U. S. SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

_____________________________________________

FORM 10-QSB

(Mark One)

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2005

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ________ to ________

Commission File Number 0-12914

_________________________________________________

ENVIRONMENTAL ENERGY SERVICES, INC.

(Exact name of small business issuer as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)
43-1953030

(IRS Employer Identification No.)

205 S. Bickford Avenue, El Reno, OK 73036

(Address of Principal Executive Offices)

(405) 262-0800

(Issuer's telephone number)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) 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. Yes X No ___

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: as of December 14, 2005, the Registrant had outstanding 401,683,631 shares of its Common Stock, $0.001 par value, which excludes certain shares issued pursuant to the Nikko Action which have not been recognized as valid by the Registrant. See "Part I, Item 1, Notes to Financial Statements, Note 6."

Transitional Small Business Disclosure Format (check one): Yes [__]; No [X]
**Environmental Energy Services, Inc. and Subsidiaries

FORM 10-QSB REPORT INDEX**
 
Page No.
PART I. FINANCIAL INFORMATION
 
Item 1. Financial Statements (Unaudited)
 
 
Consolidated Balance Sheet as of September 30, 2005
3
 
Consolidated Statements of Operations for the Three Months Ended September 30, 2005 and 2004
4
 
Consolidated Statements of Operations for the Nine Months Ended September 30, 2005 and 2004
5
 
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2005 and 2004
6
 
Notes to Unaudited Consolidated Financial Statements as of September 30, 2005
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation
12
Item 3. Controls and Procedures
14
PART II. OTHER INFORMATION
14
Item 1. Legal Proceedings
14
Item 2. Changes in Securities
15
Item 3. Defaults on Senior Securities
15
Item 4. Submission of Matters to a Vote of Security Holders
15
Item 5. Other Information
15
Item 6. Exhibits and Reports on Form 8-K
15
Signatures
16** 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Environmental Energy Services, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEET

As of September 30, 2005 (Unaudited)**

ASSETS
 
Current Assets:
 
Cash
$ 27,160
Related Party Advance
50,000
Total current assets
77,160
 
 
Fixed Assets:
 
Equipment - Net of Depreciation
14,133
 
 
 
 
Other Assets:
 
Marketable securities
810,737
Investment in Royalty Agreement, Net of Amortization 
25,899
Investment in Private Companies
50,000
Investment - Gas and Oil Leases
278,681
Total other assets
1,165,317
 
 
Total assets
$ 1,256,610

LIABILITIES AND STOCKHOLDERS EQUITY
 
 
 
Current liabilities:
 
Accounts payable, accrued interest, and other liabilities 
$ 57,005
Related party indemnification
50,000
Settlement payable
112,500
Total current liabilities
219,505
 
 
Stockholders' equity:
 
Preferred stock, $0.001 par value; 5,000,000 shares authorized and outstanding
-
Common stock, $0.001 par value; 500,000,000 shares authorized; 384,083,631 shares issued and outstanding
384,084
Additional paid-in capital
90,674,766
Unrealized gain/loss on marketable securities
((453,181)
Accumulated Deficit
(89,568,564)
Total Stockholders' Equity
1,037,105
 
 
Total Liabilities and Stockholders' Equity
$ 1,256,610

 

 

The accompanying notes and accountant's report are an integral part of these statements
**Environmental Energy Services, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended September 30, 2005 and 2004

(Unaudited)**

 **Three Months ended September 30
 **2005**2004
 
 
 
Revenues
$ 219,330
$ 294,245
 
 
 
Expenses
 
 
Selling, general and administrative 
193,261
157,666
Depreciation and amortization
16,340
15,556
Total Expenses:
209,601
173,222
 
 
 
Income (Loss) from operations
9,729
121,023
 
 
 
Other income (expense)
 
 
Refund of taxes
-
1,275
Interest income (expense)
90 
-
Litigation settlement
(150,000)
(70,000)
Realized gain (loss) marketable securities
-
(28,582)
 
 
 
Total other income (expense)
(149,910)
(97,307)
 
 
 
Net Income 
$ (140,181)
$ 23,716 
 
 
 
Unrealized Gain (Loss)
66,059
(48,714)
 
 
 
Comprehensive Income (Loss)
$ (74,122) 
$ (24,998)
 
 
 
Earnings per share:
 
 
Basic
$ 0.00
$ 0.00
Diluted
$ 0.00
$ 0.00
 
 
 
Weighted average number of common shares outstanding:
 
 
Basic
384,083,631
356,391,323
Diluted
448,464,631
420,872,324

 

 

The accompanying notes and accountant's report are an integral part of these financial statements.

 

 
**Environmental Energy Services, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Nine Months Ended September 30, 2005 and 2004

(Unaudited)**

 **Nine Months ended September 30
 **2005**2004
 
 
 
Revenues
$ 740,935
$ 732,551
 
 
 
Expenses
 
 
Selling, general and administrative 
478,656
482,422
Depreciation and amortization
49,020
46,668
Total Expenses:
527,676
529,090
 
 
 
Gain (Loss) from operations
213,259
203,461
 
 
 
Other income (expense)
 
 
Refund of taxes
-
1,275
Interest income (expense)
341
-
Litigation settlements 
(214,000)
(70,000)
Realized gain (loss) marketable securities
-
(28,582)
 
 
 
Total other income (expense)
(213,659)
(97,307)
 
 
 
Net Income
$ (400)
$ 106,154
 
 
 
Unrealized Gain (Loss)
2,500
(114,645)
 
 
 
Comprehensive Income
$ 2,100
$ (8,491)
 
 
 
Earnings per share:
 
 
Basic
$ 0.00
$ 0.00
Diluted
$ 0.00
$ 0.00
 
 
 
Weighted average number of common shares outstanding:
 
 
Basic
384,083,631
354,852,862
Diluted
448,528,234
464,254,082

 

The accompanying notes and accountant's report are an integral part of these statements
** 

Environmental Energy Services, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2005 and 2004

(Unaudited)**
 **2005**2004
 
 
 
Cash flow from operating activities:
 
 
Net income (loss)
2,100
(8,491)
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
 
 
Depreciation and amortization
49,020
46,668
Marketable Securities in lieu of cash payment
-
50,000
Gain on settlement of notes payable
-
-
Unrealized gain/loss
(2,500)
114,645
Realized gain/loss
-
28,582
Changes in assets and liabilities:
 
 
Related party advances, net
(42,847)
-
Indemnification payable - related party
50,000
 
Litigation settlement payable
112,500
 
Accounts payable, accrued interest and other liabilities
(2,048)
(18,655)
 
 
 
Net cash provided by (used in) operating activities
166,225
12,749
 
 
 
Cash flow from investing activities:
 
 
Investment in public company
(180,000)
(180,000)
 
 
 
Net cash provided by (used in) investing activities
(180,000)
(180,000)
 
 
 
Cash flows from financing activities:
 ****************