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<SEC-DOCUMENT>0001050502-06-000290.txt : 20061115
<SEC-HEADER>0001050502-06-000290.hdr.sgml : 20061115
<ACCEPTANCE-DATETIME>20060726160908
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER:		0001050502-06-000290
CONFORMED SUBMISSION TYPE:	CORRESP
PUBLIC DOCUMENT COUNT:		1
FILED AS OF DATE:		20060726

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			ADA-ES INC
		CENTRAL INDEX KEY:			0001223112
		STANDARD INDUSTRIAL CLASSIFICATION:	MISCELLANEOUS CHEMICAL PRODUCTS [2890]
		IRS NUMBER:				841457335
		STATE OF INCORPORATION:			CO
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		CORRESP

	MAIL ADDRESS:	
		STREET 1:		8100 SOUTHPARK WAY B
		CITY:			LITTLETON
		STATE:			CO
		ZIP:			80120
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<TEXT>





                                  July 25, 2006


VIA EDGAR and FAX
- -----------------

John Cash, Branch Chief
Division of Corporation Finance
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-7010

          Re:   ADA-ES, Inc.
                Form 10-K for the year ended December 31, 2005
                Form 10-Q for the period ended March 31, 2006
                File No. 0-50216
                ----------------

Dear Mr. Cash:

     On behalf of ADA-ES, Inc. ("we" or the "Company"), we respond as follows to
the Staff's comment letter dated July 7, 2006 relating to the above-captioned
filings on Forms 10-K and 10-Q. Please note that for the Staff's convenience, we
have recited each of the Staff's comments and provided the Company's response to
each immediately thereafter.


     Form 10-KSB for the fiscal year ended December 31, 2005
     -------------------------------------------------------


          Revenue Recognition, page F-8
          -----------------------------

          We note your response to our prior comment five and have the following
          additional comments:

          o    With regard to the contracts for sales of your ACI systems,
               please tell us how you have determined that you do not fall under
               the first bullet of paragraph 14 of SOP 81-1. Additionally, to
               help us better understand how you determined that percentage of
               completion accounting was appropriate, please provide us with a
               detailed explanation of both your and your buyer's enforceable
               rights to the work-in-progress as the work progresses. Refer to
               paragraph 22 of SOP 81-1.

          o    Regarding the contracts for your commercial mercury emission
               measurement and consulting services, it appears to us that you
               should be using an output based approach to recording revenue for
               these service contracts, such as when services are rendered.
               Please refer to footnote 1 of SOP 81-1 as well as Section 2(F)(2)
               of our outline of Current Accounting and Disclosure Issues,
               available on our website at
               www.sec.gov/divisions/corpfin/acctdis120105.pdf, and provide us
               with a more detailed explanation of why you continue to believe
               the percentage of completion method for revenue recognition is
               appropriate for your circumstances. Alternatively, if you no
               longer believe that service contract revenue should be recognized

<PAGE>

John Cash, Branch Chief
Securities & Exchange Commission
July 25, 2006
Page 2


               under the percentage of completion method, please demonstrate to
               us that there would not have been a material difference in your
               fiscal year 2004 and 2005 revenues if you had recognized service
               contract revenues in accordance with SAB Topic 13, and confirm to
               us that you will recognize revenues from service contracts in
               accordance with SAB Topic 13 in the future.

          o    With regard to your contracts where there are delivery
               milestones, it remains unclear to us that it is appropriate to
               account for these contracts under percentage of completion. In
               this regard, we note your statement on page 3 of your Form 10-KSB
               that these agreements often include various technical and
               financial reports that you submit on a prescribed schedule.
               Please provide us with further details of the terms of these
               contracts. For example, what happens if the contract is cancelled
               in-between milestones? Will you receive payment for all work
               through the date of cancellation? Will you be assessed any
               penalties? If a contract is cancelled prior to completion are you
               required to remit any previous earnings back to the customer?
               Please provide us with a copy of one of your current contracts
               where there are milestones to help us better understand this
               matter.

          o    With regard to your contracts where there are delivery
               milestones, your response appears to indicate that there would
               not be a material difference in the amount of revenue recognized
               based on the delivery milestones versus the amount of revenue
               recognized under the percentage of completion. Please demonstrate
               this by quantifying for us the impact on your fiscal 2004 and
               2005 results if you had accounted for these contracts based on
               milestones rather than percentage of completion. Also confirm to
               us that going forward you will recognize the revenue associated
               with each delivery milestone when the milestone has been
               completed, or explain to us why you do not believe that this
               method of revenue recognition is appropriate under the terms of
               such contracts.


     A.   ACI systems sales and application of paragraph 14 of SOP 81-1 - The
          first bullet point of the noted paragraph 14 excludes from coverage of
          the statement "Sales by a manufacturer of goods produced in a standard
          manufacturing operation, even if produced to buyers' specifications,
          .....if such sales are normally recognized as revenue in accordance
          with the realization principle for sales of products and if their
          costs are accounted for in accordance with generally accepted
          principles of inventory costing." Our ACI system sales do not fall
          under such point for the following reasons:

          1.   We are not a manufacturer of goods but rather order the major
               components from others and provide an engineered package of
               components to our customers; and
          2.   We do not maintain any inventory of the major system components,
               nor do such components ever become an item of inventory. Such
               components are ordered from others on a contract by contract
               basis.

          With regard to our and our buyers' enforceable rights to the
          work-in-progress, in every case where we have entered into a contract
          to supply an ACI system, the buyer is a large company who generally
          dictates contract terms. In each and every case those contracts
          include in the general terms and conditions, the following or similar
          language in the section entitled TERMINATION. "Buyer may at any time
          terminate this order in whole or in part for its convenience upon
          written notice to Seller in which event Seller shall be entitled to
          reasonable termination charges consisting of a percentage of the order
          price reflecting the percentage of the work performed prior to

<PAGE>

John Cash, Branch Chief
Securities & Exchange Commission
July 25, 2006
Page 3


          termination plus actual direct costs resulting from termination." In
          other instances there are contractual provisions that allow the
          customer to take over the work-in-progress at his option in an early
          termination. In addition, we have granted the buyer, in some
          instances, security interests in our underlying contract rights as set
          forth in the following excerpted language from a supplemental
          agreement with a customer (in this case the "Contractor") wherein we
          are the "Subcontractor" and the "Subcontract" is our sales contract:

          "Security Interest. In order to secure all of the Subcontractor's
          debts, obligations and liabilities under and in connection with the
          Subcontract (hereinafter, the "Obligations"), Subcontractor hereby
          grants to Contractor a security interest in:

               a.   each contract right of Subcontractor arising from any and
                    all contracts or other agreements Subcontractor may have
                    with any of its subcontractors or materialman for the
                    manufacture or supply of any component parts, supplies,
                    machinery, tools, raw material and other equipment and
                    inventory to be directly incorporated into the Finished
                    Product.
               b.   all component parts, raw material, work in progress and
                    other project specific equipment and inventory the
                    Subcontractor purchased for the use in Subcontractor's
                    performance of the Obligations or for incorporation into the
                    finished Product,
               c.   all of the Subcontractor's rights by virtue of down payments
                    and purchase orders for, and all of Subcontractor's other
                    general intangibles relating to, such component parts, raw
                    materials, and work in progress, and
               d.   all proceeds and products of, and all rights and privileges
                    incident to, any of the foregoing.

          Whether now owned or hereinafter acquired (hereinafter collectively,
          the "Collateral")."

          We believe our position as a provider of engineered system, not a
          manufacturer with inventory and the above exampled contract terms
          further support the propriety of the percentage of completion method
          of revenue recognition for our ACI system sale contracts.


     B.   Contracts for commercial mercury emission measurement and consulting -
          We note your comment with regard to these contracts. However, we
          believe the percentage of completion method we are applying for the
          fixed price contracts of this nature is appropriate and recognizes
          revenue as it is earned and reflects the pattern in which our
          obligations to the customer are fulfilled. These contracts are for the
          provision of services related to the construction of facilities and
          are performed by engineers. The last bullet point of paragraph 13 of
          SOP 81-1 specifically includes "Contracts for services performed
          by...engineers..." In these contracts we typically supply temporary
          equipment, inject sorbent and measure mercury emissions over a usually
          predetermined period of time, evaluate control alternatives in light
          of exiting and potential regulations, and recommend a course of action
          (often allowing the customer to determine specifications as a
          precursor to the order of an ACI system). These contracts also exhibit
          circumstances appropriate to the percentage of completion method
          including their fixed price nature, and the dependability of estimates
          of costs to complete and extent of progress toward completion.

<PAGE>

John Cash, Branch Chief
Securities & Exchange Commission
July 25, 2006
Page 4


     C.   Contracts with delivery milestones, Form 10-KSB comment - We note your
          comment with regard to these contracts, and in particular your
          reference to our statement on page 3 of our Form 10-KSB that these
          agreements often include various technical and financial reports we
          submit on a prescribed basis. Please note the contracts referenced in
          the Form 10-KSB are all government contracts, none of which are
          accounted for using the percentage of completion method. These
          "milestones" are typically technical reports of progress in our field
          demonstrations required at specific time intervals (e.g. quarterly or
          annual reports) and are not contractually related to the earnings
          process. As noted in our response letter to you dated June 27, 2006 in
          paragraph 5.B.: "Revenue on our government contracts is recognized as
          costs (time, materials and burden rates) are incurred. In this case we
          believe that both the earnings process is complete and an exchange has
          taken place so that revenue recognition on that basis is appropriate
          (APB Statement 4, Paragraph 150). These contracts specifically allow
          us to invoice and collect amounts from the DOE as we incur costs."

     D.   Contracts delivery milestones - We note your comment and apologize for
          the confusion our previous response created. The point we were
          attempting to make is the typical billing schedule (the timing and
          amount of invoices to the customer) provided in our contracts appears
          to closely follow the progress of work (the percentage complete) such
          that we do not usually have significant unbilled receivables or
          deferred revenue recorded on our financial statements. See our comment
          in C. above with regard to revenue recognition on the government
          contracts that have significant delivery milestones. We also confirm
          to you that going forward, in the event we enter into contracts where
          the earnings process for revenue recognition is dependent upon
          significant delivery milestones, we will recognize the revenue
          associated with each delivery milestone when the milestone has been
          completed.

               Goodwill, page F-9
               ------------------

               2.   We note your response to our prior comment six that you will
                    remove the reference to the investment banking firm in
                    future filings; however, due to the fact that you have
                    incorporated your 10-KSB by reference into your S-3 filing,
                    you are required to amend your 10-KSB to either name the
                    investment banking firm and include their consent or to
                    remove the reference to the investment banking firm.

          We note the Staff comment and will remove the reference to the
          investment banking firm in an amendment to our Form 10-KSB. The
          footnote comment will be amended to read as follows:

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

<PAGE>

John Cash, Branch Chief
Securities & Exchange Commission
July 25, 2006
Page 5


          Form 10-Q for the period ended March 31, 2006
          ---------------------------------------------

          Item 2. Management's Discussion and Analysis - Overview
          -------------------------------------------------------


               3.   We note your response to our prior comment 11. Please tell
                    us if the acquisition you refer to is probable, and if it is
                    probable please confirm whether it meets the 50%
                    significance test. If it is over the 50% significance
                    threshold we remind you that you will be required to provide
                    pro forma financial information in your current registration
                    statement as noted in Rule 3-05 of Regulation S-X.


The acquisition noted in our response is not currently probable. We note your
comment on the significance test and the need to provide pro forma financial
information in our current registration statement, if appropriate, as noted in
Rule 3-05 of Regulation S-X.


     I believe that this responds to all of the Staff's comments. We have filed
the amendment noted to our Form 10-KSB. Please do not hesitate to contact me if
you have any further questions of comments. I can be reached at telephone
303-734-1727.


                                         Sincerely,

                                         ADA-ES, Inc.

                                         /s/ Mark H. McKinnies

                                         Mark McKinnies
                                         Senior VP and Chief Financial Officer




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