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<DESCRIPTION>FORM 10-KSB  (12-31-2005)
<TEXT>

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

                                   FORM 10-KSB

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

                   For the fiscal year ended December 31, 2005

                        Commission File Number: 000-50216

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

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

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

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

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

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

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

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

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

State issuer's revenues for its most recent fiscal year. $ 11,028,000

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


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

DOCUMENTS INCORPORATED BY REFERENCE:
None

Transitional Small Business Disclosure Format:  Yes __ No  X


<PAGE>


PART I

Item 1.  Description of Business

Forward-Looking Statements Found in this Report

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

Abbreviations We Use in this Report

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

                                       1

<PAGE>


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

Business Purpose and Strategy

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

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

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

Overview of the Last Three Years

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

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

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

                                       2

<PAGE>


Our Business in Detail

Market for Our Products and Services

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

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

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

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

                                       3

<PAGE>


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

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

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

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

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

                                       4

<PAGE>


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

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

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

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

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

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

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

                                       5

<PAGE>


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

Under the terms of the agreement with NORIT:

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

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

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

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

                                       6

<PAGE>


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

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

Competition

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

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

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

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

                                       7

<PAGE>


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

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

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

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

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

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

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

                                       8
<PAGE>


RISKS RELATING TO OUR BUSINESS

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

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

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

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

                                       9

<PAGE>


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


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

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

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

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

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

                                       10

<PAGE>


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

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

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

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

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

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

                                       11

<PAGE>


RISKS RELATING TO OUR COMMON STOCK

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


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

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

Item 2.  Description of Property.

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

Item 3.  Legal Proceedings.

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

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


PART II

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

Market for Common Equity and Related Stockholder Matters

(a) Market Information.

                                       12

<PAGE>


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

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

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


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

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

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

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

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

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

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

                                       13

<PAGE>


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

Purchases of Equity Securities by the Company and Affiliated Purchasers

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

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

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

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

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

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

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

                                       14

<PAGE>


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

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

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

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

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

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

                                       15

<PAGE>


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

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

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

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

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

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

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


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

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

                                       16

<PAGE>


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

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

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

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

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

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

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

                                       17

<PAGE>


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

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

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

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

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

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

                                       18

<PAGE>


Item 8A.  Controls and Procedures.

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

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

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

PART III

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

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

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

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

                                       19

<PAGE>


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

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

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

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

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

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

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

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

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

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

                                       20

<PAGE>


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

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

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

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

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

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

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

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

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

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

                                       21

<PAGE>


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

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

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

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

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

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

                                                          Summary Compensation Table

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

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


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


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


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


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


                                                          22
<PAGE>


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

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

                                               Options/SAR Grants in Last Fiscal Year
 None.

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

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

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


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

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

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

                                       23

<PAGE>


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

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

                               STOCK OPTION PLANS

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

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

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

                                       24

<PAGE>


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

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

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

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

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

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

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

                                                         25

<PAGE>


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

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

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

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

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

</TABLE>
                                       26

<PAGE>


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

Item 13.  Exhibits

(a) Exhibits and Index of Exhibits

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

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

                                       27

<PAGE>

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

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

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

                                       28

<PAGE>


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

Item 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.

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

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

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

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

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

ADA-ES, Inc.
 (Registrant)

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

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

                                       29

<PAGE>


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

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

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

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

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

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

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

                                       30
<PAGE>








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












<PAGE>










                          INDEX TO FINANCIAL STATEMENTS


                                                                           PAGE
                                                                           ----

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

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

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

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

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

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





                                      F-1

<PAGE>








             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



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


We have audited the accompanying consolidated balance sheet of ADA-ES, Inc. and
Subsidiary as of December 31, 2005, and the related consolidated statements of
income, changes in stockholders' equity and cash flows for the years ended
December 31, 2005 and 2004. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ADA-ES,
Inc. and Subsidiary as of December 31, 2005, and the results of their operations
and their cash flows for the years ended December 31, 2005 and 2004 in
conformity with U.S. generally accepted accounting principles.




HEIN & ASSOCIATES LLP

Denver, Colorado
February 13, 2006


                                      F-2
<PAGE>

<TABLE>
<CAPTION>

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

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

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

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

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

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

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

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


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


                                              ADA-ES, INC. AND SUBSIDIARY

                                           CONSOLIDATED STATEMENTS OF INCOME

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

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

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

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

OPERATING INCOME                                                          651,000                 383,000

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

INCOME BEFORE INCOME TAX PROVISION                                        999,000                 398,000

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

NET INCOME                                                                663,000                 336,000

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

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

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

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

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


                                                           ADA-ES, INC. AND SUBSIDIARY

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



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

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

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

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

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


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

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


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

<PAGE>


                           ADA-ES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

     Nature of Operations - The accompanying consolidated financial statements
     include the accounts of ADA-ES, Inc. (ADA) and its wholly-owned subsidiary,
     ADA Environment Solutions, LLC (ADA LLC). ADA's only asset is its
     investment in its wholly-owned subsidiary, ADA LLC. All significant
     intercompany transactions have been eliminated. Collectively, ADA and
     ADA LLC are referred to as the Company.

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

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

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

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

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

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


                                      F-7
<PAGE>


                           ADA-ES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

     Intangible assets consist of:

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

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


                                      F-8

<PAGE>


                           ADA-ES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

     Income Taxes - The Company accounts for income taxes under the liability
     method of SFAS No. 109, whereby current and deferred tax assets and
     liabilities are determined based on tax rates and laws enacted as of the
     balance sheet date. A valuation allowance is provided when deferred tax
     assets are not expected to be realized.

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

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

                                      F-9

<PAGE>


                           ADA-ES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

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

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

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

          Expected volatility                         41%               35%

          Risk-free interest rate                    2.6%              2.5%

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

     Use of Estimates - The preparation of the Company's consolidated financial
     statements in conformity with generally accepted accounting principles
     requires the Company's management to make estimates and assumptions that
     affect the amounts reported in these financial statements and accompanying

                                      F-10

<PAGE>


                           ADA-ES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

                                      F-11

<PAGE>



                           ADA-ES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

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


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


                                      F-12
<PAGE>


                           ADA-ES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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


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

     Debt securities will mature as follows:

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

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

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

                                      F-13
<PAGE>


                           ADA-ES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

                                      F-14

<PAGE>


                           ADA-ES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

                                      F-15

<PAGE>


                           ADA-ES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

                                                         F-16


<PAGE>


                           ADA-ES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

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

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

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

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

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

                                      F-17

<PAGE>


                           ADA-ES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

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


                                      F-18
<PAGE>


                           ADA-ES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                                                           2005          2004
                                                           ----          ----

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

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


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

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

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

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

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

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

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


                                      F-19
<PAGE>


                           ADA-ES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Year Ended December 31, 2004:

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

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


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

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

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

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


                                      F-20
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.3
<SEQUENCE>2
<FILENAME>ada4-3.txt
<DESCRIPTION>REGISTRATION RIGHTS
<TEXT>
                                                                     EXHIBIT 4.3

                  STANDSTILL AND REGISTRATION RIGHTS AGREEMENT

THIS AGREEMENT, dated as of September 19, 2003, is between Arch Coal, Inc., a
Delaware corporation ("Arch Coal"), and ADA-ES, Inc., a Colorado corporation
("ADA-ES").

                                   WITNESSETH:

WHEREAS on the date hereof, Arch Coal is acquiring 137,741 shares (the
"Purchased Shares") of common stock of ADA-ES (the "Common Stock") and an option
(the "Option") to purchase up to 50,000 additional shares of Common Stock (the
"Option Shares") pursuant to the terms of a Securities Subscription and
Investment Agreement, dated as of July 7, 2003 (the "Subscription Agreement;"
terms capitalized and not defined herein shall have the meaning ascribed to them
in the Subscription Agreement);

WHEREAS, Arch Coal has the right, under certain circumstances, to acquire
additional shares of Common Stock pursuant to a 6% Convertible Debenture due
September 30, 2008 in the face amount of $300,000 (the "Convertible Debenture
Shares"; and together with the Purchased Shares and the Option Shares; the
"Shares")); and

WHEREAS, the execution and delivery of this Agreement by the parties is a
condition precedent to the parties' obligations under the Subscription
Agreement.

NOW, THEREFORE, in consideration of the premises and of the mutual covenants and
agreements set forth herein and for other good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, the parties, intending
to be legally bound hereby, agree as follows:

                                    ARTICLE I

                         REPRESENTATIONS AND WARRANTIES

Section 1.01 Arch Coal represents and warrants to ADA-ES as follows:

(a) Arch Coal has full legal right, power and authority to enter into and
perform this Agreement. The execution and delivery of this Agreement by Arch
Coal and the consummation by Arch Coal of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on behalf of Arch
Coal. This Agreement is a valid and binding obligation of Arch Coal enforceable
against Arch Coal in accordance with its terms.

(b) Neither the execution and delivery of this Agreement by Arch Coal nor the
consummation by Arch Coal of the transactions contemplated hereby conflicts with
or constitutes a violation of or default under the charter or by-laws of Arch
Coal, any statute, law, regulation, order or decree applicable to Arch Coal, or
any contract, commitment, agreement, arrangement or restriction of any kind to
which Arch Coal is a party or by which Arch Coal is bound.

Section 1.02. ADA-ES represents and warrants to Arch Coal as follows:

(a) ADA-ES has full legal right, power and authority to enter into and perform
this Agreement. The execution and delivery of this Agreement by ADA-ES and the
consummation by ADA-ES of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on behalf of ADA-ES. This Agreement
is a valid and binding obligation of ADA-ES enforceable against ADA-ES in
accordance with its terms.

                                       1
<PAGE>

(b) Neither the execution and delivery of this Agreement by ADA-ES nor the
consummation by ADA-ES of the transactions contemplated hereby conflicts with or
constitutes a violation of or default under the charter or by-laws of ADA-ES,
any statute, law, regulation, order or decree applicable to ADA-ES, or any
contract, commitment, agreement, arrangement or restriction of any kind to which
ADA-ES is a party or by which ADA-ES is bound.

                                   ARTICLE II

                          LIMITATIONS AND RESTRICTIONS

Section 2.01. Restrictions on Sales by Arch Coal. Arch Coal agrees that until
the first anniversary of this Agreement, it will not, nor will it permit any of
its Affiliates, to sell, solicit an offer to sell, agree to sell, offer or
propose to sell (collectively "Sell"), the Shares; except as follows:

(a) Arch Coal may transfer all or a portion of the Shares to a wholly-owned
subsidiary subject to all of the terms and conditions of this Agreement,
provided that Arch Coal maintains 100% ownership and voting control of such
subsidiary, and the certificates for any securities of such subsidiary are
marked with a legend restricting the transfer of such securities and
specifically referring to this Agreement; and

(b) Arch Coal may sell its shares pursuant to a tender offer for all outstanding
shares of ADA-ES' Common Stock approved by ADA-ES' Board of Directors.

                                   ARTICLE III

                               REGISTRATION RIGHTS

Section 3.01. "Piggy-Back" Registrations. If at any time after the Distribution,
ADA-ES shall determine to register for its own account or the account of others
under the Securities Act (other than a registration demanded by Arch Coal
pursuant to Section 3.02 hereof) any of its equity securities, other than on
Form S-4 or Form S-8 or their then equivalents or otherwise relating to shares
of Common Stock to be issued in connection with any acquisition of any entity or
business or shares of Common Stock issuable in connection with stock option or
other employee benefit plans, it shall send to Arch Coal written notice of such
determination and, if within ten (10) business days after receipt of such
notice, Arch Coal shall so request in writing, ADA-ES shall use its best efforts
to include in such registration statement all or any part of the Shares then
held by Arch Coal ("Registrable Shares") and which Arch Coal requests to be
registered.

If, in connection with any offering involving an underwriting, the managing
underwriter shall impose a limitation on the number of shares of Common Stock
which may be included in the registration statement because, in its judgment,
such limitation is necessary to effect an orderly public distribution, then
ADA-ES shall be obligated to include in such registration statement only such
limited portion (which may be none) of the Registrable Shares with respect to
which Arch Coal has requested inclusion pursuant hereto as may reasonably be
determined by the managing underwriters; provided, that inclusion of any of Arch
Coal's Registrable Shares shall be subordinate to the currently existing
"piggyback" registration rights granted by ADA-ES. Any inclusion of Registrable
Shares in an offering, when the managing underwriter has so limited the number
of shares that may be included in such offering, shall be allocated as follows:
first, pro rata among the holders of registration rights granted by ADA-ES prior
to the date hereof seeking to include their shares, in proportion to the number
of shares of Common Stock (whether or not such shares are sought to be included
in such offering) held by such persons; and thereafter, to Arch Coal. ADA-ES
shall have the right to withdraw any registration initiated by it pursuant to
this Section 3.01.

                                       2
<PAGE>

Section 3.02. Registrations on Form S-1 or Form S-2. In addition to the rights
provided Arch Coal in Section 3.01 above, if the registration of Registrable
Shares under the Securities Act can be effected on Form S-3 (or any similar form
promulgated by the Commission), then, at any time after the first anniversary of
this Agreement, upon the written request of Arch Coal, ADA-ES will use its best
efforts to effect qualification and registration under the Securities Act on
Form S-1 or Form S-2 of such portion of the Registrable Shares as Arch Coal
shall specify, up to the lesser of (i) twenty-five percent (25%) of the
Registrable Shares then held by Arch Coal, and (ii) the amount of Registrable
Shares then held by Arch Coal and permitted to be sold under Section 2.02 of
this Agreement; provided, however, ADA-ES shall not be required to effect a
registration pursuant to this Section 3.02 unless the market value of the
Registrable Shares to be sold in any such registration shall be estimated to be
at least $1,000,000 at the time of filing such registration statement, and
further provided that ADA-ES shall not be required to effect more than one (1)
registration during any twelve (12) month period pursuant to this Section 3.02
and four (4) registrations in the aggregate under this Section 3.02. No request
for registration under this Section 3.02 may be made within the one hundred and
eighty day period after the effective date of a registration statement filed by
ADA-ES or while ADA-ES is in the process of preparing a registration statement.

Section 3.03 Effectiveness. ADA-ES will use its best efforts to maintain the
effectiveness for up to 90 days (or such shorter period of time as the
underwriters need to complete the distribution of a registered offering or until
the securities are actually sold) of any registration statement pursuant to
which any of the Registrable Shares are being offered, and from time to time
will amend or supplement such registration statement and the prospectus
contained therein to the extent necessary to comply with the Securities Act and
any applicable state securities statute or regulation. ADA-ES will also provide
Arch Coal with as many copies of the prospectus contained in any such
registration statement as it may reasonably request. For a period not to exceed
ninety (90) days, ADA-ES shall not be obligated to prepare and file, or be
prevented from delaying or abandoning, a registration statement pursuant to this
Agreement at any time when ADA-ES, in its good faith judgment with advice of
counsel, reasonably believes:

(a) that the filing thereof at the time requested, or the offering of
Registrable Shares pursuant thereto, would materially and adversely affect (a) a
pending or scheduled public offering of ADA-ES's securities, (b) an acquisition,
merger, recapitalization, consolidation, reorganization or similar transaction
by or of ADA-ES, (c) pre-existing and continuing negotiations, discussions or
pending proposals with respect to any of the foregoing transactions, or (d) the
financial condition of ADA-ES in view of the disclosure of any pending or
threatened litigation, claim, assessment or governmental investigation which may
be required thereby; and

(b) that the failure to disclose any material information with respect to the
foregoing would cause a violation of the Securities Act or the Exchange Act.

Section 3.04. Indemnification of Arch Coal. In the event that ADA-ES registers
any of the Registrable Shares under the Securities Act, ADA-ES will indemnify
and hold harmless Arch Coal and each underwriter of Registrable Shares
(including their officers, directors, affiliates and partners and including any
broker or dealer through whom Registrable Shares may be sold in such
registration) and each person, if any, who controls Arch Coal or any such
underwriter within the meaning of Section 15 of the Securities Act from and
against any and all losses, claims, damages, expenses or liabilities, joint or
several, to which they or any of them become subject under the Securities Act,
applicable state securities laws or under any other statute or at common law or
otherwise, as incurred, and, except as hereinafter provided, will reimburse Arch
Coal, each such underwriter and each such controlling person, if any, for any
legal or other expenses reasonably incurred by them or any of them in connection
with investigating or defending any actions whether or not resulting in any
liability, as incurred, insofar as such losses, claims, damages, expenses,
liabilities or actions arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the registration
statement, in any preliminary or amended preliminary prospectus or in the final
prospectus (or the registration statement or prospectus as from time to time
amended or supplemented by ADA-ES) or arise out of or are based upon the

                                       3
<PAGE>

omission or alleged omission to state therein a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading, or any violation by ADA-ES of any rule or regulation promulgated
under the Securities Act or any state securities laws applicable to ADA-ES and
relating to action or inaction required of ADA-ES in connection with such
registration, unless (i) such untrue statement or alleged untrue statement or
omission or alleged omission was made in such registration statement,
preliminary or amended preliminary prospectus or final prospectus in reliance
upon and in conformity with information furnished in writing to ADA-ES in
connection therewith by Arch Coal (in the case of indemnification of Arch Coal),
any such underwriter (in the case of indemnification of such underwriter) or any
such controlling person (in the case of indemnification of such controlling
person) expressly for use therein, or unless (ii) in the case of a sale directly
by Arch Coal (including a sale of Registrable Shares through any underwriter
retained by Arch Coal to engage in a distribution solely on behalf of Arch
Coal), such untrue statement or alleged untrue statement or omission or alleged
omission was contained in a preliminary prospectus and corrected in a final or
amended prospectus copies of which were delivered to Arch Coal or such
underwriter on a timely basis, and Arch Coal failed to deliver a copy of the
final or amended prospectus at or prior to the confirmation of the sale of the
Registrable Shares to the person asserting any such loss, claim, damage or
liability in any case where such delivery is required by the Securities Act.

Promptly after receipt by Arch Coal, any underwriter or any controlling person
of notice of the commencement of any action in respect of which indemnity may be
sought against ADA-ES, Arch Coal, or such underwriter or such controlling
person, as the case may be, shall notify ADA-ES in writing of the commencement
thereof (provided, that failure to so notify ADA-ES shall not relieve ADA-ES
from any liability it may have hereunder, except to the extent prejudiced by
such failure) and, subject to the provisions hereinafter stated, ADA-ES shall be
entitled to assume the defense of such action (including the employment of
counsel, who shall be counsel reasonably satisfactory to Arch Coal, such
underwriter or such controlling person, as the case may be) and the payment of
expenses insofar as such action shall relate to any alleged liability in respect
of which indemnity may be sought against ADA-ES.

Arch Coal, any such underwriter or any such controlling person shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof but the fees and expenses of such counsel subsequent to any
assumption of the defense by ADA-ES shall not be at the expense of ADA-ES unless
the employment of such counsel has been specifically authorized in writing by
ADA-ES; provided, however, that, if the defendants in any such action include
both the indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be reasonable defenses available
to it which are different from or additional to those available to the
indemnifying party or if the interests of the indemnified party reasonably may
be deemed to conflict with the interests of the indemnifying party, the
indemnified party shall have the right to select a separate counsel and to
assume such legal defenses and otherwise to participate in the defense of such
action, with the expenses and fees of such separate counsel and other expenses
related to such participation to be reimbursed by the indemnifying party as
incurred. At any time, Arch Coal may select separate counsel and assume its own
legal defense with the expenses and fees of such separate counsel and other
expenses related to such separate counsel to be borne by Arch Coal. ADA-ES shall
not be liable to indemnify Arch Coal, any underwriter or any controlling person
for any settlement of any such action effected without ADA-ES's written consent
(which consent shall not be unreasonably withheld or delayed). ADA-ES shall not,
except with the approval of each party being indemnified under this Section
3.04, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to the parties being so indemnified of a release from all liability in
respect to such claim or litigation.

                                       4
<PAGE>

In order to provide for just and equitable contribution to joint liability under
the Securities Act in any case in which Arch Coal, or any controlling person of
Arch Coal, makes a claim for indemnification pursuant to this Section 3.04 but
it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 3.04 provides
for indemnification in such case, then, ADA-ES and Arch Coal will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion as is appropriate to
reflect the relative fault of ADA-ES on the one hand and of Arch Coal on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of ADA-ES on the one hand and of Arch Coal on
the other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by ADA-ES on
the one hand or by Arch Coal on the other, and each party's relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, however, that, in any such case, (A) Arch Coal
will not be required to contribute any amount in excess of the public offering
price of all Registrable Shares offered by it pursuant to such registration
statement; and (B) no person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.

The indemnities provided in this Section 3.04 shall survive the transfer of any
Registrable Shares by Arch Coal.

Section 3.05 Indemnification of Company. In the event that ADA-ES registers any
of the Registrable Shares under the Securities Act, Arch Coal will indemnify and
hold harmless ADA-ES, each of its directors, each of its officers who have
signed or otherwise participated in the preparation of the registration
statement, each underwriter of the Registrable Shares so registered (including
any broker or dealer through whom such of the shares may be sold) and each
person, if any, who controls ADA-ES within the meaning of Section 15 of the
Securities Act from and against any and all losses, claims, damages, expenses or
liabilities, joint or several, to which they or any of them may become subject
under the Securities Act, applicable state securities laws or under any other
statute or at common law or otherwise, and, except as hereinafter provided, will
reimburse ADA-ES and each such director, officer, underwriter or controlling
person for any legal or other expenses reasonably incurred by them or any of
them in connection with investigating or defending any actions whether or not
resulting in any liability, insofar as such losses, claims, damages, expenses,
liabilities or actions arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the registration
statement, in any preliminary or amended preliminary prospectus or in the final
prospectus (or in the registration statement or prospectus as from time to time
amended or supplemented) or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein not misleading, but only
insofar as any such statement or omission was made in reliance upon and in
conformity with information furnished in writing to ADA-ES in connection
therewith by Arch Coal expressly for use therein; provided, however, that Arch
Coal's obligations hereunder shall be limited to an amount equal to the proceeds
received by Arch Coal for the Registrable Shares sold in such registration.

Promptly after receipt of notice of the commencement of any action in respect of
which indemnity may be sought against Arch Coal, ADA-ES shall notify Arch Coal
in writing of the commencement thereof (provided, that failure to so notify Arch
Coal shall not relieve Arch Coal from any liability it may have hereunder,
except to the extent prejudiced by such failure), and Arch Coal shall, subject
to the provisions hereinafter stated, be entitled to assume the defense of such
action (including the employment of counsel, who shall be counsel reasonably
satisfactory to ADA-ES) and the payment of expenses insofar as such action shall

                                       5
<PAGE>

relate to the alleged liability in respect of which indemnity may be sought
against Arch Coal. ADA-ES and each such director, officer, underwriter or
controlling person shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel subsequent to any assumption of the defense by Arch Coal shall not
be at the expense of Arch Coal unless employment of such counsel has been
specifically authorized in writing by Arch Coal. Arch Coal shall not be liable
to indemnify any person for any settlement of any such action effected without
Arch Coal's written consent (which consent shall not be unreasonably withheld or
delayed).

In order to provide for just and equitable contribution to joint liability under
the Securities Act in any case in which ADA-ES, its officers, directors or
controlling persons ("ADA-ES Indemnitees") exercising its rights under this
Article III, makes a claim for indemnification pursuant to this Section 3.05,
but it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding that this Section 3.05 provides for
indemnification, in such case, then, ADA-ES Indemnitee and Arch Coal will
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (after contribution from others) in such proportion as is
appropriate to reflect the relative fault of ADA-ES Indemnitee on the one hand
and of the Arch Coal on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative fault of ADA-ES Indemnitee
on the one hand and of Arch Coal on the other shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by ADA-ES Indemnitee on the one hand or by Arch Coal on
the other, and each party's relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission; provided,
however, that, in any such case, (A) Arch Coal will not be required to
contribute any amount in excess of the public offering price of all such
Registrable Shares offered by it pursuant to such registration statement; and
(B) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to contribution
from any person or entity who was not guilty of such fraudulent
misrepresentation.

Section 3.06. Further Obligations of ADA-ES. Whenever under the preceding
Sections of this Article III, ADA-ES is required hereunder to register
Registrable Shares, it agrees that it shall also do the following:

(a) Furnish to Arch Coal such copies of each preliminary and final prospectus
and such other documents as Arch Coal may reasonably request to facilitate the
public offering of the Registrable Shares;

(b) Use its best efforts to register or qualify the Registrable Shares covered
by said registration statement under the applicable securities or "blue sky"
laws of such jurisdictions as Arch Coal may reasonably request; provided,
however, that ADA-ES shall not be obligated to qualify to do business in any
jurisdictions where it is not then so qualified or to take any action which
would subject it to the service of process in suits other than those arising out
of the offer or sale of the securities covered by the registration statement in
any jurisdiction where it is not then so subject;

(c) Permit Arch Coal or its counsel or other representatives to inspect and copy
such corporate documents and records as may reasonably be requested by them,
after reasonable advance notice and without undue interference with the
operation of ADA-ES's business;

(d) Furnish to Arch Coal a copy of all documents filed with and all
correspondence from or to the Commission in connection with any such offering of
securities;

                                       6
<PAGE>

(e) Use its best efforts to insure the obtaining of all necessary approvals from
the National Association of Securities Dealers, Inc.; and

(f) Otherwise use its best efforts to comply with all applicable rules and
regulations of the Commission, and make available to its security holders, as
soon as reasonably practicable, an earning statement covering the period of at
least twelve months, but not more than eighteen months, beginning with the first
month after the effective date of the registration statement covering a Public
Offering, which earning statement shall satisfy the provisions of Section 11(a)
of the Securities Act and Rule 158 thereunder.

Whenever under the preceding Sections of this Article III Arch Coal is
registering Registrable Shares pursuant to any registration statement, (i) Arch
Coal agrees to timely provide to ADA-ES, at its request, such information and
materials as it may reasonably request in order to effect the registration of
such Registrable Shares and (ii) if the offering is underwritten, ADA-ES and
Arch Coal agree to execute an underwriting agreement containing customary
conditions..

Section 3.07. Expenses. Subject to Section 3.02(b) in the case of each
registration effected under Section 3.01 or 3.02, ADA-ES shall bear its own
reasonable costs and expenses of each such registration on behalf of Arch Coal,
including, but not limited to, ADA-ES's printing, legal and accounting fees and
expenses, Commission and NASD filing fees and "blue sky" fees and expenses;
provided, however, that ADA-ES shall have no obligation to pay or otherwise bear
any portion of the underwriters' commissions or discounts or transfer taxes
attributable to the Registrable Shares being offered and sold by Arch Coal, or
the fees and expenses of counsel for Arch Coal in connection with the
registration of the Registrable Shares.

ADA-ES shall pay all expenses in connection with any registration initiated
pursuant to this Article III which is withdrawn, delayed or abandoned at the
request of ADA-ES, unless such registration is withdrawn, delayed or abandoned
solely because of any action of Arch Coal.

Section 3.08. Non-Transferability. Arch Coal's rights and obligations contained
in this Article III shall not be transferable to any other party under any
circumstances, whether by operation of law or otherwise.

Section 3.09 Lock-Up Agreement. Arch Coal agrees, if so requested by ADA-ES in
connection with any public offering of ADA-ES's securities, not to sell, grant
any option or right to buy or sell, or otherwise transfer or dispose of in any
manner, whether in privately-negotiated or open-market transactions, any Common
Stock or other securities of ADA-ES held by it during the 180-day period
following the effective date of a registration statement filed pursuant to
apublic offering, nor will it permit any of its affiliates or associates to do
any of the foregoing. Arch Coal, its affiliates or associates shall enter into
"lock-up" agreements to such effect. Such "lock-up" agreements shall be in
writing and in form and substance satisfactory to ADA-ES. ADA-ES may impose
stop-transfer instructions with respect to the Shares (or securities) subject to
the foregoing restrictions until the end of said 180-day period.

Section 3.10. Termination of Registration Rights. Notwithstanding any other term
or provision of this Article III, at such time as Arch Coal is free to sell the
Registrable Shares without registration pursuant to Rule 144(k) promulgated
under the Securities Act, all rights of Arch Coal as to such Registrable Shares
under Sections 3.01 and 3.02 of this Article III shall terminate.

                                   ARTICLE IV

                                  MISCELLANEOUS

Section 4.01. Interpretation. For all purposes of this Agreement, the term
ADA-ES Common Stock shall include any securities of any issuer entitled to vote
generally for the election of directors of such issuer which securities the

                                       7
<PAGE>

holders of ADA-ES Common Stock shall have received or as a matter of right be
entitled to receive as a result of (i) any capital reorganization or
reclassification of the capital stock of ADA-ES, (ii) any consolidation, merger
or share exchange of ADA-ES with or into another corporation or (iii) any sale
or substantially all the assets of ADA-ES.

Section 4.02. Enforcement. (a) Arch Coal acknowledges and agrees that
irreparable damage would occur if any of the provisions of this Agreement were
not performed in accordance with their specific terms or were otherwise
breached. Accordingly, ADA-ES will be entitled to an injunction or injunctions
to prevent breaches of this Agreement and to enforce specifically its provisions
in any court of the United States or any state having jurisdiction, this being
in addition to any other remedy to which ADA-ES may be entitled at law or in
equity.

(b) No failure or delay on the part of ADA-ES in the exercise of any power,
right or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege.

Section 4.03. Entire Agreement. This Agreement, together with the applicable
provisions of the Subscription Agreement, constitutes the entire understanding
of the parties with respect to the transactions contemplated hereby and thereby.
This Agreement may be amended only by an agreement in writing executed by ADA-ES
and Arch Coal.

Section 4.04. Severability. If any provision of this Agreement is held by a
court of competent jurisdiction to be unenforceable, the remaining provisions
shall remain in full force and effect. It is declared to be the intention of the
parties that they would have executed the remaining provisions without including
any that may be declared unenforceable.

Section 4.05. Headings. Descriptive headings are for convenience only and will
not control or affect the meaning or construction of any provision of this
Agreement.

Section 4.06. Counterparts. This Agreement may be executed in two or more
counterparts, and each such executed counterpart will be an original instrument.

Section 4.07. Notices. All notices, consents, requests, instructions, approvals
and other communications provided for in this Agreement and all legal process in
regard to this Agreement will be validly given, made or served, if in writing
and delivered personally, by telecopy (except for legal process) or sent by
certified mail postage paid.

if to ADA-ES:              ADA-ES, Inc.
                           8100 SouthPark Way, B
                           Littleton, CO  80120
                           Attn:  President
                           Fax:  (303) 734-0330

if to Arch Coal:           Arch Coal, Inc.
                           One CityPlace Drive
                           Suite 300
                           St. Louis, MO  63141
                           Attn:  David Peugh
                           Fax:  (314) 994-2940

with a copy to:            General Counsel
                           Fax:  (314) 994-2734

or to such other address or telecopy number as any party may, from time to time,
designate in a written notice given in a like manner. Notice by telecopy shall
be deemed delivered on the day telephone confirmation of receipt is given.

                                       8
<PAGE>

Section 4.08. Successors and Assigns. This Agreement shall bind the successors
and assigns of the parties, and inure to the benefit of any successor or assign
of any of the parties; provided, however, that no party may assign this
Agreement without the other party's prior written consent; provided further,
however, that the rights contained in Article III of this Agreement may not be
transferred or assigned under any circumstances.

Section 4.09. Legend. Each certificate representing shares of capital stock of
ADA-ES beneficially owned by Arch Coal or its affiliates or associates shall
bear a legend in substantially the following form, until such time as the shares
of capital stock represented thereby are no longer subject to the provisions
hereof:

"The sale, transfer or assignment of the securities represented by this
certificate are subject to the terms and conditions of a certain Standstill and
Registration Rights Agreement dated September 19, 2003, as amended from time to
time, between ADA-ES and Arch Coal, Inc. Copies of such Agreement may be
obtained at no cost by written request made by the holder of record of this
certificate to the Secretary of ADA-ES."

Section 4.10. Governing Law. This Agreement will be governed by and construed
and enforced in accordance with the laws of the State of Colorado, without
giving effect to the conflict of laws principles thereof.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first referred to above.

ADA-ES, INC.


By:____________________
     Name:  Michael D. Durham
     Title:  President

Arch Coal, Inc.


By:____________________
     Name:
     Title:




                                        9
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>3
<FILENAME>adaexh102.txt
<DESCRIPTION>2003 STOCK OPTION PLAN
<TEXT>



                                                                    Exhibit 10.2

                                  ADA-ES, INC.
                             2003 STOCK OPTION PLAN

                                TABLE OF CONTENTS

1.     PURPOSE............................................................... 2
2.     DEFINITIONS........................................................... 2
3.     ADMINISTRATION........................................................ 4
3.1.   COMMITTEE............................................................. 4
3.2.   NO LIABILITY.......................................................... 4
4.     STOCK................................................................. 4
5.     ELIGIBILITY........................................................... 4
6.     EFFECTIVE DATE AND TERM............................................... 4
6.1.   EFFECTIVE DATE........................................................ 4
6.2.   TERM.................................................................. 5
7.     GRANT OF OPTIONS...................................................... 5
8.     LIMITATION ON INCENTIVE STOCK OPTIONS................................. 5
9.     OPTION AGREEMENTS..................................................... 5
10.    OPTION PRICE.......................................................... 6
11.    TERM AND EXERCISE OF OPTIONS.......................................... 6
11.1.  TERM.................................................................. 6
11.2.  EXERCISE BY OPTIONEE.................................................. 6
11.3.  OPTION PERIOD AND LIMITATIONS ON EXERCISE............................. 6
11.4.  METHOD OF EXERCISE.................................................... 7
11.5.  PARACHUTE LIMITATIONS................................................. 7
12.    TRANSFERABILITY OF OPTIONS............................................ 8
12.1.  TRANSFERABILITY OF OPTIONS.............................................8

                                        i

<PAGE>


12.2.  FAMILY TRANSFERS.......................................................8
13.    TERMINATION OF SERVICE RELATIONSHIP................................... 9
14.    RIGHTS IN THE EVENT OF DEATH OR DISABILITY............................ 9
14.1.  DEATH................................................................. 9
14.2.  DISABILITY............................................................ 10
15.    USE OF PROCEEDS....................................................... 10
16.    SECURITIES LAWS....................................................... 10
17.    EXCHANGE ACT: RULE 16B-3...............................................11
17.1.  GENERAL............................................................... 11
17.2.  COMPENSATION COMMITTEE................................................ 11
17.3.  RESTRICTION ON TRANSFER OF STOCK...................................... 11
18.    AMENDMENT AND TERMINATION............................................. 11
19.    EFFECT OF CHANGES IN CAPITALIZATION................................... 11
19.1.  CHANGES IN STOCK...................................................... 12
19.2.  REORGANIZATION WITH CORPORATION SURVIVING............................. 12
19.3.  OTHER REORGANIZATIONS; SALE OF ASSETS OR STOCK.......................  12
19.4.  ADJUSTMENTS........................................................... 13
19.5.  NO LIMITATIONS ON CORPORATION......................................... 13
20.    WITHHOLDING............................................................13
21.    DISCLAIMER OF RIGHTS.................................................. 13
22.    NONEXCLUSIVITY........................................................ 13
23.    GOVERNING LAW......................................................... 14

                                       ii

<PAGE>


                                  ADA-ES, INC.
                             2003 Stock Option Plan


     ADA-ES, INC., a Colorado corporation (the "Corporation"), sets forth herein
the terms of the 2003 Stock Option Plan (the "Plan") as follows:

1. PURPOSE

     The Plan is intended to advance the interests of the Corporation by
providing eligible individuals (as designated pursuant to Section 5 hereof) an
opportunity to acquire or increase a proprietary interest in the Corporation,
which thereby will create a stronger incentive to expend maximum effort for the
growth and success of the Corporation and its subsidiaries and will encourage
such eligible individuals to continue to service the Corporation.

2. DEFINITIONS

     For purposes of interpreting the Plan and related documents (including
Option Agreements), the following definitions shall apply:

          2.1 "Affiliate" means any company or other trade or business that is
controlled by or under common control with the Corporation, (determined in
accordance with the principles of Section 414(b) and 414(c) of the Code and the
regulations thereunder) or is an affiliate of the Corporation within the meaning
of Rule 405 of Regulation C under the 1933 Act.

          2.2 "Board" means the Board of Directors of the Corporation.

          2.3 "Cause" means, unless otherwise defined in an Option Agreement,
(i) gross negligence or willful misconduct in connection with the performance of
duties; (ii) conviction of a criminal offense (other than minor traffic
offenses); or (iii) material breach of any term of any employment, consulting or
other services, confidentiality, intellectual property or non-competition
agreements, if any, between Optionee and the Corporation or any of its
Subsidiaries or Affiliates.

          2.4 "Code" means the Internal Revenue Code of 1986, as now in effect
or as hereafter amended.

          2.5 "Committee" means the Compensation Committee of the Board which
must consist of no fewer than two members of the Board and shall be appointed by
the Board.

          2.6 "Corporation" means ADA-ES, INC.

          2.7 "Effective Date" means the date of adoption of the Plan by the
Board.

          2.8 "Employer" means ADA-ES, INC. or a Subsidiary or Affiliate of the
Corporation, which employs the designated recipient of an Option.

          2.9 "Exchange Act" means the Securities Exchange Act of 1934, as now
in effect or as hereafter amended.

                                        1

<PAGE>


          2.10 "Fair Market Value" means the value of each share of Stock
subject to the Plan determined as follows: if on the Grant Date or other
determination date the shares of Stock are listed on an established national or
regional stock exchange, are admitted to quotation on the National Association
of Securities Dealers Automated Quotation System, or are publicly traded on an
established securities market, the Fair Market Value of the shares of Stock
shall be the closing bid price of the shares of Stock on such exchange or in
such market (the highest such closing price if there is more than one such
exchange or market) on the trading day immediately preceding the Grant Date (or
on the Grant Date, if so specified by the Committee or the Board) or such other
determination date or, if no sale of the shares of Stock is reported for such
trading day, on the next preceding day on which any sale shall have been
reported. If the shares of Stock are not listed on such an exchange, quoted on
such System or traded on such a market, Fair Market Value shall be determined by
the Board in good faith.

          2.11 "Grant Date" means the later of (i) January 20, 2003 and (ii) the
date as of which the Optionee and the Corporation, Subsidiary or Affiliate enter
the relationship resulting in the Optionee being eligible for grants.

          2.12 "Family Member" means a person who is a spouse, child, stepchild,
grandchild, parent, stepparent, grandparent, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships, of the Optionee, any person
sharing the Optionee's household (other than a tenant or employee), a trust in
which these persons (or the Optionee) have more than fifty percent of the
beneficial interest, a foundation in which these persons (or the Optionee)
control the management of assets, and any other entity in which these persons
(or the Optionee) own more than fifty percent of the voting interests.

          2.13 "Incentive Stock Option" means an "incentive stock option" within
the meaning of section 422 of the Code.

          2.14 "Option" means an option to purchase one or more shares of Stock
pursuant to the Plan.

          2.15 "Option Agreement" means the written agreement evidencing the
grant of an Option hereunder.

          2.16 "Optionee" means a person who holds an Option under the Plan.

          2.17 "Option Period" means the period during which Options may be
exercised as defined in Section 11.

          2.18 "Option Price" means the purchase price for each share of Stock
subject to an Option.

          2.19 "Plan" means the ADA-ES, INC. 2003 Stock Option Plan.

          2.20 "1933 Act" means the Securities Act of 1933, as now in effect or
as hereafter amended.

                                        2

<PAGE>


          2.21 "Service Relationship" means the provision of bona fide services
to the Corporation, a Subsidiary, or an Affiliate as an employee or consultant.

          2.22 "Stock" mean the shares of Common Stock, no par value, of the
Corporation.

          2.23 "Subsidiary" means any "subsidiary corporation" of the
Corporation within the meaning of Section 425(f) of the Code.

3. ADMINISTRATION

          3.1. Committee

          The Plan shall be administered by the Committee appointed by the
Board, which shall have the full power and authority to take all actions and to
make all determinations required or provided for under the Plan or any Option
granted or Option Agreement entered into hereunder and all such other actions
and determinations not inconsistent with the specific terms and provisions of
the Plan deemed by the Committee to be necessary or appropriate to the
administration of the Plan or any Option granted or Option Agreement entered
into hereunder. The interpretation and construction by the Committee of any
provision of the Plan or of any Option granted or Option Agreement entered into
hereunder shall be final and conclusive.

          3.2. No Liability

          No member of the Board or of the Committee shall be liable for any
action or determination made, or any failure to take or make an action or
determination, in good faith with respect to the Plan or any Option granted or
Option Agreement entered into hereunder.

4.  STOCK

     The stock that may be issued pursuant to Options granted under the Plan
shall be Stock, which shares may be treasury shares or authorized but unissued
shares. The number of shares of Stock that may be issued pursuant to Options
granted under the Plan shall not exceed in the aggregate 400,000 shares of
Stock, which number of shares is subject to adjustment as provided in Section 19
hereof. If any Option or portion thereof is unearned, expires, terminates or is
terminated for any reason prior to exercise in full, the shares of Stock that
were subject to the unexercised portion of such Option shall be available for
future Options granted under the Plan.

5. ELIGIBILITY

     Options may be granted under the Plan to (i) any officer or full-time
employee of the Corporation, any Subsidiary, any Affiliate (including any such
officer or employee who is also a director of the Corporation, any Subsidiary,
any Affiliate) or (ii) any other individual whose participation in the Plan is
determined to be in the best interests of the Corporation by the Committee. An
individual may hold more than one Option, subject to such restrictions as are
provided herein.

                                        3

<PAGE>


6. EFFECTIVE DATE AND TERM

          6.1. Effective Date

          The Plan shall become effective as of January 20, 2003, the date of
adoption by the Board, subject to stockholders' approval of the Plan within one
year of such effective date by a majority of the votes cast at a duly held
meeting of the stockholders of the Corporation at which a quorum representing a
majority of all outstanding stock is present, either in person or by proxy, and
voting on the matter, or by written consent in accordance with applicable state
law and the Certificate of Incorporation and By-Laws of the Corporation;
provided, however, that upon approval of the Plan by the stockholders of the
Corporation, all Options granted under the Plan on or after the effective date
shall be fully effective as if the stockholders of the Corporation had approved
the Plan on the effective date. If the stockholders fail to approve the Plan
within one year of such effective date, any Options granted hereunder shall be
null, void and of no effect.

          6.2. Term

          If not sooner terminated by the Board, the Plan shall terminate on the
date 10 years after the effective date.

7. GRANT OF OPTIONS

     Subject to the terms and conditions of the Plan, the Committee may, at any
time and from time to time prior to the date of termination of the Plan, grant
to such eligible individuals as the Committee may determine Options to purchase
such number of shares of Stock on such terms and conditions as the Committee may
determine, including any terms or conditions which may be necessary to qualify
such Options as Incentive Stock Options. Without limiting the foregoing, the
Committee may at any time, with the consent of the Optionee, amend the terms of
outstanding Options or issue new Options in exchange for the surrender and
cancellation of outstanding Options. The date on which the Committee approves
the grant of an Option (or such later date as is specified by the Committee)
shall be considered the date on which such Option is granted. The maximum number
of shares of Stock subject to Options that can be awarded under the Plan to any
person is 20,000 shares, which number of shares is subject to adjustment as
provided in Section 19 hereof.

8. LIMITATION ON INCENTIVE STOCK OPTIONS

     An Option shall constitute an Incentive Stock Option only to the extent
that (i) it is designated an Incentive Stock Option and (ii) the aggregate fair
market value (determined at the time the Option is granted) of the Stock with
respect to which Incentive Stock Options are exercisable for the first time by
any Optionee during any calendar year (under the Plan and all other plans of the
Optionee's employer corporation and its parent and subsidiary corporations
within the meaning of Section 422(d) of the Code) does not exceed $100,000. This
limitation shall be applied by taking Options into account in the order in which
such Options were granted.

                                        4

<PAGE>


9. OPTION AGREEMENTS

     All Options granted pursuant to the Plan shall be evidenced by written
agreements to be executed by the Corporation and the Optionee, in such form or
forms as the Committee shall from time to time determine. Option Agreements
covering Options granted from time to time or at the same time need not contain
similar provisions; provided, however, that all such Option Agreements shall
comply with all terms of the Plan.

10. OPTION PRICE

     The purchase price of each share of Stock subject to an Option shall be
fixed by the Committee and stated in each Option Agreement. In the case of an
Option that is intended to constitute an Incentive Stock Option, the Option
Price shall be not less than the greater of par value or 100 percent of the fair
market value of a share of the Stock covered by the Option on the date the
Option is granted (as determined in good faith by the Committee); provided,
however, that in the event the Optionee would otherwise be ineligible to receive
an Incentive Stock Option by reason of the provisions of Sections 422(b)(6) and
424(d) of the Code (relating to stock ownership of more than 10 percent), the
Option Price of an Option which is intended to be an Incentive Stock Option
shall be not less than the greater of par value or 110 percent of the fair
market value of a share of the Stock covered by the Option at the time such
Option is granted. In the case of an Option not intended to constitute an
Incentive Stock Option, the Option Price shall be not less than the par value of
a share of the Stock covered by the Option on the date the Option is granted.

11. TERM AND EXERCISE OF OPTIONS

          11.1.  Term

          Each Option granted under the Plan shall terminate and all rights to
purchase shares thereunder shall cease upon the expiration of 10 years from the
date such Option is granted, or on such date prior thereto as may be fixed by
the Committee and stated in the Option Agreement relating to such Option;
provided, however, that in the event the Optionee would otherwise be ineligible
to receive an Incentive Stock Option by reason of the provisions of Sections
422(b)(6) and 424(d) of the Code (relating to stock ownership of more than 10
percent), an Option granted to such Optionee which is intended to be an
Incentive Stock Option shall in no event be exercisable after the expiration of
five years from the date it is granted.

          11.2. Exercise by Optionee

          Only the Optionee receiving an Option or a transferee of an Option
pursuant to Section 12 (or, in the event of the Optionee's legal incapacity or
incompetency, the Optionee's guardian or legal representative, and in the case
of the Optionee's death, the Optionee's estate) may exercise the Option.

                                        5

<PAGE>


          11.3. Option Period and Limitations on Exercise

          Each Option granted under the Plan shall be exercisable in whole or in
part at any time and from time to time over a period commencing on or after the
date of grant of the Option and ending upon the expiration or termination of the
Option, as the Committee shall determine and set forth in the Option Agreement
relating to such Option. Without limitation of the foregoing, the Committee,
subject to the terms and conditions of the Plan, may in its sole discretion
provide that an Option may not be exercised in whole or in part for any period
or periods of time during which such Option is outstanding as the Committee
shall determine and set forth in the Option Agreement relating to such Option.
Any such limitation on the exercise of an Option contained in any Option
Agreement may be rescinded, modified or waived by the Committee, in its sole
discretion, at any time and from time to time after the date of grant of such
    Option. Notwithstanding any other provisions of the Plan, no Option shall be
exercisable in whole or in part prior to the date the Plan is approved by the
stockholders of the Corporation as provided in Section 6.1 hereof.

          11.4. Method of Exercise

          An Option that is exercisable hereunder may be exercised by delivery
to the Corporation on any business day, at its principal office addressed to the
attention of the Committee, of written notice of exercise, which notice shall
specify the number of shares for which the Option is being exercised, and shall
be accompanied by payment in full of the Option Price of the shares for which
the Option is being exercised. Payment of the Option Price for the shares of
Stock purchased pursuant to the exercise of an Option shall be made, as
determined by the Committee and set forth in the Option Agreement pertaining to
an Option, (a) in cash or by certified check payable to the order of the
Corporation; (b) through the tender to the Corporation of shares of Stock which,
if acquired from the Company, have been owned by the Optionee no less than six
(6) months and which shares shall be valued, for purposes of determining the
extent to which the Option Price has been paid thereby, at their Fair Market
Value on the date of exercise; (c) to the extent permitted by applicable law and
under the terms of the Option Agreement with respect to such Option, by causing
the Corporation to withhold shares of Stock otherwise issuable pursuant to the
exercise of an Option equal in value to the Option Price or portion thereof to
be satisfied pursuant to this clause (c); or (d) by a combination of the methods
described in Sections 11.4(a), 11.4(b) and 11.4(c) hereof; provided, however,
that the Committee may in its discretion impose and set forth in the Option
Agreement pertaining to an Option such limitations or prohibitions on the use of
shares of Stock to exercise Options as it deems appropriate. Payment in full of
the Option Price need not accompany the written notice of exercise provided the
notice directs that the Stock certificate or certificates for the shares for
which the Option is exercised be delivered to a licensed broker acceptable to
the Corporation as the agent for the individual exercising the Option and, at
the time such Stock certificate or certificates are delivered, the broker
tenders to the Corporation cash (or cash equivalents acceptable to the
Corporation) equal to the Option Price plus the amount (if any) of federal
and/or other taxes which the Corporation may, in its judgment, be required to
withhold with respect to the exercise of the Option. An attempt to exercise any
Option granted hereunder other than as set forth above shall be invalid and of
no force and effect. Promptly after the exercise of an Option and the payment in
full of the Option Price of the shares of Stock covered thereby, the individual
exercising the Option shall be entitled to the issuance of a Stock certificate
or certificates evidencing such individual's ownership of such shares. A
separate Stock certificate or certificates shall be issued for any shares

                                        6

<PAGE>


purchased pursuant to the exercise of an Option which is an Incentive Stock
Option, which certificate or certificates shall not include any shares which
were purchased pursuant to the exercise of an Option which is not an Incentive
Stock Option. An individual holding or exercising an Option shall have none of
the rights of a stockholder until the shares of Stock covered thereby are fully
paid and issued to such individual and, except as provided in Section 19 hereof,
no adjustment shall be made for dividends or other rights for which the record
date is prior to the date of such issuance.

          11.5. Parachute Limitations

          Notwithstanding any other provision of this Plan or of any other
agreement, contract, or understanding heretofore or hereafter entered into by
the Optionee with the Corporation or any Subsidiary, except an agreement,
contract, or understanding hereafter entered into that expressly modifies or
excludes application of this paragraph (an "Other Agreement"), and
notwithstanding any formal or informal plan or other arrangement heretofore or
hereafter adopted by the Corporation (or any such Subsidiary) for the direct or
indirect provision of compensation to the Optionee (including groups or classes
of participants or beneficiaries of which the Optionee is a member), whether or
not such compensation is deferred, is in cash, or is in the form of a benefit to
or for the Optionee (a "Benefit Arrangement"), if the Optionee is a
"disqualified individual," as defined in Section 280G(c) of the Code, any Option
held by that Optionee and any right to receive any payment or other benefit
under this Plan shall not become exercisable or vested (i) to the extent that
such right to exercise, vesting, payment, or benefit, taking into account all
other rights, payments, or benefits to or for the Optionee under this Plan, all
Other Agreements, and all Benefit Arrangements, would cause any payment or
benefit to the Optionee under this Plan to be considered a "parachute payment"
within the meaning of Section 280G(b)(2) of the Code as then in effect (a
"Parachute Payment") and (ii) if, as a result of receiving a Parachute Payment,
the aggregate after-tax amounts received by the Optionee from the Corporation
under this Plan, all Other Agreements, and all Benefit Arrangements would be
less than the maximum after-tax amount that could be received by Optionee
without causing any such payment or benefit to be considered a Parachute
Payment. In the event that the receipt of any such right to exercise, vesting,
payment, or benefit under this Plan, in conjunction with all other rights,
payments, or benefits to or for the Optionee under any Other Agreement or any
Benefit Arrangement would cause the Optionee to be considered to have received a
Parachute Payment under this Plan that would have the effect of decreasing the
after-tax amount received by the Optionee as described in clause (ii) of the
preceding sentence, then the Optionee shall have the right, in the Optionee's
sole discretion, to designate those rights, payments, or benefits under this
Plan, any Other Agreements, and any Benefit Arrangements that should be reduced
or eliminated so as to avoid having the payment or benefit to the Optionee under
this Plan be deemed to be a Parachute Payment.

12. TRANSFERABILITY OF OPTIONS

          12.1. Transferability of Options

          Except as provided in Section 12.2, during the lifetime of an
Optionee, only the Optionee (or, in the event of legal incapacity or
incompetency, the Optionee's guardian or legal representative) may exercise an

                                        7

<PAGE>


Option. Except as provided in Section 12.2, no Option shall be assignable or
transferable by the Optionee to whom it is granted, other than by will or the
laws of descent and distribution.

          12.2. Family Transfers.

          Subject to the terms of the applicable Option Agreement, an Optionee
may transfer all or part of an Option which is not an Incentive Stock Option to
any Family Member; provided that subsequent transfers of transferred Options are
prohibited except those in accordance with this Section 12.2 or by will or the
laws of descent and distribution; and, provided further, that, except with the
consent of the Board or the Committee, there may be no consideration for any
transfer made pursuant to this section. Following transfer, any such Option
shall continue to be subject to the same terms and conditions as were applicable
immediately prior to transfer, provided that for purposes of Section 12.2 hereof
the term "Optionee" shall be deemed to refer to the transferee. The events of
termination of the Service Relationship of Sections 13 and 14 hereof shall
continue to be applied with respect to the original Optionee, following which
the Option shall be exercisable by the transferee only to the extent, and for
the periods, specified in Section 11.3.

13. TERMINATION OF SERVICE RELATIONSHIP

     Upon the termination of the Service Relationship of an Optionee with the
Corporation, a Subsidiary or an Affiliate, other than by reason of the death or
"permanent and total disability" (within the meaning of Section 22(e)(3) of the
Code) of such Optionee or for Cause, any Option granted to an Optionee pursuant
to the Plan shall continue to be exercisable only to the extent that it was
exercisable immediately before such termination; provided, however, such Option
shall terminate thirty (30) days after the date of such termination of Service
Relationship, unless earlier terminated pursuant to Section 11.1 hereof, and
such Optionee shall have no further right to purchase shares of Stock pursuant
to such Option; and provided further, that the Committee may provide, by
inclusion of appropriate language in any Option Agreement, that an Optionee may
(subject to the general limitations on exercise set forth in Section 11.3
hereof), in the event of termination of the Service Relationship of the Optionee
with the Corporation, a Subsidiary or an Affiliate, exercise an Option, in whole
or in part, at any time subsequent to such termination of Service Relationship
and prior to termination of the Option pursuant to Section 11.1 hereof, either
subject to or without regard to any installment limitation on exercise imposed
pursuant to Section 11.3 hereof, as the Committee, in its sole and absolute
discretion, shall determine and set forth in the Option Agreement. Upon the
termination of the Service Relationship of an Optionee with the Corporation, a
Subsidiary or an Affiliate for Cause, any Option granted to an Optionee pursuant
to the Plan shall terminate and such Optionee shall have no further right to
purchase shares of Stock pursuant to such Option; and provided however, that the
Committee may provide, by inclusion of appropriate language in any Option
Agreement, that an Optionee may (subject to the general limitations on exercise
set forth in Section 11.3 hereof), in the event of termination of the Service
Relationship of the Optionee with the Corporation, a Subsidiary or an Affiliate
for Cause, exercise an Option, in whole or in part, at any time subsequent to
such termination of Service Relationship and prior to termination of the Option
pursuant to Section 11.1 hereof, either subject to or without regard to any
installment limitation on exercise imposed pursuant to Section 11.3 hereof, as

                                        8

<PAGE>


the Committee, in its sole and absolute discretion, shall determine and set
forth in the Option Agreement. Whether a leave of absence or leave on military
or government service shall constitute a termination of Service Relationship for
purposes of the Plan shall be determined by the Committee, which determination
shall be final and conclusive. For purposes of the Plan, including without
limitation this Section 13 and Section 14, unless otherwise provided in an
Option Agreement, a termination of Service Relationship with the Corporation, a
Subsidiary or an Affiliate shall not be deemed to occur if the Optionee
immediately thereafter has a Service Relationship with the Corporation, any
other Subsidiary or any other Affiliate.

14. RIGHTS IN THE EVENT OF DEATH OR DISABILITY

          14.1. Death

          If an Optionee dies while in a Service Relationship with the
Corporation, a Subsidiary or an Affiliate or within the period following the
termination of such Service Relationship during which the Option is exercisable
under Section 13 or 14.2 hereof, the executors, administrators, legatees or
distributees of such Optionee's estate shall have the right (subject to the
general limitations on exercise set forth in Section 11.3 hereof), at any time
within one year after the date of such Optionee's death and prior to termination
of the Option pursuant to Section 11.1 hereof, to exercise, in whole or in part,
any Option held by such Optionee at the date of such Optionee's death, whether
or not such Option was exercisable immediately prior to such Optionee's death;
provided, however, that the Committee may provide by inclusion of appropriate
language in any Option Agreement that, in the event of the death of an Optionee,
the executors, administrators, legatees or distributees of such Optionee's
estate may exercise an Option (subject to the general limitations on exercise
set forth in Section 11.3 hereof), in whole or in part, at any time subsequent
to such Optionee's death and prior to termination of the Option pursuant to
Section 11.1 hereof, either subject to or without regard to any installment
limitation on exercise imposed pursuant to Section 11.3 hereof, as the
Committee, in its sole and absolute discretion, shall determine and set forth in
the Option Agreement.

          14.2. Disability

          If an Optionee terminates a Service Relationship with the Corporation,
a Subsidiary or an Affiliate by reason of the "permanent and total disability"
(within the meaning of Section 22(e)(3) of the Code) of such Optionee, then such
Optionee shall have the right (subject to the general limitations on exercise
set forth in Section 11.3 hereof), at any time within one year after such
termination of Service Relationship and prior to termination of the Option
pursuant to Section 11.1 hereof, to exercise, in whole or in part, any Option
held by such Optionee at the date of such termination of Service Relationship,
whether or not such Option was exercisable immediately prior to such termination
of Service Relationship; provided, however, that the Committee may provide, by
inclusion of appropriate language in any Option Agreement, that an Optionee may
(subject to the general limitations on exercise set forth in Section 11.3
hereof), in the event of the termination of the Service Relationship of the
Optionee with the Corporation or a Subsidiary by reason of the "permanent and
total disability" (within the meaning of Section 22(e)(3) of the Code) of such
Optionee, exercise an Option, in whole or in part, at any time subsequent to

                                        9

<PAGE>


such termination of Service Relationship and prior to termination of the Option
pursuant to Section 11.1 hereof, either subject to or without regard to any
installment limitation on exercise imposed pursuant to Section 11.3 hereof, as
the Committee, in its sole and absolute discretion, shall determine and set
forth in the Option Agreement. Whether a termination of a Service Relationship
is to be considered by reason of "permanent and total disability" for purposes
of the Plan shall be determined by the Committee, which determination shall be
final and conclusive.

15. USE OF PROCEEDS

     The proceeds received by the Corporation from the sale of Stock pursuant to
Options granted under the Plan shall constitute general funds of the
Corporation.

16. SECURITIES LAWS

     The Corporation shall not be required to sell or issue any shares of Stock
under any Option if the sale or issuance of such shares would constitute a
violation by the individual exercising the Option or by the Corporation of any
provisions of any law or regulation of any governmental authority, including,
without limitation, any federal or state securities laws or regulations. If at
any time the Corporation shall determine, in its discretion, that the listing,
registration or qualification of any shares subject to the Option upon any
securities exchange or under any state or federal law, or the consent of any
government regulatory body, is necessary or desirable as a condition of, or in
connection with, the issuance or purchase of shares, the Option may not be
exercised in whole or in part unless such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any conditions
not acceptable to the Corporation, and any delay caused thereby shall in no way
affect the date of termination of the Option. Specifically in connection with
the Securities Act, upon exercise of any Option, unless a registration statement
under the Securities Act is in effect with respect to the shares of Stock
covered by such Option, the Corporation shall not be required to sell or issue
such shares unless the Corporation has received evidence satisfactory to the
Corporation that the Optionee may acquire such shares pursuant to an exemption
from registration under the Securities Act. Any determination in this connection
by the Corporation shall be final and conclusive. The Corporation may, but shall
in no event be obligated to, register any securities covered hereby pursuant to
the Securities Act. The Corporation shall not be obligated to take any
affirmative action in order to cause the exercise of an Option or the issuance
of shares pursuant thereto to comply with any law or regulation of any
governmental authority. As to any jurisdiction that expressly imposes the
requirement that an Option shall not be exercisable unless and until the shares
of Stock covered by such Option are registered or are subject to an available
exemption from registration, the exercise of such Option (under circumstances in
which the laws of such jurisdiction apply) shall be deemed conditioned upon the
effectiveness of such registration or the availability of such an exemption.

17. EXCHANGE ACT: RULE 16b-3

          17.1. General

          The Plan is intended to comply with Rule 16b-3 ("Rule 16b-3") (and any
successor thereto) under the Exchange Act. Any provision inconsistent with Rule
16b-3 shall, to the extent permitted by law and determined to be advisable by
the Committee (constituted in accordance with Section 17.2 hereof), be
inoperative and void.

                                       10

<PAGE>


          17.2. Compensation Committee

          The Committee appointed in accordance with Section 3.1 hereof shall
consist of not fewer than two members of the Board each of whom shall qualify
(at the time of appointment to the Committee and during all periods of service
on the Committee) in all respects as a "non-employee director" as defined in
Rule 16b-3.

          17.3. Restriction on Transfer of Stock

          No director, officer or other "insider" of the Corporation subject to
Section 16 of the Exchange Act shall be permitted to sell Stock (which such
"insider" had received upon exercise of an Option) during the six months
immediately following the grant of such Option.

18. AMENDMENT AND TERMINATION

     The Board may, at any time and from time to time, suspend or terminate the
Plan and make such changes in or additions to the Plan as it may deem proper,
provided that, if and to the extent provided by applicable law or regulation, no
such suspension or termination of, change in or addition to the Plan shall be
made unless such suspension or termination of, or change in or addition to the
Plan is authorized by the Company's stockholders. Except as permitted under
Section 19 hereof, no suspension or termination of the Plan or any change in or
addition to the Plan shall, without the consent of any Optionee who is adversely
affected thereby, alter any Options previously granted to the Optionee pursuant
to the Plan.

19. EFFECT OF CHANGES IN CAPITALIZATION

          19.1. Changes in Stock

          If the number of outstanding shares of Stock is increased or decreased
or changed into or exchanged for a different number or kind of shares or other
securities of the Corporation by reason of any recapitalization,
reclassification, stock split-up, combination of shares, exchange of shares,
stock dividend or other distribution payable in capital stock, or other increase
or decrease in such shares effected without receipt of consideration by the
Corporation, occurring after the effective date of the Plan, a proportionate and
appropriate adjustment shall be made by the Corporation in the number and kind
of shares issuable under the Plan and for which Options are outstanding, so that
the proportionate interest of the Optionee immediately following such event
shall, to the extent practicable, be the same as immediately prior to such
event. Any such adjustment in outstanding Options shall not change the aggregate
Option Price payable with respect to shares subject to the unexercised portion
of the Option outstanding but shall include a corresponding proportionate
adjustment in the Option Price per share. Notwithstanding the foregoing, in the
event of a spin-off that results in no change in the number of outstanding
shares of Stock of the Corporation, the Corporation may, in such manner as the
Corporation deems appropriate, adjust (i) the number and kind of shares of Stock
subject to outstanding Options and/or (ii) the exercise price of outstanding
Options.

                                       11

<PAGE>


          19.2. Reorganization With Corporation Surviving

          Subject to Section 19.3 hereof, if the Corporation shall be the
surviving entity in any reorganization, merger or consolidation of the
Corporation with one or more other entities, any Option theretofore granted
pursuant to the Plan shall pertain to and apply to the securities to which a
holder of the number of shares of Stock subject to such Option would have been
entitled immediately following such reorganization, merger or consolidation,
with a corresponding proportionate adjustment of the Option Price per share so
that the aggregate Option Price thereafter shall be the same as the aggregate
Option Price of the shares remaining subject to the Option immediately prior to
such reorganization, merger or consolidation.

          19.3. Other Reorganizations; Sale of Assets or Stock

          Upon the dissolution or liquidation of the Corporation, or upon a
merger, consolidation or reorganization of the Corporation with one or more
other entities in which the Corporation is not the surviving entity, or upon a
sale of substantially all of the assets of the Corporation to another person or
entity, or upon any transaction (including, without limitation, a merger or
reorganization in which the Corporation is the surviving entity) approved by the
Board that results in any person or entity (other than persons who are holders
of stock of the Corporation at the time the Plan is approved by the Stockholders
and other than an Affiliate) owning 80 percent or more of the combined voting
power of all classes of stock of the Corporation, the Plan and all Options
outstanding hereunder shall terminate, except to the extent provision is made in
connection with such transaction for the continuation of the Plan and/or the
assumption of the Options theretofore granted, or for the substitution for such
Options of new options covering the stock of a successor entity, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and kinds of
shares and exercise prices, in which event the Plan and Options theretofore
granted shall continue in the manner and under the terms so provided. In the
event of any such termination of the Plan, each Optionee shall have the right
(subject to the general limitations on exercise set forth in Section 11.3 hereof
and except as otherwise specifically provided in the Option Agreement relating
to such Option), immediately prior to the occurrence of such termination and
during such period occurring prior to such termination as the Committee in its
sole discretion shall designate, to exercise such Option in whole or in part,
whether or not such Option was otherwise exercisable at the time such
termination occurs, but subject to any additional provisions that the Committee
may, in its sole discretion, include in any Option Agreement. The Committee
shall send written notice of an event that will result in such a termination to
all Optionees not later than the time at which the Corporation gives notice
thereof to its stockholders.

          19.4. Adjustments

          Adjustments under this Section 19 relating to stock or securities of
the Corporation shall be made by the Committee, whose determination in that
respect shall be final and conclusive. No fractional shares of Stock or units of
other securities shall be issued pursuant to any such adjustment, and any
fractions resulting from any such adjustment shall be eliminated in each case by
rounding downward to the nearest whole share or unit.

                                       12

<PAGE>


          19.5. No Limitations on Corporation

          The grant of an Option pursuant to the Plan shall not affect or limit
in any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve or liquidate, or to sell or
transfer all or any part of its business or assets.

20. WITHHOLDING

     The Corporation or a Subsidiary may be obligated to withhold federal and
local income taxes and Social Security taxes to the extent that an Optionee
realizes ordinary income in connection with the exercise of an Option. The
Corporation or a Subsidiary may withhold amounts needed to cover such taxes from
payments otherwise due and owing to an Optionee, and upon demand the Optionee
will promptly pay to the Corporation or a Subsidiary having such obligation any
additional amounts as may be necessary to satisfy such withholding tax
obligation. Such payment shall be made in cash or cash equivalents.

21. DISCLAIMER OF RIGHTS

     No provision in the Plan or in any Option granted or Option Agreement
entered into pursuant to the Plan shall be construed to confer upon any
individual the right to remain in the employ of the Corporation, any Subsidiary
or any Affiliate, or to interfere in any way with the right and authority of the
Corporation, any Subsidiary or any Affiliate either to increase or decrease the
compensation of any individual at any time, or to terminate any employment or
other relationship between any individual and the Corporation, any Subsidiary or
any Affiliate. The obligation of the Corporation to pay any benefits pursuant to
the Plan shall be interpreted as a contractual obligation to pay only those
amounts described herein, in the manner and under the conditions prescribed
herein. The Plan shall in no way be interpreted to require the Corporation to
transfer any amounts to a third party trustee or otherwise hold any amounts in
trust or escrow for payment to any participant or beneficiary under the terms of
the Plan.

22. NONEXCLUSIVITY

     Neither the adoption of the Plan nor the submission of the Plan to the
stockholders of the Corporation for approval shall be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individuals or specifically to a particular
individual or individuals) as the Board in its discretion determines desirable,
including, without limitation, the granting of stock options otherwise than
under the Plan.

                                       13

<PAGE>


23. Governing Law.

     This Plan and all Options to be granted hereunder shall be governed by the
laws of the State of Colorado (but not including the choice of law rules
thereof).

     IN WITNESS WHEREOF, the Corporation has caused its duly authorized officer
to execute this Plan as of the 20th day of January, 2003 to evidence its
adoption of this Plan.



                                            ADA-ES, INC.

                                            By:  /s/  Mark H. McKinnies
                                               -----------------------------
                                                      Mark H. McKinnies
                                                      Chief Financial Officer


                                       14
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.29
<SEQUENCE>4
<FILENAME>ada10-29.txt
<DESCRIPTION>2005 DIRECTORS' COMPENSATION PLAN
<TEXT>
                                                                   EXHIBIT 10.29

                                  ADA-ES, INC.
                        2005 Directors' Compensation Plan


     ADA-ES, INC., a Colorado corporation (the "Corporation"), sets forth herein
the terms of the 2005 Directors Compensation Plan (the "Plan") as follows:

1. PURPOSE

     The Plan is intended to advance the interests of the Corporation by
providing eligible directors (as designated pursuant to Section 5 hereof) an
opportunity to acquire or increase a proprietary interest in the Corporation,
which thereby will create a stronger incentive to expend maximum effort for the
growth and success of the Corporation and will encourage such eligible
individuals to continue to service the Corporation.

2. DEFINITIONS

     For purposes of interpreting the Plan and related documents (including
Option Agreements), the following definitions shall apply:

     2.1  "Affiliate" means any company or other trade or business that is
          controlled by or under common control with the Corporation,
          (determined in accordance with the principles of Section 414(b) and
          414(c) of the Code and the regulations thereunder) or is an affiliate
          of the Corporation within the meaning of Rule 405 of Regulation C
          under the 1933 Act.

     2.2  "Board" means the Board of Directors of the Corporation.

     2.3  "Cause" means, unless otherwise defined in an Option Agreement, (i)
          gross negligence or willful misconduct in connection with the
          performance of duties; (ii) conviction of a criminal offense (other
          than minor traffic offenses); or (iii) material breach of any term of
          any employment, consulting or other services, confidentiality,
          intellectual property or non-competition agreements, if any, between
          Optionee and the Corporation or any of its Subsidiaries or Affiliates.

     2.4  "Code" means the Internal Revenue Code of 1986, as now in effect or as
          hereafter amended.

     2.5  "Committee" means the Compensation Committee of the Board, which must
          consist of no fewer than two members of the Board and shall be
          appointed by the Board.

     2.6  "Corporation" means ADA-ES, INC.

     2.7  "Director" means a member of Board of Directors of the Corporation.

     2.8  "Effective Date" means the date of adoption of the Plan by the Board.

     2.9  "Employer" means ADA-ES, INC. or the Subsidiary or Affiliate of the
          Corporation, which employs the designated recipient of an Option.

     2.10 "Exchange Act" means the Securities Exchange Act of 1934, as now in
          effect or as hereafter amended.

     2.11 "Fair Market Value" means the value of each share of Stock subject to
          the Plan determined as follows: if on the Grant Date or other
          determination date the shares of Stock are listed on an established
          national or regional stock exchange, are admitted to quotation on the
          National Association of Securities Dealers Automated Quotation System,
          or are publicly traded on an established securities market, the Fair

<PAGE>

          Market Value of the shares of Stock shall be the closing bid price of
          the shares of Stock on such exchange or in such market (the highest
          such closing price if there is more than one such exchange or market)
          on the trading day immediately preceding the Grant Date (or on the
          Grant Date, if so specified by the Committee or the Board) or such
          other determination date or, if no sale of the shares of Stock is
          reported for such trading day, on the next preceding day on which any
          sale shall have been reported. If the shares of Stock are not listed
          on such an exchange, quoted on such System or traded on such a market,
          Fair Market Value shall be determined by the Board in good faith.

     2.12 "Family Member" means a person who is a spouse, child, stepchild,
          grandchild, parent, stepparent, grandparent, sibling, niece, nephew,
          mother-in-law, father-in-law, son-in-law, daughter-in-law,
          brother-in-law, or sister-in-law, including adoptive relationships, of
          the Optionee, any person sharing the Optionee's household (other than
          a tenant or employee), a trust in which these persons (or the
          Optionee) have more than fifty percent of the beneficial interest, a
          foundation in which these persons (or the Optionee) control the
          management of assets, and any other entity in which these persons (or
          the Optionee) own more than fifty percent of the voting interests.

     2.13 "Option" means an option to purchase one or more shares of Stock
          pursuant to the Plan.

     2.14 "Option Agreement" means the written agreement evidencing the grant of
          an Option hereunder.

     2.15 "Option Grant Date" means the later of (i) March 17, 2005 and (ii) the
          date as of which the Optionee and the Corporation, Subsidiary or
          Affiliate enter the relationship resulting in the Optionee being
          eligible for grants.

     2.16 "Optionee" means a person who holds an Option under the Plan.

     2.17 "Option Period" means the period during which Options may be exercised
          as defined in Section 11.

     2.18 "Option Price" means the purchase price for each share of Stock
          subject to an Option.

     2.19 "Plan" means the ADA-ES, INC. 2005 Director Compensation Plan.

     2.20 "1933 Act" means the Securities Act of 1933, as now in effect or as
          hereafter amended.

     2.21 "Service Relationship" means the provision of bona fide services to
          the Corporation, a Subsidiary, or an Affiliate as a director, employee
          or consultant.

     2.22 "Stock" means the shares of Common Stock, no par value, of the
          Corporation.

     2.23 "Stock Award" means the award of shares of Common Stock, no par value,
          of the Corporation under the Plan.

     2.24 "Stock Award Date" means the later of (i) November 4, 2004 and (ii)
          the date as of which the Stock Recipient is awarded the right to
          receive Stock.

     2.25 "Stock Recipient" means a person who receives an award of Stock
          subject to the Plan.

     2.26 "Subsidiary" means any "subsidiary corporation" of the Corporation
          within the meaning of Section 425(f) of the Code.

<PAGE>

3. ADMINISTRATION

   3.1. Committee

     The Plan shall be administered by the Committee appointed by the Board,
which shall have the full power and authority to take all actions and to make
all determinations required or provided for under the Plan or any Stock Award or
Option granted or Option Agreement entered into hereunder and all such other
actions and determinations not inconsistent with the specific terms and
provisions of the Plan deemed by the Committee to be necessary or appropriate to
the administration of the Plan or any Stock Award or any Option granted or
Option Agreement entered into hereunder. The interpretation and construction by
the Committee of any provision of the Plan or of any Stock Award or any Option
granted or Option Agreement entered into hereunder shall be final and
conclusive.

   3.2. No Liability

     No member of the Board or of the Committee shall be liable for any action
or determination made, or any failure to take or make an action or
determination, in good faith with respect to the Plan or any Stock Award or any
Option granted or Option Agreement entered into hereunder.

4. STOCK

     The stock that may be issued pursuant to Options granted under the Plan
shall be Stock, which shares may be treasury shares or authorized but unissued
shares. The number of shares of Stock that may be issued pursuant to Options
granted under the Plan shall not exceed in the aggregate 40,000 shares of Stock,
which number of shares is subject to adjustment as provided in Section 19
hereof. If any Option or portion thereof is unearned, expires, terminates or is
terminated for any reason prior to exercise in full, the shares of Stock that
were subject to the unexercised portion of such Option shall be available for
future Options granted under the Plan. The number of shares of Stock that may be
issued pursuant to Stock Awards under the Plan shall not exceed in the aggregate
50,000 shares of Stock, which number of shares is subject to adjustment as
provided in Section 19 hereof. If any Stock Award or portion thereof is
unearned, expires, terminates or is terminated for any reason prior to issuance
in full, the shares of Stock of such portion of such Stock Award shall be
available for future Stock Award under the Plan.

5. ELIGIBILITY

     Stock Awards and Options may be granted under the Plan to any
non-management Director of the Corporation. An individual may not hold more than
one Option, subject to such restrictions as are provided herein.

6. EFFECTIVE DATE AND TERM

   6.1. Effective Date

     The Plan shall become effective as of March 17, 2005, the date of adoption
of the final Plan by the Board, subject to stockholders' approval of the Plan;
provided, however, that upon approval of the Plan by the stockholders of the
Corporation, all Stock Awards and Options granted under the Plan on or after the
effective date shall be fully effective as if the stockholders of the
Corporation had approved the Plan on the effective date. If the stockholders
fail to approve the Plan, any Stock Awards and Options granted hereunder shall
be null, void and of no effect.

   6.2. Term

     If not sooner terminated by the Board, the Plan shall terminate on the date
10 years after the effective date.

<PAGE>

7. STOCK AWARDS AND ANNUAL LIMITATION

     Subject to the terms and conditions of the Plan, the Committee may, at any
time and from time to time prior to the date of termination of the Plan, issue
to such eligible Directors a Stock Award. Such Stock Awards will be limited to
not more than 1,000 shares of Stock for any annual period of service per
individual, which number of shares is subject to adjustment as provided in
Section 19 hereof. The Corporation may or may not register the Stock so issued
for sale with the U.S. Securities and Exchange Commission and is under no
obligation to do so.

8. GRANT OF OPTIONS

     Subject to the terms and conditions of the Plan, the Committee may, at any
time and from time to time prior to the date of termination of the Plan, grant
to such eligible Directors Options to purchase such number of shares of Stock
with the following terms and conditions: the exercise price shall be the market
price on the date of grant, the shares of Stock underlying the Option will vest
for exercise at a rate of no more than 1,000 shares per annual period, and any
unvested shares of Stock that are outstanding at the date the Optionee no longer
is a Director of the Corporation or in a Service Relationship will be forfeited.
Without limiting the foregoing, the Committee may at any time, with the consent
of the Optionee, amend the terms of outstanding Options or issue new Options in
exchange for the surrender and cancellation of outstanding Options. The date on
which the Committee approves the grant of an Option (or such later date as is
specified by the Committee) shall be considered the date on which such Option is
granted. The maximum number of shares of Stock subject to Options that can be
awarded under the Plan to any person is 5,000 shares, which number of shares is
subject to adjustment as provided in Section 19 hereof.

9. OPTION AGREEMENTS

     All Options granted pursuant to the Plan shall be evidenced by written
agreements to be executed by the Corporation and the Optionee, in such form or
forms as the Committee shall from time to time determine. Option Agreements
covering Options granted from time to time or at the same time need not contain
similar provisions; provided, however, that all such Option Agreements shall
comply with all terms of the Plan.

10. OPTION PRICE

     The purchase price of each share of Stock subject to an Option shall be
fixed by the Committee and stated in each Option Agreement. As provided in
Section 8 above, the Option Price shall be not less than the fair market value
of a share of the Stock covered by the Option on the date the Option is granted
(as determined in good faith by the Committee).

11. TERM AND EXERCISE OF OPTIONS

   11.1. Term

     Each Option granted under the Plan shall terminate and all rights to
purchase shares thereunder shall cease upon the expiration of 10 years from the
date such Option is granted, or on such date prior thereto as may be fixed by
the Committee and stated in the Option Agreement relating to such Option.

   11.2. Exercise by Optionee

     Only the Optionee receiving an Option or a transferee of an Option pursuant
to Section 12 (or, in the event of the Optionee's legal incapacity or
incompetency, the Optionee's guardian or legal representative, and in the case
of the Optionee's death, the Optionee's estate) may exercise the Option.

   11.3. Option Period and Limitations on Exercise

     Each Option granted under the Plan shall be exercisable in whole or in part
at any time and from time to time over a period commencing on or after the date
of grant of the Option and ending upon the expiration or termination of the
Option, as the Committee shall determine and set forth in the Option Agreement
relating to such Option, but at no greater rate of vesting than set forth in

<PAGE>

Section 8 above. Without limitation of the foregoing, the Committee, subject to
the terms and conditions of the Plan, may in its sole discretion provide that an
Option may not be exercised in whole or in part for any period or periods of
time during which such Option is outstanding as the Committee shall determine
and set forth in the Option Agreement relating to such Option. Any such
limitation on the exercise of an Option contained in any Option Agreement may be
rescinded, modified or waived by the Committee, in its sole discretion, at any
time and from time to time after the date of grant of such Option.
Notwithstanding any other provisions of the Plan, no Option shall be exercisable
in whole or in part prior to the date the Plan is approved by the stockholders
of the Corporation as provided in Section 6.1 hereof.

   11.4. Method of Exercise

     An Option that is exercisable hereunder may be exercised by delivery to the
Corporation on any business day, at its principal office addressed to the
attention of the Committee, of written notice of exercise, which notice shall
specify the number of shares for which the Option is being exercised, and shall
be accompanied by payment in full of the Option Price of the shares for which
the Option is being exercised. Payment of the Option Price for the shares of
Stock purchased pursuant to the exercise of an Option shall be made, as
determined by the Committee and set forth in the Option Agreement pertaining to
an Option by cash or by certified check payable to the order of the Corporation.
Payment in full of the Option Price need not accompany the written notice of
exercise provided the notice directs that the Stock certificate or certificates
for the shares for which the Option is exercised be delivered to a licensed
broker acceptable to the Corporation as the agent for the individual exercising
the Option and, at the time such Stock certificate or certificates are
delivered, the broker tenders to the Corporation cash (or cash equivalents
acceptable to the Corporation) equal to the Option Price plus the amount (if
any) of federal and/or other taxes which the Corporation may, in its judgment,
be required to withhold with respect to the exercise of the Option. An attempt
to exercise any Option granted hereunder other than as set forth above shall be
invalid and of no force and effect. Promptly after the exercise of an Option and
the payment in full of the Option Price of the shares of Stock covered thereby,
the individual exercising the Option shall be entitled to the issuance of a
Stock certificate or certificates evidencing such individual's ownership of such
shares. An individual holding or exercising an Option shall have none of the
rights of a stockholder until the shares of Stock covered thereby are fully paid
and issued to such individual and, except as provided in Section 19 hereof, no
adjustment shall be made for dividends or other rights for which the record date
is prior to the date of such issuance.

12. TRANSFERABILITY OF OPTIONS

   12.1. Transferability of Options

     Except as provided in Section 12.2, during the lifetime of an Optionee,
only the Optionee (or, in the event of legal incapacity or incompetency, the
Optionee's guardian or legal representative) may exercise an Option. Except as
provided in Section 12.2, no Option shall be assignable or transferable by the
Optionee to whom it is granted, other than by will or the laws of descent and
distribution.

   12.2. Family Transfers.

     Subject to the terms of the applicable Option Agreement, an Optionee may
transfer all or part of an Option to any Family Member; provided that subsequent
transfers of transferred Options are prohibited except those in accordance with
this Section 12.2 or by will or the laws of descent and distribution; and,
provided further, that, except with the consent of the Board or the Committee,
there may be no consideration for any transfer made pursuant to this section.
Following transfer, any such Option shall continue to be subject to the same
terms and conditions as were applicable immediately prior to transfer, provided
that for purposes of Section 12.2 hereof the term "Optionee" shall be deemed to
refer to the transferee. The events of termination of the Service Relationship
of Sections 13 and 14 hereof shall continue to be applied with respect to the
original Optionee, following which the Option shall be exercisable by the
transferee only to the extent, and for the periods, specified in Section 11.3.

<PAGE>

13. TERMINATION OF SERVICE RELATIONSHIP

     Upon the termination of the Service Relationship of an Optionee with the
Corporation, a Subsidiary or an Affiliate, other than by reason of the death or
"permanent and total disability" (within the meaning of Section 22(e)(3) of the
Code) of such Optionee or for Cause, any Option granted to an Optionee pursuant
to the Plan shall continue to be exercisable only to the extent that it was
exercisable immediately before such termination; provided, however, such Option
shall terminate thirty (30) days after the date of such termination of Service
Relationship, unless earlier terminated pursuant to Section 11.1 hereof, and
such Optionee shall have no further right to purchase shares of Stock pursuant
to such Option; and provided further, that the Committee may provide, by
inclusion of appropriate language in any Option Agreement, that an Optionee may
(subject to the general limitations on exercise set forth in Section 11.3
hereof), in the event of termination of the Service Relationship of the Optionee
with the Corporation, a Subsidiary or an Affiliate, exercise an Option, in whole
or in part, at any time subsequent to such termination of Service Relationship
and prior to termination of the Option pursuant to Section 11.1 hereof, either
subject to or without regard to any installment limitation on exercise imposed
pursuant to Section 11.3 hereof, as the Committee, in its sole and absolute
discretion, shall determine and set forth in the Option Agreement. Upon the
termination of the Service Relationship of an Optionee with the Corporation, a
Subsidiary or an Affiliate for Cause, any Option granted to an Optionee pursuant
to the Plan shall terminate and such Optionee shall have no further right to
purchase shares of Stock pursuant to such Option; and provided however, that the
Committee may provide, by inclusion of appropriate language in any Option
Agreement, that an Optionee may (subject to the general limitations on exercise
set forth in Section 11.3 hereof), in the event of termination of the Service
Relationship of the Optionee with the Corporation, a Subsidiary or an Affiliate
for Cause, exercise an Option, in whole or in part, at any time subsequent to
such termination of Service Relationship and prior to termination of the Option
pursuant to Section 11.1 hereof, either subject to or without regard to any
installment limitation on exercise imposed pursuant to Section 11.3 hereof, as
the Committee, in its sole and absolute discretion, shall determine and set
forth in the Option Agreement. Whether a leave of absence or leave on military
or government service shall constitute a termination of Service Relationship for
purposes of the Plan shall be determined by the Committee, which determination
shall be final and conclusive. For purposes of the Plan, including without
limitation this Section 13 and Section 14, unless otherwise provided in an
Option Agreement, a termination of Service Relationship with the Corporation, a
Subsidiary or an Affiliate shall not be deemed to occur if the Optionee
immediately thereafter has a Service Relationship with the Corporation, any
other Subsidiary or any other Affiliate.

14. RIGHTS IN THE EVENT OF DEATH OR DISABILITY

   14.1. Death

     If an Optionee dies while in a Service Relationship with the Corporation, a
Subsidiary or an Affiliate or within the period following the termination of
such Service Relationship during which the Option is exercisable under Section
13 or 14.2 hereof, the executors, administrators, legatees or distributees of
such Optionee's estate shall have the right (subject to the general limitations
on exercise set forth in Section 11.3 hereof), at any time within one year after
the date of such Optionee's death and prior to termination of the Option
pursuant to Section 11.1 hereof, to exercise, in whole or in part, any Option
held by such Optionee at the date of such Optionee's death, whether or not such
Option was exercisable immediately prior to such Optionee's death; provided,
however, that the Committee may provide by inclusion of appropriate language in
any Option Agreement that, in the event of the death of an Optionee, the
executors, administrators, legatees or distributees of such Optionee's estate
may exercise an Option (subject to the general limitations on exercise set forth
in Section 11.3 hereof), in whole or in part, at any time subsequent to such
Optionee's death and prior to termination of the Option pursuant to Section 11.1
hereof, either subject to or without regard to any installment limitation on
exercise imposed pursuant to Section 11.3 hereof, as the Committee, in its sole
and absolute discretion, shall determine and set forth in the Option Agreement.

<PAGE>

   14.2. Disability

     If an Optionee terminates a Service Relationship with the Corporation, a
Subsidiary or an Affiliate by reason of the "permanent and total disability"
(within the meaning of Section 22(e)(3) of the Code) of such Optionee, then such
Optionee shall have the right (subject to the general limitations on exercise
set forth in Section 11.3 hereof), at any time within one year after such
termination of Service Relationship and prior to termination of the Option
pursuant to Section 11.1 hereof, to exercise, in whole or in part, any Option
held by such Optionee at the date of such termination of Service Relationship,
whether or not such Option was exercisable immediately prior to such termination
of Service Relationship; provided, however, that the Committee may provide, by
inclusion of appropriate language in any Option Agreement, that an Optionee may
(subject to the general limitations on exercise set forth in Section 11.3
hereof), in the event of the termination of the Service Relationship of the
Optionee with the Corporation or a Subsidiary by reason of the "permanent and
total disability" (within the meaning of Section 22(e)(3) of the Code) of such
Optionee, exercise an Option, in whole or in part, at any time subsequent to
such termination of Service Relationship and prior to termination of the Option
pursuant to Section 11.1 hereof, either subject to or without regard to any
installment limitation on exercise imposed pursuant to Section 11.3 hereof, as
the Committee, in its sole and absolute discretion, shall determine and set
forth in the Option Agreement. Whether a termination of a Service Relationship
is to be considered by reason of "permanent and total disability" for purposes
of the Plan shall be determined by the Committee, which determination shall be
final and conclusive.

15. USE OF PROCEEDS

     The proceeds received by the Corporation from the sale of Stock pursuant to
Options granted under the Plan shall constitute general funds of the
Corporation.

16. SECURITIES LAWS

     The Corporation shall not be required to sell or issue any shares of Stock
under any Stock Award or Option if the sale or issuance of such shares would
constitute a violation by the individual receiving the Stock Award or exercising
the Option or by the Corporation of any provisions of any law or regulation of
any governmental authority, including, without limitation, any federal or state
securities laws or regulations. If at any time the Corporation shall determine,
in its discretion, that the listing, registration or qualification of any shares
subject to the Stock Award or the Option upon any securities exchange or under
any state or federal law, or the consent of any government regulatory body, is
necessary or desirable as a condition of, or in connection with, the issuance or
purchase of shares, the Stock Award may not be issued or the Option may not be
exercised in whole or in part unless such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any conditions
not acceptable to the Corporation, and any delay caused thereby shall in no way
affect the date of termination of the Option. Specifically in connection with
the Securities Act, upon exercise of any Option or issuance of any Stock Award,
unless a registration statement under the Securities Act is in effect with
respect to the shares of Stock covered by such Option or Stock Award, the
Corporation shall not be required to sell or issue such shares unless the
Corporation has received evidence satisfactory to the Corporation that the
Optionee or Stock Recipient may acquire such shares pursuant to an exemption
from registration under the Securities Act. Any determination in this connection
by the Corporation shall be final and conclusive. The Corporation may, but shall
in no event be obligated to, register any securities covered hereby pursuant to
the Securities Act. The Corporation shall not be obligated to take any
affirmative action in order to cause the exercise of an Option or the issuance
of shares pursuant thereto or pursuant to a Stock Award to comply with any law
or regulation of any governmental authority. As to any jurisdiction that
expressly imposes the requirement that an issuance of a Stock Award or an Option
shall not be exercisable unless and until the shares of Stock covered by such
Stock Award or Option are registered or are subject to an available exemption
from registration, the Stock Award or exercise of such Option (under
circumstances in which the laws of such jurisdiction apply) shall be deemed
conditioned upon the effectiveness of such registration or the availability of
such an exemption.

17. EXCHANGE ACT: RULE 16b-3

   17.1. General

     The Plan is intended to comply with Rule 16b-3 ("Rule 16b-3") (and any
successor thereto) under the Exchange Act. Any provision inconsistent with Rule
16b-3 shall, to the extent permitted by law and determined to be advisable by
the Committee (constituted in accordance with Section 17.2 hereof), be
inoperative and void.

<PAGE>

   17.2. Compensation Committee

     The Committee appointed in accordance with Section 3.1 hereof shall consist
of not fewer than two members of the Board each of whom shall qualify (at the
time of appointment to the Committee and during all periods of service on the
Committee) in all respects as a "non-employee director" as defined in Rule
16b-3.

   17.3. Restriction on Transfer of Stock

     No Stock Recipient or Optionee who is considered an "insider" of the
Corporation subject to Section 16 of the Exchange Act shall be permitted to sell
Stock (which such "insider" had received in a Stock Award or upon exercise of an
Option) during the three months immediately following such Stock Award or the
grant of such Option.

18. AMENDMENT AND TERMINATION

     The Board may, at any time and from time to time, suspend or terminate the
Plan and make such changes in or additions to the Plan as it may deem proper,
provided that, if and to the extent provided by applicable law or regulation, no
such suspension or termination of, change in or addition to the Plan shall be
made unless such suspension or termination of, or change in or addition to the
Plan is authorized by the Company's stockholders. Except as permitted under
Section 19 hereof, no suspension or termination of the Plan or any change in or
addition to the Plan shall, without the consent of any Optionee who is adversely
affected thereby, alter any Options previously granted to the Optionee pursuant
to the Plan.

19. EFFECT OF CHANGES IN CAPITALIZATION

   19.1. Changes in Stock

     If the number of outstanding shares of Stock is increased or decreased or
changed into or exchanged for a different number or kind of shares or other
securities of the Corporation by reason of any recapitalization,
reclassification, stock split-up, combination of shares, exchange of shares,
stock dividend or other distribution payable in capital stock, or other increase
or decrease in such shares effected without receipt of consideration by the
Corporation, occurring after the effective date of the Plan, a proportionate and
appropriate adjustment shall be made by the Corporation in the number and kind
of shares issuable and exercisable under the Plan and for which Options are
outstanding, so that the proportionate interest of the Optionee immediately
following such event shall, to the extent practicable, be the same as
immediately prior to such event. Any such adjustment in outstanding Options
shall not change the aggregate Option Price payable with respect to shares
subject to the unexercised portion of the Option outstanding but shall include a
corresponding proportionate adjustment in the Option Price per share.
Notwithstanding the foregoing, in the event of a spin-off that results in no
change in the number of outstanding shares of Stock of the Corporation, the
Corporation may, in such manner as the Corporation deems appropriate, adjust (i)
the number and kind of shares of Stock subject to outstanding Options and/or
(ii) the exercise price of outstanding Options.

   19.2. Reorganization With Corporation Surviving

     Subject to Section 19.3 hereof, if the Corporation shall be the surviving
entity in any reorganization, merger or consolidation of the Corporation with
one or more other entities, any Option theretofore granted pursuant to the Plan
shall pertain to and apply to the securities to which a holder of the number of
shares of Stock subject to such Option would have been entitled immediately

<PAGE>

following such reorganization, merger or consolidation, with a corresponding
proportionate adjustment of the Option Price per share so that the aggregate
Option Price thereafter shall be the same as the aggregate Option Price of the
shares remaining subject to the Option immediately prior to such reorganization,
merger or consolidation.

   19.3. Other Reorganizations; Sale of Assets or Stock

     Upon the dissolution or liquidation of the Corporation, or upon a merger,
consolidation or reorganization of the Corporation with one or more other
entities in which the Corporation is not the surviving entity, or upon a sale of
substantially all of the assets of the Corporation to another person or entity,
or upon any transaction (including, without limitation, a merger or
reorganization in which the Corporation is the surviving entity) approved by the
Board that results in any person or entity (other than persons who are holders
of stock of the Corporation at the time the Plan is approved by the Stockholders
and other than an Affiliate) owning 80 percent or more of the combined voting
power of all classes of stock of the Corporation, the Plan and all Options
outstanding hereunder shall terminate, except to the extent provision is made in
connection with such transaction for the continuation of the Plan and/or the
assumption of the Options theretofore granted, or for the substitution for such
Options of new options covering the stock of a successor entity, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and kinds of
shares and exercise prices, in which event the Plan and Options theretofore
granted shall continue in the manner and under the terms so provided. In the
event of any such termination of the Plan, each Optionee shall have the right
(subject to the general limitations on exercise set forth in Section 11.3 hereof
and except as otherwise specifically provided in the Option Agreement relating
to such Option), immediately prior to the occurrence of such termination and
during such period occurring prior to such termination as the Committee in its
sole discretion shall designate, to exercise such Option in whole or in part,
whether or not such Option was otherwise exercisable at the time such
termination occurs, but subject to any additional provisions that the Committee
may, in its sole discretion, include in any Option Agreement. The Committee
shall send written notice of an event that will result in such a termination to
all Optionees not later than the time at which the Corporation gives notice
thereof to its stockholders.

   19.4. Adjustments

     Adjustments under this Section 19 relating to stock or securities of the
Corporation shall be made by the Committee, whose determination in that respect
shall be final and conclusive. No fractional shares of Stock or units of other
securities shall be issued pursuant to any such adjustment, and any fractions
resulting from any such adjustment shall be eliminated in each case by rounding
downward to the nearest whole share or unit.

   19.5. No Limitations on Corporation

     The grant of an Option pursuant to the Plan shall not affect or limit in
any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve or liquidate, or to sell or
transfer all or any part of its business or assets.

20. WITHHOLDING

     The Corporation or a Subsidiary may be obligated to withhold federal and
local income taxes and Social Security taxes to the extent that an Optionee or
Stock Recipient realizes ordinary income in connection with a Stock Award or the
exercise of an Option. The Corporation or a Subsidiary may withhold amounts
needed to cover such taxes from payments otherwise due and owing to a Stock
Recipient or an Optionee, and upon demand the Stock Recipient or Optionee will
promptly pay to the Corporation or a Subsidiary having such obligation any
additional amounts as may be necessary to satisfy such withholding tax
obligation. Such payment shall be made in cash or cash equivalents.

<PAGE>

21. DISCLAIMER OF RIGHTS

     No provision in the Plan or in any Option granted or Option Agreement
entered into pursuant to the Plan shall be construed to confer upon any
individual the right to remain in the employ of the Corporation, any Subsidiary
or any Affiliate, or to interfere in any way with the right and authority of the
Corporation, any Subsidiary or any Affiliate either to increase or decrease the
compensation of any individual at any time, or to terminate any employment or
other relationship between any individual and the Corporation, any Subsidiary or
any Affiliate. The obligation of the Corporation to pay any benefits pursuant to
the Plan shall be interpreted as a contractual obligation to pay only those
amounts described herein, in the manner and under the conditions prescribed
herein. The Plan shall in no way be interpreted to require the Corporation to
transfer any amounts to a third party trustee or otherwise hold any amounts in
trust or escrow for payment to any participant or beneficiary under the terms of
the Plan.

22. NONEXCLUSIVITY

     Neither the adoption of the Plan nor the submission of the Plan to the
stockholders of the Corporation for approval shall be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individuals or specifically to a particular
individual or individuals) as the Board in its discretion determines desirable,
including, without limitation, the granting of stock options otherwise than
under the Plan.

23. GOVERNING LAW

     This Plan and all Options to be granted hereunder shall be governed by the
laws of the State of Colorado (but not including the choice of law rules
thereof).

     IN WITNESS WHEREOF, the Corporation has caused its duly authorized officer
to execute this Plan as of the 17th day of March, 2005 to evidence its adoption
of this Plan.



                                      ADA-ES, INC.

                                      By: /s/Michael D. Durham
                                      ------------------------
                                      Michael D. Durham
                                      President

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>5
<FILENAME>ada12312005exh231.txt
<DESCRIPTION>CONSENTS OF EXPERTS AND COUNSEL
<TEXT>


                                                                    Exhibit 23.1



            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



We consent to the incorporation by reference of our report dated February 13,
2006 accompanying the consolidated financial statements of ADA-ES, Inc. which
are also incorporated by reference in the following Registration Statements of
ADA-ES, Inc:


    Form              Filing Date or Effective Date           File No.
---------------     ---------------------------------     ----------------

    S-8             November 13, 2003                        333-110479
    S-8             February 6, 2004                         333-112587
    S-8             April 16, 2004                           333-114546
    S-3             October 27, 2004                         333-119795
    S-8             December 14, 2004                        333-121234
    S-3             January 23, 2006                         333-131085





HEIN & ASSOCIATES LLP

Denver, Colorado
March 28, 2006
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>6
<FILENAME>adaexhibit311ceo.txt
<DESCRIPTION>RULE 13A-14(A)/15D-14(A) CERTIFICATIONS
<TEXT>
                                                                    Exhibit 31.1


PRINCIPAL EXECUTIVE OFFICER CERTIFICATION
-----------------------------------------

I, Michael D. Durham, certify that:

1. I have reviewed this annual report on Form 10-KSB of ADA-ES, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report;

4. The small business issuer 's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and
have:

a) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the small business issuer, including its
consolidated subsidiary, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

b) evaluated the effectiveness of the small business issuer 's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and

c) disclosed in this report any change in the small business issuer's internal
control over financial reporting that occurred during the small business
issuer's most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the small business issuer's internal
control over financial reporting; and;

5. The small business issuer's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer 's auditors and the audit committee of
the small business issuer 's board of directors (or persons performing the
equivalent functions):

a) all significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the small business issuer 's ability to record,
process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer 's internal
control over financial reporting.

Date: March 28, 2006





/s/ Michael D. Durham
-----------------------
Name: Michael D. Durham
Title: President and CEO

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>7
<FILENAME>adaexhibit312cfo.txt
<DESCRIPTION>RULE 13A-14(A)/15D-14(A) CERTIFICATIONS
<TEXT>
                                                                    Exhibit 31.2


PRINCIPAL FINANCIAL OFFICER CERTIFICATION
-----------------------------------------

I, Mark H. McKinnies, certify that:

1. I have reviewed this annual report on Form 10-KSB of ADA-ES, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report;

4. The small business issuer's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and
have:

a) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the small business issuer, including its
consolidated subsidiary, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

b) evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and

c) disclosed in this report any change in the small business issuer's internal
control over financial reporting that occurred during the small business
issuer's most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the small business issuer's internal
control over financial reporting; and;

5. The small business issuer's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer 's auditors and the audit committee of
the small business issuer's board of directors (or persons performing the
equivalent functions):

a) all significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the small business issuer 's ability to record,
process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer 's internal
control over financial reporting.

Date: March 28, 2006


/s/ Mark H. McKinnies
-----------------------
Name: Mark H. McKinnies
Title: CFO

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>8
<FILENAME>adaexhibit321ceo.txt
<DESCRIPTION>SECTION 1350 CERTIFICATIONS
<TEXT>


                                                                    Exhibit 32.1


Certification of Chief Executive and Chief Financial Officer of
ADA-ES, Inc. Pursuant to 18 U.S.C. Section 1350


I, Michael D. Durham, certify that:

In connection with the Annual Report on Form 10-KSB of ADA-ES, Inc. (the
"Company) for the period ended December 31, 2005 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Michael D. Durham,
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:

1) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and

2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.


/s/ Michael D. Durham
-------------------------
Name: Michael D. Durham
Title: President
Date: March 28, 2006



I, Mark H. McKinnies, certify that:

In connection with the Annual Report on Form 10-KSB of ADA-ES, Inc. (the
"Company) for the period ended December 31, 2005 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Mark H. McKinnies,
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:

1) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and

2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.


/s/ Mark H. McKinnies
---------------------
Name: Mark H. McKinnies
Title: CFO
Date: March 28, 2006



</TEXT>
</DOCUMENT>
</SUBMISSION>
