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<DESCRIPTION>ANNUAL REPORT
<TEXT>
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     <TD WIDTH="55%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="4"><B>President&#146;s Letter and</B></FONT></FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="4">&nbsp;</FONT></TD>
     <TD WIDTH="40%" ALIGN="right"><FONT FACE="Times New Roman, Times, Serif" SIZE="4"><IMG SRC="adalogo.jpg" HEIGHT="66" WIDTH="195"></FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="4">&nbsp;</FONT></TD>
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     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="4"><B>Annual Report for the</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="4">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
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     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="4"><B>Fiscal Year Ended December 31, 2006</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="4">&nbsp;</FONT></TD>
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     <TD>&nbsp;</TD><TD></TD>
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<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">May 8, 2007</FONT></FONT></P>


<!-- MARKER FORMAT-SHEET="Head Minor" -->
<A NAME="A004"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B><I>Dear Fellow
Shareholders:</I></B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Since
founding ADA-ES&#146; predecessor in 1985, I have never been more enthusiastic
about the Company, our market position, and our prospects for growth than I am
today. Our team of leading experts in emission control, proven technologies and
established industry relationships have positioned the Company as a leader in
clean coal technology. State regulations, as well as the construction of new
coal-fired power plants, are driving the emerging market for mercury emissions.
In addition, a strict Federal Rule such as those proposed on April 19 in
separate bills introduced by Senators Carper and Alexander, could triple the
demand&nbsp;during 2012 to 2015, creating a&nbsp;potential billion dollar market
for activated carbon for mercury control.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">These
market forces are allowing us to capitalize on the extensive efforts we have
made over the past five years to develop and demonstrate mercury control
technologies, participating in the creation of this market. Our &#147;razors and
razor blades&#148; business model (i.e. low capital equipment that uses a
continues supply of a chemical resulting in long-term revenues) is coming to
fruition in mercury control, as we have entered into a new relationship to
supply activated carbon (&#147;AC&#148;) for near-term use with the injection
systems we are selling, and are pursuing the development of our own AC
production plant for long-term supply of this sorbent. Furthermore, our
reputation for research and development and track record of commercializing
products have enabled us to establish opportunities in two new growth areas
&#150; refined coal and greenhouse gases.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I>Mercury
Emission Control: State Regulations and New Power Plants Fuel Growth in Our Core Business</I></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">During
2006, the increased pace in our mercury control work began to reflect that the
commercial market is well underway. We won contracts covering 10 activated
carbon injection (&#147;ACI&#148;) systems for mercury control. Thus far in
2007, we have won awards for five additional ACI systems. Currently, ADA-ES has
secured contracts for a total of 17 systems, equivalent to a market share
greater than 55% of the ACI systems sold to date. Additionally, we have the
potential to sell another six units via an existing contract if our customer
exercises all of their options.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
regulatory drivers during the year included 7 state regulations for mercury
emission control, while 1 more state passed rules in the first few months of
2007. Currently, there are 12 states with mercury control rules and 13 states
considering regulations stricter than the federal government&#146;s Clean Air
Mercury Rule.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">We are
winning this business by capitalizing on our key strategic advantages, including
the extensive experience and relationships we developed by conducting more than
30 full-scale demonstrations of AC injection technology at power plants across
the country. The mercury market is growing rapidly, and we expect to bid on
between 50 and 100 systems over the next 2 years. As a result, we are more than
doubling the number of engineers in our commercial equipment group who are
integral in the preparation of bids, proposals and contracts. Proposals are
submitted three to nine months prior to contract awards; therefore, we will
incur related expenses prior to expected revenues from new contracts.&nbsp;</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">We
anticipate the continued expansion of the mercury emission control market, which
is projected to be a multi-billion dollar a year business if/when Congress
passes legislation to further strengthen existing regulations that affect most
of the country&#146;s 1,100 plus coal-fired boilers. This growing market is
creating continued strong demand for our mercury control products and services.</FONT></FONT></P>


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<!-- MARKER FORMAT-SHEET="Head Minor" -->
<A NAME="A005"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I>Vertical
Integration into Activated Carbon Production: Capitalizing on Our Market Position</I></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">In
order to maximize the earnings potential of the Company&#146;s position as a
leader in mercury control, we are pursuing the manufacture of AC. We are in the
process of securing and permitting multiple sites for &#147;Greenfield&#148;
manufacturing facilities to be ideally positioned to respond to the shortage of
AC we anticipate for the rapidly expanding mercury control market. These
large-scale production facilities are being designed to maximize efficiency and
produce the most cost-effective product for the mercury control market. We
expect a build-out of two production lines to cost approximately $400 million to
construct. We will need additional financing to fund such costs, which we plan
to achieve through a combination of equity (20-40%) and debt (60-80%) funding
from financial and/or strategic partners. Based on current pricing for AC, we
expect that our plant would produce approximately $100 million in product per
year, generating an internal rate of return of more than 20%.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">A
third party market analysis incorporating details on the type of equipment and
coal used at each of the 1,100 coal-fired boilers at U.S. power plants estimates
that by 2010, current and expected state mercury control regulations could
double the U.S. demand for AC, currently used primarily to remove contaminants
from drinking water, and triple the demand by 2015 with a stringent federal
rule, creating a billion dollar market for AC for mercury control.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
development of one or more activated carbon plants would enable us to satisfy
the mercury control needs of our customers in the power generation market, and
allow us to more fully benefit from the opportunities we have created. Of note,
the 45% of ACI systems sold to date by companies other than ADA-ES were sold by
companies that have been focused solely on equipment, leaving AC sales available
for us to pursue and providing us with a competitive advantage.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Importantly,
development activities for an AC plant take approximately four to six years,
including testing potential products, and then designing, permitting and
constructing the plant. Because of our early entry into this market, we are well
into this process and are moving forward in earnest to maintain and enhance our
first mover advantage. We believe our goal of having a new plant producing AC in
early 2010 is achievable.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Additionally,
we have formed a Memorandum of Understanding with Calgon Carbon, the largest
producer of AC in the U.S., for the supply of AC prior to the construction of
our new plant. We plan to finalize a more detailed agreement with Calgon Carbon
and make it available to you in the next few months.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Head Minor" -->
<A NAME="A006"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I>Refined Coal</I></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
Company is well positioned in the development of our refined coal product,
Cyclean, which treats coal to reduce emissions of NO<SUB>x </SUB>and Mercury. We
have demonstrated the technology we developed at two full-scale plants and
achieved emission reduction levels that we expect to qualify for a tax credit of
approximately $5.80/ton of coal for ten years. We believe our technology is
applicable to a target market of cyclone boilers that would use approximately 20
million tons of refined coal per year, amounting to a market potential of
approximately $160 million per year. Importantly, initial interest from the
market appears strong, and our business model provides a basis for rapid
development and implementation of new product.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Towards
the end of 2006, we formed a 50:50 Refined Coal Joint Venture with an affiliate
of NexGen Resources. The JV will do business as Clean Coal Solutions, LLC.
NexGen has paid ADA-ES $1 million to date, which is reflected in our
shareholders&#146; equity. If the tax credits are assured, NexGen has the right
to maintain a 50% position in the JV by paying ADA-ES an additional $4 million,
payable in 8 quarterly payments of $500,000 each, beginning as early as the
4<SUP>th</SUP> quarter of 2007. We are currently working with Congress on an
amendment to the law that would clarify aspects of how to qualify for the tax
credit. Revenues from this JV would be generated from monetization of tax
credits, which become available in 2009.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Head Minor" -->
<A NAME="A007"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I>Greenhouse
Gases</I></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">With
regard to the control of carbon dioxide emissions, we are entering the emerging
market the same way we entered the mercury control market. Right now we are in
the pre-market period, using funding from utilities and the DOE. Negotiations
have commenced for a subcontract on a $4 million DOE program for sorbent-based
CO<SUB>2</SUB> control. We are pursuing a technology that would apply to both
existing and future coal-fired power plants. This not only increases the
potential size of the market, it better positions us to help our customers
address issues related to producing power in a carbon constrained world.
Although this market is in the very early stages, it is receiving a great deal
of focus, and we are committed to developing an effective CO<SUB>2</SUB> system
and sorbent that would generate a recurring revenue stream, in line with our
business model.</FONT></FONT></P>


<!-- MARKER FORMAT-SHEET="Para Center" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">2</FONT></FONT> </P>


<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>

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<!-- MARKER FORMAT-SHEET="Head Minor" -->
<A NAME="A008"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I>2006
Financial Results Reflect Business Strategy</I></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
continued strength in our mercury emission control segment drove our revenue
growth for the year, which totaled 40% and was higher than we had anticipated.
Our profitability level, however, reflects that the Company is implementing an
aggressive business strategy to leverage our market leading position in mercury
control and maximize future earnings.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">For
2006, total revenues rose 40% to $15.5 million, and gross profit increased 38%
to $5.9 million. The Company recognized $411,000 in M&amp;A expenses related to
our plans to vertically integrate into the production of AC. In addition, we
recorded $486,000 in expenses related to our refined coal efforts, while the
initial payment from NexGen of $1,000,000 to the Company was recorded, net of
taxes, as an increase in equity rather than as revenues. Net income was $377,000
or $0.07 per diluted share versus $663,000 or $0.13 per diluted share in 2005.
Net income per diluted share was calculated on 12% more shares outstanding due
to a 790,000-share private equity placement in October 2005.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Head Minor" -->
<A NAME="A009"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I>Strong
Financial Position Provides Foundation for Growth Initiatives</I></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">We
closed 2006 with cash and investments totaling $23.9 million, working capital of
$18.5 million, no long-term debt and shareholders&#146; equity of $27.6 million.
We believe our strong financial position, especially relative to the size of our
Company, provides a solid foundation as we seek to substantially expand the
scale of ADA-ES.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">2007
will be a significant year for ADA as we change the nature of the business from
research, development and demonstration to supplying commercial equipment and
manufacturing key chemicals. These shifts reflect our response to the
realization of the mercury control market and allow us to benefit from the
extensive efforts that we have made over the past five years to create this
market. We are confident in our position, and believe our aggressive strategy
will take the Company to a new level.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">On
behalf of ADA-ES&#146; dedicated employees and Board of Directors, I would like
to thank you for your continued support of ADA-ES. We remain enthusiastic about
your company&#146;s future.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Sincerely,</FONT></FONT></P>


<!-- MARKER FORMAT-SHEET="Head Minor" -->
<A NAME="A010"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><U>/s/&nbsp;&nbsp;&nbsp;Michael Durham</U><BR>Michael
Durham, Ph.D., MBA<BR>President</FONT></FONT></P>


<!-- MARKER FORMAT-SHEET="Para Center" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">3</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>

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</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="40%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>EXECUTIVE OFFICERS</B></FONT></FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="55%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
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     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
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     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Michael D. Durham</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Mark H. McKinnies</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
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     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">President</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Senior Vice President, Chief Financial Officer</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">and Secretary</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
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     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
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     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>C. Jean Bustard</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Jonathan S. Barr</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Chief Operating Officer</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Vice President Sales and Marketing</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Richard L. Miller</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Richard J. Schlager</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Vice President Business Development</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Vice President Contract Research and Development</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">for Utility Systems</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
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     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
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     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Sharon J. Sjostrom</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Vice President Technology</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
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     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>BOARD of DIRECTORS</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
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     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Michael D. Durham</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Mark H. McKinnies</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">President</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Senior Vice President, Chief Financial Officer</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
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     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">ADA-ES, Inc.</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">and Secretary</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
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     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">ADA-ES, Inc.</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
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     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Jeffrey C. Smith</B> (1,5,6)</FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Robert N. Caruso</B> (6,7)</FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Lawyer</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Managing Partner</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Law Office of Jeffrey C. Smith</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">B/3 Management Resources, LLC</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>John W. Eaves</B> (6,7)</FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Derek C. Johnson</B> (5,7)</FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">COO, President and Director</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">President</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Arch Coal</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Fusion Specialties</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Ronald B. Johnson</B> (3,5)</FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Rollie J. Peterson</B> (4,5)</FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">President and owner</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">President, Treasurer and Co-owner</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Twin-Kem International, Inc.</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Cobblestone Development Inc.</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Richard J. Swanson</B> (2,6)</FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">President</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Investment Partners, Inc.</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
</TABLE>


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     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">1 </FONT></FONT></TD>
     <TD WIDTH="97%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp;-&nbsp;
Chairman of the Board of Directors</FONT></FONT> </P></TD>
</TR>
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     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">2 </FONT></FONT></TD>
     <TD WIDTH="97%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp;-&nbsp;
Chairman of the Audit Committee</FONT></FONT> </P></TD>
</TR>
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<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">3 </FONT></FONT></TD>
     <TD WIDTH="97%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp;-&nbsp;
Chairman of the Compensation Committee</FONT></FONT> </P></TD>
</TR>
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<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">4 </FONT></FONT></TD>
     <TD WIDTH="97%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp;-&nbsp;
Chairman of the Nominating and Governance Committee</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">5 </FONT></FONT></TD>
     <TD WIDTH="97%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp;-&nbsp;
Member of the Audit Committee</FONT></FONT> </P></TD>
</TR>
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     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">6 </FONT></FONT></TD>
     <TD WIDTH="97%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp;-&nbsp;
Member of the Compensation Committee</FONT></FONT> </P></TD>
</TR>
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<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">7 </FONT></FONT></TD>
     <TD WIDTH="97%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp;-&nbsp;
Member of the Nominating and Governance Committee</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">4</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>


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<A NAME="A012"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>STOCK
PERFORMANCE CHART</B></FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The following
chart compares the yearly percentage change in the cumulative shareholder return on our
common stock from September  12, 2003 to the end of the fiscal year ended December 31,
2006 with the cumulative total return on the Russell 2000 Index and a  customized peer
group of nine companies that includes: Consol Energy Inc., Evergreen Energy Inc., Foster
Wheeler Ltd., Fuel  Tech, Inc., Fuel System Solutions Inc., Headwaters, Inc., McDermott
International Inc., Renetch Inc. and Syntroleum Corporation. The  comparison assumes $100
was invested on September 12, 2003 in ADA-ES&#146;s common stock and in each of the
foregoing indices, or the peer  group, and assumes dividends, if any, were reinvested.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The  Company is
using the peer group index as a comparison for its cumulative  shareholder return because
it believes that the selected companies are more  comparable to the Company than the
published indices. The peer group is made up  of companies that engage in the development
of lower emission fuel technologies  and related businesses as a significant element of
their overall business,  although not all of the companies included in the peer group
participate in all  of the lines of business in which the Company is engaged and some of
the  companies included in the peer group also engage in lines of business in which  the
Company does not participate. In addition, the market capitalizations of  many of the
companies included in the peer group index are different from the  Company&#146;s.</FONT></FONT></P>



<IMG SRC="image016.gif">


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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">*
&nbsp;&nbsp;&nbsp;&nbsp;$100 invested on September 12, 2003 in stock or
index-including reinvestment of dividends. Fiscal year ending December 31st.</FONT></FONT></P>



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<A NAME="A013"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Total Return
Analysis</B></FONT></FONT></P>


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<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="10"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">INDEXED RETURNS</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Company Name / Index</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Base<BR>Period<BR>9/12/03</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">12/31/03</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Years Ending<BR>12/31/04</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">12/31/05</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">12/31/06</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="28%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR>ADA-ES, Inc.</FONT></TD>
     <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="5%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">100</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">284</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">.00</FONT></TD>
     <TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">960</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">.40</FONT></TD>
     <TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">729</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">.60</FONT></TD>
     <TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">648</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">.00</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Russell 2000 Index</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">100</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">109</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">.79</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">129</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">.91</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">135</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">.83</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">160</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">.78</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Peer Group</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">100</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">139</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">.97</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">221</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">.95</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">369</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">.44</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">429</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">.77</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">5</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>STOCKHOLDER
INFORMATION</B></FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Shareholder
Correspondence:</B> <BR>ADA-ES, Inc. <BR>Attention: Corporate Secretary <BR>8100 Southpark Way, Unit B<BR>
Littleton CO 80120</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Transfer Agent:</B>
<BR>Computershare <BR>350 Indiana St, Suite 800 <BR>Golden CO 80401</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>INVESTOR
RELATIONS</B> <BR> Security analysts, investment professionals and shareholders can find investor
relations information on the Internet at <B>www.adaes.com.</B></FONT></FONT></P>


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     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="45%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Written inquiries should be directed to:</FONT></TD>
     <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="40%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">ADA-ES, Inc</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">The Equity Group</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Attention: Investor Relations</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">or</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Attention: Loren Mortman</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">8100 Southpark Way, Unit B</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">800 Third Avenue, 36th Floor</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Littleton  CO 80120</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">New York NY 10022</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Telephone: (303) 734-1727</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Telephone: (212) 836-9604</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
</TABLE>


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<A NAME="A014"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B><BR>MARKET
INFORMATION for COMMON STOCK</B><BR>ADA-ES, Inc. common stock is listed on the Nasdaq Capital Market under the symbol &#147;ADES.&#148;</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>ANNUAL MEETING
OF STOCKHOLDERS</B> <BR>The annual meeting will be held at 9:00 a.m. (local time) on June 19,
2007 at the Pinehurst Country Club, located at 6255 West Quincy Street in Denver,
Colorado. A notice of the meeting, together with a form of Proxy and a Proxy Statement,
will be included with this Annual Report and mailed to stockholders on or about May 8,
2007, at which time proxies will be solicited by the Board of Directors.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Availability of
Proxy Statement and Form 10-K:  <BR>The  Proxy Statement and the Form 10-K are available on
the Internet at  www.adaes.com. A copy of the Proxy Statement may be obtained without
charge by  written request to the Investor Relations Department as listed above.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM</B> <BR>HEIN &amp; Associates, LLP<BR>717 17<SUP>th</SUP> Street, 16<SUP>th</SUP> Floor<BR>Denver
CO 80202</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>NON-INCORPORATION
OF FORM 10-K &#147;WRAP&#148;</B> <BR>ADA-ES, Inc.&#145;s 2006 Form 10-K, as filed with the SEC,
is included within this Annual Report. Other than the Form 10-K, all other portions of
this Annual Report are not &#147;filed&#148; with the SEC and should not be deemed so.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>CERTIFICATIONS</B><BR>
The most recent certifications by our Chief Executive Officer and Chief Finanical
Officer pursuant to section 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed as
exhibits to our Form 10-K.</FONT></FONT></P>

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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">6</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>

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<A NAME="A020"></A>
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>United
States<BR>SECURITIES AND EXCHANGE COMMISSION<BR>Washington, D.C. 20549</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major" -->
<A NAME="A023"></A>
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>FORM
10-K</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major" -->
<A NAME="A024"></A>
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)<BR>OF THE SECURITIES EXCHANGE ACT OF 1934</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Center" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">For the
fiscal year ended December 31, 2006</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major" -->
<A NAME="A026"></A>
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Commission
File Number: 000-50216</FONT></FONT></P>

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<A NAME="A027"></A>
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="5"><B>ADA-ES,
Inc.</B><BR><FONT SIZE="2">(Name of registrant as specified in its charter)</FONT></FONT></FONT></P>


<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="450" ALIGN="CENTER">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Colorado</FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">84-1457385</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="64%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(State of incorporation)</FONT></TD>
     <TD WIDTH="11%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="23%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(IRS Employer</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Identification No.)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
</TABLE>


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<A NAME="A029"></A>
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>8100
SouthPark Way, Unit B, Littleton, Colorado 80120-4525</B><BR>(Address of principal executive offices) (Zip Code)</FONT></FONT></P>



<!-- MARKER FORMAT-SHEET="Para Center" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(Registrant's
telephone number, including area code): (303) 734-1727</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Center" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Securities
registered under Section 12(b) of the Exchange Act:</FONT></FONT> </P>

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="41%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="51%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Title of class</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Name of each exchange on which registered</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Common Stock, no par value</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>NASDAQ Capital Market</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Para Center" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Securities
registered under Section 12(g) of the Exchange Act: None</FONT></FONT> </P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. [&nbsp;&nbsp;&nbsp;] Yes  [&nbsp;X&nbsp;] No</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Indicate by
check mark if the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act.  [&nbsp;&nbsp;&nbsp;]  Yes  [&nbsp;X&nbsp;] No</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Indicate by
check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been  subject
to such filing requirements for the past 90 days. [&nbsp;X&nbsp;] Yes  [&nbsp;&nbsp;&nbsp;] No</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Indicate by
check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K
is not contained here, and will  not 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-K or any amendment to this Form 10-K.  [&nbsp;&nbsp;&nbsp;] Yes  [&nbsp;X&nbsp;] No</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Indicate by
check mark whether the registrant is a large accelerated filer, an accelerated filer, or
a non-accelerated filer.  See  definition of &#145;accelerated filer and large
accelerated filer&#148; in Rule 12b-2 of the Exchange Act.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Center" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Large
accelerated filer  [&nbsp;&nbsp;&nbsp;] &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accelerated filer  [&nbsp;X&nbsp;]  &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-accelerated filer  [&nbsp;&nbsp;&nbsp;]</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act.)<BR>  [&nbsp;&nbsp;&nbsp;] Yes  [&nbsp;X&nbsp;] No</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The aggregate
market value of the voting stock held by non-affiliates as of June 30, 2006 was
$96,503,000</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">As of March 15,
2007, there were outstanding 5,635,137 shares of the Common Stock, no par value.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>DOCUMENTS
INCORPORATED BY REFERENCE:</B></FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">In Part III of
this Annual Report on Form 10-K, portions of the registrant&#146;s definitive proxy
statement for the 2007 Annual Meeting  of Shareholders currently scheduled to be held on
June 19, 2007, are incorporated by reference.</FONT></FONT></P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>



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<!-- MARKER FORMAT-SHEET="Head Major" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>PART I</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Item 1.
Business</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Head Minor" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Abbreviations
We Use in this Report</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Indent" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&quot;ADA-ES,&quot;
&#147;the  Company,&#148; &#147;we,&#148; &#147;us,&#148; or &#147;our&#148; refer to
ADA-ES,  Inc.,  a  Colorado  corporation,  and its  consolidated  subsidiaries.  Other
abbreviations we use in this Report include:</FONT></FONT></P>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="9%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>o</B></FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="88%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> ACI
= activated carbon injection</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="9%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>o</B></FONT></FONT> </TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="88%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> ADA-249M
= our patented slag viscosity modifying compound</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="9%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>o</B></FONT></FONT> </TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="88%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> CAMR
= Clean Air Mercury Rule</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="9%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>o</B></FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="88%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> CEMS
= continuous emission monitoring system</FONT></FONT> </P></TD>
</TR>
</TABLE>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="9%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>o</B></FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="88%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> DOE
= the United States Department of Energy</FONT></FONT> </P></TD>
</TR>
</TABLE>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="9%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>o</B></FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="88%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> EPA
= United Stated Environmental Protection Agency</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="9%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>o</B></FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="88%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> EPRI
= the Electric Power Research Institute</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="9%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>o</B></FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="88%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> ESP
= electrostatic precipitator</FONT></FONT> </P></TD>
</TR>
</TABLE>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="9%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>o</B></FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="88%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> FGC
= flue gas conditioning</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="9%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>o</B></FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="88%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> MEC
= mercury emission control</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="9%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>o</B></FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="88%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> PAC
= powdered activated carbon</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="9%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>o</B></FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="88%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> PRB
= Powder River Basin</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Business
Purpose and Strategy</B> <BR>ADA-ES, Inc. was incorporated in Colorado in 1997, and develops and
implements proprietary environmental technology and provides specialty chemicals that
enable coal-fueled power plants to enhance existing air pollution control equipment,
maximize capacity and improve operating efficiencies. 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.,
NexGen Resources Corporation (&#147;NexGen&#148;) and Thermo Electron Corporation (&#147;Thermo&#148;).
ADA-ES became a &quot;stand-alone&quot; public company through a &quot;spin-off&quot;
from its parent company, Earth Sciences, Inc. in September 2003. We have one
wholly-owned subsidiary called ADA Environmental Solutions LLC, in which all of our
business is performed.</FONT></FONT></P>


<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">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.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Our major
activities  include  sales of  equipment,  field testing and services  related to the
emerging  market for mercury  emission  control  (&#147;MEC&#148;) for coal-fired
boilers used in electric  generation,  development  and marketing of our refined coal
technology in a  joint venture with NexGen called Clean Coal  Solutions,  LLC, the sale
of flue gas  conditioning  equipment  and  chemicals,  and other  chemicals and
technologies for such boilers (&quot;FGC&quot;).</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Overview of the
Last Five Years</B> <BR>During our last five fiscal years, 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) in 2006 entered into a joint venture with NexGen to
develop and market our refined coal technology; (c) continued our position in the
FGC business through continued chemical sales and service; and (d) provided other
chemicals and technologies for coal-fired boilers.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">In August 2004
and October  2005,  we sold  shares of our common  stock to a limited  number of private
investors.  We were  granted a  listing on what is now called the NASDAQ Capital Market
(formerly the NASDAQ Small Cap) shortly after  completion of the private share  offering
in 2004.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Center" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">2</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>

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<!-- MARKER PAGE="sheet: 1; page: 1" -->

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Thus  far in
2007, we (a) commenced work on five additional  activated  carbon  injection  (&#147;ACI&#148;)
systems to be delivered later in 2007  and in 2008,  and continued  work on eight (8)
other ACI systems to be delivered at various times in 2007 and 2008,  (b) continued work
on government- and  industry-supported  contracts for field testing,  installation and
evaluation of mercury control systems at several  sites,  (c) continued to supply FGC
chemicals to several plants and began  preparations  to demonstrate FGC technology at an
additional  plant, and (d) through a joint venture with NexGen,  commenced  development
and marketing of our refined coal  technology.  We describe  these activities and those
in the preceding paragraphs in greater detail below.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Financial
Information for Industry Segments</B> <BR>We have two reportable segments: MEC and FGC and
other. Financial information concerning these reportable segments can be found in the
Financial Statements filed as a part of this Report, in Footnotes 1 &#150; Segment
Information, and 11 &#150; Business Segment Information, and that information is
incorporated by reference here.</FONT></FONT></P>


<!-- MARKER FORMAT-SHEET="Head Minor" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Our Business
in Detail</B></FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Market for Our
Products and Services</B> <BR>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 (&#147;CAMR&#148;),
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 approximately 48 tons of mercury per year. Based on a 2005 National Coal Council
report, coal powers more than 50% of all electricity produced in the United States, and
the United States reserves are estimated to be capable of serving demand for the next
250 years. Early DOE studies indicate that the estimated 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 first began in 2005, and is
developing rapidly as a result of this regulatory environment. The markets that will be
affected by new regulations are the same ones in which we currently operate. In addition,
the systems and products required for mercury controls fit well with our existing
products and capabilities.</FONT></FONT></P>


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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">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,  &quot;Mercury from Power Plants: A Model  Rule for States and
Localities&quot;  in response to concern that 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. As of mid-February  2007,
there are 12 states with mercury control rules and 13 states considering regulations more
stringent than CAMR.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">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 Cyclean,
that provide  utilities  flexibility  in choosing  the grade of fuel they can burn.  The
Company  has  established  itself as a leader in the mercury  control  market,  received
ten new orders for commercial  mercury control systems in 2006, and has commenced work on
an additional five  new systems through  February,  2007. Our programs have been
demonstrated  to be effective,  even in difficult  application,  and have  also been
shown to be cost  effective,  in many cases reducing the costs  associated  with mercury
control to less than 20% of initial  cost estimates.</FONT></FONT></P>

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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">3</FONT></FONT> </P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Government and
Industry-Supported Contracts </B> <BR>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 currently participants in six such agreements and will
participate with another company as a subcontractor. 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. We also expect to act as a subcontractor on a DOE contract to develop and
demonstrate a novel process to capture carbon dioxide from coal-fired power plants. The
project is expected to start in the next few months and last for three years.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">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 25% 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&#146;s interest in these and future projects to continue to
grow.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">We currently
participate in DOE and industry contracts totaling $32.3 million, of which $15.5 million
represents contracts directly  with DOE.  We recognized revenues in 2006, 2005 and 2004
from these DOE/industry-funded contracts totaling $7.0 million, $4.3  million and $4.2
million, respectively, which comprised 45%, 39% and 49% of our total revenues for those
respective periods.  Of  these amounts, $3.7 million, $2.3 million and $2.4 million in
2006, 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 2006 have not
yet been finalized.  These contracts are  also subject to annual appropriation of funds
by Congress, and although continued funding is considered probable, we cannot be  certain
that the government will continue to approve funding for these contracts in future
budgets or at similar levels.  Assuming no  changes in funding, future revenues from
current contracts in progress total $13.2 million, of which we expect to recognize
approximately $7.0 million in 2007.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Commercial
Mercury Emissions Control</B> <BR>During 2006, we signed contracts for ten activated carbon
injection (ACI) systems for mercury emission control, and thus far in 2007 we have
commenced work on five additional ACI systems under &#147;notices to proceed,&#148; with
the expectation that final contracts will be signed within the next month. We expect
to receive additional orders for up to six more systems, based on options for those
systems which we believe the customers will exercise as part of those contracts. 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. Since the
market for commercial systems commenced in 2005 we have met all of the delivery
milestones under our contracts. 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. The value of the uncompleted portion of outstanding
contracts at December 31, 2006, totaled $3.3 million, all of which is expected to be
recognized in 2007.</FONT></FONT></P>

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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">4</FONT></FONT> </P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">In December we
terminated our Market  Development  Agreement (&quot;MDA&quot;) with Norit Americas,
Inc.  (&quot;Norit&quot;).  Under the MDA, we had been  working  exclusively with Norit
to develop the North American market for powdered  activated carbon injection  systems
and sorbents for  purposes of reducing mercury  emissions from coal-fired  boilers.
During 2006 we also terminated our exclusive  marketing  arrangement  for ACI systems
with ALSTOM  Environmental  Control  Systems  (&#147;Alstom&#148;).  The joint
activities  conducted  separately  with Norit and  Alstom were not meeting the
expectations of the parties.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">In March 2007,
we executed a Memorandum of Understanding  (&#147;MOU&#148;) with Calgon Carbon
Corporation  (&#147;Calgon  Carbon&#148;).  Under the MOU we  will  collaborate  on an
exclusive  basis with Calgon  Carbon to jointly  develop  products  and  services  for
the control of mercury  emissions from coal-fired power plants.  We believe this
relationship will assist us in meeting the near term needs of our customers.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">We believe that
the  terminations  of the MDA with Norit and the  marketing  arrangement  with Alstom
will not have a material  adverse  effect on our business or results of operations.  (See
&#147;Key Business Relationships,&#148; below.)</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Clean Coal
Solutions </B> <BR>On November 3, 2006, we established a joint venture (&#147;JV&#148;)
with NexGen Refined Coal, LLC, an affiliate of NexGen Resources Corporation (&#147;NexGen&#148;),
to market our patented refined coal technology (&#147;Refined Coal Technology&#148;),
which reduces emissions of nitrogen oxides and mercury from certain, treated coals
(&#147;Refined Coal&#148;). The JV will be carried out through a Colorado limited
liability company called Clean Coal Solutions, LLC (&#147;Clean Coal&#148;). The JV&#146;s
primary opportunity is based on tax credits available under Section 45 of the Internal
Revenue Code (&#147;Section 45 Tax Credits&#148;), as it was amended by the American
Jobs Creation Act of 2004 (the &#147;2004 Act&#148;) for qualifying Refined Coal.
Under the 2004 Act, a tax credit with a current value of approximately $5.60 per ton
of Refined Coal can be earned for a period of ten years ending in or before 2019. Our
Refined Coal Technology incorporates our patented chemical, which we developed for
slagging boilers (see discussion of AD-249M below), and our expertise with
sorbent-based mercury control technology. NexGen&#146;s affiliates have extensive
experience and expertise with Section 29 tax credits (which apply to the development
of syn-fuels), and we anticipate that NexGen&#146;s experience and expertise in this
area will serve as a template for monetization of Section 45 Tax Credits in the Refined
Coal area. We believe that our Refined Coal Technology is applicable to a target
market of approximately 60 million tons of Refined Coal per year, which would amount
to a market potential to Clean Coal of approximately $150 million a year.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">We formed Clean
Coal on October 31, 2006, and shortly  thereafter sold a 50% interest in Clean Coal to
NexGen&#146;s  affiliate for which we  were paid  $900,000.  This $900,000  payment was
in addition to a $100,000  non-refundable  down payment  NexGen paid us upon signing a
Joint Venture Proposal on June 26, 2006. The detailed report of a successful
demonstration  of the Refined Coal Technology,  which was  a prerequisite  to execution
of final  documentation,  was also completed in the third quarter of 2006. The $900,000
payment  received  on November 3, 2006 is  non-refundable.  The total payment of $1
million,  net of an estimated tax and the minority  interest in the JV  amounting to
$381,000,  has been included in our shareholders&#146; equity.  Included in our operating
loss for 2006 are net costs totaling  $486,000  related to our Refined  Coal  effort,
which from a cash flow  standpoint  were offset by the  non-refundable  payments  from
NexGen, but no gain or revenue was recorded as a result of those payments.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The JV will
initially  operate a business  supplying  chemicals,  additives,  equipment and technical
services to cyclone fired boiler  users (a &#147;Chemicals  Business&#148;),  but the JV&#146;s
primary purpose is to seek and obtain  approval from the United States Internal  Revenue
Service to qualify  ADA  Refined  Coal for Section 45 Tax Credits (a  &#147;Section  45
Business&#148;).  If the JV succeeds in  obtaining  that  approval and becomes a Section
45 Business,  NexGen has the right to maintain its 50% interest by paying us an
additional  $4 million,  in 8 quarterly  payments of $500,000  each,  beginning in the
fourth quarter of 2007.  NexGen is not obligated to make those  payments,  but it if does
not do so, it will  forfeit a part of its  interest in Clean Coal in direct  proportion
to the amount of the $4 million  that it elects not to pay.  Once it fails to make any
one  payment,  it cannot  come back and  reclaim  its  interest  by making  later
payments.</FONT></FONT></P>

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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">5</FONT></FONT> </P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Simultaneously
with the  execution of the  Purchase and Sale  Agreement,  the parties  entered into an
Amended and Restated  Operating  Agreement  governing the operation of Clean Coal,  which
requires  NexGen and ADA-ES to each pay 50% of the costs of operating the JV,  and
specifies  certain  duties  that  ADA-ES and  NexGen are  obligated  to perform as
members of Clean Coal to further  the  business  purposes of the JV. Our share of these
costs  amounted to less than  $10,000 in 2006.  We estimate  that our share of those
costs will  average  approximately  $25,000  per month for the next  several  months.  We
also  entered  into a License  Agreement  with Clean Coal  pursuant to which we licensed
certain patents and know-how (the &#147;Licensed  Property&#148;) to Clean Coal on a
fully paid-up,  royalty-free,  non-transferable  and  exclusive  basis,  to allow it to
exploit our Refined  Coal  Technology  for the  cyclone-fired  boiler  market.  Pursuant
to the  License  Agreement,  we are  required  to provide  technical  assistance  without
charge to the JV  relating  to the  development,  marketing and deployment of the
Licensed Property and, with certain  limitations,  to prosecute,  maintain and defend the
patents that are a part of the Licensed  Property,  take appropriate steps to protect the
know-how and trade secrets  comprising a part  of the Licensed  Property,  and indemnify
and hold Clean Coal harmless in the event the Licensed  Property  infringes the
intellectual  property of any third party.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Finally,  we
entered into a Chemicals,  Equipment and Technical  Services  Supply  Agreement  with
Clean Coal pursuant to which we will  supply the JV with certain  chemicals,  additives,
equipment and technical  services to facilitate  the purposes of the JV. Clean Coal  will
pay us  standard  charges  for the  chemicals,  additives,  and  technical  services  we
supply to the JV. If we choose to supply  equipment to the JV we have agreed to do so at
our cost.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Current
activities  of the JV  include  marketing  calls  and  visits  to  numerous  potential
customers,  planning  for two  product  demonstrations expected to be conducted in 2007
and work to obtain clarification of the Section 45 Tax Credits details.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>FGC</B> <BR>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 as a result of lower chemical usage by these industries.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">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 2006,
2005 and 2004 and other FGC contract work totaled $1.7 million,  $1.9 million and  $2.1
million,  respectively.  One FGC customer has informed us that they intend to minimize
their  chemical  purchases  commencing in  2007, with the expectation that they will
cease chemical usage altogether once they complete  anticipated  equipment changes.  As
such,  revenues  related to FGC are expected to decrease to  approximately  $1.1 million
in 2007. We expect to perform a demonstration  during  2007 that may result in future
purchases of chemicals.  We cannot be certain that the  demonstration  will be successful
or that future  revenues will result from that demonstration.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>ADA-249M</B> <BR>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. We expect that Clean Coal will pursue
future applications for ADA-249M that are a part of our Refined Coal Technology as
applied to cyclone coal-fired boilers.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">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.  During 2006 we ended the
joint  venture we had  established with Arch Coal Inc. to jointly market the ADA-249M
product.</FONT></FONT></P>

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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">6</FONT></FONT> </P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Sales  related
to ADA-249M are recorded in the FGC and Other segment and were  $60,000,  $327,000 and
$355,000 in 2006,  2005 and 2004,  respectively.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Key Business
Relationships </B> <BR>Over the past several years we had developed key relationships with
companies in our industry that are much larger than us (e.g. ALSTOM Environmental
Control Systems (&#147;Alstom&#148;), Norit, Thermo Fisher Scientific Inc. (&#147;Thermo&#148;),
and Arch Coal), and entered into agreements that defined those relationships. All of
those agreements could 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. During 2006, at our election, we terminated the agreements with Alstom,
Norit and Arch Coal. Although we had expected these relationships to bolster the
position we believe we hold in the industry, we found that such agreements were in fact
serving to limit our flexibility and commitment to the large market that appears to be
emerging from regulations to limit mercury emissions from coal burning power plants. We
do not believe the loss of these relationships will impede our ability to secure
business from the emerging mercury control market. (See the discussion above under the
captions &#147;ADA-249M&#148; and &#147;Commercial Mercury Emissions Control.&#148;)</FONT></FONT></P>


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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Cooperative
Agreement with Thermo Fisher Scientific Inc.</B> <BR>In April of 2004 we entered into a
cooperative agreement with Thermo to develop a continuous emission monitoring system (&#147;CEMS&#148;)
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&#146;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&#146;s mercury CEMS.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Under the terms
of the agreement with Thermo:</FONT></FONT></P>

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<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="9%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>o</B></FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="88%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Thermo
is responsible  for design of hardware,  firmware  software and overall  product
development as well as manufacture of  commercial versions of the CEMS;</FONT></FONT> </P></TD>
</TR>
</TABLE>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="9%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>o</B></FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="88%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> we
are  responsible  for field  validation and  performance  feedback and,  during 2006,
2005 and 2004 paid Thermo  $781,000,  $271,000,and $168,000, respectively, for technical
services and hardware;</FONT></FONT> </P></TD>
</TR>
</TABLE>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="9%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>o</B></FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="88%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> activities
under the Cooperative  Agreement were completed in May 2005,  although we continue to
test and provide feedback on  the CEMS,  Thermo is now  manufacturing,  marketing  and
selling  mercury CEMS and we have the ability to purchase from Thermo  all of our
requirements for mercury CEMS;</FONT></FONT> </P></TD>
</TR>
</TABLE>

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     <TD ALIGN="RIGHT" WIDTH="9%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>o</B></FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="88%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> under
a  separate  distribution  arrangement,  we may sell the  Thermo  CEMS  only in
conjunction  with our  mercury  control  technology and will receive a 25% discount from
Thermo&#146;s published price list; and</FONT></FONT> </P></TD>
</TR>
</TABLE>

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     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="88%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> either
party may terminate the distribution arrangement upon 120 days written notice to the
other party.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Other
Consulting Services </B> <BR>We also offer 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. We
are 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 $1.5 million, $3.0 million and
$600,000 in 2006, 2005 and 2004, respectively, most of which related to the mercury
emission control segment.</FONT></FONT></P>

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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">7</FONT></FONT> </P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Competition</B>
<BR>The commercial mercury control market for existing coal-fired electric utilities is
emerging as a result of the enactment of state and federal regulations that for the
first time in U.S. history are requiring those utilities to control 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. There are as many as 50
new coal-fired power plants in the United States under various stages of
development, all of which have requirements for mercury emission control. Through
2006, our mercury control technology has been demonstrated on a full scale at over 30
plants, generally yielding over 90% mercury control on most applications. In
addition, our approach to mercury control is quite cost effective, in many cases
reducing costs associated with mercury control to less than 20% of initial cost
estimates. Our experience in installing full scale demonstration plants, together
with our practice of providing users with performance guarantees, as well as the cost
effectiveness of our methodology, are our principal methods of competing in this
market. We have responded to several hundred bid requests for activated carbon
injection systems, over one hundred of which we believe are likely to proceed to
orders between now and 2010. The capital equipment expected to be required by each
unit ranges from approximately $750,000 to $1 million, and the sorbent requirements
per unit are estimated to range from approximately $1 to $2 million per year. We
are aware of other companies, including Babcock Power, Wheelabrator and Sorbent
Technologies, that have responded to requests for commercial bids for mercury
control systems. With the new work commenced in 2007 we believe we have greater
than 50% of the existing market. As this market matures, we expect competition will
increase, primarily in the sorbent supply arena (activated carbon or other). See the
discussion above under the caption &quot;Market for Our Products and Services.&quot;</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">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  applications  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.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">With respect to
our Refined Coal  Technology and 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 these products 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 but is expected to accelerate as recent consent
decrees  requiring mercury emission control in several states are beginning to impact the
market.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Patents</B> <BR>We
have received eight patents and have an additional five patent applications
pending relating to different aspects of our technology. The Company's existing
patents have terms of 17 years measured from the application date, the earliest of
which was in 1995. 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,
with the exception of the patents and intellectual property rights licensed to Clean
Coal Solutions as noted above.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Supply of
Chemicals for Our Customers</B> <BR>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. We are investigating
several near-term and long-term alternatives to assure the supply of activated carbon to
our customers.</FONT></FONT></P>

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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">8</FONT></FONT> </P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Development of
Proposed Activated Carbon Manufacturing Facility</B> <BR>We believe that the supply of activated
carbon (&#147;AC&#148;) needed for the developing mercury emissions control market
will be unable to meet the demand for the material as early as 2010. We commissioned a
market study from a third pary to address the current worldwide production and
expected future demand for activated carbon in both the conventional water
treatment markets and the developing mercury control market. This study documented
that the current U.S. market for activated carbon, which is primarily for water
treatment, is approximatedly $200 million per year. With regulations in place today
to reduce mercury emmisions, this could more than double by 2010, and in addition, if
a more stringent federal regulation comes into effect, the demand could more than
triple by that time. As a result, we have been investigating the possibility of
either purchasing or developing a facility to manufacture activated carbon. We are
currently advancing plans to develop such a facility &#147;from scratch,&#148; while
pursuing the parallel possibility of entering into a collaborative project with
an existing AC manufacturer to increase capacity. We have committed approximately
$4 million for the preparatory phase of this project, including plant location,
design and permitting, as well as determining and sourcing key capital equipment that
would be required for such a facility. A large-scale production facility, which is
expected to cost in excess of $200 million to develop, and which will have the capacity
to produce approximately $100 million on activiated carbon per year, is being designed
to maximize efficiency and produce the most cost-effective product for the MEC market.
Such a project will require supplementary financing, and we are pursuing that during
the preparatory phases as well. We anticipate that financing will involve a
combination of equity and debt funding from financial and strategic partners.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Raw Materials,
Contract Installation and Working Capital Practices </B> <BR>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 work site. We purchase our proprietary FGC, Refined Coal
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 do not maintain any significant amounts of inventory for any of our
business segments, nor do we provide any extended payment terms to our customers. We
typically provide equipment warranties and performance guarantees related to our ACI
systems (see the discussion below under &#147;Risk Factors&#148; and Footnote 7 &#150; Commitments
and Contingencies in the Financial Statements filed as a part of this Report).</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Seasonality of
Activities </B> <BR>The sale of FGC chemicals depends 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.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Dependence on
Major Customers</B> <BR>During 2006, we recognized 45% of our revenue from services provided
directly or as a subcontractor under contracts to the U.S. government and industry as
discussed above under &#147;Government and Industry-Supported Contracts&#148;,
involving mercury control systems. (See also Notes 4 and 8 to the Consolidated
Financial Statements included elsewhere in this Report). In 2006, we supplied ACI
systems to six customers. We recognized 15% of our revenue in 2006 from The Babcock &amp; Wilcox
Company in Ohio and 11% from PSEG Fossil LLC in New Jersey. ADA-ES' own sales staff
markets our technology through trade shows, mailings and direct contact with
potential customers.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Backlog Orders</B>
<BR>As of December 31, 2006, we had contracts in progress for supply of ACI systems
totaling approximately $3.3 million which we expect to complete and realize in 2007.
As noted above with regard to our DOE and industry funded R&amp;D contracts, assuming no
changes in funding, future revenues from current contracts in progress total $13.2
million, of which we expect to recognize approximately $7.0 million in 2007.
Contracts in progress for other consulting work totaled approximately $464,000 at
year&#150;end, all of which are expected to be completed in 2007. All of these amounts
relate to our MEC segment as FGC orders are generally filled as submitted and do not
typically give rise to backlog.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">As of December
31, 2005, we had contracts in progress for supply of ACI systems  totaling  approximately
$1 million which we completed  and  realized in 2006.  With regard to our DOE and
industry  funded R&amp;D contracts,  contracts in progress  totaled  $19.4  million at
year-end 2005 Contracts in progress for other  consulting work total  approximately
$120,000 at year&#150;end,  all of which were completed  in 2006.  All of these amounts
relate to our MEC segment.</FONT></FONT></P>

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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">9</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Research and
Development Activities</B> <BR>The Company is involved in several R&amp;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 2006, 2005 and 2004 our direct
cost share of R&amp;D in our DOE related contracts approximated $481,000, $273,000 and
$348,000, respectively. In addition, we spent approximately $983,000, $704,000 and
$467,000 on our own behalf on research and development activities related to further
development of our technologies during 2006, 2005 and 2004, respectively. Approximately
85% of the amounts expended on our own behalf relate to our MEC segment.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Employees </B> <BR>As
of December 31, 2006 we employed a total of 42 full-time personnel. Included in this
number are 36 people employed at our offices in Littleton, Colorado, 2 in Alabama, 1
in Pennsylvania, 2 in Maryland and 1 in Texas. In addition, other personnel were
employed on a contract basis for specific project tasks during the year.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Copies of
Reports</B> <BR>The periodic and current reports of the Company filed with the SEC pursuant to
Section 13(a) of the Securities Exchange Act of 1934, and amendments thereto, are
available free of charge, as soon as reasonably practicable after the same are filed
with or furnished to the SEC, at the Company&#146;s website at www.adaes.com.</FONT></FONT></P>


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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Copies of
Corporate Governance Documents</B><BR>The following  Company corporate  governance  documents are
available free of charge at the Company&#146;s  website at www.adaes.com and such
information is available in print to any  shareholder  who requests it by contacting the
Secretary of the Company at 8100 SouthPark Way  Unit B,  Littleton, CO  80120.</FONT></FONT></P>

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<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="9%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>o</B></FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="88%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Audit
Committee Charter</FONT></FONT> </P></TD>
</TR>
</TABLE>


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     <TD ALIGN="RIGHT" WIDTH="9%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>o</B></FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="88%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Compensation
Committee Charter</FONT></FONT> </P></TD>
</TR>
</TABLE>


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     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="88%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Nominating
and Governance Committee Charter</FONT></FONT> </P></TD>
</TR>
</TABLE>


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     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="88%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Code
of Conduct</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Forward-Looking
Statements Found in this Report</B></FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>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
&quot;Management's Discussion and Analysis or Plan of Operation.&quot; Words or phrases
such as &quot;anticipates,&quot; &quot;believes,&quot; &quot;hopes,&quot;
&quot;expects,&quot; &quot;intends,&quot; &quot;plans&quot; 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 regarding (a)
impact of national and state mercury regulations on the nation&#146;s 1,100-plus
coal-fired units; (b) capability of U.S. coal reserves to serve demand for the
next 250 years, (c) future estimated costs to control mercury emissions, (d) the
rapid development of the mercury emission control market, (e) expected growth in the
power industry&#146;s interest in DOE projects, (f) amounts and timing of and changes
in future revenues, research and development expenses, costs of operating Clean
Coal, annual lease costs and other expenditures and gross margins, (g) our ability
to meet contract delivery milestones, (h) the size of the applicable target market
and market potential for Refined Coal, (i) timing of completion of projects and
future demonstrations, (j) procession of outstanding bid requests to orders between
now and 2010, (k) the range of costs for capital equipment expected to be required by
each coal-fired unit and range of sorbent requirements per unit; (l) market for our
Refined Coal Technology and ADA-249M, (m) inability of the supply of activated carbon
to meet market demand as early as 2010, (n) potential costs for development of a
Greenfield activated carbon facility, (o) appropriation of funds by Congress for
DOE projects, (p) immateriality of any future adjustments due to DOE audits, and (r) our
ability to meet a significant portion of the expected shortage in activated carbon
supply. Our expectations are based on certain assumptions, including without
limitation, 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. Although forward-looking statements provide additional
information about us, investors should keep in mind that forward-looking
statements are only predictions, at a point in time, and are inherently less reliable
than historical information. We do not guarantee future results, levels of activity,
performance or achievements and we do not assume responsibility for the accuracy
and completeness of these statements. 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. The forward-looking statements contained in this
Annual Report on Form 10-K are made and based on information as of the date of this
report. We assume no obligation to update any of these statements based on
information after the date of this report. In evaluating these statements, you
should specifically consider the risks outlined under &#147;Risk Factors&#148; in
Item 1A, including 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, lack of management expertise,
inability to obtain funding and other risks relating to the development of a
Greenfield activated carbon facility, 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
or other securities, and lack of dividend payments to shareholders. These risk
factors may cause our actual results to differ materially from any forward-looking
statement.</B></FONT></FONT></P>

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<!-- MARKER FORMAT-SHEET="Head Minor" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Item 1A.
Risk Factors.</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Head Minor" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>RISKS
RELATING TO OUR BUSINESS</B></FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>IF EXISTING AND
PLANNED ENVIRONMENTAL LAWS ARE RESCINDED OR SUBSTANTIALLY CHANGED, OUR BUSINESS WOULD BE
ADVERSELY AFFECTED</B> <BR>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 expect that any softening
of existing air pollution control requirements would slow expected growth for these
products. Demand for the Company's MEC technology and Refined Coal Technology is being
driven almost exclusively by legislation requiring mercury emission control. Mercury has
been identified as a toxic substance and pursuant to a court order the EPA issued the
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 entered
into consent decrees, have passed, or are expected to pass, legislation requiring such
control, including Arizona, Colorado, Connecticut, Illinois, Maine, Massachusetts,
Minnesota, Montana, New Hampshire, New Jersey, New York, North Carolina, Wisconsin and
Pennsylvania.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">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 are likely to include  controlling  mercury
emissions.  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 likely impede our expected growth in the mercury control market.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Center" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">11</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>

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<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>IF THE
DEPARTMENT OF ENERGY (DOE) DISCONTINUES FUNDING OF EXISTING AND PLANNED CLEAN COAL
TECHNOLOGY PROGRAMS, OUR BUSINESS WOULD BE HARMED</B> <BR>In 2006, 2005 and 2004, 45%, 39%
and 49%, 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 we are involved. In addition, we look to
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 funding being provided by the DOE. President Bush&#146;s
currently proposed federal budget for fiscal year 2008 does not contain any
funding for the types of DOE projects we have historically participated in.
Although we believe Congress will appropriate funds consistent with past practice, we
cannot be sure that this will occur, and failure to appropriate such funds would be
likely to have a material adverse effect on our business.</FONT></FONT></P>


<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>INADEQUATE
SUPPLIES OF ACTIVATED CARBON COULD ADVERSELY AFFECT OUR PROFITABILITY</B> <BR>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
currently 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.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>DEVELOPMENT OF
A GREENFIELD ACTIVATED CARBON FACILITY TO SUPPLY THE EMERGING MERCURY EMISSION CONTROL
MARKET COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION </B> <BR>We have committed significant
resources to the development of a Greenfield activated carbon production facility
that will require extensive development work including environmental and other
permitting, and material funding requirements well beyond our present capabilities.
Although we have employees and have and expect to hire consultants who have past
experience in such matters, our management has no past experience in undertaking
such a complex project. In addition to the several inherent development risks of
such a project, maintaining an acceptable schedule and budget, as well as attainment of
anticipated production levels and acceptable operating costs are all significant
factors in the overall financial viability of the project. The inability to obtain
additional financing or any significant deviation in such factors from our planning
model would hamper the advancement of the project and would likely have a material
adverse effect on our business and financial condition.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>THE MARKET FOR
OUR PLANNED REFINED COAL PRODUCT AND QUALIFICATION FOR THE SECTION 45 TAX CREDIT ARE
UNSURE AND COULD ADVERSELY AFFECT OUR FUTURE GROWTH AND PROFITABILITY</B> <BR>The ability of
Clean Coal Solutions to sell its planned Refined Coal product and qualify for the
expected Section 45 tax credits depends on several conditions, including meeting
the requirements of a presently unclear law, selling the Refined Coal at the
required mark-up, contracting with monetizers to facilitate the sale of the
required facilities, and completing and making operational such facilities prior
to the January 1, 2009 date presently required by in the law. The inability of
Clean Coal Solutions to successfully resolve and/or complete any of these
conditions would likely have an adverse effect on our future growth and profitability.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Center" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">12</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>


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<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>THE LOSS OF KEY
RELATIONSHIPS WOULD ADVERSELY AFFECT OUR SALES AND FINANCIAL CONDITION</B> <BR>We have developed
key industry relationships with companies much larger than ourselves (e.g. B&amp;W and
Thermo). Subject to the terms of the agreement with Thermo, the relationship may be
terminated by the passage of time or through notification from the other party. 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.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>TECHNICAL OR
OPERATIONAL PROBLEMS WITH LONG-TERM OPERATION OF ACTIVATED CARBON INJECTION SYSTEMS COULD
RESULT IN DELAYS THAT ADVERSELY AFFECT OUR FINANCIAL CONDITION</B> <BR>Our ACI systems have
been demonstrated for several months at certain power plants and we are starting to
install them 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 from long-term
operations. 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.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>THE EFFECT OF
ISSUING PERFORMANCE GUARANTEES FOR COMMERCIAL ACTIVATED CARBON INJECTION SYSTEMS IS
UNKNOWN AND COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION </B> <BR>The market for commercial
ACI systems to control mercury emissions is emerging as state consent decrees and
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
of our ACI systems. 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 &quot;make right&quot; 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.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>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 </B> <BR>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.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>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</B> <BR>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.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>INADEQUATE
SUPPLIES OF COAL COULD ADVERSELY AFFECT OUR PROFITABILITY</B> <BR>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.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Center" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">13</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>

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<!-- MARKER PAGE="sheet: 3; page: 3" -->

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>WE ARE AN
EMERGING COMPANY IN A NEW INDUSTRY, WHICH ENTAILS RISKS THAT COULD IMPAIR OUR BUSINESS</B>
<BR>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.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>WE DEPEND ON
KEY PERSONNEL </B> <BR>We depend on the performance of our senior management team -- including
Jonathan Barr, C. Jean Bustard, Dr. Michael Durham, Mark McKinnies, Rich Miller, Richard
Schlager and Sharon Sjostrom, 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. We do not have any binding agreements with any of
our employees that prevent them from leaving our company at any time without any
restrictions on their competing against us after their employment terminates. We compete
heavily for these types of personnel. In addition, although we maintain key person life
insurance on certain of our executives, 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.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>MATERIAL
ADJUSTMENTS PURSUANT TO DOE AUDITS OF OUR PAST PERFORMANCE COULD HAVE A DETRIMENTAL
IMPACT ON OUR BUSINESS </B> <BR>We have participated in eight 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 $7.0 million, $4.3 million and
$4.2 million to revenues in 2006, 2005 and 2004, respectively, of which $3.7 million,
$2.3 million and $2.4 million, respectively, were directly from DOE. Including two
contracts 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 $13.2 million as of
December 31, 2006, and we expect to recognize $7.0 million of that amount in 2007
(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 2006 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.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>CHANGES IN
TAXATION RULES OR FINANCIAL ACCOUNTING STANDARDS COULD ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS</B> <BR>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.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Head Minor" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>RISKS
RELATING TO OUR COMMON STOCK</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>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</B> <BR>As of December 31, 2006, we had 5,635,137
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 no longer restricted
from resale in 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.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>THE ISSUANCE OF
ADDITIONAL SECURITIES IN THE FUTURE COULD HARM THE BOOK VALUE OF THE OUTSTANDING SHARES
OF COMMON STOCK</B> <BR>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.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Center" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">14</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>

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<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>LACK OF
EXPECTED DIVIDENDS MAY MAKE OUR STOCK LESS ATTRACTIVE AS AN INVESTMENT</B> <BR>We intend to
retain all future earnings for the foreseeable future for use in the development of
our business. We therefore do not anticipate paying any cash dividends on our common
stock for the foreseeable future. Generally, stocks which pay regular dividends
command higher market trading prices, and our stock price may therefore be lower as a
result of our dividend policy.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Head Minor" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Item 1B.&nbsp;&nbsp;&nbsp;
Unresolved Staff Comments.</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">None.</FONT></FONT></P>


<!-- MARKER FORMAT-SHEET="Head Minor" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Item 2.&nbsp;&nbsp;&nbsp;
Properties.</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Office Leases</B><BR>
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. We lease 440 square feet of
office space in Columbia and Maryland, on a month to month basis.. While our total
current leased space is sufficient for our immediate needs, we expect to require
additional space as our personnel levels increase to support growth. In the near-term,
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 are expected to amount to approximately $170,000 through 2009.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Head Minor" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Item 3.&nbsp;&nbsp;&nbsp;
Legal Proceedings.</B></FONT></FONT></P>


<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">There are no
reportable pending legal proceedings involving the Company or our subsidiaries.</FONT></FONT></P>


<!-- MARKER FORMAT-SHEET="Head Minor" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Item 4.&nbsp;&nbsp;&nbsp;
Submission of Matters to a Vote of Security Holders.</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">No matters were
submitted to a vote of the security  holders,  through the  solicitation  of proxies or
otherwise,  during the quarter  ended December 31, 2006.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>PART II</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Head Minor" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Item 5.
Market for Registrant&#146;s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Head Minor" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Market for
Common Equity and Related Stockholder Matters</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(a)&nbsp;&nbsp;&nbsp; <B>Market
Information.</B> <BR>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
2006, 2005 and 2004 closing price ranges were as follows:</FONT></FONT></P>






<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2006</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="4"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2005</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="5"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2004</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">High</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Low</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">High</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Low</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">High</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Low</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="20%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1st Quarter</FONT></TD>
     <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$24.14</FONT></TD>
     <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$21.68</FONT></TD>
     <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$31.38</FONT></TD>
     <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$22.40</FONT></TD>
     <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$ 9.75</FONT></TD>
     <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$ 6.60</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2nd Quarter</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$22.28</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$17.15</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$25.22</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$13.51</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$ 9.50</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$ 7.51</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">3rd Quarter</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$15.44</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$13.00</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$24.00</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$14.55</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$14.40</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$ 8.25</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">4th Quarter</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$16.60</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$13.95</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$20.50</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$14.40</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$28.21</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$12.80</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
</TR>
</TABLE>

<!-- MARKER FORMAT-SHEET="Para Center" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">15</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>


<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 2; page: 2" -->

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
price ranges shown in the above table are based on NASDAQ quoted sales prices
for all of 2006 and 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.</FONT></FONT></P>

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<A NAME="A030"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(b)&nbsp;&nbsp;<B>Holders.</B> <BR>The
number of record holders of our common stock as of December 31, 2006 was  approximately
1,650; the approximate number of beneficial shareholders is  estimated at 8,000.</FONT></FONT></P>

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<A NAME="A031"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(c)&nbsp;&nbsp;<B>Dividends.</B><BR>We have not paid dividends since inception and we have no plans for paying
dividends in the foreseeable future.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(d)<B>Securities
authorized for issuance under equity compensation plans. </B><BR>The  disclosure required by
this Item is included under Item 11 of this Report.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Head Minor" -->
<A NAME="A032"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Recent Sales
of Unregistered Securities</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<A NAME="A033"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">None</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Head Minor" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Purchases of
Equity Securities by the Company and Affiliated Purchasers</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Neither
we nor any &#147;affiliated purchaser,&#148; as defined in SEC Rule
10b-18(a)(3), purchased any of our equity securities during the years ended
December 31, 2006 and 2005.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Head Sub A" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Item
6.&nbsp;&nbsp;&nbsp;Selected Financial Data.</B></FONT></FONT></P>

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<A NAME="A034"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>FIVE-YEAR
SUMMARY OF SELECTED FINANCIAL DATA</B></FONT></FONT></P>




<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="9"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Years Ended December 31,</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2006</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2005</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2004</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2003</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2002</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="45%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I>(Dollars in thousands, except per share data)</I></FONT></FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="0%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B><U>Income Statement Date:</U></B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Net Sales</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;15,488</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;11,028</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;8,417</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;5,863</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;5,700</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Income (loss) from continuing operations</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;377</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;663</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;336</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;409</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;470</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Income (loss) from continuing operations, per</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">common share, basic and diluted</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.07</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.13</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.08</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.12</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.14</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Dividends declared per common share</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-0-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-0-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-0-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-0-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-0-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
</TABLE>


<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="8"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">As at December 31,</FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="45%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B><U>Balance Sheet Data (at year end):</U></B></FONT></FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Total Assets</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;31,754</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$ &nbsp;28,716</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;13,080</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;4,700</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;3,974</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Long-term Debt</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-0-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-0-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-0-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;796</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Stockholders&#146; Equity</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;27,641</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;25,856</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;12,010</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;2,973</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;2,950</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
</TABLE>



<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">See  the
audited financial statements attached hereto under Item 8 for additional  information.</FONT></FONT></P>


<!-- MARKER FORMAT-SHEET="Para Center" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">16</FONT></FONT> </P>


<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>

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<!-- MARKER PAGE="sheet: 1; page: 1" -->

<!-- MARKER FORMAT-SHEET="Head Minor" -->
<A NAME="A038"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>QUARTERLY
FINANCIAL DATA &#150; UNAUDITED</B></FONT></FONT></P>


<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2006</FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2005</FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1st<BR>Quarter</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2nd<BR>Quarter</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">3rd<BR>Quarter</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">4th<BR>Quarter</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1st<BR>Quarter</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2nd<BR>Quarter</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">3rd<BR>Quarter</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">4th<BR>Quarter</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="33%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="1"><I>(Dollars in thousands</I></FONT></FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="1"><I>except per share data)</I></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>

<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Net revenues</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$3,649</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$3,306</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;4,448</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$4,085</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$2,172</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$2,474</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$3,115</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$3,267</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Gross margin</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$1,378</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$1,144</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;1,290</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$2,094</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;907</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;924</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$1,246</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$1,210</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Net income (loss)</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;238</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;44</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;(128</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;223</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;95</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;107</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;248</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;213</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="1"><B><U>Common Stock Data</U></B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Basic and Diluted:</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Net income (loss) per share</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;.04</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;.01</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;(.02</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;.04</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;.02</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;.02</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;.05</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;.04</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Average common shares</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">outstanding:</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Basic</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">5,616</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">5,624</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">5,627</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">5,631</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">4,811</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">4,822</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">4,819</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">5,411</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Diluted</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">5,834</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">5,875</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">5,627</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">5,708</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">5,029</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">4,939</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">4,977</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">5,666</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Item
7. Management&#146;s Discussion and Analysis of Financial Condition and Results
of Operation.</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<A NAME="A039"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Overview</B><BR>We
provide environmental technologies and specialty chemicals to the coal-burning  electric
utility industry. Revenues are generated through (1) time and materials  and fixed-price
contracts for the emerging mercury emission control (MEC)  market, several of which are
co-funded by government (Department of Energy  &#151; DOE) and industry and (2) the sale
of specialty chemicals and services  for flue gas conditioning (FGC) and other
applications.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Mercury
has been identified as a toxic substance and, pursuant to a court order, the EPA
issued regulations for its control in March 2005. The long-term growth of the
MEC market for the electric utility industry will most likely depend on how
industry chooses to respond to federal and 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. We have recently seen a significant increase in new
plant projects. DOE&#146;s latest report issued in 2006 includes 153 potential
new projects totaling 93GW of capacity. 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 mentioned 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. State regulations and increasing numbers of consent decrees are
becoming the largest market driver for this part of our business. Although we
expect this market to show steady growth over the next several years, we believe
the most significant revenue growth will occur when final federal regulations
impact a significant portion of previously uncontrolled, existing boilers.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
market for our FGC chemicals and services is relatively flat and is expected to
continue 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 but decreasing contribution to the overall profitability of the
Company.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">In
2006, we signed contracts for ten ACI systems to be delivered in 2006 and 2007,
bringing the total number of ACI systems installed or in process as of December
31,2006 to twelve. Thus far in 2007 we have commenced work on five additional
systems, with the expectation that six more systems will be ordered by customers
exercising options for these systems under the contracts. In addition, one
system was installed in partnership with a third party for whom we provided
design services through a DOE contract. Revenue from ACI system contracts
totaled $5.2 million for the year ended December 31, 2006 and $3.3 million is
remaining to be recognized on those contracts.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">In
2006, we also signed two development and testing contracts with DOE with
revenues totaling approximately $7.5 million, including industry cost share
amounts, the services for which are expected to be performed over the period
from contract signing through the fall of 2008. We were also awarded a $100,000
research grant from DOE in 2006 to develop an improved activated carbon
manufacturing process, which activities are expected to be concluded by the end
of the first quarter of 2007, at which time we expect to submit an application
to DOE for additional funding to continue the work. Assuming no changes in
government funding, we expect to recognize over the next several years the
remaining revenue on the in-progress totaling $13.2 million as of December 31,
2006. We recognized $7.0 million related to DOE and industry co-funded contracts
in 2006. We expect to recognize revenue from these contracts of approximately
$7.0 million in total for 2007. 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 expect DOE programs
to represent a decreasing percentage of revenues over the next few years as we
focus more on market growth for ACI systems for mercury control.</FONT></FONT></P>

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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">17</FONT></FONT> </P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">On
November 3, 2006, we closed the sale of a 50% interest in a joint venture with
NexGen Refined Coal, LLC, an affiliate of NexGen Resources Corporation, to
market our refined coal technology as further described in Part I, Item 1 above.
We received a $100,000 non-refundable down payment from NexGen upon signing a
Joint Venture Proposal on June 26, 2006. At closing, NexGen paid us $900,000 for
its 50% interest. This payment is non-refundable. ADA has the obligation to fund
its share of operating costs for the venture, and we expect our portion of these
costs to average approximately $25,000 a month in 2007. Included in our
operating loss for 2006 are net costs totaling approximately $486,000 related to
our Refined Coal effort, which from a cash flow standpoint were offset by the
non-refundable payments from NexGen, but no gain or revenue was recorded as a
result of those payments. If the JV succeeds in obtaining approval for the
anticipated tax credits, NexGen has the right to maintain its 50% interest by
paying us an additional $4 million, in 8 quarterly payments of $500,000 each,
beginning the later of the 4<SUP>th</SUP> quarter of 2007 or when qualification
for the tax credit is obtained.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">As
part of our strategy to address the growing MEC market, we are not only pursuing
internal, organic growth, but we have also been and expect to be engaged in
merger and acquisition (M&amp;A) activities, particularly with respect to the
vertical integration of our business to establish an invested role in the
production and supply of activated carbon and in the manufacture of ACI systems.
The major revenue sources from the growing MEC market are expected to include
engineering services, equipment sales and activated carbon supply. Our M&amp;A
activities have been and will likely be focused on candidates engaged in those
businesses. The costs we incur in our M&amp;A activities may be significant.
Such costs are generally deferred and either (a) expensed when it has been
determined they are no longer of future value, or (b) capitalized as part of an
acquisition and then subject to future impairment evaluations. During the
quarter ended September 30, 2006 we determined that deferred charges amounting
to approximately $411,000 related to our M&amp;A activities incurred earlier in
the year were no longer of future value and were therefore expensed. Such
charges are included in Interest and other expense for the year ended December
31, 2006 in the accompanying consolidated financial statements.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">In
2006 we incurred $911,000 for project development costs, which costs have been
deferred and are classified on the balance sheet and included with Other Assets.
Such development costs are generally deferred and either (a) expensed when it
has been determined they are no longer of future value, or (b) capitalized as
part of long-term assets and then subject to future impairment evaluations.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">In
February 2007, our Board of Directors committed the necessary resources to
continue the development of an activated carbon manufacturing facility.
Previously, we had announced that in order to stay ahead of an expected billion
dollar market, we had undertaken preliminary activities for a new
&#147;Greenfield&#148; plant including plant design, initial permitting,
securing key lignite reserves, and third-party market analysis. We have now
committed approximately $4 million from internal funds, expected to be expended
over the five months beginning in March, 2007, to move the project forward in a
manner that we expect will position us to meet a significant portion of the
shortage in activated carbon supply for this rapidly expanding market. Approved
and funded activities include plant design, securing options on various
desirable properties for the plant, and permitting, as well as specifying and
sourcing of key capital equipment, and negotiating with potential financial
partners.</FONT></FONT></P>

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<A NAME="A040"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Results of
Operations &#150; 2006 versus 2005</B><BR>Revenues  totaled $15,488,000 for 2006 versus
$11,028,000 in 2005, representing an  increase of 40%. Revenues in our MEC segment for
2006 increased by $4,823,000  (55%), and FGC and other activities decreased by ($363,000)
(16%). We have been  hiring personnel in response to the growth we have realized in the
past and  expect to achieve in 2007, and adequate resources of skilled labor have been
and  are expected to be available to meet anticipated needs.</FONT></FONT></P>


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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">18</FONT></FONT> </P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Revenues
in 2006 from the MEC segment were comprised of government and industry-supported
contracts (51%), sales and installation of activated carbon injection (ACI)
systems (38%) and consulting services (11%), compared to 54%, 21% and 25%,
respectively, in 2005. For the year, our DOE and industry demonstration contract
revenues totaled $7.0 million representing an increase of 46% from 2005
revenues. The remaining unearned amount of the contracts was $13.2 million as of
December 31, 2006, of which $7.0 million is expected to be recognized by the
Company in 2007 (including cash contributions by other industry partners). ACI
systems contributed approximately $5.2 million to MEC revenues recognized for
the year, increasing 178% from the 2005 contribution to revenue of $1.9 million.
We had contracts in progress at year-end for supply of ACI systems totaling
approximately $3.3 million which we expect to complete and realize in 2007.
While the dollar amount of revenues from both the government and
industry-supported contracts and the ACI systems sales increased from 2005 to
2006, the most significant growth occurred in the sales and installations of ACI
systems, which increased $3.3 million and is the result of an increasing number
of system sales as noted above. We expect growth in 2007 in the MEC segment to
result primarily from an increasing number of ACI systems sales in response to
mercury emission control legislation and from existing government and
industry-supported contracts. Activities in two of our DOE contracts were behind
the original planned schedule in 2006 due to the unavailability of one of the
host sites and test results that did not meet project goals. Discussions
with DOE have resulted in reallocating a portion of the remaining contract
amounts to our other activities. 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 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. Revenues from consulting services
included in the MEC segment decreased approximately $690,000, from 2005 to 2006,
as a greater amount of work was performed in our DOE contracts in 2006 than
under commercial contracts.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">FGC
and other revenues decreased due to fewer shipments of chemical and revenues
related to continuing customers. We expect FGC and other revenues in 2007 to be
significantly lower than 2006, as we believe that planned customer purchases for
2007 will be less than such purchases made in 2006. Included in this
segment&#146;s revenues for 2006 are approximately $60,000 of chemical sales
that accrue to the benefit of Clean Coal Solutions in 2007 and future periods.
Under the existing arrangements we will continue to sell such chemicals to the
JV at a minor discount and so the impact to our future revenues is not expected
to be material.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Cost
of revenues increased by $2,841,000 or 42% in 2006 from 2005 primarily as a
result of increased revenues for the same periods. Gross margins were 38% for
the year as compared to 39% in 2005. The decrease is a result of decreased
margins in both the MEC and FGC and other segments as discussed below.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Cost
of revenues for the MEC segment increased by $2,704,000 in 2006 or 47%, as
compared to the same periods in 2005 primarily as a result of the increased
revenue generating activities noted above. Gross margins for this segment were
38% for the year as compared to 35% for 2005. The improvement in gross margins
from the prior year resulted from higher margins on DOE contracts as our cost
share percentage on those contracts has decreased, offset by lower margins on
ACI system sales as that market is developing. The changes in MEC segment
profits from 2005 to 2006 are a result of the same factors.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Cost
of revenues for the FGC and other segment increased by $137,000 or 13% in 2006,
as compared to 2005 as a result of increased costs for development projects
included in this segment. Gross margins for this segment were 39% for 2006 as
compared to 55% in 2005. The decrease in gross margins from 2005 to 2006 is a
result of increased FGC sales of a product we license from ARKAY Technologies,
which carry a lower margin than historical FGC sales, lower margins typically
recognized on the demonstration projects we carried out in 2006, and the
increased costs in development projects noted above. FGC revenues represent
primarily chemical sales, which carry a higher margin than the typical fixed
price and time and materials sales in MEC revenues. FGC and other revenues
comprised 12% of total revenues in 2006, compared to 20% in 2005. The changes in
the FGC segment profits from 2005 to 2006 are a result of the same factors.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">We
expect the amount of fixed price and time and materials work in the MEC segment
for the near term to represent an increasing source of revenue. Overall gross
margins for 2007 are therefore expected to decline somewhat from the levels
achieved in 2006, as a result of an increasing proportion of fixed price and
time and materials work, our assumption of an increasing share of costs in the
field demonstration projects in which we have elected to participate and pricing
pressure caused by increased competition.</FONT></FONT></P>

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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">19</FONT></FONT> </P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">General
and administrative expenses increased by $1,668,000 or 67% to $4,170,000 in
2006. The dollar increase in 2006 resulted primarily from compensation expenses
related to the implementation of Statement of Financial Accounting Standards
(SFAS) No. 123R, <I>Share-Based Payment </I>($331,000 for 2006); legal and
increased director fees and expenses incurred to maintain compliance with public
company regulations (approximately $200,000 for the year); accounting and
consulting fees related to SOX 404 compliance ($200,000) and facilities,
benefits and other overhead expenses resulting from increases in number of
employees (approximately $200,000 for year). Included in our general and
administrative expense for 2006 is $65,000 related to directors and officers
insurance for the period from June 2006 through the end of the year.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Research
and development expenses increased by $487,000 or 50% in 2006 as compared to
2005. We incur R&amp;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 continue to grow at a rate of about 10% annually
for the next several years. Of the amount incurred in 2006, $481,000 was
directly related to DOE contracts.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">MEC
segment profits increased by $1.3 million or 73% to $3.0 million as compared to
2005. The increase was primarily a result of increased MEC segment revenues and
improved margins on our DOE contracts as described above. FGC and other segment
profits decreased by $728,000 or 72% to $282,000 as compared to 2005. The
decrease was primarily the result of increasing project development costs
incurred during the year, lower margin chemical sales and decreasing segment
revenues.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Included
in interest and other expenses, we recognized $411,000 of deferred costs related
to our M&amp;A activities as noted above. The Company had net interest and other
income of $909,000 in 2006, as compared to $357,000 for 2005. Interest and other
income increased in 2006 due to an increase in invested balances and increasing
interest rates.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
deferred income tax provision for 2006 represents an effective tax rate of
approximately 22%, which is less than the rate of 34% we recognized for 2005.
The decrease is primarily the result of larger impact of R&amp;D tax credits for
2006 as compared to 2005.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Unrealized
gains, net of tax, on investments in debt and equity securities amounted to
$134,000 for 2006 as compared to a loss of ($1,000) for 2005. The gains recorded
in 2006 are the result of increases in the market value of our equity
investments. The loss incurred in 2005 was primarily the result of increasing
interest rates, which correspondingly tend to result in a decrease in the market
value of our investments in longer-term fixed-rate debt securities.</FONT></FONT></P>

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<A NAME="A041"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Results of
Operations &#150; 2005 versus 2004</B><BR>Revenues  totaled $11,028,000 for 2005 versus
$8,417,000 for 2004, or an increase of 31%.  Revenues in the MEC segment for 2005
increased by $2,844,000 (48%), which was  offset by decreases of $233,000 (9%) in FGC and
other activities.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Revenues
from the MEC segment were comprised of 54% government and industry-supported
contracts, 21% sales and installation of activated carbon injection (ACI)
systems and 25% consulting services, as compared to 70%, 14% and 16%,
respectively in 2004. Increases in the dollar amount of sales in all of these
products contributed to the increase in MEC revenue in 2005. 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. FGC and
other revenues decreased due to an FGC customer discontinuing further purchases.
Revenues from consulting services included in the MEC segment increased
approximately $1.2 million from 2004 to 2005, due to an increased number of
commercial contracts for evaluation of mercury emissions were conducted in 2005.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Cost
of revenues increased by $1,721,000 in 2005, as compared to 2004 as a result of
the increased revenue generating activities. Gross margins for MEC activities
decreased from 36% in 2004 to 35% in 2005 and gross margins for FGC and other
increased from 51% in 2004 to 55% in 2005. Overall gross margins were fairly
stable at 39% in 2005 as compared to 40% in 2004.</FONT></FONT></P>


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<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">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&amp;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.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">MEC
segment profits increased by $742,000 or 74% to $1.7 million as compared to
2004. The increase was primarily a result of increased MEC segment revenues as
described above. FGC and other segment profits increased by only $12,000 or
about 1% to $1,010,000 as compared to 2004. The increase was primarily the
result of slightly improved margins on chemical sales even though segment
revenues decreased.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">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 prepared for
the anticipated growth in the mercury control market.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
Company had net interest and other income of $348,000 in 2005, as compared to
interest expense in 2004 of $15,000. 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 long-term debt in 2004.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
deferred tax provision for 2005 increased from an effective rate of 16% in 2004
to a rate of 34% in 2005. In 2004, since our net income was less than in 2005,
the research and development credit for which we qualify and is a permanent
difference, had a more significant impact in reducing our effective rate.</FONT></FONT></P>

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<A NAME="A042"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Liquidity
and Capital Resources</B><BR>We had  a positive working capital of $18.5 million at December
31, 2006, compared to  working capital of $17.0 million at December 31, 2005. The
increase resulted  from an increase in cash and accounts receivable, offset by a decrease
in  short-term investments due to liquidation of certificates of deposit and  increases
in current liabilities in the normal course of business. In addition  to working capital,
we had long-term investments in securities, accounted for as  &#147;available-for-sale&#148; investments,
of approximately $5.3 million and  $5.7 million at December 31, 2006 and 2005,
respectively. We intend to retain a  portion of these investments to demonstrate strength
in our financial position  to support performance guarantees we have been and will likely
continue to  provide on sales of ACI systems. We expect to use a portion of such
investments  and cash on hand to fund growth of the Company, which are expected to
include  development projects for activated carbon production and 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 operating needs of the Company  for the next twelve
months. 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.
In addition, we will likely need  to raise additional capital to fund strategic
development and/or acquisitions.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">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 three
flue gas conditioning (FGC) units currently in-place. Each of these units
provided an average monthly cash flow of approximately $18,000 in 2006. One of
these customers is performing a process upgrade that was expected to be
completed in 2006 that we expect will reduce or eliminate the requirement for
FGC. During 2006, we performed a successful demonstration project at one plant
that has resulted in continued chemical sales, although at a lower level and
with a lower gross margin than existing customers. 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), changes in regulations, 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.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">We
have planned capital expenditures to sustain and improve ongoing operations for
2007 estimated at $400,000, which includes planned expenditures for build-out of
space and office equipment to accommodate new employees, replacement of obsolete
computers and office equipment and field equipment. We expect to fund these
requirements out of existing working capital and cash flow from operations. This
amount does not include amounts we may choose to spend on specific development
projects to secure our position in the activated carbon market for which the
Board has committed approximately $4 million from internal funds, expected to be
expended over the next five months to move the project forward in a manner that
we believe will position us to meet a significant portion of the shortage in
activated carbon supply that we expect for this rapidly expanding market.</FONT></FONT></P>


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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">21</FONT></FONT> </P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Under
our defined contribution and 401(k) pension 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, which amounts are determined annually by our
Board of Directors. During 2006 and 2005, we recognized $114,000 and $98,000,
respectively, of matching expense. In the past, the Company has also made
discretionary contributions to the Plan and employees. Based on results for
2005, the amount paid to the plan totaled $108,000 and was paid in the form of
cash to the accounts of all eligible employees in February 2006. Based on
results for 2006, the Company has paid and/or accrued a total of approximately
$123,000 for such payments.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">We
recorded net deferred tax liabilities of ($133,000) and net deferred tax assets
of $340,000 as of December 31, 2006 and 2005, respectively.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Cash
flow from operations totaled $1,821,000 for 2006 compared to $1,209,000 for
2005. Cash flow from operations in 2006 increased from 2005 primarily as a
result of net income of $377,000 and adjustments for non-cash expenses which
included, expenses paid with stock and stock options, depreciation and
amortization, and deferred tax expense. The 2006 operating cash flow was reduced
by increases in our accounts receivable ($508,000), and additional prepaid
expenses and other assets totaling ($82,000) as a result of increases in prepaid
insurance, which changes correspond with our growth in business. The 2006
operating cash flow increased as a result of an increase in accounts payable and
accrued expenses totaling $720,000 and an increase in deferred revenue and
accrued warranty costs totaling $395,000, which changes also correspond to our
overall growth in business and in particular with increasing ACI system sales.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Net
cash used by investing activities was ($817,000) for 2006 compared to cash used
in investing activities of ($2,128,000) in 2005. In 2006, certificates of
deposit totaling $800,000 were liquidated and held as cash equivalents, whereby
proceeds from sales of securities exceeded investments in securities. Such
excess was offset somewhat by changes to our investment portfolio to maintain a
targeted balance and maximize earnings, as well as re-investment of gains that
occurred during the period. The net increase in cash from investment activity
was offset by a use of cash for purchases of property and equipment for the
build-out of additional space in our current headquarters location to
accommodate new employees and field equipment, and amounts invested in our
project development costs, particularly for development of a long-term activated
carbon supply.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Cash
provided by financing activities was $1,099,000 and $12,837,000 in 2006 and
2005, respectively. The decrease from 2005 was due to the exercise of fewer
stock options in 2006 and registration costs incurred in 2006 but related to
stock sold in 2005. Included in cash provided in 2006 is the $1 million in
proceeds from the sale of an interest in Clean Coal Solutions, LLC discussed
above. In 2005 we sold stock and recorded net proceeds of $12.5 million as
further described below. We may likely require additional debt or equity
financing to support future anticipated growth, including potential acquisitions
and/or for the development of the Greenfield activated carbon manufacturing
facility discussed above.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">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.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">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
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 also carry certain &#147;piggy-back&#148; and other
registration rights. A majority of the proceeds from the offering have been
invested in collateralized interest-bearing term deposits. We registered the
shares for resale by the purchasers under the Securities Act of 1933 in August,
2006.</FONT></FONT></P>

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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">22</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>


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<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">We had
the following contractual commitments as of December 31, 2006:</FONT></FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="9"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Payments Due by Period</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Total</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2007</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2008 and 2009</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2010 and 2011</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2011 and Beyond</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="34%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Operating lease obligations</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;383,000</FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;130,000</FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$125,000</FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$128,000</FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#151;</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Purchase obligations</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1,308,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1,308,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#151;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#151;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#151;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$1,691,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$1,438,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$125,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$128,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#151;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
</TABLE>

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<A NAME="A043"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Critical
Accounting Policies and Estimates</B><BR>Revenue  Recognition &#150; 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.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">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
&#147;available-for-sale&#148; 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 $2.3 million on the consolidated balance sheets.
Management believes the fair value of other recorded intangibles is not
impaired, although 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.</FONT></FONT></P>

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<A NAME="A044"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Recently
Issued Accounting Policies</B><BR>In  June 2006, the FASB issued FASB Interpretation No. 48 (&#147;FIN
48&#148;),  <I>Accounting for Uncertainty in Income Taxes &#150; an Interpretation of
FASB  Standard No. 109</I>. FIN 48 prescribes a recognition threshold and measurement
attribute for financial statement recognition and measurement of a tax position  taken or
expected to be taken in a tax return, and also provides guidance on  de-recognition,
classification, interest and penalties, accounting in interim  periods, disclosure and
transition. FIN 48 is effective for fiscal years  beginning after December 15, 2006. The
Company is in the process of evaluating  the financial impact of adopting FIN 48.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">In
September 2006, the FASB issued SFAS No. 157, <I>Fair Value Measurements, </I>to
define fair value, establish a framework for measuring fair value under
generally accepted accounting principles, and expand disclosures about fair
value measurements. Having a single definition of fair value, together with a
framework for measuring fair value, is designed to result in increased
consistency and comparability in fair value measurements. This FASB is effective
for reporting periods beginning after November 15, 2007. The Company is
evaluating its impact and does not expect that adoption of this FASB will have a
material impact on its financial statements.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">In
February 2007, the FASB issued SFAS 159, <I>The Fair Value Option for Financial
Assets and Financial Liabilities</I>. SFAS 159 permits the measurement of
certain financial instruments at fair value. Entities may choose to measure
eligible items at fair value at specified election dates, reporting unrealized
gains and losses on such items at each subsequent reporting period. SFAS 159 is
effective for fiscal years beginning after November 15, 2007. The Company has
not evaluated the potential impact of the fair value option.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Head Minor" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Item 7A.&nbsp;&nbsp;&nbsp;
Quantitative and Qualitative Disclosures About Market Risk.</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Commodity Price
Risk </B> <BR>In the normal course of its business, the Company is exposed to market risk or
price fluctuations related to the goods and services it procures related to its revenue
producing activities. Components of ACI systems and consulting services, which are
significant to such revenue producing activities, have market prices that fluctuate
regularly, but not widely. In most cases we can pass on to our customers such price
fluctuations. Based on the estimated 2006 procurement of ACI components and consulting
services, a hypothetical 10% increase (or decrease) in the price of ACI components and
consulting services, if such fluctuations could not be passed on to our customer, would
result in a pretax loss or gain of $370,000, respectively.</FONT></FONT></P>


<!-- MARKER FORMAT-SHEET="Para Center" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">23</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>


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<A NAME="A045"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Interest
Rate Risk</B><BR>Approximately  $16.1 million of the cash and cash equivalents are invested
in interest bearing  accounts. A hypothetical change of 10% in the Company&#146;s
effective interest  rate from the year-end 2006 rate would increase or decrease interest
income by  $81,000.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Item
8. &nbsp;&nbsp;&nbsp;Financial Statements and Supplementary Data.<BR>Our
Financial Statements can be found at pages F-1 through F-18 of this report.</B></FONT></FONT></P>

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<A NAME="A046"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Index to
Financial Statements <BR>Report of  Independent Registered Public Accounting Firm<BR>Financial
Statements:</FONT></FONT></P>

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<A NAME="A048"></A>
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">ADA-ES,
Inc.  and Subsidiaries  <BR>Consolidated Balance Sheets, December 31, 2006 and 2005<BR>
Consolidated  Statements of Income,  For the Years Ended December 31, 2006, 2005 and 2004<BR>
Consolidated  Statements of Changes in Stockholders&#146; Equity, For the Years Ended
December  31, 2006, 2005 and 2004 <BR>Consolidated Statements of Cash Flows, For the Years
Ended December 31, 2006, 2005 and 2004 <BR>Notes to Consolidated Financial  Statements</FONT></FONT></P></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Item
9. &nbsp;&nbsp;&nbsp;Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure.</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">None.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Head Minor" -->
<A NAME="A049"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Item 9A.&nbsp;&nbsp;&nbsp;
Controls and Procedures.</B></FONT></FONT></P>

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<A NAME="A050"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B><U>Evaluation
of Disclosure Controls and Procedures</U></B></FONT><FONT SIZE="2"><BR>We conducted an evaluation under the
supervision and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures. The term &#147;disclosure controls and
procedures,&#148; as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and
Exchange Act of 1934, as amended (&#147;Exchange Act&#148;), means controls and other
procedures of a company that are designed to ensure that information required to be
disclosed by the company in the reports it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission&#146;s rules and forms. Disclosure controls and
procedures also include, without limitation, controls and procedures designed to ensure
that information required to be disclosed by a company in the reports that it files or
submits under the Exchange Act is accumulated and communicated to the company&#146;s
management, including its principal executive and principal financial officers, or
persons performing similar functions, as appropriate, to allow timely decisions
regarding required disclosure. Based on this evaluation, our Chief Executive Officer and
Chief Financial Officer concluded as of December 31, 2006 that our disclosure controls
and procedures were not effective at the reasonable assurance level due to the material
weaknesses discussed immediately below.</FONT></FONT></P>

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<A NAME="A051"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Management&#146;s
Report on Internal Control Over Financial Reporting</B><BR>Our management  is responsible for
establishing and maintaining adequate internal control over  financial reporting.
Internal control over financial reporting (as defined in  Exchange Act Rules&nbsp;13a-15(f)
and 15(d)-15(f)) and includes those policies  and procedures that: (a)&nbsp;pertain to
the maintenance of records that, in  reasonable detail, accurately and fairly reflect the
transactions and  dispositions of the assets of the company; (b)&nbsp;provide reasonable
assurance  that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (c)&nbsp;provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the company&#146;s assets that could have a  material
effect on the financial statements.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Center" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">24</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>

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<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Our
management assessed our internal control over financial reporting as of
December&nbsp;31, 2006. Management based its assessment on criteria set forth in
the framework in <I>Internal Control-Integrated Framework </I>issued by the
Committee of Sponsoring Organizations of the Treadway Commission.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">A
material weakness is a control deficiency, or combination of control
deficiencies, that result in more than a remote likelihood that a material
misstatement of annual or interim financial statements will not be prevented or
detected. Management&#146;s assessment concluded that the Company did not
maintain effective internal control over financial reporting as of
December&nbsp;31, 2006 as a result of the following identified material
weaknesses:</FONT></FONT></P>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="6%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">1. </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="91%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
Company did not have a sufficient complement of personnel with appropriate  training and
experience in generally accepted accounting principles  (&#147;GAAP&#148;), or adequate
controls over the resolution of GAAP accounting  issues.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang Roman In 1" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="6%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">2. </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="91%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
Company&#146;s controls over the collection and recording of accounts payable  did not
operate effectively.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang Roman In 1" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="6%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">3. </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="91%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
Company did not maintain adequate controls over the reconciliation of accounts
receivable and deferred revenue.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Management&#146;s
assessment of the effectiveness of our internal control over financial reporting
as of December 31, 2006, has been audited by Hein &amp; Associates LLP, our
independent registered public accounting firm, as stated in their report which
appears herein.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<A NAME="A052"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Remediation
of Material Weakness</B><BR>The  following provides details of the remedial actions taken and
planned as of the  date of this report, to address the material weaknesses identified
above:</FONT></FONT></P>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="6%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">1. </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="91%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> During
the second half of 2006, and through December 31, 2006, the Director of  Financial
Planning and Internal Control position was vacant. We have hired an  experienced
individual who is expected to provide additional review over our  presentation and
disclosure in financial statements and to provide further  technical accounting expertise
in applying generally accepted accounting  principles.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="6%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">2. </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="91%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">We
are evaluating the scope of our engagement with an outside accounting firm to  assist in
preparing our financial statements and providing technical expertise  in the proper
application of generally accepted accounting principles to various  transactions and
other financial statement matters.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang Roman In 1" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="6%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">3. </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="91%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">We
intend to enhance the training of our staff to ensure proper application of  generally
accepted accounting principles to various transactions and other  financial statement
matters.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="6%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">4. </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="91%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">We
have systemized the collection and recordkeeping of invoices.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="6%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">5. </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="91%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">We
have  established monthly revenue and expense review meetings with business process
owners.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="6%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">6. </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="91%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">We
have revised our chart of accounts to ensure proper balance sheet  classifications of
accounts receivable and deferred revenue.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">We
anticipate the actions described above and resulting improvements in controls
will strengthen our internal control over financial reporting and will, over
time, address the related material weaknesses that we identified as of December
31, 2006.&nbsp; However, because many of the controls in our system of internal
controls rely extensively on manual review and approval, the successful
operation of these controls for, at least, several quarters may be required
prior to management being able to conclude that the material weakness has been
remediated.</FONT></FONT></P>

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<A NAME="A053"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Changes in
Internal Control Over Financial Reporting</B><BR>Except  as otherwise discussed herein, there
have been no changes in our internal  control over financial reporting during the most
recently completed fiscal  quarter that have materially affected, or is reasonably likely
to materially  affect, our internal control over financial reporting.</FONT></FONT></P>


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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">25</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>

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<!-- MARKER FORMAT-SHEET="Head Major" -->
<A NAME="A054"></A>
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</B></FONT></FONT></P>

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<A NAME="A055"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">To the Board
of Directors<BR>ADA-ES, Inc. and Subsidiaries<BR>Littleton, Colorado</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">We
have audited management&#146;s assessment, included in the accompanying
Management&#146;s Report on Internal Control over Financial Reporting, that
ADA-ES, Inc. and Subsidiaries (&#147;Company&#148;) internal control over
financial reporting was not effective as of December&nbsp;31, 2006, because of
the effect of material weaknesses described therein, based on criteria
established in Internal Control&#151;Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(&#147;COSO&#148;). The Company&#146;s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on management&#146;s assessment and an
opinion on the effectiveness of the Company&#146;s internal control over
financial reporting based on our audit.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management&#146;s assessment, testing and
evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">A
company&#146;s internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of America. A
company&#146;s internal control over financial reporting includes those policies
and procedures that (i)&nbsp;pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii)&nbsp;provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with accounting principles generally accepted
in the United States of America, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and
directors of the company; and (iii)&nbsp;provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the company&#146;s assets that could have a material effect on the financial
statements.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">A
material weakness is a significant control deficiency, or combination of
significant control deficiencies, that results in more than a remote likelihood
that a material misstatement of the annual or interim financial statements will
not be prevented or detected. The following material weaknesses have been
identified and included in management&#146;s assessment as of December&nbsp;31,
2006:</FONT></FONT></P>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="6%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">1. </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="91%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
Company did not have a sufficient complement of personnel with appropriate  training and
experience in generally accepted accounting principles  (&#147;GAAP&#148;), or adequate
controls over the resolution of GAAP accounting  issues.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="6%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">2. </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="91%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
Company&#146;s controls over the collection and recording of accounts payable  did not
operate effectively.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="6%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">3. </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="91%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
Company did not maintain adequate controls over the reconciliation of accounts
receivable and deferred revenue.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Center" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">26</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>


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<!-- MARKER PAGE="sheet: 9; page: 9" -->

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">These
material weaknesses were considered in determining the nature, timing and extent
of audit tests applied in our audit of the 2006 financial statements, and this
report does not affect our report dated March 26, 2007 on those financial
statements.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">In our
opinion, management&#146;s assessment that the Company did not maintain
effective internal control over financial reporting as of December&nbsp;31, 2006
is fairly stated, in all material respects, based on the COSO framework. Also,
in our opinion, because of the effect of the material weaknesses described above
on the achievement of the objectives of the control criteria, the Company has
not maintained effective internal control over financial reporting as of
December&nbsp;31, 2006, based on the COSO framework.</FONT></FONT></P>


<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">We  do not
express an opinion or any other form of assurance on management&#146;s  statements
referring to new controls being implemented after December&nbsp;31,  2006.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">We  have also
audited, in accordance with the standards of the Public Company  Accounting Oversight
Board (United States), the consolidated financial  statements of ADA-ES, Inc. and
Subsidiaries and our report dated March 26, 2007  expressed an unqualified opinion.</FONT></FONT></P>


<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">/s/ HEIN &amp; ASSOCIATES
LLP</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<A NAME="A056"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Denver,
Colorado<BR>March 26, 2007</FONT></FONT></P>

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<A NAME="A057"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Item 9B.&nbsp;&nbsp;&nbsp;
Other Information.</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Head Minor" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Date of Next
Annual Meeting of  Shareholders  and  Information  Concerning  Shareholder  Proposals for
Presentation at the Next Annual  Meeting of Shareholders</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Our
next Annual Meeting of Shareholders will be held on June 19, 2007, which is
approximately one month later than we originally expected to hold the meeting.
If a shareholder has not submitted a proposal to be considered at the meeting by
December 11, 2006, the date stated in last year&#146;s proxy statement for
submitting such proposals, and the shareholder fails to notify the Company of
such proposal on or before April 2, 2007, then the proxies appointed by the
Company&#146;s management will be allowed to use their discretionary voting
authority when the proposal is raised at the Annual Meeting, without any
discussion of the matter in the proxy statement. The proponent of any such
proposal must own shares of Common Stock equal to the lesser of (a) 1% or more
of the outstanding shares as of December 31, 2006, or (b) shares having a market
value of at least $2,000, and must have continuously owned such shares for one
year and intend to continue to hold such shares through the date of the Annual
Meeting in order to present a shareholder proposal to the Company.</FONT></FONT></P>

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<A NAME="A059"></A>
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>PART
III</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Item
10. &nbsp;&nbsp;&nbsp;Directors, Executive Officers, and Corporate Governance.</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Information
regarding our directors is incorporated by reference from the information
contained under the caption &#147;Election of Directors&#148; in our Proxy
Statement for the 2007 Annual Meeting of Stockholders (&#147;2007 Proxy
Statement&#148;) to be filed pursuant to Regulation 14A promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934
within 120 days after the end of our fiscal year ended December 31, 2006.
Information regarding our audit committee, including our audit committee
financial expert, is incorporated by reference from the information contained
under the caption &#147;Audit Committee&#148; in our 2007 Proxy Statement and
information regarding executive officers is incorporated by reference from the
information contained under the caption &#147;Executive Officers&#148; in our
2007 Proxy Statement. Information regarding Section 16 reporting compliance is
incorporated by reference from information contained under the caption
&#147;Executive Compensation &#151; Section 16(a) Beneficial Ownership Reporting
Compliance&#148; in our 2007 Proxy Statement.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Center" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">27</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>


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<A NAME="A060"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Code of
Ethics</B><BR>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-K. 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.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Item
11. &nbsp;&nbsp;&nbsp;Executive Compensation.</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
information required by this item is incorporated by reference from the
information contained under the captions &#147;Compensation Committee,&#148;
&#147;Executive Compensation,&#148; &#147;Director Compensation&#148; and
&#147;Stock Incentive Plans&#148; in our 2007 Proxy Statement.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Item
12. &nbsp;&nbsp;&nbsp;Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
information required by this item is incorporated by reference from the
information contained under the caption &#147;Security Ownership of Principal
Stockholders and Management and Related Stockholder Matters&#148; and
&#147;Equity Compensation Plan Information&#148; in our 2007 Proxy Statement.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Item
13. &nbsp;&nbsp;&nbsp;Certain Relationships and Related Transactions and Director Independence.</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
information required by this item is incorporated by reference from the
information contained under the caption &#147;Certain Relationships and Related
Transactions and Director Independence&#148; in our 2007 Proxy Statement.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Item
14. &nbsp;&nbsp;&nbsp;Principal Accountant Fees and Services.</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
information required by this item is incorporated by reference from the
information contained under the caption &#147;Relationship with Independent
Certified Public Accountants&#148; in our 2007 Proxy Statement.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major" -->
<A NAME="A061"></A>
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>PART
IV</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Item
15. &nbsp;&nbsp;&nbsp;Exhibits and Financial Statement Schedules.</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(a)&nbsp;&nbsp;&nbsp;
The following documents are filed as part of this Annual Report on Form 10-K:</FONT></FONT></P>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="6%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(1) </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="91%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Financial
Statements &#150; see Part II, Item 8, which is incorporated herein by this reference;</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="6%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(2) </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="91%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Financial
Statement Schedules &#150; None required or applicable; and</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="6%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(3) </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="91%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Exhibits
&#150; as described in the following index.</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD WIDTH="9%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Any
person receiving a copy of this Form 10-K without exhibits may obtain a copy o  any
exhibit from the Company, upon payment of the prescribed copying costs.  Requests should
be directed to:</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<A NAME="A062"></A>
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD WIDTH="9%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">ADA-ES,
Inc.<BR>Attention: Corporate Secretary<BR>8100 Southpark Way, Unit B<BR>Littleton, CO 80120</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Head Minor" -->
<A NAME="A063"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Index to
Exhibits.</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Head Minor" -->
<A NAME="A064"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>No.&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;
Description</B></FONT></FONT></P>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">3.1 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Amended
and Restated Articles of Incorporation of ADA-ES (1)</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">3.2 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Amended
and Restated Bylaws of ADA-ES (2)</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">4.1 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Form
of Specimen Common Stock Certificate (3)</FONT></FONT> </P></TD>
</TR>
</TABLE>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">4.2 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Registration
Rights Agreement dated October 21, 2005 (4)</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">4.3 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Registration
Rights Agreement between ADA-ES, Inc. and Arch Coal, Inc. dated March 19, 2003 (16)</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">4.4 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Standstill
and Registration Rights Agreements dated August 3-6, 2004 (6)</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>


<!-- MARKER FORMAT-SHEET="Para Center" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">28</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>


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<!-- MARKER FORMAT-SHEET="Head Minor" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Index to
Exhibits cont.</B></FONT></FONT></P>


<!-- MARKER FORMAT-SHEET="Head Minor" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>No.&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;
Description</B></FONT></FONT></P>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.1 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Distribution
Agreement dated as of March 17, 2003 between Earth Sciences, Inc. and ADA-ES, Inc. (7)</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.2 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> 2003
ADA-ES, Inc. Stock Option Plan** (5)</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.6 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Securities
Subscription and Investment Agreement between ADA-ES, Inc. and Arch Coal, Inc.  dated
July 7, 2003 (7)</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.7 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> U.S.
Department of Energy Cooperative Agreement No. DE-FC26-00NT41004 &quot;Field Test Program
to Develop Comprehensive Design,  Operating, and Cost Data for Mercury Control
Systems&quot; (7)</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.8 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> U.S.
Department of Energy Cooperative Agreement No. DE-FC26-00NT40755 &quot;Advanced Flue  Gas
Conditioning as a Retrofit Upgrade to Enhance PM collection from Coal-Fired Electric
Utility  Boilers&quot; (7)</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.10 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Tax
Sharing Agreement between ADA-ES, Inc. and Earth Sciences, Inc. dated March 17, 2003 (5)</FONT></FONT> </P></TD>
</TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.11 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> U.S.
Department of Energy Cooperative Agreement No. DE-FC26-02NT41591 &quot;Long-Term
Operation of a COHPAC System for Removing Mercury from Coal-Fired Flue Gas&quot; (7)</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.12 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Amendment
No. 1 to Distribution Agreement by and between ADA-ES, Inc. and Earth Sciences, Inc.
dated  August 15, 2003 (8)</FONT></FONT> </P></TD>
</TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.13 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> 2003
Stock Compensation Plan #1** (9)</FONT></FONT> </P></TD>
</TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.14 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> 2003
Stock Compensation Plan #2** (10)</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.15 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> U.S.
Department of Energy Cooperative Agreement No. DE-FC26-03NT41986 &quot;Evaluation of
Sorbent Injection for Mercury Control&quot;  (11)</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.16 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Purchase
Order #4500589101 signed 3/18/04 from We Energies (12)</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.17 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Clean
Coal Power Initiative Repayment Agreement between the U.S. Department of Energy and
ADA-ES, Inc. dated April 6, 2004  (12)</FONT></FONT> </P></TD>
</TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.18 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> TOXECON
Sorbent Sales Repayment Agreement by and between Norit America Inc. and ADA-ES, Inc.
dated February 18, 2004 (12)</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.19 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Development
and Field Validation Agreement between Thermo Environmental Instruments Inc. and ADA-ES,
Inc. dated April 16,  2004 (12)</FONT></FONT> </P></TD>
</TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.20 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Distribution
Agreement between Thermo Environmental Instruments Inc. and ADA-ES, Inc. dated April 16,
2004 (12)</FONT></FONT> </P></TD>
</TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.21 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> ADA-ES,
Inc. 2004 Executive Stock Option Plan** (13)</FONT></FONT> </P></TD>
</TR>
</TABLE>

<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.22 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> U.S.
Department of Energy Cooperative Agreement No. DE-FC26-05NT42307 &#147;Low-Cost Options
for Moderate Levels of Mercury  Control&#148; (14)</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.23 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Employment
Agreement dated May 1, 1997 between C. Jean Bustard and ADA Environmental Solutions, LLC
(assigned to ADA-ES,  Inc.) ** (14)</FONT></FONT> </P></TD>
</TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.24 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Employment
Agreement dated May 1, 1997 between Michael D. Durham and ADA Environmental Solutions,
LLC (assigned to ADA-ES,  Inc.) ** (14)</FONT></FONT> </P></TD>
</TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.25 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Employment
Agreement dated January 2, 2000 between Mark H. McKinnies and ADA Environmental
Solutions, LLC (assigned to  ADA-ES, Inc.) ** (14)</FONT></FONT> </P></TD>
</TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.26 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Employment
Agreement dated January 1, 2000 between Richard J. Schlager and ADA Environmental
Solutions, LLC (assigned to  ADA-ES, Inc.) ** (14)</FONT></FONT> </P></TD>
</TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.27 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> 2004
Stock Compensation Plan #2 and model stock option agreements** (13)</FONT></FONT> </P></TD>
</TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.28 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> 2004
Directors Stock Compensation Plan #1** (15)</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.29* </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> 2005
Directors&#146; Compensation Plan**(16)</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.30 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> License
Agreement dated as of November 3, 2006 by and between ADA-ES, Inc. and ADA-NexCoal, LLC.
(17)</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.31 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Chemicals,
Equipment, and Technical Engineering Services Supply Agreement dated as of November 3,
2006  by and between  ADA-ES, Inc. and ADA-NexCoal, LLC. (18)</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.32 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Purchase
and Sale Agreement dated as of November 3, 2006 by and among ADA-ES, Inc., NexGen Refined
Coal, LLC and  ADA-NexCoal, LLC. (19)</FONT></FONT> </P></TD>
</TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.33 </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Amended
and Restated Operating Agreement of ADA-NexCoal, LLC dated as of November 3, 2006 by and
among ADA-ES, Inc., NexGen  Refined Coal, LLC and ADA-NexCoal, LLC. (20)</FONT></FONT> </P></TD>
</TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.34* </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Employment
Agreement dated March 1, 2003 between Sharon M. Sjostrom and ADA  Environmental
Solutions, LLC (assigned to ADA-ES, Inc.)**</FONT></FONT> </P></TD>
</TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.35* </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Executive
Compensation Plan**</FONT></FONT> </P></TD>
</TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.36* </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Memorandum
of Understanding dated March 20<SUP>th</SUP>, 2007, between Calgon  Carbon Corporation
and ADA-ES, Inc.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">29</FONT></FONT> </P>


<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>

<!-- *************************************************************************** -->
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<!-- MARKER FORMAT-SHEET="Head Minor" -->
<A NAME="A065"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Index to
Exhibits cont.</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Head Minor" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>No.&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;
Description</B></FONT></FONT></P>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.37* </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> 2006
Profit Sharing Plan**</FONT></FONT> </P></TD>
</TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">21.1* </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Subsidiaries
of ADA-ES, Inc.</FONT></FONT> </P></TD>
</TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<A NAME="A067"></A>
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">23.1* </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Consent
of Hein &amp; Associates LLP</FONT></FONT> </P></TD>
</TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">31.1* </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Certification
of Chief Executive Officer of ADA-ES, Inc. Pursuant to 17 CFR 240.13a-14(a) or 17 CFR
240.15d-14(a)</FONT></FONT> </P></TD>
</TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">31.2* </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="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)</FONT></FONT> </P></TD>
</TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">32.1* </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Certification
of Chief Executive Officer of ADA-ES, Inc. Pursuant to 18 U.S.C Section 1350, as Adopted
Pursuant to Section  906 of the Sarbanes-Oxley Act of 2002</FONT></FONT> </P></TD>
</TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">32.2* </FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Certification
of Chief Financial Officer of ADA-ES, Inc. Pursuant to 18 U.S.C Section 1350, as Adopted
Pursuant to Section  906 of the Sarbanes-Oxley Act of 2002</FONT></FONT> </P></TD>
</TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">*
&#151; filed herewith.<BR>**&#150; Management contract or compensatory plan or arrangement.</FONT></FONT></P>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(1)</FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp; 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).</FONT></FONT> </P></TD>
</TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(2)</FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp; 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).</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(3)</FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp; 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).</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(4)</FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp; 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).</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(5)</FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp; Incorporated
by reference to the same numbered Exhibit to the Form 10-KSB for  the year ended December
31, 2005 filed on March 30, 2006 (File No. 000-50216).</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(6)</FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp; Incorporated
by reference to Exhibit A to Exhibit 10.1 to the Form S-3 filed on  October 18, 2004
(File No. 333-119795).</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(7)</FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp; Incorporated
by reference to the same numbered Exhibit to the Form 10-SB/A-3  filed on July 28, 2003
(File No. 000-50216).</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(8)</FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp; Incorporated
by reference to the same numbered Exhibit to the Form 10-SB/A-4  filed on August 24, 2003
(File No. 000-50216).</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(9)</FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp; Incorporated
by reference to Exhibit 99.2 to the Form S-8 filed on November 14,  2003 (File No.
333-110479).</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(10)</FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp;&nbsp; Incorporated
by reference to Exhibit 99.1 to the Form S-8 filed on February 6,  2004 (File No.
333-112587).</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(11)</FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp; 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).</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(12)</FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp; 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).</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(13)</FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp; Incorporated
by reference to the same numbered Exhibit to the Form 10-KSB for  the year ended December
31, 2005 filed on March 30, 2006 (File No. 000-50216).</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(14)</FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp; 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).</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(15)</FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp; Incorporated
by reference to Exhibit 99.1 to the Form S-8 filed on April 16,  2004 (File No.
333-114546).</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(16)</FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp; Re-filing
to correct a typographical error in the original filing.</FONT></FONT> </P></TD>
</TR>
</TABLE>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(17)</FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp; Incorporated
by reference to Exhibit 10.1 to the Form 10-Q for the quarter ended September  30, 2006
filed on November 8, 2006 (File No. 000-50216).</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(18)</FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp; Incorporated
by reference to Exhibit 10.2 to the Form 10-Q for the quarter ended  September 30, 2006
filed on November 8, 2006 (File No. 000-50216).</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(19)</FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp; Incorporated
by reference to Exhibit 10.3 to the Form 10-Q for the quarter ended  September 30, 2006
filed on November 8, 2006 (File No. 000-50216).</FONT></FONT> </P></TD>
</TR>
</TABLE>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(20)</FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp; Incorporated
by reference to Exhibit 10.4 to the Form 10-Q for the quarter ended  September 30, 2006
filed on November 8, 2006 (File No. 000-50216).</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<A NAME="A068"></A>
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>(b)</B></FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">See
<B>(a)(3) above.</B></FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<A NAME="A069"></A>
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>(c)</B></FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">See
<B>(a)(2)  above.</B></FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>


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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">30</FONT></FONT> </P>


<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>

<!-- *************************************************************************** -->
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<A NAME="A070"></A>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>SIGNATURES</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Pursuant
to the requirements of 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.</FONT></FONT></P>


<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="53%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B><U>ADA-ES, Inc.</U></B></FONT></FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="42%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>(Registrant)</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">By&nbsp;&nbsp; <U>/s/ &nbsp;&nbsp;&nbsp;Mark H. McKinnies</U></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><U>/s/&nbsp;&nbsp;&nbsp; Michael D. Durham</U></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Mark H. McKinnies, Senior Vice</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Michael D. Durham</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">President and Chief Financial Officer</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">President (Chief Executive Officer)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(Principal Financial and Accounting Officer)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Date: &nbsp;&nbsp;&nbsp; <U>March 27, 2007</U></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><U>March 27, 2007</U></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
</TABLE>


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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Pursuant
to the requirements of 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.</FONT></FONT></P>


<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="45%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">/s/ &nbsp;&nbsp;&nbsp;John W. Eaves</FONT></TD>
     <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="48%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">/s/ &nbsp;&nbsp;&nbsp;Rollie J. Peterson</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">John W. Eaves, Director</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Rollie J. Peterson, Director</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Date: March 27 , 2007</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Date: March 27 , 2007</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">/s/ &nbsp;&nbsp;&nbsp;Jeffrey C. Smith</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">/s/ &nbsp;&nbsp;&nbsp;Michael D. Durham</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Jeffrey C. Smith, Director</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Michael D. Durham, Director</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Date: March 27, 2007</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Date: March 27 , 2007</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">/s/ &nbsp;&nbsp;&nbsp;Mark H. McKinnies</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">/s/ &nbsp;&nbsp;&nbsp;Ronald B. Johnson</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Mark H. McKinnies, Director</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Ronald B. Johnson, Director</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Date: March 27 , 2007</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Date: March 27 , 2007</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">/s/ &nbsp;&nbsp;&nbsp;Robert N. Caruso</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">/s/ &nbsp;&nbsp;&nbsp;Richard Swanson</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Robert N. Caruso, Director</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Richard Swanson, Director</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Date: March 27, 2007</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Date: March 27, 2007</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">/s/ &nbsp;&nbsp;&nbsp;Derek C. Johnson</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Derek C. Johnson, Director</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Date: March 27, 2007</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>

<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
</TABLE>

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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">31</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>

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<A NAME="A071"></A>
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>INDEX
TO FINANCIAL STATEMENTS</B></FONT></FONT></P>




<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">PAGE</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="87%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><BR><B>Report of Independent Registered Public Accounting Firm</B></FONT></FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">F-2</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Consolidated Balance Sheets</B> &#150; December 31, 2006 and 2005</FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">F-3</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Consolidated Statements of Income</B> &#150; For the Years Ended December 31, 2006, 2005, and 2004</FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">F-4</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Consolidated Statements of Changes in Stockholders&#146; Equity</B> &#150; For the Years</FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Ended December 31, 2006, 2005, and 2004</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">F-5</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Consolidated Statements of Cash Flows</B> &#150; For the Years Ended</FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">December 31, 2006, 2005, and 2004</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">F-6</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Notes to Consolidated Financial Statements</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">F-7</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
</TR>
</TABLE>


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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">F-1</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>

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<!-- MARKER FORMAT-SHEET="Head Major" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</B></FONT></FONT></P>


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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">To the Board of
Directors and Stockholders  <BR>ADA-ES, Inc and Subsidiaries  <BR>Littleton, Colorado</FONT></FONT></P>


<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">We have audited
the consolidated balance sheets of ADA-ES, Inc and Subsidiaries as of December 31, 2006
and 2005, and the related  consolidated statements of income, changes in stockholders&#146; equity
and cash flows for each of the three years in the period ended  December 31, 2006.  These
financial statements are the responsibility of the Company&#146;s management.  Our
responsibility is to express  an opinion on these consolidated financial statements based
on our audits.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">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.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">In our opinion,
the consolidated financial statements referred to above present fairly, in all material
respects, the financial  position of ADA-ES, Inc and Subsidiaries as of December 31, 2006
and 2005, and the results of their operations and their cash flows  for each of the three
years in the period ended December 31, 2006, in conformity with U.S. generally accepted
accounting principles.</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">We also have
audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the  effectiveness of ADA-ES, Inc and Subsidiaries internal
control over financial reporting as of December 31, 2006, based on criteria  established
in Internal Control&#151;Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission  (COSO) and our report dated March 26, 2007
expressed an unqualified opinion on management&#146;s assessment of the effectiveness of
ADA-ES, Inc and Subsidiaries internal control over financial reporting and an adverse
opinion on the effectiveness of ADA-ES, Inc and  Subsidiaries internal control over
financial reporting.</FONT></FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">As discussed in
note 1 to the accompanying consolidated financial statements, effective January 1, 2006,
the Company adopted  Statement of Financial Accounting Standards No. 123(R), Share-Based
Payment.</FONT></FONT></P>





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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B><I>/s/ &nbsp;&nbsp;&nbsp;HEIN &amp; ASSOCIATES
LLP</I></B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Denver,
Colorado  <BR>March 26, 2007</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Center" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">F-2</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>

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<!-- MARKER FORMAT-SHEET="Head Major" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>ADA-ES,
INC AND SUBSIDIARIES  <BR>CONSOLIDATED BALANCE SHEETS</B><BR>(Dollars in thousands)</FONT></FONT></P>


<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><U>ASSETS</U></FONT></FONT></TH>
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">DECEMBER 31</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">CURRENT ASSETS:</FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2006</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2005</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="75%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Cash and cash equivalents</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;16,129</FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;14,026</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Trade receivables, net of allowance for doubtful accounts of $4</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">3,522</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">3,014</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Investments in securities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2,427</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2,515</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Prepaid expenses and other</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">361</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">283</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current assets</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;22,439</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;19,838</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>PROPERTY AND EQUIPMENT,</B> at cost</FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1,830</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1,663</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Less accumulated depreciation and amortization</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(1,033</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(1,013</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net property and equipment</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">797</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">650</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>GOODWILL,</B> net of $1,556 in amortization</FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2,024</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2,024</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>INTANGIBLE ASSETS,</B> net of $57 and $44 in amortization, respectively</FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">241</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">156</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>INVESTMENTS IN SECURITIES</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">5,322</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">5,663</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>OTHER ASSETS</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">931</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">385</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>TOTAL ASSETS</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;31,754</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;28,716</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><U>LIABILITIES AND STOCKHOLDERS&#146; EQUITY</U></B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD COLSPAN="2"></TD>

</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>CURRENT LIABILITIES:</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Accounts payable</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;2,352</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;1,706</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Accrued payroll and related liabilities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">618</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">516</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Accrued expenses</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">161</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">138</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Deferred revenue and other</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">761</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">460</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current liabilities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">3,892</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2,820</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>LONG-TERM LIABILITIES:</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Accrued  warranty and other</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">184</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">40</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">4,076</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2,860</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>MINORITY INTEREST (Note 5)</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">37</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>COMMITMENTS AND CONTINGENCIES (Notes 5 and 7)</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>STOCKHOLDERS&#146; EQUITY:</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Preferred stock; 50,000,000 shares authorized,</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;none outstanding</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#151;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#151;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Common stock; no par value, 50,000,000 shares authorized,</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,635,137 and  5,610,267 shares issued and outstanding</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">27,592</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">26,318</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Accumulated other comprehensive income</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">167</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">33</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Accumulated deficit</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(118</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(495</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total stockholders&#146; equity</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">27,641</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">25,856</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>TOTAL LIABILITIES AND STOCKHOLDERS&#146; EQUITY</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;31,754</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;28,716</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Head Major" -->
<A NAME="A072"></A>
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B><I>See
accompanying notes to these consolidated financial statements.</I></B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Center" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">F-3</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>

<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 4; page: 4" -->

<!-- MARKER FORMAT-SHEET="Head Major" -->
<A NAME="A073"></A>
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>ADA-ES,
INC AND SUBSIDIARIES<BR>CONSOLIDATED STATEMENTS OF INCOME</B><BR><I>(Dollars
in thousands, except per share data)</I></FONT></FONT></P>


<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="5"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">FOR THE YEARS ENDED DECEMBER 31,</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2006</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2005</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2004</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="61%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>REVENUE:</B></FONT></FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Mercury emission control</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;13,607</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;8,784</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;5,940</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Flue gas conditioning and other</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1,881</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2,244</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2,477</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total net revenues</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">15,488</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">11,028</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">8,417</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>COST OF REVENUES:</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Mercury emission control</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">8,426</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">5,722</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">3,817</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Flue gas conditioning and other</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1,156</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1,019</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1,203</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total cost of revenues</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">9,582</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">6,741</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">5,020</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>GROSS MARGIN</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">5,906</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">4,287</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">3,397</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>OTHER COSTS AND EXPENSES:</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;General and administrative</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">4,170</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2,502</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2,046</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Research and development</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1,464</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">977</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">815</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Depreciation and amortization</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">284</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">157</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">153</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total expenses</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">5,918</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">3,636</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">3,014</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>OPERATING (LOSS) INCOME</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(12</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">651</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">383</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>OTHER INCOME (EXPENSE):</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Interest and other expense</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(412</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(9</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(34</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Interest and other income</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">909</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">357</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">49</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total other income</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">497</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">348</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">15</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>INCOME BEFORE INCOME TAX PROVISION</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">485</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">999</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">398</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>DEFERRED INCOME TAX PROVISION</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(108</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(336</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(62</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>NET INCOME</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">377</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">663</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">336</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>UNREALIZED GAINS AND (LOSSES) ON INVESTMENTS IN</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;<B>DEBT AND EQUITY SECURITIES,</B> net of tax</FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">134</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(1</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">34</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>COMPREHENSIVE INCOME</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;511</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;662</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;370</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>NET INCOME PER COMMON SHARE BASIC AND DILUTED</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.07</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.13</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;0.08</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>WEIGHTED AVERAGE COMMON SHARES OUTSTANDING</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">5,624</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">4,966</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">4,126</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>WEIGHTED AVERAGE DILUTED COMMON SHARES OUTSTANDING</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">5,729</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">5,137</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">4,193</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
</TABLE>

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<A NAME="A076"></A>
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B><I>See
accompanying notes to these consolidated financial statements</I></B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Center" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">F-4</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>

<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 5; page: 5" -->




<!-- MARKER FORMAT-SHEET="Head Major" -->
<A NAME="A077"></A>
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>ADA-ES,
INC AND SUBSIDIARIES<BR>CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS&#146; EQUITY<BR>FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004</B><BR><I>(Dollars in thousands)</I></FONT></FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="650">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"></FONT></TH>
     <TH COLSPAN="4"><FONT FACE="Times New Roman, Times, Serif" SIZE="1">COMMON STOCK</FONT><HR WIDTH="90%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="1">ACCUMULATED<BR>OTHER<BR>COMPREHENSIVE</FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="1">ACCUMULATED</FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="1">SHARES</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="1">AMOUNT</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="1">INCOME</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="1">DEFICIT</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="1">TOTAL</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="37%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>BALANCES,</B> January 1, 2004</FONT></FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">3,582,230</FONT></TD>
     <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;4,467</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#150;</FONT></TD>
     <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$    (1,494</FONT></TD>
     <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;2,973</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Stock issued to employees and directors</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;for expenses</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">25,716</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">181</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">181</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Issuance of stock for cash, net</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1,000,000</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">7,620</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">7,620</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Issuance of stock on exercise of options</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">173,265</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">435</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">435</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Issuance of stock on conversion of debt</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">14,500</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">36</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">36</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Tax benefit of stock transactions</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">395</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">395</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Unrealized holding gains on investments</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">54</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">54</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Income tax effect</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(20</FONT></TD>
<TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(20</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Net income</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">336</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">336</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>BALANCES,</B> December 31, 2004</FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">4,795,711</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">13,134</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">34</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(1,158</FONT></TD>
<TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">12,010</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Stock and stock options issued to</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">4,221</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">75</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">75</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;consultant and directors for expenses</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Issuance of stock for cash, net</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">789,089</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">12,538</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">12,538</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Issuance of stock on exercise of options</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">40,976</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">303</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">303</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Tax benefit of stock transactions</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">268</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">268</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Return of shares from escrow</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(19,730</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Unrealized holding losses on investments</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(34</FONT></TD>
 <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(34</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Investment reclassification adjustments to</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;income</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">32</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">32</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Income tax effect</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Net income</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">663</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">663</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>BALANCES,</B> December 31, 2005</FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">5,610,267</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">26,318</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">33</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(495</FONT></TD>
<TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">25,856</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Stock and stock options issued to</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">7,000</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">164</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">164</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;consultant and directors for expenses</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Stock based compensation</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">331</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">331</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Issuance of stock on exercise of options</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">17,870</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">116</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">116</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Tax benefit of stock transactions</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">56</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">56</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Expense of stock issuance</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(12</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(12</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Sale of JV interest, net of $343 tax</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">656</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">656</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Minority Interest</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(37</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(37</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Unrealized holding gains on investments</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">214</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">214</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Income tax effect</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(80</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(80</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Net income</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">377</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">377</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>BALANCES,</B> December 31, 2006</FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">5,635,137</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;27,592</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$    167</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$      (118</FONT></TD>
<TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;27,641</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
</TABLE>


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<A NAME="A081"></A>
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>See
accompanying notes to these consolidated financial statements</B></FONT></FONT></P>

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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">F-5</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>


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<A NAME="A083"></A>
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B><I>ADA-ES,
INC AND SUBSIDIARIES</I><BR>CONSOLIDATED STATEMENTS OF CASH FLOWS</B><BR><I>(Dollars in thousands)</I></FONT></FONT></P>





<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="5"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">FOR THE YEARS ENDED DECEMBER 31,</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2006</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2005</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2004</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="64%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>CASH FLOWS FROM OPERATING ACTIVITIES</B></FONT></FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="0%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Net income</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;377</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;663</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;336</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Adjustments to reconcile net income to net cash provided by</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating activities:</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">284</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">157</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">153</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss on asset dispositions and securities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">32</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">104</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">24</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Write off of inventory</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#151;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">28</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#151;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Expenses paid with stock and stock options</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">495</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">75</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">181</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred tax expense</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">108</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">336</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">62</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Changes in operating assets and liabilities:</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trade receivables</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(508</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(1,816</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(133</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses and other</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(82</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(103</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(94</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">646</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1,273</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">271</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued expenses</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">74</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">222</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">190</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred revenue and other</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">395</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">270</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(159</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by operating activities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1,821</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1,209</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">831</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>CASH FLOWS FROM INVESTING ACTIVITIES:</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Capital expenditures for equipment, patents and</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;development projects</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(1,431</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(374</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(212</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Investment in securities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(7,054</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(10,753</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(8,068</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Proceeds from asset dispositions</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#151;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#151;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">60</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Proceeds from sale of securities and certificates of deposit</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">7,668</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">8,999</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1,587</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used in investing activities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(817</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(2,128</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(6,633</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>CASH FLOWS FROM FINANCING ACTIVITIES:</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Payments on debt and notes payable</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(5</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(4</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(922</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from sale of JV interest</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#151;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#151;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Exercise of stock options</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">104</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">303</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">435</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Sale of stock</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#151;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">12,538</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">7,620</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by financing activities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1,099</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">12,837</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">7,133</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>INCREASE IN CASH AND CASH EQUIVALENTS</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2,103</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">11,918</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1,331</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>CASH AND CASH EQUIVALENTS,</B> beginning of year</FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">14,026</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2,108</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">777</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>CASH AND CASH EQUIVALENTS,</B> end of year</FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;16,129</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;14,026</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;2,108</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Cash payments for interest</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;34</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp;<B>AND FINANCING ACTIVITIES:</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Transfer of inventory to property</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#151;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#151;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;39</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Tax benefit of stock option exercises</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;56</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;268</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;395</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Stock issued in conversion of debt</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#151;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#151;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;36</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
</TABLE>

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<A NAME="A086"></A>
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B><I>See
accompanying notes to these consolidated financial statements</I></B></FONT></FONT></P>


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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">F-6</FONT></FONT> </P>


<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>


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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">1.&nbsp;&nbsp;&nbsp;
<B><U>SUMMARY OF NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING
POLICIES</U></B><U></U>:</FONT></FONT></P>

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<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Nature
of Operations</U></I><U></U> &#150; The accompanying consolidated financial  statements
include the accounts of ADA-ES, Inc. (ADA), its wholly owned  subsidiary, ADA Environment
Solutions, LLC (ADA LLC), and Clean Coal Solutions,  LLC (&#147;Clean Coal&#148;). ADA&#146;s
only asset is its investment in its  wholly owned subsidiary, ADA LLC. As of and for the
year ended December 31,  2006, Clean Coal had no significant assets, liabilities or
operations (see Note  5). All significant intercompany transactions have been eliminated.
Collectively, ADA and ADA-ES are referred to as the Company.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
Company is principally engaged in providing environmental technologies and  specialty
chemicals to the coal-burning utility industry. The Company generates  a substantial part
of its revenue from contracts co-funded by the government and  industry. The Company&#146;s
sales occur principally throughout the United  States.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Cash
Equivalents</U> </I>&#150; 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, 2006 and 2005 was held in one
commercial bank and was in excess of the  insurance limits of the Federal Deposit
Insurance Corporation.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Receivables
and Credit Policies </U></I><U></U>&#150; 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&#146;s best estimate
of the amount that may not be collectible.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Investments
</U></I><U></U>&#150; Investments in securities include certificates of deposit,  common
stock and debt securities. All investments 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.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Inventories</U></I> &#150; 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.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Revenue
Recognition</U></I> &#150; 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,  2006 and 2005, costs incurred in excess of billings
totaled $1,422,000 and  $142,000, respectively, and are included in accounts receivable,
net, in the  accompanying Balance Sheets. Billings in excess of recognized income totaled
$761,000 and $135,000 as of December 31, 2006 and 2005, respectively, and are  included
in deferred revenue and other in the accompanying Balance Sheets.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">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&#146;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.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Consulting
revenue is recognized as services are performed and collection is assured.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Property
and Equipment</U> </I>&#150; 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.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">F-7</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>

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<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">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.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Intangible
Assets</U></I> &#150; 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, 2006,  2005 and 2004 was $13,000
$11,000 and $10,000 respectively. Based on the balance  of intangible assets as of
December 31, 2006, the Company anticipates  amortization expense over the next 5 years to
be approximately $18,000 per year.  The weighted average amortization period is 14 years.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Intangible
assets consist of:</FONT></FONT> </P></TD>
</TR>
</TABLE>
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<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">At December 31,</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2006</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2005</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I>(In thousands)</I></FONT></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="64%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Patents:</FONT></TD>
     <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="8%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="0%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cost</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;298</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;200</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Less: Accumulated Amortization</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(57</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(44</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;241</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;156</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
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     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Goodwill</U></I></FONT><FONT SIZE="2">
&#150; 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&#146;s FGC reporting
segment. As of January 1, 2002, 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.</FONT></FONT> </P></TD>
</TR>
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     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Cost
of Revenues </U></I></FONT><FONT SIZE="2">- Costs of revenues include all labor, fringe benefits, subcontract labor,
chemical costs, materials, equipment, supplies and travel costs directly related to the
Company&#146;s production of revenue.</FONT></FONT> </P></TD>
</TR>
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     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>General
and Administrative</U></I></FONT><FONT SIZE="2"> &#150; General and administrative costs include personnel related
fringe benefits, sales and administrative staff labor costs, facility costs and other
general costs of conducting business.</FONT></FONT> </P></TD>
</TR>
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     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Warranty
Costs</U></I></FONT><FONT SIZE="2"> &#150; Under certain contracts the Company may grant performance guarantees for a
specified period and the achievement of a certain plant operating conditions. In the
event the equipment fails to perform as specified, the Company is obligated to correct
or replace the equipment. Estimated warranty costs are recorded at the time of sale based
on current industry factors.</FONT></FONT> </P></TD>
</TR>
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     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Net
Income Per Share</U></I></FONT><FONT SIZE="2"> &#150; 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 104,000, 171,000 and 67,000
shares in 2006, 2005 and 2004, respectively, to the weighted average number of common
shares outstanding used in calculation of diluted EPS. A total of 43,300 outstanding
stock options were excluded from the 2006 calculation of diluted shares as their
inclusion would be anti-dilutive.</FONT></FONT> </P></TD>
</TR>
</TABLE>
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     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Impairment
of Long-Lived Assets</U></I></FONT><FONT SIZE="2"> &#150; 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&#146;s evaluation as of
December 31, 2006 and 2005, no impairment of value existed.</FONT></FONT> </P></TD>
</TR>
</TABLE>
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     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Fair
Value of Financial Instruments</U></I></FONT><FONT SIZE="2"> &#150; The carrying amounts of financial instruments,
including cash, cash equivalents, accounts receivable, accounts payable and accrued
expenses approximate 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.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">F-8</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>

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     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Income
Taxes</U></I></FONT><FONT SIZE="2"> &#150; The Company accounts for income taxes under the liability method whereby
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.</FONT></FONT> </P></TD>
</TR>
</TABLE>
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     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Research
and Development Costs</U></I></FONT><FONT SIZE="2"> &#150; Research and development costs are charged to operations in
the period incurred.</FONT></FONT> </P></TD>
</TR>
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     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Stock-Based
Compensation </U></I></FONT><FONT SIZE="2">&#150; Effective January 1, 2006, the Company adopted Statement of Financial
Accounting Standards No. 123R (SFAS No. 123R), Share-Based Payment, which requires the
Company to record equity compensation to employees at fair value. Prior to January 1,
2006, the Company elected to use APB 25, which required expense to be recognized only to
the extent the exercise price of the stock-based compensation was below the market price
on the date of grant. The modified prospective approach was used in adopting SFAS No.
123R; therefore, results prior to January 1, 2006 have not been restated. For the year
ended December 31, 2006, $331,000 was charged to expense for equity compensation, which
amounted to $299,000, after tax and ($0.05) of basic and diluted earnings per share.</FONT></FONT> </P></TD>
</TR>
</TABLE>
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     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">If
compensation cost for the Company&#146;s stock-based compensation plans had been
determined based on the fair value at the grant  dates for awards under those plans
consistent with the method of SFAS No. 123R during 2005, then the Company&#146;s net
income per  share for the years ended December 31, 2005 and would have been adjusted to
the pro forma amounts indicated below:</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>





<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="450" ALIGN="CENTER">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Years Ended December 31,</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2005</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2004</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="1"><I>(In thousands, except per share data)</I></FONT></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="71%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Net income:</FONT></TD>
     <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="0%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">As reported</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;663</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;336</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Fair value of stock based compensation, net of tax</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(147</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(48</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Pro forma</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;516</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;288</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Net income per share &#150; basic and diluted:</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">As reported</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.13</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.08</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Fair value of stock based compensation</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(0.03</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(0.01</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Pro forma &#150; basic and diluted</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.10</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.07</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
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     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">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 No. 123,
<I>Accounting </I> <I>for Stock-Based Compensation</I>. 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:</FONT></FONT> </P></TD>
</TR>
</TABLE>
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     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Years Ended <BR>December 31,</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2005</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2004</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="72%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="7%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="0%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Expected volatility</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">41%</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">35%</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Risk-free interest rate</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2.6%</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2.5%</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Expected life of options (in years)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">4.8</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">4.4</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Expected dividends</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">0</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">0</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
</TABLE>


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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">F-9</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>

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<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Use
of Estimates</U></I></FONT><FONT SIZE="2"> &#150; The preparation of the Company&#146;s consolidated financial
statements in conformity with generally accepted accounting principles requires the
Company&#146;s management to make estimates and assumptions that affect the amounts
reported in these financial statements and accompanying notes. Actual results could
differ from those estimates. The Company makes significant assumptions concerning: 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; 3) fair value of stock options; 4) warranty costs. 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.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Comprehensive
Income</U></I></FONT><FONT SIZE="2"> &#150; Comprehensive income is defined to include all changes in equity except
those resulting from investments by owners and distributions to owners. For the years
ended December 31, 2006, 2005 and 2004, comprehensive income includes net unrealized
gains (losses) on investments, net of income tax expense, of $134,000, ($1,000) and
$34,000, respectively.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Segment
Information</U></I></FONT><FONT SIZE="2"> &#150; The Company follows established 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.
These standards 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 two reportable segments: mercury emission controls (MEC)
and flue gas conditioning and other (FGC).</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Recently
Issued Accounting Pronouncements &#150;</U></I></FONT><FONT SIZE="2"> <BR>In June 2006, the FASB issued FASB
Interpretation No. 48 (&#147;FIN 48&#148;), Accounting for Uncertainty in Income
Taxes &#150; an Interpretation of FASB Standard No. 109. FIN 48 prescribes a
recognition threshold and measurement attribute for financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return, and
also provides guidance on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. FIN 48 is effective for
fiscal years beginning after December 15, 2006. The Company is in the process of
evaluating the financial impact of adopting FIN 48.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">In
September  2006,  the FASB issued SFAS No. 157,  Fair Value  Measurements,  to define
fair value,  establish a framework  for  measuring fair value in generally accepted
accounting  principles (GAAP), and expand disclosures about fair value measurements.
Having a single  definition  of fair  value,  together  with a framework  for  measuring
fair  value,  is designed to result in  increased  consistency and  comparability in fair
value  measurements.  This FASB is effective for reporting  periods  beginning  after
November  15,  2007.  The Company is  evaluating  its impact and does not expect  that
adoption of this FASB will have a  material impact on its financial statements.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">In
February  2007,  the FASB issued SFAS 159, The Fair Value Option for  Financial  Assets
and Financial  Liabilities.  SFAS 159  permits the measurement of certain  financial
instruments at fair value.  Entities may choose to measure eligible items at fair  value
at specified  election dates,  reporting  unrealized gains and losses on such items at
each subsequent  reporting  period.  SFAS 159 is effective for fiscal years beginning
after November 15, 2007. The Company has not evaluated the potential  impact of  the fair
value option.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">F-10</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>


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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">2.&nbsp;&nbsp;&nbsp;<B><U>PROPERTY
AND EQUIPMENT:</U></B></FONT></FONT></P>


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     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Property
and equipment consisted of the following at the dates indicated:</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="450" ALIGN="CENTER">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Life in</FONT></TH>
     <TH COLSPAN="4"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Years Ended December 31,</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">years</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2006</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2005</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I>(In thousands)</I></FONT></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="60%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="7%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="0%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Machinery and equipment</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">3-10</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;1,357</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;1,375</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Leasehold improvements</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">3 -7</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">326</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">210</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Furniture and fixtures</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">3-7</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">147</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">78</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1,830</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1,663</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Less accumulated depreciation and amortization</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(1,033</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(1,013</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total property and equipment, net</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;797</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;650</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
</TABLE>

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<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Depreciation
and amortization of property and equipment for the years ended December&nbsp;31, 2006,
2005 and 2004 was $271,000, $146,000 and $143,000, respectively.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">3.&nbsp;&nbsp;&nbsp;
<B><U>INVESTMENTS:</U></B></FONT></FONT></P>

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     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Investments
in available-for-sale securities are reported at their fair value in investments in
securities and are summarized as follows at December 31, 2006 and 2005:</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="500" ALIGN="CENTER">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Gross<BR>Unrealized Gain</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Gross<BR>Unrealized Loss</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Fair Value</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I>(In thousands)</I></FONT></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="40%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><U>2006</U>&nbsp;</FONT></FONT></TD>
     <TD WIDTH="7%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="12%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="7%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD WIDTH="12%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="8%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="12%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="0%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Certificates of deposit</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#151;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#151;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;400</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Common stock</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;305</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(14</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;1,670</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Debt securities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">14</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(39</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">5,679</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;319</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(53</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;7,749</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Less short-term portion</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(2,427</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Long-term portion</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;5,322</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><U>2005</U></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Certificates of deposit</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#151;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#151;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;1,200</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Common stock</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">142</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(18</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1,444</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Debt securities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">4</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(76</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">5,534</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;146</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(94</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;8,178</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Less short-term portion</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(2,515</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>

<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Long-term portion</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;5,663</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>

<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
</TABLE>

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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">F-11</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>

<!-- *************************************************************************** -->
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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Realized
gains and losses are determined on the basis of specific identification of the security
sold. <BR>Realized gains and losses are included in Interest and Other Income in the
accompanying Statements of Income. During 2006 and 2005, information on securities sold is
as follows:</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>






<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="450" ALIGN="CENTER">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2006</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2005</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2004</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="5"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I>(In thousands)</I></FONT></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"></FONT></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="54%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Carrying amount of securities sold</FONT></TD>
     <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;7,662</FONT></TD>
        <TD WIDTH="7%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;9,031</FONT></TD>
        <TD WIDTH="7%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;1,598</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Sale proceeds</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;7,668</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;8,999</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;1,587</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Gross realized losses</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;(77</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;(60</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;(12</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Gross realized gains</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;83</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;28</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
</TABLE>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Accumulated
other comprehensive income for 2006, 2005 and 2004 includes unrealized holding gains, net
of tax, on securities of $167,000, $33,000 and $34,000, respectively.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Debt
securities will mature as follows:</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>


<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="450" ALIGN="CENTER">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Year(s)</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Amount</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I>(In thousands)</I></FONT></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="69%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2007</FONT></TD>
     <TD WIDTH="10%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="21%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;357</FONT></TD>
        <TD WIDTH="0%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2008-2011</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1,817</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2012-2016</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2,396</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Beyond 2016</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1,109</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;Total</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,679</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
</TABLE>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">4.&nbsp;&nbsp;&nbsp;
<B><U>GOVERNMENT AND INDUSTRY FUNDED CONTRACTS:</U></B></FONT></FONT></P>

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     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">ADA
has performed activities under 7 contracts awarded by the Department of Energy (the
&#147;DOE&#148;) that contributed a total of $6,957,000, $4,298,000 and $4,163,000 to
revenues in 2006, 2005 and 2004, respectively. These amounts are included in Mercury
emission control revenues. ADA typically invoices the DOE and industry cost-share partners
monthly for labor and expenditures plus estimated overhead factors, less cost share
amounts. The total approved DOE and industry budgets amount to $32.3 million, of which the
Company&#146;s and industry partners&#146; cost-share portion is $7.9 million. The
remaining unearned amount of the contracts was $13.2 million as of December 31, 2006, of
which $7 million is expected to be recognized by the Company in 2007 (including cash
contributions by other industry partners). These contracts are subject to audit and future
appropriation of funds by Congress. The Company&#146;s historical experience has not
resulted in significant adverse adjustments to the Company, however the government audits
for years ended 2006, 2005, 2004, 2003 and 2002 have not yet been finalized.</FONT></FONT> </P></TD>
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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">5.&nbsp;&nbsp;&nbsp;
<B><U>JOINT VENTURE AND TRANSACTIONS WITH NEXGEN:</U></B></FONT></FONT></P>

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     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">In
November 2006, the Company sold a 50% interest in its refined coal technology to a joint
venture called Clean Coal Solutions, LLC, which was formed in October 2006 (&#147;Clean
Coal&#148; or the &#147;JV&#148;), to be operated with NexGen Refined Coal, LLC
(&#147;NexGen&#148;), to market such technology. During 2006 the Company received
non-refundable payments totaling $1,000,000 from NexGen. The proceeds of the sale, net of
the estimated tax effect, in the amount of $619,000 were recorded to Stockholders&#146;
Equity. In order to maintain its 50% interest in the JV, ADA is required to fund its 50%
share of operating costs for the JV. In 2006 ADA&#146;s share of such cost amounted to
less than $10,000. At present, ADA is considered the primary beneficiary of this variable
interest entity and will consolidate the accounts of the JV. As of December 31, 2006, the
JV had no significant assets, liabilities or operations.</FONT></FONT> </P></TD>
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     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
JV will initially operate a business supplying chemicals, additives, equipment and
technical services to cyclone fired boiler users, but the JV&#146;s primary purpose is to
seek and obtain approval from the United States Internal Revenue Service to qualify for
Section 45 tax credits. If the JV succeeds in obtaining that approval, NexGen has the
right to maintain its 50% interest by paying ADA an additional $4 million, in 8 quarterly
payments of $500,000 each, beginning the later of the 4<SUP>th </SUP> quarter of 2007 or
when qualification for the tax credit is obtained. NexGen can determine not to make those
payments, but it if does so, it will forfeit a part of its interest in the JV in direct
proportion to the amount of the $4 million that it elects not to pay. Once NexGen fails to
make any one payment, it cannot come back and reclaim its interest by making later
payments. In no event is ADA required to refund any of the payments made to it by NexGen,
even in the event of non-performance under the agreements described below.</FONT></FONT> </P></TD>
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     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
agreements governing the operation of Clean Coal call for NexGen and ADA-ES to each pay
50% of the costs of operating the JV to retain their respective 50% interests, and specify
certain duties that ADA-ES and NexGen are obligated to perform as members of Clean Coal to
further the business purposes of the JV. If ADA determines not to make any agreed upon
contribution to the JV, its interest will be diluted. ADA also entered into a License
Agreement with Clean Coal pursuant to which it licensed certain patents and know-how to
Clean Coal, on an exclusive basis, to allow it to exploit the refined coal technology.
Pursuant to the License Agreement, ADA is required to provide technical assistance without
charge to the JV relating to the development, marketing and deployment of the refined coal
technology and, with certain limitations, to prosecute, maintain and defend the patents
that are a part of that technology, take appropriate steps to protect the know-how and
trade secrets comprising a part of that technology, and indemnify and hold Clean Coal
harmless in the event that technology infringes the intellectual property of any third
party. ADA also entered into a Supply Agreement with Clean Coal pursuant to which it will
supply the JV with certain chemicals, additives, equipment and technical services to
facilitate the purposes of the JV. Clean Coal will pay ADA standard charges for the
chemicals, additives, and technical services it will supply to the JV. ADA will supply
equipment to the JV at its cost.</FONT></FONT> </P></TD>
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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">6.&nbsp;&nbsp;&nbsp;
<B><U>STOCKHOLDERS&#146; EQUITY:</U></B></FONT></FONT></P>

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     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Shares
and Stock Options Issued for Pension Expenses and Directors&#146; and Consultant
Compensation</U></I><U></U> &#150; In 2004 the Company issued shares of its common stock
for the payments of approximately $146,000 of ADA pension related expenses (see Note 7)
and $35,000 of non-management directors&#146; compensation, based upon the per share value
of unrestricted common stock of ADA at the time of exchanges. In 2006 and 2005, the
Company issued shares of its common stock for compensation of $141,000 and $58,000,
respectively, to non-management directors based on the market price of the common stock,
and recorded $22,000 and $17,000, respectively, of expense related to stock options issued
to a consultant.</FONT></FONT> </P></TD>
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     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Sale
of Stock, Convertible Debenture and Grant of Option to Arch</U> &#150;</I> 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&#146;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. As of December 31, 2006, all of the shares under the option are available to
be purchased.</FONT></FONT> </P></TD>
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     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Sale
of Stock in 2004 and 2005</U></I><U></U> &#151; 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.</FONT></FONT> </P></TD>
</TR>
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     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Stock
Options</U> </I>&#150; During 2003 the Company adopted the 2003 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&#146;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 2006, 19,900 options
were granted under this plan.</FONT></FONT> </P></TD>
</TR>
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     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">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&#146;s Common Stock to
executive officers of the Company, all of which were granted in 2004. The option exercise
price of $8.60 per share was the market price on the date of the grant. The options are
exercisable over a ten 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.
In January 2006, the Board of Directors authorized the vesting of 38,428 options under
this plan with a fair value of $77,000. In 2006 1,000 of such options were exercised. At
December 31, 2006, 39,228 options were exercisable. In February 2007, the Board authorized
vesting of 17,258 options under this plan with a fair value of $35,000.</FONT></FONT> </P></TD>
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     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">During
2004, the Company adopted a plan (the &#147;2004 Plan&#148;) for the issuance of shares
and the grant of options to purchase shares of the Company&#146;s Common Stock to the
Company&#146;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 2006, 15,000 of such options
were forfeited after the resignation of three directors. As of December 31, 2006,
one-third of the remaining outstanding options, or a total of 5,000 options vested.</FONT></FONT> </P></TD>
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     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">During
2005 the Company adopted the 2005 Directors&#146; Compensation Plan (the &#147;2005
Plan&#148;), which authorized the issuance of shares of Common Stock and the grant of
options to purchase shares of the Company&#146;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
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 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, and in August the Board authorized the grant of
15,000 options to the non-management directors of the Company.</FONT></FONT> </P></TD>
</TR>
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     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Following
is a table of options activity for the three years ended December 31, 2006:</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="500" ALIGN="CENTER">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Employees and<BR>Directors<BR>Options</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Non-Employee<BR>Options</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Weighted<BR>Average<BR>Exercise Price</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="50%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Options Outstanding,</B> January 1, 2004</FONT></FONT></TD>
     <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="12%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">187,310</FONT></TD>
        <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">80,000</FONT></TD>
     <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.94</FONT></TD>
        <TD WIDTH="0%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Options granted</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">275,995</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">9.32</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Options expired</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(7,800</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2.80</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Options exercised</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(157,765</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(30,000</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2.51</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Options Outstanding,</B> December 31, 2004</FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">297,740</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">50,000</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.01</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Options granted</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">96,900</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">30,000</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15.29</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Options expired</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(2,181</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">13.80</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Options exercised</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(40,976</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">7.39</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Options Outstanding,</B> December 31, 2005</FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">351,483</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">80,000</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.99</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Options granted</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">34,900</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;18.05</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Options expired</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(23,544</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">12.68</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Options exercised</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(17,870</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">8.63</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Options Outstanding,</B> December 31, 2006</FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">344,969</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">80,000</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.55</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
</TABLE>

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<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
weighted average remaining contractual life for all options as of December 31, 2006 was
approximately 7.5 years. At December 31, 2006, 193,319 options with a weighted average
exercise price of $11.35 were fully vested and exercisable. Of the remaining 231,650
options, 69,633 options with a weighted average exercise price of $15.27 vest in 2007,
21,425 options with a weighted average exercise price of $13.24 vest in 2008, 16,600
options with a weighted average exercise price of $11.17 vest in 2009, and the remaining
123,992 options with a weighted average exercise price of $9.54 vest at the discretion of
the board of directors based on specific performance objectives of executive officers and
a consultant, with minimum annual vesting of 11,500 and maximum annual vesting of 46,000.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
average fair value of each employee and director option granted in 2006 was approximately
$5.52 and was estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions:</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="500" ALIGN="CENTER">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="80%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="12%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Expected volatility</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">38% - 76%</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Risk-free interest rate</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">4.0%</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Expected life of options (in years)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">4.0</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Expected dividends</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#150;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
</TABLE>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Following
is information related to options outstanding/exercisable at December 31, 2006:</FONT></FONT></P>


<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Options Outstanding</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Options Exercisable</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Range</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Number of<BR>Options</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Weighted<BR>Average<BR>Exercise<BR>Price ($)</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Number of<BR>Options</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Weighted<BR>Average<BR>Exercise<BR>Price ($)</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Weighted<BR>Average<BR>Contractual<BR>Life (in years)</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="30%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="0%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$2.80</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">11,665</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;2.80</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">11,665</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;2.80</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">6.8</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$8.60 - $10.00</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">237,400</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;8.89</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">102,908</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;9.28</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">7.5</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$13.80 - $15.20</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">132,604</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">14.54</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">62,071</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">14.31</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">7.3</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$18.61 - $20.20</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">43,300</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">19.34</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">16,675</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">19.08</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">8.9</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">424,969</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">11.55</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">193,319</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">11.35</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">7.5</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="CENTER">&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
</TR>
</TABLE>

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<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
aggregate intrinsic value of options exercised in years ended December 31, 2006, 2005 and
2004, based on an average market price of $18.09, $19.03 and $12.51, respectively, was
$207,000, $477,000 and $1,733,000, respectively. The aggregate intrinsic value of options
exercisable at December 31, 2006 was $938,000 based on a market price of $16.20.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Center" -->
<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">F-15</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>

<!-- *************************************************************************** -->
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<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">As
of December 31, 2006, total compensation costs related to non-vested options, which had
not yet been recognized was $414,000. The weighted average period over which such expense
is expected to be recognized is 2.0 years.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">7.&nbsp;&nbsp;&nbsp;
<B><U>COMMITMENTS AND CONTINGENCIES:</U></B></FONT></FONT></P>

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<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Pension
Expense and Retirement Plan</U></I><U></U> &#150; 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 $237,000, $206,000 and $161,000 for 2006, 2005
and 2004, respectively, based on a percentage of the eligible employees&#146; annual
compensation.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Performance
Guarantee Activated Carbon Injection Systems </U></I><U></U>&#150; 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 &#147;make right&#148;
obligation within the contract limits. As of December 31, 2006 and 2005, $120,000 and
$21,000, respectively has been accrued for such equipment warranties and performance
guarantees. No charges against the accrued amount were made in either year.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Purchase
Obligations</U></I><U></U> &#150; The Company routinely issues purchase orders for the
major components of the activated carbon injection systems it supplies to customers. As of
December 31, 2006, the Company had purchase obligations totaling $1,308,000 that it
expects to pay in 2007.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I><U>Operating
Leases </U></I><U></U>&#151; We lease office facilities under two noncancellable operating
lease agreements. Our facilities leases generally provide for periodic rent increases and
renewal options. Annual minimum commitments under these leases are shown in the table
below.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>


<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600" ALIGN="CENTER">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Years ending December 31,</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Operating Lease<BR>Commitments</FONT><HR WIDTH="70%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I>(In thousands)</I></FONT></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="72%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2007</FONT></TD>
     <TD WIDTH="13%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="15%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;130</FONT></TD>
        <TD WIDTH="0%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2008</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">125</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2009</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">128</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>

<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total operating lease commitments</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;383</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt" ALIGN="RIGHT">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD ALIGN="RIGHT"></TD><TD></TD>
</TR>
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     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Rent
expense totaled $187,000, $153,000, $158,000 in 2006, 2005 and 2004,  respectively.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">8.&nbsp; &nbsp;&nbsp;
<B><U>MAJOR CUSTOMERS:</U></B></FONT></FONT></P>

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     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Sales
to unaffiliated customers which represent 10% or more of the Company&#146;s sales for the
years ended December&nbsp;31, 2006, 2005 and 2004 were as follows (as a percentage of each
entity&#146;s sales):</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>




<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="450" ALIGN="CENTER">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Customer</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;2006</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;2005</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2004</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="50%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">A (Governmental Contracts)</FONT></TD>
     <TD WIDTH="8%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="12%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">24%</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD WIDTH="12%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">21%</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD WIDTH="12%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">28%</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">B</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">15%</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">11%</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">10%</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">C</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">11%</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">13%</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#151;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
</TABLE>

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     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">At
December&nbsp;31, 2006 and 2005, approximately 86% and 89% of the Company&#146;s trade
receivables were from eight and five customers, respectively.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">A
significant portion of ADA&#146;s revenue is derived from contracts with the DOE and
chemical and equipment sales to coal-burning electric power plants.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">F-16</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">9.&nbsp;&nbsp;&nbsp;
<B><U>INCOME TAXES:</U></B></FONT></FONT></P>

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     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
following lists the Company&#146;s deferred tax assets and liabilities, which are included
in Other Assets, Accrued Expenses and Long-term Liabilities, respectively, in the
accompanying Balance Sheet:</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="450" ALIGN="CENTER">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">At December 31,</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2006</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2005</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I>(In thousands)</I></FONT></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="71%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Current assets (liabilities):</FONT></TD>
     <TD WIDTH="7%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="8%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="0%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;(72</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;(39</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;Unrealized gains &#150; securities held for sale</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(98</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(19</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;Deferred revenues, compensation and other</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">87</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">30</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(83</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(28</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Non-current assets (liabilities)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;Deferred compensation, warranty and other</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">61</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">9</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;Property and intangible asset differences</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(270</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(60</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;Net loss carryforward</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#151;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">318</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;Tax credits</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">159</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">101</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(50</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">368</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Net tax (liabilities)/assets</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;(133</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;340</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
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     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">As
of December 31, 2006 and 2005, the Company had approximately $-0- and $891,000 of tax loss
carryforwards, respectively. Approximately $891,000 and $69,000 of tax loss carryforwards
were used to reduce taxable income in 2006 and 2005, respectively. The Company&#146;s
valuation allowance as of December 31, 2006 and 2005 was $-0-, as the Company believes
that it is more likely than not that its deferred tax assets at those dates would be
realized in the future.</FONT></FONT> </P></TD>
</TR>
</TABLE>
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     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">At
December 31, 2006, 2005 and 2004, the Company&#146;s current tax provision was reduced by
$56,000, $268,000 and $395,000, respectively, attributable to the tax effects of stock
option exercises recorded in stockholders&#146; equity.</FONT></FONT> </P></TD>
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     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
following is a reconciliation of the expected Federal tax rate to the actual income tax
rate &#150; expense (benefit) as of December 31, 2006, 2005 and 2004, which was
approximately 22%, 34% and 16%, respectively:</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>






<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="500" ALIGN="CENTER">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="5"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">As of December 31,</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2006</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2005</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2004</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="60%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Expected income tax rate - expense (benefit)</FONT></TD>
     <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">34</FONT></FONT></TD>
        <TD WIDTH="7%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">%</FONT></FONT></TD>
     <TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">35</FONT></TD>
        <TD WIDTH="7%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">%</FONT></TD>
     <TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">34</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">%</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Permanent differences</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(4</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(4</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)%</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Tax credits</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(9</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(1</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(17</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)%</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">State income taxes</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">3</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">3</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">3</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">%</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Other</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(8</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&#151;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Actual income tax rate</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">22</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">34</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">16</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">%</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
</TABLE>


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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">F-17</FONT></FONT> </P>

<P style="PAGE-BREAK-BEFORE: always">
<HR align=center width="100%" color=#999999 SIZE=3>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">10.&nbsp;&nbsp; &nbsp;
<B><U>RELATED PARTY TRANSACTIONS</U></B><U></U>:</FONT></FONT></P>

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<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">As
discussed above in Note 6, the Company executed a Securities Subscription and Investment
Agreement with Arch Coal, Inc in 2003. Pursuant to the investment agreement, in September
2003 Arch purchased a $300,000 convertible debenture from the Company, purchased 137,741
shares of the Company&#146;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 cancelled a co-marketing agreement of its ADA-249 product and performs certain
testing and research projects under agreements with Arch in 2006. Under such arrangements,
the Company has recorded revenue of $261,000, $230,000 and $25,000 in 2006, 2005 and 2004,
respectively. A designee of Arch has been appointed a seat on the Company&#146;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&#146;s common stock.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">11.&nbsp;&nbsp;&nbsp;
<B><U>BUSINESS SEGMENT INFORMATION:</U></B></FONT></FONT></P>

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<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
following information relates to the Company&#146;s two reportable segments: MEC and FGC.
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.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>






<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="500" ALIGN="CENTER">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="5"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Years Ended December 31,</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2006</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2005</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2004</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I>(In thousands)</I></FONT></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="37%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Revenue:</B></FONT></FONT></TD>
     <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="15%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="15%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="13%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">MEC</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13,607</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8,784</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,940</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">FGC</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1,881</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2,244</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2,477</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15,488</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11,028</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8,417</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Segment profit:</B></FONT></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">MEC</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,738</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;996</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">FGC</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">282</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">1,010</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">998</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,282</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,748</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,994</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
</TABLE>

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<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">A
reconciliation of the reported total segment profit to net income for the  periods shown
above is as follows:</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>







<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600" ALIGN="CENTER">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="5"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Years Ended December 31,</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2006</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2005</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">2004</FONT><HR WIDTH="100%" SIZE="1" COLOR="BLACK" NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><I>(In thousands)</I></FONT></FONT></TH>
     <TH COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="60%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Total segment profit</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,282</FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,748</FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,994</FONT></TD>
        <TD WIDTH="0%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Non-allocated general and administrative expenses</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(3,011</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(1,940</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(1,458</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Depreciation and amortization</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(284</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(157</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(153</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Interest, other income/expenses and tax</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;(provision) benefit</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">390</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">12</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(47</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">)</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 1px solid; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Net income</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;377</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;663</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;336</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
</TR>
<TR VALIGN=BOTTOM>
     <TD COLSPAN="2"></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
     <TD STYLE="Border-Top: #000000 4px double; Font-Size: 4pt">&nbsp;</TD><TD></TD>
</TR>
<TR VALIGN="BOTTOM">
     <TD>&nbsp;</TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
     <TD></TD><TD></TD>
</TR>
</TABLE>

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<TR VALIGN="TOP">
     <TD WIDTH="6%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Non-allocated
general and administrative expenses include costs that benefit the business as a whole and
are not directly related to one of our segments. Such costs include but are not limited to
accounting and human resources staff, information systems costs, facility costs, audit
fees and corporate governance expenses.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">F-18</FONT></FONT> </P>



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end
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</DOCUMENT>
</SUBMISSION>
