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

                                   FORM 10-KSB

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

                   For the fiscal year ended December 31, 2005

                        Commission File Number: 000-50216

                                  ADA-ES, Inc.
                  --------------------------------------------
                 (Name of small business issuer in its charter)

            Colorado                                  84-1457385
            --------                                  ----------
    (State of incorporation)              (IRS Employer Identification No.)

           8100 SouthPark Way, Unit B, Littleton, Colorado 80120-4525
           ----------------------------------------------------------
          (Address of principal executive offices, including Zip Code)

        (Issuer's telephone number, including area code): (303) 734-1727

                  Securities registered under Section 12(g) of
                               the Exchange Act:

                                 Title of class
                           Common Stock, no par value
                           --------------------------

Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. [__]

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. [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. $ 11,028,000

State the aggregate market value of the voting and non-voting common equity held
by nonaffiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked prices of such common equity, as of a
specified date within the past 60 days. As of March 24, 2006 was $129,654,000.


Number of shares outstanding of registrant's Common Stock, no par value as of
March 24, 2006 - 5,620,040.

DOCUMENTS INCORPORATED BY REFERENCE:
None

Transitional Small Business Disclosure Format:  Yes __ No  X


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PART I

Item 1.  Description of Business

Forward-Looking Statements Found in this Report

This Annual Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 that involve risks and uncertainties.
In particular such forward-looking statements are found in this Part 1 and under
the heading "Management's Discussion and Analysis or Plan of Operation." Words
or phrases such as "anticipates," "believes," "hopes," "expects," "intends,"
"plans" or similar expressions are used in this Report to identify
forward-looking statements, and such forward-looking statements include, but are
not limited to, statements or expectations that (a) we will become a key
supplier of equipment and services to the coal-fired power generation industry
as it seeks to implement reduction of mercury in flue-gases, (b) contracts we
have with the DOE, which generate a significant part of our revenue, will
continue to be funded at expected levels and that we will be chosen to
participate in additional contracts of a similar nature, (c) current
environmental laws and regulations requiring reduction of mercury from
coal-fired boiler flue gases will be upheld and/or strengthened in pending court
proceedings and/or by pending state legislation, and such laws and regulations
will not be materially weakened or repealed by courts or legislation in the
future, (d) we will be able to meet any performance guarantees we make with
respect to levels of mercury reduction from systems that we install, (e) we will
be able to obtain adequate resources and personnel to meet anticipated growth,
(f) we will be able to retain our key business relationships with companies with
which we have established such relationships, (g) orders we anticipate receiving
will in fact be received, (h) the power industry will continue to participate in
mercury abatement test projects, (i) we will continue to be able to meet our
obligations under contracts as required by those contracts, (j) governmental
audits of our performance under DOE contracts will not result in material
adjustments to amounts we have previously received under those contracts, (k) we
will be able to formulate new chemicals and blends that will be useful to, and
accepted by, the coal-fired boiler power generation business, (l) we will be
able to effectively compete against others who may choose to participate in our
areas of business, (m) adequate supplies of coal will be available to power
generators, (n) we will be able to meet any technical requirements of projects
we undertake, (o) we will be able to obtain adequate supplies of the materials
and supplies needed in our business, including activated carbon, (p) our efforts
to market activated carbon sorbents with industry partners will be successful,
(q) our FGC segment will remain attractive to the power generation industry, (r)
our stock price will not be negatively affected by our retaining earnings for
future expansion rather than paying dividends to shareholders and (s) we will
have access to adequate capital to meet our needs. The forward-looking
statements involve risks and uncertainties that could cause actual results to
differ materially from the anticipated results we discuss in this Report. The
principal risks and uncertainties that may affect our actual performance and
results of operations include the following: changes in existing and planned
environmental laws, changes in government funding, loss of key relationships,
technical problems with activated carbon injection systems sold, non-compliance
with guarantees on activated carbon injection systems, decrease in demand for
coal, seasonality of our business, inadequate supply of activated carbon,
inadequate supply of coal, lack of or mismanagement of resources to support
future growth, loss of key personnel, changes in taxation rules or financial
accounting standards, dilution resulting from future sales of common stock, and
lack of dividend payments to shareholders. Other risks and uncertainties may
also affect the outcome of actual performance and results of operations. (See
"Risks Relating to Our Business" and "Risks Relating to Our Common Stock" which
are found later in this part of the Report) You are cautioned not to place undue
reliance on the forward-looking statements made in this Annual Report, and to
consult any later filings we may make with the Securities and Exchange
Commission for additional risks and uncertainties that may apply to our business
and the ownership of our securities.

Abbreviations We Use in this Report

     "ADA-ES," "the Company," "we," "us," or "our" refer to ADA-ES, Inc., a
Colorado corporation, and its consolidated subsidiary. Other abbreviations we
use in this Report include:

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     o    ACI = activated carbon injection
     o    ADA-249M = our patented slag viscosity modifying compound
     o    CEMS = continuous emission monitoring system
     o    DOE = the United States Department of Energy
     o    EPA = United Stated Environmental Protection Agency
     o    EPRI = the Electric Power Research Institute
     o    ESP = electrostatic precipitator
     o    FGC = flue gas conditioning
     o    MEC = mercury emission control
     o    PAC = powdered activated carbon
     o    PRB = Powder River Basin

Business Purpose and Strategy

ADA-ES was incorporated in Colorado in 1997, and develops and implements
proprietary environmental technology and provides specialty chemicals for
coal-fueled power plants to enhance existing air pollution control equipment
while reducing plants' operating costs. We are positioned to capitalize on the
emerging market for mercury emission controls (MEC) through the supply of
powdered activated carbon, injection systems, mercury measurement
instrumentation, and related services. We have established key business
relationships with Arch Coal, Inc., NORIT Americas, ALSTOM Environmental Control
Systems (ECS), and Thermo Electron Corporation. ADA-ES became a "stand-alone"
public company through a "spin-off" from its parent company, Earth Sciences,
Inc. in September 2003.

Our approach to technology development, implementation and commercialization
involves taking technology to full-scale as quickly as we can, and testing and
improving the technology under actual power plant operating conditions. The most
significant benefit of this method is that we begin working early and closely
with power companies to optimize the technology to meet their specific needs.
For example, while some mercury control technologies are being developed in the
isolation of a laboratory without feedback from users, we work on full-scale
mercury control systems that are installed on plants operated by several of the
largest power companies in North America. We assist electric utility companies
to remain competitive while meeting environmental regulations.

Our major activities include sales of equipment, field testing and services
related to the emerging market for mercury emission control ("MEC") for
coal-fired boilers used in electric generation, the sale of flue gas
conditioning ("FGC") equipment and chemicals, and other chemicals and
technologies for such boilers.

Overview of the Last Three Years

During 2003, 2004 and 2005, we (a) substantially increased our MEC business
through government and industry funded field demonstration contract work,
including work under existing and new contracts and a growing number of
commercial activities; (b) maintained our position in the FGC business through
continued chemical sales and service; and (c) continued limited sales of an
anti-slagging product through a joint venture with Arch Coal, Inc. ("Arch
Coal"), which we formed to co-market that product.

In August 2004 and October 2005, we sold shares of our common stock to a limited
number of private investors. We were granted a NASDAQ small cap market listing
shortly after completion of the private share offering in 2004.

Thus far in 2006, we (a) signed contracts for six activated carbon injection
("ACI") systems to be delivered later in 2006 and in 2007, and continued work on
previously-contracted ACI systems, (b) continued work on government- and
industry-supported contracts for field testing, installation and evaluation of
mercury control systems at several sites, (c) prepared for testing at two plants
for which DOE has notified us of their intent to negotiate two new contract
awards, and (d) continued to supply FGC chemicals to several plants and began
preparations to demonstrate FGC technology at two additional plants. We describe
these activities and those in the preceding paragraph in greater detail below.

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Our Business in Detail

Market for Our Products and Services

The primary drivers for many of our services are new environmental regulations
and the deregulation of the utility industry. Environmental regulations, such as
the 1990 Clean Air Act Amendments, the 2005 Clean Air Mercury Rule, various
state regulations and permitting requirements for new power plants, are
requiring utilities to reduce emission of pollutants, such as sulfur dioxide,
nitrogen oxides, and mercury. Mercury regulations at the national and state
levels are expected to require large mercury emission reductions at the nation's
1,100-plus coal-fired units, which emit 48 tons of mercury per year. Early DOE
studies indicate that the cost to control these emissions will be $2-$5 billion
annually. We are positioning ourselves to be a key supplier of equipment and
services to the market that is anticipated to be established by these
regulations. The markets that will be affected by new regulations are the same
ones that we currently operate within. In addition, the systems and products
that are required for mercury controls fit well with our existing products and
capabilities.

In addition to environmental regulations, the coal burning electric power
generation industry is also impacted by the ongoing deregulation of the utility
business. Historically, public utilities have been able to pass capital and
operating costs on to customers through rate adjustments. However with
deregulation, utility companies face competitive challenges requiring them to
better control capital spending and operating costs. These changes increase the
need for cost-effective retrofit technologies that can be used to enhance
existing plant equipment to meet the more stringent emission limits while
burning less expensive coals. We have entered this market with (1) mercury
control technology that has been demonstrated to effectively reduce mercury
emission over a broad range of plant configurations and coal types, (2) our
proprietary chemical conditioner that offers both technical and economic
advantages over the hazardous chemicals that have been and continue to be in
use, and (3) products, such as ADA-249M, that provide utilities flexibility in
choosing the grade of fuel they can burn. The Company has established itself as
a leader in the area of mercury control and has received new orders for
commercial mercury control systems in 2005 and early 2006.

Government and Industry-Supported Contracts
The United States Department of Energy (DOE) issues solicitations from time to
time for various development and demonstration projects. DOE solicitations range
in subject matter, and we submit bids for those solicitations that fit our
mission and strategic plan. The bids involve a proposed statement of work, and
contracts are negotiated with successful bidders to perform the specified work.
The contracts with the DOE are known as Cooperative Agreements and are
considered financial assistance awards. We are participants in four such
agreements and have been notified by DOE of their intention to negotiate two
additional contracts during 2006. Generally, the agreements cover the
development and/or demonstration of air pollution control technologies for
coal-fired power generating plants. The work may involve designing and
fabricating equipment, installing the equipment at power plants, testing the
equipment, preparing economic studies, and preparing various reports. The
deliverables required by the agreements include various technical and financial
reports that we submit on a prescribed schedule. The agreements require us to
perform the negotiated scope of work, which includes testing/demonstrating
various air pollution control technologies. The agreements with the DOE provide
that any inventions we create as a result of the work become our property.

The agreements with DOE generally require industry cost share, which is
considered a key component to the viability of the project and which may take
the form of cash contributions and/or in-kind contributions of material and
services. The industry cost share percentages on the mercury projects in which
we are involved range from 32% to 50%. Typically, the utility host site for the
demonstration project provides a considerable amount of the cost share with
other interested industry partners also providing funding, either individually
or through EPRI (the Electric Power Research Institute). To the extent that the
required cost share is not provided by industry partners or EPRI, ADA-ES
provides the balance by reducing the revenues it would otherwise recognize on
the work performed. We expect the power industry's interest in these and future
projects to continue and grow.

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We are currently participants in DOE and industry contracts totaling $32.3
million, of which $23.2 million represents contracts directly with DOE. These
amounts include cost-share amounts and an anticipated amendment that would
decrease the contract value by $1.1 million. In addition, the two DOE contract
awards in which we are to participate, but which remain to be negotiated in the
first half of 2006, total approximately $7.5 million, including industry
cost-share amounts. We recognized revenues in 2005 and 2004 from these
DOE/industry-funded contracts totaling $4.3 million and $4.2 million,
respectively, which comprised 39% and 49% of our total revenues for those
respective periods. Of these amounts, $2.3 million and $2.4 million in 2005 and
2004, respectively, were revenues directly from DOE. We retain the rights to
commercialize any products we develop under the activities of these contracts.
These contracts are subject to audit and potential adjustment as to amounts
already received. The Company has not been affected materially by adjustments
mandated by government audits; however, government audits for the years 2002
through 2005 have not yet been finalized. These contracts are also subject to
annual appropriation of funds by Congress, and although continued funding is
considered highly probable, we cannot assure you that the government will
continue to approve funding for these contracts in future budgets. Assuming no
changes in funding, future revenues from the contracts in progress and recent
awards total $19.4 million, of which we expect to recognize $6.2 million in
2006.

Commercial Mercury Emissions Control During 2005, we signed contracts for two
activated carbon injection (ACI) systems for mercury emission control, and thus
far in 2006 we signed contracts for six ACI systems. The contracts contain
delivery milestones, which we expect to meet. Certain of the agreements provide
for liquidated damages if we are unable to meet certain delivery obligations,
except for delivery failures that are out of our control. One of the delivery
milestones was met in December 2005. If a customer elects early termination of
an agreement not due to any fault of ours, we will be entitled to reimbursement
for all costs incurred in performing the agreements through the date of
termination, including costs incurred in terminating our performance and costs
incurred to any subcontractors. We are recognizing revenue on these agreements
on the percentage of completion method. These contracts total $7.7 million, of
which $1.7 million was recognized in 2005. We expect revenues of approximately
$5 million from ACI systems in 2006.

The Company has begun to jointly market the sorbents used by the ACI systems to
maximize mercury removal efficiency and minimize costs to the utilities under
its agreement with NORIT Americas, Inc. ("NORIT"). In addition to the eight
systems under contract, we provided engineering, design and ancillary equipment
on a ninth system that is designed to use these sorbents. There can be no
assurance that the Company's ACI system customers will purchase sorbents from
the Company. (See "Key Business Relationships" below)

FGC
We have developed technologies for conditioning flue gas streams from coal-fired
combustion sources that allow existing air pollution control devices to operate
more efficiently. Through various suppliers and contractors, we are able to
manufacture engineered units for each individual application. The units mix,
pump and monitor the feed of proprietary chemical blends. The chemical blends
are applied to the flue gas streams by a pressurized system of specially
designed lances and nozzles. Such treatment of the flue gas stream allows for
more effective collection of fly ash particles that would otherwise escape into
the atmosphere. Our technology also has application in the cement and petroleum
refining industries where particulate emissions are being or need to be
controlled. We are not currently pursuing the non-utility markets aggressively
since the profit margin potential for these customers is considered to be less
since chemical usage is lower.

We currently have three operating FGC units installed at coal-fired utilities in
Illinois, Iowa and Louisiana. Revenues from sales of equipment and chemicals to
FGC customers in 2005 and other FGC contract work totaled $1.9 million. During
2005, one FGC customer discontinued purchases and another company has informed
us that they intend to minimize their chemical purchases in the future. As such,
revenues related to FGC are expected to decrease to approximately $1.2 million
in 2006. We have been awarded contracts to perform demonstrations at two plants
during the first half of 2006. There can be no assurances that the
demonstrations will be successful or that future revenues will result from those
demonstrations.

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ADA-249M
Since 2000, we have produced and sold a specialty chemical, called ADA-249M,
which is designed to save utility companies with cyclone furnaces significant
costs each year through reduced fuel costs, enhanced operational flexibility and
improved marketability of combustion by-products.

ADA-249M is a patented product designed to modify slag viscosity. ADA-249M is a
blend of iron oxides, mineralizers, and flow enhancers that is added to the PRB
coal prior to combustion in order to create the proper slag layer for combustion
within the cyclone barrel. In application at the utility, ADA-249M is conveyed
mechanically from a supply delivered via dump truck to a hopper. From there
ADA-249M is fed by screw and belt conveyors to the coal feeders. The addition of
ADA-249M to the coal results in more coal burning in the cyclone, less carbon in
the fly ash, better precipitator performance, reliable slag tapping, and more
bottom ash to sell. We design and sell the delivery system and the continuing
supply of chemical.

Pursuant to an agreement with Arch Coal Inc. ("Arch Coal"), the second largest
U.S. coal producer, we jointly market ADA-249M to cyclone-fired power plants.
Under the agreement, the Company has granted a non-exclusive, non-transferable
license to the joint venture ("JV") to use ADA-249M in connection with the JV
activities. The JV is controlled by a five-member management committee, three of
whose members are selected by Arch Coal and the remaining members by ADA-ES. The
JV pays us our stated commercial price for all ADA-249M sold, less a discount of
approximately $15 per ton and we receive our commercial rates for any technical
services we provide. ADA-ES and Arch Coal each bear their own costs and expenses
related to any ADA-249M marketing efforts. Arch Coal funds the JV activities,
including equipment needs and retains any net profits. Either party may
terminate the JV upon 60-days written notice if the annually required business
plan is not approved by the parties.

Together, we and Arch Coal provide Arch Coal customers a long-term package of
PRB coal, the ADA-249M chemical and, if needed, the required injection
equipment. This package is intended to enable boiler operators to achieve the
benefits of the ADA-249M fuel additive without making a significant capital
investment. ADA-ES and Arch Coal also handle the logistics of supply and system
maintenance. The DOE does not participate with us in any of our activities
related to ADA-249M. Sales related to ADA-249M are recorded in the Combustion
Additives segment and were $327,000 and $355,000 in 2005 and 2004, respectively.

Key Business Relationships
We have developed key relationships with companies in our industry that are much
larger than us (e.g. ALSTOM Environmental Control Systems ("ALSTOM"), NORIT,
Thermo Electron Corporation ("Thermo"), and Arch Coal), and we have entered into
agreements that define these relationships. Any of these agreements can be
terminated by the passage of time, through notification from the other party or
our failure to obtain a certain share of the market defined in the agreements.
We expect these relationships to bolster the premier position we believe we hold
in the industry, and that this will allow us to participate to an even greater
extent in the large market projected to emerge from regulations to limit mercury
emissions from coal burning power plants. The loss of any of these key
relationships would likely impede our ability to secure the highest achievable
amount of business from the emerging mercury control market. (See the discussion
above under the captions "ADA-249M" and "Commercial Mercury Emissions Control.")

ALSTOM Marketing Agreement. In December 2002 we entered into an exclusive
marketing relationship with ALSTOM, a supplier of equipment to power plants in
North America, to market systems for mercury removal from power plants and other
facilities. In January 2006, we gave notice to ALSTOM of our intent to terminate
that arrangement as of April 2006 as it was not producing the results we
envisioned. We have offered ALSTOM and other similar companies similar
arrangements on a non-exclusive basis, but as of the date of this Report, we
have not entered into such a marketing agreement with ALSTOM or any other
company.

NORIT Market Development Agreement. Since 2001, we (or our former parent
company, Earth Sciences, Inc.) have had a Market Development Agreement with
NORIT to jointly pursue the market for equipment and sorbents to remove mercury
from coal-fired boilers. NORIT is the country's leading supplier of powdered
activated carbon ("PAC"). The goal of the agreement is to jointly develop
mercury control sorbents designed to maximize removal efficiency and minimize
costs. NORIT currently provides PAC and dosing systems for removing mercury from

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flue gas generated from the combustion of municipal and medical solid waste and
hazardous waste. The agreement provides a long-term means for both NORIT and us
to benefit from potential sales of equipment and to participate in the
development of sorbents for this emerging mercury control market. We expect to
establish and further define the parameters for the mutual exclusivity this year
after the likely market becomes clearer after evaluation of the recently issued
(March 2005) EPA regulations.

Under the terms of the agreement with NORIT:

     o    the target market is defined as North American coal-fired utilities;
     o    we are responsible for
          o    sorbent identification, technical and economic ranking and
               demonstration testing
          o    market development and sales coverage
          o    equipment contract negotiation, project execution and
               installation supervision;
     o    NORIT is responsible for manufacture and/or supply of sorbents and the
          equipment dosing systems;
     o    we will represent NORIT exclusively in the defined market, subject to
          meeting performance requirements;
     o    in order for ADA-ES to maintain its exclusive representation of NORIT,
          at least 50% of the market users during the 2004 to 2007 period must
          be supplied by NORIT; in periods beyond those dates, annual minimum
          sales targets are to be mutually agreed upon;
     o    for NORIT to maintain exclusivity, it must supply sorbents at prices
          and in quantities to meet the market demand and ADA-ES sales targets;
     o    we will earn a commission of 10% on sorbent sales and 5% on equipment
          sales, which commissions continue even if we fail to maintain our
          exclusivity through failure to meet the performance requirements; and
     o    the parties agree to renew or renegotiate the agreement in good faith
          during the period when regulations requiring mercury emission controls
          are being reviewed, which the parties estimate will be in 2006.

We recognized revenue of $39,000 from the market development agreement with
NORIT in 2005. We expect revenues under the joint marketing agreement to
increase in the future as ACI systems currently under contract and future ACI
system sales are installed and become operational. However, the timeframe
between award of the contract and commercial operation of the systems when
sorbent use becomes routine may be as long as two years. We cannot assure you
that our ACI system customers will purchase sorbents from us in the near future,
if at all.

Cooperative Agreement with Thermo Electron Corporation. In April of 2004 we
entered into a cooperative agreement with Thermo to develop a continuous
emission monitoring system ("CEMS") for the measurement of mercury in flue gas.
Under this agreement, Thermo, the leading supplier of stack gas monitors to the
U.S. power generation market, designed and manufactured the mercury CEMS. We
conducted extensive field validation prior to the product's commercialization in
late 2005, and we continue to test and provide feedback regarding the CEMS. The
Federal legislation for reducing power plant mercury emissions, which is being
litigated by several states and environmental groups, has generated the need for
enhanced flue gas mercury removal technology and the associated requirement to
validate its performance via continuous emission monitoring. This challenging
monitoring application requires extensive field studies under a broad range of
flue gas matrices and operating conditions. The arrangement with Thermo provides
a unique opportunity to accelerate the evaluation of sorbent injection based
mercury removal systems and concurrently demonstrate the suitability of Thermo's
mercury CEMS.

Under the terms of the agreement with Thermo:
     o    Thermo is responsible for design of hardware, firmware software and
          overall product development as well as manufacture of commercial
          versions of the CEMS;
     o    we are responsible for field validation and performance feedback and,
          during 2004 and 2005 paid Thermo $168,000 and $271,000, respectively,
          for technical services and hardware;
     o    activities under the Cooperative Agreement were completed in May 2005,
          although we continue to test and provide feedback on the CEMS, and
          Thermo is now manufacturing, marketing and selling mercury CEMS and
          ADA-ES has the ability to purchase from Thermo all its requirements
          for mercury CEMS;
     o    under a separate distribution arrangement, ADA-ES may sell the Thermo
          CEMS only in conjunction with our mercury control technology and will
          receive a 25% discount from Thermo's published price list; and

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     o    either party may terminate the distribution arrangement upon 120 days
          written notice to the other party.

Other Consulting Services
ADA-ES also offers consulting services to assist utilities in planning and
implementing strategies to meet new government emission standards requiring
reductions in sulfur dioxide, nitrogen oxide, particulates and mercury. ADA-ES
is also developing and testing new chemical blends expected to aid coal-burning
utilities in the variety of problems that may be encountered in switching to
lower cost coals. We received funding for a portion of the development and
testing activities from an industry partner that has a strategic interest in the
technology. Total revenues from other consulting services approximated $3
million in 2005, most of which related to the mercury emission control segment.

Competition

The commercial mercury control market for existing coal-fired electric utilities
is beginning to emerge as a result of the enactment of state and federal
regulations that for the first time in U.S. history are requiring such utilities
to control their mercury emissions. We estimate that there are approximately
1,100 individual units (several may be located on one site) in excess of 25
megawatts of generating capacity that could be impacted by these regulations.
Regulations currently exist that require new coal-fired plants to control
mercury emissions. Through 2005, our mercury control technology has been
demonstrated on a full scale at 22 plants, yielding over 90% mercury control on
most applications. We have responded to over 150 bid requests for activated
carbon injection systems, 30 of which we believe are likely to proceed to orders
between now and 2008, and all are required to achieve mercury capture of at
least 80%. The capital equipment expected to be required by those 30 units
amounts to approximately $30 million, and the annual sorbent requirements of
these units are estimated to total approximately $30 million. We are aware of
other companies, including Babcock Power, Wheelabrator and Sorbent Technologies,
that have responded to requests for commercial bids of mercury control systems.
As this market matures, we expect competition will continue to increase,
primarily in the sorbent supply arena (activated carbon or other). See the
discussion above under the caption "Market for Our Products and Services."

Our primary competition in the FGC arena is conventional FGC technology using
either sulfur trioxide or a combination of sulfur trioxide and ammonia. This
technology has been available commercially since the 1970's and is offered by
Chemithon Engineers Ltd., Wahlco, Inc. and Benetech in a variety of forms.
Conditioning of fly ash by injecting small amounts of sulfur trioxide into the
flue gas is a well-proven technique for improving performance of the
electrostatic precipitator (ESP). Sulfur trioxide conditioning loses its
effectiveness in application with temperatures over 350 degrees F. The capital
costs of conventional FGC technology are in excess of $1 million. Injection of
water mist into the flue gas stream is also a known technique for improving
performance of the ESP in certain applications and is offered by EnviroCare,
Inc. The capital cost of a water injection system is typically $200,000-300,000.
A typical ADA-ES system costs between $300,000-600,000. We have also introduced
a product shown to be effective in the 300-750 degree range that is suitable for
intermittent application and can augment a sulfur trioxide system and help to
avoid use of ammonia. The competitive advantages of our FGC technology include
an effective temperature range of 300 to 900 degrees F; a simple injection
system; a non-toxic conditioner that will not become a secondary pollutant; and
chemicals that are safer and easier to handle on site. The different products in
the industry which aid ESP performance primarily compete on the basis of
performance and price. We usually arrange for a full-scale demonstration of our
products to potential customers prior to selling our systems and chemicals for
use on a continual basis.

With respect to ADA-249M, there are no major barriers to use of our products in
the market, however, utility companies are generally slow to embrace new
technologies when they perceive any potential for disruption in the production
of electricity. Potential competition for this product may be magnetite, iron
ore and coal blends. Even though there is currently no significant competition,
the market for this product has been slow to emerge.

Patents
We have received eight patents related to different aspects of our technology.
The Company's patents have terms of 20 years measured from the application date,
the earliest of which was in 1995. We continue to improve our products, and

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patent applications for additional products have been submitted. Although
important to protect our continuing business, we do not consider any of such
patents to be critical to the ongoing conduct of our business.

Supply of Chemical for Our Customers
We typically negotiate blending contracts that include secrecy agreements with
chemical suppliers located near major customers. These arrangements minimize
transportation costs while assuring continuous supply of ADA-ES proprietary
chemical blends. We have operated under these arrangements since the spring of
1999. They are generally renewed on an annual basis. Supply of activated carbon
to our customers is handled through, NORIT as discussed above.

Raw Materials and Contract Installation
We purchase equipment from a variety of vendors including, NORIT, for the
engineered ACI systems, components and other equipment we manufacture and/or
provide. Such equipment is available from numerous sources. We typically
subcontract the major portion of the construction labor associated with
installation of such equipment, again from a variety of vendors, usually those
located near the site of the work. We purchase our proprietary FGC and ADA-249M
chemicals through negotiated blending contracts with chemical suppliers
generally located near each major customer. The chemicals used are readily
available, and there are several chemical suppliers that can provide us with our
requirements. We have an exclusive business relationship with NORIT for the
marketing and supply of activated carbon used for mercury control at coal-fired
power plants, as described above. Although competition for mercury control
sorbents is emerging, the NORIT activated carbons have been the most thoroughly
tested materials within the U.S. power generation industry.

Seasonality of Activities
The sale of FGC chemicals is dependent on the operations of the utilities to
which such chemicals are provided. Our FGC customers routinely schedule
maintenance outages in the spring of each year. During the period of such
outages, which may range from two weeks to over a month, no FGC chemicals are
used and purchases from us are correspondingly reduced. The other aspects of our
business are not seasonal in any material way.

Dependence on Major Customers
During 2005, we recognized 39% of our revenue from services provided directly or
as a subcontractor under contracts to the U.S. government and industry as
discussed above under "Government and Industry-Supported Contracts", involving
mercury control systems. (See also Notes 4 and 7 to the Consolidated Financial
Statements included elsewhere in this Report). In 2005, we regularly supplied
chemical, equipment and services to 3 FGC customers. We recognized 5% of our
revenue from MidAmerican Energy Co. in Iowa, 7% from Dynegy in Illinois, and 6%
from Cleco Utility Group, Inc. in Louisiana. Also, in 2004 we sold an activated
carbon injection system to a utility and provided services as they utilized that
system to evaluate their future needs for mercury emission control. Revenue
related to that sale and provision of services represented 13% of our revenue in
2005. ADA-ES' own sales staff markets our technology through trade shows,
mailings and direct contact with potential customers.

Research and Development Activities
The Company is involved in several R&D contracts funded by DOE and industry
groups, primarily directed toward the control of mercury emissions. The Company
cost shares in many of those contracts. For 2005 and 2004 our direct cost share
of R&D in our DOE related contracts approximated $273,000 and $348,000,
respectively. In addition, we spent approximately $704,000 and $467,000 on our
own behalf on research and development activities related to further development
of our technologies during 2005 and 2004, respectively.

Employees
As of December 31, 2005 we employed a total of 32 full-time personnel. Included
in this number are 28 people employed at our offices in Littleton, Colorado, 2
in Alabama, 1 in Pennsylvania and 1 in Maryland. In addition, other personnel
were employed on a contract basis for specific project tasks during the year.

                                       8
<PAGE>


RISKS RELATING TO OUR BUSINESS

IF EXISTING AND PLANNED ENVIRONMENTAL LAWS ARE RESCINDED OR SUBSTANTIALLY
CHANGED, OUR BUSINESS WOULD BE ADVERSELY AFFECTED A significant market driver
for our existing products and services, and those planned in the future, are the
environmental laws that limit emissions from power plants. In the event that
such laws were rescinded or substantially changed, our business would be
adversely affected by declining demand for such products and services. Demand
for the Company's FGC and ADA 249M products is primarily two-fold. Customers
purchase these products to mitigate operating problems and/or to help comply
with environmental regulations such as the Clean Air Act Amendments of 1990.
Although the Company's existing customers and those expected in the near-term
are believed to desire the Company's products for mitigation of operating
problems, we would anticipate that any softening of existing air pollution
control requirements would slow expected growth for these products. Demand for
the Company's mercury emission control ("MEC") technology is being driven almost
exclusively by legislation requiring such control. Mercury has been identified
as a toxic substance and pursuant to a court order the EPA issued the Clean Air
Mercury Rule ("CAMR") for its control in March 2005. CAMR is being contested by
as many as fourteen different states and four environmental groups for its
failure to meet court-mandated standards. In response to the uncertainty
surrounding CAMR, several states have passed, or are expected to pass,
legislation requiring such control including, Connecticut, New Hampshire, New
Jersey, Massachusetts, North Carolina, Wisconsin and Pennsylvania.

Following widespread disappointment and legal challenges to CAMR, in November
2005 the State and Territorial Air Pollution Program Administrators and the
Association of Local Air Pollution Control Officials (STAPPA/ALAPCO), the two
national associations of air pollution control agencies throughout the United
States, have developed a model rule entitled, "Mercury from Power Plants: A
Model Rule for States and Localities" in response to concern that EPA's CAMR was
inconsistent with the requirements of the Clean Air Act and would not result in
adequate reductions in emissions of mercury from coal-fired power plants to
protect public health. The STAPPA/ALAPCO model rule provides state and local
governments with the tools needed to obtain reductions in mercury emissions
necessary to meet the requirements of the Clean Air Act. Specifically, the model
describes two options for state and local governments that wish to develop
utility mercury rules that are more protective of public health and the
environment than EPA's regulation, and contains model rule language for both.
The phased timing proposed in the model rule allows power generators to consider
mercury specific control technologies, or alternatively, control technologies
that reduce mercury as an added benefit when reducing other air pollution
emissions. The model rule provides compliance options using two phases, the use
of annual rolling averages, and averaging of emissions across sources at a
facility; and may well provide the flexibility to prevent any threat to a
source's ability to continue to generate power. As compared with either maximum
achievable control technology (MACT) regulation, or CAMR, we believe the
STAPPA/ALAPCO model rule better reflects the capabilities of mercury control
technologies that are commercially available today and gives power generators
options in selecting the most cost effective approach for each plant.

The impact of various state and federal regulations on the future of our
business, and the long-term growth of the MEC market for the electric utility
industry will most likely depend on the final outcome of the CAMR court action
and how industry chooses to respond to final CAMR and other state regulations,
which are in various stages of enactment. As many as 1,100 existing coal-fired
boilers may be affected by such regulations when they are fully implemented.
Permitting of new coal-fired plants generally requires them to meet more
stringent requirements that likely include MEC. For the near-term, our revenues
from this market will depend on (i) DOE- and industry-funded contracts, (ii)
mercury testing services and (iii) equipment sales and commissions on sorbents
sold to new plants and existing plants affected by the implementation of enacted
regulations. We do not expect significant revenue growth unless and until
federal regulations and/or state regulations impact a significant portion of
existing boilers. Delays in or derailment of the passage of state mercury
control legislation, or undue delay in resolution of the CAMR court action,
would be likely to impede the expected growth of the Company.

IF THE DEPARTMENT OF ENERGY (DOE) DISCONTINUES FUNDING OF EXISTING AND PLANNED
CLEAN COAL TECHNOLOGY PROGRAMS, OUR BUSINESS WOULD BE HARMED In 2005, 2004 and
2003, 39%, 49% and 45%, respectively of our revenues were derived from or
related to DOE programs. Our revenues from government contracts would be
adversely impacted by any material decrease in funding for the projects in which

                                       9

<PAGE>


we are involved. In addition, we look to the DOE funding as a significant means
to further develop our technology and intellectual property in the areas of
mercury emissions control and flue gas conditioning additives covered by that
funding. Any material decrease in funding for the projects in which we are
involved would hamper the development of our technology and intellectual
property as it does not appear that we could currently fund the same level of
development work apart from the DOE.


THE LOSS OF KEY RELATIONSHIPS WOULD ADVERSELY AFFECT OUR SALES AND FINANCIAL
CONDITION
We have developed key industry relationships with companies much larger than
ourselves (e.g., NORIT, ALSTOM, Thermo and Arch Coal). Subject to the terms of
those agreements, the relationships may be terminated by the passage of time,
through notification from the other party or failure of the Company to obtain a
certain market share of activated carbon sales. We believe these relationships
bolster our position in the market to limit mercury emissions from coal-fueled
power plants. The loss of these relationships could impede our ability to secure
business from that market.

TECHNICAL OR OPERATIONAL PROBLEMS WITH THE ACTIVATED CARBON INJECTION SYSTEMS
COULD RESULT IN DELAYS THAT ADVERSELY AFFECT OUR FINANCIAL CONDITION Our
activated carbon injection (ACI) systems have been demonstrated for several
months at certain power plants and are starting to be installed on a permanent
basis for the first time. We cannot assure you that there will be not be
technical or operational problems with our ACI systems. Any such problems could
result in delays in, or postponement or cancellation of, expected installations
at power plants, and would likely have a material adverse effect on our
business.

EFFECT OF ISSUING PERFORMANCE GUARANTEES FOR COMMERCIAL ACTIVATED CARBON
INJECTION SYSTEMS IS UNKNOWN AND COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION
The market for commercial ACI systems to control mercury emissions is emerging
as state and federal regulations are being formulated and finalized. Performance
guarantees have been and will likely continue to be an integral part of
successful sales. Such guarantees typically require levels of mercury removal
efficiency based on stated injection rates of a specified or approved activated
carbon given other operating parameters, including the nature of the coal
burned. Provisions of such guarantees generally require us to spend amounts up
to the value of the sales contract to "make right" the performance of the ACI,
if the guaranteed level of performance is not achieved. Any substantial payments
under such guarantees would have an adverse effect on our financial condition
and our ability to generate future sales.

ANY DECREASE IN THE USE OF COAL OR INCREASE IN THE USE OF ALTERNATIVE ENERGY
SOURCES BY ELECTRIC UTILITY COMPANIES COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION AND BUSINESS Our business depends substantially on providing air
pollution and operating cost solutions to coal-fueled power plants. If the
demand for coal declines as a result of increases in the use of alternative
fuels or alternative energy sources, technological developments or general
economic conditions, the Company's financial condition and business could be
materially adversely affected.

OUR FINANCIAL RESULTS MAY FLUCTUATE AS A RESULT OF SEASONALITY AND OTHER
FACTORS, INCLUDING THE DEMAND FOR ENVIRONMENTAL TECHNOLOGY AND SPECIALTY
CHEMICALS, WHICH MAKES IT DIFFICULT TO PREDICT OUR FUTURE PERFORMANCE The sale
of FGC chemicals is dependent on the operations of the utilities to which such
chemicals are provided. Our FGC customers routinely schedule maintenance outages
in the spring of each year. During the period of such outages, which may range
from two weeks to over a month, no FGC chemicals are used and purchases from us
are correspondingly reduced. The other aspects of our business are not seasonal
in any material way.

                                       10

<PAGE>


INADEQUATE SUPPLIES OF ACTIVATED CARBON COULD ADVERSELY AFFECT OUR PROFITABILITY
We expect the demand for activated carbon to increase as power plants begin to
use ACI systems to control mercury emissions. If the production of activated
carbon, which is outside our control, does not increase to meet the increased
demand, the inadequate supplies of activated carbon could harm our results of
operations and business.

INADEQUATE SUPPLIES OF COAL COULD ADVERSELY AFFECT OUR PROFITABILITY Our
profitability depends on working with coal-fueled power plants. If economically
recoverable coal reserves are not available or if coal cannot be readily
supplied to power plants because of transportation, labor or other issues, such
unavailability could adversely affect our profitability and impede the growth of
our business.

WE ARE AN EMERGING COMPANY IN A NEW INDUSTRY, WHICH ENTAILS RISKS THAT COULD
IMPAIR OUR BUSINESS
We intend to pursue a growth strategy for the foreseeable future by expanding
our environmental technology/specialty chemicals business into the emerging MEC
market. We anticipate that future operations will place a strain on management,
information systems and other resources. We must attract and integrate new
personnel, improve existing procedures and controls and implement new ones to
support future growth. Any inability to meet our future hiring needs and to
adapt our procedures and controls accordingly could have a material adverse
effect on our results of operations, financial condition and business prospects.
In addition, if we make strategic acquisitions, we must successfully integrate
the acquired operations in a timely manner. We cannot assure you that we will be
able to manage expected growth, and our inability to do so could materially
adversely affect our results of operations and business.

WE DEPEND ON KEY PERSONNEL
We depend on the performance of our senior management team -- including Jonathan
Barr, C. Jean Bustard, Dr. Michael Durham, Mark McKinnies, Rich Miller and
Richard Schlager, and their direct reports and other key employees, particularly
highly skilled engineers. Our success depends on our ability to attract, retain
and motivate these individuals. Our agreements with employees are not binding
and do not prevent them from leaving our company at any time. We compete heavily
for these personnel. In addition, we do not maintain key person life insurance
on any of our employees. The loss of the services of any of our key employees or
our failure to attract, retain and motivate key employees could harm our
business.

MATERIAL ADJUSTMENTS PURSUANT TO DOE AUDITS OF OUR PAST PERFORMANCE COULD HAVE A
DETRIMENTAL IMPACT ON OUR BUSINESS We have participated in five contracts
awarded by the U.S. Department of Energy (DOE) and industry that are subject to
adjustment as a result of government audits. These contracts contributed a total
of $4.3 million and $4.2 million to revenues in 2005 and 2004, respectively, of
which $2.3 million and $2.4 million, respectively, were directly from DOE.
Including two contracts that are anticipated to be negotiated in 2006, the total
approved budgets for these contracts combined are $39.8 million, $10.0 million
of which is the cost-share portion for us and our industry partners. The
remaining unearned amount of the contracts was $19.4 million as of December 31,
2005, and we expect to recognize $6.2 million in 2006 (including cash
contributions by other industry partners). Our historical experience with these
audits has not resulted in significant adverse adjustments to amounts previously
received, however the audits for the years 2002 through 2005 have not been
finalized. If audits for open years were to require us to repay material
amounts, our results of operations and business would likely suffer material
adverse impacts.

CHANGES IN TAXATION RULES OR FINANCIAL ACCOUNTING STANDARDS COULD ADVERSELY
AFFECT OUR RESULTS OF OPERATIONS
Changes in taxation rules and accounting pronouncements (and changes in
interpretations of accounting pronouncements) have occurred and may occur in the
future. A change in existing taxation rules or accounting standards could have
an adverse effect on our reported results of operations.

                                       11

<PAGE>


RISKS RELATING TO OUR COMMON STOCK

A SIGNIFICANT PORTION OF OUR OUTSTANDING SHARES OF COMMON STOCK MAY BE SOLD IN
THE PUBLIC MARKET, WHICH COULD LOWER THE MARKET PRICE OF OUR STOCK As of
December 31, 2005, we had 5,610,267 shares of common stock issued and
outstanding. We sold 789,089 shares of common stock in a private placement
offering in October, 2005, and those shares are currently restricted from resale
in the public market. We filed a registration statement with the U.S. Securities
and Exchange Commission (SEC) in January, 2006 to register these shares for
resale to the public. It is expected that the registration statement will become
effective with the SEC shortly, at which time the shares may be sold into the
public market. Sales of substantial amounts of our common stock, or the
perception that such sales will occur, may have a material adverse effect on our
stock price.


THE ISSUANCE OF ADDITIONAL SECURITIES IN THE FUTURE COULD HARM THE BOOK VALUE OF
THE OUTSTANDING SHARES OF COMMON STOCK To the extent our future funding
requirements dictate the issuance of convertible securities, preferred stock or
debt instruments having liquidation, dividend and other preferences and
priorities over those of our common stock, the shares of common stock may suffer
a decline in book value. Subject to requirements of our NASDAQ Stock Market
listing, our Board of Directors has the authority to offer and sell additional
securities without the vote of or notice to existing shareholders. It is likely
that additional securities may be issued to provide future financing or in
connection with acquisitions. The issuance of additional securities could dilute
the percentage interests and per share book value of existing shareholders, and
have a detrimental impact on the market for our common stock.

LACK OF EXPECTED DIVIDENDS MAY MAKE OUR STOCK LESS ATTRACTIVE AS AN INVESTMENT
We intend to retain all future earnings for use in the development of our
business. We do not anticipate paying any cash dividends on our common stock in
the foreseeable future. Generally stocks which pay regular dividends command
higher market trading prices, and so our stock price may be lower as a result of
our dividend policy.

Item 2.  Description of Property.

Office Leases
We lease approximately 12,000 square feet of combined office and warehouse space
in Littleton, Colorado, a suburb of Denver. The term of the lease runs through
2009 and the lease agreement has an option to extend the term. In March 2006, we
entered into a one-year lease for 440 square feet of office space in Columbia,
Maryland, which includes an option to renew. While our total current leased
space is sufficient for our immediate needs, we may require additional space as
our personnel levels increase to support growth. We believe that sufficient
space is available at reasonable rates in areas where we do business. We do not
own any real property, but lease all of our office facilities. Future annual
lease costs amount to approximately $170,000.

Item 3.  Legal Proceedings.

There are no reportable pending legal proceedings involving the Company or our
subsidiary.

Item 4.  Submission of Matters to a Vote of Security Holders.
None.


PART II

Item 5. Market for Common Equity, Related Stockholder Matters and Purchases of
Equity Securities by the Company and Affiliated Purchasers

Market for Common Equity and Related Stockholder Matters

(a) Market Information.

                                       12

<PAGE>


Registrant's common stock commenced trading on the NASDAQ Capital (formerly
SmallCap) Market on October 14, 2004 under the symbol ADES. Prior to such time,
trading occurred on the OTCBB market commencing on October 22, 2003. During 2005
and 2004 closing price ranges were as follows:
<TABLE>
<CAPTION>

                                       2005                              2004
                             -------------------------          ------------------------
                                High            Low                High           Low
                             ----------      ---------          ---------      ---------

<S>    <C>                      <C>            <C>              <C>            <C>
       1st Quarter              $31.38         $22.40           $  9.75        $  6.60
       2nd Quarter              $25.22         $13.51           $  9.50        $  7.51
       3rd Quarter              $24.00         $14.55           $ 14.40        $  8.25
       4th Quarter              $20.50         $14.40           $ 28.21        $ 12.80
</TABLE>


The price ranges shown in the above table are based on NASDAQ quoted sales
prices for all of 2005 and the fourth quarter of 2004, and OTCBB bid prices for
the first three quarters of 2004. The sale prices may reflect inter-dealer
prices, without retail mark-up, markdown or commission and may not represent
actual transactions.

(b) Holders.
The number of record holders of our common stock as of December 31, 2005 was
approximately 1,693; the approximate number of beneficial shareholders is
estimated at 8,000.

(c) Dividends.
We have not paid dividends since inception and we have no plans for paying
dividends in the foreseeable future.

(d) Securities authorized for issuance under equity compensation plans. The
disclosure required by this Item is included under Item 11 of this Report.

RECENT SALES OF UNREGISTERED SECURITIES
In October 2005, we entered into several Subscription and Investment Agreements
and privately sold 789,089 shares of our common stock to a limited number of
institutional investors at a price of $17.00 per share. Net proceeds from the
sales totaled approximately $12.5 million. Pritchard and Adams Harkness, Inc.
acted as the placement agents for the sales and received a fee of approximately
6% of the gross proceeds of the offering, as well as reimbursement for certain
offering expenses. The shares were issued pursuant to the exemption from
registration contained in Section 4(2) of the Securities Act of 1933, as amended
(the "1933 Act") and SEC Rule 506 of Regulation D, for offerings of securities
not involving a public offering. The shares were issued as "restricted
securities" in accordance with investment representations provided by the
purchasers, and may not be offered or sold in the United States except pursuant
to an effective registration statement or an applicable exemption from the
registration requirements of the 1933 Act. We agreed to file a registration
statement within 90 days covering resale of the shares by the private placement
investors, and a registration statement was initially filed on January 17, 2006
and subsequently amended, but is not yet effective. The shares also were granted
certain "piggy-back" and other registration rights. Most of the proceeds from
the offering have been invested in collateralized interest-bearing term
deposits.

In August 2004, we entered into several Subscription and Investment Agreements
and privately sold one million shares of our common stock to a limited number of
institutional investors at a price of $8.00 per share. Net proceeds from the
sales totaled $7,620,000. A detailed description of the transaction is set forth
in our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004.
The shares were issued pursuant to the exemptions from registration contained in
Section 4(2) of the 1933 Act, and SEC Rule 506 of Regulation D for transactions
sales of securities not involving a public offering. The shares were issued as
"restricted securities" in accordance with investment representations provided
by the purchasers, and could not be offered or sold in the United States except
pursuant to an effective registration statement or an applicable exemption from
the registration requirements of the Securities Act of 1933. We registered the
shares for resale to the public by the selling shareholders in a registration
statement that was filed in October, 2004, and which is presently effective.

In 2003 we sold securities to Arch Coal consisting of the Company's $300,000
convertible debenture, which we sold for $300,000, and 137,741 shares of our
common stock, which we sold for $1 million, or $7.26 per share. A detailed

                                       13

<PAGE>


description of the transaction is included in our Annual Report on Form 10-KSB
for the fiscal year ended December 31, 2003. No commissions or other
underwriting discounts were paid in conjunction with the transaction. The
debenture and the shares were issued pursuant to the exemption from registration
contained in Section 4(2) of the 1933 Act for offerings of securities not
involving a public offering. The securities were issued as "restricted
securities" in accordance with investment representations provided by the
purchasers, and could not be offered or sold in the United States except
pursuant to an effective registration statement or an applicable exemption from
the registration requirements of the 1933 Act. We paid off the debenture in
2004, and registered the shares for resale to the public by Arch Coal in a
registration statement that was filed in October, 2004 and which is presently
effective.

Purchases of Equity Securities by the Company and Affiliated Purchasers

Neither we nor any "affiliated purchaser," as defined in SEC Rule 10b-18(a)(3),
purchased any of our equity securities during the year ended December 31, 2005.

Item 6. Management's Discussion and Analysis or Plan of Operation.

OVERVIEW
The Company provides environmental technologies and specialty chemicals to the
coal-burning electric utility industry. Revenues are generated through (1) fixed
price and time and materials contracts for the emerging mercury emission control
(MEC) market, several of which are co-funded by government and industry, (2) the
sale of specialty chemicals and services for flue gas conditioning (FGC), and
(3) the sale of combustion additives (CA) chemicals and services, primarily
ADA-249M through a joint venture with Arch Coal.

Mercury has been identified as a toxic substance and pursuant to a court order
the EPA issued regulations for its control in March 2005. We are evaluating the
impact of those regulations on the future of our business, and the long-term
growth of the MEC market for the electric utility industry will most likely be
dependent on the impact of those federal and/or state regulations, which are in
various stages of enactment and challenge in the courts. As many as 1,100
existing coal-fired boilers may be affected by such regulations, if and when
they are fully implemented. Permitting of new coal-fired plants generally
requires them to meet more stringent requirements that likely include MEC. For
the near-term, our revenues from this market will be dependent on (i) DOE- and
industry-funded contracts discussed above, (ii) mercury testing services and
(iii) equipment sales and commissions on sorbents sold to new plants and
existing plants affected by the implementation of enacted regulations. Although
we expect this market to show steady growth over the next several years, more
significant revenue growth is anticipated when federal (and possible state)
regulations impact a significant portion of existing boilers.

The market for our FGC chemicals and services is relatively flat and is expected
to decline in the near-term. Margins on these products are typically higher than
what we recognize for our present MEC sales and represent an important
contribution to the overall profitability of the Company. While we were awarded
two contracts for FGC demonstration projects beginning in the first half of
2006, we cannot assure you that the demonstrations will be successful or will
result in future revenues. In spite of several successful demonstrations, market
acceptance for our CA products has not grown as previously expected. If we are
unable to achieve significant continuing sales to new customers, thereby
promoting additional sales to other customers in the future, this segment of our
business may decline further.

In August 2004 we entered into several Subscription and Investment Agreements
and privately sold one million shares of our common stock to a limited number of
institutional investors at a price of $8.00 per share. The net proceeds to us
from the sales totaled $7,620,000. Pritchard Capital Partners LLP acted as the
placement agent for the sales and received a fee of approximately 5% of the
gross offering proceeds. Approximately $551,000 of the proceeds were utilized to
pay off long-term debt. Approximately $7 million of the proceeds have been
invested in highly-rated corporate and government bonds and low-risk growth
equities. We registered the shares for resale by the purchasers under the
Securities Act of 1933 in October, 2004.

In October 2005, we entered into several Subscription and Investment Agreements
and privately sold 789,089 shares of our common stock to a limited number of
institutional accredited investors at a price of $17.00 per share. We received

                                       14

<PAGE>


net proceeds of approximately $12.5 million from the sale of the shares.
Pritchard Capital Partners LLP and Adams Harkness, Inc. acted as the placement
agents for the sales and received a fee of approximately 6% of the gross
proceeds of the offering, as well as reimbursement for certain offering
expenses. The shares were issued as "restricted securities" and may not be
offered or sold in the United States, except pursuant to an effective
registration statement or an applicable exemption from the registration
requirements of the Securities Act of 1933. We filed a registration statement to
allow the resale of the shares by the private placement investors in January of
2006, and although that registration is not yet effective, we expect it to
become effective to allow the selling shareholders to sell the shares in the
near term. The shares also carry certain "piggy-back" and other registration
rights. A majority of the proceeds from the offering have been invested in
collateralized interest-bearing term deposits.

Liquidity and Capital Resources
We had a positive working capital of $17.0 million at December 31, 2005. This is
an increase of $13.8 million during the year, primarily due to the sale of the
Company's shares in the private placement offering described above. In addition,
we have long-term investments in securities, accounted for as
"available-for-sale" investments, that amount to approximately $5.7 million. We
intend to retain a portion of these investments to demonstrate strength in our
financial position to support guarantees we expect to be required to provide on
future sales of activated carbon systems, and use a portion to fund growth of
the Company, which may include expansion of product offerings and strategic
acquisitions. We believe that existing and expected future working capital,
which we expect to come from positive cash flow, will be sufficient to meet the
anticipated needs of the Company in 2006. However, we cannot be certain that
positive cash flow that we have achieved historically will continue, and it is
possible that we could be required to expend some of our current working capital
to fund operations, although we consider this unlikely.

Our principal source of liquidity is our existing working capital and positive
operating cash flow. The continuation of positive cash flow is somewhat
dependent upon the continuation of chemical sales and operations of the flue gas
conditioning (FGC) units currently in-place in Illinois, Louisiana and Iowa.
Each of these units provided an average monthly cash flow of approximately
$30,000 in 2005, however one customer has notified us of their intent to
minimize purchases in the future. Although we have been awarded a contract to
perform two demonstration projects at other plants beginning in the first half
of 2006, we are not certain that the demonstrations will be successful or will
result in future sales of FGC equipment and chemicals. Unsatisfactory results
for any of our FGC customers, which could be caused by a single factor (or some
combination of factors) such as changes in coal, mechanical difficulties
(whether in the FGC unit or otherwise), and/or overall cost/benefit analysis, at
any of those units, are likely to result in a decrease or termination of the
sale of chemicals for such units and a reduction in the cash flow we have
historically received, thereby reducing that portion of our liquidity that has
been provided by positive cash flow.

The Company is performing services under four DOE and industry co-funded
contracts and has been notified by DOE of its intention to negotiate the final
terms of two additional contracts in spring 2006. Assuming no changes in
government funding, we expect to recognize remaining revenue on the in-progress
and new awards totaling $19.4 million, of which $6.2 million is expected to be
recognized in 2006. If further funding were not approved, the Company would
decrease or cease activities on those contracts and would expect to maintain a
positive cash flow but at a reduced level.

We paid off all of our term debt during the third quarter of 2004 in an effort
to reduce interest expense. We have planned capital expenditures to sustain and
improve ongoing operations for 2006 estimated at $395,000. We expect to fund
these requirements out of existing working capital and cash flow from
operations.

Under our defined contribution and 401(k) plan, we match up to 5% of salary
amounts deferred by employees in the Plan and contribute certain amounts based
on the profits of the Company. During 2005 and 2004, we recognized $98,000 and
$81,000, respectively of matching expense; this expense is expected to amount to
approximately $123,000 in 2006. Based on results for 2005 and 2004, an
additional $108,000 and $80,000, respectively, were paid to the plan for profit
sharing to the accounts of all eligible employees in February 2006 and 2005,
respectively.

                                       15

<PAGE>


We have recorded net deferred tax assets of $340,000 as of December 31, 2005.
Based on existing R&D contracts supported by the DOE, the current industry and
regulatory environment and other expectations of continuing work, the Company
has determined that it is more probable than not that those deferred tax assets
will be realized in the future.

Cash flow provided from operations totaled $1,209,000 for 2005 compared to
$831,000 for 2004, which is an increase of 45%. Cash flow from operations in
2005 increased from 2004 primarily as a result of increased net income.

Net cash used for investing activities decreased from $6.6 million in 2004 to
$2.1 million in 2005. In 2004, we invested the proceeds from a private placement
of our common stock and had some trading activity on those investments,
resulting in purchases of investments of $8.1 million and sales of $1.6 million.
In 2005, the purchases and sales of investments of $10.8 million and $9.0
million, respectively, resulted from trading activity on investments to maintain
a targeted portfolio balance and maximize earnings, as well as re-investment of
gains that occurred during the year. In addition, capital expenditures were
$374,000 in 2005, compared to $212,000 in 2004. The increase was due to the
purchase of mercury analyzers in 2005 and computers and other office equipment
required to support our growth.

Cash provided by financing activities was $12.8 million and $7.1 million in 2005
and 2004, respectively. In 2005, we received net proceeds of $12.5 million from
a private placement of our common stock and $303,000 from purchases of our
common stock through the exercise of stock options. In 2004, we received net
proceeds of $7.6 million from a private placement of our common stock and
$435,000 from purchases of our common stock through the exercise of stock
options. In 2004, we also repaid $922,000 of debt and notes payable using
proceeds from the abovementioned private placement of our common stock. We may
require additional debt or equity financing to support future growth, including
potential acquisitions.

The company has the following contractual commitments as of December 31, 2005:
<TABLE>
<CAPTION>

                               Total             2006          2007 and 2008      2009 and 2010      2010 and Beyond
                              --------------------------------------------------------------------------------------

<S>                           <C>               <C>                <C>                 <C>              <C>
Operating leases            $  494,000          $119,000           $247,000            $128,000         $      -
Capital leases                   5,000             5,000                  -                   -                -
Purchase obligations        $  776,000           776,000                  -                   -                -
                            ----------          --------           --------            --------         --------
      Total                 $1,275,000          $900,000           $247,000            $128,000         $      -
                            ==========          ========           ========            ========         ========
</TABLE>


Results of Operations
Revenues totaled $11,028,000 for 2005 versus $8,417,000 for 2004. Revenues in
the MEC segment for 2005 increased by $2,844,000 (48%), which was offset by
decreases of $205,000 (10%) and $28,000 (8%) in FGC and CA activities,
respectively. Based on contracts in hand and other anticipated projects, we
anticipate that total revenues for 2006 will grow by approximately 35% from the
2005 level. We have been hiring personnel in response to the growth we have
realized in the past and expect to achieve in 2006, and adequate resources of
skilled labor appear to be available to meet anticipated needs.

Revenues from the MEC segment were comprised of 49% government and
industry-supported contracts, 19% sales and installation of activated carbon
injection (ACI) systems and 32% consulting services. Increased sales in all of
these products contributed to the increase in MEC revenue. We expect growth in
2006 in the MEC segment to result primarily from sales of ACI systems in
response to mercury emission control legislation and from existing and recently
awarded government and industry-supported contracts. Our contracts with the
government are subject to audit by the federal government, which could result in
adjustment(s) to previously recognized revenue. We believe, however, that we
have complied with all the requirements of the contracts and future adjustments,
if any, will not be material. In addition, the federal government must
appropriate funds on an annual basis to support these DOE contracts, and funding
is always subject to unknown and uncontrollable contingencies.

                                       16

<PAGE>


FGC revenues decreased due to an FGC customer discontinuing purchases. We expect
FGC revenues in 2006 to decrease further, as another customer has informed us of
its intent to minimize purchases in the future. The decrease in CA revenues for
2005 resulted from decreased purchases by several customers, offset by revenues
received from Arch Coal to fund a research project related to new technology. In
order for CA revenues to grow appreciably, we will need to obtain additional
customers or develop alternative products to meet market needs.

Cost of services increased by $1,721,000 in 2005, as compared to 2004 as a
result of the increased revenue generating activities. Gross margins were stable
at 39% and 40% in 2005 and 2004, respectively. As noted above, we expect the
amount of fixed price and time and materials work for the near term to represent
an increasing source of revenue in which the anticipated gross margins are less
than for our specialty chemical sales. Gross margins for 2006 are therefore
expected to decline from the levels achieved in 2005, both as a result of an
increasing proportion of fixed price and time and materials work and our
assumption of an increasing share of costs in the field demonstration projects
in which we have elected to participate.

Research and development expenses increased in 2005 by $162,000 to $977,000 from
2004, which reflects almost a 20% increase over 2004. We incur R&D expenses not
only on direct activities we conduct but also by sharing a portion of the costs
in the government and industry programs in which we participate. Future
consolidated research and development expenses, except for those anticipated to
be funded by the DOE contracts and others that may be awarded, are expected to
grow by about 35% in 2006.

General and administrative expenses increased by $456,000 to $2,502,000 in 2005,
which reflects an increase of 22% over 2004. The increase in 2005 resulted
primarily from legal and director fees incurred to attain compliance with public
company regulations that we became subject to during the year; consultant fees
incurred to launch services related to mercury measurement and demonstrations;
and increases in staff, benefits, recruiting and related costs as we prepare for
the anticipated growth in the mercury control market.

The Company had net interest and other income of $348,000 in 2005, as compared
$15,000 in 2004. Interest and other income increased in 2005 due to invested
cash balances that were invested for only part of the year in 2004. In addition,
interest expense decreased in 2005 as a result of the payoff of all term debt
in 2004.

Critical Accounting Policies and Estimates
Significant estimates are used in preparation of our financial statements and
include (1) our allowance for doubtful accounts, which is based on historical
experience; (2) our valuation and classification of investments as
"available-for-sale" securities, which is based on estimated fair market value;
and (3) our percentage of completion method of accounting for significant
long-term contracts, which is based on estimates of gross margins and of the
costs to complete such contracts. In addition, amounts invoiced for government
contracts are subject to change based on the results of future audits by the
federal government. We have not experienced significant adjustments in the past,
and we do not expect significant adjustments will be required in the future. We
also use our judgment to support the current fair value of goodwill and other
intangible assets of $2.2 million on the consolidated balance sheet. Although we
had an independent valuation prepared, which supports the recorded value, and
management believes the fair value of other recorded intangibles is not
impaired, market demand for our products and services could change in the
future, which would require a write-down in recorded values. As with all
estimates, the amounts described above are subject to change as additional
information becomes available, although we are not aware of anything that would
cause us to believe that any material changes will be required in the near term.

Recently Issued Accounting Policies
In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment. This
Statement is a revision of SFAS No. 123, Accounting for Stock-Based
Compensation. This Statement supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees, and its related implementation guidance. SFAS No. 123R
establishes standards for accounting for transactions in which an entity
exchanges its equity instruments for goods or services, or incurs liabilities in
exchange for goods or services that are based on the fair value of the entity's
equity instruments or that may be settled by the issuance of those equity
instruments. SFAS No. 123R focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment transactions
and requires the Company to measure and recognize costs of share-based payment
transactions in the financial statements. The Company must implement SFAS No.
123R as of the beginning of the first interim or annual reporting period that

                                       17

<PAGE>


begins after December 15, 2005. A discussion of our current method of accounting
for share-based payments, as well as the impact of the application of SFAS No.
123 to our net income for 2004 and 2005, is included in Footnote 1 to the
Financial Statements under the section of the note entitled "Stock-Based
Compensation." We believe that results of application of SFAS 123R would be
similar to the results reported in that footnote using SFAS 123. Had SFAS No.
123 been used to calculate our net income for 2005, net income would have been
reduced by $147,000, to $516,000, which is a reduction of $.03 per basic and
diluted share, resulting in net income per basic and diluted share of $.10
instead of $.13, which is a reduction of approximately 23%. For 2004, the
resulting change would have been less, but nonetheless, our net income would
have been reduced by $48,000, to $288,000, with net income per basic and diluted
share reduced to $.07 from $.08 per share, an approximate reduction of 13%.
Based on this evaluation, the impact on our operating results from the
application of SFAS No. 123R will be material if equity instruments are used as
a significant means of compensation in the future. We are continuing to evaluate
the impact that using such instruments is likely to have on our results of
operations, although at this time we still believe that equity-based
compensation is an advantageous way of aligning the interests of our employees
with those of shareholders.

In November 2005, the FASB issued Staff Position ("FSP") FAS115-1/124-1, The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments , which addresses the determination as to when an investment is
considered impaired, whether that impairment is other than temporary, and the
measurement of an impairment loss. This FSP also includes accounting
considerations subsequent to the recognition of an other-than-temporary
impairment and requires certain disclosures about unrealized losses that have
not been recognized as other-than-temporary impairments. The guidance in this
FSP amends FASB Statements No. 115, Accounting for Certain Investments in Debt
and Equity Securities , and No. 124, Accounting for Certain Investments Held by
Not-for-Profit Organizations , and APB Opinion No. 18, The Equity Method of
Accounting for Investments in Common Stock . This FSP is effective for reporting
periods beginning after December 15, 2005. We do not expect that adoption of
this FSP will have a material impact on our financial statements.

In April 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections," requiring retrospective application as the required method for
reporting a change in accounting principle, unless impracticable or a
pronouncement includes specific transition provisions. This statement also
requires that a change in depreciation, amortization, or depletion method for
long-lived, non-financial assets be accounted for as a change in accounting
estimate effected by a change in accounting principle. This statement carries
forward the guidance in APB Opinion No. 20, "Accounting Changes," for the
reporting of the correction of an error and a change in accounting estimate.
This statement is effective for accounting changes and correction of errors made
in fiscal years beginning after December 15, 2005 and we do not expect that its
adoption will have a material impact on our financial statements.

Item 7.  Financial Statements.
Our Financial Statements can be found at pages F-1 through F-20 of this report.

Index to Financial Statements
Report of Independent Registered Public Accounting Firm
Financial Statements:
      ADA-ES, Inc. and Subsidiary
      Consolidated Balance Sheet, December 31, 2005
      Consolidated  Statements of Income,  For the Years Ended December 31, 2005
       and 2004
      Consolidated Statements of Changes in Stockholders' Equity, For the Years
       Ended December 31, 2005 and 2004
      Notes to Consolidated Financial Statements

Item 8. Changes In and Disagreements With Accountants on Accounting and
        Financial Disclosure.
None.

                                       18

<PAGE>


Item 8A.  Controls and Procedures.

Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that the
information required to be disclosed by us in the reports we file with the
Securities and Exchange Commission (SEC), is recorded, processed, summarized and
disclosed within the time periods specified in the rules of the SEC. Based on
their evaluation of our disclosure controls and procedures which took place as
of December 31, 2005, the end of the period covered by this report, the Chief
Executive and Financial Officers believe that these controls and procedures are
effective to ensure that we are able to record, process, summarize and disclose
the information we are required to disclose in the reports we file with the SEC
within the required time periods.

Internal Control Over Financial Reporting
The Company also maintains a system of internal controls designed to provide
reasonable assurance that: transactions are executed in accordance with
management's general or specific authorization; transactions are recorded as
necessary (1) to permit preparation of financial statements in conformity with
generally accepted accounting principles, and (2) to maintain accountability for
assets; access to assets is permitted only in accordance with management's
general or specific authorization; and the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.

During the fourth fiscal quarter of 2005, there have been no significant changes
in our controls over financial reporting or in other factors that have
materially affected, or are reasonably likely to materially affect, those
controls.

PART III

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

Our Directors will serve until the annual meeting of shareholders, which is
expected to occur in May 2006. Directors are expected to be elected annually.
Information concerning our directors and our key executive officers is provided
below.

                             Age              Position and Offices
                             ---              --------------------

Jonathan S. Barr             48       Vice President Sales and Marketing
C. Jean Bustard              48       Chief Operating Officer
Robert N. Caruso             54       Director nominee
Michael D. Durham            56       Director, President
John W. Eaves                48       Vice Chairman of the Board of Directors,
                                       Member of the Audit Committee
Derek C. Johnson             45       Director nominee
Ronald B. Johnson            74       Director, Chairman of the Audit Committee
Robert H. Lowdermilk         69       Director
Mark H. McKinnies            54       Director, Senior Vice President and
                                       Chief Financial Officer
Richard L. Miller            51       Vice President Business Development for
                                       Utility Systems
Rollie J. Peterson           58       Director, Member of the Audit Committee
Richard J. Schlager          54       Vice President Contract R&D
Jeffrey C. Smith             53       Chairman of the Board of Directors, Member
                                       of Audit Committee

                                       19

<PAGE>


All directors have served on our Board of Directors ("Board") since our spin-off
from Earth Sciences and concurrent initial public offering, except John Eaves
who became a member of the Board in October 2004.

The appointment of John Eaves to our Board was made pursuant to the investment
agreement with Arch Coal, Inc. ("Arch Coal") whereby the Company's management
agreed to make available one seat on the Board so long as Arch Coal continues to
hold no fewer than 100,000 shares of our common stock. There are no other
arrangements or understandings between any directors or executive officers and
any other person or persons pursuant to which they were selected as director or
executive officer.

Each of the officers named above serves from year to year at the pleasure of the
Board of Directors. None of the individuals named above are directors of any
other public companies.

Mr. Barr has been Vice President Sales and Marketing of the Company since July
2004. From 1998 to early 2004, Mr. Barr was a National Vice President of Sales
and Regional Vice President of Sales and Marketing for Arch Coal. From 1994 to
1998, Mr. Barr was with the C&O unit of CSX Transportation, where he served as
the Director of River Coal Marketing and Market Manager for Utility Coal.

Ms. Bustard was appointed Chief Operating Officer of the Company in June 2004.
Prior to that appointment she served as Executive Vice President of ADA-ES, LLC
beginning with its formation in 1996. Ms. Bustard was employed by ADA
Technologies from 1988 through 1996. Ms. Bustard holds a B.S. in Physics
Education from Indiana University, a 1979 M.A. in Physics from Indiana State
University and an MBA from the University of Colorado.

Mr. Caruso currently serves as a managing partner of B/3 Management Resources,
LLC, a management consulting and technical services firm, since 1998. Mr. Caruso
also serves as Vice President of Ingenium Technology, since 2003. From 1999 to
2001, Mr. Caruso was Vice President and General Manager of Applied Science &
Technology, a public company at the time, providing reactive gas processing
systems and specialty power sources to the semiconductor and medical equipment
markets.

Dr. Durham was a co-founder in 1985 of ADA Technologies, Inc., an Englewood,
Colorado private company which contracts to the federal government and others
for development of emission technologies. Dr. Durham has been president of
ADA-ES LLC, since 1996.

Mr. Eaves currently serves as President, Chief Operating Officer and a director
of Arch Coal. Mr. Eaves previously held the position of Vice President of
marketing for Arch Coal since that company's formation on July 1, 1997. Prior to
that time, he served as President of the marketing subsidiary of Arch Mineral
Corporation, one of Arch Coal's predecessor companies. He also held various
positions in sales and administration with Diamond Shamrock Company and Natomas
Coal Company.

Mr. Derek Johnson currently serves as President of Fusion Specialties, a
specialty supplier to the retail industry. From 1984 to 2005, Mr. Johnson was
employed in various positions, most recently as President and Chief Operating
Officer, by CoorsTek, a manufacturer of technical products, supplying critical
components and assemblies for mining automotive, semiconductor, aerospace,
electronic, power generation, telecommunication and other high-technology
applications on a global basis.

Mr. Ronald Johnson has been involved in all phases of the chemical industry,
including roles in production, compounding and distribution both domestically
and internationally, for 47 years. He has held executive, management, marketing,
development and strategic planning positions with Dupont, Industrial and
Biochemical Department; Gamlen Chemical, an international compounding company;
and Univar, a North American chemical distributor. He also served as a Board
Member of Charter National Bank and Trust from 1987-2000. Mr.Johnson also serves
as Chairman of Twin-Kem International, Inc., a distributor of agricultural
industrial chemicals, since 1984, and as Chairman of ExecuVest, Inc., an oil &
gas exploration company, since 1987.

                                       20

<PAGE>


Mr. Lowdermilk served as president of Tectonic Construction Company ("TCC"), a
producer of washed aggregates and specialty sands since 1986. Mr. Lowdermilk has
a long history in construction and engineering projects.

Mr. McKinnies has served as the Company's Chief Financial Officer since 2000 and
was appointed as Senior Vice President in September, 2005. Mr. McKinnies was
employed by Earth Sciences from 1978 through 2000. A CPA, Mr McKinnies worked
for Peat, Marwick, Mitchell & Co. before commencing employment at Earth Sciences
in 1978.

Mr. Miller was previously employed by Hamon Research-Cottrell (HRC), from 1989
to November 2005, most recently as Vice President of Sales with primary
responsibility in Particulate and Mercury Control Technologies. Prior to 1989,
Mr. Miller was employed by Buell/GE Environmental in various technical and sales
positions with direct responsibility for all fabric filter technologies. Mr.
Miller has also served as Chairman of Fabric Filter Division of Institute of
Clean Air Companies. Mr. Miller has an A.A.S. in Marine Science Technology and a
B.S. Degree in Management.

Mr. Peterson, a self-employed businessman, is president and co-owner of
Cobblestone Development Co., a commercial land development company in Minnesota
that he helped found in 1987.

Mr. Schlager has been employed by the Company as Vice President, Contract
Research and Development since 2000 and was employed by ADA Technologies from
1989 until that time. Mr. Schlager holds a B.S. in Chemistry and a M.S. in
Metallurgical Engineering from the Colorado School of Mines.

Mr. Smith was appointed a director of the Company in August 2003 and is a
self-employed lawyer in the Law Office of Jeffrey C. Smith. Mr. Smith is a past
Executive Director of the Institute of Clean Air Companies, where he served for
17 years.

No family relationship exists between any individuals named in this Item 9.

Audit Committee
Our Board of Directors has an Audit Committee consisting of Messrs. Eaves,
Johnson, Peterson and Smith. Mr. Johnson serves as the chairman of the Audit
Committee and as the Audit Committee Financial Expert. Mr. Johnson is
"independent" as that term is used in Item7(d)(3)(iv) of Schedule 14A under the
U.S. Securities Exchange Act.

Nominating and Governance Committee
Our Board of Directors has appointed a Nominating and Governance Committee
consisting of Messrs. Eaves, Johnson, Peterson and Smith. Mr. Johnson serves as
the chairman of the Nominating and Governance Committee. The responsibilities of
the Committee, as set forth in the Nominating and Governance Committee Charter,
include identifying and recommending to the Board the nominees to be submitted
to the Company's shareholders for election as Directors at annual meetings of
the shareholders; considering and making recommendations to the Board regarding
nominees for Director submitted by the Company's shareholders; and recommending
to the Board the election of individuals to fill any vacancies occurring on the
Board from time to time. Under the Nominating and Governance Committee Charter,
the Nominating and Governance Committee will consider nominees submitted by
shareholders of the Company.

Compensation Committee
Our Board of Directors has appointed a Compensation Committee consisting of
Messrs. Eaves, Johnson, Peterson and Smith. Mr. Johnson serves as the chairman
of the Compensation Committee. The responsibilities of the Compensation
Committee, as set forth in the Compensation Committee Charter, include reviewing
our executive compensation programs to analyze their alignment with attracting,
retaining and motivating our executive officers to achieve our business
objectives; establishing annual and long-term performance goals for our
executive officers and evaluating their performance in light of such goals'
reviewing and making recommendations concerning our long-term incentive plans
and shareholder proposals related to compensation' and administering our
equity-based and employee benefit plans.

                                       21

<PAGE>


Director Compensation
The compensation plan for our non-management directors is reviewed annually. In
addition to the stock and option grants discussed below, under the existing
compensation arrangement, each non-management director was paid a fee in 2005 of
approximately $600 per regular meeting, $300 per committee or telephonic meeting
or $500 per committee meeting for serving as chairman of the committee. The
Chairman of the Audit Committee is paid the greater of $3,000 per month or an
amount equal to hours worked times an hourly rate.

During 2005, in addition to the stock and options issued to directors as
described below under "Stock Option Plans", Drs. Bisque and Bloom and Mr.
Lowdermilk received cash compensation of $4,653 and Messrs. Peterson, Smith and
Arch Coal (as a result of John Eaves' service) received $7,445 for their
participation in board and committee meetings. Dr. Bisque received $59,565 for
his participation in board meetings and consulting services provided to us. Mr.
Ronald Johnson received $43,044 for his participation in board meetings and his
service as chairman of the Audit, Compensation and Nominating and Governance
Committees.

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

Based solely on our review of the copies of such forms received by it, or
written representations from certain reporting persons, we believe that during
the fiscal year ended December 31, 2005, all filing requirements applicable to
our officers, directors and greater than ten percent beneficial owners were met.

Code of Ethics
We adopted a Code of Conduct that applies to our officers, directors and
employees, including the principal executive officer, principal financial
officer, principal accounting officer or controller or other persons performing
similar functions, and includes a code of ethics as defined in Item 406(b) of
Regulation S-B. A copy of our Code of Conduct is available on our website at
www.adaes.com. We intend to disclose any amendments to certain provisions of our
Code of Conduct, or waivers of such provisions granted to executive officers and
directors, on our website.

Item 10.  Executive Compensation.
The following tables show compensation during the fiscal years ended December
31, 2005, 2004 and 2003, and option grants and option exercises during the
fiscal years ended December 31, 2005, 2004 and 2003, of those persons who were,
at December 31, 2005 the five most highly compensated executive officers ("named
executive officers") of ADA-ES whose total compensation exceeded $100,000.
<TABLE>
<CAPTION>

                                                          Summary Compensation Table

                                                               Annual Compensation
                                                ---------------------------------------------
                                                                                                  Long-Term Compensation Awards
 Name of Individual and                                                                              Securities Underlying
   Principal Position              Year          Salary              Bonus        Pension (1)             Options (#) (2)
   ------------------              ----          ------              -----        -----------     -----------------------------

<S>                                <C>           <C>               <C>               <C>
Jonathan S. Barr                   2005          $122,539          $  5,486          $  8,744              --
Vice President, Sales              2004          $ 52,512          $  1,046          $   --              42,600
and Marketing


C. Jean Bustard                    2005          $136,378          $  6,273          $ 15,559              --
Chief Operating Officer            2004          $131,356          $  4,685          $ 12,443            33,900
                                   2003          $118,668          $   --            $ 17,461              --


Michael D. Durham                  2005          $189,352          $  6,881          $ 18,761              --
President, CEO  and                2004          $189,781          $  5,755          $ 17,824            59,000
Director                           2003          $168,637          $   --            $ 24,851              --


Mark H. McKinnies                  2005          $178,048          $  6,273          $ 18,004              --
Director, Senior Vice              2004          $179,137          $  5,755          $ 16,992            44,400
President
and Chief Financial                2003          $167,892          $   --            $ 24,927            14,500
Officer


Richard J. Schlager                2005          $128,618          $  6,063          $ 15,718              --
Vice President of                  2004          $128,901          $  4,685          $ 12,126            32,100
Contract Research
 & Development                     2003          $117,828          $   --            $ 17,327              --


                                                          22
<PAGE>


(1)  Amounts represent pension and profit sharing contributions and 401(k)
     matching payments made or accruing to a qualified plan by the Company for
     the benefit of the named individual.

(2)  The securities shown for 2003 represent options to acquire shares granted
     pursuant to our 2003 Stock Option Plan, which is described below. The
     securities shown for 2004 represent options to acquire shares granted
     pursuant to our 2004 Executive Stock Option Plan, which is described below.

                                               Options/SAR Grants in Last Fiscal Year
 None.

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

                              Number of securities
                         Shares                           underlying unexercised         Value of unexercised
                         acquired on      Value           options at FY-end(#) (1)       options at FY-End
Name                     exercise (#)     realized ($)    Exercisable/Unexercisable      Exercisable/Unexercisable
----                     -------------    ------------    -------------------------      -------------------------
Jonathan S. Barr            3,000          $56,610             16,554/ 23,046               $159,581/$222,163
C. Jean Bustard             8,695          $169,278            13,028/ 16,872               $125,590/$162,646
Michael D. Durham           9,990          $188,012            11,850/ 37,160               $114,234/$358,222
Mark H. McKinnies           7,490          $138,415            11,558/ 25,352               $111,419/$244,393
Richard J. Schlager         3,800          $78,280             12,891/ 15,409               $124,269/$148,543
</TABLE>

(1)  The securities shown as "Exercisable" and "Unexercisable" as of December
     31, 2005 represent options to acquire shares granted pursuant to our
     Executive Stock Option Plan and 2003 Stock Option Plan described below.
     The securities shown as "Exercisable" represent the options earned for the
     year ended December 31, 2005 and vested by action of the Company's Board of
     Directors on January 27, 2006.


             EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
                         CHANGE-IN-CONTROL ARRANGEMENTS

We have executed employment agreements with every full-time employee, including
our executive officers, which contain the following provisions:

     1.   Automatic extensions for one-year periods.
     2.   Three month written notice of intent to terminate by either the
          Company or the employee.
     3.   Description of position, duties, authority, compensation, benefits and
          obligation of the employee to devote fulltime to the fulfillment of
          his/her obligations under the agreement.
     4.   Disclosure/ownership of inventions and confidential subject matter.

                                       23

<PAGE>


     5.   Assignment of inventions and confidential subject
          matter/documentation/commercialization.
     6.   Copyright works and written records.
     7.   Restrictive obligations relating to confidential subject matter.
     8.   Conflicting obligations and obligations upon termination of
          employment.

The compensation amounts included in the employment agreements are subject to
annual adjustment and the 2005 compensation levels are shown in the tables
above. None of our employment contracts or other agreements contain any
provisions for the payment of any amounts that result from or will result from
the resignation, retirement or any other termination of any executive officer's
employment with us or from a change-in-control of the Company or a change in the
named executive officer's responsibilities following a change-in-control.

                               STOCK OPTION PLANS

During 2003, we adopted the ADA-ES, Inc. 2003 Stock Option Plan (the "2003
Plan"). The plan is intended to encourage our key employees, through their
individual efforts, to improve our overall performance and to promote
profitability by providing these key employees with an opportunity to
participate in the increased value they help create. The 2003 Plan is also
intended to replace the options previously awarded by Earth Sciences, Inc.,
which has been cancelled. Options granted under the 2003 Plan may be in the form
of "incentive stock options" as defined under section 422 of the Internal
Revenue Code of 1986, as amended, or options that are not incentive stock
options. The 2003 Plan is administered by our Board's Compensation Committee.
The plan was approved by Earth Sciences, Inc. as our sole shareholder prior to
the spin-off distribution of our shares. We reserved 400,000 shares of our
common stock for issuance under the 2003 Plan. In general, all options granted
under the 2003 Plan will lapse ten years from the date of grant. In general, the
exercise price of an option will be determined by the Compensation Committee at
the time the option is granted and will not be less than 100% of the fair market
value of a share of our common stock on the date the option is granted. The
Compensation Committee may provide in the option agreement that an option may be
exercised in whole immediately or is exercisable in increments through a vesting
schedule. Under the 2003 Plan, the grant of options is limited to 20,000 per
individual. During 2005, 61,900 options were granted under the 2003 Plan.

During 2004, we adopted the ADA-ES, Inc. 2004 Executive Stock Option Plan (the
"2004 ESO Plan"), which did not require shareholder approval. The 2004 ESO Plan
authorized the grant of up to 200,000 options to purchase shares of our common
stock to our executive officers. The 2004 ESO Plan is intended to promote our
growth and profitability by awarding options to purchase our common stock in
exchange for services performed and to be performed in the future. Options
granted under the 2004 ESO Plan are generally intended to be non-qualified stock
options ("NQSO") for federal income tax purposes. The 2004 ESO Plan is
administered by our Board's Compensation Committee. In general, the exercise
price of an option will be determined by the Compensation Committee at the time
the option is granted and will not be less than 100% of the fair market value of
a share of our common stock on the date the option is granted. Under the 2004
ESO Plan, the grant of options is limited to 60,000 per individual. The options
are exercisable over a 10-year period based on a vesting schedule that may be
accelerated based on performance of the individual recipients as determined by
our Board's Compensation Committee. During 2004, options were granted under the
2004 ESO Plan to five executive officers, each of whom is a full-time employee.
In January 2005 and January 2006, our Board's Compensation Committee authorized
the vesting of 27,080 options and 38,428 options, respectively, under the 2004
ESO Plan based on performance targets that were met.

During 2004, we adopted the 2004 Stock Compensation Plan #2 (the "2004 Plan")
for the issuance of shares and the grant of options to purchase shares of our
common stock to our non-management directors. The 2004 Plan was approved by our
shareholders at our 2005 Annual Meeting. The 2004 Plan is intended to compensate
our non-management directors by awarding shares and options to purchase shares
for services they rendered during 2004 and 2005 and will continue to render in
subsequent years. The 2004 Plan provided for the award of 603 shares of our
common stock per individual non-management director (4,221 shares in total), and
the grant of 5,000 options per individual non-management director (35,000 in
total), all of which were formally granted and issued in 2005 after approval of
the 2004 Plan by our shareholders. The stock awards and vested portion of the
stock option grants to non-management directors represent a portion of
compensation for services performed from October 2004 through September 2005.
The option exercise price of $13.80 per share for the stock options granted on

                                       24

<PAGE>


November 4, 2004 was the market price on the date of the grant. The options are
exercisable over a period of five years and will vest over a three-year period,
one-third each year for continued service on the Board of Directors. If such
service is terminated, the non-vested portion of the option is forfeited.

During 2005 we adopted the 2005 Directors' Compensation Plan (the "2005 Plan"),
which authorized the issuance of shares of common stock and the grant of options
to purchase shares of our common stock to non-management directors. The 2005
Plan was approved by our shareholders at the 2005 Annual Meeting. The 2005 Plan
is intended to advance our interests by providing eligible non-management
directors an opportunity to acquire or increase an equity interest in the
Company, create an increased incentive to expend maximum effort for our growth
and success and encourage such eligible individuals to continue to service the
Company. The 2005 Plan provides a portion of the annual compensation to our
non-management directors in the form of awards of shares of common stock and
vesting of options to purchase common stock for services performed for the
Company. Under the 2005 Plan, the award of stock is limited to 1,000 shares per
individual per year, and the grant of options is limited to 5,000 per individual
in total. The aggregate number of shares of common stock reserved for issuance
under the 2005 Plan totals 90,000 shares (50,000 in the form of stock awards and
40,000 in the form of options). The exercise price is the market price on the
date of grant, the shares of common stock underlying the Option will vest at a
rate of no more than 1,667 shares per annual period per individual, and any
unvested shares of Stock that are outstanding at the date the individual is no
longer a director are forfeited. Shares may be issued and options may be granted
under the 2005 Plan only to non-management directors of the Company or its
subsidiaries.

The 2005 Plan will terminate ten years after the date of its adoption, if not
earlier terminated by our Board of Directors. It may be amended, modified or
terminated at any time if and when it is advisable in the absolute discretion of
the Board, although certain amendments are subject to approval of regulatory
bodies and our shareholders. No such amendment may adversely affect any options
previously granted under the Plan without the consent of the recipient(s). The
2005 Plan is administered by a committee appointed by the Board, which currently
consists of all Board members. In January 2006, the Board of Directors
authorized the issuance of 1,000 shares of common stock to each of the seven
non-management directors of the Company (a total of 7,000 shares of common
stock) representing a portion of their compensation for the period from October
2005 through September 2006.

Item 11.  Security Ownership of Certain Beneficial Owners and Management and
          Related Stockholder Matters.

The following table provides information with respect to the beneficial
ownership of the Company's common stock by (1) each of our shareholders whom we
believe are beneficial owners of more than 5% of our outstanding common stock,
(2) each of our directors and named executive officers and (3) all of our
directors and executive officers as a group. We base the share amounts shown on
each person's beneficial ownership as of March 10, 2006, unless we indicate some
other basis for the share amounts. With the exception of Mr. Lowdermilk, each of
the individuals named below has sole voting and investment power for the
respective shares.
<TABLE>
<CAPTION>

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

<S>                                                                       <C>                <C>
Jonathan S. Barr (VP Sales and Marketing)
8100 SouthPark Way, Littleton, CO                                         10,677(1)             *
---------------------------------------------------------------------------------------------------------
C. Jean Bustard (Chief Operating Officer)
8100 SouthPark Way, Littleton, CO                                         27,296(2)             *
---------------------------------------------------------------------------------------------------------
Michael D. Durham (Director and President)
8100 SouthPark Way, Littleton, CO                                        161,864(3)            2.9%
---------------------------------------------------------------------------------------------------------
Dynamis Advisors LLC
310 Fourth Street, NE, Suite 101, Charlottesville, VA                    460,574(4)            8.2%
---------------------------------------------------------------------------------------------------------
John W. Eaves (Director)
8100 SouthPark Way, Littleton, CO                                          1,000                *
---------------------------------------------------------------------------------------------------------
Ronald B. Johnson (Director)
8100 SouthPark Way, Littleton, CO                                         10,270(5)             *
---------------------------------------------------------------------------------------------------------
Robert H. Lowdermilk (Director)
8100 SouthPark Way, Littleton, CO                                        186,605(6)            3.3%
---------------------------------------------------------------------------------------------------------

                                                         25

<PAGE>


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

Mark H. McKinnies (Director, Secretary, Senior VP and CFO)
8100 SouthPark Way, Littleton, CO                                         64,770(7)            1.2%
---------------------------------------------------------------------------------------------------------
Richard Miller (VP Business Development of Utility Systems)
8100 SouthPark Way, Littleton, CO                                              -                -
---------------------------------------------------------------------------------------------------------
Rollie J. Peterson (Director)
8100 SouthPark Way, Littleton, CO                                         30,914(8)             *
---------------------------------------------------------------------------------------------------------
Richard J. Schlager (VP of Contract R&D)
8100 SouthPark Way, Littleton, CO                                         22,063(9)             *
---------------------------------------------------------------------------------------------------------
Jeffrey C. Smith (Director)
8100 SouthPark Way, Littleton, CO                                          9,470(10)           *
---------------------------------------------------------------------------------------------------------
Wellington Management Co. LLP
75 State Street, Boston, MA                                              804,200(4)        14.3%
---------------------------------------------------------------------------------------------------------
Directors and Officers as a Group (13 individuals)                       627,181(11)       11.3%
---------------------------------------------------------------------------------------------------------
*  Less than 1%.
Notes:

(1)  Included in the amount shown are 10,677 shares to which Mr. Barr has the
     right to acquire beneficial ownership through stock options.
(2)  Included in the amount shown are 6,514 shares to which Ms. Bustard has the
     right to acquire beneficial ownership through stock options and 10,933
     shares held in Ms. Bustard's pension fund account.
(3)  Included in the amount shown are 45,852 shares held in Dr. Durham's pension
     fund account and 11,326 shares Dr. Durham has the right to acquire
     beneficial ownership through stock options.
(4)  As of December 31, 2005 per Schedule 13G filed with the U.S. SEC.
(5)  Included in the amount shown are 1,667 shares to which Mr. Johnson has the
     right to acquire beneficial ownership through stock options.
(6)  Included in the amount shown are 13,000 shares registered in the name of
     Mr. Lowdermilk's wife, 500 shares held jointly with Mr. Lowdermilk's wife,
     666 shares held as custodian for a minor child, 109,000 shares held by TCC
     and 1,667 shares to which Mr. Lowdermilk has the right to acquire
     beneficial ownership through stock options. Mr. Lowdermilk is the president
     and majority shareholder of TCC.
(7)  Included in the amount shown are 33,117 shares held in Mr. McKinnies'
     pension fund account, 500 shares held as trustee for the MJ Kraft Trust,
     and 8,534 shares Mr. McKinnies has the right to acquire beneficial
     ownership through stock options.
(8)  Included in the amount shown are 1,667 shares to which Mr. Peterson has the
     right to acquire beneficial ownership through stock options.
(9)  Included in the amount shown are 6,177 shares to which Mr. Schlager has the
     right to acquire beneficial ownership through stock options and 12,086
     shares held in Mr. Schlager's pension fund account.
(10) Included in the amount shown are 1,667 shares to which Mr. Smith has the
     right to acquire beneficial ownership through stock options.
(11) The amount shown includes 56,230 shares to which individuals in the group
     have the right to acquire beneficial ownership through stock options.

                                             Equity Compensation Plan Information
                                             ------------------------------------
                                                                                         Number of securities remaining
                                 Number of securities to     Weighted-average exercise   available for future issuance under
                                 be issued upon exercise     price of outstanding        equity compensation plans
                                 of outstanding options,     options, warrants and       (excluding securities reflected in
Plan category                    warrants and rights         rights                      column (a))
-------------                    -----------------------     --------------------------  -----------------------------------
                                         (a)                         (b)                              (c)
Equity compensation plans
approved by security holders           172,138                      $12.99                          175,811
Equity compensation plans not
approved by security holders (1)       259,345                      $ 9.66                                -
                                       -------                      ------                          -------
Total                                  431,483                      $10.99                          175,811
                                       =======                      ======                          =======

(1)  The plans that were not approved by shareholders are our 2004 Executive Stock Option Plan, options granted to Arch Coal
     and options granted to three consultants. For a description of the material features of these plans and the options
     granted to Arch Coal, please see "Stock Option Plans" above, "Certain Relationships and Transactions" below and Note 5
     to our Consolidated Financial Statements. Options granted to consultants include a ten-year option for 30,000 shares of
     our common stock with an exercise price of $14.60, with vesting at the discretion of the board of directors upon
     achievement of performance objectives; and ten-year options granted to two consultants for 4,625 shares of our common
     stock with an exercise price of $13.80, which vested at issuance.

</TABLE>
                                       26

<PAGE>


Item 12.  Certain Relationships and Related Transactions.
As discussed above, we executed a Securities Subscription and Investment
Agreement (the "Investment Agreement") with Arch Coal in July 2003. Pursuant to
the Investment Agreement, in September 2003 Arch Coal purchased a $300,000
convertible debenture from us, purchased 137,741 shares of our common stock and
was granted a five-year option to purchase 50,000 additional shares of our
common stock for $10.00 per share. We also co-market Arch Coal's ADA-M product
under an agreement with Arch Coal as described above and perform certain testing
and research projects under agreements with Arch Coal. Under these arrangements
with Arch Coal, we recorded revenue of $230,000 and $25,000 in 2005 and 2004,
respectively. We also granted Arch Coal certain "piggyback" rights in the event
we register certain other equity securities and certain demand registration
rights as part of the transaction. In October 2004, we registered 168,011 shares
for resale by Arch Coal, which shares included 50,000 issuable upon the exercise
of the option described above. A designee of Arch Coal has been appointed a seat
on our Board of Directors and our management has agreed in the future to
nominate and to vote all proxies and other shares of stock in the Company which
they are entitled to vote in favor of that designee so long as Arch Coal holds
no less 100,000 shares of our common stock. Mr. Eaves is Arch Coal's current
designee to our Board of Directors.

Item 13.  Exhibits

(a) Exhibits and Index of Exhibits

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

Index to Exhibits.
3.1      Amended and Restated Articles of Incorporation of ADA-ES (1)
3.2      Amended and Restated Bylaws of ADA-ES (2)
4.1      Form of Specimen Common Stock Certificate (3)
4.2      Registration Rights Agreement dated October 21, 2005 (4)
4.3*     Registration Rights Agreement between ADA-ES, Inc. and Arch Coal, Inc.
          dated March 19, 2003 (16)
4.4      Standstill and Registration Rights Agreements dated August 3-6, 2004
          (6)
10.1     Distribution Agreement dated as of March 17, 2003 between Earth
          Sciences, Inc. and ADA-ES, Inc. (7)
10.2*    2003 ADA-ES, Inc. Stock Option Plan** (5)
10.3     Market Development Agreement between NORIT Americas Inc. and Earth
          Sciences, Inc. dated June 29, 2001 (5)
10.4     Assignment and Assumption Agreement between NORIT Americas Inc., Earth
          Sciences, Inc. and ADA-Environmental Solutions LLC dated August 4,
          2003 (8)
10.5     Joint Venture and Co-Marketing Agreement by and between Arch Coal Sales
          Company and ADA-
         Environmental Solutions LLC as of January 1, 2002 (5)
10.6     Securities Subscription and Investment Agreement between ADA-ES, Inc.
          and Arch Coal, Inc. dated July 7, 2003 (7)
10.7     U.S. Department of Energy Cooperative Agreement No. DE-FC26-00NT41004
          "Field Test Program to Develop Comprehensive Design,
         Operating, and Cost Data for Mercury Control Systems" (7)
10.8     U.S. Department of Energy Cooperative Agreement No. DE-FC26-00NT40755
          "Advanced Flue Gas Conditioning as a Retrofit Upgrade to Enhance PM
          collection from Coal-Fired Electric Utility Boilers" (7)
10.9     Joint Product Exploitation and Marketing Agreement dated October 2,
          2002, by and between ALSTOM Power Inc. and ADA Environmental Solutions
          LLC (5)
10.10    Tax Sharing Agreement between ADA-ES, Inc. and Earth Sciences, Inc.
          dated March 17, 2003 (5)
10.11    U.S. Department of Energy Cooperative Agreement No. DE-FC26-02NT41591
          "Long-Term Operation of a COHPAC System for Removing Mercury from
          Coal-Fired Flue Gas" (7)
10.12    Amendment No. 1 to Distribution Agreement by and between ADA-ES, Inc.
          and Earth Sciences, Inc. dated August 15, 2003 (8)
10.13    2003 Stock Compensation Plan #1** (9)
10.14    2003 Stock Compensation Plan #2** (10)

                                       27

<PAGE>

10.15    U.S. Department of Energy Cooperative Agreement No. DE-FC26-03NT41986
          "Evaluation of Sorbent Injection for Mercury Control" (11)
10.16    Purchase Order #4500589101 signed 3/18/04 from We Energies (12)
10.17    Clean Coal Power Initiative Repayment Agreement between the U.S.
          Department of Energy and ADA-ES, Inc. dated April 6, 2004 (12)
10.18    TOXECON Sorbent Sales Repayment Agreement by and between Norit America
          Inc. and ADA-ES, Inc. dated February 18, 2004 (12)
10.19    Development and Field Validation Agreement between Thermo Environmental
          Instruments Inc. and ADA-ES, Inc. dated April 16, 2004 (12)
10.20    Distribution Agreement between Thermo Environmental Instruments Inc.
          and ADA-ES, Inc. dated April 16, 2004 (12)
10.21    ADA-ES, Inc. 2004 Executive Stock Option Plan** (13)
10.22    U.S. Department of Energy Cooperative Agreement No. DE-FC26-05NT42307
          "Low-Cost Options for Moderate Levels of Mercury Control" (14)
10.23    Employment Agreement dated May 1, 1997 between C. Jean Bustard and ADA
          Environmental Solutions, LLC (assigned to ADA-ES, Inc.) ** (14)
10.24    Employment Agreement dated May 1, 1997 between Michael D. Durham and
          ADA Environmental Solutions, LLC (assigned to ADA-ES, Inc.) ** (14)
10.25    Employment Agreement dated January 2, 2000 between Mark H. McKinnies
          and ADA Environmental Solutions, LLC (assigned to ADA-ES, Inc.) **
          (14)
10.26    Employment Agreement dated January 1, 2000 between Richard J. Schlager
          and ADA Environmental Solutions, LLC (assigned to
         ADA-ES, Inc.) ** (14)
10.27    2004 Stock Compensation Plan #2 and model stock option agreements**(13)
10.28    2004 Directors Stock Compensation Plan #1** (15)
10.29*   2005 Directors' Compensation Plan**
21.1     Subsidiaries of ADA-ES, Inc. (5)
23.1*    Consent of Hein & Associates LLP
31.1*    Certification of Chief Executive Officer of ADA-ES, Inc. Pursuant to 17
          CFR 240.13a-14(a) or 17 CFR 240.15d-14(a)
31.2*    Certification of Chief Financial Officer of ADA-ES, Inc. Pursuant to
          17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a)
32.1*    Certifications Pursuant to 17 CFR 240.13a-14(b) or 17CFR 240.15d-14(b)
          and18 U.S.C. Section 1350

(*) - filed herewith.
(**) - Management contract or compensatory plan or arrangement.

(1)  Incorporated by reference to Exhibit 3.1 to the Form 10-QSB for the quarter
     ended September 30, 2005 filed on November 10, 2005 (File No. 000-50216).
(2)  Incorporated by reference to Exhibit 3.2 to the Form 8-K dated December 1,
     2005 filed on December 5, 2005 (File No. 000-50216).
(3)  Incorporated by reference to Exhibit 4.1 to the Form 8-K dated October 21,
     2005 filed on October 26, 2005 (File No. 000-50216).
(4)  Incorporated by reference to Exhibit 10.1 to the Form 8-K dated October 21,
     2005 filed on October 26, 2005 (File No. 000-50216).
(5)  Refiling due to typographical error when originally filed.
(6)  Incorporated by reference to Exhibit A to Exhibit 10.1 to the Form S-3
     filed on October 18, 2004 (File No. 333-119795).
(7)  Incorporated by reference to the same numbered Exhibit to the Form
     10-SB/A-3 filed on July 28, 2003 (File No. 000-50216).
(8)  Incorporated by reference to the same numbered Exhibit to the Form
     10-SB/A-4 filed on August 24, 2003 (File No. 000-50216).
(9)  Incorporated by reference to Exhibit 99.2 to the Form S-8 filed on November
     14, 2003 (File No. 333-110479).
(10) Incorporated by reference to Exhibit 99.1 to the Form S-8 filed on February
     6, 2004 (File No. 333-112587).

                                       28

<PAGE>


(11) Incorporated by reference to the same numbered Exhibit to the Form 10-KSB
     for the year ended December 31, 2003 filed on March 30, 2004 (File No.
     000-50216).
(12) Incorporated by reference to the same numbered Exhibit to the Form 10-QSB
     for the quarter ended March 31, 2004 filed on May 13, 2004 (File No.
     000-50216).
(13) Incorporated by reference to Exhibit 99.3 to the Form S-8 filed on December
     14, 2004 (File No. 333-121234).
 (14) Incorporated by reference to the same numbered Exhibit to the Form 10-KSB
     for the year ended December 31, 2004 filed on March 30, 2005 (File No.
     000-50216).
(15) Incorporated by reference to Exhibit 99.1 to the Form S-8 filed on April
     16, 2004 (File No. 333-114546).
(16) Re-filing due to EDGAR transmission issues.

Item 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.

                                               Fiscal Year
                                               -----------
                                           2005            2004
                                           ----            ----
Audit Fees (1)                           $ 77,748        $ 58,513
Audit-Related Fees (2)                   $ 13,785        $  1,896
Tax Fees                                     --              --
All Other Fees                               --              --

 (1) Includes quarterly review services related to our Form 10-QSB filings and
review services related to the filing of a Registration Statement on Form S-3 in
2004 and Registration Statement on Form S-3 in 2005 and three Registration
Statements on Form S-8 in 2004.

(2) Includes review of preliminary Sarbanes-Oxley Section 404 documentation in
2004 and additional review services related to Sarbanes-Oxley Section 404 in
2005.

Audit Committee Approval of Services
The Audit Committee pre-approves all audit or non-audit services performed by
its principal accountant in accordance with Audit Committee policy and
applicable law. The Audit Committee generally provides pre-approval of audit
services and services associated with SEC registration statements, other SEC
filings and responses to SEC comment letters (Audit Fees) and services related
to internal control reviews, internal control reporting requirements and
consultations with our management as to accounting or disclosure treatment of
transactions or events and the impact of rules, standards or interpretations by
the SEC and other regulatory or standard-setting bodies (Audit-Related Fees) for
each 12-month period within a range of approved fees. To avoid certain potential
conflicts of interest, the law prohibits us from obtaining certain non-audit
services from our independent accountant. The Audit Committee has delegated
authority to approve permissible services to its Chairman. The Chairman reports
such pre-approvals to the full Audit Committee at its next scheduled meeting.
The Audit Committee pre-approved of 100% of the services provided by the
independent accountant in 2005. None of the services of the independent
accountant in 2005 were of the type specified in (c)(7)(i)(C) of Regulation S-X.

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.

ADA-ES, Inc.
 (Registrant)

By /s/ Mark H. McKinnies                             /s/ Michael D. Durham
   ---------------------                             ---------------------
Mark H. McKinnies, Senior Vice                       Michael D. Durham
President and Chief Financial Officer                President (Chief Executive
(Principal Financial and Accounting Officer)         Officer)

Date:  March 29, 2006                                March 29, 2006
       --------------                                --------------

                                       29

<PAGE>


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/ John W. Eaves                           /s/ Rollie J. Peterson
-----------------                          -----------------------
John W. Eaves, Director                    Rollie J. Peterson
Director                                   Director

March 27, 2006                             March 27, 2006
--------------                             --------------
    Date                                         Date

/s/ Jeffrey C. Smith                       /s/ Michael D. Durham
--------------------                       ---------------------
Jeffrey C. Smith, Director                 Michael D. Durham, Director

March 23, 2006                             March 29, 2006
--------------                             --------------
    Date                                        Date

/s/ Mark H. McKinnies                      /s/ Ronald B. Johnson
---------------------                     ---------------------
Mark H. McKinnies, Director                Ronald B. Johnson, Director

March 29, 2006                             March 22, 2006
--------------                             --------------
    Date                                          Date

                                       30
<PAGE>








                           ADA-ES, INC. AND SUBSIDIARY
                        Consolidated Financial Statements
                               For the Years Ended
                           December 31, 2005 and 2004












<PAGE>










                          INDEX TO FINANCIAL STATEMENTS


                                                                           PAGE
                                                                           ----

Report of Independent Registered Public Accounting Firm.....................F-2

Consolidated Balance Sheet - December 31, 2005..............................F-3

Consolidated Statements of Income - For the Years Ended
     December 31, 2005 and 2004.............................................F-4

Consolidated Statements of Changes in Stockholders' Equity - For
     the Years Ended December 31, 2005 and 2004.............................F-5

Consolidated Statements of Cash Flows - For the Years Ended
      December 31, 2005 and 2004............................................F-6

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





                                      F-1

<PAGE>








             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Stockholders
ADA-ES, Inc. and Subsidiary
Littleton, Colorado


We have audited the accompanying consolidated balance sheet of ADA-ES, Inc. and
Subsidiary as of December 31, 2005, and the related consolidated statements of
income, changes in stockholders' equity and cash flows for the years ended
December 31, 2005 and 2004. These 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits 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 consolidated financial position of ADA-ES,
Inc. and Subsidiary as of December 31, 2005, and the results of their operations
and their cash flows for the years ended December 31, 2005 and 2004 in
conformity with U.S. generally accepted accounting principles.




HEIN & ASSOCIATES LLP

Denver, Colorado
February 13, 2006


                                      F-2
<PAGE>

<TABLE>
<CAPTION>

                                  ADA-ES, INC. AND SUBSIDIARY
                                  CONSOLIDATED BALANCE SHEET
                                       DECEMBER 31, 2005

                                             ASSETS
                                             ------
<S>                                                                          <C>
CURRENT ASSETS:
    Cash and cash equivalents                                                $ 14,026,000
    Trade receivables, net of allowance for doubtful accounts of $4,000         3,014,000
    Investments in securities                                                   2,515,000
    Prepaid expenses and other                                                    283,000
                                                                             ------------
             Total current assets                                              19,838,000
                                                                             ------------

PROPERTY AND EQUIPMENT, at cost                                                 1,663,000
    Less accumulated depreciation and amortization                             (1,013,000)
                                                                             ------------
             Net property and equipment                                           650,000
                                                                             ------------

GOODWILL, net of $1,556,000 in amortization                                     2,024,000
INTANGIBLE ASSETS, net of $44,000 in amortization                                 156,000
INVESTMENTS IN SECURITIES                                                       5,663,000
OTHER ASSETS                                                                      385,000
                                                                             ------------
TOTAL ASSETS                                                                 $ 28,716,000
                                                                             ============

                              LIABILITIES AND STOCKHOLDERS' EQUITY
                              ------------------------------------
CURRENT LIABILITIES:
     Accounts payable                                                        $  1,706,000
     Accrued payroll and related liabilities                                      516,000
    Accrued expenses                                                              138,000
    Deferred revenue and other                                                    460,000
                                                                             ------------
             Total current liabilities                                          2,820,000
                                                                             ------------

LONG-TERM LIABILITIES:
    Deferred compensation and other                                                40,000
                                                                             ------------
             Total liabilities                                                  2,860,000
                                                                             ------------

COMMITMENTS AND CONTINGENCIES (Notes 4 and 6)
STOCKHOLDERS' EQUITY:
    Preferred stock; 50,000,000 shares authorized, none outstanding                  --
    Common stock; no par value, 50,000,000 shares authorized,
         5,610,267 shares issued and outstanding                               26,318,000
    Accumulated other comprehensive income                                         33,000
    Accumulated deficit                                                          (495,000)
                                                                             ------------
             Total stockholders' equity                                        25,856,000
                                                                             ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                   $ 28,716,000
                                                                             ============


              See accompanying notes to these consolidated financial statements.
                                            F-3
<PAGE>


                                              ADA-ES, INC. AND SUBSIDIARY

                                           CONSOLIDATED STATEMENTS OF INCOME

                                                                               FOR THE YEARS ENDED
                                                                                  DECEMBER 31,
                                                                     ------------------------------------
                                                                         2005                     2004
                                                                     ------------            ------------
REVENUE:
    Mercury emission control                                         $  8,784,000            $  5,940,000
    Flue gas conditioning                                               1,917,000               2,122,000
    Combustion aids and others                                            327,000                 355,000
                                                                     ------------            ------------
         Total net revenues                                            11,028,000               8,417,000

COST OF REVENUES
    Mercury emission control                                            5,722,000               3,817,000
    Flue gas conditioning                                                 796,000                 958,000
    Combustion aids and others                                            223,000                 245,000
                                                                     ------------            ------------
             Total cost of services                                     6,741,000               5,020,000
                                                                     ------------            ------------

GROSS MARGIN                                                            4,287,000               3,397,000

OTHER COSTS AND EXPENSES:
    General and administrative                                          2,502,000               2,046,000
    Research and development                                              977,000                 815,000
    Depreciation and amortization                                         157,000                 153,000
                                                                     ------------            ------------
         Total expenses                                                 3,636,000               3,014,000
                                                                     ------------            ------------

OPERATING INCOME                                                          651,000                 383,000

OTHER INCOME (EXPENSE):
    Interest and other expense                                             (9,000)                (34,000)
    Interest and other income                                             357,000                  49,000
                                                                     ------------            ------------
             Total other income                                           348,000                  15,000
                                                                     ------------            ------------

INCOME BEFORE INCOME TAX PROVISION                                        999,000                 398,000

DEFERRED INCOME TAX PROVISION                                            (336,000)                (62,000)
                                                                     ------------            ------------

NET INCOME                                                                663,000                 336,000

UNREALIZED GAINS AND (LOSSES) ON CERTAIN INVESTMENTS IN DEBT
 AND EQUITY SECURITIES, net of tax                                         (1,000)                 34,000
                                                                     ------------            ------------

COMPREHENSIVE INCOME                                                 $    662,000            $    370,000
                                                                     ============            ============

NET INCOME PER COMMON SHARE - BASIC AND DILUTED                      $        .13            $        .08
                                                                     ============            ============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                              4,966,000               4,126,000
                                                                     ============            ============
WEIGHTED AVERAGE DILUTED COMMON SHARES OUTSTANDING                      5,137,000               4,193,000
                                                                     ============            ============

                          See accompanying notes to these consolidated financial statements.
                                                           F-4
<PAGE>


                                                           ADA-ES, INC. AND SUBSIDIARY

                                            CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                              FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004



                                                                                      ACCUMULATED
                                                                 COMMON STOCK            OTHER
                                                        ----------------------------  COMPREHENSIVE    ACCUMULATED
                                                           SHARES           AMOUNT       INCOME          DEFICIT           TOTAL
                                                        ------------    ------------   -----------     -----------     ------------

BALANCES, January 1, 2004
                                                           3,582,230    $  4,467,000   $       --      $ (1,494,000)   $  2,973,000
   Stock issued to employees and directors
      for expenses                                            25,716         181,000           --              --           181,000
   Issuance of stock for cash, net                         1,000,000       7,620,000           --              --         7,620,000
   Issuance of stock on exercise of options                  173,265         435,000           --              --           435,000
   Issuance of stock on conversion of debt                    14,500          36,000           --              --            36,000
   Tax benefit of stock transactions                            --           395,000           --              --           395,000
   Unrealized gains on investments                              --              --           34,000            --            34,000
   Net income                                                   --              --             --           336,000         336,000
                                                        ------------    ------------   ------------    ------------    ------------

BALANCES, December 31, 2004                                4,795,711      13,134,000         34,000      (1,158,000)     12,010,000
                                                        ------------    ------------   ------------    ------------    ------------
   Stock and stock options issued to
      consultant and directors for expenses                    4,221          75,000           --              --            75,000
   Issuance of stock for cash, net                           789,089      12,538,000           --              --        12,538,000
   Issuance of stock on exercise of options                   40,976         303,000           --              --           303,000
   Tax benefit of stock transactions                            --           268,000           --              --           268,000
   Return of shares from escrow                              (19,730)           --             --              --              --
   Unrealized loss on investments                               --              --           (1,000)           --            (1,000)
   Net income                                                   --              --             --           663,000         663,000
                                                        ------------    ------------   ------------    ------------    ------------

BALANCES, December 31, 2005                                5,610,267    $ 26,318,000   $     33,000    $   (495,000)   $ 25,856,000
                                                        ============    ============   ============    ============    ============

                                          See accompanying notes to these consolidated financial statements.
                                                                           F-5
<PAGE>


                                                   ADA-ES, INC. AND SUBSIDIARY
                                              CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                      FOR THE YEARS ENDED
                                                                                         DECEMBER 31,
                                                                              ----------------------------------
                                                                                  2005                   2004
                                                                              ------------          ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                                 $    663,000          $    336,000
   Adjustments to reconcile net income to net cash provided by
      Operating activities:
         Depreciation and amortization                                             157,000               153,000
         Loss on asset dispositions and securities                                 104,000                24,000
         Write off of inventory                                                     28,000                  --
         Expenses paid with stock and stock options                                 75,000               181,000
         Deferred tax expense                                                      336,000                62,000
         Changes in operating assets and liabilities:
             (Increase) decrease in:
                  Receivables                                                   (1,816,000)             (133,000)
                  Prepaid expenses and other                                      (103,000)              (94,000)
             Increase (decrease) in:
                  Accounts payable                                               1,273,000               271,000
                  Accrued expenses                                                 222,000               190,000
                  Deferred revenue and other                                       270,000              (159,000)
                                                                              ------------          ------------
             Net cash provided by operating activities                           1,209,000               831,000
                                                                              ------------          ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures for equipment and patents                                 (374,000)             (212,000)
   Investment in securities                                                    (10,753,000)           (8,068,000)
   Proceeds from asset dispositions                                                   --                  60,000
   Proceeds from sale of securities                                              8,999,000             1,587,000
                                                                              ------------          ------------
             Net cash used in investing activities                              (2,128,000)           (6,633,000)
                                                                              ------------          ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Payments on debt and notes payable                                               (4,000)             (922,000)
   Exercise of stock options                                                       303,000               435,000
   Sale of stock                                                                12,538,000             7,620,000
                                                                              ------------          ------------
             Net cash provided by financing activities                          12,837,000             7,133,000
                                                                              ------------          ------------
INCREASE  IN CASH AND CASH EQUIVALENTS                                          11,918,000             1,331,000
CASH AND CASH EQUIVALENTS, beginning of year                                     2,108,000               777,000
                                                                              ------------          ------------
CASH AND CASH EQUIVALENTS, end of year                                        $ 14,026,000          $  2,108,000
                                                                              ============          ============
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
   Cash payments for interest                                                 $      2,000          $     34,000
                                                                              ============          ============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
   Transfer of inventory to property                                          $       --            $     39,000
                                                                              ============          ============
   Tax effect of stock option exercises                                       $    268,000          $    395,000
                                                                              ============          ============
   Stock issued in conversion of debt                                         $       --            $     36,000
                                                                              ============          ============


                                See accompanying notes to these consolidated financial statements.
                                                                    F-6
</TABLE>

<PAGE>


                           ADA-ES, INC. AND SUBSIDIARY

                   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 ADA-ES, Inc. (ADA) and its wholly-owned subsidiary,
     ADA Environment Solutions, LLC (ADA LLC). ADA's only asset is its
     investment in its wholly-owned subsidiary, ADA LLC. All significant
     intercompany transactions have been eliminated. Collectively, ADA and
     ADA LLC are referred to as the Company.

     The Company is principally engaged in providing environmental technologies
     and specialty chemicals to the coal-burning utility industry. The Company
     also generates substantial revenue from contracts co-funded by the
     government and industry. The Company's sales occur principally throughout
     the United States.

     Cash Equivalents - The Company considers all highly liquid debt instruments
     with original maturities of three months or less to be cash equivalents.
     The Company maintains the majority of its cash in deposit accounts
     collateralized by U.S. Treasury Securities. The amount on deposit at
     December 31, 2005 was held in one commercial bank and was in excess of the
     insurance limits of the Federal Deposit Insurance Corporation.

     Receivables and Credit Policies - Trade receivables are uncollateralized
     customer obligations due under normal trade terms requiring payment within
     30 days from the invoice date. Management reviews trade receivables
     periodically and reduces the carrying amount by a valuation allowance that
     reflects management's best estimate of the amount that may not be
     collectible.

     Investments- Investments in securities include certificates of deposit and
     debt securities. All investments in debt securities are classified as
     available-for-sale securities, and are recorded at fair value in
     investments in securities, with the change in fair value during the period
     excluded from earnings and recorded net of tax as a component of other
     comprehensive income.

     Premiums and discounts on investments in debt securities are amortized over
     the contractual lives of those securities. During the first half of 2005,
     the Company transferred debt securities totaling approximately $5,532,000
     to available-for-sale from the held-to-maturity category because of the
     trading activity initiated by the debt security managers. The transfer
     resulted in an increase to other comprehensive income of $20,000. All of
     the Company's investments in debt and marketable equity securities are
     classified as available-for-sale at December 31, 2005, as they are held for
     an indefinite period. Unrealized holding losses on such securities, net of
     tax, which were reported in other comprehensive income for 2005 were
     $1,000.

     Inventories - Inventories, which are included in prepaid expenses and
     other, are stated at the lower of cost or market, determined by the
     first-in, first-out method and consist of supplies.


                                      F-7
<PAGE>


                           ADA-ES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Revenue Recognition - ADA follows the percentage of completion method of
     accounting for all significant contracts excluding government contracts and
     chemical sales. The percentage of completion method of reporting income
     takes into account the estimated costs to complete and estimated gross
     margin for contracts in progress. The Company recognizes revenue on
     government contracts based on the time and expenses incurred to date. As of
     December 31, 2005, costs incurred in excess of billings totaled $142,000
     and are included in prepaid expenses and other in the accompanying Balance
     Sheet. Billings in excess of recognized income totaled $135,000 as of
     December 31, 2005 and are included in deferred revenue and other in the
     accompanying Balance Sheet.

     ADA chemical sales are recognized when products are shipped to customers. A
     reserve is established for any returns, based on historical trends.
     Chemical products are shipped FOB shipping point and title passes to the
     customer when the chemicals are shipped. The Company's sales agreements do
     not contain a right of inspection or acceptance provision and products are
     generally received by customers within one day of shipment. The Company has
     had no significant history of non-acceptance, nor of replacing goods
     damaged or lost in transit. Consulting revenue is recognized as services
     are performed and collection is assured.

     Property and Equipment - Property and equipment is stated at cost.
     Depreciation on assets is provided using the straight-line method based on
     estimated useful lives ranging from 3 to 10 years. Maintenance and repairs
     are charged to operations as incurred. When assets are retired, or
     otherwise disposed of, the property accounts are relieved of costs and
     accumulated depreciation and any resulting gain or loss is credited or
     charged to income.

     Intangible Assets - Intangible assets principally consist of patents.
     Patents obtained by the Company directly are being amortized over a 17-year
     life. Amortization of intangible assets for the years ended December 31,
     2005 and 2004 was $11,000 and $10,000, respectively. Based on the balance
     of intangible assets as of December 31, 2005, the Company anticipates
     amortization expense over the next 5 years to be approximately $11,000 per
     year.

     Intangible assets consist of:

                                             Accumulated
                             Cost            Amortization           Net
                       ----------------    ----------------    -------------

      Patents          $        200,000    $         44,000    $     156,000
                       ================    ================    =============


                                      F-8

<PAGE>


                           ADA-ES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Goodwill - Goodwill consists of the excess of the aggregate purchase price
     over the fair value of net assets of businesses acquired. Goodwill was
     amortized over a 10-year period through December 31, 2001 and is
     attributable to the Company's FGC reporting segment. As of January 1, 2002,
     the Company adopted Statement of Financial Accounting Standards (SFAS) No.
     142, Goodwill and Other Intangible Assets. Under SFAS No. 142, goodwill is
     no longer amortized, but subject to an impairment evaluation, which is
     performed in the fourth quarter of each year. During fiscal 2002, the
     Company engaged an investment banking firm to perform a valuation of the
     Company. As a result of this evaluation, which was reviewed and updated for
     2004 and 2005, the Company concluded that no impairment of its goodwill was
     required.

     Operating Costs - Operating costs include all labor, fringe benefits,
     subcontract labor, chemical costs, materials, equipment, supplies and
     travel costs directly related to the Company's production of revenue.

     General and Administrative - General and administrative costs include
     personnel related fringe benefits, sales and administrative staff labor
     costs, facility costs and other general costs of conducting business.

     Net Income Per Share - Net income per share is presented in accordance with
     the provisions of SFAS No. 128, Earnings Per Share. Basic EPS is calculated
     by dividing the income available to common stockholders by the weighted
     average number of common shares outstanding for the period. Diluted EPS is
     calculated using the same numerator as basic EPS and further reflects the
     potential dilution that could occur if outstanding stock options were
     exercised. The effect of such dilutive stock options added 171,000 and
     67,000 shares in 2005 and 2004, respectively, to the weighted average
     number of common shares outstanding used in calculation of diluted EPS.

     Impairment of Long-Lived Assets - The Company follows SFAS No. 144,
     Impairment of Long-Lived Assets. In the event that facts and circumstances
     indicate that the carrying value of assets or intangible assets may be
     impaired, an evaluation of recoverability would be performed. Based on the
     Company's evaluation as of December 31, 2005, no impairment of value
     existed.

     Fair Value of Financial Instruments - The carrying amounts of financial
     instruments, including cash, cash equivalents, accounts receivable,
     accounts payable and accrued liabilities approximates fair value due to the
     short maturity of these instruments. The fair values of investments are
     estimated based on quoted market prices for those investments.

     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. A valuation allowance is provided when deferred tax
     assets are not expected to be realized.

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

     Stock-Based Compensation - The Company records expense for stock options
     granted to employees by using APB 25, which requires expense to be
     recognized only to the extent the exercise price of the stock-based
     compensation is below the market price on the date of grant. Transactions
     in equity instruments with non-employees for goods or services are

                                      F-9

<PAGE>


                           ADA-ES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     accounted for on the fair value method. Because the Company has elected not
     to adopt the fair value accounting described in SFAS No. 123 for employees,
     it is subject only to the disclosure requirements described in SFAS No.
     123.

     Had compensation cost been determined based on an estimate of the fair
     value consistent with the method of SFAS No. 123 at the grant dates for
     awards under those plans, the Company's net income and EPS would have been
     reduced to the pro forma amounts indicated below.

                                                      Years Ended December 31,
                                                     --------------------------
                                                         2005           2004
                                                     ------------   -----------

Net income (loss):
    As reported                                      $   663,000    $   336,000
    Fair value of stock based
       compensation, net of tax                         (147,000)       (48,000)
                                                     -----------    -----------

    Pro forma                                        $   516,000    $   288,000
                                                     ===========    ===========

 Net income (loss) per share - basic and diluted:
    As reported                                      $       .13    $       .08
    Fair value of stock based compensation                  (.03)          (.01)
                                                     -----------    -----------

    Pro forma - basic and diluted                    $       .10    $       .07
                                                     ===========    ===========

     The options granted in 2004 and 2005 had exercise prices equal to the
     market price on the date of the grants. Prior to the third quarter of 2005,
     the Company showed expense related to stock options in the period of grant.
     The presentation above, including 2004 amounts, shows expense amortized
     over the estimated service period, as required under SFAS 123. The average
     fair value of each employee option granted in 2005 and 2004 was
     approximately $2.18 and $1.38, respectively, and was estimated on the date
     of grant using the Black-Scholes option-pricing model with the following
     weighted average assumptions:

                                                      Years Ended December 31,
                                                    --------------------------
                                                      2005              2004
                                                    --------          -------

          Expected volatility                         41%               35%

          Risk-free interest rate                    2.6%              2.5%

          Expected life of options (in years)         4.8               4.4
          Expected dividends                           0                 0

     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

                                      F-10

<PAGE>


                           ADA-ES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     notes. Actual results could differ from those estimates. The Company makes
     significant assumptions concerning: 1) the impairment of and the remaining
     realizability of its intangibles; 2) estimates of certain overhead and
     other rates on research contracts with the U.S. Government, which are
     subject to future audits. At this time, the Company does not believe any
     future government audit will result in material adjustment to previously
     recorded revenues; 3) the allowance for doubtful accounts, which is based
     on historical experience; 4) the valuation and classification of
     investments in available-for-sale securities, which is based on estimated
     fair market value; and 5) the percentage of completion method of accounting
     for significant long-term contracts, which is based on estimates of gross
     margins and of the costs to complete such contracts.

     Comprehensive Income - SFAS No. 130 establishes standards for reporting and
     display of comprehensive income, its components and accumulated balances.
     Comprehensive income is defined to include all changes in equity except
     those resulting from investments by owners and distributions to owners. In
     2005 and 2004, comprehensive income includes unrealized gains (losses) on
     investments, net of income tax expense, of ($1,000) and $34,000,
     respectively.

     Segment Information - The Company follows SFAS No. 131, Disclosure About
     Segments of an Enterprise and Related Information. SFAS No. 131 establishes
     standards on the way that public companies report financial information
     about operating segments in annual financial statements and requires
     reporting of selected information about operating segments in interim
     financial statements issued to the public. It also establishes standards
     for disclosures regarding products and services, geographic areas, and
     major customers. SFAS No. 131 defines operating segments as components of a
     company about which discrete financial information is available that is
     evaluated regularly by the chief operating decision maker in deciding how
     to allocate resources and in assessing performance. The Company has three
     reportable segments: mercury emission controls (MEC), flue gas conditioning
     and consulting (FGC), and combustion aids and consulting (CA).

     Recently Issued Accounting Pronouncements - In December 2004, the FASB
     issued SFAS No. 123R, Share-Based Payment. This Statement is a revision of
     SFAS No. 123, Accounting for Stock-Based Compensation. This Statement
     supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees,
     and its related implementation guidance. SFAS No. 123R establishes
     standards for the accounting for transactions in which an entity exchanges
     its equity instruments for goods or services, or incurs liabilities in
     exchange for goods or services that are based on the fair value of the
     entity's equity instruments or that may be settled by the issuance of those
     equity instruments. SFAS No. 123R focuses primarily on accounting for
     transactions in which an entity obtains employee services in share-based
     payment transactions and requires the Company to measure and recognize
     costs of share-based payment transactions in the financial statements. The
     Company must implement SFAS No. 123R as of the beginning of the first
     quarter of 2006. The Company is evaluating the impact of SFAS No. 123R on
     its financial statements and believes the impact will be similar to
     proforma amounts disclosed above.

     In November 2005, the FASB issued Staff Position ("FSP") FAS115-1/124-1,
     The Meaning of Other-Than-Temporary Impairment and Its Application to
     Certain Investments , which addresses the determination as to when an
     investment is considered impaired, whether that impairment is other than
     temporary, and the measurement of an impairment loss. This FSP also

                                      F-11

<PAGE>



                           ADA-ES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     includes accounting considerations subsequent to the recognition of an
     other-than-temporary impairment and requires certain disclosures about
     unrealized losses that have not been recognized as other-than-temporary
     impairments. The guidance in this FSP amends FASB Statements No. 115,
     Accounting for Certain Investments in Debt and Equity Securities , and No.
     124, Accounting for Certain Investments Held by Not-for-Profit
     Organizations , and APB Opinion No. 18, The Equity Method of Accounting for
     Investments in Common Stock . This FSP is effective for reporting periods
     beginning after December 15, 2005. Adoption of this FSP is not expected to
     have a material impact on the Company's financial statements.

     In April 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
     Corrections, requiring retrospective application as the required method for
     reporting a change in accounting principle, unless impracticable or a
     pronouncement includes specific transition provisions. This statement also
     requires that a change in depreciation, amortization, or depletion method
     for long-lived, non-financial assets be accounted for as a change in
     accounting estimate effected by a change in accounting principle. This
     statement carries forward the guidance in APB Opinion No. 20, Accounting
     Changes, for the reporting of the correction of an error and a change in
     accounting estimate. This statement is effective for accounting changes and
     correction of errors made in fiscal years beginning after December 15, 2005
     and is not expected to have a material impact on the Company's financial
     statements.

2. PROPERTY AND EQUIPMENT:
   -----------------------

     Property and equipment as of December 31, 2005 is summarized as follows:

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

        Machinery and equipment              $   1,375,000          3-10
        Leasehold improvements                     210,000            7
        Furniture and fixtures                      78,000            5
                                             -------------

                                             $   1,663,000
                                             =============


     Depreciation and amortization of property and equipment for the years ended
     December 31, 2005 and 2004 was $146,000 and $143,000, respectively.


                                      F-12
<PAGE>


                           ADA-ES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.   INVESTMENTS:
     ------------

     Investments in available-for-sale securities are reported at their fair
     value in investments in securities and are summarized as follows at
     December 31, 2005: Gross Gross Unrealized Fair Unrealized Gain Loss Value

     Certificates of deposit        $      --       $      --       $ 1,200,000
     Common stock                   $   142,000     $   (18,000)    $ 1,444,000
     Debt securities                $     4,000     $   (76,000)    $ 5,534,000
                                    -----------     -----------     -----------
     Total                          $   146,000     $   (94,000)    $ 8,178,000
                                    ===========     ===========     ===========
     Less short-term portion                                        $(2,515,000)
                                                                    -----------
     Long-term portion                                              $ 5,663,000
                                                                    ===========

     Realized gains and losses are determined on the basis of specific
     identification of the security sold. During 2005, information on securities
     sold is as follows:

     Carrying amount of securities sold                             $ 9,031,000
                                                                    ===========
     Sale proceeds                                                  $ 8,999,000
                                                                    ===========
     Gross realized losses                                          $   (60,000)
                                                                    ===========
     Gross realized gains                                           $    28,000
                                                                    ===========


     Accumulated other comprehensive income for 2005 and 2004 includes an
     unrealized holding gain, net of tax, on securities of $33,000 and $34,000,
     respectively.

     Debt securities will mature as follows:

                   Year(s)                                      Amount
                   -------                                      ------

                 2006                                       $    271,000
                 2007-2010                                     1,706,000
                 2011-2015                                     2,934,000
                 Beyond 2015                                     623,000
                                                            ------------

                 Total                                      $  5,534,000
                                                            ============

                                      F-13
<PAGE>


                           ADA-ES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.   GOVERNMENT AND INDUSTRY FUNDED CONTRACTS:
     -----------------------------------------

     ADA has performed activities under five contracts awarded by the Department
     of Energy (the "DOE") that contributed a total of $2,348,000 and $2,387,000
     to revenues in 2005 and 2004, respectively. These amounts are included in
     Mercury emission control revenues. ADA typically invoices the DOE monthly
     for labor and expenditures plus estimated overhead factors, less cost share
     amounts. The total approved DOE budgets amount to $23.2 million, of which
     the Company's and industry partners' cost-share portion is $7.4 million.
     The remaining unearned amount of the contracts was $5.4 million as of
     December 31, 2005, of which $3.3 million is expected to be recognized by
     the Company in 2006 (including cash contributions by other industry
     partners). These contracts are subject to audit and future appropriation of
     funds by Congress. The Company's historical experience has not resulted in
     significant adverse adjustments to the Company, however the government
     audits for years ended 2005, 2004, 2003 and 2002 have not yet been
     finalized.

5.   STOCKHOLDERS' EQUITY:
     ---------------------

     Shares and Stock Options Issued for Pension Expenses and Directors' and
     Consultant Compensation - In 2004 the Company issued shares of its common
     stock for the payments of approximately $146,000 of ADA pension related
     expenses (see Note 6) and $35,000 of non-management directors'
     compensation, based upon the per share value of unrestricted common stock
     of ADA at the time of exchanges. In 2005, the Company issued shares of its
     common stock for compensation of $58,000 to non-management directors based
     on the market price of the common stock, and recorded $17,000 of expense
     related to stock options issued to a consultant.

     Sale of Stock, Convertible Debenture and Grant of Option to Arch - In 2003,
     the Company sold 137,741 shares to Arch Coal for $1 million and sold a
     convertible debenture for $300,000, both pursuant to an investment
     agreement. Of the shares sold, 37,741 were originally placed in escrow of
     which 19,730 shares were returned to the Company during 2005 since the
     market price of the Company's shares exceeded a minimum of $9.08 for a
     twenty-day continuous period during the one-year period from the date of
     their issuance. The Debenture was repaid during 2004. As a part of the
     share purchase Arch was also granted an option to purchase 50,000 shares
     for $10.00 per share. The option expires in five years. Under the option,
     Arch may purchase 16,667 shares after August 2004, another 16,667 shares
     after August 2005, and the remaining shares after August 2006.

     Sale of Stock in 2005 and 2004 - In August 2004 and October 2005, the
     Company entered into several Subscription and Investment Agreements. Under
     the August 2004 agreements, the Company privately sold 1 million shares of
     its common stock to a limited number of institutional investors at a price
     of $8.00 per share. The net proceeds to the Company from the sales totaled
     $7,620,000. Under the October 2005 agreements, the Company privately sold
     789,089 shares of its common stock to a limited number of institutional
     investors at a price of $17.00 per share. Net proceeds to the Company
     totaled $12,538,000.

                                      F-14

<PAGE>


                           ADA-ES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Stock Options - During 2003 the Company adopted the 2002 ADA-ES, Inc. Stock
     Option Plan and reserved 400,000 shares of common stock for issuance under
     the plan. In general, all options granted under the plan expire ten years
     from the date of grant unless otherwise specified by the Company's board of
     directors. The exercise price of an option will be determined by the
     compensation committee of the board of directors at the time the option is
     granted and will not be less than 100% of the fair market value of a share
     of our common stock on the date the option is granted. The compensation
     committee may provide in the option agreement that an option may be
     exercised in whole immediately or is exercisable in increments through a
     vesting schedule. During 2005, 61,900 options were granted under this plan.

     During 2004 the Company adopted the 2004 Executive Stock Option Plan. This
     plan authorized the grant of up to 200,000 options to purchase shares of
     the Company's Common Stock to executive officers of the Company. The option
     exercise price of grants under this plan is the market price on the date of
     the grant. The options are exercisable over a 10-year period based on a
     vesting schedule that may be accelerated based on performance of the
     individual recipients as determined by the Board of Directors. During 2004,
     200,000 options were granted under this plan. In January 2005 and 2006 the
     Board of Directors authorized the vesting of 27,080 options and 38,428
     options, respectively, under this plan.

     During 2004 the Company adopted a plan (the "2004 Plan") for the issuance
     of shares and the grant of options to purchase shares of the Company's
     Common Stock to the Company's non-management directors. The 2004 Plan
     provided for the award of stock of 603 shares per individual non-management
     director or 4,221 shares in total, and the grant of options of 5,000 per
     individual non-management director or 35,000 in total, all of which were
     formally granted and issued in 2005 after approval of the 2004 Plan by the
     stockholders. The option exercise price of $13.80 per share for the stock
     options granted on November 4, 2004 was the market price on the date of the
     grant. The options are exercisable over a period of five years and will
     vest over a three-year period, one-third each year for continued service on
     the Board. If such service is terminated, the non-vested portion of the
     option will be forfeited.

     During 2005 the Company adopted the 2005 Directors' Compensation Plan (the
     "2005 Plan"), which authorized the issuance of shares of Common Stock and
     the grant of options to purchase shares of the Company's Common Stock to
     non-management directors. The 2005 Plan provides a portion of the annual
     compensation to non-management directors of the Company in the form of
     awards of shares of Common Stock and vesting of options to purchase Common
     Stock of the Company for services performed for the Company. Under the 2005
     Plan, the award of stock is limited to not more than 1,000 shares per
     individual per year, and the grant of options is limited to 5,000 per
     individual in total. The aggregate number of shares of Common Stock
     reserved for issuance under the 2005 Plan totals 90,000 shares (50,000 in
     the form of stock awards and 40,000 in the form of options). The exercise
     price will be the market price on the date of grant, the shares of Stock

                                      F-15

<PAGE>


                           ADA-ES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     underlying the option will vest for exercise at a rate of no more than
     1,667 shares per annual period per individual, and any unvested shares of
     Stock that are outstanding at the date the individual is no longer is a
     Director will be forfeited. The 2005 Plan, if not terminated earlier by the
     Board, will terminate ten years after the date of its adoption. In January
     2006 the Board of Directors authorized the issuance of 1,000 shares of
     Common Stock each, or a total of 7,000 shares, to the non-management
     directors of the Company.

     The Company granted options to employees in 2004 and to employees and a
     consultant in 2005 as additional compensation. The following is a table of
     options activity during 2004 and 2005:
<TABLE>
<CAPTION>
                                                                            Weighted
                                                                            Average
                                                Employees    Non-Employee   Exercise
                                                 Options       Options       Price
                                                ------------------------------------

<S>                                              <C>           <C>             <C>
OPTIONS OUTSTANDING, January 1, 2004             187,310       80,000          3.94
   Options granted                               275,995         --            9.32
   Options expired                                (7,800)        --            2.80
   Options exercised                            (157,765)     (30,000)         2.51
                                                --------     --------     ---------
OPTIONS OUTSTANDING, December 31, 2004           297,740       50,000     $    9.01
                                                ========     ========     =========
   Options granted                                96,900       30,000         15.29
   Options expired                                (2,181)        --           13.80
   Options exercised                             (40,976)        --            7.39
                                                --------     --------     ---------
OPTIONS OUTSTANDING, December 31, 2005           351,483       80,000     $   10.99
                                                ========     ========     =========

     The weighted average remaining contractual life for all options as of
     December 31, 2005 was approximately 8.3 years. At December 31, 2005,
     107,722 options with a weighted average exercise price of $9.90 were fully
     vested and exercisable. Of the remaining 323,761 options, 103,877 options
     with a weighted average exercise price of $12.68 vest in 2006, 42,617
     options with a weighted average exercise price of $15.74 vest in 2007,
     150,267 options with an exercise price of $8.60 vest at the discretion of
     the board of directors based on specific achievements of individual
     employees, with minimum annual vesting of 10,000 and maximum vesting of
     20,000. Additionally, 27,000 options with an exercise price of $14.60 vest
     at the discretion of the board of directors upon achievement of performance
     objectives.

     Following is information related to options outstanding at December 31,
     2005:
                                                                     Weighted
                                                                     Average
                                  Shares      Weighted Average      Contractual          Number       Weighted Average
               Range            Outstanding    Exercise Price          Life            Exercisable     Exercise Price
              -----            -----------    --------------          ----            -----------     --------------
                                                                   (in years)
              $2.80                13,425         $ 2.80               7.8               13,425           $2.80
         $8.60 - $10.00           254,960         $ 8.87               8.5               59,218           $9.15
         $13.80 - $18.61          163,098         $14.96               8.1               35,079          $13.87
                                  -------         ------               ---               ------          ------
                                  431,483         $10.99               8.3              107,722          $ 9.90
                                  =======         ======               ===              =======          ======
</TABLE>

                                                         F-16


<PAGE>


                           ADA-ES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.   COMMITMENTS AND CONTINGENCIES:
     ------------------------------

     Pension Expense and Retirement Plan - The Company assumed a defined
     contribution and 401(k) plan covering all eligible employees as of January
     1, 2003. The Company recognized contribution expense of $206,000 and
     $161,000 for 2005 and 2004, respectively, based on a percentage of the
     eligible employees' annual compensation.

     Performance Guarantee Activated Carbon Injection Systems - Under contracts
     to supply activated carbon injection systems, the Company may grant
     performance guarantees to the owner of the power plants that guarantee the
     performance of the associated equipment for a specified period and the
     achievement of a certain level of mercury removal based upon the injection
     of a specified quantity of activated carbon at a specified rate given other
     plant operating conditions. In the event the equipment fails to perform as
     specified, the Company is obligated to correct or replace the equipment. In
     the event the level of mercury removal is not achieved, the Company has a
     "make right" obligation within the contract limits.

     Office Lease - The Company leases office space under a non-cancellable
     operating lease. Total rental expense was $153,000 and $158,000 for the
     years ending December 31, 2005 and 2004, respectively. The total minimum
     rental commitments at December 31, 2005 was $494,000 for lease payments due
     in 2006 through 2009 as follows:

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

                  2006                                      $  119,000
                  2007                                         122,000
                  2008                                         125,000
                  2009                                         128,000
                                                            ----------

                                                            $  494,000
                                                            ==========

7.   MAJOR CUSTOMERS:
     ----------------

     Sales to unaffiliated customers which represent 10% or more of the
     Company's sales for the years ended December 31, 2005 and 2004 were as
     follows (as a percentage of each entity's sales):

      Customer                                    2005                   2004
      ---------------------------------    -------------------    --------------

      A (Governmental Contracts)                  21%                    28%
      B                                           11%                    10%
      C                                           13%                     -

                                      F-17

<PAGE>


                           ADA-ES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     At December 31, 2005, approximately 89% of the Company's trade receivables
     were from five customers.

     A significant portion of ADA's revenue is derived from contracts with the
     DOE and chemical and equipment sales to coal-burning electric power plants.

8.   INCOME TAXES:
     -------------

     The following lists the Company's deferred tax assets and liabilities as of
     December 31, 2005, which are included in Other Assets and Accrued Expenses,
     respectively, in the accompany Balance Sheet:

           Current assets (liabilities):
               Prepaid expenses                                   $    (39,000)
               Unrealized gains - securities held for sale             (19,000)
               Deferred revenues, compensation and other                30,000
                                                                  ------------
                                                                       (28,000)
           Non-current assets (liabilities)
               Deferred compensation, warranty and other                 9,000
               Property and intangible asset differences               (60,000)
               Net loss carryforward                                   318,000
               Tax credits                                             101,000
                                                                  ------------
                                                                       368,000
           Net tax assets                                         $    340,000
                                                                  ============

     As of December 31, 2005, the Company had approximately $857,000 of tax loss
     carryforwards. If not utilized to reduce taxable income in future periods,
     $40,000 will expire in 2023 and the remainder in 2024. Approximately
     $69,000 of tax loss carryforwards were used to reduce taxable income in
     2005. The Company's valuation allowance as of December 31, 2005 and 2004
     was $0, as the Company believes that it is more likely than not that its
     deferred tax assets would be realized in the future.

        At December 31, 2005 and 2004, the Company's current tax provision was
     reduced by $268,000 and $395,000, respectively, attributable to the tax
        effects of stock option exercises recorded in stockholders' equity.


                                      F-18
<PAGE>


                           ADA-ES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The following is a reconciliation of the actual income tax rate - expense
     (benefit) to the expected combined Federal and State tax rate of
     approximately 34%:

                                                           2005          2004
                                                           ----          ----

        Expected income tax rate - expense (benefit)        35%          34%
        Permanent differences                              (4%)          (4%)
        Tax credits                                        (1%)         (17%)
        State income taxes                                  3%            3%
        Other                                               1%             -
                                                            ---          ---

        Actual income tax rate                             34%           16%
                                                           ===           ===


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

     As discussed above in Note 5, the Company executed a Securities
     Subscription and Investment Agreement with Arch Coal, Inc. in 2003.
     Pursuant to the investment agreement, Arch purchased a $300,000 convertible
     debenture from the Company, purchased 137,741 shares of the Company's
     Common stock and was also granted an option to purchase 50,000 shares. The
     debenture and accrued interest thereon was repaid in 2004. In addition, the
     Company co-markets its ADA-249 product and performs certain testing and
     research projects under agreements with Arch. Under such arrangements, the
     Company has recorded revenue of $230,000 and $25,000 in 2005 and 2004,
     respectively. A designee of Arch has been appointed a seat on the Company's
     Board of Directors and management of the Company has agreed in the future
     to nominate and to vote all proxies and other shares of stock in the
     Company which they are entitled to vote in favor of that designee so long
     as Arch holds no less than 100,000 shares of the Company's common stock.

10.  BUSINESS SEGMENT INFORMATION:
     -----------------------------

     The following information relates to the Company's three reportable
     segments: MEC, FGC, and CA. All assets are located in the U.S. and are not
     evaluated by management on a segment basis. All significant customers are
     U.S. companies.

     Year Ended December 31, 2005:
<TABLE>
<CAPTION>

                                    MEC              FGC             CA           Total
                                    ---              ---             --           -----

<S>                                <C>              <C>             <C>          <C>
       Total revenue               $8,784,000       $1,917,000      $327,000     $11,028,000
       Segment profit (loss)       $1,738,000         $957,000       $53,000      $2,748,000


                                      F-19
<PAGE>


                           ADA-ES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Year Ended December 31, 2004:

                                    MEC              FGC             CA           Total
                                    ---              ---             --           -----

       Total revenue               $5,940,000       $2,122,000      $355,000      $8,417,000
       Segment profit (loss)         $996,000         $964,000       $34,000      $1,994,000


     A reconciliation of the reported total segment profit to net income for the
     periods shown above is as follows:

                                                                           2005               2004
                                                                      ------------       ------------

       Total segment profit                                           $  2,748,000         $1,994,000
       Non-allocated general and administrative expenses                (1,940,000)        (1,458,000)
       Depreciation and amortization                                      (157,000)          (153,000)
       Interest, other income/expenses and tax (provision) benefit          12,000            (47,000)
                                                                      ------------         ----------

       Net income                                                     $    663,000         $  336,000
                                                                      ============         ==========
</TABLE>


                                      F-20