<PAGE> 1
                    SECURITIES AND EXCHANGE COMMISSION
                           Washington D.C.  20549

                                 FORM 10-QSB/A
                               AMENDMENT NO. 1

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

     For the Quarter Ended:    June 30, 1999

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

        For the Transition Period from _____________ to ____________

                    Commission File Number   0-29838
                                             -------

                        INDUSTRIAL ECOSYSTEMS, INC.
               ----------------------------------------------
               (Name of Small Business Issuer in its charter)

         Utah                                             94-3200034
-------------------------------                    --------------------------
(State or other jurisdiction of                    (I.R.S. Employer I.D. No.)
 incorporation or organization)

              450 Dondee Way, Suite 10, Pacifica, California  94044
              -----------------------------------------------------
              (Address of principal executive offices and Zip Code)

                                 (650) 355-4050
              ----------------------------------------------------
              (Registrant's telephone number, including area code)


     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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.

(1)  Yes X    No     (2)  Yes      No X
        ---     ---          ---     ---

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

Common Stock, Par Value $0.001                       33,000,905
--------------------------------                ----------------------------
       Title of Class                           Number of Shares Outstanding
                                                as of June 30, 1999

<PAGE>
<PAGE> 2
                        PART I FINANCIAL INFORMATION

                        ITEM 1.  FINANCIAL STATEMENTS

                         INDUSTRIAL ECOSYSTEMS, INC.
                             FINANCIAL STATEMENTS
                                 (UNAUDITED)


     The accompanying financial statements have been prepared by the
Company, without audit, in accordance with the instructions to Form 10-QSB
pursuant to the rules and regulations of the Securities and Exchange
Commission and, therefore may not include all information and footnotes
necessary for a complete presentation of the financial position, results of
operations, cash flows, and stockholders' equity in conformity with generally
accepted accounting principles.  In the opinion of management, all adjustments
(which include only normal recurring accruals) necessary to present fairly the
financial position and results of operations for the periods presented have
been made.  These financial statements should be read in conjunction with the
accompanying notes, and with the historical financial information of the
Company.

                       INDEPENDENT ACCOUNTANT'S REPORT
                       -------------------------------

The Board of Directors
Industrial Ecosystems, Inc. and Subsidiaries
Pacifica, California

The accompanying consolidated balance sheet of Industrial Ecosystems, Inc. and
Subsidiaries as of June 30, 1999 and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the three and
six months ended June 30, 1999 and 1998 were not audited by us and accordingly
we do not express an opinion on them.  The accompanying balance sheet as of
December 31, 1998 was audited by us and we expressed an unqualified opinion on
it in our report dated February 19, 1999.

As discussed in Note 13 to the consolidated financial statements, an error
resulting in the overstatement of previously reported amounts in Additional
Paid-In Capital and Accumulated Deficit as of December 31, 1998, and in the
overstatement of previously reported net income for the six months and three
months ended June 30, 1999 and March 31, 1999, was discovered by management of
the Company during the current year.  Accordingly, an adjustment has been made
to the above-mentioned accounts as of December 31, 1998 and for the six months
and three months ended June 30, 1999 and March 31, 1999, respectively, to
correct the error.

Jones, Jensen & Company
Salt Lake City, Utah
August 9, 1999
<PAGE>
<PAGE> 3

                INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
                         Consolidated Balance Sheet


                                   ASSETS
                                   ------
                                                   June 30,    December 31,
                                                    1999           1998
                                                ------------   ------------
                                                 (Unaudited)   (As Restated
CURRENT ASSETS                                                   See Note 13)

   Cash and cash equivalents                    $    231,981   $     12,552
   Restricted cash (Note 1)                           42,431         40,669
   Accounts receivable (Note 1)                      123,558         35,079
   Prepaid expenses                                   43,529              -
                                                ------------   ------------

     Total Current Assets                            441,499         88,300
                                                ------------   ------------

PROPERTY AND EQUIPMENT (Net) (Notes 1 and 2)         245,276        275,973
                                                ------------   ------------

OTHER ASSETS

   Investment in joint venture (Note 7)                    -              -
   Deposits                                           21,606         10,740
                                                ------------   ------------

     Total Other Assets                               21,606         10,740
                                                ------------   ------------

     TOTAL ASSETS                               $    708,381   $    375,013
                                                ============   ============


The accompanying notes are an integral part of these consolidated financial
statements.

<PAGE>
<PAGE> 4

               INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
                 Consolidated Balance Sheet (Continued)


              LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
              ----------------------------------------------

                                                   June 30,    December 31,
                                                    1999           1998
                                                ------------   ------------
                                                 (Unaudited)   (As Restated
CURRENT LIABILITIES                                              See Note 13)

   Accounts payable                             $     75,326   $    356,890
   Accrued expenses (Note 4)                         340,216        323,755
   Unearned revenue (Note 1)                               -         21,666
   Due to related party (Note 3)                       9,286         14,286
   Notes payable, current portion (Note 5)            33,861         85,902
                                                ------------   ------------

     Total Current Liabilities                       458,689        802,499
                                                ------------   ------------

LONG-TERM DEBT

   Note payable, related party (Note 6)              750,000              -
   Notes payable (Note 5)                            167,353        157,405
                                                ------------   ------------

     Total Long-Term Debt                            917,353        157,405
                                                ------------   ------------

     Total Liabilities                             1,376,042        959,904
                                                ------------   ------------

COMMITMENTS AND CONTINGENCIES (NOTE 8)               500,232        747,819
                                                ------------   ------------

STOCKHOLDERS' EQUITY (DEFICIT)

   Common stock; 100,000,000 shares authorized
    of $0.001 par value, 33,000,905 and
    33,596,906 shares issued and outstanding,
    respectively                                      35,501         33,001
   Additional paid-in capital                     20,837,259     20,589,759
   Other comprehensive income                         45,088         38,419
   Accumulated deficit                           (22,085,741)   (21,993,889)
                                                ------------   ------------

     Total Stockholders' Equity (Deficit)         (1,167,893)    (1,332,710)
                                                ------------   ------------

     TOTAL LIABILITIES AND STOCKHOLDERS'
      EQUITY (DEFICIT)                          $    708,381   $    375,013
                                                ============   ============

The accompanying notes are an integral part of these consolidated financial
statements.
PAGE> 5

               INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
                  Consolidated Statements of Operations
                             (Unaudited)
<TABLE>
<CAPTION>
                                                         For the Three           For the Six
                                                         Months Ended            Months Ended
                                                           June 30,                June 30,
                                                      1999         1998         1999        1998
                                                   ----------   ----------   ----------   ----------
<S>                                               <C>          <C>         <C>(As Restated <C>
REVENUES                                                                       See Note 13)

   Net sales                                       $  204,059   $   79,956   $  334,892   $  255,584
   Direct costs                                       125,390       58,869      212,107      163,844
                                                   ----------   ----------   ----------   ----------
     Gross Profit                                      78,669       21,087      122,786       91,740
                                                   ----------   ----------   ----------   ----------
EXPENSES

   General and administrative                         311,446      198,070      547,512    1,026,008
   Depreciation and amortization                       24,865       27,784       49,528       55,726
                                                   ----------   ----------   ----------   ----------
     Total Expenses                                   336,311      225,854      597,040    1,081,734
                                                   ----------   ----------   ----------   ----------
     Loss From Operations                            (257,642)    (204,767)    (474,255)    (989,994)
                                                   ----------   ----------   ----------   ----------
OTHER INCOME (EXPENSE)

   Other income                                         5,630       38,130       32,499       41,463
   Interest income                                          3          103          115          224
   Interest expense                                   (15,715)      (7,705)     (24,739)     (17,166)
   Loss on investment                                    -         (32,013)        -         (71,071)
   Loss on disposition of assets                         -            -            -         (14,311)
                                                   ----------   ----------   ----------   ----------
     Total Other Income (Expense)                     (10,082)      (1,485)       7,875      (60,861)
                                                   ----------   ----------   ----------   ----------
NET LOSS BEFORE EXTRAORDINARY ITEMS                  (267,724)    (206,252)    (466,380)  (1,050,855)
                                                   ----------   ----------   ----------   ----------
EXTRAORDINARY ITEMS

 Debt forgiveness (Note 8)                             48,571         -         374,528         -
                                                   ----------    ----------   ----------   ---------
  Total Extraordinary Items                            48,571         -         374,528         -
                                                   ----------   ----------   ----------   ----------
NET LOSS                                           $ (219,153)  $ (206,252)  $  (91,852) $(1,050,855)
                                                   ==========   ==========   ==========   ==========
OTHER COMPREHENSIVE INCOME

   Foreign currency adjustments                         3,321         -           6,669         -
                                                   ----------    ----------   ----------   ----------
NET COMPREHENSIVE LOSS                             $ (215,832)  $ (206,252)  $  (85,183) $(1,050,855)
                                                   ==========   ==========   ==========   ==========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 6
                 INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
               Consolidated Statements of Operations (Continued)
                                  (Unaudited)
<TABLE>
<CAPTION>


                                                         For the Three           For the Six
                                                         Months Ended            Months Ended
                                                           June 30,                June 30,
                                                      1999         1998         1999        1998
                                                   ----------   ----------   ----------   ----------
<S>                                               <C>          <C>          <C>          <C>
                                                              (As Restated
                                                                               See Note 13)
BASIC EARNINGS (LOSS) PER SHARE

 Before extraordinary items                        $    (0.00)  $    (0.01)  $    (0.01)  $    (0.04)
 Extraordinary items                                     0.00          -           0.01          -
                                                   ----------   ----------   ----------   ----------

 BASIC EARNINGS (LOSS) PER SHARE                   $     0.00   $    (0.01)  $     0.00   $    (0.04)
                                                   ==========   ==========   ==========   ==========

FULLY DILUTED EARNINGS (LOSS) PER SHARE

 Before extraordinary items                        $    (0.00)  $    (0.01)  $    (0.01)  $    (0.04)
 Extraordinary items                                     0.00          -           0.01          -
                                                   ----------   ----------   ----------   ----------

 FULLY DILUTED EARNINGS (LOSS) PER SHARE           $     0.00   $    (0.01)  $     0.00   $    (0.04)
                                                   ==========   ==========   ==========   ==========

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

<PAGE>
<PAGE> 7

                 INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
           Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
                                                         Additional       Other
                                     Common Stock         Paid-In     Comprehensive  Accumulated
                                 Shares       Amount      Capital        Income        Deficit
                              -----------   --------   ------------   -----------   ------------
<S>                          <C>           <C>        <C>            <C>           <C>
Balance, December 31, 1997     25,289,876   $ 25,290   $ 18,880,552   $    23,755  $ (20,626,747)
 (Previously reported)

Correction of Error (Note 13)     596,001        596       (527,011)         -          527,607

Restated balance,
 December 31, 1997             24,693,875     24,694     18,353,541        23,755    (20,099,140)

Common stock issued for cash
 at an average price of $0.35
 per share                      2,865,701      2,866        998,056          -              -

Common stock issued in lieu
 of debt at an average price
 of $0.16 per share             5,341,330      5,341        830,726          -              -

Common stock issued for
 services rendered at an
 average of $0.21 per share        99,999        100         21,325          -              -

Additional capital contributed       -          -           386,111          -              -

Currency translation adjustment      -          -              -           14,664           -

Net loss for the year ended
 December 31, 1998                   -          -              -             -        (1,894,749)
                              -----------   --------   ------------   -----------   ------------
Balance, December 31, 1998     33,000,905     33,597     20,589,759        38,419    (21,993,889)

Common stock issued for cash
 at $0.10 per share             2,500,000      2,500        247,500          -              -

Currency translation adjustment
 (Unaudited)                         -          -              -            6,669           -

Net loss for the six
 months ended June 30, 1999
 (Unaudited)                         -          -              -             -           (91,852)
                              -----------   --------   ------------   -----------   ------------
Balance, June 30, 1999
 (Unaudited)                   35,500,905   $ 35,501   $ 20,837,259   $    45,088   $(22,085,741)
                              ===========   ========   ============   ===========   ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


<PAGE>
<PAGE> 8
                 INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
                    Consolidated Statements of Cash Flows
                                  (Unaudited)
<TABLE>
<CAPTION>


                                                         For the Three           For the Six
                                                         Months Ended            Months Ended
                                                           June 30,                June 30,
                                                      1999         1998         1999        1998
                                                   ----------   ----------   ----------   ----------
<S>                                               <C>          <C>          <C>          <C>
                                                                              (As Restated
                                                                               See Note 13)
CASH FLOWS FROM OPERATING ACTIVITIES

 Net income (loss)                                 $ (219,153)  $ (206,252)  $  (91,852) $(1,050,855)
 Adjustments to reconcile net income to net
  cash (used) by operating activities:
   Debt forgiveness                                   (48,571)        -        (374,528)        -
   Loss on investment in joint venture                   -          32,013         -          71,071
   Loss on disposition of assets                         -            -            -          14,311
   Depreciation and amortization                       24,865       27,784       49,528       55,726
 Changes in assets and liabilities:
   (Increase) decrease in accounts receivable         (25,455)    (112,710)     (88,479)     (16,043)
   (Increase) decrease in deposits and prepaid
     expenses                                         (10,666)     104,906      (54,395)      (9,400)
   Increase (decrease) in accounts payable            (81,787)    (173,786)    (281,564)    (525,253)
   Increase (decrease) in unearned revenue               -            -         (21,666)        -
   Increase (decrease) in contingent liabilities      158,816      207,574      133,610       76,668
   Increase (decrease) in accrued expenses            (34,293)     250,735       16,461       50,486
                                                   ----------   ----------   ----------   ----------
    Net Cash (Used) by Operating Activities          (236,244)     130,264     (712,885)  (1,333,289)
                                                   ----------   ----------   ----------   ----------
CASH FLOWS FROM INVESTING ACTIVITIES

 Purchase of fixed assets                                -         (70,141)     (18,831)    (104,064)
                                                   ----------   ----------   ----------   ----------
    Net Cash (Used) by Investing Activities              -         (70,141)     (18,831)    (104,064)
                                                   ----------   ----------   ----------   ----------
CASH FLOWS FROM FINANCING ACTIVITIES

 Common stock issued for cash                         250,000         -         250,000    1,000,992
 Additional capital contributed                          -            -            -         386,111
 Proceeds from notes payable                          192,463        4,271      750,000      100,341
 Principle payments on notes payable                  (12,936)     (16,976)     (47,093)     (16,976)
                                                   ----------   ----------   ----------   ----------
  Net Cash Provided by Financing Activities           429,527      (12,705)     952,907    1,470,398
                                                   ==========   ==========   ==========   ==========

NET INCREASE (DECREASE) IN CASH                       193,283       47,418      221,191       33,045

CASH, BEGINNING OF PERIOD                              81,120           86       53,221       14,459
                                                   ----------   ----------   ----------   ----------
CASH, END OF PERIOD                                $  274,412   $   47,504   $  274,412   $   47,504
                                                   ==========   ==========   ==========   ==========

SUPPLEMENTAL CASH FLOW INFORMATION

CASH PAID FOR:
 Interest                                          $   19,615   $   10,871   $   28,639   $   18,940
 Income taxes                                      $        -   $     -      $     -      $     -

NON-CASH FINANCING ACTIVITIES:
 Common stock issued for services                  $        -   $     -      $     -      $     -
 Common stock issued on conversion
  debt to common stock                             $        -   $  240,000   $     -      $  240,000

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

<PAGE>
<PAGE> 9
                INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
               Notes to the Consolidated Financial Statements
                    June 30, 1999 and December 31, 1998

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a.  Organization

The consolidated financial statements presented are those of Industrial
Ecosystems, Inc.(IEI) and its wholly-owned subsidiaries, Environmental
Protection Company (EPC), I.E.I. Canada, Inc. (IEI Canada) and 1297833
Ontario, Ltd. and 1303873 Ontario, Ltd. Collectively, they are referred to
herein as the "Company". IEI was incorporated in January, 1994 through the
acquisition of Agri World Development Corp., a dormant public company.  Agri
World Development Corp. later changed its name to Industrial Ecosystems, Inc.
IEI is principally a holding company but pays operating expenses for the
bioremediation business.

In March 1994, IEI acquired 100% of EPC in exchange for 7,017,300 shares of
its outstanding common stock.  At the time of this acquisition, IEI was
essentially inactive.  Also, the exchange of IEI's common stock for the common
stock of EPC resulted in the former stockholders of EPC obtaining control of
IEI.  Accordingly, EPC became the continuing entity for accounting purposes,
and the transaction was accounted for as a recapitalization of EPC with no
adjustment to the basis of EPC's assets acquired or liabilities assumed.  For
legal purposes, IEI was the surviving entity.  EPC is in the bioremediation
business and operates principally in New Mexico.

Effective June 30, 1994, IEI, through its wholly-owned subsidiary, IEI Canada,
Inc. (a Canadian Corporation) acquired 100% of I.T.E. Ecosystems, Inc., Amlin
Grain Roasting, Inc. and a minority interest in N-Viro Systems Canada, Inc.
The operations of I.T.E. Ecosystems, Inc. and Amlin Grain Roasting, Inc. were
discontinued during 1994.  In September 1994, IEI incorporated three wholly-
owned subsidiaries called RFP Management & Development Corp., ROP Management &
Development Corp. and IEI Canada, Inc.  In December of 1996, IEI incorporated
a separate wholly-owned subsidiary called ROP Liquid Feed Corp.  In March
1998, IEI created an entity (merger company) for the purpose of merging IEI
Canada, Inc., ROP Liquid Feed Corp., ROP Management & Development Corp. and
RFP Management & Development Corp. into that entity.  At the same time, the
merger company was merged into a new entity named IEI Canada, Inc.  Certain
assets and certain liabilities of all of these companies were assumed by ROP
North America, LLC, a joint venture company formed in March, 1998 (see Note
7), and the companies operations were discontinued. The assets and liabilities
were transferred to the joint venture at the related companies' book value.

During 1998, IEI Canada, Inc. incorporated two separate wholly-owned
subsidiaries called 1297833 Ontario, Ltd. and 1303873 Ontario, Ltd.  1297833
Ontario, Ltd. was organized to be in  the bioremediation business.  Neither
1297833 Ontario, Ltd. or 1303873 Ontario, Ltd. have had any revenue since
organization.

b.  Accounting Methods

The Company's consolidated financial statements are prepared using the accrual
method of accounting.  The Company has elected a December 31, year end.


<PAGE>
<PAGE> 10
              INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
             Notes to the Consolidated Financial Statements
                  June 30, 1999 and December 31, 1998

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

c.  Cash and Cash Equivalents

Cash equivalents include short-term, highly liquid investments with maturities
of three months or less at the time of acquisition.

d.  Basic and Fully Diluted Earnings (Loss) Per Share

The computations of basic earnings (loss) per share of common stock are based
on the weighted average number of common shares outstanding during the period
of the consolidated financial statements.  Common stock equivalents,
consisting of stock options and the IEI Canada Inc. class A-special shares,
have been included in the fully diluted earnings (loss) per share for the
periods presented.

e.  Change in Accounting Principle

The Company adopted Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share" during the year ended December 31, 1998.  In
accordance with SFAS No. 128, diluted earnings per share must be calculated
when an entity has convertible securities, warrants, options, and other
securities that represent potential common shares.  The purpose of calculating
diluted earnings (loss) per share is to show (on a pro forma basis) per share
earnings or losses assuming the exercise or conversion of all securities that
are exercisable or convertible into common stock and that would either dilute
or not affect basis EPS.  As permitted by SFAS No. 128, the Company has
retroactively applied the provisions of this new standard by showing the fully
diluted earnings (loss) per common share for all periods presented.

The Company also adopted Statement of Financial Accounting Standards (SFAS)
No. 130, "Reporting Comprehensive Income" during the year ended December 31,
1998.  SFAS No. 130 established standards for reporting and display of
comprehensive income (loss) and its components (revenues, expenses, gains and
losses) in a full set of general purpose financial statements.  This statement
requires that an enterprise classify items of other comprehensive income by
their nature in a financial statement and display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a balance sheet.  SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997.  The Company has
retroactively applied the provisions of this new standard by showing the other
comprehensive income (loss) for all periods presented.

f.  Unearned Revenue

The Company entered into a one-year consulting agreement with the JV (see Note
7) whereby the Company would receive a total of $200,000 for management
consulting.  During 1998, the Company received a payment of $100,000 under the
consulting agreement.  The balance was payable based on meeting certain
performance standards.  At December 31, 1998, the Company had not met the
performance standards and was not entitled to the additional $100,000 under
the consulting agreement.  Because the term of the agreement went from March,
1998 to March, 1999, the Company had unearned revenue of $0 and $21,666 as of
June 30, 1999 and December 31, 1998, respectively.


<PAGE> 11
                INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
               Notes to the Consolidated Financial Statements
                    June 30, 1999 and December 31, 1998

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

g.  Property and Equipment

Property and equipment is recorded at cost.  Major additions and improvement
are capitalized.  The cost and related accumulated depreciation of equipment
retired or sold are removed from the accounts and any differences between the
undepreciated amount and the proceeds from the sale are recorded as gain or
loss on sale of equipment.  Depreciation is computed using the straight-line
method over the estimated useful life of the assets as follows:

                Description                 Estimated Useful Life
                ------------------------    ---------------------

                Furniture and fixtures         3 to 7 years
                Machinery and equipment        5 to 7 years
                Computers                      5 years
                Vehicles                       5 years
                Leasehold improvements        15 years
                Buildings                     15 years

h.  Restricted Cash

The Company holds a certificate of deposit with a Canadian bank in the amount
of $42,431 and $40,669 as of June 30, 1999 and December 31, 1998,
respectively, which is being used as security and collateral on a demand note
with the same bank.  The cash cannot be withdrawn from the CD until after the
demand note is paid in full.

i.  Accounts Receivable

Accounts receivable consists almost entirely of amounts due from a major oil
company.  Those outstanding invoices are considered to be fully collectible
and no allowance for doubtful accounts has been recorded.

j.  Provision For Taxes

At December 31, 1998, the Company has an accumulated deficit of $21,993,889
which includes net operating loss carryforwards that may be offset against
future taxable income through 2013.  No tax benefit has been reported in the
consolidated financial statements because the Company believes there is a 50%
or greater chance the net operating loss carryforwards will not be used.
Accordingly, the potential tax benefits of the net operating loss
carryforwards are offset by a valuation allowance of the same amount.

k.  Principles of Consolidation

The consolidated financial statements include those of Industrial Ecosystems,
Inc. and its wholly-owned subsidiaries.

All material intercompany accounts and transactions have been eliminated.


<PAGE>
<PAGE> 12
               INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
              Notes to the Consolidated Financial Statements
                   June 30, 1998 and December 31, 1998


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

l.  Statement of Cash Flows

For the Company's foreign subsidiary, (IEI Canada and its subsidiaries), the
functional currency has been determined to be the local currency. Accordingly,
assets and liabilities are translated at year-end exchange rates, and
operating statement items are translated at average exchange rates prevailing
during the year. The resultant cumulative translation adjustments to the
assets and liabilities are recorded as a separate component of stockholders'
equity. Exchange adjustments resulting from foreign currency transactions are
included in the determination of net income (loss). Such amounts are
immaterial for all periods presented.

In accordance with Statement of Financial Accounting Standards No. 95,
"Statement of Cash Flows," cash flows from the Company's foreign subsidiaries
are calculated based upon the local currencies. As a result, amounts related
to assets and liabilities reported on the consolidated statement of cash flows
will not necessarily agree with changes in the corresponding balances on the
balance sheets.

m.  Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

n.  Advertising

The Company follows the policy of charging the costs of advertising to expense
as incurred.

o.  Unaudited Consolidated Financial Statements

The accompanying unaudited consolidated financial statements include all of
the adjustments which, in the opinion of management, are necessary for a fair
presentation. Such adjustments are of a normal, recurring nature.




<PAGE>
<PAGE> 13

               INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
              Notes to the Consolidated Financial Statements
                   June 30, 1999 and December 31, 1998

NOTE 2 - PROPERTY AND EQUIPMENT

Property and equipment consists of the following:
                                                   June 30,     December 31,
                                                     1999           1998
                                                 ------------   ------------
                                                  (Unaudited)

     Furniture and fixtures                      $     35,535   $     35,535
     Machinery and equipment                          435,005        429,005
     Computers                                         14,875         14,875
     Vehicles                                          81,400         70,900
     Leasehold improvements                             4,033         10,340
     Building                                          14,905         14,905
     Land                                              40,199         31,561
                                                 ------------   ------------
                                                      625,952        607,121
     Accumulated depreciation                        (380,676)      (331,148)
                                                 ------------   ------------
     Net property and equipment                  $    245,276   $    275,973
                                                 ============   ============


NOTE 3 - RELATED PARTY TRANSACTIONS

As of June 30, 1999 and December 31, 1998, the Company owed $9,286 and
$14,286, respectively, to an employee of the joint venture.  This amount
represents an advance made to the Company during 1996.  The amount is non-
interest bearing and due on demand.

The Company also has been involved in a number of related party transactions.
The most significant of those transactions are summarized as follows:

The Company has made disbursements and issued shares of its common stock to
certain officers and directors of the Company, relatives of these officers and
directors and companies owned by these officers and directors, although those
individuals are no longer officers or directors of the Company.  Most of these
funds have been paid for services rendered or for payments related to
construction of the Company's facilities and equipment. Any disbursements made
to the related parties for which there was no supporting documentation were
recorded by the Company as compensation to the related party.

The Company's former president, from time to time, received payments in the
form of loans that have been repaid without interest.  The Company's former
president also advanced funds to the Company from time to time in order for
the Company to meet its ongoing needs.  These advances were also repaid
without interest.

The Company's transfer agent as of December 31, 1998, was controlled by a
minority shareholder who has received options recorded at their fair market
value on the date of issuance from the Company for consulting services.  As of
June 30, 1999 and December 31,  1998, the Company owed its transfer agent a


<PAGE> 14
               INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
              Notes to the Consolidated Financial Statements
                    June 30, 1999 and December 31, 1998

NOTE 3 - RELATED PARTY TRANSACTIONS (Continued)

total of $0 and $25,000, respectively.  The minority shareholder has played a
significant role in obtaining professional consulting, accounting and legal
services for the Company in helping the Company try to become fully reporting
with the SEC.

From inception through mid 1996, a former director of the Company had also
controlled an entity that served as the Company's transfer agent. At April 1,
1999, the Company engaged Atlas Stock Transfer, Salt Lake City, Utah, as its
transfer agent.

NOTE 4 - ACCRUED EXPENSES

Accrued expenses as of June 30, 1999 and December 31, 1998 consist primarily
of accrued interest and unpaid payroll taxes, unemployment taxes, sales taxes
and gross receipts taxes due both the federal and state taxing authorities.
The Company has been delinquent on filing these tax forms and has unfiled
taxes for both the 1997 and 1998 tax years.  Reasonable interest and penalties
have also been accrued as of June 30, 1999 and December 31, 1998. Following is
the breakout of accrued expenses as of June 30, 1999 and December 31, 1998:

                                                     June 30,    December 31,
                                                      1999           1998
                                                  ------------   ------------
                                                  (Unaudited)

  Accrued payroll                                 $     34,542   $     12,411
  Accrued payroll taxes, penalties and interest        198,282        198,282
  Accrued interest                                      22,500         26,400
  Other                                                 89,892         86,662
                                                  ------------   ------------
                                                  $    340,216   $    323,755
                                                  ============   ============
NOTE 5 - NOTES PAYABLE

Notes payable consisted of the following:
                                                     June 30,    December 31,
                                                      1999           1998
                                                  ------------   ------------
                                                  (Unaudited)
Note payable to a bank, interest at prime + 3%
  per annum, requires monthly payments of $1,860
  plus interest, matures in December, 2005,
  secured by machinery, equipment and certificate
  of deposit.                                     $    145,090   $    156,250

Note payable to a company, interest at 11.5% per
  annum, principle and interest of $ 5,002 due
  monthly, matures in June, 2000, secured by
  equipment.                                            56,124         82,058

Other obligations                                            -          4,999
                                                  ------------   ------------
Total Notes Payable                                    201,214        243,307
Less: Current Portion                                  (33,861)       (85,902)
                                                  ------------   ------------
Long-Term Notes Payable                           $    167,353   $    157,405
                                                  ============   ============
<PAGE> 15
               INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
              Notes to the Consolidated Financial Statements
                    June 30, 1999 and December 31, 1998

The aggregate principal maturities of notes payable are as follows:

         Year Ended
        December 31,                     Amount
        ------------                   ---------
           1999                       $   85,902
           2000                           45,795
           2001                           22,320
           2002                           22,320
           2003                           22,320
           2004 and thereafter            44,650
                                        --------

           Total                      $  243,307
                                        ========

NOTE 6 - NOTES PAYABLE - RELATED PARTY

During the six months ended June 30, 1999, the Company obtained a line-of-
credit with a related party for up to $750,000 at 6% interest per annum.
Withdrawals from the line-of-credit are to be authorized by an independent
credit committee on a case-by-case basis. Total advances from the line-of-
credit through June 30, 1999 was $750,000. The line-of-credit is secured by
the Company's interest in the JV and is due and payable in full by December
31, 2000.

NOTE 7 - INVESTMENT IN JOINT VENTURE

During March, 1998, IEI Canada, Inc., a wholly-owned subsidiary of IEI,
entered into a joint venture agreement with JFJ Ecosystems, Inc. to form ROP
North America, LLC (the JV).  The JV created a wholly-owned subsidiary called
ROP North America, Inc. (an Ontario Corporation) which became the operating
entity.  As of December 31, 1998, pursuant to a subsequent transaction, IEI
Canada, Inc. has a 50% equity interest in the JV but does not have management
control.  The investment is being recorded under the equity method of
accounting.  Because of a significant first year loss of the JV, the
investment is being recorded at $-0- as of December 31, 1998.  The Company has
the right to acquire the remaining 50% interest in the JV on or prior to
December 31, 2000 conditional on meeting certain requirements established by
the JV.

The joint venture was established to transform organic by-product from
commercial waste streams into livestock feed.  This process is accomplished in
part, through the joint venture's liquid feed system.  The joint venture also
raises approximately 3,000 hogs under contract.  In addition, the hog farm is
a beta-site for the joint venture's liquid feed products.

On March 20, 1998, the Company entered into an equipment lease agreement with
the JV whereby the JV has agreed to lease from the Company a certain liquid
feed distribution system for $4,414 per month for a term of seven years.

The Company also entered into an agreement with the JV on January 4, 1999,
whereby the joint venture partner received an immediate vesting of its 50%
membership interest in the JV and the termination of the Company's option to
reduce the joint venture partners membership interest to 19%. The joint

<PAGE>
<PAGE> 16
               INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
              Notes to the Consolidated Financial Statements
                    June 30, 1999 and December 31, 1998

NOTE 7 - INVESTMENT IN JOINT VENTURE (CONTINUED)

venture partner was also granted certain rights, subject to certain
conditions, to exercise an option to exchange their membership interest in the
JV for that number of shares of the Company's common stock which would make
the joint venture partner a 33.3% owner of the total outstanding common shares
of the Company's stock issued and outstanding at January 4, 1999.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

Currently, the Company entered into a month to month lease agreement for its
office facilities in Pacifica, California. The monthly rental payment is
$1,900.

The Company also has reserved and recorded contingent liabilities to
individuals who claim they are still owed although the Company issued shares
of common stock in payment of the debts.  The Company has recorded a total of
contingent liabilities at June 30, 1999 and December 31, 1998 of $500,232 and
$747,819, respectively.  During the six months ended June 30, 1999, $25,962
was paid by the Company and $374,528 of the contingent liabilities were
settled through a full release by the respective creditors. Corresponding
income from the debt forgiveness has been recorded in the accompanying
financial statements for the six months ended June 30, 1999. Additional
contingent liabilities of $152,903 were recorded by the Company during the six
months ended June 30, 1999.  It is currently uncertain as to whether or not
the remaining amounts will be paid in the future and management of the Company
intends on vigorously contesting any claim that is made.  It is reasonably
possible, however, that the Company will have to pay the amounts and to be
conservative, management has recorded these possible debts as contingent
liabilities.

The Company is involved in certain litigation with a New Mexico limited
liability company regarding an open account and a distribution agreement.  A
complaint against the Company was filed in July 1997.  The Company contends
that they had never ordered the product delivered and that the distribution
agreement was breached. The Company has recorded a contingency of $75,000 and
$30,000 (included in contingent liabilities of $500,232 and $747,819 at June
30, 1999 and December 31, 1998, respectively), although management intends on
vigorously contesting the claim.

The Company is also involved in threatened litigation with Middlemarch Farms,
Ltd. (Middlemarch), a Canadian company, whereby Middlemarch is claiming a
security interest in certain property transferred to the joint venture during
March 1998.  Middlemarch is claiming that there is an outstanding balance due
of $230,300 plus interest.  The property subject to the security interest is
comprised of the assets and liabilities which were transferred to the joint
venture in March 1998.

The Company claims that the amount has been paid but has recorded a contingent
liability for the claimed amount (included in contingent liabilities of
$500,232 and $747,819 at June 30, 1999 and December 31, 1998, respectively).
If Middlemarch proceeds with its claim, the Company may be involved in
litigation in regards to the circumstances surrounding the creation of the
claimed interest and the payment of the debt.

<PAGE>
<PAGE> 17
               INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
              Notes to the Consolidated Financial Statements
                    June 30, 1999 and December 31, 1998
NOTE 9 - CLASS A-SPECIAL SHARES

During 1997, the Company issued 2,163,917 shares of common stock in exchange
for the conversion of 2,163,917 shares of class-A special shares of IEI
Canada, Inc., a wholly owned subsidiary of the Company (by virtue of voting
rights and common stock shares).  The class-A special shares were originally
issued in connection with a Global Share Purchase Agreement during 1994.  Each
of the original shareholders of the class-A special shares received a warrant
permitting the exchange of the shares for an equal number of shares of the
Company at any time until 2015.  A total of 4,000,000 class-A shares were
originally issued.

At June 30, 1999 and December 31, 1998, 324,390 class A-special shares remain
outstanding that are convertible at the holder's option into 254,573 (post
split) shares of the Company's common stock.  These shares have been included
in additional paid-in capital of the Company until they are converted into IEI
shares.

NOTE 10 - STOCK OPTIONS

On July 23, 1997, the Board of Directors agreed to issue an option to purchase
166,667 (post-split) shares of common stock at an exercise price of $0.15 per
share to an entity that provided a loan to the Company. At the time the
options were granted the exercise price was equal to or greater than the prior
10-day average trading price of the Company's shares.

On March 13, 1998, the Board of Directors agreed to issue options to various
individuals who have provided and may continue to provide consulting and other
services to the Company.  Stock options for a total of 4,131,000 (post-split)
shares of common stock were granted at an exercise price of $0.225 per share.
At the time the options were granted, the exercise price was equal to or
greater than the prior 10 day average trading price of the Company's shares.

As of December 31, 1998, an aggregate of 4,297,667 options to purchase common
shares were outstanding with exercise prices ranging from $0.15 to $0.225 per
share.  At the time the options were granted, the exercise price was equal to
or greater than the prior 10 day average trading price of the Company's
shares.
166,667 of the options will expire if not exercised by July 23, 2002 and
591,000 of the options will expire if not exercised by March 13, 2003.  The
remaining 3,540,000 options are "cashless" options and will expire if not
exercised by March 13, 2005.  3,277,667 of the options were exercisable on
December 31, 1998 and the remaining 1,020,000 options became exercisable if
the Company successfully files Form 10SB with the Securities and Exchange
Commission prior to December 31, 1999.

In May 1999, the Board of Directors of the Company agreed to issue 225,000
options, exercisable at $1.00 per share and expiring on May 31, 2003, to an
unaffiliated third party in settlement of an outstanding lease obligation for
one of its Canadian subsidiaries. The exercise price for the options was
determined by negotiations between the parties.

In April 1999 the Company issued 720,000 options exercisable at $0.16 per
share and expiring on April 30, 2004.  In June 1999, the Company issued an
additional 400,000 options exercisable at $0.20 per share and expiring on June
3, 2004.  The 720,000 options and the 400,000 shares were issued pursuant to
the Company's 1999 Stock Option and Award Plan and the exercise price of the
respective options is equal to or greater than the prior 10 day average
trading price of the Company's shares.

<PAGE>
<PAGE> 18

               INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
              Notes to the Consolidated Financial Statements
                    June 30, 1999 and December 31, 1998

NOTE 11 - GOING CONCERN

The Company's consolidated financial statements are prepared using generally
accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business.  The Company has historically incurred significant
losses which have resulted in an accumulated deficit of $21,993,889 at
December 31, 1998, a working capital deficit and limited internal financial
resources.  These factors combined raise substantial doubt about the Company's
ability to continue as a going concern.  The accompanying consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result from the outcome of this
uncertainty. It is the intent of management to rely upon additional equity
financing if required to sustain operations until revenues are adequate to
cover the costs. During 1998, the Company began to effect measures to reduce
cash outflows and increase working capital through the issuance of additional
shares of common stock for cash, services, and conversion of debt.  The
Company has implemented a cash flow plan and has developed an overall strategy
and certain financing options to meet its ongoing needs.  It is the intent of
management to rely upon additional equity financing if required to sustain
operations until revenues are adequate to cover the costs.

NOTE 12 - SUBSEQUENT EVENTS

On March 17, 1999, the Company received a letter from Canadian counsel
threatening litigation on behalf of Diamond Measure, Inc., a Canadian
corporation with which the Company engaged in discussions about a possible
acquisition during 1994.  The negotiations were never consummated, and no
contract was ever signed.  On August 6, 1999, the Company's Canadian counsel
was served with a statement of Claim filed in Superior Court of Justice in
Windsor Ontario on August 4, 1999, by Diamond Measure, Inc. and Ronald
McGuire, against the Company.  The claim is for a total of $1.5 million
dollars Canadian for breach of contract and detrimental reliance, $1 million
to Diamond Measure, Inc. and $500,000 to Ronald McGuire.  Because no agreement
was ever reached and no written contract signed, the Company believes that the
action is without merit.

NOTE 13 - CORRECTION OF AN ERROR

Subsequent to the issuance of the December 31, 1998 consolidated financial
statements, the Company was able to recover a total of 596,001 shares of its
outstanding common stock that had originally been recorded by the Company
during 1995 and 1996 at a total cost of $527,607.  The shares were determined
to have been issued in error in that no consideration was ever received for
the shares.  The Company is treating these shares now as having never been
issued.  Consequently, an adjustment has been made to correctly reflect the
total outstanding shares as of December 31, 1998, and to correctly reflect the
net income (loss) for the six months ended June 30, 1999.

<PAGE>
<PAGE> 19

          ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                     CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-looking Statements
---------------------------------------------------------

     This report may contain "forward-looking" statements.  The Company is
including this cautionary statement for the express purpose of availing itself
of the protections of the safe harbor provided by the Private Securities
Litigation Reform Act of 1995 with respect to all such forward-looking
statements.  Examples of forward-looking statements include, but are not
limited to: (a) projections of revenues, capital expenditures, growth,
prospects, dividends, capital structure and other financial matters; (b)
statements of plans and objectives of the Company or its management or Board
of Directors; (c) statements of future economic performance; (d) statements of
assumptions underlying other statements and statements about the Company and
its business relating to the future; and (e) any statements using the words
"anticipate," "expect," "may," "project," "intend" or similar expressions.

Year 2000 Disclosure
--------------------

     The Company is working to resolve the potential impact of the year 2000
on the ability of the Company's computerized information systems to accurately
process information that may be date-sensitive.  Any of the Company's programs
that recognize a date using "00" as the year 1900 rather than the year 2000
could result in errors or system failures.  The Company utilizes a minimum
number of computer programs in its operations.  The Company has not completed
its assessment, but currently believes that costs of addressing this issue
will not have a material adverse impact on the Company's financial position.
However, if the Company and third parties upon which it relies are unable to
address this issue in a timely manner, it could result in a material financial
risk to the Company.  In order to assure that this does not occur, the Company
plans to devote all resources required to resolve any significant year 2000
issues in a timely manner.

Results of Operations
---------------------

   General
   -------

     The Company's revenues are generated primarily by its business operations
in the United States through its wholly owned subsidiary Environmental
Protection Company ("EPC").  Since March, 1998, the Company has pursued the
development of ROP North America, LLC ("ROP"), through the Company's wholly
owned Canadian subsidiary, IEI Canada, which at June 30, 1999, was still in
the development stage.  The Company's results of operations include the costs
of its investment in ROP.

     For the six months ended June 30, 1999, the functional currency for the
Company's foreign subsidiary (IEI Canada and its subsidiaries) has been
determined to be the Canadian Dollar.  Any applicable assets and liabilities
have been translated at period end exchange rates and operating statement
items are translated at average exchange rates prevailing during the period.
For the six month period ended June 30, 1999, the Company had a gain of $6,669
as a result of foreign currency translation adjustment.

<PAGE>
<PAGE> 20

   Six Month Period ended June 30, 1999 compared to June 30, 1998
   --------------------------------------------------------------

     Substantially all revenue during the six month period ended June 30, 1999
was derived from EPC's operations, with total revenues being $334,892 and
direct costs associated therewith being $212,107 or approximately 63.3% of
revenues. Total revenues for the six month period ended June 30, 1998 were
$255,584 and direct costs associated therewith were $163,844, or approximately
64.1% of revenue. The direct costs for the six month period ended June 30,
1999 as a percent of sales was 0.8% lower than the direct costs as a
percentage of sales realized by the Company same period in the preceding year.
The slight decrease in direct costs as a percent of revenues for the current
period as compared to the prior comparative period can not be attributed to
any one particular factor.  EPC's bioremediation work for Amoco is allocated
between routine site maintenance and emergency clean-up. Although
substantially all of the Company's revenues are derived from bioremediation
work performed for Amoco there is no guarantee that the Company's revenues
will continue and the Company cannot predict what events or uncertainties may
be reasonably expected to have a material impact on the net sales revenues or
income from continuing operations.

     To expand its revenue base the Company has conducted a bio-remediation
demonstration for the Department of Defense at the U.S. Navy's Pt. Molate Fuel
Depot in Richmond, California. This technical demonstration represents the
culmination of years of effort. The demonstration was sponsored by the Bay
Area Defense Conversion Action Team (BADCAT), a public private partnership of:
Bay Area Economic Forum (BAEF), Bay Area Regional Technology Alliance (BARTA),
California Environmental Protective Agency (CAL EPA), Chevron Research and
Technology Company, Engineering Field Activity West, Naval Facilities
Engineering Command (EFA West), Naval Facilities Engineering Service Center
(NFESC), San Francisco State University Center for Public Environmental
Oversight (CPEO) and  the U.S. Environmental Protection Agency (US EPA).  The
Company expects that it will take five to six months after the demonstration
commences for the Department of Defense and others to fully evaluate the
results of the demonstration. Should this evaluation be favorable, the
Company's technology and process could become, given certain site
characteristics, the preferred method for reducing hydrocarbon contamination
in soil.

     Corporate Expense.  For the six months ended June 30, 1999 total
operating expenses were $597,040, consisting of general and administrative
expenses of $547,512 and depreciation and amortization expenses of $49,528,
resulting in a loss from operations of $(474,255). For the six months ended
June 30, 1998 total operating expenses were $1,081,734, consisting of general
and administrative expenses of $1,026,008 and depreciation and amortization
expenses of $55,726, resulting in a loss from operations of $(989,994).  The
operating expenses for the six months ended June 30, 1999 represent a
substantial reduction in overall operating expenses (approximately 44.81%)
compared to the Company's operating expenses incurred for the six months ended
June 30, 1998.  The reduction in operating expenses for the six months just
ended is a direct result of the efforts the Company has undertaken to reduce
cash outflows in non-revenue producing areas.

     Interest Expense.  Interest expense for the six months ended June 30,
1999 was $24,739, which is attributed to the line-of-credit obtained from a
related party (See Note 6 to the Financial Statements).  Interest expense for
the six months ended June 30, 1998 was $17,166, and is attributed to corporate
borrowing during the normal course of business.

<PAGE> 21

     Other Income.  Other income for the six months ended June 30, 1999 was
$32,499, of which, substantially all was represented by the balance of the
income derived from the one-year consulting agreement with ROP (see Note 1(f)
to the Financial Statements), which represents a decrease over other income of
$41,463 for the six month period ended June 30, 1998. During the six month
period ended June 30, 1998, the Company had expenses of $71,071 and $14,311,
associated with loss on investment in the joint venture and disposition of
assets, respectively, so that total other income (expense) for the prior six
month period was $(60,861) compared to $7,875 for the current quarter.

     Extraordinary Item.  During the six months ended June 30, 1999 the
Company recognized income from the forgiveness of $374,528 in debt by certain
creditors of the Company.  (See Note 8 to the Financial Statements.)  The
Company had no extraordinary items of income or expense during the six month
period ended June 30, 1998.

     Including the extraordinary item the Company had net comprehensive loss
of $85,183 for the six months ended June 30, 1999.  The basic loss per share
for the period before extraordinary items was $(0.01), while the Company
experienced basic income per share of $0.01 after taking into account
extraordinary items.  The fully diluted earnings per share was $0.00. For the
six months ended June 30, 1998, the Company had a net comprehensive loss of
$(1,050,855) and fully diluted loss per share was $(0.04).

Liquidity and Capital Resources
-------------------------------

     Historically, the issuance of common stock has been utilized by the
Company for working capital, conversion of debt, payment of professional
services, the expansion capital required by ROP and for the continued
development activities of the Company.

     The Company had a working capital deficit of $(17,190), cash and cash
equivalents of $231,981 and restricted cash deposits of $42,431 at June 30,
1999.  Cash used in operations for the six month period was $(712,885)and was
derived primarily from cash received from accounts receivable and the sale of
share, borrowing against the line-of-credit, the recovery of common stock
previously issued and the issuance of common stock for the conversion of debt.

     Because the Company has an accumulated deficit of $(21,933,889), has a
working capital deficit and limited internal financial resources, the report
of the Company's auditor at December 31, 1998 contained a going concern
modification as to the ability of the Company to continue.  During fiscal
1998, the Company began to effect measures to reduce cash outflows and
increase working capital thru the issuance of additional shares of common
stock for cash, services and conversion of debt.  The Company is aware of its
ongoing cash requirements and has implemented a cash flow plan, including
continued reduction in its general and administrative expenses.  Additionally,
the Company has developed an overall strategy and certain financing options to
meet its ongoing need through December 31, 1999.

     Due to the need for working capital for both the Company, IEI Canada and
its JV partner, JFJ Ecosystems, Inc. ("JFJ") restructured the JV to provide





<PAGE> 22

among other things, the establishment of a $750,000 line-of-credit for the
Company from JFJ. As a result of the restructuring, JFJ has an equal 50%
member of the JV with IEI Canada and IEI Canada's option to reduce JFJ's
membership interest to 19% was terminated. The line-of-credit bears interest
at 6% per annum until December 31, 2000, at which time all principal advanced
under the line of credit, and any interest accrued thereon,  will be due and
payable in full. As security for the line of credit, the Company caused IEI
Canada to pledge as security IEI Canada's 50% membership interest in the JV.
If the line of credit is not timely repaid in full, IEI Canada's membership
interest in the JV shall be conveyed to JFJ in satisfaction of the line of
credit, thus making JFJ the 100% owner of the JV.  At June 30, 1999, the
Company had drawn the entire $750,000 against the line-of-credit.  In
addition, in May 1999, the company sold 2,500,000 shares of the Company's
common stock at $0.10 per share to affiliates of JFJ for $250,000 cash.

     At June 30, 1999, the Company had recorded $340,216 in accrued expenses
consisting primarily of accrued interest and unpaid payroll taxes,
unemployment taxes, sales taxes and gross receipts taxes due both the federal
and state taxing authorities, including reasonable interest and penalties for
delinquent filings.  During the period the Company extended a preliminary
settlement offer to the IRS on Form 433.  The settlement offer to the IRS was
based on the Company's anticipated need to raise additional working capital
without exposing such capital to potential seizure by the IRS.  The terms of
the preliminary settlement offer are based on the trustee portion (the amount
the Company withheld from its Employees' W-2 wages) of tax due and contingent
on the IRS finalizing its examination confirming the financial condition of
the Company and the financial condition of those officers and directors of the
Company during the time that the tax liability arose (the "Responsible
Parties").  The trustee portion due is approximately $90,000 and will require
the Company to make installment payments to the IRS of approximately $5,000
per month over 24 months. Upon payment in full of the settled amount the IRS
will provide the Company and any Responsible Parties with a full release from
liability. Should the Company fail to maintain the monthly payments to the
IRS, the IRS will have the right to collect from the individual Responsible
Parties as well as the Company.

     To finalize the settlement offer with the IRS, the Company has provided
the IRS with a narrative description of the Company's current plan of business
operations and a logical reason for the offer and compromise.  In addition,
the IRS is conducting an investigation of the assets of the Responsible
Parties to determine whether or not the Responsible Parties have sufficient
liquid assets to satisfy the trustee portion of the tax due.

     The Company has reserved and recorded possible contingent liabilities to
individuals who claim they are still owed money by the Company although the
Company has issued shares of its common stock to such individuals as payment
of such debts or because the Company is uncertain as the whether the creditors
are holding the Company responsible to certain debts incurred by former
officers and directors of the Company.  At June 30, 1999, the Company has
recorded total contingent liabilities of $500,232, a reduction from $747,819
recognized at December 31, 1998.

     Impact of Inflation
     -------------------

     The Company does not anticipate that inflation will have a material
impact on its current or proposed operations.


<PAGE> 23

     Seasonality
     -----------

     The Company's bioremediation business operations tend to have varying
degrees of seasonality.  A majority of the Company's bioremediation jobs are
done on sites in and around Farmington, New Mexico, during the warm weather
months.  Since many of the clean-up sites are located in rural areas and
accessible only over dirt or unimproved roads, the Company's ability to
excavate and remove contaminated soil can be restricted during inclement
weather.  In addition, soil is difficult or impracticable to dig and turn when
the ground is frozen, the bioremediation process requires above freezing
temperatures to be effective.

                        PART II - OTHER INFORMATION

                        ITEM 1.  LEGAL PROCEEDINGS

ITEM 2.  LEGAL PROCEEDINGS

     The Company is involved in litigation with 54GO Products, a New Mexico
limited liability company ("54GO"), regarding an open account and a
distribution agreement between 54GO and the Company's subsidiary Environmental
Protection Company, a New Mexico corporation ("EPC").  54GO filed a complaint
in July 1997 in the Eleventh District Court of San Juan County, New Mexico,
alleging that the Company owed money on an open account for products delivered
by 54GO to EPC, and also for products to be delivered pursuant to the
distribution agreement.  In August 1997, the Company filed an answer to the
complaint in which the Company contends that the products delivered by 54GO
were not ordered by EPC, that EPC specifically requested the products not be
delivered, and that 54GO refused to take the products back.  The Company also
contends that the distribution agreement was breached by 54GO before it became
operational and that any obligation to purchase products under the agreement
was negated by the failure of conditions precedent.  The case has been tried
and a decision is now pending before the Court. The Company has recorded a
contingent liability of $75,000 and $30,000 (included in contingent
liabilities of $500,232 and $747,819 at June 30, 1999 and December 31, 1998
respectively) in connection with the litigation.

     On March 17, 1999, the Company received a letter from Canadian counsel
threatening litigation on behalf of Diamond Measure, Inc., a Canadian
corporation with which the Company engaged in discussions about a possible
acquisition during 1994.  The negotiations were never consummated, and no
contract was ever signed.  On August 6, 1999, the Company's Canadian counsel
was served with a Statement of Claim filed in the Superior Court of Justice in
Windsor Ontario on August 4, 1999, by Diamond Measure, Inc. and Ronald
McGuire, against the Company.  The claim is for a total of $1.5 million
dollars Canadian for breach of contract and detrimental reliance, $1 million
to Diamond Measure, Inc., and $500,000 to Ronald McGuire.  Because no
agreement was ever reached and no written contract signed, the Company
believes that the action is without merit.

     On April 13, 1999, ROP received a letter from Canadian counsel
representing Middlemarch Farms, Ltd., a Canadian company ("Middlemarch"),
claiming a security interest in certain property transferred to ROP from IEI
Canada in March 1998 as part of the transaction creating the JV.  This claimed
security interest was purportedly created in 1992, in connection with a loan
transaction between Middlemarch and a precursor company to a former IEI Canada
subsidiary.

<PAGE> 24

     Middlemarch claims that at March 29, 1999, there is an outstanding
balance due on the loan of $230,299.79, plus accrued interest and costs
forward from that date.  The property subject to the security interest is all
of the assets, liabilities, property and equipment which was transferred to
ROP per the JV Agreement.

     The claim is apparently based on the premise that there are monies owing
to Middlemarch.  The Company believes that the debt was fully satisfied in
April 1996 through an oral agreement between the Company and Middlemarch
converting debt to equity, represented by the Company's issuance to
Middlemarch of 400,000 shares of the Company's common stock, plus cash payment
of all outstanding interest.  If Middlemarch proceeds with its claim, the
Company may be involved in litigation in regards to the circumstances
surrounding the creation of the claimed security interest and the payment of
the debt.

     On May 19, 1999, the Company received from Middlemarch a copy of a
"Security Agreement" referring to the above property.  The Security Agreement
required payment in full by July 1994.  The Company has not found evidence in
its records or through a PPSA search of the registration of such a security
interest, nor has any evidence of registration been provided by Middlemarch
despite repeated requests.

     The Company has letters dated April 1996 from A. Spangenberg, a principal
of Middlemarch, and Pensa and Associates, counsel for Middlemarch, referencing
receipt of a $400,000 principal payment and stating that a remaining balance
was owing of approximately $21,500.  The Company paid the balance owing by
check. Based on the above, the Company believes that the debt on which the
claimed security interest is based has been fully satisfied.  Therefore, the
Company believes that this threatened claim has no merit.


                      ITEM 2.  CHANGES IN SECURITIES

     None.

                 ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

     None.

        ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     On April 19, 1998, the Company held a Special Meeting of shareholders for
the purpose of (1) ratifying and approving certain agreements between the
Company, IEI Canada and JFJ, (2) electing directors, (3) approving the
Company's 1999 Stock Option and Award Plan, (4) approving certain modernizing
changes to the Company's articles of incorporation, (5) ratifying the
appointment of its independent auditors, and (6) transacting such other
business that might properly come before the special meeting.  All measures
were ratified and approved by the Shareholders.

     Walter Kolbe, chairman of the Company's board of directors, called the
meeting to order and indicated that there were 208,887 shares present in
person and 25,014,712 shares represented by proxy and that a quorum of
shareholders was present, that the meeting was duly called and noticed, and
was properly convened for the transaction of business.  John C. Thompson, Esq.
was appointed Secretary of the meeting.  As evidence of the proper notice of
the meeting,  it was indicated that the following documents were being

<PAGE> 25

inserted into the minute book:  (1) printed notice of the meeting dated March
29, 1999, (2) a list of shareholders as of March 19, 1999, the record date,
prepared by American Transfer & Trust, Inc., which shows that the Company had
33,596,906 shares issued and outstanding; and (3) a certificate of mailing,
stating that the Notice of special meeting, proxy statement, and proxy was
sent to all shareholders on March 30, 1999.

     The Chairman indicated that the special meeting  was called to consider
and vote on proposals to:

1.   Ratify and approve certain agreements (the "Agreements") entered into
between the Company and JFJ Ecosystems, LLC ("JFJ"), the joint venture partner
with the Company's wholly-owned subsidiary IEI Canada, Inc. ("IEI Canada"), in
ROP North America LLC (the "JV").

2.   Elect each of the following three nominees as directors to serve until
the expiration of their respective terms and until their respective successors
are elected and qualified;

     Tom Jarnagin     Magaly Bianchini     Steven Justus

3.   Approve the Company's 1999 Stock Option and Award Plan;

4.   Approve proposed amendments to the Company's Articles of Incorporation
that would:

     (a)   Make certain modernizing changes and explicitly limit director
liability.
     (b)   Specifically define and outline the rights and privileges attached
to the Common Stock, and authorize a class of 25,000,000 shares of Preferred
Stock, par value $0.001 per share;
     (c)   Permit good faith transactions between the Company and interested
directors;
     (d)   Limit liability of directors to the full extent permissible under
Utah law;
     (e)   Permit the Company to indemnify officers, directors and others to
the full extent permissible under Utah law;
     (f)   Allow the Company the right to acquire its own shares;
     (g)   Accurately reflect the current registered agent and the current
members of the board of directors.

5.   Consider and act upon the ratification of the appointment of Jones,
Jensen & Company as independent auditors;

6.   Transact such other business as may properly come before the Special
Meeting or any adjournment thereof.

     The Chairman indicated the affirmative vote of the holders of a majority
of the shares present, in person or represented by proxy, and entitled to vote
at the Special Meeting is required to approve the proposals. The Chairman
indicated that (i) the board of directors had unanimously approved the
proposals, (ii) the Company had received from shareholder proxies representing
25,014,712 votes appointing Mr. Kolbe and Elliott N. Taylor, counsel to the
company, proxies to vote on the proposals; and (iii) that the board of
directors  recommends that the shareholders vote "For" the proposals.  Mr.
<PAGE> 26

Kolbe then put the proposals to the shareholders for a vote.  Accordingly,
after motion duly made by Tom Jarnagin and seconded by Steven Justus, the
proposals as set forth in the notice were voted as follows:

     Proposal No. 1 was adopted with 16,317,730 shares voting FOR; 14,801
shares voting AGAINST and 14,887 shares voting to WITHHOLD AUTHORITY.

     Proposal No. 2 was adopted with:

     Steven Justus:  24,413,733 shares voting FOR; 135,564 shares voting
AGAINST and 473,703 voting to WITHHOLD AUTHORITY.

     Magaly Bianchini: 24,540,955 shares voting FOR; 8,342 shares voting
AGAINST and 473,703 voting to WITHHOLD AUTHORITY.

     Tom Jarnagin: 24,549,288 shares voting FOR; 9 shares voting AGAINST and
   473,703 voting to WITHHOLD AUTHORITY

     Proposal No. 3 was adopted with 24,992,213 shares voting FOR; 207,601
shares voting AGAINST and 15,821 voting to WITHHOLD AUTHORITY.

     Proposal No. 4 (a) was adopted with 16,198,216 shares voting FOR; 146,113
shares voting AGAINST and 9,089 voting to WITHHOLD AUTHORITY.

     Proposal No. 4(b) was adopted with 15,335,376 shares voting FOR; 976,071
shares voting AGAINST and 41,971 voting to WITHHOLD AUTHORITY.

     Proposal No. 4(c) was adopted with 15,685,008 shares voting FOR; 656,644
shares voting AGAINST and 11,889 voting to WITHHOLD AUTHORITY.

     Proposal No. 4(d) was adopted with 24,633,989 shares voting FOR; 577,453
shares voting AGAINST and 12,423 voting to WITHHOLD AUTHORITY.

     Proposal No. 4(e) was adopted with 24,497,774 shares voting FOR; 586,312
shares voting AGAINST and 139,780 voting to WITHHOLD AUTHORITY.

     Proposal No. 4(f) was adopted with 16,036,165 shares voting FOR; 299,305
shares voting AGAINST and 11,437 voting to WITHHOLD AUTHORITY.

     Proposal No. 4(g) was adopted with 16,329,994 shares voting FOR; 5,477
shares voting AGAINST and 17,553 voting to WITHHOLD AUTHORITY.

     Proposal No. 5 was adopted with 25,199,243 shares voting FOR; 5,470
shares voting AGAINST and 18,886 voting to WITHHOLD AUTHORITY.

     Proposal No. 6 was adopted with 25,134,908 shares voting FOR; 76,804
shares voting AGAINST and 11,887 voting to WITHHOLD AUTHORITY.

     The number of shares required to approve each proposal is 12,611,801
shares.  The Chairman declared that all proposals were adopted.


                       ITEM 5.  OTHER INFORMATION

     None.
<PAGE> 27

                ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)     Exhibits.
        ---------

     Exhibit 27.  Financial Data Schedule

(b)     Reports on Form 8-K.
        --------------------

     None.


                                SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                      INDUSTRIAL ECOSYSTEMS, INC.
                                      [Registrant]

Dated: November 5, 1999                By/S/Tom Jarnagin, President and
                                       Director