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

                                  FORM 10-KSB/A
                                  Amendment #1

                  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


<PAGE>

PART II


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 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 (i) 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 and (ii) information required to be
disclosed by us in such reports is accumulated and communicated to our
management, including our principal executive and financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosures.

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.

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)

<PAGE>

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

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** (16)
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)
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**(16)
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)

<PAGE>

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

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) Intentionally omitted.
(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).
(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) Incorporated by referenced to the same numbered Exhibit to the Form 10-KSB
for the year ended December 31,2005 filed on March 30, 2006.



<PAGE>


SIGNATURES

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

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:  July 25, 2006                               July 25, 2006
       -------------                               -------------

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

July 25, 2006                                      July 25, 2006
-------------                                      -------------
    Date                                               Date

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

July 25, 2006                                      July 25, 2006
-------------                                      -------------
    Date                                               Date

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

July 25, 2006                                      July 25, 2006
-------------                                      -------------
    Date                                               Date




<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. As a result of this
     evaluation, which was performed on the FGC reporting segment, 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