**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**


**FORM
      10-KSB**


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


**For
      the Fiscal Year Ended March 31, 2007**


**OR**


o
            
            **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 0-02555**


**EARTH
      SEARCH SCIENCES, INC,**


(Name
      of
      Small Business Issuer in its charter)


Nevada
            
            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)




(Title
      of
      class)


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


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. Yesþ  Noo


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.þ


Indicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Exchange Act). Yeso Noþ


State
      issuer’s revenues for its most recent fiscal year. $91,429.


State
      the
      aggregate market value of the voting and nonvoting common equity 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 May 31, 2007
      of $0.24, the approximate aggregate market value of voting stock held by
      non-affiliates is $6,911,308.


As
      of
      June 29, 2007 96,327,473 shares of Common Stock, $.001 par value, of the
      registrant were issued and outstanding.















**TABLE
      OF CONTENTS**





PART
                I
            
            3Item
                1 -
            Business
            3Item
                2 -
            Properties
            7Item
                3 -
            Legal
                Proceedings
            7Item
                4 -
            Submission
                of Matters to a Vote of Security
                Holders
            8PART
                II
            
            8Item
                5 -
            Market
                for the Registrant's Common Stock Equity and Related
                Shareholder Matters
            8Item
                6 -
            Management's
                Discussion and Analysis or Plan of
                Operations
            9Item
                7 -
            Financial
                Statements
            13Item
                8 -
            Changes
                in and Disagreements with Accountants on
                Accounting and Financial Disclosure
            14Item
                8A-
            Controls
                and Procedures
            14Item
                8B -
            Other
                Information
            14PART
                III
            
            15Item
                9 -
            Directors,
                Executive Officers, Promoters, Control
                Persons and Corporate Governance; Compliance With Section 16(a) of
                the
                Exchange Act
            15Item
                10 -
            Executive
                Compensation
            16Item
                11 -
            Security
                Ownership of Certain Beneficial Owners and Management
                and Related Stockholder Matters
            17Item
                12 -
            Certain
                Relationships and Related Transactions, and
                Director Independence
            17Item
                13 -
            Exhibits
            18Item
                14 -
            Principal
                Accountants Fee and Services
            20SIGNATURES
            21








**PART
      I**





**ITEM1.  BUSINESS**





Earth
      Search Sciences, Inc. (the Company) was incorporated in 1984 under the laws
      of
      the state of Utah.





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 and
      Geoprobe were inactive during the fiscal years ended March 31, 2007 and
      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 is a "whiskbroom style" instrument that
      collects data in a cross-track direction by mechanical scanning and in an
      along-track direction by movement of the airborne platform. The instrument
      acts
      as an imaging spectrometer in the reflected solar region of the electromagnetic
      spectrum (0.4 to 2.5 nm). 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.





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.





In
      the
      fiscal years from 2005 to 2007 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 $91,429 and $302,901 and
      $192,297  in fiscal 2007 and 2006, respectively.





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.





3


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 has received an opinion from counsel 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. The Company
      recorded  a gain on debt retirement in the amount of $10,132,522 in
      fiscal 2007.





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.





This
      strategy is intended to produce two valuable results for ESSI
      shareholders:





1.
      More
      demand for ESSI'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.


4


Business





As
      a
      result of changes in the market for geological remote sensing data, the Company
      changed its strategy from a service provider to a developer of exploration
      and
      exploitation companies focused in the mineral and hydrocarbon sectors.  We
      will primarily seek  joint venture opportunities with established oil and
      gas, and other precious mineral mining companies to locate, develop and exlpoit
      natural reserves throughout the world. Petro Probe, Inc. was formed in November
      1993 for the oil & gas industry while Geo Probe, Inc. was formed in October
      1993 for mineral exploration.





With
      its
      established hyperspectral technology the Company sought joint ventures with
      partners who could provide technologies, human and capital resources to
      synergize with the Company's technology. This strategy is intended to lead
      to
      the creation of more demand for the Company's hyperspectral remote sensing
      services.





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.  Contracts are being
      sought in the following market segments: mining, hydrocarbon, agriculture,
      ecological and environmental monitoring. Because of the advent of the world-wide
      recognition for control of global-warming issues, the Company plans to develop
      an environmentally focused marketing plan to portray the advantages of airborne
      hyperspectral remote sensing to these market segments.





Subsidiary
      Companies





Petro
      Probe, Inc.'s goal is to identify good oil and gas properties through a two
      part
      strategy: develop the competitive advantages of
      its  resource  mapping  capability, with
      hyperspectral imagery, and combine that mapping capability with conventional
      hydrocarbon exploration  tools.   Petro Probe’s
      activity during fiscal 2007 has been to develop the business plans and
      managerial structure to begin work on the oil shale technology under license.
      Funding sources have been identified and recognition of the technology by the
      Department of  Energy (DOE) was obtained. See report published by
      Office of Petroleum Reserves, U.S. Department of Energy, June 2007, “Profiles of
      Companies Investing Today to Secure America’s Energy Future”.





Geo
      Probe, Inc. plans to use the hyperspectral mapping technology to find new
      mineral  deposits and monitor the environmental impact of active
      and  past-producing  mines,  mills, smelters,
      refineries and
      pipelines.  The  Company's  mapping  agreement  with
      Noranda Minerals, concluded in 2005, provided  the  ability
      to develop and prove these new approaches to mineral exploration.  Geo
      Probe, Inc. has been evaluating joint venture proposals received from a Canadian
      corporation, a letter of intent for a joint venture from a Chinese and HongKong
      company, and a joint venture proposal from a to-be-formed Nevada limited
      liability company**.**





Eco
      Probe, Inc. was formed to pursue hyperspectral remote sensing applications
      in
      the environmental industry.  The Company has sought to position itself
      with
      U.S.  government  agencies  such  as  the
      Environmental Protection Agency, the Bureau of Land Management and the Office
      of
      Surface  Mining  on  setting  up  applications  for  commercial  monitoring  of
      mineral industries,  forest  inventory and health issues,
      slope stability assessment and
      the  spread  of  noxious  weeds.





The
      Company and Eco Probe, Inc. have performed hyperspectral surveys and
      research  in  aquatic and vegetation-related projects
      .  Eco Probe, Inc made three collection between 2000 and 2001 The
      environmental markets
      are  vast,  however  the  Company's
      current lack of resources dictates
      priority  be  assigned  to  mineral  and  hydrocarbon  exploration.  The
      subsidiary was inactive during the fiscal year ended June 30, 2007.





The  Company
      formed Terranet, Inc. to act as a imagery product distribution
      conduit  and  perform  as  the  Company's  e-commerce
      content provider. Recognizing  that
      imagery  collected  today  and yesterday
      could  be  sold  repeatedly  to  multiple  end
      users the Company’s subsidiary company, Terranet, completed the copyright design
      and testing
      of  a  database  and  internet  centered  marketing  system.  Terranet
      anticipates new joint venture partners to be available when the hyperspectral
      industry begins to grow again. The subsidiary was inactive during the fiscal
      year ended June 30, 2007.


5





The
      other
      ESSI wholly-owned subsidiaries, Skywatch Exploration, Inc., Polyspectrum
      Imaging, Inc., and Space Technology Development Corp.are inactive. The other
      majority-owned consolidated subsidiaries, Earth Search Resources, Inc. and
      ESSI
      Probe 1 LC are inactive.





Fiscal
      2007 Significant Projects – Update





To
      date,
      terrabyte quantities of imagery have been collected by the
      Company.  Selected portions of these data tapes are being processed
      and the imagery is being examined for the presence of mineral properties. The
      Company is currently working to outsource the processing and interpretation
      of
      its archived data in order to quickly expand its commercial
      offering.





We
      plan
      to seek joint venture opportunties with private industry, universities and
      state and federal agencies to develop, package and deliver competitive advanced
      technology processed data and airborne mapping products and
      services.  These include both unsolicited proposals and responses to
      Requests for Proposals and will be addressed on a prioritized basis. The
      Company will continue to respond to requests for quotations that it
      receives.  We believe that these requests for proposals and quotations
      demonstrate the demand for hyperspectral services and gives reason for the
      Company to have a positive outlook for the near future.





Competition





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.




Employees





As
      of
      March 31, 2007 the Company had 4 full-time employees.





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.  In addition, the Department of State regulates the
      export of advanced technologies to certain nations.  Our services fall
      within those regulations and we cannot offer our services in those nations
      without obtaining a license from the Department of State.




6


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.  Information on the Company’s
      internet site is not incorporated by reference in this report.





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
      2007, the Company operated its airborne hyperspectral sensors under contracts
      with third parties in several areas around the United States.  In
      fiscal 2006 and 2005, 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 $91,429
      and $302,901, to revenue in fiscal 2007 and 2006 respectively.





**ITEM2.  PROPERTIES**





The
      Company headquarters consist of approximately 1,500 square feet of office space
      in Lakeside, Montana.





Petro
      Probe, Inc., owns a 50% interest in a Probe-1 airborne hyperspectral instrument
      and holds an option on the remaining interest.





**ITEM
      3.  LEGAL PROCEEDINGS**





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.  ESSI agreed to
      return the Probe at the end of August 2005.  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, 2007, management estimates the settlement obligation
      to be $5,434,259 which reflects a 5% late fee imputed each month on the
      outstanding balance due.  As of March 31, 2007, management has
      recognized an accrual for the estimated obligation. The Probe was returned
      on
      January 07, 2007.





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.




7


**ITEM
                4.**
            **SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY
                HOLDERS**





None.





**PART
      II**





**ITEM
                5.**
            **MARKET
                FOR THE REGISTRANT’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 on the OTCBB and do not represent actual
                transactions.





Quarter
                Ended
            High
            LowJune
                30, 2005
            .16
            .12September
                30, 2005
            .07
            .06December
                31, 2005
            .11
            .10March
                31, 2006
            .20
            .20June
                30, 2006
            .36
            .32September
                30, 2006
            .17
            .12December
                31, 2006
            .16
            .10March
                31, 2007
            .30
            .26




(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, 2007 was
                approximately 1218.  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****Date**
            
            **Amount
                of Securities Sold**
            
            **Price
                per Share ($)**
            
            **Total
                Cash Proceeds ($)**
            
            
            
            **Date**
            
            **Amount
                of Securities Sold**
            
            **Price
                per Share ($)**
            
            **Total
                Cash Proceeds ($)**4/7/2006
            
            26,029
            
            $0.19
            
            $4,425
            
            (1)
            
            5/3/2006
            
            1,500,000
            
            $0.22
            
            $330,000
            
            (1)5/16/2006
            
            400,000
            
            $0.18
            
            $72,000
            
            (2)
            
            5/17/2006
            
            13,719
            
            $0.35
            
            $4,390
            
            (1)6/14/2006
            
            13,813
            
            $0.44
            
            $5,525
            
            (1)
            
            7/6/2006
            
            21,861
            
            $0.36
            
            $7,870
            
            (1)7/6/2006
            
            375,000
            
            $0.20
            
            $75,000
            
            (2)
            
            8/8/2006
            
            19,643
            
            $0.21
            
            $4,125
            
            (1)9/1/2006
            
            410,000
            
            $0.21
            
            $123,117
            
            (1)
            
            9/8/2006
            
            33,829
            
            $0.17
            
            $5,751
            
            (1)10/25/2006
            
            45,682
            
            $0.11
            
            $5,025
            
            (1)
            
            3/13/2007
            
            11,400,000
            
            $0.10
            
            $1,140,000
            
            (1)3/31/2007
            
            800,000
            
            
            
            
            
            (3)
            
            3/15/2007
            
            250,000
            
            $0.10
            
            $25,000
            
            (1)3/16/2007
            
            90,750
            
            $.0.10
            
            $9,075
            
            (1)
            
            3/28/2007
            
            2,500,000
            
            $0.10
            
            $250,000
            
            (2)(1)Consideration
                paid for the shares
                was employee and/or consulting services.(2)Shares
                issued for
                debt consideration.(3)  Consideration
                paid for Directorship.





8


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)
              Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights
            
            (b)
              Weighted-average
                exercise price of outstanding options, warrants and rights
            
            (c)
              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
            
            -





(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





**ITEM
                6.**
            **MANAGEMENT'S
                DISCUSSION AND ANALYSIS OF
                FINANCIAL**





Results
      of Operations





The
      Company recognized revenue of $91,429 in 2007 compared with $399,742 in 2006.
      Revenue in 2007 was substantially lower due to the loss or completion
      and several contracts related to our sensor activities. The ESSI data
      collection aircraft was grounded in the summer of 2006 due to FAA required
      maintenance and did not achieve operational status in 2007. Oil and gas revenues
      during fiscal 2007 and 2006 were $0 and $96,841, respectively. In addition,
      oil
& gas production ceased in fiscal 2006 and all properties
      impaired.





Provision
      for loss on impairment of fixed assets was $0 and $27,318 in 2007 and
      2006.  General and administrative costs were $5,714,411 in 2007
      compared with $1,474,602 in 2006. The increase in general and administrative
      costs was due primarily to costs associated with capital raising efforts. 
In 2007 the Company recognized interest expense of $594,550 compared to
      $2,297,210 in 2006. The Company recognized net loss from operations of
      $5,889,080 in fiscal 2007 compared with a net loss from operations of
      $1,461,954 in fiscal 2006.  The company recognized a net income of
      $3,648,892 in fiscal 2007 compared with a net loss of $2,189,247 in fiscal
      2006.  The increase in income was due to the gain on debt retirement,
      discussed in Liquidity and Capital Resources, offset by the increase in general
      and administrative expenses.  The gain (loss) on a per share basis was
      $0.04 and $(0.03) in fiscal 2007 and 2006.





9




The
      Company indirectly owns interests in seven oil and gas projects through its
      subsidiary company, Petro Probe, Inc. In 2006, these projects were shut
      down and fully impaired. No subsequent activity is expected.





Liquidity
      and Capital Resources





At
      March
      31, 2007, we had $23,182 of cash and cash equivalents and a working capital
      deficit of $11,951,632. Net cash used in operating activities was $274,632
      in
      2007.  Net cash used in operating activities was $137,076 in 2006,
      resulting primarily from payments for salaries and services and changes in
      current assets and liabilities.





In
      March
      2007, we recorded a $10,132,522 net gain on the settlement of certain debt
      incurred in connection with a U.S. Government project called Naval Earth Map
      Observer (NEMO). This agreement was originated on January 21, 1999, however,
      the
      NEMO project was subsequently cancelled and all work on the project ceased.
      At
      that time, ESSI, through its subsidiary Space Technology Development Corporation
      (STDC), recorded liabilities associated with the subcontract agreements totaling
      $10,132,522. As of March 31, 2007, no significant claims had been filed against
      ESSI, STDC or any ESSI subsidiaries related to the NEMO contract. In March
      2007,
      we obtained a legal opinion stating that further action against ESSI, STDC
      or
      any ESSI subsidiary would be barred by the applicable statute of
      limitation.





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.





As
      shown
      in the accompanying financial statements, ESSI incurred loss from
      operations of $5,889,080 and $1,461,954 for fiscal 2007 and 2006,
      respectively, and had an accumulated deficit of $58,234,889 and a working
      capital deficit of $11,951,632 as of March 31, 2007.  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.





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.




In
      February
      2007, two officers of the Company agreed to loan ESSI $500,000, which is
      evidenced by a promissory note. $170,000 of the net loan proceeds were
      received in March 2007 and the remaining balance was received in April
      2007.  The note, along with accrued interest, is due in February 28, 2008
      and carries a 15% per annum interest rate, compounded monthly.  The note is
      secured by 10,000,000 share of ESSI common stock, which becomes payable upon
      default.  In addition, ESSI received a $250,000 loan from another
      shareholder, which was received in April 2007.




Significant
      Accounting Policies





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.





ESSI
      issues stock as compensation to employees and outside consultants for services
      rendered.  These shares are recorded at the fair value of the stock as
      measured on the date or dates the services were rendered.





Future
      Operations





The
      Company is actively researching new exploration and exploitation technologies
      to
      complement and integrate with its hyperspectral capabilities.





10




General
      Synfuels International, Inc., (GSI) a Nevada private company, owns the
      world-wide proprietary rights, patent, technology, construction plans and
      materials and operational capability  for a gasification process
      recover the oil and gas from oil shale. Petro Probe, Inc. signed a non-exclusive
      license agreement with GSI to obtain the use of these rights in Utah,
      Wymoing and Colorado. PPI will pay a license fee in the amount of $500,000
      and
      will issue to GSI 500,000 shares of PPI Common Stock, $.001 par value per
      share.  Such fee will be paid in such amounts and at such times as are
      agreed to in the future by PPI and GSI.  PPI also assigned to GSI an
      overriding net revenue interest of five and one-half percent (51⁄2%) of the
      hydrocarbonaceous products produced by PPI, payable quarterly.





PPI
      is
      examining various oil shale sites in Colorado and Utah for a test plant. Five
      acres of premium oil shale land is sought. The test plant is budgeted for
      approximately $2.75 million as a first stage development cost. This will prove
      the technology. The second and third stages will cost approximately $8 million
      more at which time the plant could operate at full capacity.  All
      development costs will be paid for by PPI.





In
      its
      search for new complementing technologies, PPI is pursuing an alliance with
      two
      other companies in oil shale R&D. Independent Energy Partners, Inc. (IEP)
      and Phoenix Wyoming Inc., (PWI) both Colorado private companies, have their
      own
      non-competing technologies for application in oil shale recovery processes.
      One
      is based on micro-wave technology while the other is an adaptation of fuel
      cell
      energy.  IEP owns the exclusive rights to a broad, patented Geothermic Fuel
      CellTM (GFC) method.  (US Patent No. 6,684,948 B1-Apparatus and Method for
      Healing Subterranean Formations Using Fuel Cells). To economically produce
      oil
      and natural gas from unconventional resources such as oil shale, while producing
      electricity as a byproduct.  IEP also has acquired the mineral property in
      Rio Blanco County, Colorado on some of the riches "Mahogany Zone" oil shale
      property in the world, holding an estimated 1.4-2.4 billion barrels of oil.
      PWI
      owns certain proprietary intellectual property and methods designed to bring
      the
      advantages of microwave technology to an oil shale borehole.




The
      company believes that this alliance may be beneficial to the Company
      because:




1)
              The
                  risk of successful commercial development will be
                  shared.
 2)
              Investment
                  funds should be easier to attract.
 3)
              Permitting,
                  licensing, insurance and lease costs can be
                  shared.
 4)
              Infrastructure
                  and equipment for processing the oil shale products can be
                  shared.
 5)
              The
                  marketing and sale of the oil shale products can be
                  shared.
 6)
              Innovative
                  ideas, market intelligence and competitor intelligence can be
                  shared.
 7)
              Oil
                  shale test sites can be shared, and additional oil shale land can
                  more
                  readily be obtained by the alliance, because an alliance of three
                  technology companies is more likely to successfully develop the
                  oil shale
                  land than a single company working
                  alone.




Discussions
      with IEP and PWI continue.  The Company cannot assure you that it will
      be able to enter any alliance with either or both of IEP and PWI or that if
      it
      is able to enter such an alliance, it will be on terms acceptable to the
      Company.





The
      Company has a development agreement  with Intellisense Corporation
      LLC,  to design and construct a third generation hyperspectral
      instrument design. The new instrumentation would allow for faster, less
      expensive and more precise data collection. The instrument will be based on
      US Patent No. 7,239,378, Platform based imaging system, granted on July 3,
      2007
      to the Company's CEO, Larry Vance. The
      capability to design and maintain new technologies is key to the Company’s
      success in future operations. It will be a vital component to allow continuing
      exploration and exploitation of the Earth’s natural resources





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





Risks
      Related to Our Industry





11


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 instrument, as well as oil
      and gas property rights.  The aircraft and airborne hyperspectral
      instrument 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.  There are were no
      prospects for new oil and gas contracts from existing properties in
      fiscal 2007.





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.





12




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.  From time to time, 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 Probe 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 fixed; a significant portion of our operational expenses vary
      with
      the number of airborne surveys.  Because several of our 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
      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.    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 sales by, or revenues of the Company,
      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.  The Company may not meet the
      expectations disclosed in our forward-looking statements and investors should
      not place undue reliance on those statements. Actual results may differ
      materially from those indicated by such forward-looking statements as a result
      of various factors, including those set forth above under the heading “Risk
      Factors that could Affect Liquidity, Operating Results and Market Price of
      Stock” and elsewhere in this Report.  The Company disclaims any
      obligation to update any forward-looking statements.





**ITEM
                7.**
            **FINANCIAL
                STATEMENTS AND SUPPLEMENTARY
                DATA**





The
      financial statements and supplementary data required by this Item are included
      on pages F-1 to F-21 of this Report.




13




**ITEM
                8.**
            **CHANGES
                IN AND DISAGREEMENTS 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, 2007, and through June 30, 2007, there have
      been
      no reportable events (as defined in Regulation S-K Item
      304(a)(1)(v)).





**ITEM8A.**
            **CONTROLS
                AND PROCEDURES**




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 Chief Financial 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
      Chief Financial Officer concluded that our disclosure controls and procedures
      were not effective to ensure that information required to be disclosed by the
      Company in the reports that it files or submits under the Securities Exchange
      Act is recorded, processed, summarized and reported, within the time periods
      specified in the Securities and Exchange Commission's rules and forms or to
      ensure that information required to be disclosed by the Company in the reports
      that it files or submits under the Securities Exchange Act is accumulated and
      communicated to the Company's management, including its principal executive
      and
      principal financial officers, or persons performing similar functions, as
      appropriate to allow timely decisions regarding required
      disclosure.  Specifically, some of the accounting entries relating
      to accounts payable, accrued interest unrecorded debt, stock issued for
      services, imputed interest, debt commissions and recognition of liabilities
      from legal settlement 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.




No
      change
      in the Company's internal control over financial reporting occurred during
      the
      Company's fourth fiscal quarter of fiscal 2007 that has materially affected,
      or
      is reasonably likely to materially affect, the Company's internal control over
      financial reporting.





**ITEM
                8B.**
            **OTHER
                INFORMATION**





None.


14


**PART
      III**





**ITEM
                9.**
            **DIRECTORS,
                EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSON AND CORPORATE GOVERNANCE;
                COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
                ACT**





COMPLIANCE
      WITH SECTION 16(a) OF THE EXCHANGE ACT





Section
      16(a) of the Securities Exchange Act of 1934 requires our officers, directors
      and persons who own more than 10% of a registered class of our equity securities
      to file reports of ownership and changes in ownership with the SEC and
      Nasdaq.  Officers, directors, and greater than 10% beneficial owners
      are required by SEC regulation to furnish the Company with copies of all Section
      16(a) forms they file.  Based solely on our review of copies of the
      Section 16(a) reports filed for the fiscal year ended March 31, 2007, we believe
      that all filing requirements applicable to its officers, directors, and greater
      than 10% beneficial owners were complied with.





DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS





The
      following table sets forth certain information with respect to the executive
      officers of the Company for fiscal 2007 to the present.





**Name**
            **Age**
            **Position**Larry
                F. Vance
            72
            Chairman
                and Chief Executive OfficerTami
                J Story
            44
            Director
                Secretary/Treasurer/Director





(1)
            Effective
                April, 1985, Mr. Vance was appointed as Chief Executive Officer of
                the
                Company.


(2)
            Effective
                April, 1993, Ms. Story was appointed as Secretary and Treasurer of
                the
                Company.





Certain
      additional information concerning the individuals named above is set forth
      below.  This information is based on information furnished to us by
      each individual noted.





Larry
      F.
      Vance served as Chief Executive Officer of the Company from April
      1985.  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, Secretary, Treasurer and Director





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.


15


FAMILY
      RELATIONSHIPS.





There
      are no family relationships
      between or among the directors, executive officers or persons nominated or
      charged by us to become directors or executive officers.





INVOLVEMENT
      IN LEGAL PROCEEDINGS.





To
      the best of our knowledge, during
      the past five years, none of the following occurred with respect to a present
      or
      former director or executive officer of the Company: (1) any bankruptcy petition
      filed by or against any business of which such person was a general partner
      or
      executive officer either at the time of the bankruptcy or within two years
      prior
      to that time; (2) any conviction in a criminal proceeding or being subject
      to a
      pending criminal proceeding (excluding traffic violations and other minor
      offenses); (3) being subject to any order, judgment or decree, not subsequently
      reversed, suspended or vacated, of any court of any competent jurisdiction,
      permanently or temporarily enjoining, barring, suspending or otherwise limiting
      his involvement in any type of business, securities or banking activities;
      and
      (4) being found by a court of competent jurisdiction (in a civil action), the
      SEC or the Commodities Futures Trading Commission to have violated a federal
      or
      state securities or commodities law, and the judgment has not been reversed,
      suspended or vacated.





CODE
      OF
      ETHICS.





The
      Company has a code of ethics.  The Company will provide to any person
      without charge, upon request, a copy of its code of ethics upon written request
      to our corporate headquarters or request emailed to
      earthsrch@aol.com.





AUDIT
      COMMITTEE.





The
      regulations of the SEC and OTC Bulletin Board do not mandate that the Company
      establish of any particular committees, and the Company does not have an Audit
      Committee.  Our Board of Directors has the responsibility for
      establishing broad corporate policies and for overseeing our overall
      performance. Members of the Board are kept informed of our business activities
      through discussions with the Chief Executive Officer and other officers, by
      reviewing analyses and reports sent to them, and by participating in Board
      and
      committee meetings. Our bylaws provide that each of the directors serves for
      a
      term that extends to the next Annual Meeting of Shareholders of the
      Company.





**ITEM
      10.  EXECUTIVE COMPENSATION**





The
      following executive compensation disclosure reflects all compensation awarded
      to, earned by or paid to the executive offices below for the fiscal years ended
      March 31, 2007, 2006 and 2005.  The following table summarizes all
      compensation for fiscal year 2007 received by our Chief Executive Officer and
      Secretary and Treasurer.  Salary was the only compsnation paid to the
      Company's executive officers duing the last three fiscal
      years.




Name
                  and Principal Position
              Fiscal
                  Year
              Salary
                  ($)
              Total
                  ($)Larry
                  Vance/Chairman (1)
              2007
              160,000
              160,0002006
              160,000
              160,0002005
              160,000
              160,000Tami
                  J. Story/Secretary and
              2007
              80,000
              80,000Treasurer
                  (1)
              2006
              80,000
              80,0002005
              80,000
              80,000
 
 (1)  Salary
                  was deferred unless cash flow allowed payment.
 16




AGGREGATED
                OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END
              OPTION/SAR
                VALUESNumber
                of securities underlying unexercised options at FY-End
            
            Value
                of Unexercised In-the Money Options at
              FY-End
                ($)Name
            
            Shares
                Acquired on Exercise
            
            Value
                Realized ($)
            
            Exercisable/Unexercisable
            
            Exercisable/UnexercisableLarry
                Vance
            
            -
            
            -
            
            2,500,000/0
            (1)
            %1,000,000/0
            (2)
            %1,000,000/0
            (3)
            %0/1,000,000
            (4)
            %0/1,000,000
            (5)
            %0/1,000,000
            (6)
            %Tami
                Story
            
            -
            
            -
            
            750,000/0
            (1)
            %0/1,000,000
            (4)
            %0/1,000,000
            (5)
            %0/1,000,000
            (6)
            Exercisable





(1)
                Exercise prices $0.21 per share.


(2)
        Exercise prices $0.50 per share.


(3)
        Exercise prices $1.00 per share.


(4)
      Exercise prices $1.50 per share.


(5)
        Exercise prices $2.00 per share.
 (6)
        Exercise prices $2.50 per share.


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
                OWNERSHIP 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,
      2007 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 classLarry
                  Vance
              
              55,060,644
                  (2)
              
              74
                  %P.O.
                  Box 763Lakeside,
                  MT  59922Tami
                  Story
              
              12,469,714
              
              16%P.O.
                  Box 763Lakeside,
                  MT  59901All
                  directors and officers
              
              67,530,358
              
              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 RELATIONSHIPS AND RELATED
      TRANSACTIONS, AND DIRECTORS INDEPENDENCE**




In
      February 2007, Larry Vance and Tami Story, officers of the Company, agreed
      to
      loan the Company $500,000. $170,000 of the net loan proceeds were received
      in
      March 2007 and the balance was received April 2007. The loan, along with accrued
      interest, is due February 26, 2008 and carries a 15% annual interest rate,
      compounded monthly. The loan is secured by 10,000,000 shares of the Company's
      common stock.


None
      of
      our directors are independent, as determined under the rules of the NASDAQ
      Stock
      Market.


17





**ITEM
      13.  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).
 
 4.1
              See
                  exhibits 3.1 and 3.2.
 
 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 Probe1 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).
 
 18
 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).
 
 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).
 
 19
 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.
 
 10.20
              Multi-platform
                  HyperSpectral imaging "Micro Sectrometer" Development Proposal Number
                  05080901.
  10.21
              Promissiory
                  Note due February 2008, dated February
                  2007.
  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
 
 16.3
              Letter
                  re change in certifying accountant (Incorporated by reference to
                  Exhibit
                  16.3 to the Registrant’s form 8-K filed on May 25,
                  2001).
 
 16.4
              Letter
                  re change in certifying accountant (Incorporated by reference to
                  Exhibit
                  16.3 to the Registrant’s form 8-K filed on June 10,
                  2003).
 
 21.1.1
              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)
 
 23.1
              Consent
                  of Malone & Bailey
 
 31.1
              Certification
                  of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities
                  Exchange Act of 1934
 
 31.2
              Certification
                  of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities
                  Exchange Act of 1934
 32.1
                Certification
                    of Chief Executive Officer Pursuant to 18 U.S.C Section
                    1350.
 32.2
              Certification
                  of Chief Financial Officer Pursuant to 18 U.S.C. Section
                  1350.





**ITEM
      14.  PRINCIPAL ACCOUNTANT 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, 2007 and March 31, 2006 and fees billed
      for other services rendered by Malone & Bailey during those
      periods.




**Fiscal
                2007**
            
            
            **Fiscal
                2006**Audit
                Fees (1)
            
            $
            50,000
            
            
            $
            44,000Audit
                Related Fees (2)
            
            $
            0
            
            
            $
            0Tax
                Fees (3)
            
            $
            0
            
            
            $
            0All
                Other Fees (4)
            
            $
            0
            
            
            $
            0Total
            
            $
            50,000
            
            
            $
            44,000


20





**SIGNATURES**





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. VanceLarry
                F. VanceChief
                Executive OfficerDate:





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,
                Chief Executive Officer and DirectorLarry
                F. VanceDate:/s/
                Tami J. Story
            Corporate
                Secretary, Treasurer and DirectorTami
                J. StoryDate:








21


REPORT
      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. as of March 31, 2007, 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 audit.





We
      conducted our audit 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, 2007, 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 losses
      from operations of $5,889,080 and $1,461,954 for fiscal 2007 and 2006,
      respectively and has an accumulated deficit of $58,234,889 and a working capital
      deficit of $11,951,632 as of March 31, 2007. 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
      16, 2007


F-1


EARTH
      SEARCH SCIENCES, INC.


CONSOLIDATED
      BALANCE SHEET


March
      31,
      2007





ASSETSCurrent
                assets:Cash
            
            $
            23,182Accounts
                receivable
            
            
            132Loan
                costs, net of $199,998 accumulated amortization
            
            
            28,225Total
                current assets
            
            
            51,539Property
                and equipment, net of $832,208 accumulated depreciation
            
            
            309,944TOTAL
                ASSETS
            
            $
            361,483LIABILITIESCurrent
                liabilities:Accounts
                payable
            
            $
            1,151,437Accrued
                expenses
            
            
            733,917Accrued
                officers’ compensation
            
            
            1,082,317Notes
                payable - current portion
            
            
            902,287Settlement
                obligation
            
            
            5,434,259Stockholder
                loans
            
            
            2,698,954Total
                current liabilities
            
            
            12,003,171Notes
                payable less current portion
            
            
            369,820Total
                liabilities
            
            
            12,372,991Commitments
                and contingencies
            
            
            -STOCKHOLDERS’
                DEFICITSeries
                A preferred stock; 200,000 shares authorized, noneissued
                and outstanding; liquidation preference $1,000,000
            
            
            -Common
                stock, $.001 par value; 200,000,000 sharesauthorized;
                96,327,473 shares issued and outstanding
            
            
            96,328Additional
                paid-in capital
            
            
            46,577,053Treasury
                stock
            
            
            (200,000
            )Subscription
                receivable
            
            
            (250,000
            )Accumulated
                deficit
            
            
            (58,234,889
            )Total
                stockholders’ deficit
            
            
            (12,011,508
            )TOTAL
                LIABILITIES AND STOCKHOLDERS’ DEFICIT
            
            $
            361,483





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


F-2


EARTH
      SEARCH SCIENCES, INC.


CONSOLIDATED
      STATEMENTS OF OPERATIONS


Years
      Ended March 31, 2007 and 2006





2007
              
              
              2006Revenues
              
              $
              91,429
              
              
              $
              399,742Operating
                  expensesGeneral and administrative
              
              
              5,714,411
              
              
              
              1,474,602Bad
                  debt expense
              
              
              22,819
              
              
              
              20,130Depreciation,
                  amortization and depletion
              
              
              243,279
              
              
              
              339,646Impairment
              
              
              -
              
              
              
              27,318Total
                  expenses
              
              
              5,980,509
              
              
              
              1,861,696Loss
                  from operations
              
              
              (5,889,080
              )
              
              
              (1,461,954
              )Other
                  income (expense)Gain
                  on debt retirement
              
              
              10,132,522
              
              
              
              1,569,917Interest
                  expense
              
              
              (594,550
              )
              
              
              (2,297,210
              )Net
                  income (loss)
              
              $
              3,648,892
              
              
              $
              (2,189,247
              )Basic
                  and diluted:Income
                  (loss) per share
              
              $
              0.04
              
              
              $
              (0.03
              )Weighted
                  average common shares outstanding
              
              
              81,385,420
              
              
              
              76,280,791




See
      accompanying summary of accounting policies


and
      notes
      to financial statements.


F-3


EARTH
      SEARCH SCIENCES, INC.


CONSOLIDATED
      STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT


Years
      Ended March 31, 2007 and 2006










AdditionalCommon
            
            
            Stock
            
            
            Paid-in
            
            
            Treasury
            
            
            Subscription
            
            
            AccumulatedShares
            
            
            Amount
            
            
            Capital
            
            
            Stock
            
            
            Receivable
            
            
            Deficit
            
            
            TotalBalances
                at March 31, 2005
            
            
            72,762,836
            
            
            $
            72,762
            
            
            $
            42,518,196
            
            
            $
            (200,000
            )
            
            
            -
            
            
            $
            (59,694,534
            )
            
            $
            (17,303,576
            )Issuance
                of common stock for cash
            
            
            250,000
            
            
            
            250
            
            
            
            62,250
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            62,500Issuance
                of common stock for debt
            
            
            106,667
            
            
            
            107
            
            
            
            9,493
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            9,600Issuance
                of common stock for services rendered
            
            
            4,224,639
            
            
            
            4,225
            
            
            
            672,854
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            677,079Issuance
                of common stock for loan extension
            
            
            353,500
            
            
            
            354
            
            
            
            123,372
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            123,726Warrants
                for loan extension
            
            
            -
            
            
            
            -
            
            
            
            92,494
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            92,494Warrants
                for services
            
            
            -
            
            
            
            -
            
            
            
            17,182
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            17,182Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,189,247
            )
            
            
            (2,189,247
            )Balances
                at March 31, 2006
            
            
            77,697,642
            
            
            $
            77,698
            
            
            $
            43,495,841
            
            
            $
            (200,000
            )
            
            
            -
            
            
            $
            (61,883,781
            )
            
            $
            (18,510,242
            )Issuance
                of common stock for loan and interest conversion
            
            
            375,000
            
            
            
            375
            
            
            
            74,625
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            75,000Shares
              issues under subscription receivable
            
            
            2,500,000
            
            
            
            2,500
            
            
            
            247,500
            
            
            
            
            
            
            
            (250,000
            )
            
            
            
            
            
            
            -Issuance
                of common stock for services rendered
            
            
            14,954,831
            
            
            
            14,955
            
            
            
            2,546,732
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,561,687Issuance
                of common stock for Directorship
            
            
            800,000
            
            
            
            800
            
            
            
            119,200
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            120,000Imputed
                interest
            
            
            -
            
            
            
            -
            
            
            
            93,155
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            93,155Net
                loss
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3,648,892
            
            
            
            3,648,892Balances
                at March 31, 2007
            
            
            96,327,473
            
            
            $
            96,328
            
            
            $
            46,577,053
            
            
            $
            (200,000
            )
            
            $
            (250,000
            )
            
            $
            (58,234,889
            )
            
            $
            (12,011,508
            )





See
      accompanying summary of accounting policies


and
      notes
      to financial statements.




F-4


EARTH
      SEARCH SCIENCES, INC.


CONSOLIDATED
      STATEMENTS OF CASH FLOWS


Years
      Ended March 31, 2007 and 2006





2007
            
            
            2006CASH
                FLOWS FROM OPERATING ACTIVITIESNet
                income (loss)
            
            $
            3,648,892
            
            
            $
            (2,189,247
            )Adjustments
                to reconcile net loss tocash
                used in operating activities:Common
                stock issued for servicesand
                interest expense
            
            
            2,681,687
            
            
            
            677,079Warrants
                issued for services
            
            
            -
            
            
            
            17,182Common
                stock issued for debt
            
            
            -
            
            
            
            9,600Depreciation,
                amortization and depletion
            
            
            243,279
            
            
            
            339,645Asset
                impairment
            
            
            -
            
            
            
            27,318Gain
                on debt retirement
            
            
            (10,132,522
            )
            
            
            (1,569,917
            )Imputed
                interest
            
            
            93,155
            
            
            
            -Bad
                debt
            
            
            22,819
            
            
            
            20,130Changes
                in assets and liabilities:Accounts
                receivable
            
            
            (5,980
            )
            
            
            27,801Accounts
                payable –related party
            
            
            147,445
            
            
            
            -Accounts
                payable and accrued expenses
            
            
            2,786,593
            
            
            
            2,263,333Accrued
                officers compensation
            
            
            240,000
            
            
            
            240,000NET
                CASH USED IN OPERATING ACTIVITIES
            
            
            (274,632
            )
            
            
            (137,076
            )CASH
                FLOWS FROM INVESTING ACTIVITIESCapital
                expenditures
            
            
            (1,086
            )
            
            
            (5,246
            )NET
                CASH USED IN INVESTING ACTIVITIES
            
            
            (1,086
            )
            
            
            (5,246
            )CASH
                FLOWS FROM FINANCING ACTIVITIESProceeds
                from stockholder loans, net
            
            
            258,000
            
            
            
            370,745Proceeds
                for the sale of common stock
            
            
            -
            
            
            
            62,500Payment
                for loan extension
            
            
            -
            
            
            
            (62,000
            )Repayments
                on notes payable
            
            
            -
            
            
            
            (197,200
            )NET
                CASH PROVIDED BY FINANCING ACTIVITIES
            
            
            258,000
            
            
            
            174,045NET
                CHANGE IN CASH
            
            
            (17,718
            )
            
            
            31,723CASH
                AT BEGINNING OF PERIOD
            
            
            40,900
            
            
            
            9,177CASH
                AT END OF PERIOD
            
            $
            23,182
            
            
            $
            40,900SUPPLEMENTAL
                CASH FLOW INFORMATION:Interest
                paid
            
            $
            -
            
            
            $
            -Taxes
                paid
            
            
            -
            
            
            
            -Non-cash
                financing and investing activities:Common
                Stock issued for loan extension
            
            $
            72,000
            
            
            $
            123,726Common
                Stock issued for debt repayment
            
            
            75,000
            
            
            
            -Warrants
                for loan extension
            
            
            -
            
            
            
            92,494





See
      accompanying summary of accounting policies


and
      notes
      to financial statements.


F-5


EARTH
      SEARCH SCIENCES, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS








NOTE
      1 -
      SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES





Earth
      Search Sciences, Inc. collects high value hyperspectral imagery of the Earth's
      surface utilizing its 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.





All
      of
      these subsidiaries are inactive except Petro Probe, which has minimal operating
      activity.





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.





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 $91,429 and
      $302,901 to revenue in fiscal 2007 and 2006, respectively.





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.


F-6




As
      of
      March 31, 2007, 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, 2007.





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.




During
      fiscal years 2006 and 2007, oil and gas activity was minimal and all producing
      wells were closed and fully imaired as of March 31, 2006.  In addition, the
      amount retirement obligation related to related to their properties is
      minimal.




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 ESSI incurred unsuccessful oil and gas properties
      write-offs of $27,318. 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.


F-7




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-BASED
      COMPENSATION





ESSI
      issues stock as compensation to employees and outside consultants for services
      provided to the company.  These shares are recorded at the fair value of
      the stock as measured on the date or dates the service was
      provided.





For
      the
      years ended March 31, 2007 and 2006, ESSI had no stock option
      issuances.





RECENTLY
      ISSUED ACCOUNTING PRONOUNCEMENTS





ESSI
      does
      not expect the adoption of any recently issued accounting pronouncements to
      have
      a significant impact on its financial position, results of operations or cash
      flows.


F-8




**NOTE
      2 - GOING CONCERN**





As
      shown
      in the accompanying financial statements, ESSI incurred losses from
      operations of $5,889,080 and $1,461,954for fiscal 2007 and 2006,
      respectively and has an accumulated deficit of $58,234,889 and a working capital
      deficit of $11,951,632 as of March 31, 2007. 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 at March 31, 2007:





Life
            
            
            AmountAircraft
            
            
            10
            
            
            $
            925,795Equipment
            
            
            5
            
            
            
            216,3571,142,152Less:
                accumulated depreciation
            
            
            
            
            
            
            (832,208
            )Property
                and equipment, net
            
            
            
            
            
            $
            309,944





Depreciation
      expense totaled $104,935 and $104,223 in fiscal 2007 and 2006,
      respectively.










**NOTE 4
      - NOTES PAYABLE**





Notes
      payable consists of the following at March 31, 2007:





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
            
            $
            836,618Installment
                note payable secured by producing
                oil and gas property, with interest
                at 15%, due in monthly installments
                of $6,929
            
            
            367,824Other
            
            
            67,665Less:
                current portion
            
            
            (902,287
            )Total
            
            $
            369,820





F-9





**NOTE
      5 - 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, 2007, stockholder loans totaled
      $2,698,954 including interest accrued on such advances of $935,060.








**NOTE
      6 - 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 $321,852 and $385,991 during fiscal 2007 and 2006, 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
      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 7
      - INCOME TAXES**





ESSI
      recorded no provision for income taxes in fiscal 2007 and 2006 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:





At
      March
      31, 2007, deferred tax assets consisted of the following:





Deferred
                tax assetsNet
                operating losses
            
            $
            5,200,000Less:
                valuation allowance
            
            
            (5,200,000
            )Net
                deferred tax asset
            
            $
            -





The
      cumulative net operating loss carry-forward is approximately $14,850,000 at
      March 31, 2007, and will expire in the years 2015 through 2027. 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
      8 - 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:


F-10





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, 2007 and 2006, there were no option granted.





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





Sharesunder
            
            
            Weighted-averageoption
            
            
            exercise
                priceBalance,
                March 31, 2005
            
            
            54,593
            
            
            $
            442Options
                granted
            
            
            --
            
            
            
            --Options
                cancelled
            
            
            --
            
            
            
            --Options
                exercised
            
            
            --
            
            
            
            --Balance,
                March 31, 2006
            
            
            54,593
            
            
            $
            442Options
                granted
            
            
            --
            
            
            
            --Options
                cancelled
            
            
            --
            
            
            
            --Options
                exercised
            
            
            --
            
            
            
            --Balance,
                March 31, 2007
            
            
            54,593
            
            
            $
            442





Options
      outstanding and exercisable as of March 31, 2007:




-
                -
                Outstanding - -
            ExercisableNumber
            Remaining
            NumberExercise
                Price
            of
                Shares
            Life
            of
                Shares$20
            625
            1
                year
            62528
            375
            1
                year
            37556
            906
            .5
                year
            90656
            312
            1
                year
            31260
            875
            .5
                year
            87584
            12,500
            1
                year
            12,500140
            875
            .5
                year
            875200
            8,750
            1
                years
            8,750400
            6,875
            1
                years
            6,875600
            7,500
            1
                years
            7,500800
            7,500
            1
                years
            7,5001,000
            7,500
            1
                years
            7,50054,593
            
            54,593


F-11


**NOTE 9
      – STOCK TRANSACTIONS**




**COMMON
      STOCK**:





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 $123,726 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%.





**During
      fiscal 2007, ESSI issued:**





·
            14,954,831
                shares of stock valued at $2,561,687 to various individuals for services
                rendered.




·
            375,000
                shares of stock valued at $75,000 for loan and interest
                conversion.





·
            800,000
                shares of stock valued at $120,000 for directors
                compensation.


F-12




**NOTE
      10 - COMMITMENT AND CONTINGENCIES**





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. ESSI agreed to return the Probe at the end of August 2005; however,
      as
      of the end of fiscal 2006, ESSI has not returned the Probe. 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, 2007, management estimates the settlement obligation
      to be $5,434,259 which reflects a 5% late fee imputed each month on the
      outstanding balance due. As of March 31, 2007, management has recognized an
      accrual for the estimated obligation.





In
      October of 2002, Terranet, Inc. a subsidiary of ESSI, 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.








**NOTE
      11 - SUBSEQUENT EVENTS**





In
      February 2007, two officers of the Company agreed to loan ESSI $500,000, which
      is evidenced by a promissory note.  $170,000 of the net loan proceeds
      were received in March 2007 and the remaining balance was received in April
      2007.  The note, along with accrued interest, is due in February 28, 2008
      and carries a 15% per annum interest rate, compounded monthly.  The note is
      secured by 10,000,000 share of ESSI common stock, which becomes payable upon
      default.  In addition, ESSI received a $250,000 loan from another
      shareholder, which was received in April 2007.







F-13


---