation.  Pending possible reform of
the Mining Law of 1872,  Congress has put in place a moratorium  which prohibits
acceptance or processing of most mineral patent applications. It is not possible
to predict  whether  any change in the  Mining  Law of 1872  will,  in fact,  be
enacted or, if enacted, the form the changes may take.

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

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.

Registrant spent approximately $109,000 and $183,000 on research and development
activities  related to the  Calgary  extraction  facility  during 1996 and 1995,
respectively.

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 1997 are not  significant,  they may become  
substantial  in the future.  Such costs are considered a part of the ordinary 
costs of Registrant's business.

As of December 31, 1996 Registrant employed 5 personnel at its Golden, Colorado,
offices and 14 fulltime at the Calgary  facility.  In addition,  other personnel
were employed on a contract basis for specific project tasks.

                                    6
<PAGE>

Item 2.  Description of Property. 1
Registrant  owns,  controls  and  participates  with others in mineral  property
interests  and  mineral  property   exploration  and  development   programs  in
California, 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, except
the San Luis gold mine, are commercially viable. In-house studies for several of
the undeveloped  properties  indicate  technical and economic  feasibility.  The
following is summary information regarding Registrant's principal properties.

(a)  Vanadium/Phosphate Property near Paris and Bloomington,  Idaho
See Item 3(f),  1975-1977  Forms  10-K for the  property  acquisition,  property
rights,  property  description and  exploration  program prior to 1979. See Item
1(c) 1981 Form 10-K concerning  Registrant's sale and option of its interests on
the properties in January,  1981.  Registrant reacquired all of the interests in
the properties from the Conda Partnership in 1992.

To date,  drill  testing on the southern  portion of the deposit show tonnage of
approximately 34 million tons of phosphate rock classified as Measured Reserves,
with an  additional  19 million tons of phosphate  rock  classified as Indicated
Reserves.  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.  In 1993,  Registrant
negotiated  an  arrangement  with a third  party  to  allow a  minor  amount  of
phosphate  ore  to be  removed  from  the  outcrop  on a  portion  of one of its
properties  held in fee interest.  That party  obtained  permits in 1994 to mine
3,000 tons from the property but no mining has yet taken place. This deposit may
provide a source for the intended  purified  phosphoric  acid  production at the
Calgary facility (See Item 1(a) above).

(b) San Luis Gold Mine.
See Item 3(h) 1975 Form 10-K for a description of the property.
See Item 1(c)(1) 1988 Form 10-K and above concerning  Registrant's sale to BMGC,
other related  transactions in 1987 and BMGC development  work.  Registrant owns
the 800 acre site on which the mine is located, has leased the property to BMGC,
and  received a 3 1/2% gross  royalty  from all  production.  Mining and milling
activities  were  completed by BMGC in 1996 and  Registrant  does not expect any
significant  revenue in 1997 or thereafter.  BMGC commenced mining operations in
early 1991.

Production during the period from 1991 through 1996 was as follows:

         Year                     Ounces of Gold            Ounces of Silver
         1991                       31,500                       21,600
         1992                       55,600                       21,000
         1993                       72,800                       27,000
         1994                       72,700                       19,400
         1995                       72,700                       31,800
         1996                       52,400                       28,000
(c)  Alunite Resources. 2

----------------------------------------
 1 For  purposes  of this Item,  the term  "Measured  Reserves"  and  "Indicated
Reserves" shall have the meaning as adopted by the US Geological  Survey and the
US Bureau of Mines, as follows: Measured Reserves are reserves for which tonnage
is computed from dimensions revealed in outcrops,  trenches,  workings and drill
holes,  and for which the grade is computed  from results of detailed  sampling.
The sites for inspection,  sampling and  measurement are so closely spaced,  and
the geologic  character is defined so well,  that the size,  shape,  and mineral
content are well  established.  The computed  tonnage and grade are judged to be
accurate  within limits which are stated,  and no such limit is judged to differ
from the  computed  tonnage or grade by more than 20%.  Indicated  Reserves  are
reserves  from which the tonnage  and grade are  computed  partly from  specific
measurements,  samples,  or production data, and partly from projections,  for a
reasonable distance,  on geologic evidence.  The sites available for inspection,
measurement,  and sampling are too widely or otherwise inappropriately spaced to
outline the reserve completely or to establish its grade throughout.

2 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.

                                       7

<PAGE>

Alunite is a source of alumina (the raw material of aluminum), potassium sulfate
fertilizer, sulfuric acid and sulfur.

           (1) "LC" Alunite Property.
See Item  3(b)(1),  1974 and 1975 Forms 10-K and Item 3(h),  1976 and 1977 Forms
10-K for property  description,  property rights and  exploration  work in prior
years.  Results of exploration work to date show a total of 61.1 million tons of
material classified as Measured or Indicated Reserves. 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.
See Item 3(a)(1),  (2), (3), (4) and (5),  1974-1979  Forms 10-K for NG Property
and other Utah alunite  interest  descriptions,  property rights and exploration
programs  prior to 1978.  ESI was  granted  Preference  Right  leases on the ten
principal  tracts that  comprise the NG deposit on January 13, 1983.  The leases
were  assigned to the Alumet  Partnership  effective  February  1, 1983.  Alumet
assigned its Utah  alunite  interests  back to ESI in  December,  1986 (See item
1(c)(1) 1986 Form 10-K). ESI relinquished a portion of the leases,  reducing the
acreage under lease to 680 acres. All required lease payments were made in 1996.

Results of exploration and drilling  programs on the properties to date show 129
million  tons  of  material  classified  as  Measured  Reserves,  with  a  grade
calculated to be 37.9% alunite (approximately 14.03% alumina) with an additional
287 million tons classified as Indicated Reserves with average grades calculated
to range from 33.5% to 39.4% alunite (approximately 12.4% to 14.6% alumina).

(d) Calgary Solvent Extraction Facility.
Registrant owns a hydrometallurgical  solvent extraction facility which was used
to extract uranium from  phosphoric acid from June 1983 through  September 1987,
when the adjacent  phosphoric  acid  fertilizer  plant supplying feed stock shut
down. (See Item 1(a) and 1(b) above). 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 fertilizer plant.

(e)  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 1996.

During 1992, a third party conducted limited  geochemical  sampling,  geological
mapping and a remote sensing study using Landsat  Thematic Mapper data and image
enhancements.  One core hole was subsequently drilled to a depth of 588 feet. In
1993, an additional four reverse  circulation holes were drilled on the property
totaling 950 feet.  Analysis of samples  from the drilling  helped to define the
southwest boundaries of a breccia pipe containing gold, silver, copper, zinc and
lead  mineralization.  Based on the drilling performed a deposit of from 750,000
to 1.5 million tons of material  classified as Measured and  Indicated  Reserves
can be delineated with current metal values of over $15 per ton.

(f)  Cerro Gordo Property.
In July 1996,  Registrant entered into an agreement with Martin Trost Associates
("MTA"),  a  Colorado  joint  venture  which  will  allow it to earn up to an 80
percent working interest in the Cerro Gordo property in Inyo County, California.

                                       8

<PAGE>


The agreement provides for Registrant to arrange financing of up to $4.2 million
to place the "H" area, or principal mineralized zone, into  production  to earn 
an 80%  working  interest in the property.  No schedule has yet been established
for the Company's arrangement of financing.  The Company is obligated to fund 
the costs of all joint venture activities up to the agreed $4.2 million or until
the joint venture achieves cash flow.  Nevertheless, the Company may cease 
funding activities upon 30 days notice, without further obligation.  In the 
event of such cessation in funding, Registrant would retain its working interest
earned at that time and may choose to fund further requirements to maintain 
such interest, or suffer dilution of that interest. MTA acquired a mineral  
lease in August 1995 on 75  unpatented  and 5 patented  claims.  Terms of the 
lease are a 5% net  smelter royalty  and annual payments  averaging  $36,000 per
year. Two patented  claims lie within the claim block and are currently held by
third parties.

The Cerro Gordo  property lies in the Inyo Mountains east of Owens Lake and west
of Death  Valley at an  elevation of  approximately  7800 feet.  Access is by an
existing, county maintained, gravel road. Temperatures are moderate with limited
snowfall   during  the  months  of  January  and   February.   The  property  is
approximately  equidistant  from  Reno and Las  Vegas,  Nevada  and Los  Angles,
California.

Based on 36,000 feet of past drilling and old underground workings,  gold/silver
mineralization  has been demonstrated along a NW-SE mineralized trend stretching
8,000 feet long and 5,600 feet wide. The  mineralized  area appears zoned with a
lead/zinc/silver/tungsten  core  trending  outward to the west to a  gold/silver
zone. The large areal extent of the gold/silver  mineralization  may lend itself
to the  discovery of a  significant  gold mine.  Evaluation of a 4 hole drilling
program  conducted in December is in progress to determine further action on the
property.

                                                   9
<PAGE>
                                     PART II




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. Such  forward-looking  statements may
be found in this section under and under "Description of Business," "Management'
Discussion  and  Analysis of Financial  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.

                         Liquidity and Capital Resources
Management  believes that existing working capital and recent private placements
of stock and convertible  debentures are sufficient to fund revamp  construction
and start up activities at Calgary and planned operations until positive casflow
is achieved in Calgary,  which is  anticipated  in the 4th quarter of 1997.  The
achievement  of such  positive  cash  flow is  dependent  upon  several  factors
including  commercialization of the purification  process,  success in marketing
product and competition, any of which could delay or frustrate such achievement.
Additional funds may be required to meet the further obligations associated with
the ADA acquisition,  exercise of the Yankee Option, further exploration work on
the Cerro Gordo property,  and any expanded exploration  activities in Venezuela
(see  Item  1(b)  above).  Private  placements  of  common  stock,   convertible
debentures  and bank  borrowings  may be  evaluated  to fund such  requirements.
The agreement with MTA on the Cerro Gordo property provides for Registrant to 
arrange financing of up to $4.2 million to place the principal mineralized zone 
into production to earn an 80% working interest in the property.  No schedule 
has yet been established for the Company's arrangement of financing.  The 
Company is obligated to fund the costs of all joint venture activities up to the
agreed $4.2 million or until the joint venture achieves cash flow.  Neverthe-
less, the Company may cease funding activities upon 30 days notice, without 
further obligation.  In the event of such cessation in funding, Registrant 
would retain its working interest earned at that time and may choose to fund 
further requirements to maintain such interest, or suffer dilution of that 
interest. Private  placements  of  common  stock, convertible debentures,
bank  borrowings and other alternatives may be  evaluated  to fund such  
requirements.  Registrant  received a net of $1,954,000 from Regulation S 
offerings and private placements of its common stock in 1996 and a net of 
$2,309,000 from the issuance of convertible debentures in the first quarter 
of 1997 (see Item 1(a) above).

Based on current  estimates,  the Calgary  facility  will require an  additional
approximately  Can. $3 million (U.S. $2.2 million) to finalize revamp  
construction and re-start the plant for the  production  of purified  phosphate
products,  planned for Spring 1997.  Registrant  expects to finance those  
requirements  from existing working capital and the convertible debentures 
sold in March 1997.
                                       10

<PAGE>

Registrant  is  funding  the  majority  of cash  costs  of the  Venezuelan  gold
exploration activities. Activities planned on the existing contract and on those
concessions  expected to be  acquired in the future can be met through  existing
working capital.  Registrant plans to 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 provided by (used in)  operations  totaled  $(233,000) for 1996 versus
$336,000 for 1995. Cash flow from investing activities for 1996 included funding
and collections on notes receivable of $70,000, capital expenditures of $736,000
and the net purchase of marketable securities $660,000. Cash flow from financing
activities in 1996  consisted of payments on notes payable and long-term debt of
$9,000,  proceeds  from the issuance of stock of  $1,055,000  and proceeds  from
convertible debentures of $899,000.

Results of Operations
In 1991,  royalty  income  from the San Luis  gold  mine  commenced.  Registrant
recognized $692,000 and $978,000 in revenue from the production and sale of gold
and silver from the property in 1996 and 1995, respectively. Production from the
mine ended in November 1996.  Rental income increased slightly in 1996 due to 
increased charges to tenants.  Other income increased in 1996 due to an 
increase in interest income earned from investment of funds on hand.

Operating  expenses  increased  significantly  in 1996 as staff  and  activities
related to the Calgary facility expanded,  whereas research and development work
related to the Calgary  facility  decreased from $183,000 in 1995 to $109,000 in
1996. General and  administrative  expenses rose significantly in 1996 also as a
result of adding staff in Calgary for construction  and start-up  activities and
an aggressive investor relations program that commenced in 1996.

Registrant's  interest expense totaled  approximately  $82,000 for both 1996 and
1995.  Interest  expense includes  approximately  $40,000 in 1996 and $45,000 in
1995 from the  consolidation of the Canadian  subsidiary's  results.  Registrant
will be required to recognize $188,000 in interest expense in the 1st quarter 
and $649,000 in the 2nd quarter of 1997 as a result of the convertible 
debentures issued in March 1997.

Extraordinary  gain from debt  extinquishment  recognized in 1996 represents the
difference  between the  recorded  liabilities  at the time of  settlement  with
Alberta  Treasury  of  approximately  $600,000  and the  settlement  payment  of
$76,000, net of income taxes of $159,000.


Item 7.  Financial Statements.
Index to Financial Statements
Independent Auditor's Report
Financial Statements:
         Earth Sciences, Inc. and Subsidiaries
           Consolidated Balance Sheet, December 31, 1996
           Consolidated  Statements of Operations,
             For the Years Ended December  31, 1996 an 1995
           Consolidated  Statement of Stockholders' Equity,
             For the Period  from  January 1, 1995 to December  31, 1996
           Consolidated Statements of Cash Flows,
             For the Years Ended  December 31, 1996 and 1995 
           Notes to Consolidated Financial Statements


                                       11

<PAGE>



                      Earth Sciences, Inc. and Subsidiaries

                        Consolidated Financial Statements
                           December 31, 1996 and 1995





<PAGE>

                          INDEX TO FINANCIAL STATEMENTS




                                                                        PAGE
                                                                        ----

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

Consolidated Balance Sheet - December 31, 1996......................... F-3

Consolidated Statements of Operations -
  For the Years Ended December 31, 1996 and 1995....................... F-4

Consolidated Statements of Changes in Stockholders' Equity -
  For the Years Ended December 31, 1996 and 1995....................... F-5

Consolidated Statements of Cash Flows - For the
  Years Ended December 31, 1996 and 1995............................... F-6

Notes to Consolidated Financial Statements............................. F-7




                                       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,  1996,  and the related  consolidated
statements of operations, changes in stockholders' equity and cash flows for the
years ended December 31, 1996 and 1995. 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, 1996, and the results of their  operations
and  their  cash  flows for the  years  ended  December  31,  1996 and 1995,  in
conformity with generally accepted accounting principles.




HEIN + ASSOCIATES LLP

Denver, Colorado
February 3, 1997

                                      F-2

<PAGE>



                      EARTH SCIENCES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 1996

                                     ASSETS
                                     ------

CURRENT ASSETS:
    Cash and cash equivalents                                      $    586,000
    Marketable securities                                             1,135,000
    Receivables                                                         101,000
    Prepaid expenses and other                                          217,000
                                                                   ------------
             Total current assets                                     2,039,000


PROPERTY, PLANT AND EQUIPMENT, at cost                               17,198,000
    Less accumulated depreciation and amortization                   (5,043,000)
                                                                   ------------
             Net property, plant and equipment                       12,155,000
                                                                   ------------

OTHER ASSETS                                                            207,000
                                                                   ------------
TOTAL ASSETS                                                       $ 14,401,000
                                                                   ============

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

CURRENT LIABILITIES:
    Accounts payable                                               $    151,000
    Note payable - related party                                         58,000
    Other current liabilities                                            69,000
                                                                   ------------
             Total current liabilities                                  278,000

LONG-TERM LIABILITIES:

    Extraction plant liability                                        9,382,000
    Long-term debt from related parties                                 167,000
    Accrued decommissioning liability                                   220,000
    Other liabilities                                                   174,000
                                                                    -----------
                                                                      9,943,000

COMMITMENTS AND CONTINGENCIES (Notes 2, 3, 7, and 8)                       --

STOCKHOLDERS' EQUITY:
    Common stock, $.01 par value; 25,000,000
         shares authorized;
         8,449,000 shares issued                                         84,000
    Additional paid-in capital                                        8,645,000
    Accumulated deficit                                              (2,721,000)
    Cumulative translation adjustments                               (1,828,000)
                                                                   ------------
                 Total stockholders' equity                           4,180,000
                                                                   ------------

    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                     $ 14,401,000
                                                                   ============



       See accompanying notes to these consolidated financial statements. 

                                       F-3

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

                           CONSOLIDATED STATEMENTS OF OPERATIONS


                                                                      FOR THE YEARS ENDED
                                                                         DECEMBER 31,
                                                               ------------------------------
                                                                   1996               1995
                                                               -----------        -----------
<S>                                                            <C>                 <C>  
REVENUES:
    Royalty income                                             $   692,000        $   978,000
    Rental income                                                   19,000             18,000
    Other income                                                    87,000             47,000
                                                               -----------        -----------
             Total revenues                                        798,000          1,043,000

EXPENSES:
    Operating                                                      505,000            146,000
    General and administrative                                     380,000            260,000
    Research and development                                       109,000            183,000
    Depletion, depreciation and amortization                       260,000            234,000
    Interest                                                        82,000             82,000
                                                               -----------        -----------
             Total expenses                                      1,336,000            905,000
                                                               -----------        -----------

INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS AND TAXES                (538,000)           138,000

INCOME TAX BENEFIT                                                 159,000               --
                                                               -----------        -----------

INCOME (LOSS) BEFORE EXTRAORDINARY GAIN                           (379,000)           138,000
                                                               -----------        -----------

EXTRAORDINARY GAIN FROM DEBT EXTINGUISHMENT, 
    (net of income tax of  $159,000)                           $   371,000               --
                                                               -----------        -----------

NET INCOME (LOSS)                                              $    (8,000)       $   138,000
                                                               ===========        ===========
NET INCOME (LOSS) PER COMMON SHARE:
    Before extraordinary item                                  $      (.05)       $       .02
    Extraordinary Gain                                                 .05               --
                                                               -----------        -----------
             Net Income (Loss) Per Common Share                $      --          $       .02
                                                               ===========        -----------

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                       7,186,000          6,382,000
                                                               ===========         ==========





              See accompanying notes to these consolidated financial statements.

                                               F-4
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                        EARTH SCIENCES, INC. AND SUBSIDIARIES

                             CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                    FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995


                                                                                                 
                                                              COMMON STOCK           Additional                   Cumulative
                                                        -------------------------     Paid-in     Accumulated     Translation
                                                           Shares        Amount       Capital       Deficit       Adjustments
                                                           ------        ------       -------       -------       -----------

<S>                                                      <C>         <C>           <C>           <C>            <C>         
BALANCES, January 1, 1994                                 6,354,000   $    64,000   $ 6,390,000   $(2,851,000)   $(2,056,000)

    Net income                                                 --            --            --         138,000           --
    Foreign currency translation                               --            --
      adjustment                                               --            --            --            --          261,000
                                                        -----------   -----------   -----------   -----------    -----------

    BALANCES, December 31, 1995                           6,354,000        64,000     6,390,000    (2,713,000)    (1,795,000)

    Debt converted to common stock                          883,000         8,000       891,000          --             --
    Related party debt converted to common
           stock                                            210,000         2,000       111,000          --             --
    Stock issued for cash, net of related costs             899,000         9,000     1,046,000          --             --
    Stock issued for services                               100,000         1,000       135,000          --             --
    Stock options issued for services                          --            --          64,000          --             --
    Stock issued to employees for bonuses                     3,000          --           8,000          --             --
    Net loss                                                   --            --            --          (8,000)          --
    Foreign Currency translation adjustment                    --            --            --            --          (33,000)
                                                        -----------   -----------   -----------   -----------    -----------

    BALANCES, December 31, 1996                           8,449,000   $    84,000   $ 8,645,000   $(2,721,000)    $(1,828,000)
                                                        ===========   ===========   ===========   ===========    ===========







                                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,
                                                                                   ----------------------------------
                                                                                       1996                  1995
                                                                                   ------------           -----------
<S>                                                                                <C>                     <C> 
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss)                                                              $    (8,000)           $   138,000
    Adjustments to reconcile net income (loss) to net cash provided by (used in)
         operating activities:
             Depletion, depreciation and amortization                                  260,000                234,000
             Gain on settlement of debt, net of income taxes                          (371,000)                  --
             Income tax benefit                                                       (159,000)
             Expenses paid with stock                                                  208,000                   --
             Changes in operating assets and liabilities:
                 (Increase) decrease in:
                      Receivables                                                      116,000                (85,000)
                      Other assets                                                    (387,000)               (13,000)
                      Purchase of marketable securities                             (3,084,000)              (190,000)
	                     Sale of marketable securities                                  2,424,000                   --
                 Increase (decrease) in:
                      Accounts payable                                                 145,000                  6,000
                      Other liabilities                                                (37,000)                56,000
                                                                                   -----------            -----------
         Net cash provided by (used in) operating activities                          (893,000)               146,000

CASH FLOWS FROM INVESTING ACTIVITIES:
    Collections on notes receivable                                                     70,000                130,000
    Notes receivable funded                                                            (70,000)              (130,000)
    Capital expenditures                                                              (736,000)               (25,000)
                                                                                       -----------            -----------
         Net cash used in investing activities                                        (736,000)               (25,000)

CASH FLOWS FROM FINANCING ACTIVITIES:
    Payments on notes payable and long-term debt                                        (9,000)              (181,000)
    Proceeds from issuance of common stock                                           1,055,000                   --
    Proceeds from convertible debentures                                               899,000                   --
                                                                                   -----------            -----------
         Net cash provided by (used in) financing activities                         1,945,000               (181,000)

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                  8,000                 (1,000)
                                                                                   -----------            -----------

INCREASE (DECREASE) IN CASH                                                            324,000                (61,000)

CASH AND CASH EQUIVALENTS, beginning of year                                           262,000                323,000
                                                                                   -----------            -----------

CASH AND CASH EQUIVALENTS, end of year                                             $   586,000            $   262,000
                                                                                   ===========            ===========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:

    Cash payments for interest                                                     $    40,000            $    37,000
                                                                                   ===========            ===========

    Conversion of notes payable                                                    $ 1,012,000            $         -
                                                                                   ===========            ===========
    Stock and options issued for investor relations                                $   200,000            $         -
                                                                                   ===========            ===========

    Purchase of property and equipment for debt                                    $   125,000            $         -
                                                                                   ===========            ===========
    Stock issued for payment of employee bonuses                                   $     8,000            $         -
                                                                                   ===========            ===========







                           See accompanying notes to these consolidated financial statements 

                                                          F-6
</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 Chemicals, Inc. (ESIC) and ESI Resources Limited (ESIR).
     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  natural  resources  exploration,
     research and  development  and planned  production in the second quarter of
     1997 of purified phosphate products in Calgary, Alberta.

     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, 1996,  cash
     equivalents  consisted  of  money  market  instruments  in  the  amount  of
     $520,000, which are not FDIC insured.

     Marketable  Securities - Marketable securities consist of government backed
     debt  securities,  corporate stock and bonds and  certificates of deposits,
     which mature  within one year or less.  The  securities  are  classified as
     trading securities, as defined in Financial Accounting Standards (FAS) 115,
     and are stated at market, which approximates cost at December 31, 1996.

     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 it was in  production,  was  generally
     provided using the units of production method based on estimated production
     over the  life of the  contract.  Depreciation  on the  solvent  extraction
     facility  while not in operation is being computed at 1% per year (see Note
     2). Depreciation on other assets is provided using the straight-line method
     based on estimated  useful lives  ranging from 3 to 20 years.  Depletion of
     producing  mineral  properties  is  computed  using the unit of  production
     method  based on proved  and probable reserves.  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.

     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  exploration  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 - In fiscal 1996, the Company  adopted FAS
     121  "Impairment  of Long-  Lived  Assets."  In the  event  that  facts and
     circumstances  indicate  that the cost of  assets  or other  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

                                       F-7

<PAGE>
                      EARTH SCIENCES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     to determine if a write-down to market value or discounted  cash flow value
     is  required.  Adoption of FAS 121 had no effect on the  December  31, 1996
     financial statements.

     Extraction Plant Liability -  Extraction plant liability represent  non-
     interest bearing prepayments  from Vermont  Yankee  Nuclear  Power Corp.  
     and Yankee  Atomic Electric Company (the Yankee  Companies) for future 
     production and delivery of uranium (see Note 2).

     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.  Deferred  tax expense  represents  the change in the
     deferred tax asset/liability balance.

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

     Royalty Income - Royalty income represents the Company's 3.5% gross royalty
     in  production  from the San Luis  gold  mine.  The mine is  leased  to and
     operated by a third  party.  During the years ended  December  31, 1996 and
     1995,  the Company had  $638,000  and  $978,000  in royalty  income,  which
     represented 86% and 94% of the Company's  revenues,  respectively.  The ore
     reserves at San Luis gold mine were depleted in the fourth quarter of 1996.

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

     Net  Income  (Loss)  Per Share - Net  income  (loss)  per  common  share is
     calculated  based upon the weighted  average  number of shares  outstanding
     during the years ended  December  31, 1996 and 1995.  In 1996,  convertible
     debt, stock options, and warrants have not been included in the calculation
     of net loss per share, as the result is anti-dilutive. In 1995, convertible
     debt, stock options,  and warrants have been included in the calculation of
     net income per share as the result is  dilutive.  Income per common  share,
     assuming full dilution, approximates primary income per common share.

     Stock-Based  Compensation - In fiscal 1996, the Company  adopted  Financial
     Accounting  Standards Board "Accounting for Stock-Based  Compensation" (FAS
     123).  FAS 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 FAS 123 for employees,  and is subject only
     to the disclosure requirements prescribed by FAS 123.


                                       F-8

<PAGE>
                      EARTH SCIENCES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     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 decommissioning cost of its solvent
     extraction facility,  the realizability of its investment in its extraction
     facility  and land and mineral  properties,  and the  ultimate  liabilities
     associated  with  asserted  claims  (see Note 8). Due to the  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 further materially revised within the next year.


2. EARTH SCIENCES EXTRACTION COMPANY (ESEC):
   -----------------------------------------

     In 1978,  ESI  entered  into a  20-year  sales  agreement  with the  Yankee
     Companies,  covering  substantially all of the uranium produced from ESEC's
     solvent extraction facility.  During the period from 1980 through 1987, the
     Yankee Companies made required  prepayments for uranium under the agreement
     related to debt  service  on a term  loan,  which were in excess of uranium
     production  from the  facility and which accumulated  as a prepayment
     balance and were recorded as deferred revenues.

     In September  1987,  ESEC  suspended  operations  due to the  suspension of
     fertilizer  manufacturing  operations at an adjacent facility that provided
     feedstock  to ESEC.  In May 1990,  ESI and the Yankee  Companies  agreed to
     modify the long-term sales  agreement to allow ESEC to develop  alternative
     uses at the  facility  with the  provision  that  certain  royalties or net
     profits from the facility be paid to the Yankee Companies,  and provide for
     repayment of any remaining prepayment balance over a seven year period with
     interest  accruing  as of  January  1,  2005 at 8.50%  and  with  repayment
     commencing no earlier than  December 31, 2004.  Accordingly, the Company 
     reclassified deferred revenue totaling $9,382,000 as an extraction plant 
     liability.  The extraction plant liability  is collateralized  by the  
     solvent  extraction  facility, certain  underlying agreements,  the land
     lease  where the  facility  is  located,  and certain leases held by the
     Company in Idaho. ESI is a co-obligor of this liability.

     In November  1996,  the Company  reached  agreement in  principal  with the
     Yankee  Companies to purchase a 270-day  option (the "Option") for $100,000
     to terminate their deferred revenue position in the Calgary facility. Under
     the terms of the option,  if  exercised,  the Company  would pay the Yankee
     Companies  $1,150,000 and grant them a 10-year non-cost bearing net profits
     royalty on  activities  at the  Calgary  facility.  Payments  to the Yankee
     Companies would be capped at a total of $6 million,  excluding the $100,000
     option payment,  and the Company could purchase the royalty interest for $3
     million plus  $50,000 per year after the  exercise  date for a total of not
     more than  $3,250,000.  The  definitive  documents for this  agreement were
     signed in January 1997.

     At December 31, 1996,  the Company's  consolidated  balance sheet  included
     assets with a remaining  net book value of  approximately  $9,732,000  that
     relates to the extraction  facility,  consisting of other current assets of
     $28,000  and  the  extraction   facility  with  a  net  carrying  basis  of
     $9,704,000,  and  approximately  $9,382,000 of extraction plant liability 
     related to the long-term sales contract for output from the facility and 
     $221,000 in accrued  decommissioning costs. The recovery of the Company's 
     investment in these assets and its ability to fulfill the terms of its 
     agreement with the Yankee Company, is dependent upon future operations of 
     the facility, a sale

                                       F-9

<PAGE>
                      EARTH SCIENCES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     of such  assets  or  exercise  of the  Option.  The  Company  currently  is
     modifying the extraction  facility for the production of purified phosphate
     products and expects to be in production in the second quarter of 1997.


3. PROPERTY, PLANT AND EQUIPMENT:
   ------------------------------

     Property,  plant and  equipment  as of December 31, 1996 is  summarized  as
     follows:

         Extraction facility                                   $14,494,000
         San Luis Land and mineral property                        577,000
         Land and mineral properties, including deferred
            exploration and development costs (a)                1,518,000
         Building and other equipment                              609,000
                                                               -----------

                                                               $17,198,000
                                                               ===========
---------
            
(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
     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.


4. LONG-TERM DEBT:
   ---------------
                                                                December 31,
                                                                    1996
   Related Parties:                                             ------------
   ----------------

     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

     Notes  payable to  officers/directors  at 8%, with
     quarterly  payments of interest  and  principal of
     $250  and  the  balance  due  October  31,   1998,
     collateralized by real property.                               9,000


                                      F-10

<PAGE>

                      EARTH SCIENCES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





     Notes   payable  to   officers/directors   at  9%,
     principal and interest payments are due January 1,
     1998.  However,  a  $58,000  note  payable  to  an
     officer/director  has been  classified as current,
     as the Company lent the officer/director a similar
     amount  subsequent to December 31, 1996. The notes
     are collateralized by a mining property. Principal
     and accrued  interest  are  convertible  to common
     stock at $.54 per share.                                    189,000
                                                                --------   
                                                                $225,000
                                                                ========

     Future maturities of notes payable and long-term debt are as follows:

         1997                                                   $ 58,000
         1998                                                    167,000
                                                                --------
                                          
                                                                $225,000
                                                                ========

     During  1996,  the  Company  settled a note  payable  and  related  accrued
     interest  totaling  $605,000 with the Province of Alberta for approximately
     $75,000 in cash. As a result,  the Company recorded a extraordinary gain on
     debt  extinguishment  of  $371,000  in 1996,  net of income tax  expense of
     $159,000.

5. INCOME TAXES:
   -------------

     Deferred  tax  assets  (liabilities)  are  comprised  of the  following  at
     December 31, 1996:
                                                      CANADIAN
                                                     SUBSIDIARY        U.S.
                                                     OPERATIONS     Operations
                                                     ----------     ----------
Deferred assets (liabilities):
        Net operating loss carryforward             $   405,000     $ 1,122,000
        Tax credit carryforwards                         80,000          13,000
        Depreciation differences                        671,000          13,000
        Mining properties basis differences                --           364,000
        Deferred revenue                              3,114,000            --
        Other                                           140,000         115,000
                                                    -----------     -----------
Net deferred tax assets                               4,410,000       1,627,000
Less valuation allowance                             (4,410,000)     (1,627,000)
                                                    -----------     -----------

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



                                      F-11

<PAGE>
                      EARTH SCIENCES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The  valuation  allowance  increased  $372,000 for the Canadian  subsidiary
     operations and decreased  $356,000 for U.S.  operations  since December 31,
     1995.

     The  Company's  actual  effective  income  tax rate  differs  from the U.S.
     Federal  corporate  income  tax rate of 34% as  follows  for the year ended
     December 31, 1996:

         Tax at statutory rate                                     $   2,000
         Non-deductible expenses:
            Equity in loss of foreign subsidiary                     107,000
            Other                                                      4,000

        Reduction in valuation allowance due to usage of NOL
            carryforward and temporary differences utilized         (113,000)
                                                                    -------- 

        Tax at effective tax rate                                   $      -
                                                                    ======== 

     The  Company  has  remaining  U.S. a net  operating  loss  carryforward  at
     December  31, 1996 of  approximately  $3,000,000,  which if not utilized to
     reduce  taxable  income in future  periods,  will  expire in the years 1996
     through 2007. 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  $799,000  (U.S.).   The  Canadian   investment  tax  credit
     carryforward for this subsidiary is $80,000 (U.S.).


6. STOCKHOLDERS' EQUITY:
   ---------------------

     The Company has reserved 125,000 shares for awards under a stock bonus plan
     established  in  1978.  As of  December  31,  1996,  69,900  shares  remain
     available for award under the plan.

     During 1996,  the Company  received net proceeds of $899,000 and $1,055,000
     from  offerings of  convertible  debt and common stock,  respectively.  The
     convertible  debt was  subsequently  converted to common stock during 1996.
     Certain   officers/directors   also  converted   notes  payable,   totaling
     approximately  $113,400  to  shares of common  stock  under  terms of their
     notes, and were issued a total of 210,060 shares.

     In August  1996,  the  Company  engaged  an entity to provide  the  Company
     investor  relation services over a five-year period. 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.  The cash payments and
     related  expense  associated with the option grants are being expensed over
     the expected  period the services will be performed,  the majority of which
     is during the first year of the contract.


                                      F-12

<PAGE>


                                EARTH SCIENCES, INC. AND SUBSIDIARIES

                              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     The following is a table of options issued during 1996 and 1995:
<TABLE>
<CAPTION>
                                                                                                      Weighted
                                                                                                       Average
                                                            Employees          Non-employee           Exercise
                                                             Options             Options               Price
                                                            ---------          ------------           --------

     <S>                                                    <C>                 <C>                   <C>
     OPTIONS OUTSTANDING, January 1, 1995                     75,000               --                   $1.25
  
        Options granted                                       75,000               10,000               $1.33
                                                            --------            ---------             -------

     OPTIONS OUTSTANDING, December 31, 1995                  150,000               10,000               $1.29

        Options granted:
            Officers                                         250,000              --                    $1.69
            Consultants                                        --                  29,000               $1.69
            Investor relations                                 --                  60,000               $2.00
            Investor relations                                 --                 120,000               $2.60
            Investor relations                                 --                 120,000               $3.60
                                                            --------            ---------             -------

      OPTIONS OUTSTANDING, December 31, 1996                 400,000              339,000               $2.09
                                                            ========            =========             =======
</TABLE>

     For all options  granted during 1996 and 1995, 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
     remaining  contractual life for all options and warrants as of December 31,
     1996 was  approximately  2.3 years.  At December 31, 1996, all options were
     exercisable.  If not previously exercised,  options outstanding at December
     31, 1996, will expire as follows:
                                                            Weighted
                                                             Average
                                        Number of           Exercise
      Year                               Shares               Price
      ----                              ---------           ---------

      1997                              135,000               $1.58
      1998                              135,000               $1.79
      1999                              339,000               $1.89
      2000                               10,000               $1.50
      2001                              120,000               $3.60
                                        -------

                                        739,000
                                        =======

                                      F-13

<PAGE>


                      EARTH SCIENCES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     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 earnings per share would have been reduced to the
     pro forma amounts indicated below.

                                                         Year Ended December 31,
                                                        ------------------------
                                                          1996           1995
                                                        ---------     ---------

     Net income (loss) applicable to common stockholders:
       As reported                                      $  (8,000)    $138,000
       Pro forma                                        $(255,000)    $ 83,000
     Net income (loss) per common share:
       As reported                                      $       -     $    .02
       Pro forma                                        $    (.04)    $    .01


     The fair value of each employee option and warrant granted in 1996 and 1995
     was estimated on the date of grant using the  Black-Scholes  option-pricing
     model with the following weighted average assumptions:

                                                   Year Ended December 31,
                                                 --------------------------
                                                   1996               1995
                                                 -------            -------

       Expected volatility                           67%               74%
       Risk-free interest rate                      5.7%              5.7%
       Expected dividends                             -                 -
       Expected terms (in years)                      3                 3


7. PROFIT SHARING RETIREMENT PLAN:
   -------------------------------

     Effective  January 1, 1988, the Company formed a defined  contribution  and
     401(k) plan to cover all eligible  employees.  The Company paid $30,196 and
     $28,715 as the contributions for 1996 and 1995,  respectively  based on 10%
     of the  eligible  employees'  annual  compensation.  In 1996 and 1995,  the
     Company  also  matched  401(K)  employee  contributions  up to 5% of  gross
     salary, totaling $15,098 and $14,358, respectively.



                                      F-14

<PAGE>
                      EARTH SCIENCES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. CONTINGENCIES:
   --------------

     In 1993, a lawsuit was filed in the United  States  District  Court for the
     Northern  District  of  California  against  ESIC by Volvo  GM Heavy  Truck
     Corporation.  The claim  concerns  contamination  at a property in Oakland,
     California previously owned by a predecessor of ESIC. HM Holdings,  Inc., a
     prior  property  owner,  is also a defendant in the action.  The  complaint
     seeks recovery of response  costs,  damages,  and injunctive and regulatory
     relief. A court ordered mediation took place in January 1997 which led to a
     settlement in principle involving all the parties. Drafts of the settlement
     agreements are in process of being prepared, and if the final settlement is
     executed  with the terms  and  conditions  contained  in the  agreement  in
     principle, it will not have a material effect on the Company.


9. RELATED PARTY:
   --------------

     During  1995 and  1996,  the  Company  made  loans  to an  officer/director
     totaling  $130,000  at an  interest  rate of 8%. Not more than  $70,000 was
     outstanding at any one time and these loans, and the related interest, were
     paid back to the Company during the year. The loans were  collateralized by
     amounts  owing  Subsequent  to  year-end,   the  Company  loaned  the  same
     officer/director  $50,000 at 8% interest.  This loan is  collateralized  by
     amounts owing to the officer/director from the Company (see Note 4).


10. FAIR VALUE OF FINANCIAL INSTRUMENTS (FAS 107):
    ----------------------------------------------

     The  estimated  fair  values  for  financial  instruments  under  FAS  107,
     Disclosures  about Fair value of Financial  Instruments,  are determined at
     discrete  points  in time  based  on  relevant  market  information.  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, 1996 and
     1995, are as follows:

                                                    December 31, 1996
                                                    -----------------
                                                Carrying            Fair
                                                 Amount             Value
                                               -----------       ----------

     Long-term debt                            $   225,000       $  213,000
     Extraction plant liability                  9,382,000        4,250,000

     The following  methods and assumptions were used to estimate the fair value
     of each class of financial instrument:

     Long-Term  Debt - The fair value is difficult to estimate as loans are from
     related  parties.  However,  fair  value was  estimated  using an effective
     borrowing rate of 15%.


                                      F-15

<PAGE>
                      EARTH SCIENCES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     Extraction Plant Liability - The fair value is estimated based on the total
     payments which would be required for terminate the extraction plant   
     liability as of December 31, 1996.


11. CONCENTRATIONS OF CREDIT RISK:
    ------------------------------

     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 FASB Statement 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, receivables, and investments, which includes U.S.
     Treasury bills,  Certificates of Deposits,  corporate  bonds, and preferred
     stock.

     All of the Company's  royalty  income for the years ended December 31, 1996
     and December 31, 1995 was generated from one customer.  The Company will no
     longer receive  royalty income from this customer as the mining  operations
     related to the royalty  income ceased in the fourth  quarter of 1996.  This
     customer also is  responsible  for a  substantial  portion of the Company's
     receivables.

     At December 31, 1996,  receivables  totaled  $101,000.  For the years ended
     December  31,  1996 and 1995,  the  Company  had no bad debts.  The Company
     believes that no allowance for doubtful accounts is considered necessary.


12. SUBSEQUENT EVENTS:
    ------------------

     In January 1997, the Company  issued an additional  18,520 shares of common
     stock in return for  marketing  services.  Certain  officers of the Company
     also converted an additional $37,809 in debt to 70,020 in common stock. The
     Company  also  issued an  additional  20,000  shares of common  stock to an
     existing stockholder for net proceeds of $41,720.

     In February,  the Company signed a letter of intent to buy an environmental
     services  entity (ESE).  The Letter of Intent 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 ESE, and
     (iii) an option to acquire the  remaining equity interests (49%) in the ESE
     during the six months following May 1, 1998 for issuance of stock valued at
     approximately  $5.8 million.  In addition,  the  principals of the acquired
     company will have an option to require the Company to sell its 51% interest
     in ESE for the price  paid by ESI plus  interest  in the event ESI does not
     exercise its option.


                                      F-16

<PAGE>
                      EARTH SCIENCES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     In March 1997, the Company issued  $2,510,000 of 4% convertible  debentures
     (the "Debentures")  for  which  the  Company  received  net  proceeds  of
     approximately $2,309,000. Interest is payable quarterly. The Debentures are
     convertible  at any time  following 45 days after the issuance  thereof and
     are all  automatically  convertible  on March 31, 1999.  The Debentures are
     convertible into shares of common stock based on a 25% discount from market
     price of the common stock at the time of conversions,  but not in excess of
     $3.25 per share. The Company will record a deferred financing cost of 
     approximately $837,000, which represents the difference between fair market
     value of the common stock on the date the Debentures were sold and the 
     conversion price.  The deferred financing cost will be amortized over a 45 
     day period, which represents the period ending on the first date the 
     Debentures can be converted to common stock.  The Company is required to 
     register the shares underlying the Debentures.  The Company may repurchase 
     the Debentures at a 25% premium if, for two or more trading days in any 
     five trading day period, the market price per common share is less than 
     $1.50. The proceeds of the Debentures are intended to be primarily 
     utilized to finance a portion of the construction and operating capital 
     associated with the modification and re-opening of the Company's 
     Canadian extraction facility (the "Facility").  The converted  Facility 
     is expected to produce purified phosphate products. 


13. BUSINESS SEGMENT INFORMATION:
    -----------------------------

     The Company  has  identified  its  principal  business  segments as natural
     resource  exploration and development and ownership of a solvent extraction
     facility.  These  segments are shown in the  accompanying  table as ESI and
     ESIR, respectively. ESIR is located in Canada.


                                      F-17

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

                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                                                   Depletion,
                                  Inter-                            Net                          Depreciation
                   TOTAL          Segment                         Income        Identifiable         and           Capital
                  REVENUE         Revenue         Revenue         (Loss)           Assets        Amortization   Expenditures
                -----------    --------------   -----------     -----------     ------------     ------------   ------------
<S>             <C>           <C>               <C>             <C>              <C>             <C>             <C>        
1996:
-----                                                                                                                        
  ESI           $ 2,167,000     $ 1,369,000     $   798,000     $   130,000      $ 4,207,000     $   122,000     $    89,000
  ESIR                 --              --              --          (138,000)      10,194,000         138,000         647,000
                -----------     -----------     -----------      -----------     -----------     -----------     -----------

  Total         $ 2,167,000     $ 1,369,000     $   798,000     $    (8,000)     $14,401,000     $   260,000     $   736,000
                ===========     ===========     ===========     ===========      ===========     ===========     ===========

1995:
-----                                                                                                                
  ESI           $ 1,063,000     $    20,000     $ 1,043,000     $   422,000      $ 2,983,000     $    97,000     $    17,000
  ESIR                 --              --              --          (284,000)       9,732,000         137,000           9,000
                                -----------     -----------     -----------      -----------     -----------     -----------

  Total         $ 1,063,000     $    20,000     $ 1,043,000     $   138,000      $12,715,000     $   234,000     $    26,000
                ===========     ===========     ===========     ===========      ===========     ===========     ===========

</TABLE>
                                                                F-18








<PAGE>


                                    PART III


Item 12.  Certain Relationships and Related Transactions.
(a) At  various  times  during  1996 and 1995,  Dr.  Bisque  borrowed a total of
$70,000 and $130,000,  respectively,  from Registrant at an interest rate of 8%.
Not more than  $85,000 was  outstanding  at any one time in 1995 and these loans
were paid back to Registrant prior to each year end. All of the amounts borrowed
were  collateralized  by amounts owing to Dr. Bisque by Registrant and were 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 are collateralized by a mining property.  From year to year, Mssrs. 
Bisque, Bloom and McKinnies have agreed not to demand payment during the current
year. As of December 31, 1996, $189,000 remained outstanding under the notes.

                                        14


<PAGE>


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   June 10, 1997                                June 10, 1997
       --------------                               --------------

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

June 10, 1997                                   June 10, 1997
--------------                                  --------------
   Date                                               Date

/s/Duane N. Bloom                           /s/ Mark H. McKinnies
----------------------------------          -----------------------------------
Duane N.  Bloom, Director                       Mark H. McKinnies, Director

June 10, 1997                                   June 10, 1997
--------------                                  --------------
   Date                                               Date

                                       16