UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB

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

                                       OR

[ ]    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)

                 Utah                                   870437723
--------------------------------------------------------------------------------
      (State or other jurisdiction                   (I.R.S. Employer
           of incorporation)                       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.  [X]

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

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

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

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

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

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


                                        1
<PAGE>
<TABLE>
<CAPTION>
                                TABLE OF CONTENTS

<S>                                                                            <C>
PART I  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   3

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

PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   8

  Item 5  -  Market for the Registrant's Common Stock Equity and
              Related Shareholder Matters . . . . . . . . . . . . . . . . . .   8
  Item 6  -  Management's Discussion and Analysis of Financial Condition
              and Results of Operations . . . . . . . . . . . . . . . . . . .  10
  Item 7  -  Financial Statements and Supplementary Data. . . . . . . . . . .  14
  Item 8  -  Changes in and Disagreements with Accountants on
               Accounting and Financial Disclosure. . . . . . . . . . . . . .  15
  Item 8A -  Controls and Procedures. . . . . . . . . . . . . . . . . . . . .  15
  Item 8B -  Other Information. . . . . . . . . . . . . . . . . . . . . . . .  15

PART III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16

  Item 9  -  Directors and Executive Officers of the Registrant . . . . . . .  16
  Item 10 -  Executive Compensation . . . . . . . . . . . . . . . . . . . . .  17
  Item 11 -  Security Ownership of Certain Beneficial Owners and
               Management . . . . . . . . . . . . . . . . . . . . . . . . . .  18
  Item 12 -  Certain Relationships and Related Transactions . . . . . . . . .  18
  Item 13 -  Exhibits, Financial Statement Schedules, and Reports on
               Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . .  19
  Item 14 -  Principle Accountants Fee and Services . . . . . . . . . . . . .  21

SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22
</TABLE>


                                        2
<PAGE>
                                     PART I

ITEM 1.  BUSINESS

Organization
------------

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

Corporate Focus
---------------

     Initially the Company was formed to engage in the mining industry. As
interests developed in exploration the Company began to look at the new types of
technology being used for that purpose. In 1991, the Company was invited to
participate in the Visiting Investigator Program (VIP) sponsored by the National
Aeronautics and Space Administration (NASA). In the VIP program, the Company
sought to compare the benefits of using the NASA operated Airborne Visible and
Infra-Red Imaging Spectrometer (AVIRIS), along with other less advanced
instruments, in locating geologic areas of interest in mineral exploration. The
results proved that remote sensing technology had a place in mineral exploration
and that a smaller, less expensive instrument than the NASA AVIRIS could be
gainfully applied in the mineral exploration industry. To achieve this goal, the
Company undertook the development of a miniaturized hyperspectral remote sensing
instrument, named Probe 1, which was designed to be used with cost effective and
easily available aircraft.

     Hyperspectral remote sensing instruments measure reflected, visible, and
infrared sunlight from the Earth's surface over a spectral range seven times
broader than the human eye can see. This collected data can then be digitally
analyzed using personal computers.  The digitally analyzed imagery can provide
information useful to a wide range of industries such as, but not limited to,
natural resource development (including oil and mineral exploration, fisheries
and forestry), land use development, environmental remediation and monitoring,
agriculture (including vegetation stress analysis), disaster assessment, marine
sciences and military sciences.

     Since 1997 the Company and the Probe 1 have served many customers from the
private sector, government and the military. This service has become known for
its accuracy, reliability, and cost effectiveness and with the addition of
geo-rectification capabilities and automated original processing steps continues
to be one of the most accurate and cost effective instruments in the airborne
remote sensing industry.

     The Company's mission is to continue to use the science of remote sensing
in a variety of  exploration, monitoring and exploitation  industries around the
globe.  The science of 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 emphasis 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 is taking 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 will produce two valuable results for ESSI shareholders:

1. Create more demand for ESSI's hyperspectral remote sensing services, hence
more revenue generation, and


                                        3
<PAGE>
2. Create equity positions with fast growth potential in multiple key industries
from new discoveries of rare natural resources.

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

Current Business Plan
---------------------

     Since June 1, 1997, the Company has collected and currently owns a
substantial archive of Probe 1 hyperspectral imagery from Kazakhstan, Australia,
British Columbia, Ontario, Quebec, Chile, Peru, Mexico, California, Nevada,
Arizona, Idaho, Montana, Wyoming, Texas, Louisiana, Florida and Utah. At the
present time, the value of this data archive has not been independently
appraised and its value is not reflected in the Company's financial statements,
although recent announcements from Noranda Mining and Exploration Inc., a
customer, indicate that their Probe 1 data from Chile and Peru has revealed new
potential major mineral deposits. See the Earth Search website at
http://www.esseob.com/images/peshko.pdf for more information. The Company is
---------------------------------------
designing programs to market the data in the archive based on this success. The
first is included in the joint venture with Advanced Exploration Inc. through a
subsidiary company, Geo Probe, Inc.

     The Company believes cost effective hyperspectral remote sensing and
imagery processing has tremendous potential in various global applications and
markets. The ASPRS/NASA Ten-Year Industry Forecast published in 2003 validates
this position.  The Company is ensuring its maximum exposure to this market by
continuing the business model that establishes subsidiary companies to focus on
hyperspectral remote sensing applications in key industries.  Each subsidiary
will focus on a specific sector of commercial remote sensing and have a
management team with relevant skills and expertise.  The Company will provide
each one, the Company's hyperspectral technology intellectual property,
processing support, marketing and management assistance. With the establishment
and growth of the subsidiaries this strategy will begin to create a larger
market for the Company, as well situate the Company to receive royalties from
any resource development that occurs as a result of the use of the Company's
instruments and technology.

     The Company's long-term strategic plan is to continue to create
partnerships, strategic alliances, mergers or acquisitions as the most
expeditious and cost-effective way to consolidate commercial hyperspectral
remote sensing collections and services. In the technology sector the Company
will complete the development of additional miniaturized remote sensing
instruments and test the integration of other advanced technology exploration
instruments;

     The Company's near-term plans are to continue pursuing:

     1.   contracts that produce revenues from the application of remote
          sensing;
     2.   the development of promising mineral, oil and gas properties in
          which the Company has an equity interest, identifying such properties
          by utilizing its existing imagery database or acquiring such data; and
     3.   the marketing of ESSI archived raw data

     The  negative  events  of  2001,  including  the  stock  market decline and
September  11,  2001,  left  the Company in a tenuous highly leveraged position.
Recognizing  that the economy and the general business climate was in a stage of
change, the Company made every effort to reduce overhead as quickly as possible,
even  though  that  may  have been detrimental to longer-term expansion plans in
some  cases.  Although  cash  flow  was conserved the Company entered 2002 in an
undercapitalized  state  and  sought  assistance  from  a


                                        4
<PAGE>
variety  of  sources  including some who indicated they could bring in necessary
new  investment  into  the  Company.  None  of  the  individual  sources  proved
successful, however most recommended a reorganization of the company in order to
encourage  migration of capital into the company.  The reorganization would also
include  bringing  in  experienced  directors and outsiders to fill the roles of
senior  management.  In 2004, the Board of Directors acted on the recommendation
of  investor  sources and its own research and began to implement these actions.
A formal re-structuring of the company commenced in mid 2005 with filings to the
SEC  and  was  concluded  in  October,  2005.

Subsidiary  Companies
---------------------

Formation  of  Petro  Probe,  Inc.
----------------------------------

     The  Company  formed  Petro  Probe,  Inc. to identify and develop potential
hydrocarbon  properties  by  utilizing  Probe  1 surface imagery integrated with
other  sub-surface  exploration techniques. Petro Probe, Inc.'s strategy entails
capturing  data over areas of interest that the Company may later take an equity
interest  in,  as  well  as  the  sale  of  hyperspectral imagery and processing
services  to  oil  and gas properties owned by third party customers.  A primary
objective  in  evaluating a potential hydrocarbon resource project is to provide
geologic  mapping  of  outcrop  lithology  and  surface  structure.  The Probe 1
instrument  is  an  excellent  tool to obtain this mapping.  Probe 1 imagery can
identify  subtle  features  due  to topographic offset, vegetation change and/or
soil  alteration  that  play  a  major  role  in  forming  hydrocarbon  traps.
Hyperspectral imagery can also aid in petroleum exploration by detecting surface
indicators  of  potential  petroleum  reserves  such  as  micro  seepage.

     Petro  Probe, Inc.'s goal is to develop the competitive advantages of Probe
1  resource  mapping  capability,  combining  this with conventional hydrocarbon
exploration  tools  and  then  applying newer value-added technology, such as 3D
seismic  to identify and acquire equity positions in oil and gas properties.  3D
seismic  is the technology of measuring underground explosions to map subsurface
geologic  structures.

     Petro  Probe,  Inc.'s  working  interests in its seven oil and gas projects
which  offer  it  the  right  to participate in drilling additional wells on the
project  lease  acreage.  Petro  Probe  Inc.  will  determine  whether or not to
participate  in additional drilling efforts on a case by case basis. Besides the
West  Scott  field  project, Petro Probe has interests in the Green River Basin,
Paradox  Basin,  and  the  Australian  Basin.

     Because  of the national need for new hydrocarbon discoveries, Petro Probe,
Inc. is actively seeking petroleum based companies to either joint venture with,
or  merge  with,  and  is  in  an  excellent  position  to  move forward in this
direction. A merger is under discussion with a private company holding a license
for  new  Oil  Shale  recovery  technology.  The  company,  General  Petroleum
International,  Inc.,  offers  access  to huge oil shale deposits in the USA and
around  the  world.

Formation  of  Geo  Probe,  Inc.
--------------------------------

     The  Company  formed  Geo  Probe,  Inc.  to  pursue  geologically  tailored
hyperspectral  imaging services to mineral exploration companies and develop new
markets in geological applications. The same indicators that can be used to find
mineral  deposits can also be used to monitor the environmental impact of active
and  past-producing  mines,  mills, smelters, refineries and pipelines.  Mineral
deposits are part of larger geological systems that typically have mineralogical
characteristics  that  are  mappable using Probe 1 imagery.  In vegetated areas,
the  subtle  effects  that  bedrock  geology  has  on  plants can be measured to
identify  hidden  minerals.  The  Company's  mapping  agreement  with Noranda in
1998-2000  provided  the  ability to develop and prove new approaches to mineral
exploration.  The  experience  gained from this application still remains a rare


                                        5
<PAGE>
and  valuable  intellectual  property  today,  evidenced by the discovery of 145
mineral targets in Chile by Noranda.  Therefore, Geo Probe's business focus will
be  to use the Company's remote sensing instruments to globally survey any areas
that  have  promise  for the location of minerals either for its own use, or for
third  party  customers,  and  to  sell  hyperspectral collection and processing
services  in  the  geological  hazards  and  environmental  geology  sectors.

     As in the hydrocarbon industry sector there is a build-up of new demand for
mineral  exploration beginning to occur and Geo Probe recently concluded a joint
venture  with  partners,  Advanced  Exploration  Inc.  and  Geological  Business
Solutions  Inc.  two  Canadian  companies  launching  new  exploration  and mine
development  businesses.  The  companies  in the joint venture employ former key
Noranda  Minerals  hyperspectral  exploration  staff.

Formation  of  Eco  Probe,  Inc.
--------------------------------

     The  Company  formed Eco Probe, Inc. to pursue hyperspectral remote sensing
applications in the environmental industry.  The Company has taken an industrial
leadership  role  in  working  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
industries,  forest  inventory and health issues, slope stability assessment and
the  spread  of  noxious  weeds.

     ESSI and Eco Probe, Inc. have performed important hyperspectral surveys and
research  in  aquatic and vegetation-related projects. The environmental markets
are  vast,  however  the  Company's current lack of resources dictates continued
priority  be  assigned  to  mineral  and  hydrocarbon  exploration.

Formation  of  Terranet,  Inc.
------------------------------

     The  Company formed Terranet, Inc. to act as a imagery product distribution
conduit  and  perform  as  the  Company's  e-commerce content provider through a
unique  internet  imagery  distribution  system.  Imagery  collected  today  and
yesterday  could  be  sold  repeatedly  to  multiple  end users.  In addition to
selling  the  Company's  own  imagery, Terranet, Inc. would pursue the resale of
imagery  obtained  from third parties. Terranet completed the design and testing
of  a  database  and  internet  centered  marketing  system  and is anticipating
opportunities for joint venture partners in the near future. The system's unique
design  features  are  protected  by  copyright  owned  by  the  Company.

Fiscal  2005  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.

     Proposals  are  being  developed  to  partner  with  private  industry,
universities  and  state  and  federal  agencies to develop, package and deliver
competitive advanced technology products and services. These are being evaluated
on  a  priority  basis.  The  Company continues to respond to an ever increasing
volume  of  requests  for  quotations.  This demonstrates the growing demand for
hyperspectral  services  and  gives  reason  for  the Company to have a brighter
outlook  for  the  near  future.

Business  Segment  Information
------------------------------


                                        6
<PAGE>
     Included  in  the  attached  financial  statements  is  business  segment
information  and  financial  information about geographic areas for the Company.

Employees
---------

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

Available  Information
----------------------

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

Seasonal  Nature  of  Business
------------------------------

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

Customers  and  Geographic  Areas  of  Business
-----------------------------------------------

     In  fiscal  2006,  the  Company operated its airborne hyperspectral sensors
under contracts with third parties in several areas around the United States. In
fiscal  2005  and 2004, the Company's sensors were operated in the United States
and  abroad.  Contracts  to  operate  the  sensors  in  the  United States as an
ecological,  mining,  agricultural,  hydrocarbon,  and  target  identification
contributed  approximately $302,901, $192,297 and $258,843, to revenue in fiscal
2006,  2005,  and  2004,  respectively.

ITEM 2.  PROPERTIES

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

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

ITEM 3.  LEGAL  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; 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, 2006, management estimates the settlement obligation
to be $2,820,099 which reflects a 5% late fee imputed each month on the
outstanding balance due.  As of March 31, 2006, management has recognized an
accrual for the estimated obligation.

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

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

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

          Not  applicable


                                        7
<PAGE>
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 the NASDAQ "pink sheets"
          and  do  not  represent  actual  transactions.

<TABLE>
<CAPTION>
          Quarter Ended          High  Low
    ---------------------------  ----  ---
<S>                              <C>   <C>
             June 30, 2004        .01  .01
             September 30, 2004   .01  .01
             December 31, 2004    .01  .01
             March 31, 2005       .40  .30

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

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

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

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


                                        8
<PAGE>
<TABLE>
<CAPTION>
                           RECENT SALES OF UNREGISTERED SECURITIES (1)

            AMOUNT    PRICE     TOTAL                           AMOUNT    PRICE     TOTAL
              OF       PER      CASH                              OF       PER      CASH
          SECURITIES  SHARE   PROCEEDS                        SECURITIES  SHARE   PROCEEDS
DATE         SOLD      ($)       ($)               DATE          SOLD      ($)       ($)
--------  ----------  ------  ---------       --------------  ----------  ------  ---------
<S>       <C>         <C>     <C>        <C>  <C>             <C>         <C>     <C>        <C>

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

     (1)  Consideration paid for the shares was employee and/or consulting
          services.
     (2)  Shares issued for debt consideration.
     (3)  Consideration paid for Directorship.


                                        9
<PAGE>
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.

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

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

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

Total                                            54,593  $                  442                         -
</TABLE>

(1)  The Company's stock options and warrants have not been approved by security
     holders
(2)  Excludes options for 4,000,000 shares issued as part of the acquisition of
     STDC

Securities authorized for private placement issuance under subsidiary companies
-------------------------------------------------------------------------------

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

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                 As of or for the fiscal year ended
                                                 ----------------------------------
                                    2006           2005           2004           2003           2002
                                -------------------------------------------------------------------------
<S>                             <C>            <C>            <C>            <C>            <C>
Operating revenue               $    399,742   $    415,702   $    516,490   $    786,208   $  5,044,498
Net loss                           2,189,247      5,185,527     (3,860,529)    (5,354,184)   (16,797,081)
Net loss per common share              (0.00)         (0.94)         (0.02)         (0.03)         (0.11)
Total assets                         638,233        665,940      1,233,573      4,091,566      7,096,591
Long-term obligations                349,303        367,373      4,286,233      4,700,365      4,687,895
Stockholders' (deficit) equity   (18,510,242)   (17,303,576)   (18,690,393)   (14,879,965)   (11,310,331)
Cash dividends declared                    -              -              -              -              -
</TABLE>


                                       10
<PAGE>
     Financial comparisons will be made between the fiscal years ended March 31,
2006  and  2005.

Results  of  Operations
-----------------------

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

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

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

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

     The  Company  recognized  a  net loss of $2,189,247 in fiscal 2006 compared
with  a  net lose of $5,185,527 in 2005. The loss on a per share basis was $0.00
and  $0.93  in  fiscal  2006  and  2005.

Liquidity  and  Capital  Resources
----------------------------------

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

     At  March 31, 2006 and 2005, the Company had cash of $40,900 and $9,175 and
a  working  deficit  of  $18,574,732  and  $17,472,528,  respectively.

     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.

     Under  the  original  agreement  with the ONR, STDC needed to raise private
industry  funds  of  approximately $125,000,000 in order to complete, launch and
operate  the hyperspectral imaging satellite and instrument. Subsequent to March
31,  2002,  STDC  received notification from the ONR that it would not be giving
STDC  an  extension to its current agreement. The success of STDC and payment of
approximately $8,216,424 of STDC accounts payable due subcontractors and vendors
on  the  NEMO program, is dependent on the Company and ONR negotiating plans for
going forward and additional funds being identified either commercially or under
governmental  programs to complete and launch the NEMO satellite and sensor. The
Company is examining its positions and will be making a decision to proceed with
recovery.

     The  Company  believes  that  funds generated from its operations, together
with  future  borrowings  and  the  equity  line  will  be  adequate to meet the
Company's  anticipated  cash  needs  during  the  immediate  term.

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

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


                                       11
<PAGE>
Significant  Accounting  Policies
---------------------------------

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

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

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

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

Future  Operations
------------------

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

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

     Research  and  Development of next generation hyperspectral instrumentation
is  continuing.  The Company is pursuing the approval of nano-technology patents
for  hyperspectral  remote  sensing


                                       12
<PAGE>
instrumentation and processing in order to secure its market position for the
next decade of industry developments.

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

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

Risks Related to Our Industry
-----------------------------

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

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

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

Risks  Related  to  Our  Business
---------------------------------

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


                                       13
<PAGE>
     In  addition,  from  time  to time, the Company expects to make significant
capital  expenditures to implement new processes and to increase both efficiency
and  capacity.  Some  of  these projects may require additional training for our
employees  and  not  all  projects may be implemented as anticipated.  If any of
these  projects  do  not  achieve  the  anticipated  increase  in  efficiency or
capacity,  our  returns  on  these  capital expenditures may not be as expected.

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

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

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

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

Outlook
-------

     This  Report  on  Form  10-KSB,  including  the  foregoing  discussion  in
"Management's  Discussion  and  Analysis  of  Financial Condition and Results of
Operations,"  and  other  reports  hereafter  filed  by  the  Company  with  the
Securities  and  Exchange  Commission  may  contain "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.  The
Act  provides  a  "safe  harbor"  for  forward-looking  statements  to encourage
companies  to  provide  prospective information about themselves so long as they
identify  these  statements as forward-looking and provide meaningful cautionary
statements  identifying  important  factors  that  could cause actual results to
differ  from  the  projected  results.  All  statements other than statements of
historical  fact the Company  makes in this Report on Form 10-KSB and such other
reports  filed  with the Securities and Exchange Commission are forward-looking.
In  particular, statements regarding industry prospects, future OEM sales by the
Company,  the  adequacy  of  existing  manufacturing  resources,  the  Company's
continued  expansion  in  foreign  markets  and  the Company's future results of
operations  or financial position are forward-looking statements.  Words such as
"anticipates",  "expects",  "intends", "plans", "believes", "seeks", "estimates"
and  similar  expressions  identify forward-looking statements.  But the absence


                                       14
<PAGE>
of  these words does not mean the statement is not forward-looking.  The Company
cannot  guarantee  any  of  the forward-looking statements, which are subject to
risks,  uncertainties  and  assumptions  that  are difficult to predict.  Actual
results  may  differ  materially  from  those  the  Company  forecasts  in
forward-looking  statements  due  to  a  variety of factors, including those set
forth  above  under  the  heading  "Additional  Risk  Factors  that could Affect
Operating  Results and Market Price of Stock" and elsewhere in this Report.  The
Company  does  not  intend  to  update any forward-looking statements due to new
information,  future  events  or  otherwise.

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.

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, 2006, and through July 5, 2006,
there  have  been  no  reportable  events  (as  defined  in  Regulation S-K Item
304(a)(1)(v)).

ITEM 8A.   CONTROLS AND 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 principal accounting officer, of the
effectiveness  of  the  design  and  operation  of  our  disclosure controls and
procedures  as  defined  in  Rules  13a-15(e)  and  15d-15(e)  of the Securities
Exchange  Act  of  1934. Based upon that evaluation, our chief executive officer
and  principal  financial  officer  concluded  that  our disclosure controls and
procedures  were  not  effective  to enable us to record, process, summarize and
report  information  required  to  be  included in our periodic filings with the
Securities  and  Exchange Commission within the required time period and in that
some  of the accounting entries relating to debt and equity instruments required
adjustment  upon  review by our independent auditors. We intend to take measures
to  remedy  this  situation  by engaging independent auditors to provide us with
accounting  advice  and  implementing  internal  procedures  including  the
distribution of documents. These deficiencies have been reported to our Board of
Directors  and  we intend to improve and strengthen our controls and procedures.

ITEM 8B.   OTHER INFORMATION

None.


                                       15
<PAGE>
                                    PART III
                                    --------

ITEM 9.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

<TABLE>
<CAPTION>
          NAME       AGE                POSITION
-------------------  ---  -------------------------------------
<S>                  <C>  <C>
     Larry F. Vance   71  Chairman and Chief Executive Officer

     Tami J Story     43  Director Secretary/Treasurer/Director
</TABLE>

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

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

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

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


                                       16
<PAGE>
ITEM  10.  EXECUTIVE  COMPENSATION

Table below summarizes information on Executives and Directors compensation

<TABLE>
<CAPTION>
                                             SUMMARY COMPENSATION TABLE
                                                                                             Long-Term Compensation
                              Annual Compensation                             Awards                 Payouts
                          ---------------------------------------------------------------------------------------------
                                                                                            Securities
                                                      Other Annual    Restricted   Stock    underlying
Name and Principal        Fiscal   Salary    Bonus    Compensation      Stock      Option  options/SARS     LTIP pay-
Position                   Year     ($)       ($)          ($)       Award(s) ($)  Grants       (#)         outs ($)
-----------------------------------------------------------------------------------------------------------------------
<S>                       <C>     <C>       <C>       <C>            <C>           <C>     <C>            <C>

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

                            All other
Name and Principal        Compensation
Position                       ($)
---------------------------------------
<S>                       <C>

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

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


<TABLE>
<CAPTION>
                    AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END
                                      OPTION/SAR VALUES

                                              Number of securities          Value of Unexercised In-the
                                             underlying unexercised               Money Options at
                                                options at FY-End                    FY-End ($)
                   Shares
                 Acquired on     Value
Name              Exercise    Realized ($)  Exercisable/Unexercisable        Exercisable/Unexercisable
---------------  -----------  ------------  -------------------------  ---  ----------------------------
<S>              <C>          <C>           <C>                        <C>  <C>

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

(1) Exercise prices range from $0.21 - $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.


                                       17
<PAGE>
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, 2006 by each person known by the
Company  to  own  beneficially more than five percent of the Common Stock and by
all  directors  and  officers  and  as  a  group:

<TABLE>
<CAPTION>
                                     Amount and nature
     Name and address of beneficial    of beneficial     Percent of
                 owner                 ownership (1)        class
-----------------------------------  ------------------  -----------
<S>                                  <C>                 <C>

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

     All directors and officers             66,730,358           90%
</TABLE>


___________________________
(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

None.


                                       18
<PAGE>
                                     PART IV
                                     -------

ITEM 13.  EXHIBITS,  FINANCIAL  STATEMENT  SCHEDULES,  AND  REPORTS  ON FORM 8-K

<TABLE>
<CAPTION>
<S>          <C>                                                      <C>
     (a)(1)  Financial Statements filed as part of this Report        Page in this Report

             Report of Independent Accountants                        F-1 - F-2
             Consolidated Balance Sheet at March 31, 2004 and 2003    F-3
             Consolidated Statement of Loss for the Years
                Ended March 31, 2004, 2003 and 2002                   F-4
             Consolidated Statement of Redeemable Common Stock
                And Nonredeemable Shareholders' Equity (Deficit) for
                the Years Ended March 31, 2004, 2003 and 2002         F-5
             Consolidated Statement of Cash Flows for the Years
                Ended March 31, 2004, 2003 and 2002                   F-6
             Notes to Consolidated Financial Statements               F-7 - F-25

     (a)(2)  Financial Statement Schedules                            None

     (a)(3)  Exhibits
</TABLE>

     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).

     10.5 Agreement  between  the  Office of Naval Research and Space Technology
          Development  Corporation  Agreement  for NAVY EARTHMAP OBSERVER (NEMO)
          dated  December  10,


                                       19
<PAGE>
          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).

   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).


                                       20
<PAGE>
     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)


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, 2006 and March 31, 2005 and fees billed
for other services rendered by Malone & Bailey. during those periods.

<TABLE>
<CAPTION>
                                                FISCAL 2005  FISCAL 2004
<S>                                             <C>          <C>
Audit Fees (1)                                  $    45,000  $    44,000
Audit Related Fees (2)                          $         0  $         0
Tax Fees (3)                                    $         0  $         0
All Other Fees (4)                              $         0  $         0
Total                                           $    45,000  $    44,000
</TABLE>


                                       21
<PAGE>
                                   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. Vance
                                        Larry F. Vance
                                        Chairman
                                        Date: July 14, 2006

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


Signature                         Title

/s/ Larry F. Vance                Chairman and Director
Larry F. Vance
Date: July 14, 2006


/s/ Tami J. Story                 Corporate Secretary and Treasurer and Director
Tami J. Story
Date: July 14, 2006


                                       22
<PAGE>
             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.  ("Earth  Search")  as  of  March  31,  2006,  and  the  related
consolidated statements of operations, stockholders' deficit, and cash flows for
each  of  the  two  years  then  ended.  These  financial  statements  are  the
responsibility  of  Earth Search's management.  Our responsibility is to express
an  opinion  on  these  financial  statements  based  on  our  audits.

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

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

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



Malone & Bailey, PC
Houston, Texas
www.malone-bailey.com

July 5, 2006


<PAGE>
<TABLE>
<CAPTION>
                           EARTH SEARCH SCIENCES, INC.
                           CONSOLIDATED BALANCE SHEET
                                 March 31, 2006


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

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

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

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

Commitments and contingencies                                                -

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


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


<PAGE>
<TABLE>
<CAPTION>
                           EARTH SEARCH SCIENCES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                       Years Ended March 31, 2006 and 2005


                                                 2006          2005
                                             ------------  ------------
<S>                                          <C>           <C>
Revenues                                     $   399,742   $   415,702

Expenses
  Bad debt                                        20,130             -
  General and administrative                   1,474,602     4,443,170
  Depreciation, amortization and depletion       339,646       151,039
  Impairment                                      27,318       386,628
                                             ------------  ------------
  Total Expenses                               1,861,696     4,980,837

                                             ------------  ------------
Loss from operations                          (1,461,954)   (4,565,135)

Other income (expense)
  Debt forgiveness                             1,569,917        38,788
  Interest expense                            (2,297,210)     (659,180)

                                             ------------  ------------
Net loss                                     $(2,189,247)  $(5,185,527)
                                             ============  ============

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

Weighted average common shares outstanding    76,280,791     5,545,079
</TABLE>


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


<PAGE>
<TABLE>
<CAPTION>
                           EARTH SEARCH SCIENCES, INC.
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
                       Years Ended March 31, 2006 and 2005


                                          Preferred Stock         Common Stock
                                         Shares      Amount     Shares    Amount
                                       -----------  --------  ----------  -------
<S>                                    <C>          <C>       <C>         <C>
Balance at March 31, 2004 (restated)            -   $     -      485,764  $   486

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

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

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

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

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

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

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

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

Related party release of debt                   -         -            -        -

Net loss                                        -         -            -        -
                                       -----------  --------  ----------  -------

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

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

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

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

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

Warrants for loan extension                     -         -            -        -

Warrants for services                           -         -            -        -

Net loss                                        -         -            -        -
                                       -----------  --------  ----------  -------
Balance at March 31, 2006                       -   $     -   77,697,642  $77,698
                                       ===========  ========  ==========  =======
</TABLE>


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


<PAGE>
<TABLE>
<CAPTION>
                                 EARTH SEARCH SCIENCES, INC.
                  CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
                             Years Ended March 31, 2006 and 2005


                                        Additional
                                         Paid-in      Accumulated    Treasury
                                         Capital        Deficit       Stock         Total
                                       ------------  -------------  ----------  -------------
<S>                                    <C>           <C>            <C>         <C>
Balance at March 31, 2004 (restated)   $35,690,008   $(54,509,007)  $(200,000)  $(19,018,513)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Warrant for services                        17,182              -           -         17,182

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


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


<PAGE>
<TABLE>
<CAPTION>
                               EARTH SEARCH SCIENCES, INC.
                          CONSOLIDATED STATEMENTS OF CASH FLOWS
                           Years Ended March 31, 2006 and 2005


                                                                  2006          2005
                                                              ------------  ------------
<S>                                                           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                      $(2,189,247)  $(5,185,527)
Adjustments to reconcile net loss to
  cash used in operating activities:
Common stock issued for services
  and interest expense                                            677,079     3,653,666
Warrants issued for services                                       17,182             -
Common stock issued for debt                                        9,600             -
Common stock issued for legal settlement                                -       328,121
Depreciation, amortization and depletion                          339,645       151,038
Asset impairment                                                   27,318       386,628
Forgiveness of debt                                            (1,569,917)       38,788
Bad debt                                                           20,130             -
Changes in assets and liabilities:
  Accounts receivable                                              27,802        44,337
  Other current assets                                                  -        39,007
  Accounts payable and accrued expenses                         2,198,386       (13,459)
  Accrued interest                                                 64,947       181,857
  Accrued officers compensation                                   240,000       336,672
                                                              ------------  ------------
NET CASH USED IN OPERATING ACTIVITIES                            (137,076)      (38,872)
                                                              ------------  ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures                                               (5,246)      (55,958)
                                                              ------------  ------------
NET CASH USED IN INVESTING ACTIVITIES                              (5,246)      (55,958)
                                                              ------------  ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stockholder loans, net                              370,745       171,591
Proceeds for the sale of common stock                              62,500             -
Payment for loan extension                                        (62,000)            -
Repayments on notes payable                                      (197,200)      (79.339
                                                              ------------  ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                         174,045        92,252
                                                              ------------  ------------

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

SUPPLEMENTAL CASH FLOW INFORMATION

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

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


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


<PAGE>
                           EARTH SEARCH SCIENCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

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

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

All subsidiaries excepting Petro Probe became inactive during fiscal 2003.

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

In fiscal 2006 and 2005, ESSI operated its airborne hyperspectral sensors under
contracts with third parties in several areas around the United States.
Contracts to operate the sensors in the United States as an ecological,
agricultural, hydrocarbon, and target identification contributed approximately
$302,901 and $192,000 to revenue in fiscal 2006 and 2005, respectively.

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


<PAGE>
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.

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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


<PAGE>
than restating prior periods and requires the application of the accounting
standard as of January 1, 2006.

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

NOTE 2 - GOING CONCERN

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

NOTE 3 - PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                             March 31,
                                     Life       2006
                                     ----  --------------
<S>                                  <C>   <C>
           Aircraft                    10  $     925,795
           Equipment                    5        223,633
                                           --------------
                                               1,149,428

     Less: accumulated depreciation             (735,635)
                                           --------------
                                           $     413,793
                                           ==============
</TABLE>

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

NOTE 4 - OIL AND GAS INTERESTS

In fiscal 2005, ESSI paid $101,849 for drilling on two existing properties and
sold a portion of its interests to others on those two properties for $15,947.

ESSI recognized approximately $97,000 and $223,000 in revenue from the producing
property in fiscal 2006 and 2005 respectively.  Depletion was $14,863 and
$38,025 in fiscal 2006 and 2005 respectively.

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


<PAGE>
<TABLE>
<CAPTION>
Supplemental information (unaudited)
                                            Successful
                                              Efforts
                                            -----------
<S>                                         <C>
Capitalized costs relating to oil and gas
producing activities at March 31, 2006
  Proved oil and gas properties             $         -
  Unproved oil and gas properties                     -
  Less accumulated depletion                          -
                                            -----------
Net capitalized costs                       $         -
                                            -----------
</TABLE>

<TABLE>
<CAPTION>
Costs incurred in oil and gas producing
  activities for the years ended
  March 31, 2006 and 2005
                                               2006        2005
                                             ---------  ----------
<S>                                          <C>        <C>
Property acquisition costs
  Proved                                     $      -   $       -
  Unproved                                          -      55,958

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

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

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

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


<PAGE>
<TABLE>
<CAPTION>
                                         2006                2005
                                    Oil      Gas       Oil         Gas
                                   (Bbls)   (Mcf)     (Bbls)      (Mcf)
                                   ------  --------  --------  -----------
<S>                                <C>     <C>       <C>       <C>
Proved developed and undeveloped
Reserves
  Beginning of year                     -   47,000    13,356    5,271,000
  Revisions of previous estimates       -  (32,590)  (13,343)  (5,181,709)
  Production                            -  (14,410)      (13)     (42,291)
                                   ------  --------  --------  -----------
End of Year                             -        -         -       47,000
                                   ======  ========  ========  ===========
Proved developed reserves
  Beginning of year                     -   47,000    13,356    5,271,000
  End of year                           -        -         -       47,000
</TABLE>

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

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

<TABLE>
<CAPTION>
                                             2006        2005
                                          ----------  ----------
<S>                                       <C>         <C>
Beginning of the year                     $ 202,638   $ 421,663
Sales of oil and gas, net of production
  costs                                     (96,841)   (223,405)
Net changes in prices and production
  costs                                           -       9,683
Development costs incurred during the
  year which were previously estimated            -           -
Revisions of previous quantity estimates   (133,621)     (9,761)
Net change in future estimated
  development costs                          27,824      (4,458)
                                          ----------  ----------
End of year                               $       -   $ 202,638
                                          ==========  ==========
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
NOTE 5 - NOTES PAYABLE

Notes payable consists of the following:
                                                2006
                                             ----------
<S>                                          <C>
  Installment note payable with a balloon
    due September 15, 2006, secured by ESSI's
    assets, with
    interest at 15%, due in monthly
    installments of $18,042                  $ 850,616

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

NOTE 6 - STOCKHOLDER LOANS

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

NOTE 7 - ACCRUED OFFICERS' COMPENSATION

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

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

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

NOTE 8 - BUSINESS SEGMENT INFORMATION

ESSI's major activities are broken down into an Airborne Hyperspectral Services
business segment, a Satellite Development business segment, an Oil and Gas
property business segment and an Other Industries business segment. The Airborne
Hyperspectral Services segment and Satellite Development segment utilized remote
sensing instruments to earn revenue from the sale of hyperspectral imagery. The
current Satellite Development business segment


<PAGE>
revenue is from a cost reimbursement contract with the U.S. Navy for the
construction of the NEMO project, which has been disbanded. Transactions between
the business segments are loans, interest, and management fees based on an
allocation of incurred costs for general and administrative expenses. As the
consolidated group is operating at a net loss position, no income tax expense or
benefit is provided.

<TABLE>
<CAPTION>
                            Business Segment Information for Fiscal Year 2006

                                    Airborne
                                  Hyperspectral     Satellite    Oil and Gas      Other
                                    Services       Development    Properties    Industries     Combined
                                 ---------------  -------------  ------------  ------------  ------------
<S>                              <C>              <C>            <C>           <C>           <C>
Revenues                         $      302,901   $          -   $     96,841  $         -   $   399,742
                                 ===============  =============  ============  ============  ============
Income (loss) from operations    $   (1,479,489)  $       (311)  $     22,346  $    (4,500)  $(1,461,954)
                                 ===============  =============  ============  ============  ============

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

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


                                            Business Segment Information for Fiscal Year 2005

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

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

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

NOTE 9 - INCOME TAXES

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

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


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

<TABLE>
<CAPTION>
     Deferred tax assets
<S>                                  <C>
         Net operating losses        $   6,300,000
         Less:  valuation allowance     (6,300,000)
                                      ------------
     Net deferred tax asset          $           0
</TABLE>

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

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

NOTE 10 - OFFICER AND DIRECTOR STOCK OPTIONS

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

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

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

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

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


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

<TABLE>
<CAPTION>
                               Shares
                               under     Weighted-average
                               option     exercise price
                              --------  ------------------
<S>                           <C>       <C>
     Balance, March 31,2003   $57,845   $             428
       Options granted             --                  --
       Options cancelled       (2,313)               (228)
       Options exercised           --                  --
                              --------  ------------------
     Balance, March 31, 2004   55,532                 436
       Options granted             --                  --
       Options cancelled         (939)                (84)
       Options exercised           --                  --
                              --------  ------------------
     Balance, March 31, 2005   54,593   $             442
       Options granted             --                  --
       Options cancelled           --                  --
      Options exercised           --                  --
                              --------  ------------------
     Balance, March 31, 2006  $54,593   $             442
                              ========  ==================
</TABLE>

Options outstanding and exercisable as of March 31, 2006:

<TABLE>
<CAPTION>
                       - - Outstanding - -    Exercisable
                        Number    Remaining     Number
     Exercise Price   of Shares      life      of Shares
     ---------------  ----------  ----------  -----------
<S>                   <C>         <C>         <C>
           20                625      1 year          625
           28                375      1 year          375
           56                906     .5 year          906
           56                312      1 year          312
           60                875     .5 year          875
           84             12,500      1 year       12,500
          140                875     .5 year          875
          200              8,750     1 years        8,750
          400              6,875     1 years        6,875
          600              7,500     1 years        7,500
          800              7,500     1 years        7,500
        1,000              7,500     1 years        7,500

                      ----------              -----------
                          54,593                   54,593
                      ==========              ===========
</TABLE>

NOTE 11 - STOCK ISSUANCES

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

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

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


<PAGE>
During fiscal 2005, ESSI issued:

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

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

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

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

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

During fiscal 2006, ESSI issued:

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

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

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

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

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

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

NOTE 12 - LITIGATION

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, 2006, management estimates the settlement obligation
to be $2,820,099 which reflects a 5% late fee imputed each month on the
outstanding balance due.  As of March 31, 2006, management has recognized an
accrual for the estimated obligation.

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