Earth Search Sciences Inc - Amended Annual Report (Small Business Issuers) (10KSB/A)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-KSB/Amendment No. 1

T	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 2006

£	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE TRANSACTION PERIOD FROM TO

COMMISSION FILE NUMBER 000-19566

EARTH SEARCH SCIENCES, INC,

(Name of Small Business Issuer in its charter)

Utah	870437723
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification No.)

306 Stoner Loop Road, #6, Lakeside, Montana	59922
(Address of principal executive offices)	(Zip code)

Issuer's telephone number (406) 751-5200

Securities registered under Section 12(b)

of the Exchange Act: None

Title of each class

Name of each exchange on which

Registered

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

Common Stock

(Title of class)

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

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

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. T

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No T

State issuer's revenues for its most recent fiscal year. $399,742.

State the aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within the past 60 days. At the closing price of the stock as of March 31, 2006 of $0.20, the approximate aggregate market value of voting stock held by non-affiliates is $2,194,000.

As of March 31, 2006, 77,697,642 shares of Common Stock, $.001 par value, of the registrant were issued and outstanding.

EXPLANATORY NOTE

This Amendment No.1 to Form 10KSB (“Amendment”) is filed to correct disclosures found in “Item 2 –Properties” on page 4 and “Statement of Changes in Stockholder’s Deficit” on page F-4.

T ABL E OF CONTENTS

PART I			1

Item 1	-	Business	4
Item 2	-	Properties	5
Item 3	-	Legal Proceedings	5
Item 4	-	Submission of Matters to a Vote of Security Holders	7

PART II			5

Item 5	-	Market for the Registrant's Common Stock Equity and Related Shareholder Matters	5
Item 6	-	Management's Discussion and Analysis of Financial Condition and Results of Operations	7
Item 7	-	Financial Statements and Supplementary Data	F-1
Item 8	-	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	12
Item 8A	-	Controls and Procedures	12
Item 8B	-	Other Information	12

PART III			12

Item 9	-	Directors and Executive Officers of the Registrant	12
Item 10	-	Executive Compensation	13
Item 11	-	Security Ownership of Certain Beneficial Owners and Management	14
Item 12	-	Certain Relationships and Related Transactions	14
Item 13	-	Exhibits, Financial Statement Schedules	14
Item 14	-	Principle Accountants Fee and Services	15

SIGNATURES			16

Financial Statements			F-1

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PART I

ITEM 1.

BUSIN ESS

Earth Search Sciences, Inc. has four wholly-owned subsidiaries: Skywatch Exploration, Inc., Polyspectrum Imaging, Inc., Geoprobe, Inc., and STDC, Inc. In addition, there are five majority-owned consolidated subsidiaries: Earth Search Resources, Inc., Eco Probe, Inc., ESSI Probe 1 LC, Petro Probe, Inc. and Terranet, Inc. The 50% owned subsidiary ESSI Probe 1 LC was formed as a joint venture to own and operate hyperspectral instruments. All subsidiaries, excepting Petro Probe, were inactive during the fiscal year ended March 31, 2006.

The Company utilizes an aircraft mounted hyperspectral remote sensing instrument to gather precise geological data from the surface of the Earth. Solar energy is reflected from surface materials and the instrument, called “Probe-1”, captures the data in digital form. The Probe 1 sensor is an imaging spectrometer, specifically a "whiskbroom style" opto-mechanical scanner system that collects data in a cross-track direction by mechanical scanning and in an along-track direction by movement of the airborne platform. The sensor uses a diffraction grating to direct reflected sunlight onto four detector arrays covering the 400 to 2500 nanometer range of the electromagnetic spectrum. ). In the VNIR and SWIR, the at-sensor radiance is dispersed by four spectrographs onto four detector arrays. Spectral coverage is nearly continuous in these regions with small gaps in the middle of the 1.4 and 1.9 nm atmospheric water bands. In order to avoid geometric distortions in the recorded imagery, the Probe-1 is mounted on a 3 axis, gyro-stabilized mount. Geolocation of nadir pixels is assisted by the recording of aircraft GPS positional data and tagging each scan line with a time that is referenced to the UTC time interrupts from the GPS receiver. Incoming photons build up in the detectors to register as an electronic signal. These correlate to digital counts that indicate the amount of signal coming from the Earth’s surface. The visible wavelength detector array includes a Si detector array operated at ambient temperature, and the near-infrared, and two short wavelength IR arrays incorporate InSb arrays cooled by liquid nitrogen to 77K. Each spectrographic module provides 32 spectral channels. Data are recorded on Exabyte Mammoth tape drives, two of which are installed to provide an on-line storage capacity of up to 80 GB. The Probe 1 sensors currently generate data at approximately 2.5 MB per second.

Each data set includes what can be described as 128 images, each collected at a different wavelength. When the data are converted to reflectance, materials on the Earth’s surface can be identified based upon diagnostic absorption features. This holds true whether the target is rocks and minerals, vegetation, or man-made materials. The detail in hyperspectral reflectance data allows identification – not just detection – of materials. Minerals that are associated with various natural resources can be identified. Vegetation health can be monitored, amounts of woody plant material available for wildfires can be assessed, noxious weeds can be mapped, and detailed post fire burn severity maps can be generated. Conditions concerning water quality – turbidity, etc. can also be mapped. As data processing costs come down, more and more scientists working in different applications are using hyperspectral data as so much more information can be derived about materials on the Earth’s surface. The spectral data is processed to identify unique spectra in the image. The captured and processed spectra are compared to a library of known material spectra called “digital fingerprints” and the output allows the identification of mineral, compounds and organic matter and the determination of vegetative conditions.

Hyperspectral imaging technology has been used for over 20 years for a variety of applications. More and more companies are realizing the benefits. Most recently, the Probe was used to identify mineral anomalies in vegetated terrain in New Mexico. These new targets were field checked and high values of gold and platinum were found. The field geologist, who had never worked with hyperspectral data before was impressed with the accuracy. He recommended drilling targets that were discovered using Probe data. An article describing this will be published in an upcoming Special Publication of Economic Geology.

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Minerals identified with the Probe 1 include alunite, kaolinite, dickite, smectite, pyrophyllite, buddingtonite, gypsum, calcite, dolomite, Fe chlorite, Mg chlorite, tremolite, muscovite, illite, goethite, hematite, tourmaline. Many more are possible. What may limit detection is not enough of the mineral filling a pixel (perhaps < 5%). The minerals need to be exposed at the surface, so 90-100% vegetation cover precludes identification. Also, minerals exposed but in shadows are difficult to detect. Some mixtures of minerals may be difficult to identify, but skilled interpreters can often do it. And field checks are helpful in these cases. Hyperspectral imaging technology has been used for over 20 years for a variety of applications. More and more companies are realizing the benefits. Most recently, the Probe was used to identify mineral anomalies in vegetated terrain in New Mexico. These new targets were field checked and high values of gold and platinum were found. The field geologist, who had never worked with hyperspectral data before was impressed with the accuracy. He recommended drilling targets that were discovered using Probe data. An article describing this will be published in an upcoming Special Publication of Economic Geology.

Data collected at different times should not hinder identification of materials as long as the sensor is calibrated regularly and the solar signal is strong (we recommend collections with the sun angle being at least 30 degrees). Regarding environmental applications, suitable ones include mapping fuel or oil spills, noxious weeds or other invasive plant species, suspended sediments in water bodies, algae blooms in lakes, etc. Landsat TM satellite data has been used for decades to map various land cover materials. Hyperspectral data can identify many more materials than multispectral satellite data so land-use management is optimimized.

Minerals can be identified in the time it takes to collect and analyze the data – perhaps as little as a day or two. Analysis of reflectance data from instruments such as the Probe have been used to identify minerals remotely, that are impossible to identify in hand sample. Previously field geologists would send samples that were difficult to absolutely identify to the lab to do chemical or x-ray diffraction analysis. This process takes several days or weeks. Probe reflectance data can identify quickly any mineral with distinctive absorption features. And it has been shown that mineral maps produced from hyperspectral data are more accurate than some produced by geologists in the field, particularly where access is difficult and geologist can’t walk all the ground. Oil and gas, not being typically exposed at the surface, is typically keyed in on using specific alteration minerals developed by hydrocarbon microseepage or the presence of stressed vegetation.

The Company initially developed the exploration capability of the hyperspectral technology with Noranda Mining Company and its affiliates, all major mineral explorers and producers. Under license the Company provided hyperspectral data to Noranda which processed the raw hyperspectral data and used the resulting product for both its own internal mining exploration purposes as well as to resell (profitably) to other firms. As a result of the license the Company received fees and is due to receive net smelter royalties from new mines established from the program. Targets were flown in Chile, Peru and the North West Territories in Canada. The results of this contract were featured by Noranda representatives at the 2004 Prospectors & Developers Association of Canada conference. The strategy of participating in this type of license arrangement led to the development of a joint venture approach to marketing the hyperspectral technology.

In mining and hydrocarbon exploration, Probe data has proven useful for mapping minerals related to potentially economic deposits of natural resources. In particular, it has been used for gold, silver, platinum and copper exploration. Hyperspectral data has been useful for detecting vegetation stress, identifying crops, and mapping noxious weeds. One interesting ecological application is mapping degrees of burn severity after wild fires. Hyperspectral data allows researchers to provide more detailed burn severity maps to the Forest Service and others. This important in that information is needed on how effectively areas will recover. The American Geophysical Conference in December this year will have some papers on this topic.

In its search for joint venture partners who have rights to adequate mineral claims the Company has encouraged the creation of an alliance with two other companies. Phoenix Wyoming Inc., a Colorado private company under the direction of William Pelton PhD, and Geotechnical Business Solutions, a private Canadian company under the direction of John Gingerich P. Geo. From 1996 to 2002 John Gingerich held the position of Director, Research and Technical Innovation Noranda Inc., Exploration Group. Other positions held in Noranda: 1992 to 1996 Senior Geophysicist Latin America; 1990 to 1992 Senior Geophysicist (Regional) Western Canada and 1987 to 1990 Division Geophysicist. Dr. Pelton has also indicated strong interest for involvement in the oil shale recovery program. Both parties are in position to complete negotiations based on the Company confirming the availability of the data collection aircraft.

Since 1997, the Company has also collected and holds a substantial archive of Probe 1 imagery from Kazakhstan, Australia, British Columbia, Ontario, Quebec, Peru, Chile, Mexico, California, Nevada, Arizona, Idaho, Montana, and Utah. At the present time the value of this data archive has not been independently appraised nor is the value of this archive reflected in the financial statements. With approximately 200,000 sq. km. of mineral oriented data the Company believes there is a market for the information. This year the company has begun to market the archive.

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In the fiscal year 2006, the Company’s sensors were operated in the United States and abroad. Contracts to operate the sensors in the United States as an ecological, mining, agricultural, and hydrocarbon target identification tool produced revenues of $302,901 in fiscal year 2006, respectively. During fiscal year 2006, we also had revenues of $96,841 related to oil and gas activities, which ceased during that same fiscal year.

History

In December, 1985 the Company acquired all of the outstanding shares of common stock of a privately held company known as Earth Search Sciences, Inc. (ESSI), a Utah corporation formed on August 29, 1985. The Company issued 13,639,600 shares of its common stock in exchange for ESSI's outstanding shares. This merger was a reverse acquisition and accounted for as a pooling of interests. Accordingly, the assets and liabilities of the two companies were combined at their recorded net book values. In August, 1987 the Company changed its name to Earth Search Sciences, Inc. and in November, 1987 ESSI was dissolved. The Company has since re-incorporated in Nevada.

Since 1997, the Company has collected and holds a substantial archive of Probe 1 imagery from Kazakhstan, Australia, British Columbia, Ontario, Quebec, Chile, Mexico, California, Nevada, Arizona, Idaho, Montana, and Utah. At the present time the value of this data archive has not been independently appraised nor is the value of this archive reflected in the financial statements. However the Company has undertaken a marketing campaign to sell the data to mineral exploration companies and is currently reviewing initial inquiries.

In 1999 the Company was approached by the US Navy to participate in a joint venture to acquire ownership of a proposed remote sensing satellite. Under the direction of Office of Naval Research’s (ONR) Naval Space Science and Technology Program Office, the Naval EarthMap Observer (NEMO) satellite would be capable of meeting the hyperspectral and panchromatic needs of many end users with timeliness and spatial resolution improved over existing commercial systems.

The ONR signed an Other Transaction with the Space Technology Development Corporation (STDC) of Arlington, VA to develop NEMO in conjunction with the Defense Advanced Research Projects Agency (DARPA) Dual Use Applications Program (DUAP). DUAP is a joint program of the Army, Navy, Air Force, DARPA, Director Defense Research and Engineering (DDR&E), and the Deputy Under Secretary of Defense for International and Commercial Programs.

Subsequent to March 31, 2002, STDC received notification from the ONR that it would not extend the agreement further.

The Company believes that the statute of limitations has run with respect to liabilities incurred with sub contractors and vendors on the NEMO program and these amounts are no longer enforceable.

Corporate Focus

The Company’s mission is to continue to use remote sensing in a variety of exploration, monitoring and exploitation industries around the globe. Remote sensing includes acquiring, processing and interpreting imagery of the Earth captured from instruments deployed on aircraft or satellites. The advantages of airborne and satellite remote sensing over other methods of gathering visual information are that data can be collected better, faster and cheaper over larger areas including sites inaccessible from the ground. By collecting data at different times, changes can be detected that may be due to significant natural or man-made processes. Detection of such changes can assist in environmental/land use management.

With the recent resurgence of the mining industry and the demand for new sources of supply for oil and gas, there is a greater interest in using exploration tools that are faster and more accurate. With its hyperspectral technology the Company plans to take an aggressive role in establishing itself as an active participant in the discovery of new natural resources by creating wholly owned subsidiary companies in key industries, initially mining and oil and gas. These companies will seek joint ventures with partners who can provide technologies, human and capital resources to synergize with the Company’s assets in order to build active exploration and development programs.

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This strategy is intended to produce two valuable results for the Company’s shareholders:

1. More demand for the Company's hyperspectral remote sensing services, hence more revenue generation, and

2. Equity positions with fast growth potential in multiple key industries from discoveries of rare natural resources.

Evidence of the interest in this strategy is seen in the Company’s first joint venture in the mining industry (with subsidiary company Geo Probe, Inc.). Another joint venture is underway in the oil and gas industry (with subsidiary company Petro Probe, Inc). Other joint ventures that are in early stage discussions focus on technology research and development centers, and advanced modular, hyperspectral instrumentation utilizing nanotechnology.

Business Segment Information

Included in the attached financial statements is business segment information and financial information about geographic areas for the Company.

Employees

As of March 31, 2006 the Company had 4 full-time employees.

Available Information

The Securities and Exchange Commission maintains an internet site at http://www.sec.gov that contains reports and financial information filed by the Company. The Company maintains an internet site at http://www.earthsearch.com that contains information about the Company's business, markets and technology.

Seasonal Nature of Business

The Company experiences the highest demand for its collection services April through October in the Northern Hemisphere and October through April in the Southern Hemisphere.

Customers and Geographic Areas of Business

In fiscal 2006, the Company operated its airborne hyperspectral sensors under contracts with third parties in several areas around the United States. In fiscal 2005 and 2004, the Company's sensors were operated in the United States and abroad. Contracts to operate the sensors in the United States as an ecological, mining, agricultural, hydrocarbon, and target identification contributed approximately $302,901, $192,297 and $258,843, to revenue in fiscal 2006, 2005, and 2004, respectively. During fiscal year 2006, we also had revenues of $96,841 related to oil and gas activities, which ceased during that same fiscal year.

ITEM 2.

PROPER TIES

The Company headquarters consist of approximately 1,500 square feet of office space in Lakeside, Montana. All other office obligations have been cancelled.

As a 50% member of ESSI Probe I LC, an Idaho limited liability company (“Probe I LC”), the Company owns 50% of the hyper-spectral instrument owned by Probe I LC. The Company shares its ownership with the two other members of ESSI Probe I LC, Arthur W. McClain Trust and Francisco Elmudesi (the “Woodstock members”). Pursuant to an agreement dated June 3, 1997 (the “Equipment Usage Agreement”), the Company had the right to purchase the hyper-spectral instrument until June 3, 2007 for the purchase price of $2,250,000. The Company is in the process of negotiating an extension to the renewal period.

The Company’s data collection aircraft, a 1978 turbo prop Aero Commander, was grounded for maintenance and repairs in the summer of 2006. Both engines needed complete overhauls as well as other FAA required servicing. This interruption in the ability to service hyper-spectral clients was detrimental to the Company’s revenues in 2006. The aircraft was expected to be ready for the 2007 season. The aircraft is currently located in Toledo, Ohio at an aero commander facility, National Flight Services.

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In addition, the Company owns working interests in seven oil and gas properties. (See Note 4 to the Notes to Consolidated Financial Statements).

ITEM 3.

LEGAL PROC EEDI NGS

ESSI was in dispute with another party over a leaseback purchase agreement for a Hyperspectral Probe. During the fourth quarter of fiscal 2005, both parties signed a mutual release in which ESSI was to return the Probe and ESSI would be released of amounts owed to the other party as of the date the Probe is returned. The mutual release also requires the other party to return a computer and related software belonging to ESSI in exchange for the Probe. ESSI agreed to return the Probe at the end of August 2005; however, as of the end of fiscal 2006, ESSI had not returned the Probe because the other party has not delivered the computer and related software belonging to ESSI. As a result, ESSI is in default, and based on the terms of the settlement agreement, ESSI is obligated to pay significant late fees. Based on the terms of the settlement agreement, as of March 31, 2006, management estimates the settlement obligation to be $2,820,099 which reflects a 5% late fee imputed each month on the outstanding balance due. As of March 31, 2006, management has recognized an accrual for the estimated obligation.

In October of 2002, Terranet, Inc. a subsidiary company, received notice of a judgment issued by the Supreme Court of British Columbia in regards to monies owed resulting from a contract with plaintiff Cal Data Ltd., of Vancouver, B.C. The plaintiff alleged that seventy-five thousand dollars was overdue from invoices for services dating from January of 2002 to October, 2002. Management is examining its position and has accrued a $74.603 liability associated with this demand in its financial statements.

Except as described above, to the knowledge of our executive officers and directors, neither we nor our subsidiaries are party to any legal proceeding or litigation and none of our property is the subject of a pending legal proceeding and our executive officers and directors know of no other threatened or contemplated legal proceedings or litigation.

ITEM 4.

SUB MISSI ON OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable

PART II

ITEM 5.

MARKET FOR THE RE GIST RANT'S COMMON STOCK EQUITY AND RELATED STOCKHOLDER MATTERS

(a)

Principal Market or Markets. The Company's common stock trades in the over-the-counter market. The range of reported high and low bid quotations for the Company's common stock, as set forth below, reflect interdealer bid prices, without retail markups, markdowns, commissions, or adjustments as reported in the NASDAQ "pink sheets" and do not represent actual transactions.

Quarter Ended	High		Low

June 30, 2004		.01		.01
September 30, 2004		.01		.01
December 31, 2004		.01		.01
March 31, 2005		.40		.30

June 30, 2005		.16		.12
September 30, 2005		.07		.06
December 31, 2005		.11		.10
March 31, 2006		.20		.20

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(b)

Approximate Number of Holders of Common Stock. The number of record owners of the Company's $.001 par value common stock at March 31, 2006 was approximately 1,212. This does not include shareholders that hold stock in their accounts at brokers/dealers.

(c)

Dividends. Holders of the Company's common stock are entitled to receive such dividends as may be declared by the Company's Board of Directors. No dividends have been paid with respect to the Company's common stock and no dividends are anticipated to be paid in the foreseeable future.

(d)

In the last three years, the Company has made the following sales of unregistered securities, all of which sales were exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2) or as otherwise indicated:

RECENT SALES OF UNREGISTERED SECURITIES (1)

DATE	AMOUNT OF SECURITIES SOLD		PRICE PER SHARE ($)	TOTAL CASH PROCEEDS ($)		DATE	AMOUNT OF SECURITIES SOLD		PRICE PER SHARE ($)		TOTAL CASH PROCEEDS ($)


4/6/05		353,500			(2)	4/7/05		75,000					(2)
4/8/05		85,210			(2)	4/29/05		250,000	$	0.25	$	62,500
5/19/05		100,000			(2)	5/25/05		800,000					(3)
6/23/05		47,102			(1)	7/22/05		75,000					(1)
9/20/05		484,125			(1)	9/27/05		87,500					(1)
11/9/05		337,083			(1)	12/7/05		281,667					(1)
1/30/06		1,600,000			(1)	3/3/06		130,048					(1)
3/6/06		28,571			(1)

(1)

Consideration paid for the shares was employee and/or consulting services.

(2)

Shares issued for debt consideration.

(3)

Consideration paid for Directorship.

Securities authorized for issuance under Equity Compensation Plans

The following table sets forth certain information on the Company's Equity Compensation Plans. See Note 10 to the Notes to Consolidated Financial Statements for additional information on equity compensation including material terms of options granted that have not been approved by security holders.

Plan category	(a)		(b)		(c)
	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)

Equity compensation plans approved by security holders (1)		-		-		-

Equity compensation plans not approved by security holders (2)		54,593	$	442		-

Total		54,593	$	442		-

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(1)	The Company's stock options and warrants have not been approved by security holders

(2)	Excludes options for 4,000,000 shares issued as part of the acquisition of STDC

Securities authorized for private placement issuance under subsidiary companies

The subsidiary companies of Terranet, Inc. Petro Probe, Inc. and Eco Probe, Inc have issued shares of common stock to private placement investors, all of which were accredited investors as that term is defined under Regulation D. The investors executed subscription agreements and acknowledged that the securities to be issued have not been registered under the 1933 Securities Act, that the investors understood the economic risk of an investment in the securities, and that the investors had the opportunity to ask questions of and receive answers from the Company's management concerning any and all matters related to acquisition of the securities. No underwriter was involved in the transaction, and no commissions or other remuneration were paid in connection with the offer and sale of the securities.

ITEM 6.

MANAGEMENT'S DISC USSI ON AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table sets forth certain selected financial data for each of the last five fiscal years with respect to the Company and is qualified in its entirety by reference to the Company's audited financial statements and notes thereto.

	As of or for the fiscal year ended
	2006			2005			2004			2003			2002

Operating revenue	$	399,742		$	415,702		$	516,490		$	786,208		$	5,044,498
Net loss		(2,189,247	)		(5,185,527	)		(4,188,650	)		(5,354,184	)		(16,797,081	)
Net loss per common share		(0.03	)		(0.94	)		(0.02	)		(0.03	)		(0.11	)
Total assets		638,233			665,940			1,233,573			4,091,566			7,096,591
Long-term obligations		349,303			367,373			4,286,233			4,700,365			4,687,895
Stockholders' (deficit) equity		(18,510,242	)		(17,303,576	)		(18,690,393	)		(14,879,965	)		(11,310,331	)
Cash dividends declared		-			-			-			-			-

Financial comparisons will be made between the fiscal years ended March 31, 2006 and 2005.

Results of Operations

The Company recognized revenue of $399,742 in 2006 compared with $415,702 in 2005.

Provision for loss on impairment of fixed assets was $27,318 and $386,628 in 2006 and 2005. General and administrative costs were $1,474,602 in 2006 compared with $4,443,170 in 2005.

Interest income in 2006 was $0 compared to $0 in 2005. In 2006 the Company recognized interest expense of $2,297,210 compared to $659,180 in 2005.

In 2006, the Company recorded minority interest in losses of consolidated subsidiaries of $0 compared to $0 in 2005. ESSI Probe 1 LC minority interest loss for a full year of operations was $0 in 2006 and 2005.

The Company recognized a net loss of $2,189,247 in fiscal 2006 compared with a net lose of $5,185,527 in 2005. The loss on a per share basis was $0.03 and $0.94 in fiscal 2006 and 2005.

On March 23, 2005, the Company entered into a settlement agreement with Accuprobe to return an airborne hyperspectral sensor (Probe) and to settle the outstanding obligations under the related capital lease. Under this agreement, the Company is required to return the Probe on or before August 31, 2005. In the event that the Probe is not returned, the Company is charged a shipping, handling and disposition fee of $250,000. Interest related to the $250,000 began accruing on September 2, 2005 at an annual rate of prime plus 4%. In addition, rent is to be accrued at $250,000 per year beginning April 10, 2000. Interest on unpaid rent accrues at a rate of prime plus 2% through August 31, 2005 and is due quarterly. After August 31, 2005, interest related to the unpaid rent ceases and is replaced with a 5% late fee calculated on the entire balance due at the end of each month.

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At March 31, 2006, the Company has accrued $4,390,016 in debt interest related to the capital lease of the Probe. Under the settlement agreement, the new liability using calculations outlined above was $2,820,099 at March 31, 2006. Consequently, the Company recorded a $1,569,917 gain on debt forgiveness.

Liquidity and Capital Resources

Net cash used in operating activities was $137,076 in 2006. Net cash used in operating activities was $38,872 in 2005, resulting primarily from payments for salaries and services and changes in current assets and liabilities.

At March 31, 2006, the Company had cash of $40,900 and a working deficit of $18,574,732.

The Company does not intend to pay cash dividends to the holders of its common stock and intends to retain future earnings to finance the expansion and development of its business.

The Company, through its subsidiary Space Technology Development Corporation (“STDC”) incurred $8,216,424 in liabilities due to vendors and subcontractors related to the Navy Earthmap Observer (“NEMO”) project with the Office of Naval Research, US Navy (“ONR”), which was terminated in 2003. Based on the Company’s liquidity, the Company has been unable to settle these liabilities. However, the Company has not received any claims or notifications related to these liabilities. The Company and outside legal counsel are reviewing the statutes of limitation to assess the enforceability of these liabilities.

The Company believes that funds generated from its operations, together with future borrowings and the equity line will allow the Company to meet current cash requirements, the failure of which would require ceasing operations.

Our current cash on hand at March 31, 2006, would not be adequate to fund our operations for more than a short period of time if we were to continue to use cash in operating activities at the same rate as in prior months. There can be no assurance that any required additional capital will be available on reasonable terms, at such time or times as required by the Company. The Board of Directors has appointed a management committee to examine the option of re-organizing and restructuring the Company to ensure that a viable avenue is available for the attraction of capital. The management committee will also recommend priority new management appointments. The Company cannot provide any assurance that additional financing will be available on acceptable terms, or at all. If adequate funds are not available or not available on acceptable terms, the Company’s business and results of operations may suffer. The Company cannot provide any assurance that we can continue operations unless we raise the additional financing we require.

There can be no assurance that additional capital beyond the amounts currently forecasted by the Company will be required or that any such required additional capital will be available on reasonable terms, at such time or times as required by the Company. The Board of Directors has appointed a management committee to examine the option of re-organizing and re-structuring the company to ensure that a viable avenue is available for the attraction of capital. The management committee will also recommend priority new management appointments.

The total number of employees employed by the Company now numbers four people.

Off Balance Sheet Arrangement

None.

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Significant Accounting Policies

The Company uses the successful efforts method to account for its oil and gas properties. Under this method, it capitalizes costs incurred for property acquisition, exploration, and drilling related to its oil and gas properties. Once the project is completed, and, if oil or gas is located, costs capitalized to date on the specific project are amortized under the unit-of-production method as revenue is recognized. Capitalized costs for unsuccessful projects will be expensed when that determination is made.

Unproved oil and gas properties that are individually significant are periodically assessed for impairment of value, and a loss is recognized at the time of impairment by providing an impairment allowance. Other unproved properties are amortized based on the Company's experience of successful drilling and average holding period. Capitalized costs of producing oil and gas properties, after considering estimated dismantlement and abandonment costs and estimated salvage values, are depreciated and depleted by the unit-of production method.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates long-lived assets to determine potential impairment by comparing the carrying amount to the undiscounted estimated future cash flows of the related assets. In fiscal 2002, based on such review, the Company established a provision for loss on the NEMO program of $13,010,364.

In fiscal 2002, the Company changed its method of accounting for the sales of stock by its subsidiaries to account for these sales as increases in additional paid-in capital instead of as an increase to minority interest in the accompanying consolidated financial statements. Management believes that because of the developing nature of operations of the subsidiaries with minority interest, the new method of accounting will provide more meaningful information concerning sales of stock by its subsidiaries and, correspondingly, the minority interest liability account. The Company recognized an increase in additional paid-in capital of $1,707,868, as a cumulative effect on prior years of this change in account principles.

Future Operations

We expect limited or no material revenue in fiscal 2007 due to: (i) of the loss of use of the aircraft platform for the Probe-1 hyperspectral instrument for new data collection contracts; (ii) the sole contract for our satellite development business segment was disbanded; (iii) we determined that it was uneconomic to continue production from our oil and gas property; and (iv) we have not yet entered into any new arrangements from which we expect to derive revenue.

We are currently preparing to market new hyperspectral services, such as the sale of our archived hyperspectral data from various collections over recognized mineral regions of the Earth. We have hyperspectral data covering over 200,000 square kilometers available for sale. We are preparing to market those data collections by engaging consultants to assist in identifying potential purchasers and negotiating contracts.

The gas property that produced revenue for the Company was shut down due to a catastrophic failure of the drill casing. It is unlikely that the Company will pursue further operation of this property due to significant costs. If we are able to obtain funding on acceptable terms, the Company may seek to develop other oil and gas properties to which it has it has mineral rights.

The Company concluded a re-organization of its stock structure to ensure it could continue operations and provide for the ability to continue its business model and business strategy. New capital investment in the Company is being sought. In order to achieve maximum results, the Board of Directors also approved Board and Senior Management changes.

The Company will continue to operate in the mineral and hydrocarbon resource exploration areas where the Company will operate its remote sensing instruments for its own use and secure equity interests in promising properties identified from the remote sensing imagery.

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Research and Development of next generation hyperspectral instrumentation is continuing. The Company is pursuing the approval of nano-technology patents for hyperspectral remote sensing instrumentation and processing in order to secure its market position for the next decade of industry developments.

The Board of Directors will continue to seek outside directors to ensure that its commitment to corporate governance improvements is implemented.

Additional Risk Factors That Could Affect Liquidity, Operating Results And Market Price Of Stock

Risks Related to Our Industry

Competitive pressures may adversely affect our operating revenues. The Company has numerous competitors in the remote sensing services (airborne hyperspectral services) and natural resource development industries. Competition in the remote sensing industry comes from several primary sources, including HyMap, CASI and GER, whose hyperspectral instruments operate within the USA and Ekwan, a new entry from Canada. Our principal competitors in the natural resource development industry include traditional exploration companies using a variety of other technologies. Some of our competitors in both remote sensing and natural resource development have substantially greater financial and other resources than the Company. Competitive pressures in either industry may materially adversely affect our operating revenues and in turn, our business and financial condition.

The Company may need to expend significant capital to keep pace with technological developments in our industry. The remote sensing industry, as well as the computing industry's processing of the raw data, is constantly undergoing development and change and it is likely that new technology, whether embodied in new equipment or techniques, will be introduced in the future. In order to keep pace with any new developments, the Company is planning to expend significant capital to develop or acquire the next level of developments in new remote sensing equipment and to train our employees in the new techniques. The Company is pursuing financing to develop additional remote sensing instruments; however, we may not be able to raise sufficient funds, and if the Company does so, there is no guaranty that the new instruments will out perform instruments used by our competitors. In addition, the Company's ability to raise needed capital may be influenced by general economic conditions and the strength of capital markets. To ensure its ability to continue operations the Company will undergo a re-organization to include a stock re-structuring.

The Company may incur significant expenses to comply with new or more stringent governmental regulation. The sale of our imagery is regulated by the Department of Commerce. Although the Company (through its acquisition of STDC) has acquired a Department of Commerce (DOC) Remote Sensing License that permits the Company to market globally hyperspectral and panchromatic imagery, there is no guarantee that the government will not; impose restrictions on sales if the quality of our imagery increases with new technology that, for example, allows increased resolution. Because our license was the first issued DOC Remote Sensing License, the Company cannot anticipate how the DOC specifically will treat our license or how the airborne remote sensing industry will be regulated in the future.

Risks Related to Our Business

The Company may not realize our anticipated return on capital commitments made to expand our capabilities. The Company purchased an aircraft, additional satellite and an airborne hyperspectral instruments, as well as oil and gas property rights. The aircraft and airborne hyperspectral instruments were purchased to increase our capacity to conduct airborne surveys. If the Company does not experience continued demand for our remote sensing services, the Company may incur significant expense without generating corresponding revenues. The oil and gas property rights were acquired in order to exploit suspected natural resources located within certain properties. If these properties do not contain sufficient natural resources to warrant exploitation, the Company may incur significant expenses without generating corresponding revenues.

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In addition, from time to time, the Company expects to make significant capital expenditures to implement new processes and to increase both efficiency and capacity. Some of these projects may require additional training for our employees and not all projects may be implemented as anticipated. If any of these projects do not achieve the anticipated increase in efficiency or capacity, our returns on these capital expenditures may not be as expected.

Our ability to grow is dependent upon, and may be limited by, among other things, our capital structure, the price of our stock and our existing financing arrangements. If additional funding sources are needed, the Company may not be able to obtain the additional capital necessary to pursue our internal growth and acquisition strategy or, if the Company can obtain additional financing, the additional financing may not be on financial terms that are satisfactory to us.

The Company's database of spectral information may not be marketable or may not garner a price, which makes processing or analyzing the data economically reasonable. The Company has a substantial archive of Probe 1 hyperspectral imagery that was not gathered under contract with a client. The Company continues to gather hyperspectral imagery without having sold the rights to that data. The collection process requires variable as well as fixed expenditures that must be recouped though marketing the collected data. Although we do not carry the value of our existing Phase 1 hyperspectral archives as an asset on our balance sheet, the future success of the Company depends to some extent upon our ability to market this archived data.

Cancellations, reductions or delays in customer orders may adversely affect our results of operations. Our overall operating results are affected by many factors, including the timing of survey contracts from large clients, the timing of capital expenditures to increase our capacity for gathering data in anticipation of future sales of products and services, and the weather which can affect whether or not a customers target of interest can be collected at a certain stage of vegetal growth. Although a large portion of our expenses are relatively fixed; a significant portion of our operational expenses vary with the number of airborne surveys. Because several of our operating divisions and subsidiaries are new businesses and have not obtained long-term commitments from our clients, we must anticipate the future demand for our services based upon our discussions with clients. Cancellations, reductions or delays in orders by a client or group of clients could have a material adverse effect on our business, financial condition and results of operations.

The unavailability of skilled personnel may have an adverse effect on our operations. From time to time, the Company or some of our operating divisions and subsidiaries may experience difficulties in attracting and retaining skilled personnel to process and interpret the substantial volume of imagery data that is already collected or is expected to be collected in the future. The Company's ability to operate successfully could be jeopardized if we are unable to attract and retain a sufficient number of skilled personnel to conduct our business.

Outlook

This Report on Form 10-KSB, including the foregoing discussion in "Management's Discussion and Analysis of Financial Condition and Results of Operations," and other reports hereafter filed by the Company with the Securities and Exchange Commission may contain "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The Act provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about themselves so long as they identify these statements as forward-looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results. All statements other than statements of historical fact the Company makes in this Report on Form 10-KSB and such other reports filed with the Securities and Exchange Commission are forward-looking. In particular, statements regarding industry prospects, future OEM sales by the Company, the adequacy of existing manufacturing resources, the Company's continued expansion in foreign markets and the Company's future results of operations or financial position are forward-looking statements. Words such as "anticipates", "expects", "intends", "plans", "believes", "seeks", "estimates" and similar expressions identify forward-looking statements. But the absence of these words does not mean the statement is not forward-looking. The Company cannot guarantee any of the forward-looking statements, which are subject to risks, uncertainties and assumptions that are difficult to predict. Actual results may differ materially from those the Company forecasts in forward-looking statements due to a variety of factors, including those set forth above under the heading "Additional Risk Factors that could Affect Operating Results and Market Price of Stock" and elsewhere in this Report. The Company does not intend to update any forward-looking statements due to new information, future events or otherwise.

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ITEM 7.

FINANCIAL STATE MEN TS AND SUPPLEMENTARY DATA

The financial statements and supplementary data required by this Item are included on pages F-1 to F-16 of this Report.

ITEM 8.

CHANGES IN AND DISA GREE MENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On June 10, 2003, the Board of Directors of the Company dismissed the Company's accountants, Grant Thornton, LLP. Grant Thornton LLP served as the Company's auditor beginning with the fiscal year ended March 31, 2001. The Board of Directors has appointed Malone & Bailey, PC as the Company's auditor for the year ended March 31, 2003. They remain as the Company's current auditors. Malone & Bailey's office is located at 2925 Briarpark, Suite 930 Houston, TX 77042.

During the fiscal year ended March 31, 2006, and through July 5, 2006, there have been no reportable events (as defined in Regulation S-K Item 304(a)(1)(v)).

ITEM 8A.

CONTROLS AND PR OCE DURES

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and principal accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based upon that evaluation, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective to enable us to record, process, summarize and report information required to be included in our periodic filings with the Securities and Exchange Commission within the required time period and in that some of the accounting entries relating to debt and equity instruments required adjustment upon review by our independent auditors. We intend to take measures to remedy this situation by engaging independent auditors to provide us with accounting advice and implementing internal procedures including the distribution of documents. These deficiencies have been reported to our Board of Directors and we intend to improve and strengthen our controls and procedures.

There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 8B.

OTHER INF ORM ATION

None.

PART III

ITEM 9.

DIRECTORS AND EXE CUT IVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information with respect to the executive officers of the Company for fiscal 2005 to the present.

NAME	AGE	POSITION

Larry F. Vance	71	Chairman and Chief Executive Officer

Tami J Story	43	Director Secretary/Treasurer/Director

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Larry F. Vance served as Chief Executive Officer of the Company from 1985 until April 8, 1995. Since April 8, 1995, Mr. Vance has served as Chairman of the Company. Mr. Vance is also a director of the Company and has been a full-time employee of the Company since 1985. Mr. Vance's training is in business and marketing. He served in a management capacity for the 3M companies, IBM, and Computer Usage Corporation prior to founding the Company.

Tami J. Story served in an administrative support capacity for the Company from 1991 until April 1993. Since April 1993, Ms. Story has served as Secretary and Treasurer of the Company. Ms. Story also serves as a director of the Company. Ms. Story holds a degree with a major in Nursing and a minor in Business Administration.

Information with respect to directors of the Company will be included under "Election of Directors" in the Company's definitive proxy statement for its 2006 annual meeting of shareholders, to be filed not later than 120 days after the end of the fiscal year covered by this Report, and is incorporated herein by reference. Information with respect to executive officers of the Company is included under Item 4(a) of Part I of this Report.

Based solely on a review of copies of reports received by the Company from persons required to file reports of ownership and changes on ownership pursuant to Section 16(a) of the Securities Exchange Act of 1934, the Company believes that all of its executive officers and directors complied with applicable filing requirements for the fiscal year ended March 31, 2006.

ITEM 10.

EXECUTIVE COM PENSA TION

Table below summarizes information on Executives and Directors compensation

SUMMARY COMPENSATION TABLE

	Annual Compensation								Awards				Long-Term Compensation Payouts

													Securities
							Other Annual		Restricted		Stock		underlying
Name and Principal	Fiscal		Salary		Bonus		Compensation		Stock		Option		options/SARS			LTIP pay-
Position	Year		($)		($)		($)		Award(s) ($)		Grants			(#	)	($)


Larry Vance/Chairman (1)	2006			160,000		-		-		-		-		-			-
	2005			160,000		-		-		-		-		-			-
	2004			160,000		-		-		-		-		-			-
Tami J. Story/Secretary	2006			80,000		-		-		-		-		-			-
and Treasurer (1)	2005			80,000		-		-		-		-		-			-
	2004			80,000		-		-		-		-		-			-

Name and Principal Position	All other Compensation ($)


Larry Vance/Chairman (1)		-
		-
		-
Tami J. Story/Secretary		-
and Treasurer (1)		-
		-

(1)	Salary was deferred unless cash flow allowed payment.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END

OPTION/SAR VALUES

Name	Shares Acquired on Exercise		Value Realized ($)		Number of securities Underlying unexercised Options at Fy-End Exercisable/Unexercisable			Value of Unexercised In-the Money Options at FY-End ($) Exercisable/Unexercisable

Larry Vance		-		-		4,500,000/3,000,000	(1)		0/0
John Peel		-		-		4,500,000/3,000,000	(1)		0/0
Rory J. Stevens		-		-		375,000/1,500,000	(1)		0/0
Tami Story		-		-		750,000/3,000,000	(1)		0/0

(1) Exercise prices range from $0.21 - $2.50 per share.

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Employment Contracts

In October 28, 2000, the Company entered into an employment agreement with Mr. Larry Vance. Pursuant to the agreement, the Company will pay Mr. Vance an annual salary of $160,000. In the event of termination of Mr. Vance without cause or due to a change in control, the Company will pay Mr. Vance two years of annual salary. Mr. Vance's options and vesting criteria are described above and in Note 11 to the attached consolidated financial statements.

On October 28, 2000, the Company entered into an employment agreement with Ms. Tami Story. Pursuant to the agreement, the Company will pay Ms. Story an annual salary of $80,000. In the event of termination of Ms. Story without cause or due to a change in control, the Company will pay Ms. Story two years of annual salary. Ms. Story 's options and vesting criteria are described above and in Note 11 to the attached consolidated financial statements.

ITEM 11.

SECURITY OWNE RSHI P OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding ownership of the Company's Common Stock as of March 31, 2006 by each person known by the Company to own beneficially more than five percent of the Common Stock and by all directors and officers and as a group:

Name and address of beneficial Owner	Amount and nature of beneficial ownership (1)			Percent of class


Larry Vance		54,660,644	(2)		74	%
P.O. Box 763
Lakeside, MT 59922
Tami Story		12,069,714			16	%
P.O. Box 763
Lakeside, MT 59901

All directors and officers		66,730,358			90	%

___________________________

(1)	All shares are held directly with sole voting and investment power unless otherwise indicated.

(2)	Includes 4,439 shares held by Universal Search Technology, a private company owned by Mr. Vance.

ITEM 12.

CERTAIN RE LATI ONSHIPS AND RELATED TRANSACTIONS

None.

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PART IV

ITEM 13. EXHIBITS, FINANCIAL STATEMENT SC HEDU LES

(a)(1)	Financial Statements filed as part of this Report	Page in this Report

	Report of Independent Accountants	F-1
	Consolidated Balance Sheet at March 31, 2004 and 2003	F-2
	Consolidated Statement of Loss for the Years Ended March 31, 2004, 2003 and 2002	F-4
	Consolidated Statement of Redeemable Common Stock And Nonredeemable Shareholders' Equity (Deficit) for the Years Ended March 31, 2004, 2003 and 2002	F-5
	Consolidated Statement of Cash Flows for the Years Ended March 31, 2004, 2003 and 2002	F-6
	Notes to Consolidated Financial Statements	F-7 - F-16

(a)(2)	Financial Statement Schedules	None

(a)(3)	Exhibits

2.1

Agreement and Plan of Merger by and among Earth Search Sciences, Inc., ESS Acquisition Corp., Space Technology Development Corporation and the shareholders of Space Technology Development Corporation, dated December 21, 1999 (Incorporated by reference to Exhibit 2.1 to the Registrant's Form 10-K for fiscal year ended March 31, 2000).

3.1

Articles of Incorporation, as amended (Incorporated by reference to Exhibit 3.1 to the Registrant's Forms 10-K for the fiscal years ended March 31, 1995 and March 31, 1996).

3.2

Bylaws (Incorporated by reference to Exhibit 3.2 to the Registrants' Form 10-K for the fiscal year ended March 31, 1995).

10.1

Memorandum of Understanding between the Registrant and Applied Signal and Imaging Technology, Inc. dated May 27, 1996 (Incorporated by reference to Exhibit 10.1 to the Registrant's Form 10-K for fiscal year ended March 31, 1996).

10.2

Contract of Sale and Leaseback dated June 10, 1997 between Registrant and Accuprobe, Inc. (Incorporated by reference to Exhibit 10.2 to the Registrant's Form 10-K for fiscal year ended March 31, 2000).

10.3

Operating Agreement of ESSI Probe 1 LC, dated June 3, 1997 (Incorporated by reference to Exhibit 10.3 to the Registrant's Form 10-K for fiscal year ended March 31, 2000).

10.4

Hyperspectral Technology License Agreement between Earth Search Sciences, Inc. and Noranda Mining and Exploration, Inc. made as of December 16, 1997 (Incorporated by reference to the Registrant's for 8-K filed on February 6, 1998).

10.5

Agreement between the Office of Naval Research and Space Technology Development Corporation Agreement for NAVY EARTHMAP OBSERVER (NEMO) dated December 10, 1997 (Incorporated by reference to Exhibit 10.5 to the Registrant's Form 10-K for fiscal year ended March 31, 2000).

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10.6

Sales Contract between Science Applications International Corp. and Space Technology Development Corp. Dated: 30 March 1998, Contract No.: STDC-98-NEMO-0003 (Incorporated by reference to Exhibit 10.6 to the Registrant's Form 10-K for fiscal year ended March 31, 2000).

10.7

Sales Contract between Science Applications International Corp. and Space Technology Development Corp. Dated: 30 March 1998, Contract No.: STDC-98-NEMO-004 (Incorporated by reference to Exhibit 10.7 to the Registrant's Form 10-K for fiscal year ended March 31, 2000).

10.8

Sales Contract between Space Systems/Loral (SS/L) and Space Technology Development Corporation (STDC). Dated 21 January 1999, Contract Number: STDC-98-NEMO-0001 (Incorporated by reference to Exhibit 10.8 to the Registrant's Form 10-K for fiscal year ended March 31, 2000).

10.9

Sales Contract between Litton Systems, Inc., Amecom Division (Litton Amecom) and Space Technology Development Corp. (STDC). Date 29 October 1998, Contract Number: STDC-98-NEMO-0009 (Incorporated by reference to Exhibit 10.9 to the Registrant's Form 10-K for fiscal year ended March 31, 2000).

10.10

Common Stock Purchase Agreement between Alpha Venture Capital, Inc. and Earth Search Sciences, Inc. (ESSI). Dated May 23, 2001. (Incorporated by reference to Exhibit 10.10 to the Registrant's Form 10-K for fiscal year ended March 31, 2001).

10.11

Registration Rights Agreement between Alpha Venture Capital, Inc. and Earth Search Sciences, Inc. (ESSI). Dated May 23, 2001. (Incorporated by reference to Exhibit 10.11 to the Registrant's Form 10-K for fiscal year ended March 31, 2001).

10.12

Common Stock Purchase Warrant A between Alpha Venture Capital, Inc. and Earth Search Sciences, Inc. (ESSI). Dated May 23, 2001. (Incorporated by reference to Exhibit 10.12 to the Registrant's Form 10-K for fiscal year ended March 31, 2001).

10.13

Common Stock Purchase Warrant B between Alpha Venture Capital, Inc. and Earth Search Sciences, Inc. (ESSI). Dated May 23, 2001. (Incorporated by reference to Exhibit 10.13 to the Registrant's Form 10-K for fiscal year ended March 31, 2001).

10.14

Larry F. Vance employment agreement (Incorporated by reference to Exhibit 10.1 to the Registrant's Form 10-Q for fiscal quarter ended December 31, 2000).

10.15

John W. Peel employment agreement (Incorporated by reference to Exhibit 10.2 to the Registrant's Form 10-Q for fiscal quarter ended December 31, 2000).

10.16

Rory J. Stevens employment agreement (Incorporated by reference to Exhibit 10.3 to the Registrant's Form 10-Q for fiscal quarter ended December 31, 2000).

10.17

Tami J. Story employment agreement (Incorporated by reference to Exhibit 10.4 to the Registrant's Form 10-Q for fiscal quarter ended December 31, 2000).

10.18

John J. Sciuto employment agreement (Incorporated by reference to Exhibit 10.18 to the Registrant's Form 10-K for fiscal year ended March 31, 2001).

10.19

Unrestricted License Agreement for Recovery of Products from Oil Shale bgetween GENERAL SYNSFUELS INTERNATIONAL and PETRO PROBE, INC. (Incorporated by reference to Exhibit 10.19 to the Registrant’s Form 10KSB for the fiscal year ended March 31, 2007).

10.20

Multi-platform HyperSpectral imaging "Micro Sectrometer" Development Proposal Number 05080901. (Incorporated by reference to Exhibit 10.19 to the Registrant’s Form 10KSB for the fiscal year ended March 31, 2007).

10.21

Promissory Note due February 2008, dated February 2007. (Incorporated by reference to Exhibit 10.19 to the Registrant’s Form 10KSB for the fiscal year ended March 31, 2007).

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16.1

Consent of Independent accountants re Registration Statement on Form No. S-1 (No. 333-66100). (Incorporated by reference to Exhibit 16.1 to the Registrant's form 10-K for fiscal year ended March 31, 2004).

16.2

Statement under oath of Principal Executive Officer and Principal Financial Officer regarding facts and circumstances relating to exchange act filings. Incorporated by reference to Exhibit 16.2 to the Registrant's form 10-K for fiscal year ended March 31, 2004.

21.1

List of Subsidiaries (Incorporated by reference to Exhibit 21.1.1 to the Registrant's Form 10-K for fiscal year ended March 31, 2000)

31.1

Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, filed herewith

31.2

Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, filed herewith

32.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C Section 1350, filed herewith

32.2

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, filed herewith

ITEM 14.

PRINCIPAL ACC OUNT ANT FEES AND SERVICES

The following table presents fees, including reimbursements for expenses, for professional audit services rendered by Malone & Bailey for the audits of our annual financial statements and interim reviews of our quarterly financial statements for the years ended March 31, 2006 and March 31, 2005 and fees billed for other services rendered by Malone & Bailey. during those periods.

	FISCAL 2005		FISCAL 2004

Audit Fees (1)	$	45,000	$	44,000
Audit Related Fees (2)	$	0	$	0
Tax Fees (3)	$	0	$	0
All Other Fees (4)	$	0	$	0
Total	$	45,000	$	44,000

SI GNAT URES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	EARTH SEARCH SCIENCES, INC.

	By: /s/ Larry F. Vance
	Larry F. Vance
	Chairman
	Date: April 23, 2008

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature		Title

/s/ Larry F. Vance		Chairman and Director
Larry F. Vance
Date: April 23, 2008

/s/ Tami J. Story		Corporate Secretary and Treasurer and Director
Tami J. Story
Date: April 23, 2008

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RE POR T OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM

To the Board of Directors

Earth Search Sciences, Inc.

Kalispell, Montana

We have audited the accompanying consolidated balance sheet of Earth Search Sciences, Inc. ("Earth Search") as of March 31, 2006, and the related consolidated statements of operations, stockholders' deficit, and cash flows for each of the two years then ended. These financial statements are the responsibility of Earth Search's management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Earth Search Sciences Inc., as of March 31, 2006, and the results of its operations and its cash flows for each of the two years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that Earth Search will continue as a going concern. Earth Search incurred recurring net losses of$2,189,247 and $5,185,527 for fiscal 2006 and 2005, respectively and has an accumulated deficit of $61,883,781 ad a working capital deficit of $18,574,732 as of March 31, 2006. These factors, among others, as discussed in Note 2 to the financial statements, raise substantial doubt about Earth Search's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Malone & Bailey, PC

Houston, Texas

www.malone-bailey.com

July 5, 2006, except for Note 7, as to which the date is April 22, 2008

F-1

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EARTH SEARCH SCIENCES, INC.

CONSOLIDATED BALANCE SHEET

March 31, 2006

ASSETS

Current assets:
Cash	$	40,900
Accounts receivable		16,971
Loan costs, net of $62,740 accumulated amortization		166,569
Total current assets		224,440

Property and equipment, net of $735,635 accumulated depreciation		413,793
TOTAL ASSETS	$	638,233

LIABILITIES
Current liabilities:
Notes payable current portion	$	880,934
Settlement obligation		2,820,099
Accrued officers' compensation		907,983
Accounts payable		11,641,757
Accrued expenses		179,890
Stockholder loans		2,368,509
Total current liabilities		18,799,172

Notes payable less current portion		349,303
Total liabilities		19,148,475

Commitments and contingencies		-

STOCKHOLDERS' DEFICIT
Series A preferred stock; 200,000 shares authorized, none issued and outstanding; liquidation preference $1,000,000		-
Common stock, $.001 par value; 200,000,000 shares authorized; 77,697,642 shares, issued and outstanding		77,698
Additional paid-in capital		43,495,841
Treasury stock		(200,000	)
Accumulated deficit		(61,883,781	)
Total stockholders' deficit		(18,510,242	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	638,233

See accompanying summary of accounting policies and notes to financial statements.

F-2

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EARTH SEARCH SCIENCES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended March 31, 2006 and 2005

	2006			2005

Revenues	$	399,742		$	415,702

Expenses
Bad debt		20,130			-
General and administrative		1,474,602			4,443,170
Depreciation, amortization and depletion		339,646			151,039
Impairment		27,318			386,628
Total Expenses		1,861,696			4,980,837
Loss from operations		(1,461,954	)		(4,565,135	)

Other income (expense)
Debt forgiveness		1,569,917			38,788
Interest expense		(2,297,210	)		(659,180	)
Net loss	$	(2,189,247	)	$	(5,185,527	)

Basic and diluted loss per share	$	(0.03	)	$	(0.94	)

Weighted average common shares outstanding		76,280,791			5,545,079

See accompanying summary of accounting policies and notes to financial statements.

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EARTH SEARCH SCIENCES, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

Years Ended March 31, 2006 and 2005

	Preferred Stock						Common Stock
	Shares			Amount			Shares		Amount

Balance at March 31, 2004 (restated)		-		$	-			485,764	$	486

Issuance of common stock for debt to related parties								39,216		39

Issuance of common stock for debt		-			-			80,313		80

Issuance of common stock for services rendered								2,604,907		2,605

Issuance of common stock for accrued compensation		-			-			214,922		215

Issuance of preferred stock for accrued compensation		2,761,928			2,762			-		-

Issuance of common stock for loan and interest conversion					-			4,191		4

Conversion of preferred stock to common stock		(2,761,928	)		(2,762	)		69,048,200		69,048

Issuance of common stock for accrued legal settlement		-			-			285,323		285

Related party release of debt		-			-			-		-

Net loss		-			-			-		-

Balance at March 31, 2005		-			-			72,762,836		72,762

Issuance of common stock for cash		-			-			250,000		250

Issuance of common stock for debt		-			-			106,667		107

Issuance of common stock for services rendered		-			-			4,224,639		4,225

Issuance of common stock for loan extension		-			-			353,500		354

Warrants for loan extension		-			-			-		-

Warrants for services		-			-			-		-

Net loss		-			-			-		-
Balance at March 31, 2006		-		$	-			77,697,642	$	77,698

See accompanying summary of accounting policies and notes to financial statements.

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EARTH SEARCH SCIENCES, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

Years Ended March 31, 2006 and 2005

	Additional
	Paid-in			Accumulated			Treasury
	Capital			Deficit			Stock			Total

Balance at March 31, 2004 (restated)	$	35,690,008		$	(54,509,007	)	$	(200,000	)	$	(19,018,513	)

Issuance of common stock for debt to related parties		19,961			-			-			20,000

Issuance of common stock for debt		64,927			-			-			65,007

Issuance of common stock for services rendered		3,648,756			-			-			3,651,361

Issuance of common stock for accrued compensation		140,225			-			-			140,440

Issuance of preferred stock for accrued compensation		1,032,961			-			-			1,035,723

Issuance of common stock for loan and interest conversion		2,301			-			-			2,305

Conversion of preferred stock to common stock		(66,286	)		-			-			-

Issuance of common stock for accrued legal settlement		327,836			-			-			328,121

Related party release of debt		1,657,507									1,657,507

Net loss		-			(5,185,527	)		-			(5,185,527	)
Balance at March 31, 2005		42,518,196			(59,694,524	)		(200,000	)		(17,303,576	)

Issuance of common stock for cash		62,250			-			-			62,500

Issuance of common stock for debt		9,493			-			-			9,600

Issuance of common stock for services rendered		672,854			-			-			677,079

Issuance of common stock for loan extension		123,372			-			-			123,726

Warrants for loan extension		92,494			-			-			92,494

Warrant for services		17,182			-			-			17,182

Net loss		-			(2,189,247	)		-			(2,189,247	)
Balance at March 31, 2006	$	43,495,841		$	(61,883,781	)	$	(200,000	)	$	(18,510,242	)

See accompanying summary of accounting policies and notes to financial statements.

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EARTH SEARCH SCIENCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended March 31, 2006 and 2005

	2006			2005

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(2,189,247	)	$	(5,185,527	)
Adjustments to reconcile net loss to cash used in operating activities:
Common stock issued for services and interest expense		677,079			3,653,666
Warrants issued for services		17,182			-
Common stock issued for debt		9,600			-
Common stock issued for legal settlement		-			328,121
Depreciation, amortization and depletion		339,645			151,038
Asset impairment		27,318			386,628
Forgiveness of debt		(1,569,917	)		38,788
Bad debt		20,130			-
Changes in assets and liabilities:
Accounts receivable		27,802			44,337
Other current assets		-			39,007
Accounts payable and accrued expenses		2,198,386			(13,459	)
Accrued interest		64,947			181,857
Accrued officers compensation		240,000			336,672
NET CASH USED IN OPERATING ACTIVITIES		(137,076	)		(38,872	)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(5,246	)		(55,958	)
NET CASH USED IN INVESTING ACTIVITIES		(5,246	)		(55,958	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stockholder loans, net		370,745			171,591
Proceeds for the sale of common stock		62,500			-
Payment for loan extension		(62,000	)		-
Repayments on notes payable		(197,200	)		(79.339
NET CASH PROVIDED BY FINANCING ACTIVITIES		174,045			92,252

NET CHANGE IN CASH		31,723			(2,578	)
CASH AT BEGINNING OF PERIOD		9,175			11,753
CASH AT END OF PERIOD	$	40,900		$	9,175

SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental Cash flow information:
Interest paid	$	-		$	-
Taxes paid		-			-

Non-cash financing and investing activities:
Common Stock issued for loan extension		123,726			-
Warrants for loan extension		92,494			-
Common Stock issued for accounts payable		-			65,007
Preferred stock issued for accrued payroll		-			41,219
Preferred stock issued for deferred officer's compensation		-			994,504
Common stock issued for accrued payroll		-			140,440
Contribution to capital from related party release of debt		-			1,657,507
Shares issued for payment of related party loans		-			20,000

See accompanying summary of accounting policies and notes to financial statements.

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EARTH SEARCH SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Earth Search Sciences, Inc. ("ESSI") collects high value hyperspectral imagery of the Earth's surface utilizing their proprietary hyperspectral imaging sensor, principally in North America. This imagery is either sold to end users via contracts to collect the information or collected for ESSI's own exploration purposes. ESSI also performs a range of imagery processing services. Information collected by the sensor has applications in natural resources development, environmental monitoring and remediation, wildlife habitat monitoring, hydrocarbon exploration and development, agricultural assessment and planning, including weed species identification, land use planning, forestry monitoring and planning, homeland security and target identification for defense surveillance.

ESSI has four wholly-owned subsidiaries: Skywatch Exploration, Inc., Polyspectrum Imaging, Inc., Geoprobe, Inc., and STDC, Inc. In addition, there are five majority-owned consolidated subsidiaries: Earth Search Resources, Inc., Eco Probe, Inc., ESSI Probe 1 LC, Petro Probe, Inc. and Terranet, Inc. The 50% owned subsidiary ESSI Probe 1 LC was formed as a joint venture to own and operate hyperspectral instruments.

All subsidiaries excepting Petro Probe became inactive during fiscal 2003.

The majority-owned Petro Probe, Inc. was formed to identify and develop hydrocarbon properties by utilizing ESSI's hyperspectral instruments, hydrocarbon geologists, and imagery processors. At March 31, 2006, Petro Probe, Inc. holds interests in seven oil and gas projects. As of March 31, 2006, all Oil & gas interests held by Petro Probe were fully impaired.

In fiscal 2006 and 2005, ESSI operated its airborne hyperspectral sensors under contracts with third parties in several areas around the United States. Contracts to operate the sensors in the United States as an ecological, agricultural, hydrocarbon, and target identification contributed approximately $302,901 and $192,000 to revenue in fiscal 2006 and 2005, respectively. During fiscal year 2006, we also had revenues of $96,841 related to oil and gas activities, which ceased during that same fiscal year.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of ESSI and its subsidiaries. All significant intercompany transactions have been eliminated.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

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

CASH AND CASH EQUIVALENTS

ESSI considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents.

ACCOUNTS RECEIVABLE

ESSI uses the allowance method of accounting for doubtful accounts. The year-end balance is based on historical collections and management's review of the current status of existing receivables and estimate as to their collectibility. Bad debt expense is recognized based on management's estimate of likely losses per year, based on past experience and an estimate of current year uncollectible amounts.

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As of March 31, 2006, the amounts carried in accounts receivable were considered by management to be collectible in full. As a result, there was no allowance for doubtful accounts for the year ended March 31, 2006.

FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other liabilities approximate their carrying amounts in the financial statements.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, less accumulated depreciation. ESSI recognizes depreciation on its property and equipment using the straight-line method over estimated useful lives ranging from five years for computers and software, vehicles and equipment to ten years for the two hyperspectral sensors.

Major repairs or replacements of property and equipment are capitalized. Maintenance repairs and minor replacements are charged to operations as incurred. Property and equipment retirements are removed from the records at their cost and related accumulated depreciation and any resulting gain or loss is included in operations.

OIL AND GAS PROPERTIES

ESSI uses the successful efforts method to account for its oil and gas properties. Costs incurred for property acquisition, exploration, and drilling related to its oil and gas properties are capitalized. Once the project is completed, and, if oil or gas is located, costs capitalized to date on the specific project are amortized under the unit-of-production method as revenue is recognized. Capitalized costs for unsuccessful projects

are expensed when that determination is made.

Based on the agreements for the working interests in oil and gas properties, ESSI will proportionately share in future revenues as well as future operating and drilling costs. Unproved oil and gas properties that are individually significant are periodically assessed for impairment of value, and a loss is recognized at the time of impairment by providing an impairment allowance.

Capitalized costs of producing oil and gas properties, after considering estimated dismantlement and abandonment costs and estimated salvage values, are depreciated and depleted by the unit-of-production method.

ASSET RETIREMENT OBLIGATION

ESSI accounts for asset retirement obligations in accordance with the provision of SFAS No. 143 “Accounting for Asset Retirement Obligations.” SFAS No. 143 requires ESSI to record the fair value of asset retirement obligation as a liability in the period in which it incurs the legal obligation associated with the retirement of tangible long-lived assets that results from the acquisition, construction development, and/or normal use of the assets. At March 31, 2006, the fair value of the oil and gas properties’ site restoration costs are insignificant. Consequently, there is no accrual at March 31, 2006.

REVENUE RECOGNITION

ESSI recognizes revenue when persuasive evidence of an arrangement exists, services have been rendered, the sales price is fixed or determinable, and collectibility is reasonably assured. This typically happens when services are rendered under contracts for airborne hyperspectral services and imaging processing services.

IMPAIRMENT OF LONG-LIVED ASSETS

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. ESSI evaluates long-lived assets to determine potential impairment by comparing the carrying amount to the undiscounted estimated future cash flows of the related assets. In Fiscal 2006 and 2005 ESSI incurred unsuccessful oil and gas properties write-offs of $27,318 and $386,628 respectively. Due to the uneconomical nature of the well at March 31, 2006, it was not feasible to estimate future cash flows to be provided by ESSI's long-lived assets, therefore the assets were fully impaired. See note 4.

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EARNINGS PER SHARE

Basic net loss per share is computed by dividing net loss to common stockholders (numerator) by the weighted average number of common shares outstanding during the year (denominator). Diluted net loss per share is computed using the weighted average number of common shares and dilutive potential common shares outstanding during the year. For the years ended March 31, 2006 and 2005, ESSI had no dilutive potential common shares.

INCOME TAXES

ESSI recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax bases of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. ESSI provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.

MINORITY INTEREST

Losses from subsidiaries with minority interest are allocated to the minority interest liability account based on the percentage of minority interest ownership. Once losses applicable to the minority interest in the subsidiary exceed the minority interest in the equity capital of the subsidiary, then no additional losses will be allocated to the minority interest liability account.

NET LOSS PER COMMON SHARE

Net loss per common share has been computed based on the weighted average number of ESSI's common shares outstanding. Common stock equivalents have not been considered in the diluted net loss per share calculation because their effect on net loss per share is anti-dilutive.

STOCK OPTIONS AND WARRANTS

ESSI accounts for non-cash stock-based compensation issued to non-employees in accordance with the provisions of SFAS No. 123 and EITF No. 96-18, Accounting for Equity Investments That Are Issued to Non-Employees for Acquiring, or in Conjunction with Selling Goods or Services. Common stock issued to non-employees and consultants is based upon the value of the services received or the quoted market price, whichever value is more readily determinable.

On January 1, 2006, ESSI adopted SFAS No. 123(R), "Share-Based Payment" ("SFAS 123(R)"). SFAS 123(R) replaced SFAS No. 123 and supersedes APB Opinion No. 25. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The pro forma disclosures previously permitted under SFAS 123 are no longer an alternative to financial statement recognition. ESSI adopted SFAS 123(R) using the modified prospective method which allows the application of SFAS 123(R) on a going-forward basis rather than restating prior periods and requires the application of the accounting standard as of January 1, 2006.

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For the years ended March 31, 2006 and 2005, ESSI had no stock option issuances.

NOTE 2 - GOING CONCERN

As shown in the accompanying financial statements, ESSI incurred recurring net losses of $2,189,247 and $5,185,527 for fiscal 2006 and 2005, respectively and has an accumulated deficit of $61,883,781 and a working capital deficit of $18,574,732 as of March 31, 2006. These conditions raise substantial doubt as to ESSI's ability to continue as a going concern. Management is trying to raise additional capital through sales of stock. The financial statements do not include any adjustments that might be necessary if ESSI is unable to continue as a going concern.

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

			March 31,
	Life		2006

Aircraft		10	$	925,795
Equipment		5		223,633
				1,149,428

Less: accumulated depreciation				(735,635	)
			$	413,793

Depreciation expense totaled $104,223 and $112,658 in fiscal 2006 and 2005, respectively.

NOTE 4 - OIL AND GAS INTERESTS

In fiscal 2005, ESSI paid $101,849 for drilling on two existing properties and sold a portion of its interests to others on those two properties for $15,947. ESSI recognized approximately $97,000 and $223,000 in revenue from the producing property in fiscal 2006 and 2005 respectively. Depletion was $14,863 and $38,025 in fiscal 2006 and 2005 respectively.

In fiscal 2006 and 2005 ESSI wrote-off $27,218 and $386,628 of previously capitalized costs on properties that were determined to be uneconomical wells. During fiscal 2006 all the wells of ESSI were deemed to provide uneconomical future cash flows, therefore each well was fully impaired.

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Supplemental information (unaudited)

	Successful Efforts

Capitalized costs relating to oil and gas producing activities at March 31, 2006
Proved oil and gas properties	$	-
Unproved oil and gas properties		-
Less accumulated depletion		-
Net capitalized costs	$	-

Costs incurred in oil and gas producing activities for the years ended March 31, 2006 and 2005

	2006			2005

Property acquisition costs
Proved	$	-		$	-
Unproved		-			55,958

Results of operations for oil and gas producing activities for the years ended March 31, 2006 and 2005
Oil and gas sales	$	96,841		$	223,405
Development Costs		4,807			-
Depletion		(14,863	)		(38,025	)
Impairment		(27,318	)		(386,628	)
Results of operations for oil and gas producing activities (excluding corporate overhead and financing costs)	$	59,467		$	(201,248	)

The following estimates of proved and proved developed reserve quantities and related standardized measure of discounted net cash flow are estimates only, and do not purport to reflect realizable values or fair market values of ESSI's reserves. ESSI emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries are more imprecise than those producing oil and gas properties. Accordingly, these estimates are expected to change as future information becomes available. All of ESSI's reserves are located in the United States.

Proved reserves are estimated reserves of crude oil (including condensate and natural gas liquids) and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those expected to be recovered through existing wells, equipment and operating methods.

The standardized measure of discounted future net cash flows is computed by applying year end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves, less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, less estimated future income tax expenses (based on year-end statutory tax rates, with consideration of future tax rates already legislated) to be incurred on pretax net cash flows less tax basis of the properties and available credits, and assuming continuation of existing economic conditions. The estimated future net cash flows are then discounted using a rate of 10 percent a year to reflect the estimated timing of the future cash flows.

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	2006					2005
	Oil (Bbls)		Gas (Mcf)			Oil (Bbls)			Gas (Mcf)

Proved developed and undeveloped
Reserves
Beginning of year		-		47,000			13,356			5,271,000
Revisions of previous estimates		-		(32,590	)		(13,343	)		(5,181,709	)
Production		-		(14,410	)		(13	)		(42,291	)
End of Year		-		-			-			47,000
Proved developed reserves
Beginning of year		-		47,000			13,356			5,271,000
End of year		-		-			-			47,000

Standardized measure of discounted future net cash flows at March 31, 2006 and 2005	2006		2005
Future cash inflows	$	-	$	421,663
Future production costs		-		(13,414	)
Future development costs		-		(27,824	)
10% annual discount for estimated timing of cash flows		-		(117,787	)
Standardized measure of discounted future net cash flows relating to proved oil and gas reserves	$	-	$	202,638

The following reconciles the change in the standardized measure of discounted future net cash flows for fiscal 2006 and 2005

	2006			2005

Beginning of the year	$	202,638		$	421,663
Sales of oil and gas, net of production costs		(96,841	)		(223,405	)
Net changes in prices and production costs		-			9,683
Development costs incurred during the year which were previously estimated		-			-
Revisions of previous quantity estimates		(133,621	)		(9,761	)
Net change in future estimated development costs		27,824			(4,458	)
End of year	$	-		$	202,638

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NOTE 5 - NOTES PAYABLE

Notes payable consists of the following:

	2006

Installment note payable with a balloon due September 15, 2006, secured by ESSI's assets, with interest at 15%, due in monthly installments of $18,042	$	850,616

Installment note payable secured by producing oil and gas property, with interest at 15%, due in monthly installments of $6,929		374,585
Other		5,036
Less: current portion		(880,934	)
	$	349,303

NOTE 6 - STOCKHOLDER LOANS

ESSI has financed its operations in part by funds received from advances by shareholders. These advances are in the form of unsecured promissory notes and bear interest at rates ranging from 8% to 10%. As of March 31, 2006, stockholder loans totaled $2,368,509 including interest accrued on such advances of $821,654.

NOTE 7 – FORGIVENESS OF DEBT

NOTE 8 - ACCRUED OFFICERS' COMPENSATION

Accrued compensation consists of the cumulative unpaid compensation due to corporate officers (Chairman, Chief Executive Officer, Chief Financial Officer and Secretary). ESSI recorded officer compensation, accrued payroll taxes and accrued interest of $385,991 and $336,850 during fiscal 2006 and 2005, and included these amounts in general and administrative expenses. ESSI is accruing interest on the accrued compensation balances at a rate of 8.5%, compounded quarterly. ESSI is making full salary payments to these officers as cash flow allows.

On June 8, 2004, ESSI issued 2,652,011 shares of preferred stock for payment of $994,504 of deferred compensation. Additionally, 109,917 shares of preferred stock were issued for payment of $41,219 in accrued compensation to other employees. During the same year, the preferred stock was converted into 69,048,200 shares of common stock.

On March 7, 2005, two officers signed releases of deferred compensation and accrued interest totaling $1,657,507. This transaction was considered a contribution to capital.

NOTE 9 - BUSINESS SEGMENT INFORMATION

ESSI's major activities are broken down into an Airborne Hyperspectral Services business segment, a Satellite Development business segment, an Oil and Gas property business segment and an Other Industries business segment. The Airborne Hyperspectral Services segment and Satellite Development segment utilized remote sensing instruments to earn revenue from the sale of hyperspectral imagery. The current Satellite Development business segment revenue is from a cost reimbursement contract with the U.S. Navy for the construction of the NEMO project, which has been disbanded. Transactions between the business segments are loans, interest, and management fees based on an allocation of incurred costs for general and administrative expenses. As the consolidated group is operating at a net loss position, no income tax expense or benefit is provided.

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Business Segment Information for Fiscal Year 2006

	Airborne
	Hyperspectral			Satellite			Oil and Gas		Other
	Services			Development			Properties		Industries			Combined

Revenues	$	302,901		$	-		$	96,841	$	-		$	399,742
Income (loss) from operations	$	(1,479,489	)	$	(311	)	$	22,346	$	(4,500	)	$	(1,461,954	)

Debt forgiveness		1,569,917			-			-		-			1,569,917
Interest expense		(403,201	)		(1,894,009	)		-		-			(2,297,210	)
Net income (loss)		(312,773	)		(1,894,320	)		22,346		(4,500	)		(2,189,247	)

Total assets at 3/31/06	$	631,277		$	452		$	3,019	$	3,485		$	638,233
Depreciation, amortization and depletion for the period ended 3/31/06	$	324,783		$	-		$	14,863	$	-		$	339,646
Capital expenditures for the period ended 3/31/06	$	5,246		$	-		$	-	$	-		$	5,246

Business Segment Information for Fiscal Year 2005

	Airborne
	Hyperspectral			Satellite			Oil and Gas		Other
	Services			Development			Properties		Industries			Combined
Revenues	$	192,297		$	-		$	223,406	$	-		$	415,702
Income (loss) from operations	$	(4,747,844	)	$	(24,183	)	$	208,357	$	(1,465	)	$	(4,565,135	)

Debt forgiveness		38,788			-			-		-			38,788
Interest expense		(659,180	)		-			-		-			(659,180	)
Net income (loss)		(5,368,236	)		(24,183	)		208,357		(1,465	)		(5,185,527	)

Total Assets at 3/31/05	$	578,082		$	762		$	84,488		2,608		$	665,940
Depreciation, amortization and depletion for the period ended 3/31/05	$	113,014		$	-		$	38,025		-		$	151,039
Capital expenditures for the period ended 3/31/05	$	-		$	-		$	55,958		-		$	55,958

NOTE 10 - INCOME TAXES

ESSI recorded no provision for income taxes in fiscal 2006 and 2005 due to the operating losses incurred from inception to date.

The tax effect of temporary differences between financial reporting and the tax bases of assets and liabilities relate to the following:

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At March 31, 2006, deferred tax assets consisted of the following:

Deferred tax assets

Net operating losses	$	6,300,000
Less: valuation allowance		(6,300,000	)
Net deferred tax asset	$	0

The cumulative net operating loss carry-forward is approximately $18,500,000 at March 31, 2006, and will expire in the years 2015 through 2026. The deferred tax asset has been fully reserved because ESSI is unable to anticipate future taxable income to realize the potential benefits of the gross deferred tax asset.

The annual amount of tax loss carryforward, which can be utilized, may be limited due to the substantial changes in the company's ownership as defined by section 382 of the Internal Revenue Code, which may occur in the future. Such limitations could result in the expiration of a part or all of the loss carryforwards before their utilization.

NOTE 11 - OFFICER AND DIRECTOR STOCK OPTIONS

In August 1997, the Board of Directors granted performance based options to ESSI's Chairman, President and Chief Executive Officer to each purchase 12,500 shares of ESSI's stock at exercise prices ranging from $200 per share to $1,000 per share and to ESSI's Secretary to purchase 2,500 shares of ESSI's stock at an exercise price of $200 per share. All of these performance based stock options are exercisable for a period of 24 months from the date of vesting. The options will be deemed vested for each individual if that individual is employed by ESSI on the first date on which the closing market price of ESSI's common stock equals or exceeds the price per share performance targets for 30 consecutive days. The specific vesting criteria for these options are described below:

When and if the closing market price of common stock equals or exceeds each of the following prices $0.50, $1.00, $1.50, $2.00 and $2.50 per share for 30 consecutive days, each of the three individuals shall become fully vested with an option to purchase 1,000,000 shares of common stock for each milestone at a price equal to the milestone price of $0.50, $1.00, $1.50, $2.00 and $2.50 per share, exercisable for a period of 24 months from the date of vesting.

During fiscal 2001, the Board of Directors approved performance based bonuses in the form of options to ESSI's officers. The specific vesting criteria for these options are described below:

10% of options shall be considered vested and bonused as paid in full shares for past services to ESSI; 15% of all options shall become vested and paid in full when ESSI is successful in obtaining a commitment from a strategic partner, financial institution, reputable investment banker or other source in raising capital sufficient to fund the NEMO program (shut down in 2002 - see Note 5); 20% vested and paid in full when successful in raising gross capital of at least $6,000,000; 20% vested and paid in full when successful in raising gross capital of at least $30,000,000; 20% vested and paid in full when successful in raising gross capital of at least $100,000,000; and 15% vested and paid in full in the event the NEMO program is successfully funded.

For the years ended March 31, 2006 and 2005, there were no options issued.

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Table of Contents

The following table summarizes the employee stock option transactions described above.

	Shares under option			Weighted-average exercise price

Balance, March 31,2003	$	57,845		$	428
Options granted		--			--
Options cancelled		(2,313	)		(228	)
Options exercised		--			--
Balance, March 31, 2004		55,532			436
Options granted		--			--
Options cancelled		(939	)		(84	)
Options exercised		--			--
Balance, March 31, 2005		54,593		$	442
Options granted		--			--
Options cancelled		--			--
Options exercised		--			--
Balance, March 31, 2006	$	54,593		$	442

Options outstanding and exercisable as of March 31, 2006:

		- - Outstanding - -		Exercisable
		Number		Remaining	Number
Exercise Price		of Shares		life	of Shares

	20		625	1 year		625
	28		375	1 year		375
	56		906	.5 year		906
	56		312	1 year		312
	60		875	.5 year		875
	84		12,500	1 year		12,500
	140		875	.5 year		875
	200		8,750	1 years		8,750
	400		6,875	1 years		6,875
	600		7,500	1 years		7,500
	800		7,500	1 years		7,500
	1,000		7,500	1 years		7,500

			54,593			54,593

NOTE 12 - STOCK ISSUANCES

PREFERRED STOCK

On June 8, 2004, ESSI issued 2,761,928 shares of preferred stock for payment of $1,035,723 deferred compensation. Each share of preferred stock was convertible into 25 shares of common stock and maintained voting rights on a fully diluted basis.

During the fourth quarter of fiscal 2005, all shares of preferred stock were converted into 69,048,200 shares of common stock.

COMMON STOCK

On June 2, 2004, ESSI authorized a 400:1 reverse split. The split did not affect the par value of the common stock, and reduced the number of shares outstanding to 476,135.

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Table of Contents

During fiscal 2005, ESSI issued:

2,609,098 shares of stock valued at $3,653,666 to various individuals for services rendered.

80,313 shares of stock valued at $65,007 to various individuals for debt.

39,216 shares of stock valued at $20,000 to a majority shareholder for partial payment of stockholder loans.

214,922 shares of stock valued at $140,440 to employees for accrued compensation.

285,323 shares of stock valued at $328,121 for an accrued legal settlement. See note 13 for details.

During fiscal 2006, ESSI issued:

250,000 shares of stock for $62,500 in cash.

4,224,639 shares of stock valued at $677,079 to various individuals for services rendered.

106,667 shares of stock valued at $9,600 for debt.

353,500 shares of stock valued at $123,725 for a six-month loan extension to December 31, 2005.

350,000 warrants valued at $92,494. The warrants are immediately exercisable at $0.50 at the holder's option for one year from the grant date, April 5, 2005. The warrants were valued using the Black Scholes model with volatility of 209% and a discount rate of 2%.

100,000 warrants valued at $17,182. The warrants were issued to consultants for services. 50,000 warrants are exercisable at $0.50 and 50,000 are exercisable at $0.25. The warrants are immediately exercisable at the holder's option for one year from the grant date, June 22, 2005. The warrants were valued using the Black Scholes model with volatility of 209% and a discount rate of 2%.

NOTE 13 - LITIGATION

As discussed in Note 7, ESSI was in dispute with another party over a leaseback purchase agreement for a Hyperspectral Probe. During the fourth quarter of fiscal 2005, both parties signed a mutual release in which ESSI was to return the Probe and ESSI would be released of amounts owed to the other party as of the date the Probe is returned. The mutual release also requires the other party to return a computer and related software belonging to ESSI in exchange for the Probe. ESSI agreed to return the Probe at the end of August 2005; however, as of the end of fiscal 2006, ESSI had not returned the Probe because the other party has not delivered the computer and related software belonging to ESSI. As a result, ESSI is in default, and based on the terms of the settlement agreement, ESSI is obligated to pay significant late fees. Based on the terms of the settlement agreement, as of March 31, 2006, management estimates the settlement obligation to be $2,820,099 which reflects a 5% late fee imputed each month on the outstanding balance due. As of March 31, 2006, management has recognized an accrual for the estimated obligation.

In October of 2002, Terranet, Inc. a subsidiary company, received notice of a judgment issued by the Supreme Court of British Columbia in regards to monies owed resulting from a contract with plaintiff Cai Data Ltd., of Vancouver, B.C. The plaintiff alleged that seventy-five thousand dollars was overdue from invoices for services dating from January of 2002 to October, 2002. Management is examining its position and has accrued a $74,603 liability Associated with this demand in its financial statements.

F-17

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