INDUSTRIAL ECOSYSTEMS INC, S-1, 2000-06-28

INDUSTRIAL ECOSYSTEMS INC
S-1, 2000-06-28
HAZARDOUS WASTE MANAGEMENT

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<PAGE> 1

Date Filed: June 27, 2000 SEC File No.

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

INDUSTRIAL ECOSYSTEMS, INC.
----------------------------------------------
(Name of small business issuer in its Charter)

Utah 94-3200034
------------------------------ ----------------------
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

2040 West Broadway, Bloomfield, NM 87413 (505)632-1786
-------------------------------------------------------------
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

4955
--------------------------------------------------------
(Primary Standard Industrial Classification Code Number)

Copies to: Registered Agent:
Elliott N. Taylor, Esq. Taylor and Associates, Inc.
John C. Thompson, Esq. Attorneys and Counselors at Law
Taylor and Associates, Inc. 2681 Parleys Way, Suite 203
Attorneys and Counselors at Law Salt Lake City, UT 84109
2681 Parleys Way, Suite 203 Phone: (801) 463-6080
Salt Lake City, Utah 84109 Fax: (801) 463-6085
Phone: (801) 463-6080 ------------------------------------
Fax: (801) 463-6085 (Name, address, including zip code,
and telephone number, including area
code, of agent for service)

Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this Registration Statement.

<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE

Title of Each Proposed Maximum Proposed Maximum Amount of
Class of Securities Amount to Offering Price Aggregate Offering Registration
to be Registered be Registered per Share (1) Price (1) Fee
------------------- ------------- ---------------- ------------------ ------------
<S> <C> <C> <C> <C>
Shares of Common
Stock, $0.001 par
value 21,900,000 Shares $ 0.10 $ 2,190,000 $ 580.00

<FN>
(1) 9,600,000 Shares currently held by Selling Shareholders and 12,300,000 Shares issuance on
the exercise of warrants held by the Selling Shareholders See DESCRIPTION OF CAPITAL STOCK.
</FN>

</TABLE>
Footnotes appear on next page

<PAGE> 2

(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457. This amount is based upon the closing price ($0.10) of
the common stock of the Registrant as reported on the NASD's OTC Bulletin
board on June 27, 2000.

If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]

The Registrant hereby amends this registration statement on such dates as may
be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section
8(a), may determine.

<PAGE>
<PAGE> 3
INDUSTRIAL ECOSYSTEMS, INC.
Cross Reference Sheet Pursuant to Rule 404(a)

Cross reference between items of Part I of Form S-1 and the Prospectus filed
by Industrial Ecosystems, Inc., as part of the Registration Statement.

REGISTRATION STATEMENT ITEM NUMBER AND HEADING PROSPECTUS HEADING
---------------------------------------------- ------------------

1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus..................... FRONT COVER

2. Inside Front and Outside Back Cover Page
of Prospectus...................................... INSIDE FRONT COVER AND
OUTSIDE BACK COVER

3. Summary Information; Risk Factors; and Ratio of
Earnings to Fixed Charges.......................... PROSPECTUS SUMMARY;
RISK FACTORS; Not
Applicable

4. Use of Proceeds..................................... USE OF PROCEEDS

5. Determination of Offering Price..................... Not Applicable

6. Dilution............................................ DILUTION

7. Selling Security Holders............................ SELLING SHAREHOLDERS

8. Plan of Distribution................................ PLAN OF DISTRIBUTION

9. Description of Securities to be Registered.......... DESCRIPTION OF
SECURITIES

10. Interest of Named Experts and Counsel.............. EXPERTS and LEGAL
MATTERS

11. Information with Respect to the Registrant
(a) Description of Business........................ BUSINESS
(b) Description of Property........................ PROPERTIES
(c) Legal Proceedings.............................. LITIGATION
(d) Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters.. MARKET FOR
SECURITIES
(e) Financial Statements........................... FINANCIAL STATEMENTS
(f) Selected Financial Data........................ SELECTED FINANCIAL
DATA
(g) Supplementary Financial Information............ Not Applicable
(h) Management's Discussion and Analysis of Financial
Condition and Results of Operations........... MANAGEMENT'S
DISCUSSION AND
ANALYSIS OF FINANCIAL
CONDITION AND RESULTS
OF OPERATIONS
(i) Disagreements with Accountants on Accounting
and Financial Disclosure...................... Not Applicable
(j) Quantitative and Qualitative Disclosures About
Market Risk................................... Not Applicable
(k) Directors and Executive Officers............... MANAGEMENT

<PAGE> 4

INDUSTRIAL ECOSYSTEMS, INC.
Cross Reference Sheet Pursuant to Rule 404(a)(Continued)

Cross reference between items of Part I of Form S-1 and the Prospectus filed
by Industrial Ecosystems, Inc., as part of the Registration Statement.

REGISTRATION STATEMENT ITEM NUMBER AND HEADING PROSPECTUS HEADING
---------------------------------------------- ------------------
(l) Executive Compensation......................... EXECUTIVE COMPENSATION
(m) Security Ownership of Certain Beneficial Owners
and Management................................ PRINCIPAL SHAREHOLDERS
(n) Certain Relationships and Related Transactions. CERTAIN TRANSACTIONS
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities.... UNDERTAKINGS

13. Other Expenses of Issuance and Distribution ....... OTHER EXPENSES OF
ISSUANCE AND
DISTRIBUTION

14. Indemnification of Directors and Officers.......... UNDERTAKINGS

15. Recent Sales of Unregistered Securities............ RECENT SALES OF
UNREGISTERED
SECURITIES

16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES........ EXHIBITS; Not
Applicable

17. Undertakings....................................... UNDERTAKINGS

<PAGE>
<PAGE> 5
[FRONT COVER PAGE]
PROSPECTUS

SUBJECT TO COMPLETION -- DATED JUNE __, 2000

21,900,000 Shares

INDUSTRIAL ECOSYSTEMS, INC.

Common Stock

All of the shares of Common Stock offered hereby are being sold by certain
shareholders of the Company (the"Selling Shareholders"). See SELLING
SHAREHOLDERS. The Company will not receive any proceeds from the sale of the
shares offered hereby. However, the Company could receive up to $4,306,400 in
proceeds from the exercise of warrants to purchase up to 12,300,000 shares of
Common Stock (the "Warrant Shares"), which are currently held by the Selling
Shares. See USE OF PROCEEDS.

The Company's Common Stock is traded in the over-the-counter market and is
quoted on the National Association of Securities Dealers, Inc. OTC Bulletin
Board (the "OTC Bulletin Board") under the symbol "IECS". On June 27, 2000,
the last reported sales price of the Common Stock was $0.10 per share.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION; NOR HAS THE COMMISSION
PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING; NOR HAS ANY STATE
SECURITIES DIVISION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

==============================================================================
Price to Underwriting Proceeds to Selling
Public Discounts (1) Shareholders (1)
------------------------------------------------------------------------------
Per Share............... $ $0.00 $
Total................... $ $0.00 $
==============================================================================

(1) Any commissions or discounts paid in connection with the sale of the
Common Stock will be paid by the Selling Shareholders and will be determined
through negotiations between them and the broker-dealer through or to which
the shares are sold and may vary depending on the broker-dealer's fee
schedule, the size of the transaction, and other factors. The Selling
Shareholders and any broker, dealer, or agent that participates with the
Selling Shareholders in the sale of the Common Stock may be deemed
"underwriters" within the meaning of the Securities Act of 1933, as amended
(the "Securities Act") and any commissions or discounts received by them and
any profit on the resale of the Common Stock purchased by them may be deemed
to be underwriting commissions under the Securities Act. See PLAN OF
DISTRIBUTION.

The date of this Prospectus is __________, 2000

<PAGE>
<PAGE> 6

No person has been authorized in connection with any offering made hereby to
give any information or to make any representation not contained in this
Prospectus, and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
security other than the Common Stock offered by this Prospectus, nor does it
constitute an offer to sell or a solicitation of any offer to buy any Common
Stock offered hereby to any person in any jurisdiction where it is unlawful to
make such an offer or solicitation to such person. Neither the delivery of
this Prospectus nor any sale hereunder shall under any circumstances create
any implication that information contained herein is correct as of any time
subsequent to the date hereof.

Changes in the Offering which occur after the date hereof, if any, will
necessitate the filing with the Securities and Exchange Commission (the
"Commission") of an amendment to the registration statement of which this
Prospectus forms a part (the "Registration Statement") and review and
declaration of effectiveness by the Commission of such amendment. There can
be no assurance that any such amendment will become effective. Should the
Company file a post-effective amendment and such amendment is not declared
effective by the Commission, Selling Shareholders will be precluded from
making offers and from selling the Shares of Common Stock.

<PAGE>
<PAGE> 7

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus.

THE COMPANY

Industrial Ecosystems, Inc. (hereinafter referred to as "IEI" or "Company")
was incorporated in the state of Utah in July 1993. In March 1994, the Company
acquired 100% of the equity securities of Environmental Protection Company, a
New Mexico corporation ("EPC") in exchange for shares of IEI's Common Stock.
EPC is in the excavation and bioremediation business and operates principally
in the Farmington, New Mexico area.

Environmental Protection Company
--------------------------------
As indicated above, the Company operates a wholly owned subsidiary, EPC,
which, among other things, utilizes a unique bioremediation process to reclaim
contaminated soil. A majority of the Company's excavating and soil
remediation jobs are done on sites owned and operated by BP-Amoco Production
Company ("BP-Amoco"), in and around the Farmington, New Mexico area. EPC
engages in soil remediation of hydrocarbon spills using proprietary
biotechnology knowhow.

ROP North America, Inc.
-----------------------
The Company, through a wholly owned Canadian subsidiary, IEI Canada, Inc.,
owns a 50% membership interest in ROP North America, LLC (the "JV"). The JV,
through its wholly owned subsidiary, ROP North America, Inc.("ROP"), has a
small pig-farming operation, as well as the equipment to operate a
blending/processing plant in Amherstburg, Ontario, Canada to convert organic
by-products from commercial food processors, such as potato and corn by-
products, and certain organic material from other commercial, industrial and
institutional sources, such as the syrup from ethanol production, into a
livestock feed ingredient.

The Company's principal offices are located at 2040 West Broadway, Bloomfield,
NM 87413. The Company's telephone number is (505) 632-1796. See RISK FACTORS
and BUSINESS.

THE OFFERING

Selling Shareholders................ 9,600,000 shares of Common Stock
12,300,000 Warrant Shares

Shares Outstanding as of
Prospectus Date.................... Common Stock: 45,900,683
Preferred Stock: -0-

Shares Outstanding after Offering... Common Stock: 67,800,683 (1)
Preferred Stock: -0-

------------------------
(1) Assuming the outstanding Warrants to purchase up to 12,300,000 Warrant
Shares are exercised and no other shares of Common Stock have been issued by
the Company.

<PAGE> 8

Use of Proceeds..................... The Company will not receive any proceeds
from the sale of the Common Stock by the
Selling Shareholders. In the event the
Selling Shareholders exercise warrants to
purchase up to 12,300,000 Warrant Shares,
the Company could receive up to
$4,306,400 in proceeds, which funds will
be used by the Company for general
working capital. See USE OF PROCEEDS and
DESCRIPTION OF SECURITIES.

Risk Factors........................ There are certain substantial risks
associated with an investment in the
Common Stock, including among others,
risks associated with the absence of
operating revenues or profitable
operations. See RISK FACTORS.

OTC Bulletin Board Symbol........... Common Stock: IECS

Summary Financial Information
-----------------------------
The following table sets forth selected summarized financial data for the
Company at the dates and for the periods indicated. The data should be read
in conjunction with the financial statements and notes thereto set forth
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
For the Three For the
Months Ended Years Ended
March 31, December 31,
------------------ -----------------
2000 1999 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
-----------------------------
Net Sales...................... $ 127,968 $ 130,833 $ 472,865 $ 626,545
Operating Expenses............. $ 254,488 $ 260,729 $ 1,186,833 $ 1,714,528
Other Income (Expenses)........ $ (5,855) $ 17,957 $ (46,487) $ (400,979)
Net (Loss)..................... $ (238,342) $ (198,656) $(1,165,555) $(1,894,749)
Extraordinary Gain............. $ - $ 325,957 $ 350,957 $ -
Foreign Currency Adjustments....$ (9,262) $ 3,348 $ (11,659) $ 14,664
Net Gain (Loss) per Share.......$ (0.01) $ (0.00) $ (0.02) $ (0.06)
Weighted Average Number
of Shares Outstanding.......... 45,600,683 33,000,905 40,241,683 35,500,905

Actual as of
------------
March 31, December 31,
------------- ------------
2000 1999
------------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
------------------
Total Current Assets............. $ 346,006 $ 104,985
Total Assets..................... $ 525,122 $ 296,869
Total Current Liabilities $ 1,201,861 $ 1,211,484
Working Capital (Deficit)........ $ (855,855) $ (914,615)
Long Term Debt................... $ 108,266 $ 108,266
Commitments and Contingencies.... $ 582,336 $ 582,336
Shareholders' (Deficit).......... $ (1,367,341) $ (1,605,217)

</TABLE>

<PAGE>
<PAGE> 9

RISK FACTORS

THE PURCHASE OF THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. PROSPECTIVE INVESTORS SHOULD CONSIDER, IN ADDITION TO THE NEGATIVE
IMPLICATIONS OF ALL MATERIAL SET FORTH HEREIN, THE FOLLOWING RISK FACTORS.

RISK FACTORS RELATING TO THE BUSINESS OF THE COMPANY

No Assurance of Profitability and Working Capital Deficit
---------------------------------------------------------
We had an operating loss of $232,487 for the threee month period ended March
31, 2000. After taking into account $8,267 of other income, $14,122 in
interest expense and a loss of $9,262 in foreign currency adjustments, we had
a net comprehensive loss of $247,604. Therefore, there can be no assurance we
will be able to develop into a successful or profitable business. See
BUSINESS.

Ability of Company to Continue as a Going Concern
-------------------------------------------------
Because we have an accumulated deficit of $(23,046,829)at March 31, 2000, we
have a working capital deficit and limited internal financial resources, the
report of the Company's auditor at December 31, 1999 contained a going concern
modification as to the ability of the Company to continue. During the fiscal
year ended December 31, 1999, we effected measures to reduce cash outflows and
increase working capital thru the issuance of equity securities for cash and
conversion of debt. We are aware of our ongoing cash requirements and have
implemented a cash flow plan, including continued reduction in our general and
administrative expenses. See MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.

Dependence on Certain Customers
--------------------------------
Historically, our revenues have been derived through our subsidiary EPC. EPC
has one major customer, BP-Amoco Production Company. In an effort to increase
our revenue base we plan to increase marketing through independent sales
representatives and develop partner alliances with environmental engineering
companies and environmentally focused construction firms. We also plan to
directly market our product and services to other oil companies and to
government agencies. See BUSINESS: Customers.

Competition
-----------
We compete against numerous other companies, both large and small, that are
more established and better financed than we are. Due to the competitive
nature of our business and better financed and larger competitors, it may be
difficult for us to obtain a significant market share. See BUSINESS:
Competition.

Governmental or Other Regulation
--------------------------------
During the course of conducting our business, our operations may be subject to
one or more environmental protection laws that have been enacted and amended
during recent decades in response to public concern over the environment. We
believe that we will be able to operate in compliance with such regulations.
While we have not had to make significant capital expenditures relating to
environmental compliance, we cannot predict with any certainty our future
capital expenditure requirements relating to environmental compliance because
of our limited operations and continually changing compliance standards and
technology. See BUSINESS: Government Regulation.

<PAGE> 10

Certain Transactions
--------------------
From time to time we have entered into transactions that may be material to
the potential purchaser of the Company's common stock in light of all the
circumstances of the particular case. The significance of the transactions
may be evaluated by each potential purchaser after taking into account the
relationship of the parties to the transactions and the amounts involved in
the transactions. See CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
Transactions with Management and Others.

Risks Involved in Litigation
----------------------------
We are currently involved in litigation with various third parties relating to
disputes arising over certain transactions with a supplier, a former
acquisition candidate, and a purported secured creditor. Therefore, we are
subject to the risks of any liability that may result from the subsequent
disposition of these claims. Potential purchasers should evaluate their
investment in light of these uncertainties. See LITIGATION.

Lack of Dividends
-----------------
The Company has not paid, and does not plan to pay, dividends in the
foreseeable future even if the Company is profitable. Earnings, if any, are
expected to be used to expand the Company's operations and for general
corporate purposes, rather than to make distributions to Shareholders.

Possible Sale of Common Stock Pursuant to Rule 144
--------------------------------------------------
The Company has previously issued shares of Common Stock that constitute
"restricted securities" as that term is defined in Rule 144 adopted under the
Securities Act. Subject to certain restrictions, such securities may
generally be sold in limited amounts one year after their acquisition.
Securities held for two years may be sold by nonaffiliates without limitation.
See PRINCIPAL SHAREHOLDERS and DESCRIPTION OF CAPITAL STOCK.

Concentration of Ownership
--------------------------
Because ownership is concentrated, you and other investors will have
minimal influence on shareholder decisions. Our officers, directors and
significant shareholders will beneficially own approximately 48% of the shares
if the minimum amount of shares is sold in this offering. As a result,
they will be able to exercise control over most matters requiring
shareholder approval, and you and other investors will have minimal
influence over the election of directors or other shareholder actions.
These shareholders may also approve or cause us to take actions of which
you disapprove or that are contrary to your interests.

Single Technology/Limited Application
-------------------------------------
Our revenues depend on a single product which makes us vulnerable to changes
in market demand. Our remediation product is based upon a single formula, is
currently our only remediation product, and is expected to account for
substantially all of our revenues for the foreseeable future. The
effectiveness of our product has only been established in limited applications
for a specific treatment of a specific contaminant in a particular soil type
in a particular climate region. Expanding our bioremediation treatment beyond
its present application may not be successful. In addition, while we are not
aware of any developments in the remediation industry which would render our

<PAGE> 11

current or planned products less competitive or obsolete, there can be no
assurance that future technological changes or the development of new or
competitive products by others will not do so. Because our system represents
our sole product focus, obsolescence of our system would have a significant
adverse effect.

Dependence on Strategic Relationships
-------------------------------------
We believe that our success in expanding our target markets depends in part on
our ability to develop and maintain strategic relationships with key
consultants and new customers. We believe these relationships are important in
order to validate our technology, facilitate increased market acceptance of
our products, and enhance our marketing and sales capabilities. We are
developing such relationships at this time. If we are unable to develop key
relationships or maintain and enhance existing relationships, we may have
difficulty selling our products and services.

Need to Manage Changing Operations
----------------------------------
Our ability to successfully offer products and services and implement our
business plan in an evolving market requires an effective planning and
management process. We hope to continue to increase the scope of our
operations and, if successful, will need to grow our personnel levels
substantially. This growth will place a significant strain on our management
systems and resources. We expect that we will need to continue to improve our
financial and managerial controls and reporting systems and procedures, and
will need to continue to expand, train and manage our work force. Furthermore,
we expect that we will be required to manage multiple relationships with
various customers and other third parties.

Possible Volatility of Stock Price
----------------------------------
The stock market has from time to time experienced significant price and
volume fluctuations that may be related or unrelated to the operating
performance of particular companies. These broad market fluctuations may
adversely affect the market price of the Company's Common Stock. In addition,
the market price of the shares of Common Stock of the Company may be highly
volatile. Factors such as the size of the market float, fluctuations in the
Company's operating results, failure to meet analysts' expectations,
announcements of major developments by the Company or its competitors,
developments with respect to the Company's markets, changes in stock market
analyst recommendations regarding the Company, its competitors or the industry
generally, and general market conditions may have a significant effect on the
market price of the Company's Common Stock.
<PAGE>
<PAGE> 12
PLAN OF DISTRIBUTION

Selling Shareholders

The Selling Shareholders may sell up to 21,900,000 shares of Common Stock from
time to time directly to purchasers. Alternatively, the Selling Shareholders
may, from time to time, offer the Common Stock to underwriters, dealers, or
agents, which may receive compensation in the form of underwriting discounts,
concessions, or commissions from the Selling Shareholders and/or the
purchasers of the Common Stock from whom they may act as agent, as the case
may be. The Selling Shareholders and any underwriters, dealers, or agents
that participate in the distribution of such securities, may be deemed to be
"underwriters," and any profits on the sale of these securities by them and
any discounts, commissions, or concessions received by any underwriters,
dealers, or agents may be deemed to be underwriting discounts and commissions
under the Securities Act.

The Common Stock may be sold by the Selling Shareholders, as the case may be,
from time to time, in one or more transactions at a fixed offering price,
which may be changed, or at varying prices determined at the time of sale or
at negotiated prices. The Company does not intend to enter into any
arrangements with any securities dealers concerning solicitation of offers to
purchase the Common Stock. The Selling Shareholders will pay all separate
expenses incurred by them incident to the offer and sale of the Common Stock,
including commissions and discounts to broker-dealers.

Commissions and discounts paid in connection with the sale of the Common Stock
by the Selling Shareholders will be determined through negotiations between
them and the broker-dealers through or to which the securities are to be sold
and may vary, depending on the broker-dealers fee schedule, the size of the
transaction, and other factors. The separate costs of the Selling
Shareholders will be borne by them. The Selling Shareholders and any broker-
dealer or agent that participates with the Selling Shareholder in the sale of
the Common Stock by them may be deemed "underwriters" within the meaning of
the Securities Act, and any commissions or discounts received by them and any
profits on the resale of Common Stock purchased by them may be deemed to be
underwriting commissions under the Securities Act.

The Company and certain Selling Shareholders have agreed to share the expenses
incurred by the Company in registering the Common Stock for resale by the
Selling Shareholders as follows:

Shareholder Share of Registration Expense
---------------- -----------------------------
John P. Crowe 50%
Everett P. Hailey the lesser of 22.5% or $2,250
William Hagerman the lesser of 2.5% or $250

In addition, the Company has agreed to utilize its best efforts to keep the
registration statement effective until the sooner of: (a) two-years following
the Closing; or (b) until all of the Common Stock and Warrant Shares have been
sold by the Investor, provided, however, that the Company is under no
obligation to keep the registration statement effective if no Warrants have
been exercised prior to the expiration date of the First Exercise Period (as
defined in the Warrants).
<PAGE>
<PAGE> 13

SELLING SHAREHOLDERS

The following table provides certain information with respect to the
Common Stock held by each Selling Shareholder. Mr. Crowe, one of the Selling
Shareholders, has had a material relationship with the Company. (See PRINCIPAL
SHAREHOLDERS and CERTAIN TRANSACTIONS. The percent of Common Stock is
calculated on the number of the Company's shares issued and outstanding as of
the date of this Prospectus. None of the shares of Common Stock may be
offered and sold by the Selling Shareholders after January 24, 2002. The
Common Stock offered by the Selling Shareholders under this Prospectus may be
offered from time to time by the following persons:

Name of Shareholder Number of Shares % of Common Stock
------------------- ---------------- -----------------
John P. Crowe Common Stock 4,500,000 9.80 (1)
Warrant Shares(3) 4,500,000 8.93 (2)

Everett P. Hailey Common Stock 2,250,000 4.90 (1)
Warrant Shares (3) 2,250,000 4.67 (2)

William Hagerman Common Stock 150,000 0.33 (1)
Warrant Shares (3) 150,000 0.32 (2)

Core Financial, LLC Common Stock 300,000 0.65 (1)
Warrant Shares (3) 600,000 1.29 (2)

Marte Anderson Common Stock 600,000 1.31 (1)
Warrant Shares (3) 1,200,000 2.55 (2)

Deron Nardo Common Stock 600,000 1.31 (1)
Warrant Shares (3) 1,200,000 2.55 (2)

Joseph Reynoso Common Stock 600,000 1.31 (1)
Warrant Shares (3) 1,200,000 2.55 (2)

Jon Porricelli Common Stock 600,000 1.31 (1)
Warrant Shares (3) 1,200,000 2.55 (2)
------------ ----------------
Totals Common Stock 9,600,000 20.91 (1)
============ ================
Warrant Shares 12,300,000 21.13 (2)
============ ================

(1) Based on the number of issued and outstanding shares of Common Stock at
June 16, 2000.

(2) Based on the number of issued and outstanding shares of Common Stock at
June 16, 2000, after giving effect to the exercise of the Warrants held by the
Selling Shareholder and the issuance of the underlying Warrant Shares.

(3) See DESCRIPTION OF SECURITIES: Warrants
<PAGE>
<PAGE> 14

MARKET FOR SECURITIES

At June 27, 2000, the Company's common stock was quoted on the NASD's OTC
Bulletin Board under the symbol "IECS".

The table below sets forth, for the respective periods indicated, the prices
of the Company's common stock in the over-the-counter market as reported by
the NASD's OTC Bulletin Board. The bid prices represent inter-dealer
quotations, without adjustments for retail markups, markdowns or commissions
and may not necessarily represent actual transactions.

Fiscal Year Ending December 31, 2000 High Bid Low Bid
----------------------------------- -------- --------
First Quarter $0.50 $0.05

Fiscal Year Ended December 31, 1999 High Bid Low Bid
----------------------------------- -------- --------
First Quarter $0.20 $0.15
Second Quarter $0.28 $0.14
Third Quarter $0.26 $0.14
Fourth Quarter $0.19 $0.04
Fiscal Year Ended December 31, 1998 High Bid Low Bid
----------------------------------- -------- --------
First Quarter $0.31 $0.13
Second Quarter* $0.94 $0.19
Third Quarter $0.81 $0.31
Fourth Quarter $0.38 $0.13

*Effective March 31, 1998, the Company effected a 2-for-3 share reverse split
of its issued and outstanding shares of common stock.

As of June 27, 2000 there were approximately 465 shareholders of record of the
Company's common stock and the reported bid or asked prices for the Company's
common stock was $0.10 and $0.10, respectively.

As of June 27, 2000, the Company has issued and outstanding 45,900,683 shares
of common stock.

Dividend Policy
---------------
The Company has not declared or paid cash dividends or made distributions in
the past, and the Company does not anticipate that it will pay cash dividends
or make distributions in the foreseeable future. The Company has not entered
into any credit or other agreements that would restrict its ability to pay
dividends, however, the Company currently intends to retain and reinvest
future earnings, if any, to finance its operations.

<PAGE>
<PAGE> 15

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Year 2000 Disclosure
--------------------
The Company has worked to resolve any potential impact of the year 2000 on the
ability of the Company's computerized information systems to accurately
process information that may be date-sensitive. The Company utilizes a
minimum number of computer programs in its operations. The Company has
completed its assessment and found all computer programs to be compliant. The
cost of compliance did not have a material adverse impact on the Company's
financial position during the period ending March 31, 2000.

Results of Operations
---------------------
General
-------
The Company's revenues are generated primarily by its business operations in
the United States through its wholly owned subsidiary Environmental Protection
Company ("EPC"). Since March, 1998, the Company has pursued the development
of ROP North America, LLC ("ROP"), through the Company's wholly owned Canadian
subsidiary, IEI Canada, which at March 31, 2000, was still in the development
stage. The Company's results of operations include the costs of its
investment in ROP.

For the quarter ended March 31, 2000, the functional currency for the
Company's foreign subsidiary (IEI Canada and its subsidiaries) has been
determined to be the Canadian Dollar. Any applicable assets and liabilities
have been translated at period end exchange rates and operating statement
items are translated at average exchange rates prevailing during the period.
For the period ended March 31, 2000, the Company had a loss of $9,262 as a
result of foreign currency translation adjustment.

Quarter ended March 31, 2000 compared to March 31, 1999
-------------------------------------------------------
Substantially all revenue during the quarter ended March 31, 2000 was derived
from EPC's operations, with total revenues being $127,968 and direct costs
associated therewith being $105,967 or approximately 82.8% of revenues. Total
revenues for the quarter ended March 31, 1999 were $130,833 and direct costs
associated therewith were $86,717, or approximately 66.3% of revenue. The
direct costs for the quarter ended March 31, 2000 as a percent of sales was
16.5% higher than the direct costs as a percentage of sales realized by the
Company for the quarter ended March 31, 1999. The increase in direct costs as

<PAGE>
<PAGE> 16

a percent of revenues for the current period as compared to the prior
comparative period can be attributed to the fact that, during the current
period, the Company performed a greater number of general roustabout jobs with
lower revenues and higher direct costs as opposed to remediation jobs with
higher revenue and lower direct costs. EPC's bioremediation work for Amoco is
allocated between routine site maintenance and emergency clean-up. In the
past, substantially all of the Company's revenues have been derived from
bioremediation work performed for BP-Amoco. During the fiscal year 1999
revenues from BP-Amoco began to decrease. Amoco merged with British Petroleum
(now "BP-Amoco") during 1999, and has been undergoing a review of all of its
operations, including those in the Farmington, New Mexico area. As a result
of BP-Amoco's review, much of the anticipated bioremediation work during 1999
has been delayed. Management of the Company expects this trend to reverse for
fiscal year 2000.

The Company's relationship with BP-Amoco provides for the Company to provide
bioremediation work for BP-Amoco sites in Colorado and New Mexico on an as
needed basis. There is no specific time limit, guaranteed dollar amount of
work, or term for the agreement. In addition, there is no guarantee that the
Company's revenues will continue and the Company cannot predict what events or
uncertainties may be reasonably expected to have a material impact on the net
sales revenues or income from continuing operations.

The Company has performed general contracting work during the year ended
December 31, 1999 for Public Service Company of New Mexico. In addition, to
expand its revenue base for fiscal year 2000, the Company is conducting a
bioremediation demonstration for the Department of Defense at the U.S. Navy's
Pt. Molate Fuel Depot in Richmond, California. This technical demonstration
represents the culmination of years of effort. The demonstration was sponsored
by the Bay Area Defense Conversion Action Team (BADCAT), a public private
partnership of: Bay Area Economic Forum (BAEF), Bay Area Regional Technology
Alliance (BARTA), California Environmental Protective Agency (CAL EPA),
Chevron Research and Technology Company, Engineering Field Activity West,
Naval Facilities Engineering Command (EFA West), Naval Facilities Engineering
Service Center (NFESC), San Francisco State University Center for Public
Environmental Oversight (CPEO) and the U.S. Environmental Protection Agency
(US EPA). The evaluation period, originally expected to be from five to six
months after the demonstration commenced, has been extended in order for the
Department of Defense and others to fully evaluate the results of the
demonstration. Should this evaluation be favorable, the Company's technology
and process could become, given certain site characteristics, the preferred
method for reducing hydrocarbon contamination in soil.

Corporate Expense. For the quarter ended March 31, 2000 total operating
expenses were $254,488, consisting of general and administrative expenses of
$241,720 and depreciation and amortization expenses of $12,768, resulting in a
loss from operations of $232,487. For the quarter ended March 31, 1999 total
operating expenses were $260,729, consisting of general and administrative
expenses of $236,066 and depreciation and amortization expenses of $24,663,
resulting in a loss from operations of $216,613. The operating expenses for
the quarter ended March 31, 2000 are substantially consistent with the
Company's operating expenses incurred for the quarter ended March 31, 1999.
The Company anticipates that it will continue to incur operating expenses at
approximately the same level for the balance of its fiscal year.

Interest Expense. Interest expense for the quarter ended March 31, 2000 was
$14,122, compared to $9,024 for the same period in 1999, which is attributed
to the line-of-credit obtained from a related party (See Note 6 to the March
31, 2000 interim unaudited Financial Statements).
<PAGE>
<PAGE> 17

Other Income (expense). Other income for the quarter ended March 31, 2000 was
$8,267. Other income for the quarter ended March 31, 1999 was $26,869, of
which, substantially all was represented by the balance of the income derived
from a one-year consulting agreement with ROP. Total other expense for the
quarter ended March 31, 2000 was $5,855 compared to other income of $17,957
for the same period in 1999.

Extraordinary Items. During the quarter ended March 31, 1999 the Company
recognized income from the forgiveness of $325,957 in debt by certain
creditors of the Company. See Note 8 to the March 31, 2000 interim unaudited
Financial Statements. The Company had no extraordinary items of income or
expense during the quarter ended March 31, 2000.

Including the extraordinary items and the foreign currency adjustments, the
Company had a net comprehensive loss of $247,604 for the quarter ended March
31, 2000 compared to net comprehensive income of $130,649 for the quarter
ended March 31, 1999. The basic loss per share for the quarter ended March
31, 2000 was $0.01, while the basic loss per share for the same quarter in
1999 was $0.00.

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

The Company had a working capital deficit of $855,855 and cash and cash
equivalents of $227,332, and restricted cash of $43,000 at March 31, 2000.
Cash used in operations for the quarter ended March 31, 2000, was $312,751 and
was derived primarily from cash received from the sale of shares. During the
quarter ended March 31, 2000, the Company received proceeds from the sale of
common stock and warrants totaling $379,200, and additional proceeds from the
exercise of outstanding options totaling $117,921.

The Company's accounts receivable increased to $68,174 during the period from
$9,902 at December 31, 1999. Due to inclement weather in the Farmington, New
Mexico area during August and September 1999, the Company moved around between
15 different sites and the jobs could not be completed in sequence.
Therefore, at December 31, 1999, several of these job sites were still open,
and billings had not been submitted to the customer. See Note 1h and Note 1n
to the March 31, 2000 interim unaudited Financial Statements.

Because the Company has an accumulated deficit of $22,808,487 at December 31,
1999, has a working capital deficit and limited internal financial resources,
the report of the Company's auditor at December 31, 1999 contains a going
concern modification as to the ability of the Company to continue. Beginning
in late fiscal year 1998 and throughout fiscal year 1999, the Company has
implemented measures to reduce cash outflows and increase working capital thru
the issuance of additional shares of common stock for cash, services and
conversion of debt. The Company is aware of its ongoing cash requirements and
will continue to reduce its general and administrative expenses until
increased revenues justify increased expenditures. Additionally, the
Company's management has developed an overall strategy and certain financing
options to meet its operating needs through December 31, 2000.

Due to the need for working capital for both the Company, IEI Canada and its
JV partner, JFJ Ecosystems, Inc. ("JFJ") restructured the JV to provide
among other things, the establishment of a $750,000 line-of-credit for the
Company from JFJ. As a result of the restructuring, JFJ has an equal 50%
member of the JV with IEI Canada and IEI Canada's option to reduce JFJ's
membership interest to 19% was terminated.
<PAGE>
<PAGE> 18

The line-of-credit bears interest at 6% per annum until December 31, 2000, at
which time all principal advanced under the line of credit, and any interest
accrued thereon, will be due and payable in full. As security for the line of
credit, the Company caused IEI Canada to pledge as security IEI Canada's 50%
membership interest in the JV. If the line of credit is not timely repaid in
full, IEI Canada's membership interest in the JV shall be conveyed to JFJ in
satisfaction of the line of credit, thus making JFJ the 100% owner of the JV.
At December 31, 1999, the Company had drawn the entire $750,000 against the
line-of-credit.

JFJ has the right on or prior to December 31, 2000 to sell its 50% membership
interest in the JV to the Company through a share exchange, wherein the
Company would issue to JFJ shares of the Company's restricted Common Stock in
exchange for JFJ's membership interest in the JV (the "Sale Rights"). On
January 26, 2000, JFJ gave the Company written notice of its intent to
exercise its Sale Rights under the JV agreement. It is expected that, when
the share exchange is completed, JFJ will forgive the outstanding principal
and accrued interest borrowed by the Company under the line of credit or
assign its interest as the Creditor in the line of credit to the JV prior to
exercising its Sale Rights, whichever it may so elect. The Company
anticipates that this transaction will be effected in the second quarter of
fiscal 2000.

At December 31, 1999, the Company had recorded $326,346 in accrued expenses
consisting primarily of accrued interest and unpaid payroll taxes,
unemployment taxes, sales taxes and gross receipts taxes due both the federal
and state taxing authorities, including reasonable interest and penalties for
delinquent filings. A settlement has been reached with the state of New
Mexico for the sales tax owed and the Company is current with the settlement
arrangements as of March 31, 2000. During the year ended December 31, 1999
the Company extended a preliminary settlement offer to the IRS on Form 433.
The settlement offer to the IRS was based on the Company's anticipated need to
raise additional working capital without exposing such capital to potential
seizure by the IRS. The terms of the preliminary settlement offer are based
on the trustee portion (the amount the Company withheld from its Employees' W-
2 wages) of tax due and contingent on the IRS finalizing its examination
confirming the financial condition of the Company and the financial condition
of those officers and directors of the Company during the time that the tax
liability arose (the "Responsible Parties"). The trustee portion due is
approximately $90,000 and will require the Company to make installment
payments to the IRS of approximately $5,000 per month over 24 months. Upon
payment in full of the settled amount the IRS will provide the Company and any
Responsible Parties with a full release from liability. Should the Company
fail to maintain the monthly payments to the IRS, the IRS will have the right
to collect from the individual Responsible Parties as well as the Company.

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

The Company has reserved and recorded possible contingent liabilities to
individuals who claim they are still owed money by the Company although the
Company has issued shares of its common stock to such individuals as payment
of such debts or because the Company is uncertain as the whether the creditors
are holding the Company responsible to certain debts incurred by former
officers and directors of the Company. At March 31, 2000, the Company had
recorded total contingent liabilities of $582,336, the same as recognized at
December 31, 1999.
<PAGE>
<PAGE> 19

Year ended December 31, 1999 compared to December 31, 1998
-------------------------------------------------------------------------
Substantially all revenue during year ended December 31, 1999 was derived from
EPC's operations, with net sales being $472,865 and direct costs associated
therewith being $405,100 or approximately 85.7% of revenues. Net sales for the
year ended December 31, 1998 were $626,545 and direct costs associated
therewith were $405,787, or approximately 64.8% of revenues. The direct costs
for the year ended December 31, 1999 as a percent of sales was approximately
20% higher than the direct costs as a percentage of sales realized by the
Company same period in the preceding year. The increase in direct costs as a
percent of revenues for the current period as compared to the prior
comparative period can be attributed to the fact that, during the current
period, the Company performed a greater number of general roustabout jobs with
lower revenues and higher direct costs as opposed to remediation jobs with
higher revenue and lower direct costs. EPC's bioremediation work for BP-Amoco
is allocated between routine site maintenance and emergency clean-up. In the
past, substantially all of the Company's revenues have been derived from
bioremediation work performed for BP-Amoco. During the year revenues from BP-
Amoco began to decrease. Amoco recently merged with British Petroleum (now
"BP-Amoco")and has been undergoing a review of all of its operations,
including those in the Farmington, New Mexico area. As a result of BP-Amoco's
review, much of the anticipated bioremediation work during 1999 has been
delayed. Management of the Company expects this trend to reverse for fiscal
year 2000. The Company's relationship with BP-Amoco provides for the Company
to provide bioremediation work for BP-Amoco sites in Colorado and New Mexico
on an as needed basis. There is no specific time limit, guaranteed dollar
amount of work, or term for the agreement. In addition, there is no guarantee
that the Company's revenues will continue and the Company cannot predict what
events or uncertainties may be reasonably expected to have a material impact
on the net sales revenues or income from continuing operations.

Corporate Expense. For the year ended December 31, 1999 total operating
expenses were $1,186,833, consisting of general and administrative expenses of
$1,089,270 and depreciation and amortization expenses of $97,563, resulting in
a loss from operations of $1,119,068. For the year ended December 31, 1998
total operating expenses were $1,714,528, consisting of general and
administrative expenses of $1,586,049, bad debt expense of $19,802, and
depreciation and amortization expenses of $108,677, resulting in a loss from
operations of $1,493,770. The operating expenses for the year ended December
31, 1999, represent a reduction of $527,695 in overall operating expenses
(approximately 30%) compared to the Company's operating expenses
<PAGE>
<PAGE> 20

incurred for the year ended December 31, 1998. This is particularly important
in lieu of the Company's approximately 25% reduction in net sales for the 1999
fiscal year as compared to the 1998 fiscal year. The reduction in operating
expenses for the fiscal year just ended is a direct result of the efforts the
Company has undertaken to reduce cash outflows in non-revenue producing areas.

Interest Expense. Interest expense for the year ended December 31, 1999 was
$94,065, more than double that of fiscal 1998, which is attributed to the
line-of-credit obtained from a related party. Interest expense for the year
ended December 31, 1998 was $40,236, and is attributed to corporate borrowing
during the normal course of business.

Other Income. Other income for the year ended December 31, 1999 was $55,155,
which represents a decrease over other income of $95,118 for the year ended
December 31, 1998. During the year ended December 31, 1998, the Company had
expenses of $-0- and $353,117, associated with loss on investment in the joint
venture and disposition of assets, respectively, so that total other expenses
for the 1999 fiscal year was $46,487 compared to $400,979 in the 1998 fiscal
year.

Extraordinary Item. During the year ended December 31, 1999 the Company
recognized income from the forgiveness of $350,957 in debt by certain
creditors of the Company. The Company had no extraordinary items of income or
expense during the year ended December 31, 1998.

Including the extraordinary item the Company had net comprehensive loss of
$826,257 for the year ended December 31, 1999. The basic loss per share for
the period before extraordinary items was $0.02. For the year ended December
31, 1998, the Company had a net comprehensive loss of $1,880,085 and a basic
lose per share of $0.06, for a reduction in net comprehensive loss of
$1,053,728 in fiscal year 1999 over fiscal year 1998.

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

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

<PAGE>
<PAGE> 21
BUSINESS

Corporate History
-----------------
General
-------
The Company was incorporated in the state of Utah in July 1993 under the name
Agri World Development Corp. In January 1994, the name was changed to
Industrial Ecosystems, Inc. In March 1994, IEI acquired 100% of the equity
securities of Environmental Protection Company, a New Mexico corporation
("EPC") in exchange for shares of IEI's Common Stock. Until the acquisition
of EPC, IEI had no operating activities. Also, the exchange of IEI's Common
Stock for the Common Stock of EPC resulted in the former stockholders of EPC
obtaining control of IEI. Accordingly, EPC became the continuing entity for
accounting purposes, and the transaction was accounted for as a
recapitalization of EPC with no adjustment to the basis of EPC's assets
acquired or liabilities assumed. For legal purposes, IEI was the surviving
entity. EPC is in the excavation and bioremediation business and operates
principally in the Farmington, New Mexico area.

In June 1994, IEI, through IEI's wholly-owned Canadian subsidiary, IEI Canada,
Inc. ("IEI Canada"), acquired 100% of I.T.E. Ecosystems, Inc., Amlin Grain
Roasting, Inc. and a minority interest in N-Viro Systems Canada, Inc. The
operations of I.T.E. Ecosystems, Inc. and Amlin Grain Roasting, Inc. were
discontinued during 1994. In September 1994, IEI incorporated three separate
wholly-owned subsidiaries, RFP Management & Development Corp., ROP Management
& Development Corp. and IEI Canada, Inc. In December 1996, IEI incorporated
another wholly owned subsidiary, ROP Liquid Feed Corp. with the intent of
separating various business activities into different entities. Thereafter, in
March 1998, IEI created a Canadian entity (merger company) for the purpose of
consolidating IEI Canada, Inc., ROP Liquid Food Corp, ROP Management &
Development Corp. and RFP Management and Development Corp. into the merger
company. The resulting consolidated entity was named IEI Canada, Inc. The
assets and certain liabilities of all of these companies were later assumed by
ROP North America, LLC, a joint venture company formed in March, 1998 (the
"JV"), and the consolidated companies' operations were discontinued.

In June 1998, the Company incorporated two wholly-owned Canadian subsidiaries,
1297833 Ontario Ltd. and 1303873 Ontario, Ltd. The Company anticipated that
these subsidiaries would enable it to carry out certain proposed remediation
and waste processing operations which never materialized. Management believed
that development loans for these operations might be available only to
Canadian corporations. The Company is now in the process of assessing the
merits of maintaining or closing these subsidiaries which have never had any
business operations.

In January 1999, due to the need for working capital for both the JV and the
Company, the terms of the joint venture agreement were renegotiated, as
described more fully below. See CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS: Restructure of Interest in ROP. At the request of JFJ
Ecosystems, Inc. ("JFJ"), the terms of the restructuring were presented to and
ratified by the Company's shareholders at a Special Meeting in April 1999.
JFJ also requested that the Company complete a formal election of directors,
but did not suggest or influence the Company's choice of nominees.
Accordingly, at the same Special Meeting, a slate of directors was nominated
and elected by shareholder vote.

<PAGE>
<PAGE> 22

Summary of Business Operations
------------------------------
Environmental Protection Company
--------------------------------
As indicated above, the Company operates a wholly owned subsidiary, EPC,
which, among other things, utilizes a unique bioremediation process to reclaim
contaminated soil. A majority of the Company's excavating and soil
remediation jobs are done on sites owned and operated by BP-Amoco, in and
around the Farmington, New Mexico area. If timing and logistics dictate, the
contaminated soil is excavated and transported from the BP-Amoco site to a ten
acre parcel of land located five miles from Farmington, New Mexico. This
parcel which is owned and operated by EPC is permitted to receive and bio-
convert hydrocarbon impacted soils. EPC's agreement with BP-Amoco allows for
the bioremediation of only BP-Amoco soil on the EPC parcel. In 1998,
approximately 20% of the BP-Amoco remediation jobs were performed on site by
treatment of contaminated soil. For the remaining jobs, contaminated soil was
removed to EPC's treatment site, then returned to BP-Amoco following
treatment.

EPC engages in soil remediation of hydrocarbon spills using proprietary
biotechnology knowhow. The EPC process involves the use of a matrix of
bacteria. These bacteria are acquired from a number of different media which
are controlled by EPC. These bacteria, along with certain enzymes which are
produced by the bacteria, aid in the remediation of the contaminated soil.
When soils are treated using the bioconversion process, enzymatic metabolism
of the hydrocarbons can begin immediately. The bioconversion process causes
the breakdown and emulsification of hydrocarbon at the hydrocarbon/aqueous
interface. Once the hydrocarbons are emulsified, they are readily accessible
to the large number of naturally occurring bacteria present in the
biopreparation. Bacterial enzymes bind to the hydrocarbons forming enzyme-
substrate complexes which subsequently serve to breakdown the hydrocarbons.
The biopreparation itself is believed to be non-toxic.

Customers
---------
EPC's chief revenue source has been and continues to be its work for BP-Amoco.
During fiscal year 1998, 100% of EPC's revenues were derived from BP-Amoco.
At June 30, 1999, the Company had no significant revenues from sources other
than BP-Amoco's New Mexico sites, but the Company intends to continue its
efforts to expand its customer and revenue base. However, EPC and the Company
are highly dependent on BP-Amoco as a customer. Even though BP-Amoco has
provided EPC with a fairly steady flow of business over the years, BP-Amoco is
under no obligation to continue as such in the future. The recent British
Petroleum merger with Amoco has not financially impacted EPC, however, there
can be no assurance that EPC's business with BP-Amoco will continue as it has
in the past. In an effort to broaden its customer base in the New Mexico area,
EPC recently signed an excavation and remediation agreement with Public
Service Company of New Mexico ("PSCNM"), a local public utility. The financial
impact of this agreement is not as yet known. The Company estimates that 90%
of the PSCNM jobs will be on-site treatment through commercially acceptable
land-farming and spreading operations and the remainder will require
excavating. The excavated soil will be transported, per the agreement, to
other commercial landfarming or composting operations.

Outside of New Mexico, the Company has had little success to date marketing
its bioremediation service. The Company is conducting a demonstration of its
bioremediation technology for the U.S. Navy at the Pt. Molate naval fuel depot
in Richmond, California. Should the demonstration prove to be successful, the
Company believes that demand for its bioremediation technology will increase.

<PAGE>
<PAGE> 23

In order to enjoy the possible benefit associated therewith, the Company plans
to license its bioremediation technology to contractors that may be better
positioned to garner contracts than the Company.

In an effort to increase the Company's revenues the Company has entered into
an independent sales representative agreement with a third party to market the
Company's product and services. The Company is in the process of negotiating
other similar agreements.

The Company may look to form a strategic alliance or business combination with
an operating company in a similar or substantially related industry. The
Company intends to utilize various sources in its search for potential
relationships, including its officers and directors, venture capitalists, and
others who may present management with unsolicited proposals. To date, the
Company has not engaged or entered into any discussions, negotiations,
agreements or understandings regarding any potential alliances or business
combinations, nor has management engaged any consultants to specifically
assist the Company for such purposes.

Raw Materials and Suppliers
---------------------------
All of the raw materials needed for EPC's bioremediation work are available
from a wide variety of local suppliers. Raw materials are obtained on an as-
needed basis and the Company does not anticipate any problems with obtaining
all necessary materials in the future.

Research and Development
------------------------
In the past two fiscal years, EPC has not spent any significant sums on
research and development, because its bioremediation process has not required
any substantial changes. Therefore, there have been no research and
development costs to pass on to customers.

Competition
-----------
Traditional hydrocarbon spill remediation methods have been based on
conventional civil engineering techniques such as excavation and removal to
landfill. These methods can be expensive because of cost of transporting large
volumes of material. The excavation and disposal methods are under increasing
regulatory scrutiny as landfill standards are tightened and disposal costs
rise. These traditional methods are being replaced by newer methods which use
a variety of physical, biological and chemical methods to either immobilize or
destroy contaminants.

Traditional remediation services are predominantly provided by environmental
firms, construction contractors and environmental engineering firms. Numerous
small companies are offering newer remediation services with varying degrees
of success in treating a wide array of contaminated soils. These small
companies generally have operations like EPC's New Mexico operations which are
relatively local in scope.

EPC's technology has only been utilized for the bioremediation of hydrocarbon
contamination and management does not know if it is appropriate or effective
for multiple contaminants. Direct competition in the limited area of
hydrocarbon contamination is primarily from landfill and land-spreading
operations permitted to handle soils contaminated with hydrocarbons. Because
EPC has access only to the Company's existing remediation site for BP-Amoco
soil, it cannot remediate contaminated soil from any other customers if the
soil must be physically removed immediately from the customers' sites for

<PAGE>
<PAGE> 24

health and/or safety reasons, such as proximity to residential housing.
Certain of the PSCNM sites fall into this category, for instance, so that EPC
becomes essentially a waste hauler transporting contaminated soil to third
party landfill and land-spreading operations.

In essence, the Company's lack of an open site for remediation of contaminated
soils puts it at a competitive disadvantage with landfill and land-spreading
operations which can accept contaminated soils from any potential customer.
The Company's remediation opportunities are, therefore, limited to those
customers for whom the Company can perform on-site work. The Company is in
the process of assessing whether this disadvantage merits the acquisition of
another remediation site.

Government Regulation
---------------------
Various environmental protection laws have been enacted and amended during
recent decades in response to public concern over the environment. The
Company's bioremediation operations may be subject to these evolving laws and
the implementing regulations. The Company believes, however, that the
requirements of these laws may ultimately contribute, in a number of respects,
to the demand for its services. The United States environmental laws which the
Company believes are or may be, applicable to EPC's bioremediation operations
include the Resource Conservation and Recovery Act ("RCRA"), as amended by the
Hazardous and Solid Waste Amendments of 1984 ("HSWA"), the Federal Water
Pollution Control Act of 1972 (the "Clean Water Act"), the Clean Air Act of
1970, as amended (the "Clean Air Act"), Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), the Pollution Prevention Act of
1990 and the Federal Insecticide, Fungicide and Rodenticide Act ("FIFRA").

These laws regulate the management and disposal of wastes, control the
discharge of pollutants into the air and water, provide for the investigation
and remediation of contaminated land and groundwater resources and establish a
pollution prevention program. Various states in the United States have
implemented environmental protection laws that are similar to the applicable
federal laws and, in addition, states may require, among other things, permits
to maintain existing or construct additional EPC facilities, if necessary.

EPC's remediation work to date has only been performed on sites permitted
through either BP-Amoco or PSCNM. The Company has, therefore, not been
subject to any specific regulations other than the New Mexico State
Contractor's License and the Federal Heavy Highway Usage permits for its
hauling work, and the OSHA Hazardous Materials regulations which require the
training of employees addressed below. Therefore, there have been no
significant costs or effects of compliance with regulations on the Company's
remediation business.

If the Company decides to acquire its own remediation site, it will be
required to obtain permits and meet federal and state environmental compliance
standards. The costs of obtaining permits and complying with such standards
could be significant and might have a material adverse effect on the viability
of expanded remediation operations.

Employees
---------
As of June 27, 2000, EPC had three full-time employees, all of whom are
employees-at-will. EPC hires additional part-time employees on an as-needed
basis. All employees receive special training in the handling of contaminated
materials related to the EPC's bioremediation process.

<PAGE>
<PAGE> 25

As of June 27, 2000, IEI had three full-time employees in its executive
office, all of whom are employees-at-will.

IEI Canada has no employees.

ROP North America, LLC
----------------------
As indicated above, the Company's Canadian subsidiary IEI Canada, Inc., owns a
50% membership interest in ROP North America, LLC (the "JV"). The JV, through
its wholly owned subsidiary, ROP North America, Inc.("ROP"), has the equipment
to operate a blending/processing plant in Amherstburg, Ontario, Canada to
convert organic by-products from commercial food processors, such as potato
skins and corn by-products, and certain organic material from other
commercial, industrial and institutional sources, such as the syrup from
ethanol production, into a livestock feed ingredient.

The potential benefits of the blending/processing plant include the diversion
of waste from landfills and the reduction of the use of other environmentally
unsuitable disposal methods. The availability of such waste processing offers
reduced disposal costs to food processors and other waste generators. To the
extent energy conversion and increased handling/transportation costs can be
minimized, blended/processed waste provides an economical alternative for the
livestock feed industry.

ROP currently operates a facility in Amherstburg Ontario in which
approximately 3,000 pigs per cycle (up to 3 cycles per year) are raised for a
local pig producer. Once the pigs have reached the specified weight, the pigs
are picked up by the producer and replaced by new piglets.

On January 26, 2000, JFJ gave the Company written notice of its intent to
exercise its Sale Rights. In light of this notice, Management is currently
reassessing the best strategy for expanding ROP's business.

The JV is governed by a three person Board of Managers, two of whom were
appointed by JFJ Ecosystems, LLC (the Company's JV partner) and one of whom
was appointed by IEI Canada. Tom Jarnagin, the Company's President, has been
appointed by IEI Canada to serve as the Company's representative on the Board
of Managers. In connection with the formation of the JV, the JV entered into a
consulting agreement with the Company by which the JV agreed to pay the
Company certain consulting fees if the JV's income and expenses matched
certain financial projections established by the Company for the JV. The
Company received $100,000 after formation of the JV and was to receive
$100,000 on December 31, 1998, if the projections were met. The projections
were not attained on December 31, 1998, and the Company will not receive the
additional $100,000.

PROPERTIES

Executive office
----------------
The Company's principal executive office is located in Bloomfield, New Mexico,
in a building owned by EPC. The building is a wood-framed mobile building of
approximately 660 square feet. The building is located at 2040 West Broadway,
Bloomfield, New Mexico, on land leased at a rate of $300 per month. The lease
is on a month to month basis.

The Company owns a ten acre parcel of land five miles from Farmington, New
Mexico, which it uses to receive and bioconvert hydrocarbon impacted soils,

<PAGE>
<PAGE> 26

based on a joint permit with BP-Amoco. The site is fenced and configured to
safely handle storm runoff.

The property is used as a staging area to which BP-Amoco's contaminated soil
is brought for treatment and then returned to either the original site or
another site designated by BP-Amoco to receive the treated soil. The site is
large enough to handle all current and future anticipated contaminated soil,
and the nature of the remediation is such that the site can be used over and
over as treated soil is removed.

MANAGEMENT

Directors and Executive Officers
--------------------------------
The following table sets forth the name, age, and position of each executive
officer and director and the term of office of each Director of the Company.

Name Age Position Held Position Since
---- --- -------- -------------------
Tom Jarnagin 57 President/Director April 1999
Joseph Knox 38 Vice President June 1999
Magaly Bianchini 43 Director April 1999
Steven C. Justus 40 Director April 1999

The term of office of each director is one year and until his or her successor
is elected at the Registrant's annual shareholders' meeting and is qualified,
subject to removal by the shareholders. The term of office for each officer
is for one year and until a successor is elected at the annual meeting of the
board of directors and is qualified, subject to removal by the board of
directors.

Biographical Information
------------------------
Set forth below is certain biographical information with respect to each of
the Registrant's officers and directors.

Tom Jarnagin - Until December 1995, Mr. Jarnagin, age 57, was the General
Manager in charge of Coal Operations for the Burlington Northern Railroad
Company. Since 1995, he has been involved in real estate development and new
business development as an independent investor and consultant. Mr. Jarnagin
earned a B.A. in economics from the University of Denver in 1967. He received
awards as Outstanding Safety Leader from Burlington Northern in 1993 and 1995.
He has been active in various community service and charitable organizations
such as the Lincoln, Nebraska Chamber of Commerce, Leadership Lincoln, and the
United Way.

Magaly Bianchini - Since 1986, Ms. Bianchini, age 43, is a residential real
estate developer. She is currently employed by Leader Capital Corporation, a
publicly traded company specializing in residential development
and home building in Ontario and Quebec. Ms. Bianchini is an officer and
director of Leader Capital Corporation, which is listed on the Canadian
Dealing Network under the symbol LEDR. Ms. Bianchini earned a B.A. in
political science and philosophy from the University of Toronto in 1977. She
is a partner in Diamante Development Corporation, developers of various
condominium projects in Toronto. She is managing partner for a
commercial/residential project in Gatineau, Quebec, and has been responsible
for all aspects of project administration, including planning, development and
sales. Ms. Bianchini is also a board member of Senior Living Management, a
company which owns and operates retirement homes across Canada.
<PAGE>
<PAGE> 27

Steven Justus - Since 1993, Steven Justus, age 40, has been President and
Owner of Steven C. Justus, Inc., a floor execution and brokerage firm at the
Chicago Mercantile Exchange, where he has been a member since 1988. Mr.
Justus also acts as an independent consultant for the brokerage industry.
From 1995 to 1997, Mr. Justus was a director of Stellaris Financial Services,
serving on the Executive Committee which formed company strategy. In 1995, he
was a director of Trine, Ltd., for which he formulated trading strategies,
raised funds and trained marketers. Mr. Justus holds a B.S. degree in Human
Resource Management from Drake University. He is a former member of both the
Chicago Board of Trade and the Chicago Board Options Exchange. Mr. Justus
holds six securities industries licenses.

Joseph Knox - Mr. Knox, age 38, joined the Company as its vice-president in
June 1999. Prior to joining the Company, from 1998 to 1999, Mr. Knox was
Vice-president of Western Operations for the EA Companies, spearheading a
turnaround for their management consulting services. From 1995 to 1998, Mr.
Knox was regional manager for Tetra Tech, Inc., first for northeast operations
(1995 to 1997) and then for western operations (1997 to 1998), during which
time he developed and executed marketing strategies, managed operations for
all consulting services, and directed all aspects of regional financial
management. From 1990 to 1994, Mr. Knox was office manager for PRL, Inc., an
information technology subsidiary of Black and Decker Corporation. Mr. Knox
earned a BA in Geology and Economics from the University of Rochester in 1985,
and an MPA from George Mason University in 1989.

Key Employee
------------
James Hatcher , the general manager of EPC, has extensive experience in
bioremediations. From 1997 to the present, Mr. Hatcher has been involved in
the management of bioremediation and reclamation of hydrocarbon contaminated
soil for more than 250 sites in New Mexico and Colorado. From 1983 to 1996,
Mr. Hatcher was involved as a consultant in planning, permitting, and various
environmental issues for a number of oil companies operating in the southwest.
From 1972 to 1982, Mr. Hatcher worked on drilling and operations of oil and
gas wells in Utah, Wyoming, Colorado, Arizona and New Mexico. Mr. Hatcher has
completed certification in programs for HAZMET, Hazardous Waste Operations and
Emergency Response, and Hazardous Waste Operations Manager and Supervisor.

<PAGE>
<PAGE> 28
EXECUTIVE COMPENSATION

The following tables set forth certain summary information concerning the
compensation paid or accrued for each of the Registrant's last three completed
fiscal years to the Registrant's or its principal subsidiaries chief executive
officer and each of its other executive officers that received compensation in
excess of $100,000 during such period (as determined at December 31, 1999 the
end of the Registrant's last completed fiscal year). During the periods
covered by the table, Walter Kolbe served as President of the Company. Mr.
Kolbe resigned all positions effective April 19, 1999. During the periods
covered by the table, Gerard Amlin served as Vice-President of the Company,
and President of IEI Canada. Mr. Amlin was also President of the two Canadian
subsidiaries incorporated in July 1998. Mr. Amlin resigned all positions
effective September 1998. Mr. Jarnagin was appointed as President effective
April 19, 1999.

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------

Annual Compensation Awards Payouts
Other Restricted
Name and Annual Stock Options LTIP All other
Principal Position Year Salary Bonus($) Compensation Awards /SARs Payout Compensation
------------------ ---- ------ -------- ------------ ------ ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tom Jarnagin 1999 $ 36,833 -0- -0- -0- -0- -0- -0-
President 1998 $ -0- -0- -0- -0- -0- -0- -0-
1997 $ -0- -0- -0- -0- -0- -0- -0-

Walter Kolbe 1999 $ -0- -0- -0- -0- -0- -0- -0-
President 1998 $ 103,002 -0- -0- -0- -0- -0- -0-
1997 $ 28,037 -0- -0- -0- -0- -0- -0-

Gerard Amlin 1999 $ -0- -0- -0- -0- -0- -0- -0-
Vice-President 1998 $ 131,152 -0- -0- -0- -0- -0- -0-
1997 $ 17,298 -0- -0- -0- -0- -0- -0-

</TABLE>

Additional Executive Compensation
---------------------------------
Tom Jarnagin, the Company's President, has been employed by the Company as an
employee-at-will, beginning April 19, 1999, at a salary of $5,000 per month
(pro-rata in the first month), plus a quarterly performance bonus of up to
$15,000 per quarter based on meeting certain per share earnings criteria set
forth in the operating plan currently being prepared. In 1999, no bonus was
earned or paid. Mr. Jarnagin's compensation includes management
responsibilities for ROP. The Company has no other employment agreements with
members of management and or any other personnel. All employees are treated
as employees-at-will. The Company reimburses each officer for expenses
incurred in connection with the Company's business.

Joseph Knox, the Company's vice-president, has been employed by the Company
since June 6, 1999, at a salary of $7,500 per month. Mr. Knox was also granted
options pursuant to the Company's 1999 Stock Option and Award Plan, to
purchase up to 400,000 shares of the Company's common stock for an exercise
price of $0.20 per share. The options vest over a two year period from the
date of his employment.

<PAGE> 29

Board Compensation
------------------
As of December 31, 1998, the Company's directors receive no compensation for
attendance at board meetings. Subsequent to December 31, 1998, the Company's
directors have adopted a resolution providing for the payment of $1,000 to
each director per meeting attended up to a maximum of $1,000 per quarter or
$4,000 per year. In addition, board members will be reimbursed for all
reasonable out-of-pocket expenses incurred by them in connection with their
attendance at the board meetings. At December 31, 1999, each board member had
received payment for one board meeting in April, and were each entitled to
payment for one additional board meeting held in August.

Options/SAR Grants in Last Fiscal Year
--------------------------------------
No individual grants of stock options (whether or not in tandem with SARs), or
freestanding SARs were made during the last completed fiscal year to any of
the named executive officers.

Bonuses and Deferred Compensation
---------------------------------
There are no compensation plans or arrangements, including payments to be
received from the Company, with respect to any person named as a director,
executive officer, promoter or control person above which would in any way
result in payments to any such person because of his resignation, retirement,
or other termination of such person's employment with the Company or its
subsidiaries, or any change in control of the Company, or a change in the
person's responsibilities.

Compensation Pursuant to Plans
------------------------------
Effective March 19, 1999, the Board of Directors of the Company approved the
terms of the 1999 Stock Option and Award Plan (the "Award Plan"). The Award
Plan was approved by the stockholders of the Company at a Special Meeting on
April 19, 1999. As of the date of this filing, 1,300,000 options have been
awarded under this plan, of which 609,000 are currently exercisable.

The following summary of the Award Plan is qualified in its entirety by the
specific provisions of the Award Plan.

Award Plan Summary
------------------
The Board of Directors of the Company believes that it is important that
employees and other individuals who contribute to the success of the Company
have a stake in the enterprise as shareholders. Consistent with this belief,
the award of stock options has been and will continue to be an important
element of the Company's compensation program.

The Award Plan is intended to (a) attract competent directors, executive
personnel, and other employees, (b) the retention of the services of existing
directors, executive personnel, and employees, and (c) provide incentives to
all of such personnel to devote the utmost effort and skill to the advancement
and betterment of the appropriate corporation by permitting them to
participate in ownership and thereby permitting them to share in increases in
the value which they help produce.

<PAGE>
<PAGE> 30

The Award Plan is to be administered either by the Board of Directors or
by a committee (the "Committee") to be appointed from time to time by such
Board of Directors. Awards granted under the Award Plan may be incentive stock
options ("ISOs") as defined in the Internal Revenue Code of 1986, as amended
(the "Code"), appreciation rights, options which do not qualify as ISOs, or
stock bonus awards which are awarded to employees, including officers and
directors, who, in the opinion of the board or the Committee, have
contributed, or are expected to contribute, materially to the success of the
Company. In addition, at the discretion of the Board of Directors or the
Committee, options or bonus stock may be granted to individuals who are not
employees but contribute to the success of the Company.

The exercise price of options granted under the Award Plan will be based on
the fair market value of the underlying Common Stock at the time of grant and,
in the case of ISOs may not be less than 100% of the fair market value of such
capital stock on the date the option is granted (110% of the fair market value
in the case of 10% stockholders). Options granted under the Award Plan
shall expire no later than ten years after the date of grant (five years in
the case of ISOs granted to 10% stockholders). The option price may be paid by
cash or, at the discretion of the Board of Directors or Committee, by delivery
of a promissory note or shares of Common Stock of the Company already owned by
the optionee (valued at their fair market value at the date of exercise), or a
combination thereof.

All of the employees, officers, and directors of the Company are eligible to
participate under the Award Plan. A maximum of 3,000,000 shares are available
for grant under the Award Plan. The identification of individuals entitled to
receive awards, the terms of the awards, and the number of shares subject to
individual awards, are determined by the Board of Directors or the Committee,
in their sole discretion: provided, however, that in no event may the
aggregate fair market value of shares for which an ISO is first exercisable in
any calendar year by any eligible employee exceed $100,000.

The aggregate number of shares with respect to which options or stock awards
may be granted under the Award Plan, the number of shares covered by each
outstanding option, and the purchase price per share, shall be adjusted for
any increase or decrease in the number of issued shares resulting from a
recapitalization, reorganization, merger, consolidation, exchange of shares,
stock dividend, stock split, reverse stock split, or other subdivision or
consolidation of shares.

The Board of Directors or the Committee may from time to time alter, amend,
suspend, or discontinue the Award Plan with respect to any shares as to which
options or stock awards have not been granted. However, no such alteration or
amendment (unless approved by the stockholders) shall (a) increase (except
adjustment for an event of dilution) the maximum number of shares for which
options or stock awards may be granted under the Award Plan either in the
aggregate or to any eligible employee; (b) reduce (except adjustment for an
event of dilution) the minimum option prices which may be established under
the Award Plan; (c) extend the period or periods during which options may be
granted or exercised; (d) materially modify the requirements as to eligibility
for participation in the Award Plan; (e) change the provisions relating to
events of dilution; or (f) materially increase the benefits accruing to the
eligible participants under the Award Plan.

<PAGE>
<PAGE> 31

Certain Tax Matters
-------------------
For tax purposes, a participant to whom a non-qualified option is granted will
not realize income at the time of the grant if the exercise price is equal to
the then current market price. Upon exercise of the option, the excess of the
fair market value of the stock on the date of exercise over the exercise price
will be taxable to the optionee as ordinary income. The tax basis to the
optionee for the stock acquired is the exercise price plus the amount
recognized as income. The Company will be entitled to a deduction equal to the
amount of the ordinary income realized by the optionee in the taxable year
which includes the end of the optionee's taxable year in which he realizes the
ordinary income. When shares acquired pursuant to the exercise of the option
are disposed of, the holder will realize additional capital gain or loss equal
to the difference between the sales proceeds and his or her tax basis in the
stock.

If a participant to whom an option is granted exercises such option by payment
of the exercise price in whole or in part with previously owned shares, the
optionee will not realize income with respect to the number of shares received
on exercise which equals the number of shares delivered by the
optionee. The optionee's basis for the delivered shares will carry over to the
option shares received. With regard to the number of non-qualified option
shares received which exceeds the number of shares delivered, the optionee
will realize ordinary income at the time of exercise; the optionee's tax basis
in these additional option shares will equal the amount of ordinary income
realized plus the amount of any cash paid.

Recipients of ISOs will not be required to recognize income at the time of the
grant of the options or at the time of exercise of the options as long as the
stock received on exercise is held for at least two years from the date of the
grant of the ISOs or one year from the date of exercise (although the
difference between the fair market value of the stock and the exercise price
paid at the time of exercise must be taken into account for alternative
minimum tax purposes). If the stock received upon exercise of an ISO is
disposed of prior to the expiration of either of such time periods, the
optionee will be required to recognize as ordinary income the amount by which
the fair market value of the stock received at the time of exercise exceeds
the exercise price of the ISOs.

Under the Award Plan, stock appreciation rights ("SARs") can be granted at the
time an option is granted with respect to all or a portion of the shares
subject to the related option. SARs can only be exercised to the extent the
related option is exercisable and cannot be exercised for the six-month period
following the date of grant, except in the event of death or disability of the
optionee. The exercise of any portion of either the related option or the
tandem SARs will cause a corresponding reduction in the number of shares
remaining subject to the option or the tandem SARs thus maintaining a balance
between outstanding options and SARs. SARs permit the holder to receive an
amount (in cash, shares, or a combination of cash and shares, as determined by
the Board of Directors at the time of grant) equal to the number of SARs
exercised multiplied by the excess of the fair market value of the shares on
the exercise date over the exercise price of the related options.

Under the terms of the Award Plan, the Board of Directors or the Committee may
also grant stock awards which may, at the discretion of the Board of Directors
or Committee, be subject to forfeiture under certain conditions. Recipients of
stock awards will realize ordinary income at the time of the lapse of any
forfeiture provisions equal to the fair market value of the shares less any

<PAGE> 32

amount paid in connection with the issuance (the Board of Directors or the
Committee can require the payment of par value at the time of the grant). The
appropriate corporation will realize a corresponding compensation deduction.
The holder will have a basis in the shares acquired equal to any amount paid
on exercise plus the amount of any ordinary income recognized by the holder.
On sale of the shares, the holder will have a capital gain or loss equal to
the sale proceeds minus his or her basis in the shares.

Options/SAR Grants in Last Fiscal Year
--------------------------------------
The following tables contain information regarding the Plan Options granted to
the Company's named executive officers as of the date of this Prospectus:

OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants

Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees Base Price Expiration
Name Granted in Fiscal Year ($/Share) Date
------------------- ------------ -------------- ----------- ----------
Tom Jarnagin, CEO 400,000 sh 35.56% $0.16 4/30/04
Walter Kolbe N/A N/A N/A N/A
Gerard Amlin N/A N/A N/A N/A

Aggregate Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values

Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
Shares at FY-End(#) at FY-End($)
Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized($) Unexercisable Unexerciable
------------------- ------------- ------------- ------------ ------------
Tom Jarnagin, CEO -0- -0- 320,000/80,000 N/A
Walter Kolbe N/A N/A N/A N/A
Gerard Amlin N/A N/A N/A N/A

Pension Table
-------------
Not Applicable.

Other Compensation
------------------
None.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
-------------------------------------------------
The Company believes that under the SEC's rules for reporting of securities
transactions by directors and executive officers, all required reports have
been timely filed.

<PAGE>
<PAGE> 33
PRINCIPAL SHAREHOLDERS

The following table sets forth as of June 16, 2000 the name and address and
the number of shares of the Company's Common Stock, par value $0.001 per
share, held of record or beneficially by each person who held of record, or
was known by the Company to own beneficially, more than 5% of the 45,900,683
shares of Common Stock issued and outstanding, and the name and shareholdings
of each director and of all officers and directors as a group. The Company
has reserved 31,822 shares of Common Stock for 31,822 shares of IEI Canada,
Inc. Class A Special Shares which are convertible into an equal number of
shares of the Company's Common Stock, and 5,325,667 shares of Common Stock for
issuance pursuant to outstanding options.

Principal Shareholders: % of Class
Assuming the
Beneficial % of Exercise of all
Class Name and Address Ownership Class Warrants
------ ---------------- ---------------- ------- -------------
Common JFJ Ecosystems, LLC 18,889,073 (1) 29.15 24.50
1015 West 54th Street
Kansas City, MO 64112

Common John P. Crowe 31,474,295 (2) 48.58 40.82
1015 West 54th Street
Kansas City, MO 64112

Common Tom Jarnagin 2,962,833 (3) 6.34 3.79
Industrial Ecosystems, Inc.
2040 W. Broadway
Bloomfield, NM 87413

Officers and Directors: % of Class
Assuming the
Beneficial % of Exercise of all
Class Name and Address Ownership Class Warrants
------ ---------------- ---------------- ------- -------------
Tom Jarnagin -see above-

Common Magaly Bianchini 735,888 (5) 1.60 0.95
Industrial Ecosystems, Inc.
2040 W. Broadway
Bloomfield, NM 87413

Common Steven C. Justus 2,000,000 (4) 4.21 2.54
Industrial Ecosystems, Inc.
2040 W. Broadway
Bloomfield, NM 87413

Common Officers and Directors
as a group (3 persons) 5,698,721 11.84 7.17
--------------------------------
Notes to this table appear on the following page
<PAGE>
<PAGE> 34

In the preceding table:

For JFJ Ecosystems:

- shares and options listed for JFJ Ecosystems, LLC, are unissued;
- beneficial ownership share numbers assume the issuance of the shares and
exercise of options;
- % of Class assumes the issuance of shares and exercise of options and is
calculated based on the concomitant increase in the number of issued and
outstanding shares.

For the remaining listed parties:

- beneficial ownership share numbers assume the exercise of options;
- % of Class assumes the exercise of options and is calculated based on the
concomitant increase in the number of issued and outstanding shares.

In addition, the following numbered notes referenced in the table apply:

(1) Represents 16,627,739 shares and 2,261,334 options to purchase shares at
an exercise price of the lower of $0.225 per share or market price of the
Company's shares at the date of grant, exercisable through 1/4/04. None of
the shares and options have been issued, but may be issued pursuant to the JV
Agreement, as amended, as described more fully in CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS.

(2) Represents 7,251,889 shares and 4,500,000 warrants for shares held by John
P. Crowe, 833,333 shares held by Four C's Development, LLC, an entity
controlled by John P. Crowe, plus shares and options which may be issued to
JFJ Ecosystems, LLC, pursuant to the JV Agreement, as amended (see Footnote
(1) above). Should JFJ exercise its right to sell, or the Company exercise
its right to acquire JFJ's membership interest in the JV, JFJ will receive
16,627,739 shares and 2,261,334 options to purchase additional shares of the
Company's Common Stock, and John Crowe may be deemed to have indirect
beneficial ownership of such shares because he is a principal Member and
Manager of JFJ.

(3) Represents 2,562,833 shares held by Tom Jarnagin, and 400,000 options
granted to Mr. Jarnagin pursuant to the Company's ISO plan at an exercise
price of $0.16 per share exercisable 4/30/99 to 4/30/04.

(4) Represents 450,000 shares held by Steven Justus, 1,500,000 options granted
to Mr. Justus for consulting services prior to his election to the Company's
board, at an exercise price of $.22 per share exercisable 3/13/98 to 3/13/05,
and 50,000 options granted to Mr. Justus pursuant to the Company's ISO plan at
an exercise price of $0.16 per share exercisable 4/30/99 to 4/30/04.

(5) Represents 685,888 shares held by Magaly Bianchini and 50,000 options
granted to Ms. Bianchini pursuant to the Company's ISO plan at an exercise
price of $0.16 per share exercisable 4/30/99 to 4/30/04.

<PAGE>
<PAGE> 35
CERTAIN TRANSACTIONS

Transactions with Management and Others
---------------------------------------
The information set forth below is provided by the Company based on what the
Company believes may be material to the shareholders in light of all the
circumstances of the particular case. The significance of the transactions
disclosed may be evaluated by each shareholder after taking into account the
relationship of the parties to the transactions and the amounts involved in
the transactions.

Since inception, the Company has made periodic cash disbursements and issued
shares of its Common Stock to certain officers and directors of the Company,
relatives of these officers and directors, and other companies controlled by
these officers and directors, although some of those individuals are no longer
officers or directors of the Company. Most of these disbursements have been
made for services rendered or for payments related to construction of the
Company's facilities and equipment. Any payments made that could not be
substantiated have been recorded by the Company as additional compensation to
those officers and directors.

The Company has reserved and recorded possible contingent liabilities to
individuals, some of whom are related to or associated with certain former
officers and directors, who have made loans or advances to the Company and
still claim they are owed, although the Company believes it issued shares of
Common Stock in full and complete payment of these amounts. The Company has
recorded a total of contingent liabilities at September 30, 1999 of $496,591,
reduced from $747,819 recorded at December 31, 1998 through a combination of
direct payments to Bernard Amlin, and settlement and release agreements
obtained from Christine Amlin and Ron Burns. Bernard Amlin, Christine Amlin
and Ron Burns are all relatives of Gerard Amlin, a former officer and director
of the Company. It is currently uncertain as to whether or not the remaining
amounts will be paid in the future and management of the Company intends on
vigorously contesting any claim that is made. It is reasonably possible,
however, that the Company will have to pay the amounts and to be conservative,
management has recorded these possible debts as contingent liabilities.

Walter Kolbe, the Company's former president, from time to time, received
payments in the form of loans that have been repaid without interest. Mr.
Kolbe also advanced funds to the Company from time to time in order for the
Company to meet its ongoing needs. These advances were also repaid without
interest. At December 31, 1998, there were no loans or advances outstanding.

In December 1999, the Company issued to John P. Crowe, a major shareholder of
the Company and a principal of the Company's joint venture partner, 4,500,000
Units at a purchase price of $0.0675 per Unit, each Unit consisting of one
share of common stock and one warrant to purchase common stock at exercise
prices and for the periods according to the following schedule:

Amount Price Exercisable
---------- -------- ---------------------
850,000 $ 0.07 11/14/99 - 11/14/00, or 120 days after registration
850,000 $ 0.11 11/14/99 - 11/14/00, or 180 days after registration
2,000,000 $ 0.15 11/14/99 - 11/14/00, or 240 days after registration
800,000 $ 0.19 11/14/99 - 11/14/00, or one year after registration

<PAGE> 36

The Unit Shares carry registration rights committing the Company, on a best
efforts basis, to file a registration statement on Form S-1 for the purpose of
registering the Units for resale by the holder as a selling shareholder, with
a concomitant reduction in the exercise period upon the effectiveness of the
registration. Mr. Crowe will pay 50% of the expenses for the registration.
The Warrants are subject to a call provision which permits the Company to
require the exercise or forfeit of the warrants, within 10 days of the call
notice, if the ten day average closing price of the Company's common stock
exceeds the respective exercise prices of the warrants by 250%, 200%, 175% and
150%, respectively. The call provision is only effective if the Warrant
Shares subject to the call provision have been registered by the Company under
an effective Securities Act registration.

In May 1999, the Company issued 2,500,000 shares of restricted Common Stock in
a private placement for cash at $0.10 per share to John Crowe,a major
shareholder of the Company and a principal of the Company's joint venture
partner, and five of his relatives and/or affiliates.

In 1998, the Company issued 5,341,330 shares of Common Stock to certain
creditors of the Company for conversion of outstanding indebtedness at an
average price of $0.16 per share. A total of 581,192 shares were issued to
relatives of Gerard Amlin, who was an officer and director at the time of the
issuances. A total of 2,981,500 shares were issued to Tom Jarnagin and his
spouse, and an additional 685,888 shares were issued to Magaly Bianchini. Mr.
Jarnagin and Ms. Bianchini were unaffiliated at the time of the share
issuances, but have been serving as officers and directors since April 1999.

In 1997, the Company issued 2,188,143 shares of Common Stock to various
individuals for professional and consulting services. 200,000 of the shares
were issued to Robert Moore, a former officer, for services as an employee and
in settlement of his termination by the Company. 166,667 of the shares were
issued to Leonard Amlin, a relative of Gerard Amlin, an officer and director.

Restructure of Interest in ROP
------------------------------
The Company, through its subsidiary, IEI Canada, owns a 50% membership
interest in ROP. The other 50% membership interest is owned by JFJ Ecosystems
L.L.C., a Missouri limited liability company, ("JFJ"), controlled by John
Crowe, a 5% shareholder of the Company. The JV has been governed by a three
person Board of Managers, two of whom were appointed by JFJ and one of whom
was appointed by IEI Canada. Fred Rice and John Crowe serve as the two JFJ
Managers, with John Crowe serving as the Chairman of the Board of Managers.
Walter Kolbe, the Company's former President, was appointed by IEI Canada to
serve as the Company's representative on the Board of Managers. That position
is now occupied by Tom Jarnagin, the Company's current President.

<PAGE> 37

Due to the need for working capital for both the JV and the Company, JFJ, the
Company, and IEI Canada restructured the JV to (a) provide for a quicker
release of part of the funds escrowed pursuant to the Original JV
Agreement;(b) establish a line of credit to the Company; (c) grant certain
rights to the Company to acquire JFJ's membership interest in the JV; (d)
grant certain rights to JFJ to sell its membership interest in the JV to the
Company; (e) obtain releases from JFJ and its members of any and all claims
against the Company, IEI Canada, the Company's subsidiaries, their affiliates
and officers and directors and shareholders for any misrepresentations made to
induce JFJ to enter into the Original JV Agreement; and (f) grant to the
Company of a right to first refusal on JV borrowing.

On January 4, 1999, IEI Canada and JFJ restructured the Original JV Agreement
to provide for the release of $250,000 of the $1,000,000 escrow to meet
immediate cash flow needs of the JV. The remaining $750,000 was then loaned by
JFJ to the Company through the establishment of a line of credit. Following
the restructuring, JFJ became an equal 50% member of the JV with IEI Canada
and IEI Canada's option to reduce JFJ's membership interest to 19%, was
terminated.

The Line of Credit
------------------
JFJ has extended a $750,000 line of credit to the Company. The line of credit
bears interest at 6% per annum until December 31, 2000, at which time all
principal advanced under the line of credit, and any interest accrued thereon,
will be due and payable in full. As security for the line of credit, the
Company caused IEI Canada to pledge as security IEI Canada's 50% membership
interest in the JV. If the line of credit is not timely repaid in full, IEI
Canada's membership interest in the JV shall be conveyed to JFJ in
satisfaction of the line of credit, thus making JFJ the 100% owner of the JV.

The Company's Right to Acquire JFJ's Membership Interest in the JV
------------------------------------------------------------------
The Company has the right on or prior to December 31, 2000 (the line of credit
due date) to acquire JFJ's 50% membership interest in the JV by issuing to JFJ
shares of the Company's restricted Common Stock in exchange for JFJ's
membership interest in the JV (the "Acquisition Rights"). The following are
conditions that must be fulfilled prior to the Company's exercise of its
Acquisition Rights:

(a) Repayment to JFJ of the outstanding principal and accrued interest
on the line of credit;

(b) Issuance to JFJ of that number of shares of the Company's
restricted Common Stock that represents one-half (1/2) of the issued and
outstanding shares (all classes) in the Company as of December 31, 1998. The
issuance of the shares to JFJ would give JFJ ownership of approximately one-
third (1/3) of the Company's issued and outstanding shares of Common Stock,
not including other shares independently owned by JFJ, if any. The percentage
ownership ultimately held by JFJ could be subject to dilution by the issuance
of any additional shares of Common Stock after the date of the restructuring;

(c) Issuance of JFJ of options to purchase 2,261,334 shares of the
Company's Common Stock at the lower of $0.225 per share or market price on the
date of grant for a term of five (5) years. These options preserve JFJ from
dilution by way of the exercise of outstanding options. Upon exercise of the
Company's Acquisition Rights, the Company will grant JFJ options equal to one-

<PAGE> 38

half (1/2) of all options granted by the Company after December 31, 1998 and
to the date of exercise of the Acquisition Rights. Such options will be
granted to JFJ on substantially similar terms as are extended to other option
holders. These options are intended to preserve JFJ from subsequent dilution
through the granting of options and will be construed accordingly.

(d) Execution by the Company and JFJ of a Registration Rights Agreement
by which the Company agrees to register the restricted stock issued to JFJ in
the Acquisition upon JFJ's request;

(e) The Company shall complete and file with the Securities and
Exchange Commission a Form 10-SB, General Form for Registration of Securities
under Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and file any other periodic reports required to be filed
under Section 13 or 15(d) of the Exchange Act (the "Periodic Reports").

(f) The Company's Board of Directors will be duly authorized and
elected pursuant to a vote of the Company's shareholders at a Special or
Annual Meeting of the Company's shareholders; and

(g) Following the exercise of the Acquisition Rights, the surviving
company will affirm and agree to assume any JV obligations to either JFJ or
the Company or third parties, including but not limited to, the $50,000 notes
to the Company and JFJ, and the $100,000 note to John P. Crowe & Co. These
notes or other obligations are to be paid in accordance with their terms.

JFJ's Right to Sell its Membership Interest in the JV to the Company
--------------------------------------------------------------------
JFJ has the right on or prior to December 31, 2000 to sell its 50% membership
interest in the JV to the Company through a share exchange, wherein the
Company would issue to JFJ shares of the Company's restricted Common Stock in
exchange for JFJ's membership interest in the JV (the "Sale Rights"). On
January 26, 2000, JFJ gave the Company written notice of its intent to
exercise its Sale Rights. In consideration for JFJ exercising its Sale
Rights, JFJ shall receive that number of shares of the Company's restricted
Common Stock that represents one half (1/2) of the issued and outstanding
shares of the Company at December 31, 1998. The method of exact determination
of the number of shares and options issued hereunder is the same as described
in the preceding paragraph. The shares would be subject to the same
Registration Rights Agreement discussed above. However, the shares issuable
to JFJ have not been included as part of this registration statement.

The following are conditions that must be fulfilled prior to JFJ's exercise of
its Sale Rights:

(a) JFJ will forgive the outstanding principal and accrued interest
borrowed by the Company under the line of credit or assign its interest as the
Creditor in the line of credit to the JV prior to exercising its Sale Rights,
whichever it may so elect;

(b) If not previously paid in full, JFJ and John P. Crowe & Co. will
not be required to forgive any outstanding loan balances to the JV which loan
balances shall be repaid by the JV or surviving company in accordance with
their terms; provided, however, that JFJ will release its security interest in
the JV assets.

<PAGE>
<PAGE> 39

JFJ's Right of First Refusal to Participate in Future Debt or Equity
--------------------------------------------------------------------
Financing
---------
The Company has granted JFJ a right of first refusal on any public offering or
private placement of any debt or equity securities or other capital sourcing
which could result in the issuance of The Company's securities. JFJ's right of
first refusal shall be a ten (10) day right of first refusal on the same terms
and conditions as are offered to the third party interested in investing in or
lending to The Company. The right of first refusal shall extend until December
31, 2000. JFJ can assign its right of first refusal to John P. Crowe & Co. or
another related entity or person in its sole discretion.

The Company's Right of First Refusal on JV Borrowing
----------------------------------------------------
The Company has the right of first refusal to provide financing to the JV
through December 31, 2000. Before borrowing any money from a third party or a
related entity, the JV shall provide notice of a bona fide financing proposal
specifying the terms and security that will govern the borrowing, including
the proposed lender. The Company has the right to lend the money to the JV on
the terms proposed by providing the JV notice of acceptance within ten (10)
days of receipt of the proposal. The JV shall be free to borrow on the
proposed terms from the proposed lender absent timely receipt of the notice of
acceptance from The Company.

Consent and Approval by the Company's Shareholders
--------------------------------------------------
At the request of JFJ, prior to the signing of the definitive agreements
members of management and disinterested principal shareholders who,
collectively, hold in excess of 51% of the Company's issued and outstanding
shares provided the Company with their written consent to the terms of the
agreements. The Agreements were ratified by a majority of all the
Shareholders at a Special Meeting of the Shareholders on April 19, 1999.

DESCRIPTION OF CAPITAL STOCK

General
-------
The Registrant is authorized to issue one hundred million shares of common
stock, par value $0.001 per share (the "Common Stock")and twenty-five million
shares of preferred stock, par value $0.001 per share (the "Preferred Stock").
The Company has 45,900,683 shares of Common Stock and no shares of Preferred
Stock issued and outstanding at June 16, 2000. Although the Company's Board
of Directors has no present intention to do so, the Board of directors has
authority, without action by or vote of the Company's Shareholders, to issue
all or part of the authorized but unissued shares. In addition, the Company's
Board of Directors has authority, without action by or vote of the Company's
Shareholders, to fix and determine the rights, preferences, and privileges of
the Preferred Stock, which may be given voting rights superior to that of the
Common Stock, which power may be used to hinder or deter a takeover proposal,
should any occur. Any issuance of additional shares of Common Stock or
Preferred Stock will dilute the percentage ownership interest of Shareholders
and may further dilute the book value of the Company's shares.

<PAGE>
<PAGE> 40

Common Stock
------------
The holders of Common Stock are entitled to one vote per share on each matter
submitted to a vote at any meeting of shareholders. Shares of Common Stock do
not carry cumulative voting rights and, therefore, a majority of the shares of
outstanding Common Stock will be able to elect the entire board of directors
and, if they do so, minority shareholders would not be able to elect any
persons to the board of directors. The Registrant's bylaws provide that a
majority of the issued and outstanding shares of the Registrant constitutes a
quorum for shareholders' meetings, except with respect to certain matters for
which a greater percentage quorum is required by statute or the bylaws.

Shareholders of the Registrant have no preemptive rights to acquire additional
shares of Common Stock or other securities. The Common Stock is not subject
to redemption and carries no subscription or conversion rights. In the event
of liquidation of the Registrant, the shares of Common Stock are entitled to
share equally in corporate assets after satisfaction of all liabilities.

Holders of Common Stock are entitled to receive such dividends as the board of
directors may from time to time declare out of funds legally available for the
payment of dividends. The Registrant seeks growth and expansion of its
business through the reinvestment of profits, if any, and does not anticipate
that it will pay dividends in the foreseeable future.

Preferred Stock
---------------
The authority to issue the Preferred Stock is vested in the board of directors
of the Company, which has authority to fix and determine the powers,
qualifications, limitations, restrictions, designations, rights, preferences,
or other variations of each class or series within each class which the
Company is authorized to issue. The above described authority of the Board of
Directors may be exercised by corporate resolution from time to time as the
Board of directors sees fit.

Warrants - Private Placement 1
------------------------------
The Company has issued 6,900,000 warrants to purchase an aggregate of
6,900,000 shares of Common Stock (the "Warrants") to the Selling Shareholders
who participated in the first private placement, and has reserved an
equivalent number of shares for issuance on exercise of the Warrants. The
Warrants are subject to varying exercise prices and other restrictions,
including a call provision as follows:

(a) First Exercise Period: 850,000 of the Warrant Shares will become
exercisable ten (10) days following the November 3, 1999 Closing Date, and
440,000 of the Warrant Shares will become exercisable following the January
10, 2000 Closing Date (aggregate 1,290,000 Warrant Shares exercisable in the
First Exercise Period, hereinafter the First Tranche). The First Exercise
Period for the First Tranche shall expire on the sooner of: (a) One-year
following the respective Closing Dates; or (b) 120 days following the
effective date of the S-1 Registration Statement referenced in paragraph 2
below; or (c) 10 days following Holder's receipt of a Call notification. If
the First Tranche or any portion thereof is not exercised within the First
Exercise Period, the option to exercise the First Tranche or the unexercised
balance thereof shall irrevocably expire. The Exercise Price for the First
Tranche shall be seven cents ($0.07) per share; and

<PAGE> 41

(b)Second Exercise Period: 850,000 of the Warrant Shares will become
exercisable ten (10) days following the November 3, 1999 Closing Date, and
440,000 of the Warrant Shares will become exercisable following the January
10, 2000 Closing Date (aggregate 1,290,000 Warrant Shares exercisable in the
Second Exercise Period, hereinafter the Second Tranche). The Second Exercise
Period for the Second Tranche shall expire on the sooner of: (a) One-year
following the respective Closing Dates; or (b) 180 days following the
effective date of the S-1 Registration Statement referenced in paragraph 2
below; or (c) 10 days following Holder's receipt of a Call notification. If
the Second Tranche or any portion thereof is not exercised within the Second
Exercise Period, the option to exercise the Second Tranche or the unexercised
balance thereof shall irrevocably expire. The Exercise Price for the Second
Tranche shall be eleven cents ($0.11) per share; and

(c) Third Exercise Period: 2,000,000 of the Warrant Shares will become
exercisable ten (10) days following the November 3, 1999 Closing Date, and
1,040,000 of the Warrant Shares will become exercisable following the January
10, 2000 Closing Date (aggregate 3,040,000 Warrant Shares exercisable in the
Third Exercise Period, hereinafter the Third Tranche). The Third Exercise
Period for the Third Tranche shall expire on the sooner of: (a) One-year
following the Closing Date; or (b) 240 days following the effective date of
the S-1 Registration Statement referenced in paragraph 2 below; or (c) 10 days
following Holder's receipt of a Call notification. If the Third Tranche or
any portion thereof is not exercised within the Third Exercise Period, the
option to exercise the Third Tranche or the unexercised balance thereof shall
irrevocably expire. The Exercise Price for the Third Tranche shall be fifteen
cents ($0.15) per share; and

(d) Fourth Exercise Period: 800,000 of the Warrant Shares will become
exercisable ten (10) days following the November 3, 1999 Closing Date, and
480,000 of the Warrant Shares will become exercisable following the January
10, 2000 Closing Date (aggregate 1,280,000 Warrant Shares exercisable in the
Fourth Exercise Period, hereinafter the Fourth Tranche). The Fourth Exercise
Period for the Fourth Tranche shall expire on the sooner of: (a) One-year
following the Closing Date; or (b) one year following the effective date of
the S-1 Registration Statement referenced in paragraph 2 below; or (c) 10 days
following Holder's receipt of a Call notification. If the Fourth Tranche or
any portion thereof is not exercised within the Fourth Exercise Period, the
option to exercise the Fourth Tranche or the unexercised balance thereof shall
irrevocably expire. The Exercise Price for the Fourth Tranche shall be
nineteen cents ($0.19) per share.

the warrants referenced in the particular Exercise Period or irrevocably
forfeit the right to exercise the warrants referenced in that particular
Exercise Period. The Call Provision for the First Tranche warrants shall be
set at $0.175 per share (250% times the strike price). The Call Provision for
the Second Tranche shall be set at $0.22 per share (200% times the strike
price). The Call Provision for the Third Tranche shall be set at $0.2625 per
share (175% times the strike price). The Call Provision for the Fourth
Tranche warrants shall be set at $0.285 per share (150% times the strike
price).

Warrants - Private Placement 2
------------------------------
The Company has issued 12,300,000 warrants to purchase an aggregate of
12,300,000 shares of Common Stock (the "Warrants") to the Selling Shareholders
who participated in the second private placement, and has reserved an
equivalent number of shares for issuance on exercise of the Warrants. The
Warrants are subject to varying exercise prices and other restrictions,
including a call provision as follows:

(a) First Exercise Period: 1,350,000 of the Warrant Shares will become
exercisable ten (10) days following the January 24, 2000 Closing Date
(hereinafter the First Tranche). The First Exercise Period for the First
Tranche shall expire on the sooner of: (a) One-year following the respective
Closing Dates; or (b) 120 days following the effective date of the S-1
Registration Statement referenced in paragraph 2 below; or (c) 10 days
following Holder's receipt of a Call notification. If the First Tranche or any
portion thereof is not exercised within the First Exercise Period, the option
to exercise the First Tranche or the unexercised balance thereof shall
irrevocably expire. The Exercise Price for the First Tranche shall be seven
cents ($0.25) per share; and

(b)Second Exercise Period: 1,350,000 of the Warrant Shares will become
exercisable ten (10) days following the January 24, 2000 Closing Date
(hereinafter the Second Tranche). The Second Exercise Period for the Second
Tranche shall expire on the sooner of: (a) One-year following the respective
Closing Dates; or (b) 180 days following the effective date of the S-1
Registration Statement referenced in paragraph 2 below; or (c) 10 days
following Holder's receipt of a Call notification. If the Second Tranche or
any portion thereof is not exercised within the Second Exercise Period, the
option to exercise the Second Tranche or the unexercised balance thereof shall
irrevocably expire. The Exercise Price for the Second Tranche shall be eleven
cents ($0.50) per share; and

(c) Third Exercise Period: 1,350,000 of the Warrant Shares will become
exercisable ten (10) days following the January 24, 2000 Closing Date
(hereinafter the Third Tranche). The Third Exercise Period for the Third
Tranche shall expire on the sooner of: (a) One-year following the Closing
Date; or (b) 240 days following the effective date of the S-1 Registration
Statement referenced in paragraph 2 below; or (c) 10 days following Holder's
receipt of a Call notification. If the Third Tranche or any portion thereof
is not exercised within the Third Exercise Period, the option to exercise the
Third Tranche or the unexercised balance thereof shall irrevocably expire.
The Exercise Price for the Third Tranche shall be fifteen cents ($0.75) per
share; and

(d) Fourth Exercise Period: 1,350,000 of the Warrant Shares will become
exercisable ten (10) days following the January 24, 2000 Closing Date
(hereinafter the Fourth Tranche). The Fourth Exercise Period for the Fourth
Tranche shall expire on the sooner of: (a) One-year following the Closing
Date; or (b) one year following the effective date of the S-1 Registration

<PAGE>
<PAGE> 43

Statement referenced in paragraph 2 below; or (c) 10 days following Holder's
receipt of a Call notification. If the Fourth Tranche or any portion thereof
is not exercised within the Fourth Exercise Period, the option to exercise the
Fourth Tranche or the unexercised balance thereof shall irrevocably expire.
The Exercise Price for the Fourth Tranche shall be nineteen cents ($1.00) per
share.

(e) Call Provision: The Company reserves the right to require the Investors to
exercise, or forfeit the right to exercise, any and all of the above
referenced Warrants (collectively, (a) through (d) above) as described herein.
Provided the Company is successful in obtaining an effective date for the S-1
Registration Statement from the Commission (and subject to there being more
than ten days remaining during any of the above referenced warrant periods),
the Company shall have the right to require the Investor to either exercise
the Warrants pursuant to the Exercise Periods above, or force the expiration
of such. If the ten-day average closing price of the Company's common stock
equals or exceeds the Call Provision price referenced below for each Tranche,
then the Company shall have the right to provide the Investor with a written
"Call Notification". The Call Provision price shall be based on the ten day
trailing closing average price of the Company's shares, provided however, that
in calculating such average, only those days in which 50,000 or more of the
Company's shares trade will be counted. Upon receipt of the Call Notification,
the Investor shall have up to ten days to either: exercise all or a portion of
the warrants referenced in the particular Exercise Period or irrevocably
forfeit the right to exercise the warrants referenced in that particular
Exercise Period. The Call Provision for the First Tranche warrants shall be
set at $0.50 per share (200% times the strike price). The Call Provision for
the Second Tranche shall be set at $0.75 per share (150% times the strike
price). The Call Provision for the Third Tranche shall be set at $0.94 per
share (approximately 125% times the strike price). The Call Provision for the
Fourth Tranche warrants shall be set at $1.10 per share (110% times the strike
price).

Shares Eligible for Future Sale
-------------------------------
The Company has 45,900,683 shares of Common Stock issued and outstanding at
June 16, 2000. All of the 21,900,000 shares of Common Stock registered to be
sold by Selling Shareholders will be freely transferable by persons other than
"affiliates" of the Company, as that term is defined under the Securities Act,
without further registration under the Securities Act. Shares included in
this registration which are held by affiliates will be subject to the resale
provisions of Rule 144.

The Company has previously issued shares of Common Stock that constitute
"restricted securities" as that term is defined in Rule 144 adopted under the
Securities Act. Subject to certain restrictions, such securities may
generally be sold in limited amounts one year after their acquisition. The
shares issued in excess of 12 months ago are currently eligible for resale
under Rule 144. Securities held for two years may be sold by nonaffiliates
without limitation. See PRINCIPAL SHAREHOLDERS.

The Company is unable to estimate the total number of shares that may be sold
in the future by its existing Shareholders or the effect, if any, that sales
of shares by such Shareholders will have on the market price of the Common
Stock prevailing from time to time. Sales of substantial amounts of Common
Stock by existing Shareholders could adversely affect prevailing market
prices.

Transfer and Warrant Agent
--------------------------
The Company's transfer agent is Atlas Stock Transfer, Atlas Stock Transfer
Corporation, 5899 South State Street, Salt Lake City, Utah 84107, Telephone
(801) 266-7151 and Facsimile (801) 262-0907.
<PAGE>
<PAGE> 44

LITIGATION

The Company was involved in certain litigation during 1998 and 1999 with a New
Mexico limited liability company regarding an open account and a distribution
agreement. A complaint against the Company was filed in July 1997. The
Company contended that they had never ordered the product delivered and that
the distribution agreement was breached. On January 3, 2000, a judgment was
entered into ordering the Company to pay a total of $31,991 plus attorney fees
of approximately $12,000. This total amount has been included in accounts
payable as of at March 31, 2000 and December 31, 1999. The Company has been
making the required payments pursuant to the judgment and is current as of
March 31, 2000.

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

The Company claims that the amount has been paid but has recorded a contingent
liability for the claimed amount (included in contingent liabilities of
$582,336 at March 31, 2000 and December 31, 1999). If Middlemarch proceeds
with its claim, the Company may be involved in litigation with regard to the
circumstances surrounding the creation of the claimed interest and the payment
of the debt.

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

<PAGE>
<PAGE> 45
LEGAL MATTERS

Taylor and Associates, Inc., Attorneys and Counselors at Law, Salt Lake City,
Utah, counsel to the Company, will render an opinion that the Common Stock
being offered hereby, has been fully paid and nonassessable under the
corporate laws of the state of Utah.

EXPERTS

The financial statements included herein and elsewhere in this Registration
Statement, to the extent and for the periods indicated in its report, have
been included in this Prospectus and the Registration Statement, in reliance
on the report of Jones, Jensen & Company, Certified Public Accountants, Salt
Lake City, Utah, given on the authority of said firm as experts in accounting
and auditing.

ADDITIONAL INFORMATION

The Company has filed this Registration Statement on Form S-1 under the
Securities Act with the Commission with respect to the securities offered by
this Prospectus. This Prospectus omits certain information contained in the
Registration Statement. For further information, reference is made to the
Registration Statement and to the exhibits and other schedules filed
therewith. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and where
such contract or document is an exhibit to the Registration Statement, each
such statement is deemed to be qualified and amplified in all respects by the
provisions of the exhibit. Copies of the complete Registration Statement,
including exhibits, may be examined without charge at the Commission's
principal offices in Washington, D.C., and copies of all or any part of the
filed materials may be obtained from the Public Reference Section of the
Commission, at 450 Fifth Street, N.W., Washington, D.C. 20549, on payment the
ususal fees for reproduction, or may be obtain from the Commission's EDGAR
Database at http://www.sec.gov

<PAGE>
<PAGE> 46

FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS

Title to Document Page
----------------- ----
Independent Auditors' Report of Jones, Jensen & Company 47
Consolidated Balance Sheet at December 31, 1999 48
Consolidated Statements of Operations for the Years Ended
December 31, 1999 and 1998 50
Consolidated Statements of Stockholders' Equity (Deficit) 51
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998 52
Notes to the Consolidated Financial Statements 54

Consolidated Balance Sheet at March 31, 2000 (Unaudited) and
December 31, 1999 63
Consolidated Statements of Operations for the Three Months
Ended March 31, 2000 and 1999 (Unaudited) 65
Consolidated Statements of Stockholders' Equity (Deficit) 66
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999 (Unaudited) 67
Notes to the Consolidated Financial Statements 68

<PAGE>
<PAGE> 47

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Industrial Ecosystems, Inc. and Subsidiaries
Bloomfield, New Mexico

We have audited the accompanying consolidated balance sheet of Industrial
Ecosystems, Inc. and Subsidiaries as of December 31, 1999 and the related
consolidated statements of operations, stockholders' equity (deficit), 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 consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

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

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 11 to the
consolidated financial statements, the Company has suffered recurring losses
to date, which raises substantial doubt about its ability to continue as a
going concern. Management's plans with regard to these matters are also
described in Note 11. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

Jones, Jensen & Company
Salt Lake City, Utah
March 14, 2000
<PAGE>
<PAGE> 48

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet

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

CURRENT ASSETS

Cash and cash equivalents (Note 1) $ 44,277
Restricted cash (Note 1) 43,306
Accounts receivable (Note 1) 9,902
Prepaid expenses 7,500
-------
Total Current Assets 104,985
-------

PROPERTY AND EQUIPMENT (Net) (Notes 1 and 2) 191,884
-------

OTHER ASSETS

Investment in joint venture (Note 7) -
-------
Total Other Assets -
------

TOTAL ASSETS $ 296,869
=======

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

<PAGE>
<PAGE> 49

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

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

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

CURRENT LIABILITIES

Accounts payable $ 85,680
Accrued expenses (Note 4) 326,346
Note payable, related party (Note 6) 750,000
Notes payable, current portion(Note 5) 49,458
------------
Total Current Liabilities 1,211,484
------------
LONG-TERM DEBT
Notes payable (Note 5) 108,266
------------
Total Long-Term Debt 108,266
------------
Total Liabilities 1,319,750
------------

COMMITMENTS AND CONTINGENCIES (Note 8) 582,336
------------

STOCKHOLDERS' EQUITY (DEFICIT)

Common Stock; 100,000,000 shares authorized of $0.001
par value 40,241,683 shares issued and outstanding 40,242
Additional paid-in capital 21,136,268
Other comprehensive income 26,760
Accumulated deficit (22,808,487)
-----------

Total Stockholders' Equity (Deficit) (1,605,217)
-----------

TOTAL LIABILITIES AND STOCK HOLDERS' EQUITY (DEFICIT) $ 296,869
===========

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

<PAGE>
<PAGE> 50

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations

For the Years Ended
December 31,
----------------------
1999 1998
--------- ---------
REVENUES
Net sales $ 472,865 626,545
Direct costs 405,100 405,787
---------- -------
Gross Profit 67,765 220,758
---------- -------
EXPENSES
General and administrative 1,089,270 1,586,049
Bad debt expense - 19,802
Depreciation and amortization 97,563 108,677
--------- ---------
Total Expenses 1,186,833 1,714,528
--------- ---------
Loss From Operations (1,119,068) (1,473,770)
--------- ---------

OTHER INCOME (EXPENSE)
Other income 55,155 95,118
Interest income - 1,362
Interest expense (94,065) (40,236)
Loss on investment in joint venture - (353,117)
Loss on disposition of assets (7,577) (104,106)
--------- ---------
Total Other Income (Expense) (46,487) (400,979)
--------- ---------
NET LOSS BEFORE EXTRAORDINARY ITEMS (1,165,555) (1,894,749)
--------- ---------
EXTRAORDINARY ITEMS
Debt forgiveness (Note 8) 350,957 -
--------- ---------
Total Extraordinary items 350,957 -
========= ==========
NET LOSS $ (814,598) $(1,894,749)
========= ==========

OTHER COMPREHENSIVE INCOME
Gain (loss) on foreign currency adjustments (11,659) 14,664
--------- -----------
NET COMPREHENSIVE LOSS $(826,257) $(1,880,085)
========= ===========
BASIC LOSS PER SHARE $ (0.02) $ (0.06)
========= ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 35,136,383 30,111,107
========== ===========

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

<PAGE>
<PAGE> 51

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Additional Other
Common Stock Paid-In Comprehensive Accumulated
Shares Amount Capital Income Deficit
---------- ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>

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

Common stock issued for cash
at an average price of $0.35
per share 2,883,727 2,884 998,038 - -

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

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

Additional capital contributed - - 386,111 - -

Currency translation adjustment - - - 14,664 -

Net loss for the year ended
December 31, 1998 - - - - (1,894,749)
---------- ------ ---------- ------ ----------
Balance, December 31, 1998 33,018,931 $33,019 $ 20,589,741 $38,419 $(21,993,889)

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

Common stock issued for cash
at $0.0675 per share 4,500,000 4,500 299,250 - -

Common stock issued in
conversion of Class A - special
shares of subsidiary (Note 9) 222,752 223 (223) - -

Currency translation adjustment - - - (11,659) -

Net loss for the year ended
December 31, 1999 - - - - (814,598)
---------- ------ ---------- ------ ----------

Balance December 31, 1999 40,241,683 $40,242 $21,136,268 $26,760 $(22,808,487)
========== ====== ========== ====== ==========

</TABLE>

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

<PAGE>
<PAGE> 52

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows

For the Years Ended
December 31,
------------------------
1999 1998
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (814,598) $(1,894,749)

Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 97,563 108,677
Stock issued for services - 21,425
Loss on investment in joint venture - 305,117
Loss on disposition of assets 7,577 104,106
Debt forgiveness (350,957) -

Changes in assets and liabilities:
(Increase) decrease in accounts receivable 25,177 6,318
(Increase) decrease in deposits and
prepaid expenses 3,240 (10,740)
(Increase) decrease in restricted cash (2,637) (40,669)
Increase (decrease) in accounts payable (219,431) (82,952)
Increase (decrease) in unearned revenue (21,666) 21,666
Increase (decrease) in accrued expenses 28,991 208,001
Increase (decrease) in contingent
liabilities 32,650 -
--------- ---------
Net Cash (Used) by Operating Activities (1,214,091) (1,253,800)
--------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES
Sale of fixed assets 2,500 -
Purchase of fixed assets (23,551) (41,283)
------ -------
Net Cash (Used) by Investing Activities (21,051) (41,283)
------ -------

CASH FLOWS FROM FINANCING ACTIVITIES
Principle payments on notes payable (36,883) (93,857)
Cash received from notes payable 750,000 -
Additional capital contributed - 386,111
Issuance of common stock for cash 553,750 1,000,922
--------- ---------
Net Cash Provided by Financing Activities 1,266,867 1,293,176
--------- ---------

NET INCREASE (DECREASE) IN CASH 31,725 (1,907)

CASH AT BEGINNING OF PERIOD 12,552 14,459
------ ------
CASH AT END OF PERIOD $ 44,277 $ 12,552
====== ======

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

<PAGE>
<PAGE> 53

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Continued)

For the Years Ended
December 31,
------------------------
1999 1998
----------- ----------

SUPPLEMENTAL CASH FLOW INFORMATION

CASH PAID FOR:

Interest $ 63,138 $ 67,223
Income taxes - -
NON-CASH FINANCING ACTIVITIES:

Stock issued for services $ - $ 21,425
Stock issued in conversion of debt to
common stock $ - $836,067

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

<PAGE>
<PAGE> 54

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Organization

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

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

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

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

b. Accounting Methods

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

<PAGE>
<PAGE> 55

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

c. Cash and Cash Equivalents

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

d. Basic Loss Per Share

1999 1998
------------ ------------

Loss (numerator) $ (814,598) $ (1,894,749)

Shares (denominator) 35,136,383 30,111,107

Per share amount $ (0.02) $ (0.06)

The computations of basic loss per share of common stock are based on the
weighted average number of common shares outstanding during the period of the
consolidated financial statements. Common stock equivalents, consisting of
stock options and the IEI Canada Inc. class A-special shares, have not been
included in the calculation as their effect is antidilutive for the periods
presented.

e. Change in Accounting Principle

The Financial Accounting Standards Board has issued certain new standards,
including standards on earning per share (SFAS 128), capital structure (SFAS
129), comprehensive income (SFAS 130), operating segments (SFAS 131) and
postretirement benefits (SFAS 132). The adoption of these standards did not
have a material impact on the Company's consolidated financial statements.

<PAGE>
<PAGE> 56

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

f. Property and Equipment

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

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

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

g. Restricted Cash

The Company holds a certificate of deposit with a Canadian bank in the amount
of $43,306 as of December 31, 1999 which is being used as security and
collateral on a demand note with the same bank. The cash cannot be withdrawn
from the CD until after the demand note is paid in full.

h. Accounts Receivable

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

i. Provision For Taxes

At December 31, 1999, the Company has an accumulated deficit of $22,808,487
which includes net operating loss carryforwards that may be offset against
future taxable income through 2019. No tax benefit has been reported in the
consolidated financial statements because the Company believes there is a 50%
or greater chance the net operating loss carryforwards will expire unused.
Accordingly, the potential tax benefits of the net operating loss
carryforwards are offset by a valuation allowance of the same amount.

j. Principles of Consolidation

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

All material intercompany accounts and transactions have been eliminated.

<PAGE>
<PAGE> 57

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

k. Statement of Cash Flows

The Company's foreign subsidiary, (IEI Canada and its subsidiaries), uses the
local currency as its functional currency. Accordingly, assets and
liabilities are translated at year-end exchange rates, and operating statement
items are translated at average exchange rates prevailing during the year.
The resultant cumulative translation adjustments to the assets and liabilities
are recorded as a separate component of stockholders' equity. Exchange rate
adjustments resulting from foreign currency transactions are included in the
determination of net loss.

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

l. Estimates

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

m. Advertising

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

n. Revenue Recognition

Revenue is recognized as billings are submitted to the customer for the
bioremediation process. Billings are submitted once the jobs are
substantially complete.

NOTE 2 - PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31, 1999:

Furniture and fixtures $ 26,853
Machinery and equipment 435,005
Computers 14,875
Vehicles 76,000
Leasehold improvements 11,671
Building 14,905
Land 31,561
-------
610,870
Accumulated depreciation (418,986)
-------
Net property and equipment $ 191,884
=======

Depreciation expense for the years ended December 31, 1999 and 1998 was
$97,563,and $108,677, respectively.
<PAGE>
<PAGE> 58

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

NOTE 3 - RELATED PARTY TRANSACTIONS

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

The Company has made disbursements and issued shares of its common stock to
certain former officers and directors of the Company, relatives of these
former officers and directors and companies owned by these former officers and
directors. The majority of these stock issuances have been for services
rendered or for payments related to construction of the Company's facilities
and equipment. Any disbursements made to related parties for which there was
no supporting documentation have been recorded by the Company as compensation
to the related parties.

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

NOTE 4 - ACCRUED EXPENSES

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

Accrued payroll taxes, penalties and interest $213,388
Accrued interest 45,000
Gross receipts taxes payable 64,958
Other 3,000
--------

Total $326,346
========

NOTE 5 - NOTE PAYABLE

Notes payable consisted of the following at December 31, 1999:

SBA note payable to a bank, interest at prime +3% per annum, $ 129,919
requires monthly payments of $1,860 plus interest, matures in
December 2005, secured by machinery, equipment and certificate
of deposit.
Note payable to a company, interest at 11.5% per annum, pricipal 27,805
and interest of $5,002 due monthly, matures in June 2000, secured
by equipment. ---------

Total Notes Payable 157,724

Less: Current Portion (49,458)
--------
Long-Term Notes Payable $ 108,266
==========

<PAGE>
<PAGE> 59

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

NOTE 5 - NOTE PAYABLE (Continued)

The aggregate principle maturities of notes payable are as follows:
Year Ended December 31, Amount
----------------------- --------
2000 $ 49,458
2001 22,320
2002 22,320
2003 22,320
2004 22,320
2005 and thereafter 18,986
-------
Total $ 157,724
========

NOTE 6 - NOTE PAYABLE - RELATED PARTY

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

NOTE 7 - INVESTMENT IN JOINT VENTURE

During March, 1998, IEI Canada, Inc., a wholly-owned subsidiary of IEI,
entered into a joint venture agreement with JFJ Ecosystems, Inc. to form ROP
North America, LLC (the JV). The JV created a wholly-owned subsidiary called
ROP North America, Inc. (an Ontario Corporation) which became the operating
entity. AS of December 31, 1999, IEI Canada, Inc. has a 50% equity interest
in the JV but does not have management control. The investment is being
recorded under the equity method of accounting. Because of significant losses
of the JV, the investment is recorded at $-0- as of December 31, 1999. The
company has the right to acquire the remaining 50% interest in the JV on or
prior to December 31, 2000 conditional on meeting certain requirements
established in the agreement between the Company and JFJ Ecosystems, Inc.

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

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

The Company also entered into an agreement with the JV on January 4, 1999,
whereby the joint venture partner received an immediate vesting of its 50%
membership interest in the JV and the termination of the Company's option to
reduce the joint venture partners membership interest to 19%. The joint
venture partner was also granted certain rights, subject to certain
conditions, to exercise an option to exchange their membership interest in the
JV for that number of shares of the Company's common stock which would make
the joint venture partner a 33.3% owner of the total outstanding common shares
of the Company's stock issued and outstanding at January 4, 1999.

<PAGE>
<PAGE> 60

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

NOTE 8 - COMMITMENTS AND CONTINGENCIES

The Company has reserved and recorded contingent liabilities to individuals
who claim they are still owed although the Company issued shares of common
stock in payment of the debts. The Company has recorded contingent
liabilities at December 31, 1999 of $582,336. During the year ended December
31, 1999, a total of $350,957 of contingent liabilities were settled through a
full release by the respective creditors. Corresponding income from the debt
of forgiveness has been recorded by the Company in the accompanying
consolidated financial statements for the year ended December 31, 1999. It is
currently uncertain as to whether or not the remaining amounts will be paid in
the future and management of the Company intends on vigorously contesting any
claim that is made. It is reasonably possible, however, that the Company will
have to pay the amounts and to be conservative, management has recorded these
debts as contingent liabilities.

The Company was involved in certain litigation during 1998 and 1999 with a New
Mexico limited liability company regarding an open account and a distribution
agreement. A complain against the Company was filed in July 1997. The
Company contended that they had never ordered the product delivered and that
the distribution agreement was breached. On January 3, 2000, a judgment was
entered into ordering the Company to pay a total of $31,991 plus attorney fees
of approximately $12,000. This total amounts has been included in accounts
payable as of December 31, 1999.

The Company claims that the amount has been paid but has recorded a contingent
liability for the claimed amount (included in contingent liabilities of
$582,336 at December 31, 1999). If Middlemarch proceeds with its claim, the
Company may be involved in litigation with regard to the circumstances
surrounding the creation of the claimed interest and the payment of the debt.

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

<PAGE>
<PAGE> 61

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

NOTE 9 - CLASS A-SPECIAL SHARES

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

During the year ended December 31, 1999, the Company issued 222,752 shares of
its outstanding common stock to convert a total of 283,841 of the class A-
special shares. At December 31, 1999, 40,549 class A-special shares remain
outstanding that are convertible at the holders option into 31,822 shares of
the Company's common stock. These shares have been included in additional
paid-in capital of the Company until they are converted in IEI shares.

NOTE 10 - STOCK OPTIONS AND WARRANTS

On July 23, 1997, the Board of Directors agreed to issue an option to purchase
166,667 (post-split) shares of common stock at an exercise price of $0.15 per
share to an entity that provided a loan to the Company. These options expire
on July 23, 2002. At the time the options were granted, the exercise price
was equal to, or greater than, the prior 10-day average trading price of the
Company's shares.

On March 13, 1998, the Board of Directors agreed to issue options to various
individuals who have provided and may continue to provide consulting and other
services to the Company. Stock options for a total of 4,131,000 (post-split)
shares of common stock were granted at an exercise price of $0.225 per share.
At the time the options were granted, the exercise price was equal to, or
greater than, the prior 10-day average trading price of the Company's shares.
591,000 of these options will expire if not exercised by March 13, 2002. The
remaining 3,540,000 options are "cashless" options and will expire if not
exercised by March 13, 2005.

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

In April 1999, the Company issued 720,000 options exercisable at $0.16 per
share and expiring on April 30, 2004. In June 1999, the Company issued an
additional 400,000 options exercisable at $0.20 per share and expiring on June
3, 2004. In July 1999, the Company issued an additional 100,000 options
exercisable at $0.21 per share and expiring on July 28, 2004. In December
1999, the Company issued an additional 80,000 options exercisable at $0.06 per
share and expiring on December 1, 2004. The 720,000 options, the 400,000
options, the 100,000 options and the 80,000 options were issued pursuant to
the Company's 1999 Stock Option and Award Plan and the exercise price of the
respective options is equal to or greater than the prior 10-day average
trading price of the Company's shares.

<PAGE>
<PAGE> 62

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

NOTE 10 - STOCK OPTIONS AND WARRANTS (Continued)

As of December 31, 1999, an aggregate of 5,822,667 options to purchase common
shares were outstanding with exercise prices ranging from $0.06 to $1.00 per
share. At the time the options were granted, the exercise price was equal to
or greater than the prior 10-day average trading price of the Company's
shares.

Pursuant to a certain stock issuance for cash during the year ended December
31, 1999, the Company issued a total of 4,500,000 warrants to purchase shares
of common stock. The warrants are exercisable at in blocks at prices ranging
from $0.07 to $0.19 per share and expire on November 3, 2000.

NOTE 11 - GOING CONCERN

The Company's consolidated financial statements are prepared using generally
accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business. The Company has historically incurred significant
losses which have resulted in an accumulated deficit of $22,808,487 at
December 31, 1999, a working capital deficit and limited internal financial
resources. These factors combined, raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments relating to
the recover ability and classification of asset carrying amounts or the amount
and classification of liabilities that might result from the outcome of this
uncertainty. During 1999 and 1998,the Company began to effect measures to
reduce cash outflows and increase working capital through the issuance of
additional shares of common stock for cash, services and conversion of debt.
The Company has implemented a cash flow plan and has developed an overall
strategy and certain financing options to meet its ongoing needs. It is the
intent of management to rely upon additional equity financing if required to
sustain operations until revenue are adequate to cover the costs.

NOTE 12 - SUBSEQUENT EVENT

On January 10, 2000, the Company completed a private offering that included
the issuance of 2,400,000 shares of its outstanding common stock and the
granting of 2,400,000 warrants for a total of $162,000 cash. The warrants are
exercisable at prices ranging from $0.07 to $0.19 per share and expire on
January 10, 2000.

On January 10, 2000, the Company completed a second private offering that
included the issuance of 3,000,000 shares of its outstanding common stock and
the granting of 6,000,000 warrants for a total of $300,000 cash. The warrants
are exercisable at prices ranging from $0.25 to $1.00 per share and expire on
January 24, 2000.

<PAGE>
<PAGE> 63

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet

ASSETS
------
March 31, December 31,
2000 1999
------------ ------------
(Unaudited)

CURRENT ASSETS

Cash and cash equivalents $ 227,332 $ 44,277
Restricted cash (Note 1) 43,000 43,306
Accounts receivable (Note 1) 68,174 9,902
Prepaid expenses 7,500 7,500
------------ ------------

Total Current Assets 346,006 104,985
------------ ------------

PROPERTY AND EQUIPMENT (Net) (Notes 1 and 2) 179,116 191,884
------------ ------------

OTHER ASSETS

Investment in joint venture (Note 7)
Deposits - -
------------ ------------

Total Other Assets - -
------------ ------------

TOTAL ASSETS $ 525,122 $ 296,869
============ ============

See the accompanying notes to the consolidated financial statements.

<PAGE>
<PAGE> 64

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

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

March 31, December 31,
2000 1999
------------ ------------
(Unaudited)

CURRENT LIABILITIES

Accounts payable $ 84,183 $ 85,680
Accrued expenses (Note 4) 327,894 326,346
Investor deposits 15,000 -
Note payable, related party (Noted 6) 750,000 750,000
Notes payable, current portion (Note 5) 24,784 49,458
------------ ------------

Total Current Liabilities 1,201,861 1,211,484
------------ ------------

LONG-TERM DEBT

Notes payable (Note 5) 108,266 108,266
------------ ------------

Total Long-Term Debt 108,266 108,266
------------ ------------

Total Liabilities 1,310,127 1,319,750
------------ ------------

COMMITMENTS AND CONTINGENCIES (NOTE 8) 582,336 582,336
------------ ------------

STOCKHOLDERS' EQUITY (DEFICIT)

Common stock; 100,000,000 shares authorized
of $0.001 par value, 45,600,683 and
40,241,683 shares issued and outstanding,
respectively 45,601 40,242
Additional paid-in capital 21,651,389 21,136,268
Prepaid services (35,000) -
Other comprehensive income 17,498 26,760
Accumulated deficit (23,046,829) (22,808,487)
------------ ------------

Total Stockholders' Equity (Deficit) (1,367,341) (1,605,217)
------------ ------------

TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 525,122 $ 296,896
============ ============

See the accompanying notes to the consolidated financial statements.

<PAGE>
<PAGE> 65

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)

For the Three
Months Ended
March 31, March 31,
2000 1999
---------- ----------
REVENUES
Net sales $ 127,968 $ 130,833
Direct costs 105,967 86,717
---------- ----------
Gross Profit 22,001 44,116
---------- ----------
EXPENSES
General and administrative 241,720 236,006
Depreciation and amortization 12,768 24,663
---------- ----------
Total Expenses 254,488 260,729
---------- ----------
Loss From Operations (232,487) (216,613)
---------- ----------
OTHER INCOME (EXPENSE)
Other income 8,267 26,869
Interest income - 112
Interest expense (14,122) (9,024)
---------- ----------
Total Other Income (Expense) (5,855) 17,957
---------- ----------
NET LOSS BEFORE EXTRAORDINARY ITEMS (238,342) (198,656)
---------- ----------
EXTRAORDINARY ITEMS
Debt forgiveness (Note 8) - 325,957
---------- ----------
Total Extraordinary Items - 325,957
---------- ----------
NET INCOME (LOSS) $ (238,342) $ 127,301
========== ==========
OTHER COMPREHENSIVE INCOME
Foreign currency adjustments (9,262) 3,348
---------- ----------
NET COMPREHENSIVE INCOME (LOSS) $ (247,604) $ 130,649
========== ==========

BASIC EARNINGS (LOSS) PER SHARE

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

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

See the accompanying notes to the consolidated financial statements.
<PAGE>
<PAGE> 66

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Additional Other
Common Stock Paid-In Comprehensive Accumulated
Shares Amount Capital Income Deficit
----------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>

Balance, December 31, 1998 33,018,931 $ 33,019 $ 20,589,741 $ 38,419 $(21,993,889)

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

Common stock issued for cash
at $0.0675 per share 4,500,000 4,500 299,250 - -

Common stock issued in
conversion of Class A-special
shares of subsidiary (Note 9) 222,752 223 (223) - -

Currency translation adjustment - - - (11,659) -

Net loss for the year ended
December 31, 1999 - - - - (814,598)
----------- -------- ------------ ----------- ------------
Balance, December 31, 1999 40,241,683 40,242 21,136,268 26,760 (22,808,487)

Common stock and warrants
issued for cash at $0.0675
per share 2,400,000 2,400 159,600 - -

Common stock and warrants
issued for cash at $0.10
per share 1,800,000 1,800 178,200 - -

Common stock issued through
exercise of options at $0.22
per share 484,000 484 105,996 - -

Common stock and warrants
issued for cash at $0.10
per share 600,000 600 59,400 - -

Common Stock issued through
exercise of options at $0.16
per share 75,000 75 11,925 - -

Currency translation adjustment - - - (9,262) -

Net loss for the three
months ended March 31, 1999
(Unaudited) - - - - (238,342)
----------- -------- ------------ ----------- ------------
Balance, March 31, 2000
(Unaudited) 45,600,683 $ 45,601 $ 21,651,389 $ 17,498 $(23,046,829)
=========== ======== ============ =========== ============
</TABLE>

See the accompanying notes to the consolidated financial statements.
<PAGE>
<PAGE> 67
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the Three
Months Ended
March 31,
2000 1999
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (238,342) $ 127,301
Adjustments to reconcile net income to net
cash (used) by operating activities:
Depreciation and amortization 12,768 24,663
Debt forgiveness - (325,957)
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable (67,534) (63,024)
(Increase) decrease in deposits and prepaid
expenses - (43,729)
(Increase) decrease in restricted cash 306 -
(Increase) decrease in prepaid services (35,000) -
Increase (decrease) in accounts payable (1,497) (199,777)
Increase (decrease) in unearned revenue - (21,666)
Increase (decrease) in accrued expenses 1,548 50,754
Increase (decrease) in investor deposits 15,000 -
Increase (decrease) in contingent liabilities - (25,962)
---------- ----------
Net Cash (Used) by Operating Activities (312,751) (477,397)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES

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

Common stock issued for cash 520,480 -
Additional capital contributed - -
Principle payments on notes payable (24,674) (34,157)
Cash received from notes payable - 557,537
---------- ----------
Net Cash Provided by Financing Activities 495,806 523,380
========== ==========

NET INCREASE (DECREASE) IN CASH 183,055 27,152

CASH AT BEGINNING OF PERIOD 44,277 12,552
---------- ----------
CASH AT END OF PERIOD $ 227,332 $ 39,704
========== ==========

SUPPLEMENTAL CASH FLOW INFORMATION

CASH PAID FOR:
Interest $ 14,122 $ 9,024
Income taxes - $ -

See the accompanying notes to the consolidated financial statements.
<PAGE>
<PAGE> 68
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Organization

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

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

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

b. Accounting Methods

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

<PAGE>
<PAGE> 69
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

c. Cash and Cash Equivalents

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

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

The computations of basic earnings (loss) per share of common stock are based
on the weighted average number of common shares outstanding during the period
of the consolidated financial statements. Common stock equivalents,
consisting of stock options and the IEI Canada Inc. class A-special shares,
have not been included in the calculation as their effect is antidilutive for
the periods presented.

e. Change in Accounting Principle

The Financial Accounting Standards Board has issued certain new standards,
including standards on earnings per share (SFAS 128), capital structure (SFAS
129), comprehensive income (SFAS 130, operating segments (SFAS 131) and
postretirement benefits (SFAS 132). The adoption of these standards did not
have a material impact on the Company's consolidated financial statements.

f. Property and Equipment

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

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

g. Restricted Cash

The Company holds a certificate of deposit with a Canadian bank in the amount
of $43,000 and $43,306 as of March 31, 2000 and December 31, 1999,
respectively, which is being used as security and collateral on a demand note
with the same bank. The cash cannot be withdrawn from the CD until after the
demand note is paid in full.

<PAGE>
<PAGE> 70
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

h. Accounts Receivable

i. Provision For Taxes

At December 31, 1999, the Company has an accumulated deficit of $22,808,487
which includes net operating loss carryforwards that may be offset against
future taxable income through 2019. No tax benefit has been reported in the
consolidated financial statements because the Company believes there is a 50%
or greater chance the net operating loss carryforwards will not be used.
Accordingly, the potential tax benefits of the net operating loss
carryforwards are offset by a valuation allowance of the same amount.

j. Principles of Consolidation

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

All material intercompany accounts and transactions have been eliminated.

k. Statement of Cash Flows

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

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

l. Estimates

<PAGE>
<PAGE> 71
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 1998 and December 31, 1998

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

m. Advertising

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

n. Revenue Recognition

Revenue is recognized as billings are submitted to the customer for the
bioremediation process. Billings are submitted once the jobs are
substantially completed.

NOTE 2 - PROPERTY AND EQUIPMENT

Property and equipment consists of the following:
March 31, December 31,
2000 1999
------------ ------------
(Unaudited)

Furniture and fixtures $ 26,853 $ 26,853
Machinery and equipment 435,005 429,005
Computers 14,875 14,875
Vehicles 76,000 76,000
Leasehold improvements 11,671 11,671
Building 14,905 14,905
Land 31,561 31,561
------------ ------------
610,870 610,870
Accumulated depreciation (431,754) (418,986)
------------ ------------
Net property and equipment $ 179,116 $ 191,884
============ ============

Depreciation expense for the three months ended March 31, 2000 and 1999 was
$12,768 and $24,663, respectively.

NOTE 3 - RELATED PARTY TRANSACTIONS

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

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

The Company's former president, from time to time, received payments in the
form of loans that have been repaid without interest. The Company's former
president also advanced funds to the Company from time to time in order for
the Company to meet its ongoing needs. These advances were also repaid
without interest.
<PAGE>
<PAGE> 72

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999

NOTE 4 - ACCRUED EXPENSES

Accrued expenses as of March 31, 2000 and December 31, 1999 consist primarily
of accrued interest and unpaid payroll taxes, unemployment taxes, sales taxes
and gross receipts taxes due both the federal and state taxing authorities.
The Company has been delinquent on filing these tax forms and has unfiled
taxes for both the 1997 and 1998 tax years. A settlement has been reached
with the state of New Mexico for the sales tax owed and the Company is current
with the settlement arrangements as of March 31, 2000. Reasonable interest
and penalties have also been accrued as of March 31, 2000 and December 31,
1999.

NOTE 5 - NOTES PAYABLE

Notes payable consisted of the following:

March 31, December 31,
2000 1999
------------ ------------
(Unaudited)
Note payable to a bank, interest at prime + 3%
per annum, requires monthly payments of $1,860
plus interest, matures in December, 2005,
secured by machinery, equipment and certificate
of deposit. $ 123,625 $ 129,919

Note payable to a company, interest at 11.5% per
annum, principle and interest of $ 5,002 due
monthly, matures in June, 2000, secured by
equipment. 9,425 27,805
------------ ------------
Total Notes Payable 133,050 157,724
Less: Current Portion (24,784) (49,458)
------------ ------------
Long-Term Notes Payable $ 108,266 $ 108,266
============ ============

The aggregate principal maturities of notes payable are as follows:

Year Ended
December 31, Amount
------------ ---------
2000 $ 49,458
2001 22,320
2002 22,320
2003 22,320
2004 22,320
2005 and thereafter 18,796
=======
Total $ 157,724
=======

<PAGE>
<PAGE> 73
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999

NOTE 6 - NOTES PAYABLE - RELATED PARTY

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

NOTE 7 - INVESTMENT IN JOINT VENTURE

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

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

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

<PAGE>
<PAGE> 74
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999

NOTE 8 - COMMITMENTS AND CONTINGENCIES

The Company has reserved and recorded contingent liabilities to individuals
who claim they are still owed although the Company issued shares of common
stock in payment of the debts. The Company has recorded a total of contingent
liabilities at March 31, 2000 and December 31, 1999 of $582,336 and $582,336,
respectively. During the year ended December 31, 1999, $350,957 of the
contingent liabilities were settled through a full release by the respective
creditors. Corresponding income from the debt forgiveness was recorded by the
Company for the year ended December 31, 1999. It is currently uncertain as to
whether or not the remaining amounts will be paid in the future and management
of the Company intends on vigorously contesting any claim that is made. It is
reasonably possible, however, that the Company will have to pay the amounts
and to be conservative, management has recorded these possible debts as
contingent liabilities.

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

<PAGE>
<PAGE> 75
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 1999 and December 31, 1998

NOTE 9 - CLASS A-SPECIAL SHARES

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

During the year ended December 31, 1999, the Company issued 222,752 shares of
its outstanding common stock to convert a total of 283,841 of the class A-
special shares. At March 31, 2000 and December 31, 1999, 40,549 class A-
special shares remain outstanding that are convertible at the holders option
into 31,822 shares of the Company's common stock. These shares have been
included in additional paid-in capital of the Company until they are converted
in IEI shares.

NOTE 10 - STOCK OPTIONS

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999

NOTE 10 - STOCK OPTIONS AND WARRANTS (Continued)

As of March 31, 2000 and December 31, 1999, an aggregate of 5,263,667 and
5,822,667 options to purchase common shares were outstanding, respectively,
with exercise prices ranging from $0.06 to $1.00 per share. At the time the
options were granted, the exercise price was equal to or greater than the
prior 10-day average trading price of the Company's shares.

Pursuant to a certain stock issuance for cash during the three months ended
March 31, 2000, the Company issued a total of 5,550,000 warrants to purchase
shares of common stock. The warrants are exercisable at in blocks at prices
ranging from $0.07 to $1.00 per share.

NOTE 11 - GOING CONCERN

<PAGE>
<PAGE> 77
[BACK COVER PAGE]

INDUSTRIES ECOSYSTEMS, INC.

___________ Shares
Common Stock

PROSPECTUS
JUNE __, 2000

No dealer, salesman or any other person has been authorized to give
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company. Neither the delivery
of the Prospectus nor any sale made hereunder shall under any circumstances
create any implication that there has been no change in the affairs of the
Company since the date hereof. This Prospectus does not constitute an offer
to sell or the solicitation of an offer to buy any securities covered by this
Prospectus in any state or other jurisdiction to any person to whom it is
unlawful to make such offer in such state or jurisdiction.

Table of Contents
Section Page
------- ----
PROSPECTUS SUMMARY.........................................................
RISK FACTORS...............................................................
PLAN OF DISTRIBUTION.......................................................
SELLING SHAREHOLDERS.......................................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................................
BUSINESS...................................................................
PROPERTY...................................................................
MANAGEMENT.................................................................
EXECUTIVE COMPENSATION.....................................................
PRINCIPAL SHAREHOLDERS.....................................................
CERTAIN TRANSACTIONS.......................................................
DESCRIPTION OF CAPITAL STOCK...............................................
LITIGATION.................................................................
LEGAL MATTERS..............................................................
EXPERTS....................................................................
ADDITIONAL INFORMATION.....................................................
INDEX TO FINANCIAL STATEMENTS..............................................
FINANCIAL STATEMENTS.......................................................

Until ___________, 2001, all dealers effecting transactions in the Common
Stock, whether or not participating in the distribution, may be required to
deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.

<PAGE>
<PAGE> 78
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Sections 16-10a-901 through 909 of the Utah Revised Business Corporation Act
provides in relevant parts as follows:

(1) A corporation shall have power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by or in the right of
the corporation) by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against
expenses (including attorneys' fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or on
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.

(2) A corporation shall have power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending, or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue, or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless and only
to the extent that the court in which such action or suit was brought shall
determine on application that, despite the adjudication of liability but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.

(3) To the extent that a director, officer, employee, or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit, or proceeding referred to in 1) or (2) of this subsection, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him
in connection therewith.

(4) The indemnification provided by this section shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to

<PAGE> 79

a person who has ceased to be a director, officer, employee, or agent and
shall inure to the benefit of the heirs, executors, and administrators of such
a person.

The foregoing discussion of indemnification merely summarizes certain
aspects of indemnification provisions and is limited by reference to the above
discussed sections of the Utah Revised Business Corporation Act.

The Registrant's articles of incorporation and bylaws provide that the
Registrant "may indemnify" to the full extent of its power to do so, all
directors, officers, employees, and/or agents. It is anticipated that the
Registrant will indemnify its officers and directors to the full extent
permitted by the above-quoted statute.

Insofar as indemnification by the Registrant for liabilities arising
under the Securities Act may be permitted to officers and directors of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant
is aware that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.

Limitations on Liability
------------------------
Subsequent to the Company's incorporation, the state of Utah enacted a statute
limiting the liability of officers and directors of the Company and its
shareholders in certain circumstances. Management has determined that it
would be advantageous for the Company to amend its Articles of Incorporation
to include the protections provided to officers and directors of the Company
pursuant to Section 16-10a-841 of the Utah Revised Business Corporation Act.

The amendment to the Articles of Incorporation would eliminate the personal
liability of a director to the Company or its shareholders for monetary
damages for any action taken or any failure to take any action, as a director,
except liability for (a) the amount of a financial benefit received by a
director to which he is not entitled; (b) an intentional infliction of harm to
the corporation or the shareholders; (c) an unlawful distribution; or (d) an
intentional violation of a criminal law.

It should be noted that the provisions eliminating liability of directors
limit the remedies available to a shareholder dissatisfied with a Board
decision which is protected by the provision. An aggrieved shareholder's only
remedy in such a circumstance is to sue to stop the completion of the Board's
action. In many situations, this remedy may not be effective. Shareholders,
for example, may not be aware of a transaction or an event until it is too
late to prevent it. In these cases, the shareholders and the Company could be
injured by a careless Board decision and yet have no effective remedy.

Management believes that limiting director's liability is in the best interest
of the shareholders and the Company, as it should enhance the Company's
ability to attract and retain qualified individuals to serve as directors of
the Company by assuring directors ( and potential directors) that their good
faith decisions will not be second-guessed by a court evaluating decisions
with the benefit of hindsight. This is particularly applicable, management
believes, in the recruitment of outside directors who are not employees of the
Company and who may, therefore, bring additional objectivity and experience to
the Board of Directors. Management believes that the diligence exercised by
directors stems primarily from their desire to act in the best interest of the
Company and not from a fear of monetary damage awards. Consequently,
management believes that the level of scrutiny and care exercised by directors
will not be lessened by this provision of the Articles of Incorporation.

<PAGE> 80

Indemnification of Officers, Directors and Others
-------------------------------------------------
This Article has been added to provide that the Company shall indemnify
directors to the fullest extent permitted by the Utah Revised Business
Corporation Act and that the Company may indemnify officers, employees, or
agents as authorized by the bylaws and the Board of Directors. The Board of
Directors believes that indemnification for directors is important to enable
the Company to attract and retain competent directors. The Board of Directors
believes that permissive indemnification for others, as determined by the
Board of Directors, is important because it permits indemnification in
appropriate circumstances.

The indemnification provisions in the Amended Articles may require the Company
to indemnify individuals against expenses, including attorney's fees,
judgments, fines and amounts paid in settlement, that may arise by reason of
their status or service as directors, officers, or agents (other than
liabilities arising from willful misconduct of a culpable nature) and to
advance expense incurred as a result of any proceeding against them as to
which they could be indemnified. As a result of such indemnification
limitations, any large damage awards that are not compensated by insurance
will come directly from the Company's treasury.

Subsequent to shareholder approval of the above Amended Articles in April
1999, the board of directors adopted revisions to the Company's Bylaws to
include Article V, Indemnification of Directors, Officers, Agents and
Employees. This Article parallels the provisions adopted in the Amended
Articles of Incorporation.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated expenses(*) to the Company
in connection with the offering described in the Registration Statement:

Registration Fee............................................$ 500.00*
Accounting Fees and Expenses................................ 2,500.00*
Legal Fees and Expenses..................................... 20,000.00*
Blue Sky Fees............................................... 2,500.00*
Printing and Engraving...................................... 3,500.00*
Transfer Agent Fees......................................... 1,000.00*
----------
Total Expenses..............................................$30,000.00
==========
(*) All figures are estimates.

<PAGE>
<PAGE> 81

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

With respect to the following discussion relating the to recent issuance of
unregistered securities, all share amounts give effect to a 3-for-2 reverse
split of the Company's issued and outstanding shares effective April 30, 1998.

In November 1999, the Company issued to John P. Crowe, a major shareholder of
the Company and a principal of the Company's joint venture partner, 4,500,000
Units at a purchase price of $0.0675 per Unit, each Unit consisting of one
share of common stock and one warrant to purchase common stock at exercise
prices and for the periods according to the following schedule:

In January 2000, the Company issued to two unaffiliated investors, 2,400,000
Units at a purchase price of $0.0675 per Unit, each Unit consisting of one
share of common stock and one warrant to purchase common stock at exercise
prices and for the periods according to the following schedule:

Amount Price Exercisable
---------- -------- ---------------------
440,000 $ 0.07 1/21/00 - 1/21/01, or 120 days after registration
440,000 $ 0.11 1/21/00 - 1/21/01, or 180 days after registration
1,040,000 $ 0.15 1/21/00 - 1/21/01, or 240 days after registration
480,000 $ 0.19 1/21/00 - 1/21/01, or one year after registration

The Unit Shares carry registration rights committing the Company, on a best
efforts basis, to file a registration statement on Form S-1 for the purpose of
registering the Units for resale by the holder as a selling shareholder, with
a concomitant reduction in the exercise period upon the effectiveness of the
registration. Expenses for the registration will be shared by the Holders and
the Company. The Warrants are subject to a call provision which permits the
Company to require the exercise or forfeit of the warrants, within 10 days of
the call notice, if the ten day average closing price of the Company's common
stock exceeds the respective exercise prices of the warrants by 250%, 200%,
175% and 150%, respectively. The sale of shares was made pursuant to an
exemption from registration and the prospectus delivery requirements of the
Securities Act set forth in Regulation D, Rule 506.

Also in January 2000, the Company issued to five unaffiliated investors,
2,700,000 Units at a purchase price of $0.10 per Unit, each Unit consisting of
one share of common stock and two warrants to purchase common stock at
exercise prices and for the periods according to the following schedule:

Amount Price Exercisable
---------- -------- ---------------------
1,350,000 $ 0.25 2/3/00 - 2/3/01, or 120 days after registration
1,350,000 $ 0.50 2/3/00 - 2/3/01, or 180 days after registration
1,350,000 $ 0.75 2/3/00 - 2/3/01, or 240 days after registration
1,350,000 $ 1.00 2/3/00 - 2/3/01, or one year after registration

registration. Expenses for the registration will be shared by the Holders and
the Company. The Warrants are subject to a call provision which permits the
Company to require the exercise or forfeit of the warrants, within 10 days of
the call notice, if the ten day average closing price of the Company's common
stock exceeds the respective exercise prices of the warrants by 250%, 200%,
175% and 150%, respectively. The sale of shares was made pursuant to an
exemption from registration and the prospectus delivery requirements of the
Securities Act set forth in Regulation D, Rule 506.

In May 1999, the Company issued 2,500,000 shares of restricted Common Stock in
a private placement for cash at $0.10 per share to John Crowe and five of his
relatives and/or affiliates, all of whom executed suitability and investment
letters stating that they were accredited investors. The sale of shares was
made pursuant to an exemption from registration and the prospectus delivery
requirements of the Securities Act set forth in Regulation D, Rule 506.

In 1998, the Company issued 2,865,701 shares of Common Stock in a private
placement for cash at an average price of $0.35 per share to certain
investors. A total of 2,015,701 shares were issued to John Crowe, a major
shareholder of the Company and a principal of the Company's joint venture
partner, and certain of his relatives and/or affiliates. The remaining
850,000 shares were issued to a two unaffiliated investors. No underwriter or
placement agent was used by the Company and no commissions were paid. No
general advertising or solicitation was used in connection therewith.

In 1998, the Company issued 5,341,330 shares of Common Stock to certain
creditors of the Company for conversion of outstanding indebtedness at an
average price of $0.16 per share.

In 1998, the Company issued 99,999 shares of Common Stock to various
individuals for professional services relating to the Company's business plan
and providing technical services. The value for the services was placed at an
average of $0.21 per share. No cash consideration was received by the issuer
and the aggregate offering price for the securities (approximately $21,000)
was determined to be the fair market value for the consulting services
provided. None of the purchasers were officers and/or directors of the issuer
at the time of issuance of the securities or currently hold such positions
with the issuer.

In 1998, the Company issued options to various individuals who have provided
and may continue to provide consulting and other services to the Company.
Stock options for a total of 4,131,000 (post-split) shares of common stock
were granted at an exercise price of $0.225 per share. At the time the
options were granted, the exercise price was equal to or greater than the
prior 10 day average trading price of the Company's shares. 591,000 of the
options will expire if not exercised by March 13, 2003. The remaining
3,540,000 options will expire if not exercised by March 13, 2005.

In 1997, the Company issued 3,533,335 shares of Common Stock for cash in a
private placement at an average price of $0.21 per share to certain
unaffiliated investors. No underwriter or placement agent was used by the
Company and no commissions were paid. No general advertising or solicitation
was used in connection therewith.

In 1997, the Company issued 2,188,143 shares of Common Stock to various
individuals for professional and consulting services. 200,000 of the shares
were issued to Robert Moore, a former officer, for services as an employee and
in settlement of his termination by the Company. The remaining shares were
issued for services relating to conducting market research, development of the
Company's marketing research and business plan, and providing legal and

<PAGE>
<PAGE> 83

technical services. The value for the services provided was placed at an
average of $0.18 per share. No cash consideration was received by the issuer
and the aggregate offering price for the securities (approximately $394,000)
was determined to be the fair market value for the employee and consulting
services provided. None of the purchasers were officers and/or directors of
the issuer at the time of issuance of the securities or currently hold such
positions with the issuer.

In 1997, the Company issued 2,163,917 shares of Common Stock in exchange for
the conversion of 2,163,917 shares of Class-A Special Shares of IEI Canada
which were issued in connection with: a Global Share Purchase Agreement
executed by and between Industrial Ecosystems, Inc., ITE Ecosystems, Inc., and
ITE Ecosystems, Inc. shareholders; and a Share Exchange Agreement executed by
and between Industrial Ecosystems, Inc., ITE Ecosystems, Inc. shareholders and
IEI, Canada, Inc., both dated June 28, 1994. The above Agreements were
executed to effect the purchase of all the outstanding shares of ITE
Ecosystems, Inc. common stock. Each ITE shareholder executed an individual
Share Purchase Agreement in which each share of ITE common stock was exchanged
for a designated number of shares of IEI, Canada "Special Class A" shares. In
addition, each ITE shareholder received a warrant permitting the exchange of
the IEI, Canada "Special Class A" shares for an equal number of Industrial
Ecosystems, Inc. pre-split shares at any time until 2015. A total of
4,000,000 Special Class A shares were issued. At December 31, 1998, 324,390
shares were outstanding that are convertible at the holder's option into
254,573 post-split shares of the Company's Common Stock.

In 1997, the Company issued an option to purchase 166,667 (post-split) shares
of common stock at an exercise price of $0.15 per share to an entity that
provided a loan to the Company. At the time the options were granted, the
exercise price was equal to or greater than the prior 10 day average trading
price of the Company's shares. These options will expire if not exercised by
July 23, 2002.

In 1996, the Company issued 538,499 shares of Common Stock for cash in a
private placement at an average price of $0.70 per share to certain
unaffiliated investors. No underwriter or placement agent was used by the
Company and no commissions were paid. No general advertising or solicitation
was used in connection therewith.

In 1996, the Company issued 1,159,295 shares of Common Stock to various
individuals for professional and consulting services relating to conducting
market research, development of the Company's marketing research and business
plan, and providing legal and technical services. The value for the services
provided was placed at an average of $0.76 per share. No cash consideration
was received by the issuer and the aggregate offering price for the securities
(approximately $881,695) was determined to be the fair market value for the
consulting services provided. None of the purchasers were officers and/or
directors of the issuer at the time of issuance of the securities or currently
hold such positions with the issuer.

In 1996, the Company issued 4,613,340 shares of Common Stock to certain
creditors of the Company for conversion of outstanding indebtedness at an
average price of $0.87 per share.

In 1996, the Company issued 333,335 shares of Common Stock in connection with
negotiations with certain individuals and companies for acquisitions or
business deals which were never consummated at an average price of $0.78 per
share.
<PAGE>
<PAGE> 84

In 1996, the Company issued 2,734 shares of Common Stock in to certain
individuals in lieu of salary at an average value of $0.59 per share.

In 1996, the Company issued 366,667 shares in a private placement to certain
individuals from whom consideration was never received at an average price of
$0.60 per share. The certificates representing these shares have subsequently
been canceled and a corresponding adjustment to shareholders' equity has been
made to reflect the cancellation.

In 1996, the Company issued 221,370 shares of Common Stock in exchange for the
conversion of 221,370 shares of Class-A Special Shares of IEI Canada which
were issued in connection with: a Global Share Purchase Agreement executed by
and between Industrial Ecosystems, Inc., ITE Ecosystems, Inc., and ITE
Ecosystems, Inc. shareholders; and a Share Exchange Agreement executed by and
between Industrial Ecosystems, Inc., ITE Ecosystems, Inc. shareholders and
IEI, Canada, Inc., both dated June 28, 1994. The above Agreements were
executed to effect the purchase of all the outstanding shares of ITE
Ecosystems, Inc. common stock. Each ITE shareholder executed an individual
Share Purchase Agreement in which each share of ITE common stock was exchanged
for a designated number of shares of IEI, Canada "Special Class A" shares. In
addition, each ITE shareholder received a warrant permitting the exchange of
the IEI, Canada "Special Class A" shares for an equal number of Industrial
Ecosystems, Inc. pre-split shares at any time until 2015. A total of
4,000,000 Special Class A shares were issued.

Securities issued in the foregoing transactions were issued in reliance on the
exemption from registration and the prospectus delivery requirements of the
Securities Act of 1933, as amended (the "Securities Act"), set forth in
Section 3(b) and/or Section 4(2) of the Securities Act and the regulations
promulgated thereunder.

ITEM 27. EXHIBITS

Copies of the following documents have been included as exhibits to this
Registration Statement, pursuant to Item 601 of Regulation S-B.

SEC
Exhibit Reference
No. No. Title of Document Location
------- --------- ----------------- --------

1 3(i) Articles of Incorporation and Amendments Incorporated by
Reference (1)

2 3(ii) Bylaws Incorporated by
Reference (1)

3 5 Opinion of Taylor and Associates, Inc.
Attorneys and Counselors at Law This Filing

4 23 Consent of Jones, Jensen & Company,
Certified Public Accountants This Filing

5 23 Consent of Taylor and Associates, Inc.,
Attorneys and Counselors at Law This Filing

(1) Incorporated by reference to the Company's registration statement on Form
10-SB, SEC file no. 0-29838, and all amendments thereto.

<PAGE>
<PAGE> 85

ITEM 28. UNDERTAKINGS

The undersigned Registrant hereby undertakes that it will:

(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to (i) include any
Prospectus required by Section 10(a)(3) of the Securities Act; (ii) reflect in
the Prospectus any facts or events which, individually or in the aggregate,
represent a fundamental change to the information in the Registration
Statement; and (iii) include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.

(2) For the purpose of determining liability under the Securities Act,
each post-effective amendment will be treated as a new Registration Statement
of the securities offered, and the offering of the securities at that time
shall be the initial bona fide offering.

(3) If, applicable, file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.

In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person in connection with the securities being
registered), the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by the
Registrant is against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that it will:

(1) For determining any liability under the Securities Act, treat the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant under Rule 424(b)(1), or (4), or 497(h)
under the Securities Act as part of this Registration Statement as of the time
the Commission declared it effective.

(2) For determining any liability under the Securities Act, each post
effective amendment that contains a form of Prospectus will be treated as a
new Registration Statement for the securities offered in the Registration
Statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.

<PAGE>
<PAGE> 86

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-1 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunder duly authorized, in the city of Bloomfield, State of New Mexico, on
the 19th day of June 2000.

INDUSTRIAL ECOSYSTEMS, INC.
/S/ Tom Jarnagin, President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person who signature appears below
constitutes and appoints Tom Jarnagin, with power of substitution, as his or
her attorney-in-fact for him or her, in all capacities, to sign any amendment
to this registration statement and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorney-in-fact or
his or her substitutes may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.

Signature Title Date
--------- ----- ----

-----------------------------
/S/ Tom Jarnagin Director June 27, 2000

-----------------------------
/S/ Magaly Bianchini Director June 27, 2000

-----------------------------
/S/ Steven C. Justus Director June 27, 2000