EARTH SCIENCES INC, 10KSB, 2000-04-11

EARTH SCIENCES INC
10KSB, 2000-04-11
MINERAL ROYALTY TRADERS

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

FORM 10-KSB

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

For the fiscal year ended December 31, 1999

Commission File Number: 0-6088

Earth Sciences, Inc.
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(Name of small business issuer in its charter)

Colorado 84-0503749
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(State of incorporation) (IRS Employer Identification No.)

8100 SouthPark Way B-2, Littleton, Colorado 80120-4525
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(Address of principal executive offices, including Zip Code)

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

Securities registered under Section 12(g) of the Exchange Act:
Common Stock, one cent par value
--------------------------------
Title of class

Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
[X] Yes [ ]No

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ X ]

State issuer's revenues for its most recent fiscal year. $ 4,846,000

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 10, 2000 was $6,702,000.

Number of shares outstanding of registrant's Common Stock, one-cent par value as
of March 10, 2000 - 26,973,238.

DOCUMENTS INCORPORATED BY REFERENCE:
None

Transitional Small Business Disclosure Format: Yes __ No X

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PART I

Item 1. Description of Business
This Annual Report may contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933. In particular, such forward-looking
statements may be found in this section under "Description of Business," and
below in Item 6. under "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Actual events or results could differ
materially from those discussed in the forward-looking statements as a result of
various factors including those set forth below or under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

(a) Business Development.
Earth Sciences, Inc. ("ESI" or "Registrant", which term includes its
wholly-owned subsidiaries unless otherwise indicated) is an air pollution
control technology, chemical processing and mineral exploration company. ESI was
incorporated under the name of Colorado Central Mines, Inc. in Colorado in 1957.
The major activities of the Company include the sale of flue gas conditioning
("FGC") technology and chemicals for coal-fired boilers and other applications
provided through ADA Environmental Solutions LLC ("ADA"), a wholly-owned
subsidiary; the ownership of a currently idled solvent extraction facility in
Calgary, Alberta which has produced purified phosphate products; and continued,
but limited, exploration activities for diamond and gold resources in Venezuela.
Production of purified phosphate products in Calgary commenced in June 1997 and
was suspended in August 1999.

During 1999, ESI (1) through ADA (a) received its second and third patent
for its FGC technology, (b) developed new products to enhance fly ash
collection, (c) was awarded several contracts to demonstrate and enhance various
technologies, and (d) initiated and/or continued successful operations of units
at four utilities; (2) through Earth Sciences Extraction Company ("ESEC"), a
wholly-owned limited partnership, continued and improved production of purified
phosphate products at its solvent extraction facility in Calgary, Alberta,
Canada, but lacking sufficient working capital to achieve cash flow and profits,
suspended operations at the facility in August 1999; (3) during a period of
political uncertainty in Venezuela, maintained its applications for 15 mineral
concessions covering over 30,000 acres in the country, but suspended further
exploration activities for diamond and gold resources there; (4) sold stock for
net proceeds of $1,252,000 to fund its activities; and (5) maintained its
position in several mineral resources and prospects in the Western US.

Thus far in 2000, ESI through ADA has (a) signed a contract with a mid-western
utility for installation of a FGC unit; (b) received approval from two other
utilities to replace demonstration FGC units with permanent installations; (c)
prepared for the demonstration of an anti-slagging chemical at another
mid-western utility; and (d) received the signed Department of Energy contract
awarded in the fall of 1999 and commenced research activities thereunder. These
activities and those in the preceding paragraph are described in the succeeding
paragraphs of this Item 1(a) and below in Item 1(b).

ADA currently has four successfully operating FGC units at coal-fired utilities
in Iowa, Louisiana, Oregon and Wisconsin. Revenues from sales of equipment and
chemicals to those utilities in 1999 totaled $2,330,000. The Oregon unit
successfully passed its warranty test in February of 1999. The units in
Louisiana and Iowa commenced operations in 1999 with demonstration equipment. In
early 2000, the utilities in Iowa and Louisiana elected to replace the
demonstration units with permanent equipment. Also in early 2000, a utility in
Nebraska issued a purchase order for a demonstration unit that commenced
operation in the second half of March 2000.

ESEC's solvent extraction facility in Calgary, Alberta, recovered uranium from
phosphoric acid during the period from 1983 through 1987. Uranium oxide
production was suspended in the fall of 1987 when the adjacent fertilizer plant
from which the facility received its feedstock suspended operations. The
contract under which the uranium was sold was modified in 1990 to allow
unrestricted alternative use of the facility. Revamp of the facility to allow
production of purified phosphate products was completed in 1997. The Calgary
facility routinely produced technical grade phosphoric acid through August 1999
when operations were suspended for lack of sufficient working capital.
Additional capital is required to increase the level of production and
inventories, and to expand production capabilities. Registrant is seeking an
industry partner to strengthen its market position and provide approximately $5
million in capital to fund the estimated needs. There can be no assurances that
Registrant will be able to attract the needed capital.

During 1999, through ESI's Venezuelan company, Recursos Minerales VENESI C.A.
("VENESI"), ESI continued limited gold and diamond exploration in Venezuela. ESI
also owns 83% of another company, Minera Antabari C.A. ("Antabari"), which
received a contract on a 1200-acre site on the Guyana Shield in March 1992. In
1998 VENESI filed for 15 concessions covering approximately 30,000 acres with
prospective interests for diamonds and gold. In 1999 VENESI maintained those

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filings but did not conduct any significant exploration activities. ESI has no
current plans for any significant mineral exploration activities in 2000.

In February 1999, ESI sold 1,260,623 shares of common stock and received net
proceeds of $1,137,000. ESI had an obligation to issue additional shares (up to
a maximum of 3,151,560 additional shares) in the event the market price at the
time of sale of shares by the holders is less than 125% of the purchase price.
In November 1999 ESI issued options to replace such obligation, with conditions
of exercise essentially the same as the previous obligation. This replacement
was instituted in order to facilitate the registration of the securities with
the U. S. Securities and Exchange Commission.

(b) Business of Issuer.

Registrant is an air pollution control technology, chemical processing and
mineral exploration company. Registrant owns a 100% interest in ADA which
provides air pollution control technologies and services; a currently idled
processing facility in Calgary, Alberta, Canada which produced purified
phosphate products from June 1997 through August 1999; alunite properties which
contain alumina, sulfur and potash; other domestic properties containing gold,
vanadium and phosphate; and controls prospects containing copper, molybdenum,
silver, lead and zinc.

Registrant, through its 100% ownership of Recursos Minerales VENESI C.A.
("VENESI"), 83% ownership in Minera Antabari C.A. ("Antabari") and its 67%
ownership in Recursos Minerales ESIGEO C.A. ("ESIGEO") is exploring, on a
limited basis, diamond and gold resources in Venezuela.

ADA Environmental Solutions
In 1997, ESI acquired a majority equity position in ADA Environmental Solutions
LLC ("ADA") through a combination of stock and cash. The acquisition agreement,
signed April 30, 1997 provided for (i) an immediate cash payment of $400,000 for
a 4.8% equity interest, (ii) a combination of $500,000 in cash and $1.6 million
in notes to be paid prior to the scheduled closing, for the acquisition of an
additional 46.2% interest in ADA, and (iii) an option to acquire the remaining
equity interests (49%) in ADA. In May 1998 ESI exercised such option, acquiring
a 100% interest in ADA, by issuance of 1,716,000 shares of stock.

The acquisition was prompted by synergism involving products produced by the
solvent extraction facility in Calgary. ADA utilized product from the Calgary
facility, which has been replaced with domestic sources, and other sources in a
new proprietary technology designed to reduce particulate emissions from plants
burning low-sulfur coal.

ADA's Technology and Services
ADA has developed a technology for conditioning flue gas streams from combustion
sources that allows existing air pollution control devices to operate more
efficiently. ADA, through various suppliers and contractors, may manufacture
engineered units for each individual application. The units mix, pump and
monitor the feed of a proprietary chemical blend. The chemical blend is applied
to the flue gas stream by a pressurized system of specially designed lances and
nozzles. Such treatment of the flue gas stream alters the physical properties of
the fly ash particles contained therein primarily by decreasing particle
resistivity. This alteration allows the existing electrostatic precipitator
(ESP) to more effectively collect such fly ash particles that would otherwise
escape into the atmosphere. ADA also offers consulting services to assist
utilities in planning and implementing strategies to meet new government
emission standards requiring reductions in both sulfur dioxide and nitrogen
dioxide. ADA's technology also has application in the cement and petroleum
refining industries where particulate emissions are being or need to be
controlled. ADA is also developing and testing new chemical blends and
anti-slagging agents expected to aid coal-burning utilities in the variety of
problems that may be encountered in switching to lower cost coals.

In September 1999, ADA was awarded a $1 million Department of Energy grant to
develop an expanded line of flue gas conditioning agents. The grant extends over
a three-year period and will allow ADA to accelerate research and development
work it had planned for the future. If the development work is successful, ADA's
proprietary chemicals will be applicable to a broader range of customers with
problem flue gases. Although the award was made in September 1999, the contract
was not signed until January 2000. Work commenced under the grant at that time.

Market for ADA Services
The primary drivers for ADA services are new environmental regulations and the
deregulation of the utility industry. Environmental regulations, such as the
1990 Clean Air Act Amendments, are requiring utilities to reduce emissions of
gases, such as sulfur dioxide and nitrogen dioxide, and toxic particles. In
addition to environmental regulations, this industry is also impacted by the
deregulation of the utility business. Historically, public utilities have been
able to pass capital costs onto customers through rate adjustments. However with
deregulation, utility companies face competitive challenges requiring them to

<PAGE>

better control capital spending and operating costs. This increases the need for
cost-effective retrofit technologies that can be used to enhance existing plant
equipment to meet the more stringent emission limits while burning less
expensive coals. ADA has entered this market with its proprietary non-toxic
chemical conditioner that offers both technical and economic advantages over the
hazardous chemicals currently being used. In 1999 ADA recognized 28% of its
revenue from Wisconsin Power & Light Co., 23% from Cleco Utility Group, Inc. in
Louisiana and 19% from MidAmerican Energy Co. in Iowa. ADA's own sales staff
markets its technology through trade shows, mailings and direct contact with
potential customers.

ADA Competition
ADA's primary competition is the conventional flue gas conditioning technology
using either sulfur trioxide or a combination of sulfur trioxide and ammonia.
This technology has been available commercially since the 1970's and can be
obtained from a variety of suppliers and in a variety of forms. Conditioning of
fly ash by injecting small amounts of sulfur trioxide into the flue gas is a
well-proven technique for improving performance of the ESP. Such sulfur trioxide
conditioning loses its effectiveness in application with temperatures over 350
degrees F. The capital costs of conventional flue gas conditioning technology
are in excess of $1million. A typical ADA system can cost between
$300,000-600,000. The competitive advantages of ADA's conditioning technology
include an effective temperature range of 375 degrees F to 900 degrees F; a
simple injection system; a non-toxic conditioner that will not become a
secondary pollutant; and chemicals that are safer and easier to handle on site.

ADA Patents
ADA has received three patents related to different aspects of its technology.
ADA continues to improve its products, and patents for four additional products
have been submitted. Although important to protect its continuing business, ADA
does not consider any of such patents to be critical to the ongoing conduct of
its business. (See also the discussion below under the heading Patents, Licenses
and Franchises.)

Supply of Chemical for ADA Customers
The majority of ADA products do not contain phosphoric acid, so the supply of
proprietary chemicals to customers has not been impacted by the suspension of
production at the Calgary facility. ADA negotiates blending contracts that
include secrecy agreements with chemical suppliers located near each major
customer. These arrangements minimize transportation costs while assuring
continuous supply of ADA proprietary chemical blends. Such arrangements have
been in place since the spring of 1999.

Calgary Solvent Extraction Facility
In 1997, ESI commenced production of purified phosphate products at the
facility. The facility suspended such production in August 1999 due to a lack of
working capital needed to expand production and inventories. When in operation
the plant produced purified phosphoric acid ("PPA") and by-products. Earth
Sciences Extraction Company ("ESEC"), a wholly owned Canadian limited
partnership of ESI, operated the solvent extraction facility in Calgary,
Alberta. Registrant is seeking an industry partner to strengthen its market
position and provide approximately $5 million in capital to fund the estimated
needs. There can be no assurances that Registrant will be able to attract the
needed capital.

ESEC's Facility
The phosphoric acid treatment facility was maintained on a standby basis since
its uranium recovery operations were suspended in 1987 when the adjacent
fertilizer plant, which had supplied feedstock, suspended operations. Certain
contractual restraints and lower uranium prices have made the stand-alone
recovery of uranium from other feedstock sources uneconomic. ESEC modified the
facility to purify superphosphoric acid ("SPA") to produce a technical grade PPA
and by-products. In addition to the estimated capital required to re-start
production, the growth and profitability of any operations at the Calgary plant
will be dependent upon, among other things, the availability of sufficient raw
materials at reasonable prices. Purchases of SPA in the past were made from
three US suppliers. ESEC generally received a discount from listed market price
from two of those suppliers, while purchasing at an annual fixed price from the
third. ESEC had been able to acquire sufficient quantities to supply its
estimated requirements of SPA, but it had no long-term contracts for supply.
Other supplies of SPA may not be available. There can be no assurances that ESEC
will be able to obtain sufficient quantities of SPA at reasonable prices in the
future. In the future it is possible that phosphate rock from an open pit
mineral resource owned by ESI in Idaho may be processed to provide feedstock for
the Calgary plant. (See Item 2(a) below).

Market for Purified Phosphoric Acid
Phosphorus in the form of purified phosphoric acid, H3PO4 (PPA), is a basic
commercial chemical essential to a broad variety of industrial and consumer
applications. PPA is an important inorganic acid used in foods, cola beverages,

<PAGE>

cleaning solutions, fertilizers, fire retardants and metal treatments, among
other uses. It is expected that ESEC will compete with four North American PPA
producers in the estimated 1.3 million tons PPA industrial market where an
estimated 370,000 tons of direct consumption PPA is sold. When in production,
ESEC was the sole producer in Canada and the only producer in western North
America. ESEC's targeted market segments include those where growth is 10% or
more per year, where the predominate users are in ESEC's freight advantage area,
and the large Minneapolis/Chicago area market. ESEC was marketing PPA by
attempting to match other producers' quality but with lower prices and improved
service. In 1999 ESEC recognized 33% of its revenues from sales to HCI Holchem
Inc. and 21% to Chemical Interchange Co.

If and when routine levels of production are achieved, it is anticipated that
cost advantages will be realized from the use of less expensive purification
through solvent extraction. By-products had been and are expected to be sold in
local fertilizer markets. Until suspension of production, all of the facility's
production was marketed through an agreement dated January 1, 1997 with Twin-Kem
International, Inc., a Colorado corporation ("TKI") whose principals have over
60 years of combined experience in the marketing and distribution of industrial
and agricultural chemicals. TKI received a commission of between $2.00-$5.00 per
ton of product sold. As additional compensation, the Company issued 50,000
shares and 230,000 shares of common stock to TKI in 1998 and 1999, respectively.
There can be no assurances that in the future actual sales recognized by ESEC
will equal the anticipated volumes.

Any growth and future profitability of operations at the ESEC facility in
Calgary are dependent upon, among other things, the sale of purified phosphate
products to chemical distributors and customers. ESEC signed a letter of intent
with Chemical Interchange Company ("CIC") to sell 6,000-8,000 tons per year of
PPA for distribution in the US primarily east of the Rocky Mountains. Although
production has been suspended, CIC has expressed their continued interest in
obtaining product from ESEC. However, Registrant has limited experience in
marketing industrial chemicals and is relying on consultants and others to
initiate and maintain other sales contacts. PPA is not typically sold under
long-term contracts, and Registrant does not have any other significant
long-term commitments to purchase its products. There can be no assurances that
Registrant will be successful in its future sales efforts.

Solvent Extraction Process
The facility produces PPA using an environmentally clean solvent extraction
process employing tributyl phosphate. The basic process is well established in
the industry and believed by ESEC to be free of patent conflicts. The ESEC
process was verified for several feedstocks by numerous laboratory bench tests
and continuous recycle pilot plant runs. The studies show that a competitive PPA
can be produced from most fertilizer grade phosphoric acid feedstock with
extraction efficiencies of 70 to 90%. The remaining material has been sold in
local markets for its contained phosphate values. ESEC believes that no
significant waste will be generated at the ESEC facility. However, the ESEC
process has not been proven on a continuing, long-term commercial basis at the
Calgary plant. Although ESI has performed numerous bench-scale and pilot plant
tests of the process, and operated the facility on a continuing basis from June
1997 through August 1999, there can be no assurances that the process will yield
satisfactory results when employed on a long-term continuous commercial scale.

Geographic Expansion
Any future growth and profitability of operations at the solvent extraction
facility in Calgary will be dependent upon, among other things, the ability to
become the predominate supplier of PPA in the geographic region surrounding
Calgary and on the US West Coast, and to sell on an increasing basis to the
Minneapolis/Chicago area. There can be no assurance that ESEC's efforts to
expand sales can be accomplished on a profitable basis.

Competition
ESEC's purified phosphate products are expected to be sold in markets that are
highly competitive. The principal competitive factors include product quality,
price and distribution capabilities. There can be no assurances that ESEC will
be able to compete successfully against current and future competitors based on
these factors. ESEC is expected to be in competition with several domestic and
international producers, many of who have substantially greater financial,
production, distribution and marketing resources than ESEC. If and when ESEC
increases its market share, further competition could result in price
reductions, reduced margins and loss of market share, all of which could have a
material adverse affect on the ESEC business, financial condition and results of
operations.

At present, other domestic suppliers are meeting all of ADA's chemical supply
requirements. In a future, if production at ESEC re-starts, a portion of ADA's
requirements may be met by ESEC production. However, if there is no demand, or
the demand is less than projected, for ADA's services for flue gas conditioning
agents using phosphoric acid, Registrant will not recognize the synergies
expected, because ADA will not be able to utilize ESEC's purified phosphate
products.

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Venezuelan Gold Activities
ESI commenced initial exploration activities in Venezuela in the fall of 1988.
No proven commercially viable reserves have been discovered on the properties
discussed.

In October 1999, a new mining law was approved in Venezuela (the "New Law"). A
prior decree that empowered the Corporacion Venezolana de Guyana ("CVG") to
issue land contracts in the Guyana Shield had been determined to be illegal by
the Venezuelan courts. Under the New Law, the Ministry of Energy and Mines
("MEM") is expected to issue concessions to replace the over 450 existing CVG
contracts. The SAMI land contract (see below) is included in this category and
it is anticipated that its terms will improve, as the new concession terms will
be more favorable. The three applications for new land contracts discussed below
are included with some 300 other unacted-upon requests that have accumulated
with CVG since March 1994, when CVG stopped signing contracts. New applications
to MEM have been made for these three areas but these will need to be conformed
to the requirements of the New Law before the end of 2000. In 1998, an
additional 15 applications were made to MEM covering approximately 30,000 acres
in southeastern Venezuelan, chiefly of interest for their diamond and gold
potential. These applications were filed for areas where previous concessions
had been granted but had lapsed. ESI expects MEM to give consideration to these
applications on a timelier basis since the areas requested underwent a level of
scrutiny in the past. However, these 15 applications will also need to be
conformed to the requirements of the New Law before the end of 2000. The pending
nature of the MEM approval process and procedures under the New Law has delayed,
indefinitely, further exploration activities on those areas where applications
have been filed. No current activities are planned on the SAMI contract area.

SAMI Area Contract
Antabari was formed in 1991, a Venezuelan company of which ESI owns 83%. In
November 1991, Antabari filed for a contract with CVG for 488 hectares to be
explored and exploited for gold. The area, called SAMI for San Miguel, is
located southeast of the town of Upata, Bolivar state, Venezuela in the open
country of the savannas, and is readily accessible from established roads. The
contract, which was issued in March 1992, provides a two-year period for
exploration work and to prepare a plan for exploitation. An extension has been
granted to complete further exploration work. The contract requires certain
financial guarantees with regard to exploration and reclamation, and requires
that the area be reduced by one-half at the end of the exploration period.

Antabari has performed geologic mapping, geochemistry of drainages, soils and
old workings, and trenching of several mineralized zones. One such zone has a
continuity of over 600 feet with a width of 40 feet and has yielded values of up
to 1.6 ounces per ton of gold. Additional sampling and analysis from extensive
pitting show a large (8 acre) anomalous gold area, clearly open to the north and
east. Drilling and further sampling will be necessary to determine the potential
of the area. ESI is evaluating this next phase and/or a sale to third parties at
this time.

Pending Applications
In 1994, formal applications were made to CVG, which in 1995 were renewed in
applications to MEM to acquire exclusive mineral exploration rights on three new
land areas located in the Bolivar state in southeastern Venezuela. ESI has been
advised that the filings establish priority for the areas sought. The Company is
very optimistic about the potential these areas hold for further gold
exploration and exploitation. The areas were first identified as potential
targets through regional geochemistry that defined anomalous occurrences of gold
and associated minerals, and legends of past production by primitive methods
that have historically been key to exploration in remote areas. Queries of
natives and sampling of stream sediments has allowed selection of the best
targets from a 130 square km area that was investigated.

Each of the three application areas cover 500 hectares (approx. 1200 acres). The
first concession area is known as Apicharai, located about 165 km from the town
of La Paragua on a small tributary to the Antabari river with a history of
panning and small scale hydraulic mining. The second concession area, known as
Man-cai, is located in a remote area near the Brazilian border accessible by
boat from the La Paragua River. The third concession area, known as Manaima, is
located 50 km from the town of La Paragua. Although specific work programs have
been formalized for initial detailed exploration of the above mentioned areas,
such programs are on hold until the Venezuelan government grants the applied for
concessions.

From May through December 1998, VENESI filed for 15 concessions ranging in size
from 200 to 4,228 hectares (approx. 480 to 10,150 acres) all located in the
Bolivar state in southeastern Venezuela. The location of the filings primarily
centers in two areas, one near the Brazil border and the other south of the town
of La Paragua. Both of these areas have historical diamond production from
alluvial materials. ESI believes that there is growing body of geologic evidence

<PAGE>

to support the existence of kimberlitic sources for such diamonds in Venezuela
and has targeted its exploration effort to acquire concessions with a likelihood
for such sources. Thus far VENESI has not confirmed the existence of any
kimberlites in Venezuela and there can be no assurances that its exploration
efforts will be successful in the future. These applications also will require
some conformance with the New Law prior to the end of 2000.

The primary objectives of the 2000 plans are to maintain property interest at
the lowest possible costs. Until political uncertainties diminish, no
significant expenditures are planned, which may result in forfeiting several of
the property positions now held.

Mineral Properties and Other Business Matters
During 1999 Registrant maintained its ownership position in the several mineral
interests it holds. The mineral interests maintained by Registrant include
significant resource interests in alumina, gold, vanadium, potash and sulfur,
and prospects for copper/molybdenum and silver (see Item 2 below).

RAW MATERIALS.
Raw materials, as the term is generally used, are not essential to Registrant's
mineral acquisition and development activities performed for its own account.
However, Registrant's commercialization of its properties is dependent upon
securing adequate supplies of energy and water. Commencement of production of
PPA at the Calgary facility will require adequate supplies of SPA feedstock.
Adequate supplies of this material are currently available in the required
quantities and at reasonable prices. There can be no assurance that such
availability will continue in the future. ADA purchases equipment from a variety
of vendors for the engineered units it manufactures. Such equipment is available
from numerous sources. ADA purchases it proprietary chemicals through negotiated
blending contracts with chemical suppliers generally located near each major
customer. The chemicals used are readily available, and several such chemical
suppliers can perform to ADA's requirements.

PATENTS, LICENSES AND FRANCHISES.
(See also the discussion above under the heading "ADA Patents.") Registrant
holds no patents, licenses, franchises or land contract that it considers
material in light of its other assets. However, Registrant holds for itself, and
in association with others, Federal Potassium Prospecting Permits, State Potash
and Alunite Leases, Federal Potassium Preference Right Leases and Applications,
Federal Phosphate Prospecting Permits, Federal Phosphate Leases, State Phosphate
Leases, fee mineral rights and other exploration and mineral interests which are
the basis for Registrant to explore and develop the properties subject thereto.
In certain instances such mineral interests give preferential leasing rights to
Registrant upon location and demonstration to the US Geological Survey
Conservation Division that the deposit is a "valuable, workable deposit in
commercial quantities".

THE NATURE OF MINERAL EXPLORATION AND DEVELOPMENT IS RISKY; WE HAVE NOT YET
DISCOVERED ANY PROVEN COMMERCIALLY VIABLE RESERVES ON OUR MINERAL PROPERTIES; WE
COULD INCUR A WRITEDOWN ON OUR INVESTMENT IN ANY SUCH PROPERTY.
Exploration for minerals is highly speculative and may involve greater risks
than many other businesses. Many exploration programs, including those, which we
have conducted, do not result and have not resulted in the discovery of
mineralization. Any mineralization discovered, may not be of sufficient quantity
or quality to be profitably mined. Our mineral exploration and development
activities are subject to all of the operating hazards and risks normally
incident to such activities. These hazards and risks include encountering
unusual or unexpected formations, environmental pollution, personal injury and
flooding. All of these factors may result in losses in relation to the amounts
spent, which are not recoverable. No commercially viable reserves are presently
known to exist on our mineral properties. If management determines that
capitalized costs associated with any of our mineral interests are not likely to
be recovered, we would incur a write down on our investment in such property
interest.

WE HAVE A COMPETITIVE DISADVANTAGE DUE TO OUR LIMITED FINANCIAL RESOURCES AND
MINERAL LANDS OF INTEREST TO US MAY BE ACQUIRED BY OTHERS.
Many companies and individuals are engaged in mineral exploration and
development, including large, established mining companies with substantial
capabilities and long earnings records. There is a limited amount of desirable
mineral lands available for claim staking, lease or other acquisition in the US,
Venezuela and other areas where we contemplate conducting exploration
activities. In general, we are at a competitive disadvantage in acquiring
mineral properties since we must compete with other individuals and companies,
most of which have greater financial resources and larger technical staffs than
ours. For example, the annual exploration budgets of major mineral companies
typically are several million dollars. Our exploration budget for 2000 is
expected to be not more than $50,000. From time to time, specific properties or
areas, which would otherwise be attractive to us for exploration or acquisition,

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are unavailable due to their previous acquisition by other companies. Our
limited financial resources restrict our ability to act quickly and deter our
ability to mount the extensive exploration efforts often needed to find and
acquire attractive mineral properties.

THE PRICE OF MINERALS FLUCUATES; WEAK GOLD PRICES WILL LESSEN THE ATTRACTIVENESS
OF OUR PROPERTIES TO OTHERS AND REDUCE OUR EXPECTED RETURNS.
The market price of minerals is extremely volatile and beyond our control.
Mineral prices are generally influenced by basic supply/demand fundamentals. The
market dynamics of supply/demand can be heavily influenced by economic policy,
i.e., central banks sales/purchases, political unrest, conflicts between
nations, and general perceptions about inflation. Fluctuating metal prices may
have a significant impact on our results of operations and operating cash flow.
Furthermore, if the price of a mineral should drop dramatically, the value of
our properties which are being explored or developed for that mineral could also
drop dramatically, and we might not be able to recover our investment in those
properties. The decision to put a mine into production, and the commitment of
the funds necessary for that purpose must be made long before the first revenues
from production will be received. During the last five years, the average annual
market price of gold has fluctuated between $285 per ounce and $384 per ounce.
The price of gold has recently declined as a result of decisions by the UK and
International Monetary Fund to sell gold reserves. It appears to be the trend of
many central banks to reduce their gold holdings in favor of assets that offer
higher returns. The sale of gold reserves and the influx of gold into the
marketplace beyond what comes from production have weakened gold prices over the
last two years. These trends may continue. The current price of gold is
approximately $290 per ounce. Price fluctuations between the time that such a
decision is made and the commencement of production can change completely the
economics of the mine. Although it is possible to protect against price
fluctuations by hedging in certain circumstances, the volatility of mineral
prices represents a substantial risk in the mining industry generally which no
amount of planning or technical expertise can eliminate. We are not involved in,
nor do we expect to enter into any hedging activities.

ENVIRONMENTAL CONTROLS ARE INCREASING AND COSTLY.
Compliance with environmental quality requirements and reclamation laws imposed
by federal, state, provincial, and local governmental authorities may require
significant capital outlays, may materially affect the economics of a given
property, or may cause material changes or delays in our intended activities.
The Secretary of the Interior has directed the Bureau of Land Management to
propose amendments to surface management regulations that impose more stringent
reclamation and environmental protection requirements on mining operations. The
extent of the changes, if any, which may be made by the BLM, is not presently
known, and the potential impact on us as a result of future regulatory action is
difficult to predict. New or different environmental standards imposed by any
governmental authority in the future may adversely affect our activities. We are
not currently conducting any activities that are adversely affected by
environmental standards, nor are we currently subject to any reclamation costs.
However, US Federal and state environmental laws and regulations potentially
applicable to our exploration activities include:
(a) the assessment of environmental impacts with regard to the National
Environmental Policy Act and its state counterparts;
(b) the Endangered Species Act and any comparable state laws;
(c) water quality laws and regulations that address impacts on waters of the
United States or a state;
(d) solid, and possibly hazardous, waste laws and regulations to the extent that
waste is generated as a result of activities on the property;
(e) air quality laws and regulations if air emissions result from site
operations; and
(f) mined land operational and reclamation requirements.
All of the items in the list above have the potential to substantially increase
the cost and significantly lengthen the timeframe of activities we might carry
out. In addition to the imposition of requirements which may impact operations,
a number of these environmental laws and regulations impose permitting
requirements related both to the initiation of certain mining activities as well
as to the ongoing operation once mining commences. Local regulations in the U.S.
typically are land use related rather than environmental. Although environmental
regulatory costs to date and those expected in 2000 are not significant, they
may become substantial in the future. Such costs are considered a part of the
ordinary costs of our business.

THE TITLE TO MINERAL PROPERTIES CAN BE UNCERTAIN.
Two of our mineral properties, which are in the US, include a total of 17
unpatented mining claims to which we have only possessory title. These claims
cover a total of approximately 870 acres in Montana and Nevada. We also hold
mineral interests on 4 other properties covering approximately 5,600 acres that
do not include any unpatented mining claims. Because title to unpatented mining
claims is subject to inherent uncertainties, it is difficult to determine
conclusively ownership of such claims. Since a substantial portion of all
mineral exploration, development and mining in the US now occurs on unpatented
mining claims, this uncertainty is inherent in the mining industry. In addition,
in order to retain title to an unpatented mining claim, a claim holder must have
met annual assessment work requirements ($100 per claim) through September 1,

<PAGE>

1992 and must have complied with stringent state and federal regulations
pertaining to the filing of assessment work affidavits. Moreover, after
September 1, 1992, the right to locate or maintain a claim generally is
conditional upon payment to the US government of a rental fee of $100 per claim
per year for each assessment year instead of performing assessment work. Neither
Montana nor Nevada currently have State laws that require performance of
assessment work.

The present status of our properties as unpatented mining claims located on
public lands of the US allows the claimant the exclusive right to mine and
remove valuable minerals, such as precious and base metals and industrial
minerals, found on those claims. Also, those claims allow us to use the surface
of the land solely for purposes related to mining and processing the
mineral-bearing ores. However, legal ownership of the land remains with the US
government. Accordingly, with an unpatented claim, the US government retains
many of the incidents of ownership of land. The US government regulates use of
the surface, and we remain at risk that the claims may be forfeited either to
them or to rival private claimants due to failure to comply with statutory
requirements as to locations and maintenance of the claims. If there exists a
valuable deposit of locatable minerals (which is the requirement for the
unpatented claim to be valid in the first place), and provided certain levels of
work and improvements have been performed on an unpatented mining claim, the
Mining Law of 1872 authorizes claimants to then seek to purchase the full title
to the claim, thereby causing the claim to become the private property of the
claimant. Such full ownership expands the claimant's permissible uses of the
property (to any use authorized for private property) and eliminates the need to
comply with maintenance and reporting requirements necessary to protect rights
in an unpatented claim. At present there is a statutory moratorium in effect
prohibiting the Department of Interior from accepting and processing new
applications for purchase of fee title to mining claims. The moratorium is
likely to continue indefinitely but does not affect the ability to hold and
develop valuable deposits by means of unpatented mining claims.

LEGISLATION HAS BEEN PROPOSED THAT WOULD SIGNIFICANTLY AFFECT THE MINING
INDUSTRY.
For the last several Congressional sessions, bills have been repeatedly
introduced in the U.S. Congress, which would supplant or radically alter the
provisions of the Mining Law of 1872. As of December 31, 1999, no such bills
have passed, although a number of differing and sometimes conflicting bills are
now pending. If enacted, such legislation could substantially increase the cost
of holding unpatented mining claims and could impair the ability of companies to
develop mineral resources on unpatented mining claims. Under the terms of
certain proposed legislation, the ability of companies to obtain a patent on
unpatented mining claims would be nullified or substantially impaired. Moreover,
certain forms of such proposed legislation contain provisions for the payment of
royalties to the federal government in respect of production from unpatented
mining claims, which could adversely affect the potential for development of
such claims and the economics of operating existing mines on federal unpatented
mining claims. Our financial performance could therefore be affected adversely
by passage of such legislation. It is impossible to predict at this point what
any legislated royalties might be, but a potential three to four percent gross
royalty, assuming a gold price of $300 per ounce, would have an approximated $9
to $12 per ounce impact on our costs of any production from unpatented mining
claims.

OUR FUNDING FOR EXPLORATION IS UNCERTAIN.
We have funded much of our exploration and acquisition activities through joint
venture arrangements, which minimize the cost of such activities to us and allow
us to explore and acquire a greater number of properties than we would otherwise
be able to explore or acquire on our own. We have also funded a portion of our
exploration activities without joint venture participation, resulting in
increased costs to us. We have been successful in raising such funds for our
exploration activities. Additional funding from existing partners or third
parties, however, may be necessary to conduct detailed and thorough evaluations
of, and to develop certain properties. Our ability to obtain this financing will
depend upon, among other things, mineral prices and the industry's perception of
their future prices. Therefore, availability of funding is dependent largely
upon factors outside of our control, and cannot be accurately predicted. We do
not know from what sources we will derive any required funding. If we are not
able to raise additional funds (as to which there can be no assurance), we will
not be able to fund certain exploration activities on our own. At the end of
August 1999, we closed two of our three field camps in Venezuela and have
suspended further exploration activities there. ESI has no current plans for any
significant mineral exploration activities in 2000.

THE UNCERTAINTY OF DEVELOPMENT AND OPERATING PROPERTY ECONOMICS AND ORE GRADES
AT FUTURE DEVELOPMENT PROPERTIES.
Decisions as to whether any of the mineral development properties which we now
hold or which we may acquire in the future contain commercially minable
deposits, and whether such properties should therefore be sold or brought into
production, will depend upon the results of exploration programs and/or
feasibility analyses and the recommendations of duly qualified engineers or

<PAGE>

geologists. Such decisions will involve consideration and evaluation of several
significant factors, including, but not limited to, the
(a) costs of bringing a property into production, including exploration and
development work, preparation of production feasibility studies and construction
of production facilities,
(b) availability and costs of financing,
(c) ongoing costs of production,
(d) market prices for the mineral to be produced, and
(e) the amount and grades of reserves or mineralized material.

There can be no assurance that any of the development properties we now hold, or
which we may acquire, will contain a commercially minable mineral deposit, and
therefore no assurance that we will ever generate a positive cash flow from the
sale of or production operations on such properties. In addition, once a
property is sold with a retained royalty or placed into production, risks still
exist that the amount and grade of its reserves will not actually be as
predicted. To the extent that lower amounts and/or grades of reserves are
experienced, costs per unit produced and profitability can be adversely
affected. Depending upon the extent of such an effect in any of our properties,
we could incur a write down on our investment in any such property.

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

DEPENDENCE ON MAJOR CUSTOMERS.
(See also the discussions above under the headings "Market for ADA Services" and
"Market for Purified Phosphoric Acid" and Note 14 to the Consolidated Financial
Statement submitted in response to Item 7 below.) Registrant's mineral
exploration and property acquisition activities are not dependent upon one or a
few major customers. The search for and commercialization of economic mineral
deposits is highly competitive. Large companies having greater financial
resources than Registrant and many small mining companies are active in
acquiring, evaluating and developing mineral resource prospects in the western
United States and Venezuela.

RESEARCH AND DEVELOPMENT ACTIVITIES.
Registrant spent approximately $5,000 and $19,000 on research and development
activities related to the Calgary extraction facility during 1999 and 1998,
respectively. ADA spent approximately $37,000 and $62,000 on research and
development activities related to further development of its technology during
1999 and 1998, respectively.

EMPLOYEES.
As of December 31, 1999 Registrant employed a total of 20 full-time personnel.
Included in this number are 4 personnel at its Golden, Colorado, offices, 4
full-time at the Calgary facility and ADA employs 12 people at its offices in
Littleton, Colorado and 3 others at locations in Alabama and New Hampshire. In
addition, other personnel were employed on a contract basis for specific project
tasks. The Golden, CO office was closed in January 2000 and combined with the
Littleton, CO office.

Item 2. Description of Property.
Registrant owns, controls and participates with others in mineral property
interests in Colorado, Idaho, Montana, Nevada, Utah, and Venezuela. The
following property descriptions contain deposit references according to the
indicated definitions, although it has not been proven that any of these
deposits are commercially viable. Registrant is not currently pursuing
development of any of its exploration properties at this time. The following is
summary information regarding Registrant's principal properties. For purposes of
this item, Mineral Deposit or Mineralized Material is a mineralized body that
has been delineated by appropriately spaced drilling and/or underground sampling
to support a sufficient tonnage and average grade of metal(s). Such a deposit
does not qualify as a reserve, until a comprehensive evaluation based upon unit
cost, grade, recoveries, and other material factors conclude legal and economic
feasibility.

Exploration Properties
(a) Vanadium/Phosphate Properties.
Registrant's interests in the properties consist of fee ownership, State of
Idaho mineral leases, Federal leases and leases with private parties. The
properties are located near Paris and Bloomington, Idaho and cover approximately
2,100 acres. To date, drill testing on the southern portion of the deposit show
tonnage of approximately 53 million tons of mineralized material. The grade of
the upper bed material of the block is calculated to be 25% P2O5 over a
thickness of 9 feet and the grade of the lower (main) bed material is calculated
to be 30% P2O5 over a 6 foot thickness.

<PAGE>

Metallurgical test work on the vanadium bed has resulted in a patent being
issued to Registrant regarding the extraction techniques that were developed as
a result of such work. Registrant is investigating plans for development of the
property, however there can be no assurance that marketing and financing
arrangements can be obtained. This deposit may provide a basic raw material
source for the purified phosphoric acid production at the Calgary facility (See
Item 1(b) above).

(b) Emigrant Property.
In 1987 Registrant acquired fee ownership of two patented lode-mining claims in
the Emigrant Peak area, Park County, Montana containing approximately 38 acres.
Registrant also owns two other patented placer claims containing 37 acres and
holds 13 unpatented mining claims in the same area. This block of contiguous
mining claims contains copper, molybdenum, gold, silver, lead and zinc
mineralization, which has not yet been fully delineated. All necessary payments
were made to hold the unpatented claims in 1999.

Alunite is a source of alumina (the raw material of aluminum), potassium sulfate
fertilizer, sulfuric acid and sulfur. Acquisition of Federal alunite mineral
rights is accomplished through Federal Potassium Preference Right Leases issued
under Section 4 of the Leasing Act of February 7, 1927.

(1) "LC" Alunite Property.
The property is located in southwestern Colorado, about 7 miles south of Lake
City, Colorado and consists of approximately 1,667 acres. The LC property was
sampled with three vertical core holes ranging from 306 feet to 688 feet in
depth. The average thickness of the mineralization, defined as 21.6% alunite or
greater, was approximately 400 feet. The average interval between the holes was
2,000 feet. Results of exploration work to date show a total of 61.1 million
tons of mineralized material. The grade of the material is calculated to average
approximately 39.6% alunite (approximately 14.7% alumina).

In 1978, Registrant applied for a Preference Right Lease for potassium on the
property (a "PRLA"), in 1979 submitted the "initial showing" required in the
lease application and in 1982 submitted the operating plan for an environmental
impact assessment. A Bureau of Land Management advisory panel recommended
approval of the project. However, in 1985 a Congressional resolution suspended
all Preference Right Lease activity in Wilderness Study Areas. Until further
Congressional action is taken, progress on the project will be restricted. In
1991, Registrant received notice from the Department of Interior that the Bureau
of Land Management considers the PRLA as a valid existing right with respect to
any future wilderness designation. Registrant relinquished its 48 unpatented
mining claims covering the alunite property in 1993.

(2)"NG" Property and Other Utah Alunite Interests.
The properties are located within the southern end of the Wah Wah Mountain range
in southwestern Utah, approximately 38 miles from Milford, Utah. Registrant owns
Federal leases on 680 acres. All required lease payments were made in 1999.
Mineralization on the 680 leased acres was sampled with 239 drill holes totaling
52,200 feet of drilling. The holes varied in depth from 10 feet to 900 feet on
an approximate grid spaced at 300 feet by 500 feet. The average thickness of
mineralization, defined as 27% alunite or greater, was approximately 200 feet.
Results of exploration and drilling programs on the properties to date show 129
million tons of mineralized material with a grade calculated to be 37.9% alunite
(approximately 14.03% alumina) with an additional 287 million tons of
mineralized material with average grades calculated to range from 33.5% to 39.4%
alunite (approximately 12.4% to 14.6% alumina).

Other Properties
(d) San Luis Property.
Registrant owns a remaining 400-acre of an 800-acre site near San Luis, Colorado
on which gold mining was conducted from 1991 through 1996 and from which
Registrant received royalty income during that period. Mining and milling
activities were completed in 1996. The property was reclaimed in accordance with
the plan approved by the State of Colorado during 1997 and 1998. Registrant sold
half of the property in 1999 and has the remaining portion under contract to
sale for approximately $150,000.

(e) Calgary Solvent Extraction Facility.
Registrant owns a hydrometallurgical solvent extraction facility that produced
purified phosphate products. The facility occupies a 20,000 square foot building
and is located in southeast Calgary, Alberta on a 12-acre site leased from the
adjacent landowner.

<PAGE>

Item 3. Legal Proceedings.
Registrant knows of no reportable pending legal matters involving Registrant or
its subsidiaries.

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

PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
(a) Market Information.
Registrant's common stock traded on The NASDAQ Small-Cap Market until July 1999
when it was delisted for failure to meet the minimum price requirements. The
common stock currently trades on the OTCBB market under the symbol ESCI.

Price Ranges (high and low closing bid prices)
1998 1999
1st Quarter $ 2.97 - 1.06 $ 1.16 - .63
2nd Quarter 1.94 - 1.16 .63 - .41
3rd Quarter 1.38 - 0.53 .56 - .22
4th Quarter 0.84 - 0.47 .38 - .15

The price ranges shown are based on NASDAQ or OTCBB quotations. The sale prices
reflect inter-dealer prices, without retail mark-up, markdown or commission and
may not represent actual transactions.

(b) Holders.
The number of record holders of common stock, one-cent par value, of Registrant
as of March 12, 2000 was approximately 1,900; the approximate number of
beneficial shareholders is estimated at 9,900.

(c) Dividends.
Registrant has not paid dividends since its inception and there are no plans for
paying dividends in the foreseeable future. The terms of the $1,000,000
debenture with Tectonic Construction Co. prohibit the payment of dividends
without obtaining a written waiver.

Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This Annual Report may contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933. In particular such forward-looking
statements may be found in this section and under the heading "Description of
Business." Actual events or results could differ materially from those discussed
in the forward-looking statements as a result of various factors including those
set forth below or under the heading "Description of Business."

Liquidity and Capital Resources
Registrant had a working capital deficit of $631,000 at 12/31/99. This deficit
has decreased during the year from a deficit of $762,000 at 12/31/98. Management
is currently seeking approximately $5 million from an industry partner for
working capital and improvements to re-start and increase production at Calgary
to sustainable routine levels expected to yield positive cash flow. Management
expects to reduce the deficit through continued and improved cash flow at ADA.
However, there can be no assurances that investment funds for the Calgary plant
will be found or that the positive cash flow that has been achieved at ADA will
continue.

In effort to reduce cash flow deficits from the Calgary facility, as of August
31, 1999, management suspended production. Although, in the opinion of
management, the facility had demonstrated adequate capacity and quality of
production, and markets for its products were established, the suspension in
phosphate purification production at Calgary is expected to continue until
sufficient working capital becomes available to allow the expected achievement
of positive cash flow there. The achievement of such positive cash flow is
dependent upon several factors including, but not limited to, the continued
ability to produce a technical grade quality product, upgrading and improving
margins on by-products, success in marketing phosphate products and meeting
competition in the market place; the failure in any of which could delay or
frustrate such achievement. Chemical blends for ADA that were produced by ESEC
have been out-sourced to US manufacturers at only slightly higher costs.

For ADA, the continuation of positive cash flow is dependent upon the successful
ongoing operation of the units currently in-place in Wisconsin, Louisiana, Iowa
and Oregon. Unsatisfactory operations at any of the units operating could

<PAGE>

frustrate such continuation. ADA recently signed a contract for installation of
a fifth unit in Nebraska which commenced operation in March 2000.

Planned capital expenditures for ADA to sustain and improve ongoing operations
for 2000 are estimated at $250,000. Registrant expects to fund these
requirements out of existing working capital.

The credit facility from the Bank of Hongkong is a demand revolving loan limited
to the lesser of 85% of qualified receivables or $400,000, and was secured by
accounts receivable of ESEC. The credit facility is currently in default due to
the suspension of production at ESEC. Interest continues to accrue at the rate
of the Bank's US base rate plus 1% (a combined rate of 10% at 12/31/99). The
Bank has demanded the entire amount of the loan and interest. The loan is
guaranteed by ESI and discussions are ongoing to explore settlement alternatives
with the Bank. As of 12/31/99, a net of $377,000 had been advanced under the
loan.

Based on current estimates, the Calgary facility may require as much as U.S.
$5,000,000 to re-start production and finalize modification for the production
of food grade phosphoric acid. Registrant is seeking to finance those
requirements from arrangements with industry partners. The timing of a re-start
of production and modification is uncertain and is not expected until an
arrangement can be reached with a third party. Discussions have been initiated
with several interested parties, but all such discussions are at preliminary
stages at this time.

Registrant is funding the majority of cash costs of the Venezuelan gold
exploration activities, which for 2000 are expected to be only $15,000. The
costs of planned activities are expected to be met through existing working
capital. Registrant has curtailed field and other activities in Venezuela to a
level required to maintain its established positions.

Cash flow used in operations totaled $1,337,000 for 1999 versus $2,688,000 for
1998. Such use in 1999 resulted primarily from the operating losses less
non-cash charges for depreciation and amortization, write down of mineral
properties, the cumulative change in accounting principle and interest. Cash
flow from investing activities for 1999 includes a use for capital expenditures
of $161,000 and proceeds from the sale of land of $141,000. Cash flow from
financing activities in 1999 consisted of proceeds from the issuance of common
stock of $1,252,000, payments on notes payable of $527,000 and proceeds from a
bank line-of-credit and notes payable, net of $653,000. Cash flow from investing
activities for 1998 includes proceeds from sale of building of $337,000 and
capital expenditures of $729,000. Cash flow from financing activities in 1998
consisted of payments on notes payable and long-term debt of $500,000, proceeds
from the issuance of stock of $167,000 and proceeds from the issuance of
convertible debentures and notes payable net, of $3,203,000.

Results of Operations
Revenues from sales totaled $4,760,000 in 1999 versus $4,686,000 in 1998. In
1999, $3,050,000 of that amount was generated by ADA and $1,702,000 was
generated from Calgary phosphate sales, where production was suspended August
31, 1999. Revenues for the year from ADA increased from $2,818,000 in 1998 due
to increasing chemical sales to a greater number of units operating in 1999. Two
additional ADA units were installed in 1999 under rental and lease arrangements,
however both those utilities have now elected permanent systems to be installed
in 2000. Phosphate sales from Calgary decreased by $166,000 from $1,868,000 in
1998 resulting primarily from the suspension of production activities at the end
of August. Due to a lack of working capital earlier in the year, the facility
also elected to take a maintenance shutdown during the month of May. ADA's
revenues were less than anticipated due to slower than expected additional
sales. The slower than anticipated sales related to market concern over an issue
with recycled fly ash. That issue was resolved with the introduction of a new
chemical blend in the fall of 1998.

Other operating income in 1998 includes rental income, which ceased in the fall
of 1998 due to the sale of ESI office building in September 1998.

Operating expenses decreased significantly in 1999 in response to increased
sales of higher margin chemicals at ADA and operating efficiencies at both ESEC
and ADA. The decrease related to both Calgary phosphate production ($443,000 of
the decrease) and ADA ($482,000 of the decrease). The Company experienced
negative gross margins at its Calgary operations in 1998 and 1999 primarily due
to the start up nature of the phosphate production and operating at a level
lower than necessary to cover the fixed expenses of the facility. Although such

<PAGE>

margins improved in the second half of 1999 with realization of anticipated
increased sales and lower raw material costs, working capital was not sufficient
to sustain the level of production and sales needed to generate positive cash
flow. ADA experienced positive gross margins in 1999 and 1998, but these were
less than expected from routine operations and resulted from ADA activities to
establish market acceptance and its market share for its technology. The
Company's ultimate success will be dependent upon generating improved gross
margins, which in turn are dependent upon increased sales and market
penetration.

Consolidated research and development decreased in 1999 to $42,000 from $81,000
in 1998. Future consolidated research and development expenses, except for those
anticipated to be funded by the recently awarded DOE contract and others that
may be awarded, are expected to be approximately $50,000 per year for the next
several years.

General and administrative expenses decreased by a net of approximately $622,000
in 1999 primarily as a result of decreased investor relations expenses. Future
investor relation's expenses are expected to run between $50,000 and $100,000
per annum for the next several years.

Registrant's interest expense totaled approximately $615,000 for 1999 and
$1,264,000 for 1998. Interest expense includes approximately $135,000 and
$84,000 in 1999 and 1998, respectively, from the consolidation of combined
Calgary and ADA results. Included in interest expense for 1999 is $284,000 of
non-cash charges related to additional stock issued to certain 1999 private
placement purchasers for delays in the effectiveness of a registration statement
covering their shares. In 1998, interest expense includes $1,027,000 of non-cash
charges representing the 25% discount from market related to the convertible
debentures issued and converted in 1998.

In January and February 1999, Registrant sold a total of 1,260,000 shares of
common stock and received net proceeds of $1,137,000. The shares were sold at
closing bid prices which ranged from $.55 to $.91 per share. As an inducement to
the sale, Registrant agreed to issue a limited number of additional shares to
the purchasing shareholders in the event that the average bid price on the five
trading days prior to the sale of the original shares is less than 125% of their
purchase price. Options were issued during 1999, exercisable only to the extent
of Registrant's obligation to issue such additional shares. A charge of $309,000
against net income is shown in the accompanying financial statements for the
obligation to issue such additional shares.

Included in other costs and expenses for the first quarter of 1999 was a
one-time, non-cash charge of $1,223,000 representing the write down of the
carrying value of the Company's mineral properties. The charge is the result of
a change in accounting principle from the capitalization of deferred exploration
and development cost to expensing such costs as they are incurred.

Other non-operating income in 1999 and 1998 includes gains of $62,000 and
$188,000, respectively recognized upon the sale of a depleted mineral property
and an office building.

In the fourth quarter of 1999, Registrant adopted the American Institute of
Certified Public Accountants Statement of Position No.98-5, Reporting on the
Cost of Start-up Activities ("SOP 98-5"). SOP 98-5 requirs that all start-up
costs be expensed as incurred and all start-up costs previously recorded be
accounted for as a cumulative effect of a change in accounting principle.
Registrant had previously capitalized certain costs in the 1980's associated
with the original start-up of the solvent extraction facility in Canada. Based
on SOP 98-5, Registrant expensed these costs, totaling approximately $2,603,000,
net of depreciation charges recognized in prior years, as a cumulative effect of
a change in accounting principle.

Item 7. Financial Statements.
Index to Financial Statements
Independent Auditor's Report
Financial Statements:
Earth Sciences, Inc. and Subsidiaries
Consolidated Balance Sheet, December 31, 1999
Consolidated Statements of Operations, For the Years Ended December
31, 1999 and 1998
Consolidated Statement of Stockholders' Equity, For the Period from
January 1, 1998 to December 31, 1999
Consolidated Statements of Cash Flows, For the Years Ended
December 31, 1999 and 1998
Notes to Consolidated Financial Statements

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

(Balance of this page intentionally blank.)

<PAGE>

INDEX TO FINANCIAL STATEMENTS

PAGE
----

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

Consolidated Balance Sheet - December 31, 1999.............................. F-3

Consolidated Statements of Operations -
For the Years Ended December 31, 1999 and 1998.......................... F-4

Consolidated Statements of Changes in Stockholders' Equity -
For the Years Ended December 31, 1999 and 1998.......................... F-5

Consolidated Statements of Cash Flows -
For the Years Ended December 31, 1999 and 1998.......................... F-6

Notes to Consolidated Financial Statements.................................. F-8

F-1
<PAGE>

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors and Stockholders
Earth Sciences, Inc. and Subsidiaries
Golden, Colorado

We have audited the accompanying consolidated balance sheet of Earth Sciences,
Inc. and subsidiaries as of December 31, 1999, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
years ended December 31, 1999 and 1998. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclo sures 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.

As discussed in Note 1 to the financial statements, the Company changed its
method for accounting for deferred exploration costs in 1999. Also, as discussed
in Note 1 to the financial statements, the Company adopted the American
Institute of Certified Public Accountants Statement of Position No. 98-5,
Reporting on the Costs of Start-up Activities.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Earth Sciences, Inc.
and subsidiaries as of December 31, 1999, and the results of their opera tions
and their cash flows for the years ended December 31, 1999 and 1998, in
conformity with generally accepted accounting principles.

/s/ HEIN + ASSOCIATES LLP
- -------------------------
HEIN + ASSOCIATES LLP

Denver, Colorado
March 22, 2000

F-2
<PAGE>
<TABLE>
<CAPTION>

EARTH SCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999

ASSETS
------

CURRENT ASSETS:
<S> <C>
Cash and cash equivalents $ 143,000
Trade receivables, with allowance for doubtful accounts $7,000 360,000
Factored receivables 424,000
Inventories 189,000
Prepaid expenses and other 68,000
------------
Total current assets 1,184,000

PROPERTY, PLANT AND EQUIPMENT, at cost 15,780,000
Less accumulated depreciation and amortization (4,450,000)
------------
Net property, plant and equipment 11,330,000
------------

INTANGIBLE ASSETS, net of $782,000 in amortization 2,858,000

OTHER ASSETS 7,000
------------

TOTAL ASSETS $ 15,379,000
============

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

CURRENT LIABILITIES:
Notes payables:
Financial institution $ 378,000
Receivables sold with recourse 424,000
Related parties 100,000
Accounts payable 578,000
Accrued expenses 155,000
Other current liabilities 180,000
------------
Total current liabilities 1,815,000

LONG-TERM LIABILITIES:
Capital lease obligations 108,000
Notes to related parties 1,175,000
Extraction plant liability 4,850,000
Other liabilities 635,000
------------
6,768,000

COMMITMENTS AND CONTINGENCIES (Notes 2, 5, and 9)

STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 50,000,000 shares authorized;
26,560,000 shares issued 266,000
Additional paid-in capital 28,104,000
Accumulated deficit (19,737,000)
Foreign currency translation adjustment (1,837,000)
------------
Total stockholders' equity 6,796,000
------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,379,000
============

See accompanying notes to these consolidated financial statements.

F-3
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<PAGE>
<TABLE>
<CAPTION>

EARTH SCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED
DECEMBER 31,
----------------------------
1999 1998
------------ ------------

<S> <C> <C>
NET REVENUES $ 4,760,000 $ 4,686,000

COST AND EXPENSES:
Operating 4,093,000 5,077,000
General and administrative 2,452,000 3,074,000
Research and development 42,000 81,000
Depreciation and amortization 724,000 735,000
------------ ------------
Total expenses 7,311,000 8,967,000
------------ ------------

OPERATING LOSS (2,551,000) (4,281,000)

OTHER INCOME (EXPENSE):
Mineral exploration cost capitalized in prior years (1,223,000) --
Interest expense (615,000) (1,264,000)
Other, net 147,000 105,000
------------ ------------
Total other income (expense) (1,691,000) (1,159,000)

LOSS BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE (4,242,000) (5,440,000)

Cumulative effect of a change in accounting principle (2,603,000) --
------------ ------------

NET LOSS (6,845,000) (5,440,000)
------------ ------------

Imputed dividend attributable to rights applicable to certain shareholders (309,000) --
------------ ------------

NET LOSS APPLICABLE TO OTHER SHAREHOLDERS $ (7,154,000) $ (5,440,000)
============ ============

NET LOSS PER SHARE APPLICABLE TO OTHER SHAREHOLDERS BEFORE
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
(Basic and Diluted) $ (.19) $ (.27)

NET LOSS PER SHARE - CUMULATIVE CHANGE IN ACCOUNTING
PRINCIPLE (Basic and Diluted) (.11) --
------------ ------------

NET LOSS PER SHARE APPLICABLE TO OTHER
SHAREHOLDERS (Basic and Diluted) $ (.30) $ (.27)
============ ============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 24,044,000 20,116,000
============ ============

See accompanying notes to these consolidated financial statements.

F-4
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<CAPTION>

EARTH SCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

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

<S> <C> <C> <C> <C> <C> <C>
BALANCES, January 1, 1998 11,912,000 $ 119,000 $ 14,098,000 $ (7,452,000) $ (1,837,000) $ 4,928,000

Debt converted to common stock 8,046,000 80,000 9,467,000 -- -- 9,547,000
Officer/director debt converted to
common stock 70,000 1,000 37,000 -- -- 38,000
Stock and options issued for
services 150,000 2,000 174,000 -- -- 176,000
Stock issued for cash 300,000 3,000 164,000 -- -- 167,000
Stock issued for interest in
acquired subsidiary 1,716,000 17,000 2,054,000 -- -- 2,071,000
Net loss -- -- -- (5,440,000) -- (5,440,000)
------------ ------------ ------------ ------------ ------------ ------------

BALANCES, December 31, 1998 22,194,000 222,000 25,994,000 (12,892,000) (1,837,000) 11,487,000

Stock issued for cash, net of
issuance cost 1,605,000 16,000 1,236,000 -- -- 1,252,000
Shares issued for penalties 808,000 9,000 338,000 -- -- 347,000
Debt converted to common stock 41,000 -- 22,000 -- -- 22,000
Shares issued to employees and
consultants for services 1,912,000 19,000 514,000 -- -- 533,000
Net loss -- -- -- (6,845,000) -- (6,845,000)
------------ ------------ ------------ ------------ ------------ ------------

BALANCES, December 31, 1999 26,560,000 $ 266,000 $ 28,104,000 $(19,737,000) $ (1,837,000) $ 6,796,000
============ ============ ============ ============ ============ ============

See accompanying notes to these consolidated financial statements.

F-5
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<CAPTION>

EARTH SCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1999 1998
----------- -----------

CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(6,845,000) $(5,440,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depletion, depreciation and amortization 724,000 735,000
Interest expense related to debt discount -- 1,027,000
Mineral exploration costs capitalized in prior years 1,223,000 --
Cumulative effect of change in accounting principle 2,603,000 --
Gain on sale of building and land (61,000) (158,000)
Expenses and penalties paid with stock and options 880,000 176,000
Changes in operating assets and liabilities:
(Increase) decrease in:
Receivables 189,000 277,000
Inventories 319,000 12,000
Other assets 38,000 517,000
Increase (decrease) in:
Accounts payable (357,000) 59,000
Billings in excess of costs and profits on
uncompleted contracts (170,000) 508,000
Accrued expenses (41,000) 191,000
Other liabilities 161,000 (592,000)
----------- -----------
Net cash used in operating activities (1,337,000) (2,688,000)

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of land and building 141,000 337,000
Capital expenditures (161,000) (729,000)
----------- -----------
Net cash used in investing activities (20,000) (392,000)

See accompanying notes to these consolidated financial statements.

F-6
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<CAPTION>

EARTH SCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)

FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C>
Payments on notes payable and long-term debt (527,000) (500,000)
Proceeds from debentures and notes payable, net 653,000 3,203,000
Proceeds from issuance of common stock 1,252,000 167,000
----------- -----------
Net cash provided by financing activities 1,378,000 2,870,000

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 21,000 (210,000)

CASH AND CASH EQUIVALENTS, beginning of year 122,000 332,000
----------- -----------

CASH AND CASH EQUIVALENTS, end of year $ 143,000 $ 122,000
=========== ===========

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash payments for interest $ 214,000 $ 121,000
=========== ===========

Conversion of notes payable and debentures $ 22,000 $ 9,585,000
=========== ===========

Stock and options issued for services $ 880,000 $ 176,000
=========== ===========

Purchase of property and equipment for debt or leases $ -- $ 104,000
=========== ===========

Stock issued for interest in acquired subsidiary $ -- $ 2,071,000
=========== ===========

See accompanying notes to these consolidated financial statements.

F-7
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<PAGE>

EARTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
--------------------------------------------------------------------

Nature of Operations - The accompanying consolidated financial statements
include the accounts of Earth Sciences, Inc. (ESI) and its wholly-owned
subsidiaries, ESI Resources Limited (ESIR) ADA Environment Solutions LLC
(ADA), Recursos Minerales Venesi C.A. (Venesi), and ESI Chemicals, Inc.
(ESIC), and its majority-owned subsidiaries, Minera Antabari C.A., and
Recurso Minerales Esigeo, C.A. ADA has been consolidated with ESI and its
subsidiaries since its acquisition, effective May 1, 1997. ESIC has been a
dormant subsidiary since 1983. ESIR's only asset is its investment in its
wholly-owned subsidiary, Earth Sciences Extraction Company (ESEC). All
significant intercompany transactions have been eliminated. Collectively,
these entities are referred to as the Company.

The Company is principally engaged in providing flue gas conditioning
technology (FGCT) for air pollution abatement, production of purified
phosphate products (PPA), and natural resources exploration. The Company
sells FGCT and PPA principally throughout the United States.

Cash Equivalents - For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments with original maturities of
three months or less to be cash equivalents.

Inventories - Inventories are stated at the lower of cost or market,
determined by the first-in, first-out method and consist of supplies and
raw materials at December 31, 1999.

Percentage of Completion - ADA follows the percentage of completion method
of accounting for all significant long-term contracts. The percentage of
completion method of reporting income from contracts takes into account the
cost and revenue to date on contracts not yet completed. The Company had no
long-term contracts in progress at December 31, 1999.

Revenue Recognition - ESEC product sales and ADA chemical sales are
recognized when products are shipped to customers. A reserve is established
for any returns, based on historical trends.

Property, Plant and Equipment - Property, plant and equipment is stated at
cost and includes a solvent extraction facility. Depreciation on the
facility and its equipment, while in production, is provided using the
units of production method based on estimated production over the estimated
life of the facility. Since the facility was idled in August of 1999,
depreciation has been provided on a straight-line basis using an estimated
useful life of 15 years. Depreciation on other assets is provided using the
straight-line method based on estimated useful lives ranging from 5 to 15
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. Under the Company's current
operating plan, it does not intend to ultimately mine its mineral
properties, but rather, sell an interest in the properties to an industry
partner for cash and/or a royalty. As a result, gains and losses from the
sale of mineral properties are reflected in other income.

F-8
<PAGE>

EARTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Intangible Assets - Intangible assets principally consists of the excess of
the aggregate purchase price over the fair value of net assets of
businesses acquired (Goodwill) and amounts allocated to patents (see Note
3). Goodwill is being amortized over a 10-year period and patents over a
7-year period using the straight-line method, which is less than the
remaining legal life of the patents.

Deferred Exploration and Development Costs - Prior to 1999, the Company
capitalized all direct costs, including labor, related to the exploration
of mineral properties which, in the opinion of management, had a continuing
value. In 1999, the Company changed its method of accounting to expensing
such costs as incurred. The change in the method of accounting has resulted
in a one-time, non-cash write-off in 1999 of $1,223,000 of exploration
costs which had been incurred and capitalized since the 1970's. The Company
did not have any significant exploration cost in 1999 or 1998. The Company
believes expensing such costs has become the preferred method of
accounting.

Impairment of Long-Lived Assets - The Company follows Statement of
Financial Accounting Standards (SFAS) No. 121, Impairment of Long-Lived
Assets. In the event that facts and circumstances indicate that the cost of
assets or intangible assets may be impaired, an evaluation of
recoverability would be performed. At December 31, 1999, an evaluation of
the solvent extraction facility was performed. The estimated future
undiscounted cash flows associated with the asset were compared to the
asset's net carrying amount to determine if a write-down to market value or
discounted cash flow value was required. The results of the test indicated
that no impairment was required. The test utilized significant assumptions,
including successfully obtaining financing arrangements, and it is at least
reasonably possible that these assumptions could change in the near term
which could result in an impairment.

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.

Foreign Currency Translation - Through September 30, 1997, the accounts of
ESEC were maintained in Canadian dollars, its functional currency. Assets
and liabilities were translated into U.S. dollars at the current exchange
rate, and earnings or losses were translated at the average exchange rate
for the year; resulting translation adjustments were recorded as a separate
component of stockholders' equity.

During 1997, ESEC ended its construction and start-up phase of the Calgary
plant and commenced production and sales activities of its primary product.
While in operation, the Company purchased most of its raw materials and
sold most of its products from/to U.S. entities in U.S. dollars and as a
result, ESEC changed its functional currency from Canadian dollars to U.S.
dollars during 1997. Accordingly, effective October 1, 1997, current assets
and liabilities denominated in Canadian are translated in U.S. dollars at
the current exchange rate with any resulting gain or loss recorded in the
income statement. Property, plant and equipment is recorded at its
historical costs (U.S. dollars) as of October 1, 1997, after taking into
effect the foreign currency translation adjustment from Canadian dollars to
U.S. dollars at that date.

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

F-9
<PAGE>

EARTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loss Per Share - The loss per common share is presented in accordance with
the provisions of SFAS No. 128, Earnings Per Share. Basic EPS is calculated
by dividing the income or loss available to common shareholders by the
weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into
common stock. All potential dilutive securities are antidilutive as a
result of the Company's net loss for the years ended December 31, 1999 and
1998. Accordingly, basic and diluted EPS are the same for each year. The
Company accrued an imputed dividend on the resell rights attributable to
certain shareholders when determining the net loss applicable to other
shareholders (see Note 8).

Stock-Based Compensation - The Company has adopted SFAS No. 123, Accounting
for Stock-Based Compensation. SFAS No. 123 encourages, but does not
require, companies to recognize compensation expense for grants of stock,
stock options, and other equity instruments to employees based on fair
value. Companies that do not adopt the fair value accounting rules must
disclose the impact of adopting the new method in the notes to the
financial statements. Transactions in equity instruments with non-employees
for goods or services must be accounted for on the fair value method. The
Company has elected not to adopt the fair value accounting prescribed by
SFAS No. 123 for employees, and is subject only to the disclosure
requirements prescribed by SFAS No. 123. For employees, the Company follows
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.

Use of Estimates - The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles
requires the Company's management to make estimates and assumptions that
affect the amounts reported in these financial statements and accompanying
notes. Actual results could differ from those estimates. The Company makes
significant assumptions concerning the realizability of its extraction
facility, mineral properties and intangibles as well as future
decommissioning cost associated with its solvent extraction facility. It is
at least reasonably possible that the Company's estimates could be
materially revised within the next year.

Comprehensive Loss - SFAS No. 130 establishes standards for reporting and
display of comprehensive loss, its components and accumulated balances.
Comprehensive loss is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners.
Comprehensive loss was the same as net loss in 1999 and 1998.

Segment Information - The Company has adopted 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 separate 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 identified the following reportable segments: flue gas
conditioning technology for air pollution abatement and environmental
solutions, production of purified phosphate products, and natural resource
exploration.

F-10
<PAGE>

EARTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reclassifications - Certain reclassifications have been made to conform the
1998 financial statements to the presentation in 1999. The
reclassifications had no effect on net loss.

Cumulative Effect of a Change in Accounting Principle - In the fourth
quarter of 1999, the Company adopted the American Institute of Certified
Public Accountants Statement of Position No. 98-5, Reporting on the Costs
of Start-up Activities (SOP 98-5). SOP 98-5 requires that all start-up
costs be expensed as incurred and all start-up costs previously recorded be
accounted for as a cumulative effect of a change in accounting principle.
The Company had previously capitalized certain costs associated with the
start-up of the solvent extraction facility in Canada. Based on SOP 98-5,
the Company expensed these costs totaling $2,603,000 as a cumulative effect
of a change in accounting principle.

Impact of Recently Issued Accounting Pronouncements - In June 1998, SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities was
issued. SFAS No. 133 establishes accounting and reporting standards for
derivative financial instruments and for hedging activities. The Company
does not currently engage in any activities that would be covered by SFAS
No. 133.

2. LIQUIDITY:
----------

During 1999 and 1998, the Company incurred significant losses, which has
resulted in liquidity problems as evidenced by a working capital deficiency
of approximately ($631,000) as of December 31, 1999. The Company is also
non-compliant in the payment of approximately $380,000 of debt and as
discussed below, and due to lack of working capital, has suspended
production at its extraction facility. Management is currently seeking
approximately $5 million from an industry partner for working capital and
improvements to restart and increase production at ESEC to sustainable
routine levels expected to yield positive cash flow. Management expects to
improve working capital through continued and improved cash flow at ADA.
However, there can be no assurances that investment funds for the Calgary
plant will be found or that the positive cash flow that has been achieved
at ADA will continue.

In effort to reduce cash flow deficits from the Calgary extraction
facility, as of August 31, 1999, management suspended production. Although,
in the opinion of management, the facility had demonstrated adequate
capacity and quality of production, and markets for its products were
established, the suspension in phosphate purification operations at Calgary
is expected to continue until sufficient working capital becomes available
to allow the expected achievement of positive cash flow there. The
achievement of such positive cash flow is dependent upon several factors
including, but not limited to, the continued ability to produce a technical
grade quality product, upgrading and improving margins on by-products,
success in marketing phosphate products and meeting competition in the
market place; the failure in any of which could delay or frustrate such
achievement. For ADA, the continuation of positive cash flow is dependent
upon the successful ongoing operation of the units currently in-place in
Wisconsin, Louisiana, Iowa, and Oregon. Unsatisfactory operations at any of
the units operating could frustrate such continuation. ADA recently signed
a contract for installation of a fifth unit in Nebraska that commenced
operation in March 2000.

F-11
<PAGE>

EARTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As discussed in Note 5, the Company renegotiated a $1,000,000 loan which
was due in 2000, and a $250,000 loan also due in 2000. Based on the
renegotiated terms, these notes are now due in 2003, however, the
noteholder has the right to request quarterly principle payments of
$100,000 beginning October 1, 2000.

If operating losses continue and/or the Company is unable to obtain
additional capital until positive cash flows are generated from operations,
liquidity problems could become so severe that the Company may be required
to liquidate assets or enter into capital or financing arrangements on less
than favorable terms which would be adverse to future operations.

If the Company is unable to find an industry partner to re-open its
extraction facility, it may be required to find an alternative use for the
facility which could result in a substantial impairment to the current
carrying amount, or to dispose of the facility at an amount substantially
less than its current carrying value.

3. ACQUISITION OF ADA:
-------------------

During 1997, the Company acquired a 51% interest in ADA. As part of the
acquisition agreement, the Company acquired an option for the remaining 49%
equity interests in ADA. In 1998, the Company acquired the remaining 49%
interest in ADA through the issuance of approximately 1,716,000 shares of
stock valued at $2,071,000. The acquisition was accounted for under the
purchase method of accounting. The tangible assets of ADA acquired in
acquisition were recorded at their historical value, which approximated
their fair value. In addition, approximately $3,500,000 of the purchase
price was allocated to the estimated value of ADA's intangibles.

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

Property, plant and equipment as of December 31, 1999 is summarized as
follows:

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

Extraction facility $14,278,000 15
Machinery and equipment 583,000 10
Furniture and fixtures 157,000 5
Land and mineral properties 762,000
-----------

$15,780,000
===========

F-12
<PAGE>

EARTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company's mineral properties include patented and unpatented mining
claims; the latter requiring annual rental fees to maintain possessory
titles. These land and mineral properties are not in production. The
recovery of the Company's investment in these assets is dependent upon
future sales of the Company's interests therein or production from such
assets. Certain bills have been introduced to in both houses of United
States which could adversely effect the potential for development of
existing unpatented mining claims and the economics of operating mines on
Federal unpatented mining claims if enacted. All of these bills are in the
early stages of the legislative process and it is not possible to predict
whether any change in the mining laws will be enacted or if enacted, the
form the changes may take. In addition, the Company leases or has options
to lease various other claims. Such leases are cancelable at the option of
the Company.

Depletion, depreciation and amortization of property, plant and equipment
for the years ended December 31, 1999 and 1998 was $306,000 and $427,000,
respectively.

During 1998, the Company sold its corporate office building to a company
owned an adult son of an officer and director. The Company recognized a
gain of approximately $158,000 on this sale. The sales price was supported
by an independent appraisal.

5. DEBT:
-----

December 31,
1999
------------

Financial Institution:
----------------------

ESEC has a note to a bank in which it is currently in
default for non-payment. The note is guaranteed by ESI and
bears interest at the bank's prime rate plus 1% (10% at
December 31, 1999). $ 378,000

Related Parties:
----------------

Note payable to a stockholder/director at the greater of
prime plus 2% or 10.5% at December 31, 1999), with quarterly
payments of interest, collateralized by ESEC's assets
convertible to common stock at $.63 per share. Classified as
long-term based on renegotiated terms subsequent to
year-end. 250,000

Debenture - to a stockholder/director at the greater of
prime plus 2% or 10% (10.5% at December 31, 1999) with
quarterly payments of interest, principal payments of
$100,000 per quarter are due beginning in October 1999 upon
90 days written notice from the holder, collateralized by
the assets of ESI and ESEC. The debenture agreement
prohibits the payment of dividends without the written
consent of the debenture holder. 1,000,000

F-13
<PAGE>

EARTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31,
1999
------------

Notes payable to directors/stockholders at 10%. Principal
and accrued interest payments due in 2000 and convertible to
common stock at $.27 per share. 25,000
------------
1,653,000

Less current portion (478,000)
------------

Long-term debt, net of current portion $ 1,175,000
============

The Company renegotiated the minimum repayment terms of the $1,000,000 and
$250,000 related party notes subsequent to year-end. Based on the
renegotiated terms, the noteholder can request a quarterly principle
payment commencing October 1, 2000. Each request must be made 90 days prior
to the quarterly payment date. The Company and the noteholder have entered
a tentative agreement regarding conversion rights into common stock,
whereby a portion of the note can be converted to common stock at the lower
of the stock price at the date of final agreement or the date of
conversion, to allow for a maximum of 1,000,000 shares. Any amounts not
converted will be repaid in cash. The tentative agreement is conditional
upon execution of final documents and further review by the noteholder.

The following table shows maturities by year for all the Company's debt and
assumes the related party noteholder will request a payment each quarter
commencing October 1, 2000:

2000 $ 503,000
2001 400,000
2002 400,000
2003 350,000
----------

$1,653,000
==========

Receivables Factored With Recourse - In 1999, the Company entered into an
agreement with a bank to factor, with recourse, selected existing and
future accounts receivable to a maximum established credit limit for each
of ADA customers. The Company's recourse obligation is collateralized by
ADA'S accounts receivable, inventory, and other contract rights and
intangibles (excluding patents and patent rights). As of December 31, 1999,
the face amount of receivables factored was $530,000 resulting in a
recourse obligation of $424,000. The Company pays interest on its recourse
obligation at prime plus 3 points and pays a fee of 1.75% of the face
amount of the factored receivables. For financial presentation purposes,
the related receivable and outstanding recourse liability have been
included as an asset and liability, respectively, on the balance sheet.

F-14
<PAGE>

EARTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. EXTRACTION PLANT LIABILITY:
---------------------------

In 1997, ESI finalized agreements with Yankee Atomic Electric Company and
Vermont Yankee Nuclear Power Corporation (the "Yankee Companies") and
acquired an option to liquidate the liability to them, which at that time
totaled $9,382,000. The liability arose from prepayments by the Yankee
Companies for uranium during the period that the Calgary plant operated as
a uranium extraction facility. Under the agreement, ESI paid the Yankee
Companies $1,250,000 and granted them a 10-year, 10% net profit royalty on
activities at the Calgary facility. Future payments to the Yankee Companies
under the royalty cannot exceed $4,850,000. ESI has the option to purchase
the royalty interest at December 31, 1999 for $3,100,000, which increases
$50,000 per year, but not to exceed $3,250,000. The Company's option
expires in 2007, and if not exercised, the only payments will be the 10%
net profit royalty of the Calgary facility. The Company has recorded the
liability at the greater amount, until such time as when or if, the Company
repurchases the royalty or the termination of the agreement. No net profits
payments have been made through December 31, 1999.

7. INCOME TAXES:
-------------

Deferred tax assets (liabilities) are comprised of the following at
December 31, 1999:

CANADIAN
SUBSIDIARY U.S.
OPERATIONS Operations
---------- ----------
Deferred tax assets - non-current:
Net operating loss carryforward $ 2,247,000 $ 2,732,000
Tax credit carryforwards -- 13,000
Property basis differences 840,000 164,000
Deferred revenue 2,328,000 --
Compensation related deferrals -- 189,000
Other 249,000 --
----------- -----------
Deferred tax assets 5,664,000 3,098,000
Less valuation allowance (5,664,000) (3,098,000)
----------- -----------

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

The Company has remaining U.S. a net operating loss carryforward at
December 31, 1999 of approximately $7,366,000, which if not utilized to
reduce taxable income in future periods, will expire in the years 2003
through 2019. In addition, the Company has $13,000 of alternative minimum
tax credit which is available to offset future U.S. regular tax liability.
The net operating loss carryforward related to the Canadian subsidiary and
operations is $4,681,000 (U.S.). The current year deferred tax benefit was
offset by an increase in the valuation allowance.

F-15
<PAGE>

EARTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The utilization of these U.S. net operating loss carryforwards is subject
to restrictions because of the ownership changes of the Company that
occurred as a result of issuances of the Company's securities. These
restrictions will limit the amount of utilizable net operating loss
carryforwards per year.

8. STOCKHOLDERS' EQUITY:
---------------------

Stock Bonus Plan - The Company has reserved 125,000 shares for awards under
a stock bonus plan established in 1978. As of December 31, 1999, 15,000
shares remain available for award under the plan.

Private Placements - In February 1999, ESI sold 1,260,623 shares of common
stock for net proceeds of $1,136,000. These shares were restricted for sale
until the registration statement became effective. Due to delays in the
registration statement becoming effective, the Company was required to
issue an additional 808,000 shares. The fair value of these shares is
recorded as expense in the statement of operations. The Company also agreed
to issue additional shares if at the time of sale by the shareholders the
market price is less than 125% of the purchase price. These additional
shares were limited to two and one half times the number of shares
originally issued. The Company recognized $309,000 as an imputed dividend
to these shareholders for this right. This amount is subtracted from net
loss to determine the net loss to the other shareholders. Of the total
shares sold, 267,245 were sold to related parties at their current market
prices of $.81 to $.91 per share under the same terms and conditions as
unaffiliated third parties. In connection with the sale, the Company paid
stock offering costs by issuing 180,000 shares of stock.

In November 1999, the Company issued options with an exercise price of $.01
to replace the above mentioned obligation. The conditions to exercise the
option are essentially the same as the previously guaranteed 125% return,
that is, the lower the trading price of the Company's stock, the more
options are exercisable and the higher the trading price of the Company's
stock, the fewer options are exercisable. The maximum number of options
exercisable is approximately 4,814,000 and would be at a weighted average
trading price of $.25 The minimum number of options exercisable is zero and
would be at a trading price of $1.14.

In 1999, the Company also sold 164,096 shares of common stock to an officer
and a director for $100,000.

Shares Issued for Services - The Company issued 230,000 and 50,000 shares
of common stock in 1999 and 1998, respectively, to an entity whose chairman
is a director of the Company. The recorded value of these shares, based on
the per share market value of the unrestricted stock, amounting to $96,000
in 1999 and $35,000 in 1998 was expensed as consulting expense.

The Company also issued 1,682,000 shares of common stock in 1999 for the
payments of approximately $437,000 of employment related expenses, based
upon the per share value of unrestricted common stock at the time of
exchanges.

Convertible Debentures - During 1998, ESI issued convertible debentures
(the "1998 Debentures") at their face value totaling $3,081,000. The 1998
Debentures were converted into shares of common stock based at 25% discount
from the market price of the common stock at the time of conversion, but
not in excess of $2.00 per share. During 1998, the Company recorded
additional interest expense (premium) of $1,063,000 for the difference

F-16
<PAGE>

EARTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

between the quoted price and the discounted price of the common stock that
would be issued upon conversion of the 1998 Debentures. As of December 31,
1998 all of the 1998 Debentures had been converted to common stock. Also
during 1998, $5,752,000 of convertible "1997 Debentures" were also
converted into common stock as provided under the terms of the 1997
Debentures.

Stock Options - The following is a table of options issued during 1999 and
1998:

Weighted
Average
Employees Non-employee Exercise
Options Options Price
------- ------- -----

OPTIONS OUTSTANDING, December 31, 1997 513,000 340,000 $ 2.19
Options granted:
Officers 100,000 -- $ 0.74
Consultants -- 50,000 $ 1.41
Other employees 200,000 -- $ 0.54
Options expired (175,000) (60,000) $ 1.58
---------- ----------

OPTIONS OUTSTANDING, December 31, 1998 638,000 330,000 $ 1.86
Options granted:
Employees 45,000 -- $ 0.28
Consultants -- 100,000 $ 1.25
Certain shareholders -- 4,814,000 $ 0.01
Options expired (278,000) (60,000) $ (1.85)
---------- ----------

OPTIONS OUTSTANDING, December 31, 1999 405,000 5,184,000 $ 0.22
========== ========== ========

For all options granted during 1998 and 1999, the weighted average market
price of the Company's common stock on the grant date was approximately
equal to the weighted average exercise price, except for the 4,814,000
options issued to replace the stock rights as discussed above. The weighted
average fair value of the grants at market was $.19. The fair value of the
4,814,000 options issued below market was calculated using the original
guaranteed return features of the financing arrangement of $309,000. The
weighted average remaining contractual life for all options as of December

F-17

<PAGE>

EARTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

31, 1999 was approximately 1.8 years. At December 31, 1999, all options
were fully vested and exercisable. If not previously exercised, options
outstanding at December 31, 1999, will expire as follows:

Weighted
Range Average
--------------- Number of Exercise
Year Low High Options Price
---- --- ---- ------- -----

2000 1.50 1.88 135,000 $1.85
2000 2.50 2.50 50,000 $2.50
2001 .01 .01 4,814,000 $ .01
2001 .51 .54 275,000 $ .53
2001 1.41 1.41 50,000 $1.41
2001 3.20 4.00 120,000 $3.60
2002 .28 .28 45,000 $ .28
2002 1.00 1.50 100,000 $1.25
---------

5,589,000
=========

Pro Forma Stock-Based Compensation Disclosures - The Company applies APB
Opinion 25 and related interpretations in accounting for its stock options
and warrants which are granted to employees. Accordingly, no compensation
cost has been recognized for grants of options and warrants to employees
since the exercise prices were not less than the fair value of the
Company's common stock on the grant dates. Had compensation cost been
determined based on an estimate of the fair value consistent with the
method of 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.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1999 1998
------------- -------------

Net loss applicable to other stockholders:
<S> <C> <C>
As reported $ (7,154,000) $ (5,440,000)
Pro forma $ (7,163,000) $ (5,535,000)
Net loss per share applicable to other shareholders:
As reported $ (.30) $ (.27)
Pro forma $ (.30) $ (.28)

</TABLE>

F-18
<PAGE>

EARTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair value of each employee option and warrant granted in 1999 and 1998
was estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions:

Year Ended December 31,
-----------------------
1999 1998
---- ----

Expected volatility 110% 72%
Risk-free interest rate 5.7% 5.7%
Expected dividends -- --
Expected terms (in years) 3 3

9. COMMITMENTS:
------------

Profit Sharing Retirement Plan - The Company has a defined contribution and
401(k) plan to cover all eligible employees. The Company paid $228,000 and
$136,000 as the contributions for 1999 and 1998, respectively based on a
percentage of the eligible employees' annual compensation.

Capital Lease Obligations - The Company leases certain equipment under
agreements classified as capital leases. Equipment under these leases has a
cost of $421,000 and accumulated amortization of $275,000 as of December
31, 1999. The following is a schedule of future minimum lease payments
under capital leases at December 31, 1999. (The capitalized lease
obligation is classified with other liabilities on the accompanying balance
sheet.)

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

2000 $110,000
2001 91,000
2002 23,000
2003 1,000
--------

Total Future minimum lease payments 225,000

Less amount representing interest (24,000)
--------

Present value of net minimum lease payments 201,000

Less current portion (93,000)
--------

$108,000
========

F-19
<PAGE>

EARTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Office Lease - The Company leases office space and equipment under
noncancellable operating leases. Total rental expense was $73,000 for each
of the years ending December 31, 1999 and 1998. The total minimum rental
commitments at December 31, 1999 are as follows:

Year
----

2000 $ 72,000
2001 73,000
2002 75,000
--------

$220,000
========

During 1997, the Board of Directors approved a one-year paid sabbatical
leave for employees who have been employed for 25 years or greater. In
1999, this plan was terminated, however, the Company continues to be
obligated to pay the accrued sabbatical benefits already earned. These
benefits may be paid in cash or stock at the discretion of the Board of
Directors. As of December 31, 1999, the Company has accrued $211,000 in
connection with this benefit.

10. FAIR VALUE OF FINANCIAL INSTRUMENTS:
------------------------------------

The estimated fair values for financial instruments under SFAS No. 107,
Disclosures about Fair value of Financial Instruments, are determined at
discrete points in time based on relevant market information. These
estimates involve uncertainties and cannot be determined with precision.

As discussed in Note 6, the Company can terminate the extraction liability
at December 31, 1999 for $3,100,000. Management estimates the ultimate
payment of the liability (based on anticipated production) will be
significantly less than the settlement option at December 31, 1999. The
amount the counterparty would be willing to settle this obligation for at
December 31, 1999 cannot be determined, accordingly, management cannot
estimate the fair value of this liability.

The Company believes the fair value of all remaining financial instruments
approximates the carrying amount due to their short-term nature or actual
interest rates that approximate the Company's effective borrowing rate.

11. CONCENTRATIONS OF CREDIT RISK, MAJOR CUSTOMERS, AND OTHER RISKS AND
UNCERTAINTIES:
-------------------------------------------------------------------

Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties failed completely to perform as
contracted. Concentrations of credit risk (whether on or off balance sheet)
that arise from financial instruments exist for groups of customers or
counterparties when they have similar economic characteristics that would
cause their ability to meet contractual obligations to be similarly
effected by changes in economic or other conditions described below. In

F-20
<PAGE>

EARTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

accordance with SFAS No. 105, Disclosure of Information about Financial
Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk, the credit risk amounts shown do not take
into account the value of any collateral or security. Financial instruments
that subject the Company to credit risk consist principally of cash and
cash equivalents and receivables.

Sales to unaffiliated customers which represent 10% or more of the
Company's sales for the year ended December 31, 1999 and 1998 were as
follows (as a percentage of each entity's sales):

Customer 1999 1998
-------- ---- ----

ESEC
----
A 33% 29%
B 21% 20%
C - 13%

ADA
---
D 28% 30%
E 23% 30%
F 19% 21%

At December 31, 1999, approximately 65% of the Company's trade receivables
were from three customers.

In 1999, ESEC purchased the majority of its primary raw material,
superphosphoric acid (SPA), from one supplier. There is no assurance that
the Company will be able to maintain/extend its supply arrangement in the
future and/or obtain sufficient quantities of SPA at reasonable prices.
Other suppliers of SPA may not be readily available.

A geographic concentration exists for ESEC as most of its customers are in
the mid-west United States. The Company expects that most of its customers
at ESEC will continue to be in the mid-west United States, after the
production is restarted.

Substantially all of ADA's revenue is derived from chemical sales to coal
burning electric power plants.

12. BUSINESS SEGMENT INFORMATION:
-----------------------------

The Company has identified its principal business segments as natural
resource exploration, production of purified phosphate products and
providing flue gas conditioning technology for air pollution abatement. The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. These segments are shown in the
accompanying table as ESI, ESEC, and ADA, respec tively. ESEC is located in
Canada, and all its assets, amounting to $10,899,000 are located in Canada.
All of the Company's sales, including ESEC's sales, are in the United
States.

F-21
<PAGE>

EARTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ESI's reportable segments are strategic business units that offer different
products and services. They are managed separately because each business
requires different technology and marketing strategies. Most of the
businesses were acquired as a unit, and the management at the time of the
acquisition was retained.

F-22
<PAGE>
<TABLE>
<CAPTION>

EARTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Eliminating
ESI ESEC ADA Entries Consolidated
------------ ------------ ------------ --------- ------------
1999
<S> <C> <C> <C> <C> <C>
Revenues from external customers $ 8,000 $ 1,702,000 $ 3,050,000 $ -- $ 4,760,000
Intersegment revenues -- 205,000 -- (205,000) --
------------ ------------ ------------ --------- ------------

Total revenue $ 8,000 $ 1,907,000 $ 3,050,000 $(205,000) $ 4,760,000
============ ============ ============ ========= ============

Interest expense $ (480,000) $ (53,000) $ (82,000) N/A $ (615,000)
Depreciation and amortization $ (5,000) $ (201,000) $ (518,000) N/A $ (724,000)
Segment operating profit (loss) $ (687,000) $ (1,487,000) $ (377,000) * $ (2,551,000)
Segment profit (loss) $ (2,260,000) $ (4,127,000) $ (458,000) * $ (6,845,000)

Segment assets $ 503,000 $ 10,899,000 $ 3,887,000 N/A $ 15,379,000
Expenditures for segment assets $ 40,000 $ 111,000 $ 10,000 N/A $ 161,000

- ------------------------
* There were no profits on intersegment revenues.

F-23
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

EARTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Eliminating
ESI ESEC ADA Entries Consolidated
------------ ------------ ------------ --------- ------------
1998
<S> <C> <C> <C> <C> <C>
Revenues from external customers $ -- $ 1,868,000 $ 2,818,000 $ -- $ 4,686,000
Intersegment revenues -- 244,000 -- (244,000) --
------------ ------------ ------------ --------- ------------

Total revenue $ -- $ 2,112,000 $ 2,818,000 $(244,000) $ 4,686,000
============ ============ ============ ========= ============

Interest expense $ (1,180,000) $ (40,000) $ (44,000) N/A $ (1,264,000)
Depreciation and amortization $ (17,000) $ (286,000) $ (432,000) N/A $ (735,000)
Segment operating profit (loss) $ (1,261,000) $ (2,162,000) $ (858,000) * $ (4,281,000)
Segment profit (loss) $ (2,241,000) $ (2,305,000) $ (894,000) * $ (5,440,000)

Segment assets $ 1,926,000 $ 13,966,000 $ 4,057,000 N/A $ 19,949,000
Expenditures for segment assets $ 9,000 $ 537,000 $ 183,000 N/A $ 729,000

- ------------------------
* There were no profits on intersegment revenues.

F-24

</TABLE>

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange
Act.
Term First Became
Name Age Position and Offices Expires Director
---- --- -------------------- ------- --------

<S> <C> <C> <C> <C>
Ramon E. Bisque 68 Chairman of the Board of Directors and Annual Meeting 1963
Member of the Executive Committee Date, 2000

Duane N. Bloom 66 Director, Secretary, Chairman of the " 1963
Executive Committee

Michael D. Durham 50 Director, President of ADA, Member of the " 1997
Audit Committee

Ronald B. Johnson 68 Director, Member of the Audit Committee " 1999

Robert H. Lowdermilk 63 Director, Member of the Audit Committee " 1990

Mark H. McKinnies 48 Director, President of ESI, Treasurer, " 1983
Member of the Executive Committee

</TABLE>

The appointment of Michael D. Durham to the Board of Directors of
Registrant (the "Board") in 1997 was made pursuant to the ADA Purchase Agreement
whereby Registrant agreed to make available one seat on the Board between April
30, 1997 and November 1, 1998, and so long thereafter as the recipients of
shares of Registrant in that transaction continue, in the aggregate, to hold no
less than 1,000,000 shares. Management shareholders of Registrant entered into
voting agreements, agreeing to vote their shares of stock in favor of the
designated individual. There are no other arrangements or understandings between
any directors or executive officers and any other person or persons pursuant to
which they were selected as director or executive officer.
Each of the officers named above serves from year to year at the pleasure
of the Board of Directors. Drs. Bisque and Bloom were first elected to the Board
of Directors of Earth Sciences, Inc.`s predecessor company as of February 14,
1963. Drs. Bisque and Bloom were first elected to serve in their present offices
on March 22, 1974. Mr. McKinnies was elected Controller on January 25, 1980,
Secretary on January 23, 1981 and as a Director and President on February 23,
1983.
Dr. Bisque is Professor Emeritus at the Colorado School of Mines, Golden,
Colorado and was a co-founder of Earth Sciences, Inc. in 1963. Dr. Bisque has
been Chairman of the Board of Directors, a member of the Executive Committee and
a full or part time employee of Registrant since 1974.
Dr. Bloom was a co-founder of Earth Sciences, Inc. in 1963. Dr. Bloom has
been employed full time by Registrant since that time.
Dr. Durham was a co-founder in 1982 of ADA Technologies, Inc., an
Englewood, Colorado private company which contracts to the Federal government
and others for development of emission technologies. Dr. Durham is president of
ADA-Environmental Solutions LLC, a majority-owned subsidiary of Registrant. Dr.
Durham was appointed to the Board on April 30, 1997.
Mr. Johnson was appointed to the Board in May 1999. He has been the
Chairman of Twin Kem International, Inc., a distributor of agricultural and
industrial chemicals, since 1984.
Mr. Lowdermilk has been president of Tectonic Construction Company, a
producer of washed aggregates and specialty sands since 1986. Mr. Lowdermilk has
a long history in construction and engineering projects.
Mr. McKinnies is a CPA and worked for Peat, Marwick, Mitchell & Co. before
commencing employment at ESI in 1978. Mr. McKinnies was elected President of
Registrant in February 1983.
No family relationship exists between any individuals named in this Item 9.

Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires Registrant's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of

<PAGE>

ownership with the Securities and Exchange Commission (the "SEC"). Officers,
directors and greater than ten percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.

Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons, Registrant believes that
during the fiscal year ended December 31, 1999, all filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were met.

Item 10. Executive Compensation.
<TABLE>
<CAPTION>

Summary Compensation Table
Annual Compensation Long Term Compensation
------------------- ----------------------
Name of Individual and Awards
Name of Individual and ------
Principal Position Year Salary (2) Other (3) Securities Underlying Options#
- --------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C>
Ramon E. Bisque (1) 1999 $ 60,831 $10,728 -
Chairman of the Board 1998 $ 87,884 $12,905 25,000
1997 $ 85,175 $12,291 25,000

Duane N. Bloom (1) 1999 $ 72,161 $11,858 -
Chairman of the Executive Committee 1998 $118,638 $17,207 25,000
Secretary and Director 1997 $114,564 $16,388 25,000

Mark H. McKinnies (1) 1999 $107,263 $15,151 -
Director, President and Treasurer 1998 $126,619 $18,900 25,000
1997 $116,618 $17,400 25,000
</TABLE>

(1) Member of the Executive Committee of Registrant, which performs the duties
of the Chief Executive Officer.
(2) Salary amounts for 1999 include compensation paid in stock averaging 34% of
the amounts shown.
(3) Amounts represent pension and matching 401(k) payments made to a qualified
plan by Registrant for the benefit of the named individual and in 1999
include stock issued by Registrant for such payments averaging 66% of the
amounts shown.

Options/SAR Grants in Last Fiscal Year
Individual Grants
None in 1999.

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

Number of Securities Underlying Value of Unexercised
Name Unexercised Options at FY-End (#) Options at FY-End
- --------------------------------------------------------------------------------
Ramon E. Bisque 50,000 $ 0
Duane N. Bloom 50,000 $ 0
Mark H. McKinnies 50,000 $ 0

All options shown for each individual were exercisable as of December 31, 1999.
For all options outstanding, the exercise price was in excess of the market
price as of December 31, 1999.

Compensation of Directors
Directors who are not also executive officers of Registrant are accruing
compensation in the amount of $500 per quarter, which amount may be paid by
issuance of Registrant's common stock, and are reimbursed for any out-of-pocket
expenses incurred in attendance at meetings.

Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth the number of shares of the Registrant's common
stock owned beneficially as of March 10, 2000, by each person known by
Registrant to have owned beneficially more than five percent of such shares then
outstanding, by each person serving as a named officer and/or a director of
Registrant and by all of Registrant's officers and directors as a group. With
the exception of Mr. Lowdermilk, each of the individuals named below has sole
voting and investment power for the respective shares.

<PAGE>

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

Roman E. Bisque (Chairman of the Board
of Directors) 613,265 (1) 2.3%
9113 Fern Way
Golden, CO

Duane N. Bloom (Director and Secretary) 591,775 (2) 2.2%
5565 Pine Ridge Rd.
Golden, CO

Michael D. Durham (Director) 1,097,574 (3) 4.0%
5252 Lariat Drive
Castle Rock, CO

Robert H. Lowdermilk (Director) 1,166,129 (4) 4.2%
100 Cherry St.
Denver, CO

Ronald B. Johnson 4,839 *
4220 S. Allison St.
Littleton, CO

Mark H. McKinnies (Director and President) 288,443 (5) 1.1%
10134 S. Pinedale Dr.
Conifer, CO

Directors and Officers
as a Group (6 individuals) 3,762,025 (6) 13.6%

* Less than 1%.
Notes:
(1) Included in the amount shown are 50,000 shares to which Dr. Bisque has the
right to acquire beneficial ownership through stock options, 1,000
registered in the name of Dr. Bisque's wife and 52,949 shares held in Dr.
Bisque's pension fund account.
(2) Included in the amount shown are 50,000 shares to which Dr. Bloom has the
right to acquire beneficial ownership through stock options, 7,725 shares
registered in the name of Dr. Bloom's wife and 64,219 shares held in Dr.
Bloom's pension fund account.
(3) Included in the amount shown are 30,000 shares to which Dr. Durham has the
right to acquire beneficial ownership through stock options and 116,209
shares held in Dr. Durham's pension fund account.
(4) Included in the amount shown are 125,000 shares registered in the name of
Mr. Lowdermilk's wife, Ann Gragg Lowdermilk, 200,000 held in the name of
Tectonic Construction Co. ("TCC") and 450,000 shares which TCC has the
right to acquire beneficial ownership through convertible debt and stock
options. Mr. Lowdermilk is the president and majority shareholder of TCC.
(5) Included in the amount shown are 50,000 shares to which Mr. McKinnies has
the right to acquire beneficial ownership through stock options and 66,946
shares held in Mr. McKinnies' pension fund account.
(6) The amount shown includes 580,000 shares to which individuals in the group
have the right to acquire beneficial ownership through convertible debt and
stock options.

Item 12. Certain Relationships and Related Transactions.
(a) In 1991, the Registrant converted a total of $366,000 of deferred salaries
payable to Mssrs. Bisque, Bloom and McKinnies to notes payable bearing interest
at 9%, payable on demand, and granted them rights to convert such notes payable
to shares of common stock at the then current market price of $.54 per share.
The notes were collateralized by a mining property. As of December 31, 1997,
$70,000 was outstanding under such notes. All of that amount was converted to
common stock during the year ended December 31, 1998.

In 1997, Registrant issued a convertible debenture in the amount of $1,000,000
(the "Debenture") to Tectonic Construction Co. ("TCC") and borrowed $500,000
from TCC under a short-term note (the "1997 Note"). Mr. Lowdermilk, a director
of Registrant, is the president and majority shareholder of TCC. A mining
property, and buildings, equipment, receivables and inventory in Calgary
collateralized these amounts. The Debenture and the 1997 Note bear interest at
the greater of prime plus two points or 10% which interest is payable quarterly.
In May 1999, the conversion rights of the Debenture were deleted. The Debenture
is due March 31, 2000. The 1997 Note was repaid in full in February 1998. In May

<PAGE>

1998 Registrant borrowed $250,000 from TCC under a short-term note (the "1998
Note") due March 31, 1999. The 1998 Note is collateralized by receivables and
inventory in Calgary. The 1998 Note bears interest at the greater of prime plus
two points or 10% which interest is payable quarterly. In April 1999, the 1998
Note due date was extended to May 20, 2000, its collateral was subordinated to
the Bank of Hongkong line of credit and its principal made convertible to shares
of Registrant's common stock at the conversion price of $.625 per share.
Registrant is currently renegotiating the terms of both the Debenture and the
1998 Note with TCC.

In the fall of 1998, Registrant sold an office building in Golden, Colorado to a
son of an officer and director, Ramon Bisque. The sales price of $350,000 was
based on an independent appraisal of the property.

During February 1999, Registrant sold a total of 267,245 shares of its common
stock to Daniel R. Bisque, a son of an officer and director, Michael J. DeBoer
and R. Scott Tracey, both sons-in-law of its officers and directors. The shares
were sold at the then current market prices ranging from $.81 to $.91 per share
and on the same terms and conditions as to unaffiliated third parties who also
purchased shares at that time. Such terms for all these transactions were at
least as favorable to Registrant as it could have obtained from unaffiliated
third parties. As with the unaffiliated third parties to whom shares were also
sold in February 1999, ESI had an obligation to issue additional shares in the
event the market price at the time of sale was less than 125% of the purchase
price. However, such additional shares were limited to two and one half times
the number of shares originally issued. This obligation helps insure a return on
the investment made by parties who purchased shares from ESI in February. In
November 1999, ESI issued options to replace such obligation, with conditions of
exercise essentially the same as the previous obligation. This replacement was
instituted in order to facilitate the registration of the securities with the U.
S. Securities and Exchange Commission.

The Calgary facility's production has been marketed through an agreement dated
January 1, 1997 with Twin-Kem International, Inc., a Colorado corporation
("TKI") whose chairman is Ronald B. Johnson, a director of Registrant. TKI
received a commission of between $2.00-$5.00 per ton of product sold. Payments
to TKI amounted to $22,249 and $9,609 in 1999 and 1998, respectively. To cover
expenses incurred and as additional compensation, the Company issued 50,000
shares and 230,000 shares of common stock to TKI in 1998 and 1999, respectively.

Item 13. Exhibits and Reports on Form 8-K.

(a) Exhibits and Index of Exhibits (all exhibits except as otherwise noted are
incorporated by reference; Exhibit 2.1 and 99.1 were filed as exhibits to
Registrant's April 30, 1997 Form 8K; Exhibits 4.3 and 10.5 through 10.9 were
filed as exhibits to Registrant's 1996 Form 10KSB, Exhibits 4.4, 4.5, and
10.11 through 10.13 were filed as exhibits to Registrant's 1997 Form 10KSB,
Exhibits 3.1, 10.14, 10.15 and 21.1 were filed as exhibits to Registrant's 1998
Form 10KSB all other such Exhibits were filed as Exhibits to Registrant's 1993
Form 10KSB).

No. Description
- --- -----------
2.1 Stock Option and Exchange Agreement and exhibits among Earth Sciences,
Inc. and ADA-ES, Inc., ADA Environmental Solutions LLC, ADA
Technologies, Inc., C. Jean Bustard, John F. Wurster, Kenneth E.
Baldrey and Cameron E. Martin dated April 30, 1997.
2.2 Amended and Restated Operating Agreement of ADA Environmental
Solutions LLC, a Colorado Limited Liability Company, April 30, 1997.
3.1 Articles of Incorporation, as amended and restated.
3.2 By-laws.
4.3 Form of Convertible Debenture due March 31, 1999.
4.4 Form of Convertible Debenture due January 31, 1999.
4.5 Form of Convertible Debenture due March 31, 2000.
10.2 Lease dated April 3, 1978 between Western Co-operative Fertilizers,
Limited and ESI Resources, Ltd.
10.5 Cerro Gordo Letter Agreement dated September 1, 1996 between
Registrant and Martin Trost Associates.
10.6 Option Agreement dated January 20, 1997 between Registrant and Yankee
Atomic Electric Company and Vermont Yankee Nuclear Power Corporation.
10.7 Letter of Intent among ADA Environmental Solutions LLC, ADA-ES, Inc.
their respective members and shareholders and Registrant.
10.8 Securities Purchase Agreement dated March 21, 1997.
10.9 Registration Rights Agreement dated March 21, 1997.
10.10 Independent Contractor Agreement dated January 1, 1997 between
Registrant and Twin-Kem International, Inc.

<PAGE>

10.11 Subscription and Investment Agreement dated June 12, 1997 between
Tectonic Construction Company and Registrant.
10.12 Assignment of Net Profits Interest dated November 1, 1997 from
Registrant, ESI Resource Limited, and Earth Sciences Extraction
Company to Yankee Atomic Electric Company and Vermont Yankee Nuclear
Power Corporation.
10.13 Letter Agreement dated January 9, 1998 between CODSA 14 S.A.,
Registrant and Recursos Minerales VENESI C.A.
10.14 Letter of Intent dated January 28, 1999 between ESI Resources Limited,
Earth Sciences Extraction Company and Chemical Interchange Company.
10.15 Securities Subscription Agreement dated February 1999
21.1 Subsidiaries of Registrant.
23.1* Consent of Hein + Associates LLP
27* Financial Data Schedule.
99.1 Financial Statements of ADA Environmental Solutions LLC, December 31,
1996

(*) - filed herewith.

(b) Reports on Form 8-K.

None.

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

Earth Sciences, Inc.
- --------------------
(Registrant)

By /s/ Mark H. McKinnies /s/ Duane N. Bloom
---------------------------- ---------------------------
Mark H. McKinnies, President Duane N. Bloom, Member of
and Principal Financial Officer Executive Committee

Date March 28, 2000 March 28, 2000
-------------- --------------

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.

/s/ Ramon E. Bisque /s/ Robert H. Lowdermilk
- ------------------- ------------------------
Ramon E. Bisque Robert H. Lowdermilk
Chairman of The Board of Directors Director

March 28, 2000 March 28, 2000
- -------------- --------------
Date Date

/s/ Duane N. Bloom /s/ Michael D. Durham
- ------------------ ---------------------
Duane N. Bloom, Director Michael D. Durham, Director

March 28, 2000 March 28, 2000
- -------------- --------------
Date Date

/s/ Mark H. McKinnies
- ---------------------
Mark H. McKinnies, Director

March 28, 2000
- --------------
Date

Exhibit 23.1

INDEPENDENT AUDITOR'S CONSENT

We consent to the incorporation by reference of our report dated March 22, 2000
accompanying the financial statements of Earth Sciences, Inc. to Form S-8
Registration Statement deemed effective June 10, 1997, File No. 333-28851, Form
S-3 Registration Statement declared effective July 23, 1997, File No. 333-25465,
Form S-3 Registration Statement declared effective September 22, 1997, File No.
333-35135, Form S-3 Registration Statement declared effective February 25, 1998,
File No. 333-46199, and Form S-3 Registration Statement declared effective
September 24, 1999, File No. 333-76081 and Form S-3 Registration Statement
declared effective February 2, 2000, File No. 333-93075 of Earth Sciences, Inc.
and to the use of our name and the statements with respect to us, as appearing
under the heading "Experts" in such Registration Statements.

/s/ Hein + Associates LLP
HEIN + ASSOCIATES
Denver, Colorado
April 10, 2000

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S
CONSOLIDATED FINANCIAL STATEMENTS, DECEMBER 31, 1999 AND 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

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