SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K


[X]      Annual  report  pursuant  to  Section  13 or  15(d)  of the  Securities
         Exchange Act of 1934 For the fiscal year ended March 31, 1999 or
[ ]      Transition  report  pursuant to Section 13 or 15(d) of the Securities
         exchange Act of 1934 For the transition period from ______ to ______

                         Commission file number 0-19566

                           EARTH SEARCH SCIENCES, INC.
             (Exact name of registrant as specified in its charter)

               Utah                                             87-0437723
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                              Identification No.)

502 North 3rd Street, #8  McCall, Idaho                            83638
(Address of principal executive offices)                         (Zip Code)

Registrant's telephone number, including area code: (208) 634-7080

Securities registered pursuant to Section 12(b) of the Act:   None
Securities registered pursuant to Section 12(g) of the Act:   Common Stock

     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  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 ___

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's  knowledge,  in definitive  proxy or information  statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

     Aggregate  market  value  of  Common  Stock  held by  nonaffiliates  of the
Registrant  at March 31, 1999  $10,850,101.  For  purposes of this  calculation,
officers and directors are considered affiliates.

Number of shares of Common Stock outstanding at March 31, 1999: 98,637,281

This Form 10-K consists of 33 pages.


<PAGE>

                                TABLE OF CONTENTS

PART I...................................................................  3

   Item 1 -  Business ...................................................  3
   Item 2 -  Properties  ................................................  4
   Item 3 -  Legal Proceedings...........................................  4
   Item 4 -  Submission of Matters to a Vote of Security Holders.........  4
   Item 4(a) Executive Officers of the Registrant........................  5

PART II..................................................................  6

   Item 5 -  Market for the Registrant's Common Stock
              Equity and Related Shareholder Matters.....................  6
   Item 6 -  Selected Financial Data.....................................  7
   Item 7 -  Management's Discussion and Analysis of Financial Condition
              and Results of Operations..................................  7
   Item 8 -  Financial Statements and Supplementary Data................. 12
   Item 9 -  Changes in and Disagreements with Accountants
              on Accounting and Financial Disclosure..................... 12

PART III................................................................. 13

   Item 10 - Directors and Executive Officers of the Registrant.......... 13
   Item 11 - Executive Compensation...................................... 13
   Item 12 - Security Ownership of Certain Beneficial Owners and
              Management................................................. 13
   Item 13 - Certain Relationships and Related Transactions.............. 13

PART IV.................................................................. 14

   Item 14 - Exhibits, Financial Statement Schedules, and Reports
              on Form 8-K................................................ 14

SIGNATURES............................................................... 15

<PAGE>

                                     PART I

ITEM 1.  BUSINESS

ORIGINAL BUSINESS PLAN

         Based on the imagery  database  accumulated  by the Company in 1987 and
1991, the Company procured mining patents and land leases and sought partners to
develop several prospective mining properties.  The Company in fact entered into
several  arrangements  with mining  entities for the  development of some of the
Company's properties,  but none of those arrangements resulted in development of
operating  mines.  Due to lack of  capital  to fund  advance  royalties  and due
diligence  requirements  on the Company's  mining  properties  and to changes in
mining laws which required increased and more timely due diligence expenditures,
the Company opted to release virtually all of its mining properties between 1991
and 1994.

         As an adjunct to the business of  developing  mineral  properties,  the
Company  recognized the need to refine the technology of remote sensing with the
ultimate  goal of  commercializing  the  technology.  To achieve that goal,  the
Company  believed that a miniaturized  hyperspectral  remote sensing  instrument
must be developed so that more economical aircraft could be utilized.

CURRENT BUSINESS PLAN

         The Company  believes cost effective  hyperspectral  remote sensing can
play a central role in multiple applications  globally.  Research has identified
applications in such diverse markets as watershed analysis, pollution detection,
pipeline  easement  mapping  and  routing,  plume  analysis,  vegetation  stress
analysis,  agriculture,  disaster  assessment,  mineral  exploration,  forestry,
fisheries,  heat loss detection,  wetlands delineations,  stormwater management,
emergency  planning and  evacuation  route  assessment,  land use,  prescription
farming and unexploded ordnance detection.

         Since 1994, Earth Search Sciences, Inc. and Integrated Spectronics Pty
Ltd. jointly developed a remote sensing instrument, the ESSI Probe 1.

GENERAL

         The  Company is  emerging  from a mineral  exploration  / research  and
development organization into a leading edge remote sensing provider. On June 1,
1997,  the Company took delivery of the first Probe 1  instrument.  In its first
full year of commercial  operation the Company  developed  markets and generated
revenue from multiple clients.  The Company and its chairman,  Larry Vance, have
spent over a decade developing an airborne remote sensing capability that can be
economically  configured into both  governmental  and commercial  projects.  The
Company  initially  sought  to  utilize  United  States  Government  proprietary
airborne remote sensing technology to identify sites with potential economically
recoverable  mineral  deposits.  The Company  intended to use the remote sensing
data to locate and prioritize  mineral  exploration  opportunities.  The Company
anticipated doing further  investigative work on the identified sites,  taking a
land or mineral interest in promising sites and thereafter either developing the
sites into mines  independently  or  seeking a joint  venture  partner or mining
entity to develop the site.

<PAGE>

         Mergers and acquisitions may be the most expeditious and cost-effective
way to consolidate commercial  hyperspectral remote sensing. The Company intends
over  the  next  year to  continue  pursuing  (a)  acquisitions  that aid in the
commercialization of hyperspectral remote sensing technology, (b) contracts that
produce  revenues from the application of remote sensing to the existing markets
in  environmental  remediation  and mineral  identification  and to  undeveloped
markets for other appropriate  projects involving a multitude of applications of
the technology,  (c) financing to fund the  development of  miniaturized  remote
sensing  instruments,   and  (d)  development  of  promising  potential  mineral
properties  in which the  Company  has an  interest or acquires an interest as a
result of its existing database of geological information.

         The Company is not aware of any environmental  concerns associated with
remote sensing technology.

IMAGERY DATABASE

         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 an  Airborne  Visible  and  Infra-Red  Imaging  Spectrometer
(AVIRIS)  in locating  geologic  areas of interest in a test area in Nevada with
other less advanced  instruments.  The results of that program were published in
January 1993. As a result of participation in the program the Company acquired a
large amount of unprocessed data.

         Since June 1997,  the  Company  has  collected  and owns a  substantial
archive  of  Probe 1  imagery  from  Kazakhstan,  Australia,  British  Columbia,
Ontario, Quebec, Chile, Mexico, California, Nevada, Arizona, Idaho, Montana, and
Utah.  At the  present  time  the  value  of this  data  archive  has  not  been
independently  appraised.  The value of this  archive  is not  reflected  in the
financial statements.

EMPLOYEES

         As of March 31, 1999, the Company had 5 full-time employees, which also
includes the following Officers: Larry F. Vance, Chairman, John W. Peel, III,
Chief Executive Officer and Tami J. Story, Corporate Secretary and Treasurer.

ITEM 2.  PROPERTIES

         The  Company  leases  its  corporate   headquarters   and  all  of  the
furnishings from an unrelated third party,  which is approximately  2,000 square
feet of office  space in McCall,  Idaho.  The Company  believes  its offices are
adequate to meet its needs for the foreseeable future.

ITEM 3.  LEGAL PROCEEDINGS

         On December 19, 1997, the Idaho Department of Finance announced that it
had resolved its  differences  with Earth Search  Sciences  Inc. and the lawsuit
(Civil No. CV OC 9700155D,  in the District Court of the Fourth Judicial Circuit
of the  State of Idaho in and for the  County of Ada) was  withdrawn.  Under the
terms of the  agreement,  the Company and Chairman Larry Vance were not required
to pay any fines,  penalties  or costs to the State.  In  addition,  the Company
agreed to proceed  with a formal  offer of  rescission  to person who  purchased
stock directly from the Company  between  November 1, 1992 and December 15, 1997
and who were Idaho residents.


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

          Not applicable

<PAGE>

ITEM 4(a).  EXECUTIVE OFFICERS OF THE REGISTRANT

         The following table sets forth certain  information with respect to the
executive officers of the Company for fiscal 1999 to present.

              Name                Age            Position
           -------------         -----    -----------------------

           Larry Vance             64              Chairman
           John W. Peel            53     Chief Executive Officer
           Tami J. Story           36       Secretary/Treasurer

         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 a director of the Company.  Mr. Vance is a
full-time employee of the Company and has been 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 Earth Search
Sciences, Inc.

         John W.  Peel,  III joined the  Company as Chief  Executive  Officer in
April 1995. Prior to joining the Company, Dr. Peel served six and one-half years
as  Senior  Vice   President  of  Tetra  Tech,   Inc.,  a  major  publicly  held
environmental remediation consulting firm. Dr. Peel holds a Bachelor of Sciences
in Biology  from  Millsaps  College,  a Master of Sciences in  Parasitology  and
Invertebrate  Zoology  from  the  University  of  Mississippi  and  a  Ph.D.  in
Environmental Health/Health Physics from Purdue University.
Dr. Peel is a full-time employee of the Company and has been since 1995.

         Tami J. Story served as an administrative support capacity for the
Company from 1991 until April 1993.  Since April 5,1993, 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.

<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 has in
                  the past traded in the over-the-counter market, based on inter
                  dealer bid prices, without markups, markdowns, commissions, or
                  adjustments  (which do not represent  actual  transactions) as
                  reported in the "pink sheets."

                                  Quarter Ended             High         Low

                                   June 30, 1996             .75         .68
                                   September 30, 1996        .37         .34
                                   December 31, 1996         .20         .17
                                   March 28, 1997            .41         .38

                                   June 30, 1997             .49         .46
                                   September 30, 1997        .47         .42
                                   December 31, 1997         .39         .31
                                   March 31, 1998            .34         .30

                                   June 30, 1998             .37         .25
                                   September 30, 1998        .32         .10
                                   December 31, 1998         .13         .07
                                   March 31, 1999            .14         .08

         (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, 1999, was  approximately  810. This does not include
                  shareholders   that   hold   stock   in  their   accounts   at
                  brokers/dealers.

         (c)      Dividends.  Holders of 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.

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

         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
                                        1999            1998           1997          1996           1995
                                  ------------------------------------------------------------------------------
<S>                                 <C>           <C>            <C>            <C>            <C>
Operating revenue                  $   881,006     $    55,000   $     -        $     6,332    $      -
Net loss                            (2,271,428)     (5,849,999)    (2,549,823)   (2,408,292)    (1,122,541)
Net loss per common share                (0.03)          (0.08)         (0.04)        (0.05)         (0.02)
Total assets                         3,992,233       4,880,652      3,951,914       922,377         95,861
Long-term obligations                6,594,080       5,767,961        873,462       736,209      1,231,217
Stockholders' deficit               (3,998,137)     (3,005,765)    (2,960,610)   (1,295,908)    (1,899,435)
Cash dividends declared                      -               -              -             -              -
</TABLE>


ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

         Financial  comparisons  will be made  between the years ended March 31,
1999 and 1998 and 1997.

LIQUIDITY AND CAPITAL RESOURCES

         The Company has financed its  activities to date with a combination  of
cash flow from  operations  (primarily  in fiscal  year  1999) and use of equity
securities for services.

         Net cash used in operating  activities was $374,023 in 1999,  resulting
primarily from a net loss of $2,271,428, and payments for salaries, services and
depreciation.  Cash  used  in  operations  was  $2,599,410  in  1998,  resulting
primarily from a net loss of $5,849,999, and payments for salaries, services and
depreciation.  Cash used in operations was $136,002 in 1997, resulting primarily
from  a net  loss  of  $2,549,823,  and  payments  for  salaries,  services  and
depreciation.

         Capital  expenditures for March 31, 1999 were primarily for payments on
hyperspectral instruments and purchases of new computer equipment.

         At March 31, 1999, the Company had cash and cash equivalents of $47,642
and working capital of $(1,109,808).

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

         The Company believes that funds generated from its operations, together
with future  borrowings 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 not be
required  nor that any such  required  additional  capital  will be available on
reasonable terms, at such time or times as required by the Company.

<PAGE>

RESULTS OF OPERATIONS

         The Company recognized  revenues from the Noranda Agreement of $810,000
for the year ended March 31, 1999. For the year ended March 31, 1999 the Company
experienced a net loss of $2,271,428 or $0.025 per share on a diluted basis.

         The Company has completed  mapping  assignments  in Australia,  Mexico,
Canada  and Chile in  partial  fulfillment  of its  contractual  obligations  to
Noranda to map for  natural  resources  on a global  scale.  In  addition to the
revenues and fees the Company has invoiced for these  services,  the Company may
receive either net smelter  royalties or net profits  interest on properties not
previously owned or controlled by Noranda upon which a discovery should occur as
the result of using the  Company's  Probe 1  technology  to locate  the  mineral
resource.  To date,  gigabyte quantities of imagery have been collected by Earth
Search.  These data tapes are being  processed and the imagery is being examined
for the presence of mineral properties  exhibiting the qualifications  necessary
to  establish  them  for  candidacy  as  "Royalty  Properties".  While  no royal
properties  have been  recorded at this time,  the Company is  operating  on two
continents  targeted by the mining  industry as exhibiting  significant  mineral
potential.  A substantial backlog of collected imagery from these two continents
exists,  and the evaluation  process  continues to move forward.  As the Company
progresses to fulfill its Noranda  mapping  contract,  it has enjoyed during the
fiscal  year ended 1999,  added  mapping  assignments  from new  customers  from
emerging growth areas,  including  hydrocarbon  exploration,  and  environmental
damage  assessments,  land use planning and weed species  identification from an
airborne platform using hyperspectal imagery from its Probe 1 instrument.  These
additional revenues have enabled the Company to recognize  improvements over the
previous quarter as it emerges from a development stage company into an emerging
growth business entity.

         During the fiscal year ended March 31, 1999, the Company  increased its
contract  backlog  through  the  award  of  government  contracts  with  present
expectations of contract backlog for a period of five years. While the projected
period of performance of the contracts has been  specified,  because of the task
order nature of the work, the precise revenue amounts the company will recognize
cannot be  quantified  at this time.  The awards  are  significant  in that they
represent a new customer and expanding  base for Earth Search in commercial  and
government work.  Earth Search expects to increase its technical  staffing level
as a result of the awards. Work to date has been confined to scientific studies.
Actual flying is not scheduled to commence  until April through August 1999 when
vegetation  growing seasons produce more robust  vegetation than currently found
among winter habitats.

         During  fiscal  1999,  the  Company  relinquished  both its  direct and
indirect interests in its current licenses on mineral properties in the Republic
of Kazakhstan in and around the area known as the Polygon.  The properties  were
relinquished  to its partners in the  American-Kazakhstani  Joint Stock Company,
SEMTECH for settlement of significant  exploration and/or legal costs associated
with  licensing and exploring  the sites in question.  In addition,  the Company
retained  the option to bid its  hyperspectral  imaging  technology  in future
exploration  activities  planned in or around the  Polygon.  In  essence,  Earth
Search  will  maintain a presence in the region and the  potential  to invest in
selected mineral  properties  under the specific terms and conditions  mentioned
above,  while  precluding the necessity of having to lay out significant sums of
capital to fund each year's  program of works for multiple  mineral  properties.
Earth Search  originally  withheld its Kazakhstan  territories  from the initial
Noranda agreement.  However, as an added result of the refocusing,  Earth Search
has  revisited  its working with Noranda to revise the  agreement  between Earth
Search and  Noranda to include  Net  Smelter  Royalties  and payment for mapping
services for any discoveries  made in Kazakhstan as the direct result of Noranda
exploration  efforts  utilizing the Earth Search Sciences Probe-1  hyperspectral
imaging technology. To date, market conditions have precluded organizations from
undertaking any major exploration activities in the region.

<PAGE>

JOINT VENTURE AND OPERATING ENTITY RELATIONSHIP

         As  of  and  for  the  year  ended  March  31,  1999,   the   following
relationships and/or projects were formed/completed:

         The  Company  collected  hyperspectral  data and  delivered a report to
NASA/Techlink,  Forest Wildlife  Protection Agency,  State of Montana and Turner
Enterprises.  The  project  completed  was  to  collect  data  specific  to  the
restocking of the West Slope Cutthroat Trout  (endangered  species) and riparian
issues.

         The  Company  initiated  work on its  EOCAP  contract  with NASA to map
Yellowstone  National  Park.  Earth  Search is a  subcontractor  to  Yellowstone
Ecosystems Studies (Y.E.S.). Earth Search management attended a kick-off meeting
following  contract  award for purposes of planning the upcoming  mission to map
riparian  habitat.  NASA reported  previously that its high altitude  mapping in
prior years  indicated  the potential  for  utilizing  hyperspectral  imagery to
distinguish  between various tree species and vegetation  types important in the
food chain of Yellowstone's wildlife. Earth Search will collect imagery at lower
altitudes  which  means  higher  resolution  imagery  can  be  collected.  It is
anticipated  that with the  increased  resolution  obtained  utilizing the Earth
Search Probe 1 technology that Yellowstone's scientists responsible for tracking
seasonal  variability of plant species and, hence, food supplies will be able to
gain increased insight into  environmental  conditions  affecting the health and
well being of the Park's  wildlife.  The  ability of the Probe 1  technology  to
differentiate  between tree and plant species suggests a new and more economical
method for characterizing habitat.

         The  Company  concluded  a  memorandum  of  agreement  with Boeing that
included the use of a unique Boeing aircraft possessing  exceptional slow flight
characteristics  to be used in a variety of  applications,  the first  being the
flight over Yellowstone  National Park as part of a NASA/Yellowstone  Ecosystems
Studies  (Y.E.S.)  project  utilizing  ESSI's  Probe  I  hyperspectral   imaging
technology  to collect  one meter data to be  utilized  in  addressing  riparian
issues.  Several test flights were  performed  during the period using the Probe
technology onboard the Boeing heliocourier aircraft.  More missions are planned,
including a revisit of the park in August.

         The Company concluded a memorandum of understanding  with Booze-Allen &
Hamilton aimed at the collection, marketing, and distribution of Probe I data on
a global basis.

         The Company collected hyperspectral data for the Geosat Committee.  The
Geosat committee is funded from contribution by major U.S.  resource  companies.
The Committee is operated by the University of Texas at El Paso and the Director
is Dr. Rebecca Dodge. The project completed for the Geosat's "Hyperspectal Group
Shoot  1998"  provided  Probe 1  hyperspectral  imagery to the oil and  minerals
exploration,  environmental assessment,  and agriculture end-user community, for
an evaluation by these communities of its application potential.

         The Company  teamed with the University of Idaho in a joint proposal to
the Farm Bureau and won a contract  to overfly  the Snake  River  Basin  (Hell's
Canyon).  The  Company  also  collected  hyperspectral  data for the control and
eradication  of noxious weed  intrusion.  The test results are being  published.
Initial  results  provide a  positive  indication  that  airborne  hyperspectral
imagery is a useful tool for control of weeds, as well as providing  information
regarding economic indicators as they pertain to forecasting crop yield. Some of
the data was introduced at a hearing  conducted by Senator Larry Craig regarding
noxious weed  eradication  in the West.  Probe I  technology  can be utilized to
demonstrate  weed  intrusion  sites so that they can be  treated  by land  based
teams.

<PAGE>

         The Company collected  hyperspectral data for Desert Research Institute
("DRI")  in the  Kelso  Dunes  area  in  southeastern  California.  The  project
completed  for  DRI  was  to  detect  change  in  arid  vegetation  cover  using
Hyperspectral data in the region known as the Providence Mountains. Detection of
disturbance  in these  regions will aid in  assessment  of ecosystem  status and
global climate change. The remote sensing data combined with ground measurements
will examine spectral changes  occurring  concurrently  with observed changes in
percent green cover. Future collaboration in expected with DRI.

         Several proposals have been developed to partner with private industry,
universities  and state and Federal  agencies  to  develop,  package and deliver
competitive  advanced technology  products and services.  This approach provides
solutions to critical  environmental  restoration and waste management problems,
while furthering national business and technology goals.

         The Company formed a global partnership with EarthWatch Incorporated (a
subsidiary of Ball Aerospace) to acquire and market remote sensing  information.
This partnership  included  signing of a data reseller  agreement in which Earth
Search Sciences will provide the HyperView_Product Line of hyperspectral imagery
through the EarthWatch Digital Globe_Services for worldwide distribution.

         The Company  completed a series of agreements  with Noranda  Mining and
Exploration   Inc.   and   its   affiliates   including   Falconbridge   Limited
(collectively,  the "Noranda Group"). These agreements provide the Noranda Group
with  and  exclusive   license  to  use  the  PROBE-1's  for  commercial  mining
exploration,  as long as the Noranda Group  continues to purchase remote sensing
services  from the  Company  in certain  specified  quantities.  The  Company is
entitled to receive fees for  services  and net smelter  royalties or net profit
interest  royalties  from  certain  discoveries  by the Noranda  Group using the
PROBE-1's.  The licensing agreement with the Noranda Group provided a $1,000,000
equity investment in ESSI by way of 200,000  preferred shares,  convertible into
1,000,000  shares of common stock and an option to purchase  1,000,000 shares of
ESSI common stock at a price of $2.00 per share.

FUTURE OPERATIONS

         Earth  Search  plans  to use  the  Internet  and a broad  band  imagery
distribution  system to market  its  imagery.  The  Company  has  collected  and
continues to collect imagery from around the globe.  This imagery  represents an
asset  that can be sold over and over to  multiple  end  users.  The  Company is
preparing  for a  mid-1999  launch  of a  direct  channel,  multi-media  imagery
supermarket  on the  Internet  that will  have the  capability  to  individually
customize data packages for customers.  The e-commerce  content provider will be
called  TerraNet,  Inc.,  and will be a wholly owned  subsidiary of Earth Search
Sciences, Inc. Its site on the world wide web will be www.general-imaging.com.

         The  Company  continues  to  increase  its  involvement  in the mineral
exploration  and  environmental  areas,  using the results of its  research  and
development over the last five years in remote sensing.  By attempting to obtain
equity  funding,  the  Company  anticipates  developing  instruments  to include
hand-held, airborne and satellite spectrometers and to acquire revenue-producing
companies in the natural resources and environmental monitoring field.

         Through  teaming with other firms,  the Company will identify  possible
technology  applications  for  remote  sensing.  Management  intends  to  pursue
additional  markets for its imagery  databases,  which would generate  operating
revenues and adequate cash flows.

<PAGE>

YEAR 2000 COMPLIANCE

         The Year 2000 issue results from computer  programs  written using two,
rather than four,  digits to define the applicable year. These computer programs
may  recognize  a date  using  "00" as the year 1900  instead  of 2000 and cause
system failures or miscalculations, material disruptions of business operations,
including,  among other things, a temporary  inability to process  transactions,
send invoice, or engage in similar normal business operations.  If Earth Search,
its significant customers,  suppliers, service providers and other related third
parties fail to take the necessary steps to correct or replace these problematic
computer  programs,  the Year 2000 issue could have a material adverse effect on
Earth Search. Earth Search cannot, however, quantify the impact at this time.

         Management believes it has completed the review and assessment phase of
affected  systems  within  Earth  Search and those  which are  external to Earth
Search.  This  assessment  indicated  that  most of Earth  Search's  significant
internal  information systems could be affected by the Year 2000 issue, and that
Earth  Search may be  negatively  impacted by  non-compliance  of related  third
parties.

         Earth Search has begun the remediation phase of Earth Search's internal
information technology systems and has set September 1999 as the target for Year
2000  compliance  of all  of  Earth  Search's  internal  information  technology
systems.  Earth Search's internal  information  technology systems include Earth
Search's  finance systems and those systems used in the research and development
of Earth Search's products.

         Earth Search is currently in the process of creating  contingency plans
for its internal  information  technology  systems.  These contingency plans are
expected to be in place by  September  30,  1999.  In the event  Earth  Search's
information  technology  systems are not Year 2000  compliant by  September  30,
1999,  Earth Search will decide at that time whether to implement  the necessary
contingency plan(s).

         Concurrent  to  performing  the above  steps,  Earth  Search  will make
certain  investments  in systems and  applications  to address Year 2000 issues.
Earth Search has not tracked internal  resources  dedicated to the resolution of
the Year  2000  issue  and,  therefore,  is unable to  quantify  internal  costs
incurred  to date that are  associated  with the Year 2000  issue.  Identifiable
expenditures for these investments were approximately  $15,000 through March 31,
1999.  Additional  expenditures  in calendar year 1999 will total  approximately
$10,000.  Investments to address the Year 2000 issue have been, and are expected
to be, funded through cash generated from operations.

         Earth Search's plans to complete the Year 2000  modifications are based
upon  management's  best  estimates,   which  were  derived  utilizing  numerous
assumptions  of future  events,  including  continued  availability  of  certain
resources,  and other  factors.  However,  there can be no assurance  that these
estimates will be achieved and actual results could differ materially from those
plans.  Specific factors that might cause such material differences included the
availability  and cost of  personnel  trained  in this area and the  ability  to
locate and correct all relevant computer codes.

ADDITIONAL RISK FACTORS THAT COULD AFFECT OPERATING RESULTS AND MARKET PRICE
OF STOCK

         As discussed  earlier in this Report,  the following  factors are among
those that may cause actual results to vary from those the Company  forecasts in
forward-looking  statements  included in this Report and other  reports it files
with the Securities and Exchange Commission.

<PAGE>

THE COMPANY MAY NEED TO ACCESS ADDITIONAL FUNDS TO FINANCE ONGOING OPERATIONS

         As of July 15, 1999,  the Company  believes  that  available  funds and
those generated  through its operations will be adequate to meet its anticipated
cash needs for the next several periods. However, there can be no assurance that
additional capital beyond the amounts currently forecast by the Company will not
be required nor that any such required  additional  capital will be available on
reasonable  terms,  if at all, at such time or times as required by the Company.
Additional  financing may involve public or private  offerings of debt or equity
securities, and may include bank debt. Debt financing may increase the Company's
leveraged  position,  require the Company to devote  significant cash to service
debt and limit funds available for working capital,  capital  expenditures,  and
general  corporate   purposes,   all  of  which  could  increase  the  Company's
vulnerability  to adverse  economic  and  industry  conditions  and  competitive
pressures.  Equity financing may cause additional  dilution to purchasers of the
Company's common stock.

OUTLOOK

         This  report  on Form  10-K,  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-K and such other
reports filed with the Securities and Exchange  Commission are  forward-looking.
In particular,  statements regarding industry prospects, future OEM sales by the
Company,  the  adequacy  of  existing  manufacturing  resources,  the  Company's
continued  expansion  in foreign  markets and the  Company's  future  results of
operations or financial position are forward-looking  statements.  Words such as
"anticipates",  "expects",  "intends", "plans", "believes", "seeks", "estimates"
and similar expressions identify forward-looking  statements. But the absence of
these  words does not mean the  statement  is not  forward-looking.  The Company
cannot  guarantee any of the  forward-looking  statements,  which are subject to
risks,  uncertainties  and  assumptions  that are  difficult to predict.  Actual
results   may  differ   materially   from  those  the   Company   forecasts   in
forward-looking  statements  due to a variety of  factors,  including  those set
forth  below  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 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The financial  statements and supplementary  data required by this item
are included on pages F-1 to F-19 of this report.

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

               None

<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Information  with  respect to directors of the Company will be included
under  "Election of Directors" in the Company's  definitive  proxy statement for
its 1999  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, 1999.

ITEM 11.  EXECUTIVE COMPENSATION

         Information  with  respect to executive  compensation  will be included
under "Executive  Compensation" in the Company's  definitive proxy statement for
its 1999  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.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information  with respect to security  ownership of certain  beneficial
owners and  management  will be included  under  "Security  Ownership of Certain
Beneficial  Owners and Management" in the Company's  definitive  proxy statement
for its 1999 annual meeting of shareholders  filed or 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.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information   with  respect  to  certain   relationships   and  related
transactions  with management will be included under "Certain  Transactions"  in
the  Company's  definitive  proxy  statement  for its  1999  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.

<PAGE>

                                     PART IV

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
             FORM 8-K

         (a)(1)Financial Statements                         Page in this Report

          Report of Independent Accountants                          F-1
          Consolidated Balance Sheet at March 31, 1999
            and 1998                                                 F-2
          Consolidated Statement of Loss for the Years
           Ended March 31, 1999, 1998 and 1997                       F-3
          Consolidated Statement of Redeemable Common Stock
           And Nonredeemable Shareholders' Equity (Deficit) for
           the Years Ended March 31, 1999, 1998 and 1996             F-4
          Consolidated Statement of Cash Flows for the Years
            Ended March 31, 1999, 1998 and 1997                      F-5
          Notes to Consolidated Financial Statements              F-6 - F-19

         (a)(2)Financial Data Schedules                    Electronically Filed

         (b)   Report on Form 8-K                          Electronically Filed

<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 and Chief Financial Officer

         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 following capacities on June 29, 1999.


 Signature                                    Title

/s/ Larry F Vance             Chairman and Chief Financial Officer
Larry F. Vance                (Principal Executive and Financial Officer)

/s/ John W. Peel, III         Chief Executive Officer
John W. Peel, III             (Principal Executive Officer)

/s/ Tami Story                Director
Tami J. Story

/s/ Rory J. Stevens           Director
Rory J. Stevens

<PAGE>

                        Report OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Shareholders of Earth Search Sciences, Inc.

In our opinion,  the  accompanying  consolidated  balance  sheet and the related
consolidated  statements of loss, of redeemable  common stock and  nonredeemable
shareholders'  equity deficit and of cash flows present fairly,  in all material
respects,  the  financial  position  of  Earth  Search  Sciences,  Inc.  and its
subsidiaries  at March 31,  1999 and March 31,  1998,  and the  results of their
operations  and their cash flows for each of the three years in the period ended
March 31, 1999 in conformity  with  generally  accepted  accounting  principles.
These financial  statements are the responsibility of the Company's  management;
our responsibility is to express an opinion on these financial  statements based
on our audits.  We conducted our audits of these  statements in accordance  with
generally  accepted auditing  standards,  which require that we plan and perform
the audit 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,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe  that our audits  provide a reasonable  basis for the opinion  expressed
above.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements,  the Company has incurred recurring losses from operations
and has a net capital  deficiency that raise substantial doubt about its ability
to continue as a going  concern.  Management's  plans in regard to these matters
are also  described  in Note 1. The  financial  statements  do not  include  any
adjustments that might result from the outcome of this uncertainty.



PricewaterhouseCoopers LLP

Portland, Oregon
July 8, 1999


<PAGE>
<TABLE>
<CAPTION>
EARTH SEARCH SCIENCES, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999 AND 1998
------------------------------------------------------------------------------------------------------------------------------------

                                                                                         March 31,
                                                                                   1999            1998
                                                                                -----------    ------------
<S>                                                                             <C>            <C>
Assets
Current assets:
  Cash                                                                          $     47,642    $    42,600
  Other current assets                                                               120,995        175,648
                                                                                ------------    -----------
Total current assets                                                                 168,637        218,248

 Property and equipment (Note 3)                                                   3,823,596      3,979,179
 Other long-term assets                                                                    -        183,225
                                                                                ------------   ------------
Total assets                                                                    $  3,992,233   $  4,380,652
                                                                                ============   ============

Liabilities and shareholders' deficit Current liabilities:
  Notes payable (Note 5)                                                        $    450,125   $     64,125
  Accounts payable and accrued expenses                                              552,061        714,736
  Accrued interest (Note 5 and 6)                                                    236,259        281,750
  Unearned revenue (Note 1)                                                           40,000         40,000
                                                                                ------------   ------------
Total current liabilities                                                          1,278,445      1,100,611

Long-term liabilities:
  Shareholder loans (Note 6)                                                         372,322        104,090
  Capital lease obligation (Note 3)                                                2,514,378      2,029,410
  Deferred officers' compensation (Note 4)                                         1,707,380      1,387,461
  Minority interest (Note 9)                                                       2,000,000      2,247,000
                                                                                ------------   ------------
Total liabilities                                                                  7,872,525      6,868,572
                                                                                ------------   ------------
Commitments and contingencies

Redeemable common stock, $.001 par value, 725,914 and
   1,725,914 shares issued and outstanding at March 31, 1999 and
   1998, respectively (Note 9)                                                       117,845        517,845
                                                                                ------------   ------------
Nonredeemable shareholders' deficit (Notes 1, 8, 9 and 10):
  Series A preferred stock; 200,000 shares authorized,
   issued and outstanding at March 31, 1999 and 1998                               1,000,000      1,000,000
  Common stock, $.001 par value; 200,000,000 shares
   authorized; 97,411,367 and 84,792,576 shares
   respectively, issued and outstanding                                               97,411         84,792
  Additional paid-in capital                                                      11,459,081      9,827,644
  Common stock subscribed                                                                  -        165,000
  Treasury stock                                                                    (200,000)             -
  Accumulated deficit                                                            (16,354,629)   (14,083,201)
                                                                                ------------   ------------
                                                                                  (3,998,137     (3,005,765)
                                                                                ------------   ------------

Total liabilities and shareholders' deficit                                     $  3,992,233   $  4,380,652
                                                                                ============   ============
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
EARTH SEARCH SCIENCES, INC.
CONSOLIDATED STATEMENT OF LOSS
FOR THE YEARS ENDED MARCH 31, 1999, 1998 AND 1997
------------------------------------------------------------------------------------------------------------------------------------

                                                                             March 31,
                                                            -----------------------------------------
                                                                1999           1998           1997
                                                            -----------    -----------    -----------
<S>                                                         <C>            <C>            <C>
Revenue                                                     $   881,006    $    55,000    $         -
Costs of services provided                                     (767,570)      (132,083)             -
                                                            -----------    -----------    -----------
Gross margin (deficit)                                          113,436        (77,083)             -

Expenses:
Research and development and exploration                         68,229        356,988        606,169
General and administrative                                    1,417,514      3,105,437      1,675,731
                                                            -----------    -----------    -----------
                                                              1,485,743      3,462,425      2,281,900

Loss from operations                                         (1,372,307)    (3,539,508)    (2,281,900)

Interest income                                                       -         17,449              -
Interest expense (Note 5 and 6)                                (773,288)      (689,600)      (305,297)
Other expense                                                   (10,810)      (473,340)             -
                                                            -----------    -----------    -----------
Loss before minority interest                                (2,156,405)    (4,684,999)    (2,587,197)

Minority interest in losses of consolidated subsidiaries              -              -         37,374
                                                            -----------    -----------    -----------
Loss before extraordinary item                               (2,156,405)    (4,684,999)    (2,549,823)

Extraordinary item (Note 3)                                    (115,023)    (1,165,000)             -
                                                           ------------    -----------    -----------
Net loss                                                   $ (2,271,428)   $(5,849,999)   $(2,549,823)
                                                           ============    ===========    ===========

Shares applicable to basic and diluted loss per share        90,388,446     76,369,220     66,566,995

Basic and diluted loss per share                           $     (0.025)   $    (0.077)   $    (0.038)


</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EARTH SEARCH SCIENCES, INC.
CONSOLIDATED STATEMENT OF REDEEMABLE COMMON STOCK AND NONREDEEMABLE SHAREHOLDERS' EQUITY (DEFICIT)
MARCH 31, 1999, 1998 AND 1997
------------------------------------------------------------------------------------------------------------------------------------
                                                                           Redeemable
                                                                         Common Stock       Preferred Stock         Common Stock
                      Description                                      Shares   Amount     Shares     Amount     Shares    Amount
---------------------------------------------------------            --------- ---------  --------  --------  ----------  ---------
<S>                                                                  <C>       <C>        <C>       <C>       <C>         <C>
Balance of March 31, 1996:                                                   - $       -          -  $      -  66,551,663  $ 66,551
  Issuance of common stock for services rendered (Note 9)                                                       1,836,140     1,837
  Issuance of common stock in exchange for instrument (Note 9)       1,000,000 $ 400,000
  Conversion of debentures into shares of common stock (Note 9)                                                   828,890       829
  Issuance of common stock for shares of subsidiary common stock                                                   40,000        40
  Adjustment to additional paid-in-capital related to sale of
   subsidiary common stock (Note 9)
  Common stock subject to potential recission offering (Note 11)       725,914   117,845                         (725,914)     (726)
  Net Loss
                                                                    ---------- ---------  -------  ----------  ----------  ---------

Balance March 31, 1997:                                              1,725,914   517,845        -           -  68,530,779    68,531
  Issuance of common stock for services rendered (Note 9)                                                       1,286,476     1,286
  Issuance of common stock for cash                                                                               870,334       870
  Shares issued in conjunction with sale/leaseback for purchase
   of Probe 1 (Note 3)                                                                                          1,000,000     1,000
  Issuance of common stock for shares of subsidiary common
   stock (Note 9)                                                                                               1,252,000     1,252
  Issuance of common stock for shares of Skywatch common
   stock (Note 9)                                                                                               1,185,199     1,185
  Conversion of debentures into shares of common stock (Note 5)                                                   865,988       866
  Issuance of common stock in lieu of future lease payments (Note 3)                                            1,725,000     1,725
  Issuance of stock subscription in lieu of future lease
   payments (Note 3)
  Issuance of common stock in lieu of debt obligations (Note 5)                                                 8,076,800     8,077
  Issuance of warrant for cash proceeds to minority holder in
   Probe 1 LC (Note 9)
  Conversion of note payable for Series A preferred stock
   (Notes 4 and 9)                                                                        100,000     500,000
  Issuance of Series A preferred stock for cash (Note 9)                                  100,000     500,000
  Net Loss
                                                                    ---------- ---------  -------   ---------  ----------  ---------
Balance at March 31, 1998:                                           1,725,914   517,845  200,000   1,000,000  84,792,576    84,792
  Issuance of common stock for services rendered (Note 9)                                                       3,104,414     3,104
  Issuance of common stock for cash                                                                             1,924,166     1,924
  Issuance of common stock on behalf of Skywatch Exploration
   for purchase of Skywatch Northern                                                                              465,000       465
  Issuance of common stock previously subscribed                                                                1,000,000     1,000
  Issuance of common stock in lieu of future lease
   payments (Note 3)                                                                                              547,727       548
  Shares issued as incentive for new debt obligation                                                            1,585,000     1,585
  Issuance of shares in lieu of interest payment                                                                   70,817        71
  Issuance of shares as bonus                                                                                     275,000       275
  Issuance of shares in exchange for minority owned shares
   of subsidiary                                                                                                2,646,667     2,647
  Redeemable shares received back into Treasury                     (1,000,000) (400,000)                       1,000,000     1,000
  Treasury Stock Sold
  Net Loss
                                                                    ---------- ---------  -------  ----------  ----------  ---------
Balance at March 31, 1999:                                             725,914 $ 117,845  200,000  $1,000,000  97,411,367  $ 97,411
                                                                    ========== =========  =======  ==========  ==========  =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EARTH SEARCH SCIENCES, INC.
CONSOLIDATED STATEMENT OF REDEEMABLE COMMON STOCK AND NONREDEEMABLE SHAREHOLDERS' EQUITY (DEFICIT)
MARCH 31, 1999, 1998 AND 1997
------------------------------------------------------------------------------------------------------------------------------------
                                                                     Additional
                                                                       paid-in                 Treasury   Retained
                      Description                                      capital    Subscribed     stock     Deficit         Total
---------------------------------------------------------           -----------  ----------   --------   ------------  -------------
<S>                                                                 <C>          <C>          <C>       <C>            <C>
Balance of March 31, 1996:                                          $ 4,320,920  $        -   $       -  $ (5,683,379)  $(1,295,908)
  Issuance of common stock for services rendered (Note 9)               535,404                                             537,241
  Issuance of common stock in exchange for instrument (Note 9)                                                                    0
  Conversion of debentures into shares of common stock (Note 9)         345,699                                             346,528
  Issuance of common stock for shares of subsidiary common stock          2,960                                              10,000
  Adjustment to additional paid-in-capital related to sale of
   subsidiary common stock (Note 9)                                     116,197                                             109,197
  Common stock subject to potential recission offering (Note 11)       (117,119)                                           (117,845)
  Net Loss                                                                                                 (2,549,823)   (2,549,823)
                                                                    -----------  ----------   ---------  -------------  ------------

Balance March 31, 1997:                                               5,204,061           -           -    (8,233,202)   (2,960,610)
  Issuance of common stock for services rendered (Note 9)               350,329                                             351,615
  Issuance of common stock for cash                                     179,130                                             180,000
  Shares issued in conjunction with sale/leaseback for purchase
   of Probe 1 (Note 3)                                                  374,000                                             375,000
  Issuance of common stock for shares of subsidiary common
   stock (Note 9)                                                        55,302                                              56,554
  Issuance of common stock for shares of Skywatch common
   stock (Note 9)                                                       472,155                                             473,340
  Conversion of debentures into shares of common stock (Note 5)         160,197                                             161,063
  Issuance of common stock in lieu of future lease payments (Note 3)    498,275                                             500,000
  Issuance of stock subscription in lieu of future lease
   payments (Note 3)                                                                165,000                                 165,000
  Issuance of common stock in lieu of debt obligations (Note 5)       2,334,195                                           2,342,272
  Issuance of warrant for cash proceeds to minority holder in
   Probe 1 LC (Note 9)                                                  200,000                                             200,000
  Conversion of note payable for Series A preferred stock
   (Notes 4 and 9)                                                                                                          500,000
  Issuance of Series A preferred stock for cash (Note 9)                                                                    500,000
  Net Loss                                                                                                 (5,849,999)   (5,849,999)
                                                                    -----------  ----------   ---------  ------------   -----------
Balance at March 31, 1998:                                            9,827,644     165,000           -   (14,083,201)   (3,005,765)
  Issuance of common stock for services rendered (Note 9)               272,197                                             275,301
  Issuance of common stock for cash                                     204,076                                             206,000
  Issuance of common stock on behalf of Skywatch Exploration
   for purchase of Skywatch Northern                                    101,019                                             101,484
  Issuance of common stock previously subscribed                        164,000    (165,000)                                      0
  Issuance of common stock in lieu of future lease payments (Note 3)    114,475                                             115,023
  Shares issued as incentive for new debt obligation                    192,290                                             193,875
  Issuance of shares in lieu of interest payment                         10,552                                              10,623
  Issuance of shares as bonus                                            18,475                                              18,750
  Issuance of shares in exchange for minority owned shares
   of subsidiary                                                        245,353                                             248,000
  Redeemable shares received back into Treasury                         399,000                 400,000                     400,000
  Treasury Stock Sold                                                   (90,000)               (200,000)                   (290,000)
  Net Loss                                                                                                 (2,271,428)   (2,271,428)
                                                                    -----------  ----------   ---------  ------------   -----------
Balance at March 31, 1999:                                           11,459,081  $        -   $ 200,000  $(16,354,629)  $(3,998,137)
                                                                    ===========  ==========   =========  ============   ===========
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
EARTH SEARCH SCIENCES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED MARCH 1999, 1998 AND 1998
------------------------------------------------------------------------------------------------------------------------------------

                                                                 1999          1998           1997
                                                            ------------   ------------  -------------
<S>                                                         <C>            <C>            <C>
Cash flows from operating activities:
Net loss                                                    $ (2,271,428)  $ (5,849,999)  $ (2,549,823)
Adjustments to reconcile net loss to net cash
 (used in) provided by operating activities:
  Common stock issued for service and interest expense           462,549        364,912        730,674
  Common stock issued for Skywatch stock                         101,484        473,340              -
  Subsidiary common stock issued for compensation                      -      1,000,000              -
  Extraordinary item                                             115,023      1,165,000              -
  Loss attributed to minority interest                                 -              -        (37,374)
  Depreciation                                                   279,212        167,768         29,668
  Amortization of lease discount                                 484,968        404,410              -
  Loss on sale of equipment                                       79,584              -              -
Changes in assets and liabilities:
  Other assets                                                   237,877        (99,085)        69,988
  Accounts payable and accrued expenses                         (137,720)      (873,399)     1,705,611
  Accrued interest                                               (45,491)             -              -
  Unearned revenue                                                     -         40,000              -
  Deferred officers compensation                                 319,919        607,643        187,258
                                                            ------------   ------------   ------------
Net cash (used in) provided by operating activities             (374,023)    (2,599,410)       136,002
                                                            ------------   ------------   ------------
Cash flow from investing activities:
  Capital expenditures                                          (660,558)      (306,487)    (3,347,852)
  Advance deposits                                                     -        217,875      2,582,125
  Proceeds from sale of property and equipment                    58,346              -              -
                                                            ------------   ------------  -------------
  Net cash used in investing activities                         (602,212)       (88,612)      (765,727)
                                                            ------------   ------------  -------------
Cash flows from financing activities:
  Proceeds from notes payable                                    386,000        524,956              -
  Repayments on notes payable                                    (24,955)       (40,000)       (95,500)
  Proceeds from shareholder loans                                476,317        102,000              -
  Repayments of shareholder loans                               (208,085)       (35,000)       (59,429)
  Issuance of common stock                                       242,000        180,000              -
  Issuance of subsidiary common stock                                  -        247,000        165,995
  Proceeds from sale of treasury stock                           110,000              -              -
  Issuance of Series A preferred stock                                 -        500,000              -
  Proceeds from establishment of joint venture                         -      1,000,000              -
  Issuance of warrant to purchase common stock                         -        200,000              -
                                                            ------------   ------------   ------------
Net cash provided by financing activities                        981,277      2,678,956         11,066
                                                            ------------   ------------   ------------

Net increase (decrease) in cash                                    5,042         (9,066)      (618,659)
Cash at beginning of period                                       42,600         51,666        670,325
                                                            ------------   ------------   ------------
Cash at end of period                                       $     47,642   $     42,600   $     51,666
                                                            ============   ============   ============

Interest paid                                               $     61,363   $     15,384   $     11,801

</TABLE>
<PAGE>

EARTH SEARCH SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
--------------------------------------------------------------------------------

1.   SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

     Earth Search Sciences,  Inc. ("the Company") business is the collection for
     resale of high  value  imagery  about the  earth's  surface  utilizing  the
     Company's  proprietary   hyperspectral   imaging  instrument.   Information
     collected by the instrument includes natural resources data,  environmental
     data including wildlife habitat information, hydrocarbon data, agricultural
     information including weed species  identification,  land use planning, and
     defense applications. The principal application involves the preparation of
     global  mineral  deposit  information  on an exclusive  basis for a Toronto
     based international major mining company.

     The Company has three wholly owned subsidiaries: Bear Creek Exploration,
     Inc. ("Bear Creek"), Quasar Resources, Inc. ("Quasar") and Skywatch
     Exploration Inc. In addition, there are two majority owned consolidated
     subsidiaries Earth Search Resources, Inc. and ESSI Probe 1 LC.  As of
     March 31, 1999, Earth Search Resources, Inc., Bear Creek Exploration, Inc,
     and Quasar Resources, Inc. are not operational.  Skywatch Exploration
     performs aircraft flight services primarily for ESSI.  The 50% owned
     subsidiary ESSI Probe LC was formed as a joint venture to own and operate
     hyperspectral instruments.

     In 1999, the Company operated its  hyperspectral  instrument under contract
     with third parties in several areas around the world.  Contracts to operate
     the hyperspectral  instrument  overseas for a major mining company with the
     objective of identifying  potential mineral deposits  contributed  $810,000
     (see note 11) in revenue in 1999.  Contracts to operate Probe 1 in the U.S.
     as an  ecological,  agricultural,  hydrocarbon,  and fisheries  application
     contributed  $14,000,  $14,000,  $28,000,  and  $15,000,  respectively,  to
     revenue in 1999.

     GOING CONCERN
     The Company is  experiencing  working capital  deficiencies  because it has
     incurred  operating  losses.  The Company has operated with funds  received
     from the sale of its common stock and the issuance of notes. The ability of
     the Company to continue as a going concern is dependent upon continued debt
     or  equity  financings  until or unless  the  Company  is able to  generate
     operating  revenues to sustain  ongoing  operations.  The Company  plans to
     discontinue its going concern status in the future by increasing the number
     of revenue producing  services through the use of additional  hyperspectral
     instruments.

     DEVELOPMENT STAGE ENTERPRISE
     In prior years the Company was considered a development  stage company.  In
     fiscal year 1999, the company commenced principal  operations  resulting in
     the  recognition  of  approximately  $881,000  in revenue  and no longer is
     considered to be operating as a development stage company.

     PRINCIPLES OF CONSOLIDATION
     The consolidation financial statements include the accounts of Earth Search
     Sciences,   Inc.  and  its  subsidiaries.   All  significant   intercompany
     transactions  have been  eliminated.  The  Company's  financial  statements
     reflect  minority  interests in subsidiaries for  non-controlling  interest
     held by third parties in Earth Search Resources and ESSI Probe 1 LC.

<PAGE>

1.   SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     REVENUE RECOGNITION
     The Company  recognizes  revenue and costs as services are  rendered  under
     contract. The unearned revenue of $40,000 represents a deposit for services
     not yet performed at year-end.

     RESEARCH AND DEVELOPMENT COSTS AND EXPLORATION COSTS
     Research  and   development   costs  and   exploration   costs  from  using
     hyperspectral  instruments  to map areas of  interest  to the  Company  are
     expensed as incurred.

     DEPRECIATION
     The Company recognizes depreciation on its property and equipment using the
     straight-line  method over  estimated  useful lives ranging from five years
     for  computers and software and vehicles and equipment to ten years for the
     fixed  asset  under  capital  lease  (Probe  1).  The  Probes  included  in
     construction  in  progress  will  begin  depreciating  at the time they are
     placed into service. The ATM imagery database is fully depreciated.

     INCOME TAXES
     Deferred  income taxes are  recognized for the tax  consequences  in future
     years of differences  between the tax bases of assets and  liabilities  and
     their financial  reporting  amounts based on enacted tax laws and statutory
     tax rates applicable to the period in which the differences are expected to
     affect  taxable  income.   Valuation   allowances  are  established,   when
     necessary,  to reduce  deferred  tax  assets to the amount  expected  to be
     realized.  Income  tax  expense is the tax  payable  for the period and the
     change during the period in net deferred tax assets and liabilities.

     COMMON STOCK
     Common stock issued for other than cash  consideration  is reflected in the
     accompanying  financial  statements at estimated  fair value at the date of
     issue, considering the restricted nature of such shares.

     Dividends
     The Company has not paid any dividends and does not expect to pay dividends
     in the foreseeable future.

     TREASURY STOCK
     Treasury  stock is recorded at cost.  Sales of treasury stock at amounts in
     excess of or below cost,  net of selling  expenses,  have been  recorded as
     increases/decreases in additional paid-in capital.

     CASH EQUIVALENTS
     Cash in banks and short-term  investments with maturity of 3 months or less
     are considered cash equivalents.

<PAGE>

1.   SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

     In February 1997, the Financial  Accounting Standards Board issued SFAS No.
     128  "Earnings  Per Share".  In  accordance  with this  pronouncement,  the
     Company  adopted the new  standard for periods  ending  after  December 15,
     1997. The adoption of this  pronouncement did not have a significant effect
     on reported earnings per share information.

     CHANGES IN CLASSIFICATION
     Certain  reclassifications  have  been  made to the  fiscal  1998  and 1997
     financial  statements to conform with the financial statement  presentation
     for fiscal  1999.  Such  reclassifications  had no effect on the  Company's
     results of operations or shareholders' deficit.

     USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  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.

     FINANCIAL INSTRUMENTS
     The Company records financial  instruments at cost, which approximates fair
     value, unless otherwise stated.

2.   SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
                                                                                    1999          1998           1997
                                                                                  ---------    -----------   ------------
     <S>                                                                          <C>          <C>            <C>
     Common stock issued in conjunction with sale/lease of Probe 1 (Note 3)       $       -    $    375,000   $        -
     Notes payable issued to settle advance deposits                                      -       2,200,000            -
     Notes payable converted into common stock  (Notes 5 and 9)                           -       2,740,038      345,528
     Common stock issued in lieu of future lease payments (Note 3)                        -         500,000            -
     Common stock subscription issued in lieu of  future lease payments (Note 3)          -         165,000            -
     Common stock subscription for subsidiary common stock (Note 9)                       -          56,554        3,000
     Note payable converted into Series A preferred stock                                 -         500,000            -
     Common stock issued for purchase of subsidiary                                       -               -            -
     Redeemable common stock issued for scanner (Note 9)                                  -          56,554      400,000
     Issuance of shares in exchange for minority interest in subsidiary             248,000               -            -
     Reduction of fixed assets for redeemable stock returned                       (400,000)              -            -
     Redeemable shares received into Treasury                                       400,000               -            -
     Issuance of common stock previously subscribed                                 165,000               -            -
</TABLE>
<PAGE>

3.   PROPERTY AND EQUIPMENT

     Property and equipment consist of the following:
                                                          March 31,
                                                      1999        1998
                                                  -----------  -----------
     Mineral properties                           $         -  $     5,833
     ATM imagery database(A)                          134,000      134,000
     Computers and software                           123,289       95,603
     Vehicles and equipment                            70,446       70,446
     Fixed assets under capital leases(B)           2,500,000    2,500,000
     Construction in progress(C)                    1,620,000    1,520,000
                                                  -----------  -----------
                                                    4,447,735    4,325,882
     Accumulated depreciation                        (624,139)    (346,703)
                                                  -----------  -----------
                                                  $ 3,823,596  $ 3,979,179
                                                  ===========  ===========

(A)      In the summer of 1987, the Company obtained a database providing
         airborne multispectral scanner imagery over sites in Oregon and Nevada.
         The imagery, gathered by an airplane using a thematic mapper scanner,
         was recorded on high-density digital tape and later decompressed into
         computer compatible data.  This database includes imagery produced in
         photographic form (hard copy) as well as the data on digital tape. Such
         imagery was then interpreted by a geologist having expertise in the ATM
         method.  The initial interpretation was completed in June 1988 and
         produced approximately 500 anomalies that necessitate exploration work
         to determine mineralization. This asset has been fully depreciated.

         The Company  capitalized  the costs of  acquiring  this  database.  The
         database can be used for identification of potential  mineralization as
         well as for oil  and gas  exploration  and  other  purposes  for  which
         geology is a major  consideration.  The Company intends to utilize this
         imagery  database for potential  sale of  information to third parties,
         such a large mining companies that desire to investigate mineralization
         of  large  areas  over a  short  period  of  time,  and  for use in the
         Company's own mineral exploration activities.

(B)      The Company entered into a sale-leaseback of a hyperspectral instrument
         in 1997.  The instrument was sold for $2,500,000 and leased back under
         the following terms: 1) the Company will lease the instrument for
         $250,000 per year bearing interest of prime plus 2% for three years;
         2) at any time during the above lease period but no later than
         April 10, 2000, the Company must repurchase the instrument for
         $3,500,000 net of any lease payments; 3) at any time prior to the
         repurchase, the lessor may convert the remaining obligation into shares
         of Earth Search Sciences, Inc. common stock at a conversion rate of 40%
         of the stock's then fair market value. In the event Earth Search is not
         the operator at the time of exercise of the option, the lessee shall
         substitute comparable equity securities or other rights subject to
         reasonable approval of lessor; 4) the Company issued to lessor
         1,000,000 unregistered shares of the Company's common stock and
         warrants to purchase an additional 1,000,000 unregistered shares of the
         Company's common stock at an exercise price of $2 per share; and 5) the
         lessor will receive certain royalty rights to revenues generated from
         mineral sites identified by the instrument. The Company recorded a
         capital lease  obligation  of $3,500,000  (net of a debt  discount of
         $1,375,000)  and $375,000 in  shareholders'  deficit related  to the
         shares of common stock and stock purchase warrants issued in
         conjunction with the above transaction.

<PAGE>

3.   PROPERTY AND EQUIPMENT (CONTINUED)

         In 1999 and  1998,  547,727  and  1,725,000  restricted  shares  of the
         Company's  common  stock  were  issued  in lieu of the  first two lease
         payments  due on April 10,  1998 and 1999.  The Company  recognized  an
         extraordinary  loss  of  $115,000  and  $1,165,000  in 1999  and  1998,
         respectively,   from  the  debt  extinguishment  as  a  result  of  the
         settlement of the lease payments. As further consideration, the Company
         agreed  to issue  an  additional  1,000,000  restricted  shares  of the
         Company's common stock to retire the warrant issued in conjunction with
         the  sale/leaseback  transaction  mentioned  above.  These  shares were
         issued as of March 31,  1999 and the value of these  shares is shown as
         common stock  subscribed  in the Company's  financial  statements as of
         March 31, 1998.

         The cost of the equipment  under  capital  leases at March 31, 1999 was
         $2,500,000 with related accumulated depreciation of $375,000.

         Total future minimum lease payments  remaining under the non-cancelable
         capital  lease is  $3,000,000.  The total  amount is due during  fiscal
         2001. The interest  portion of the remaining lease payment is $485,622.
         The present value of the capital lease obligation is $2,514,378.

     (C) The cost of acquiring and improving the  technological  capabilities of
         hyperspectral instruments are capitalized while the instrument is under
         fabrication and are included above in construction in progress.  During
         fiscal  1997,  the Company  made a payment of  $400,000  in  redeemable
         common  stock   (1,000,000   shares)   towards  the  development  of  a
         hypespectral instrument. The contract for this instrument was cancelled
         in 1999 and the shares were  returned at no cost to the Company  with a
         corresponding reduction to construction in progress.

4.   DEFERRED OFFICERS' COMPENSATION

     Deferred compensation consists of the cumulative unpaid compensation due to
     corporate officers  (Chairman,  CEO, President and Secretary).  The Company
     recorded deferred officer  compensation,  accrued payroll taxes and accrued
     interest of $744,134,  $507,271  and $250,792  during the years ended March
     31,  1999,  1998 and 1997,  respectively,  and  included  these  amounts in
     general and administrative  expenses. In addition,  the Company is accruing
     interest  on  the  deferred  compensation  balances  at  a  rate  of  8.5%,
     compounded quarterly. The Company and the officers have agreed that payment
     of the compensation  will be deferred until and unless the Company achieves
     adequate  cash  flow  from  operations.  Management  has not and  does  not
     presently   anticipate   sufficient  cash  flow  from  operations  for  the
     succeeding year; accordingly,  the deferred officers' compensation has been
     classified  as a  noncurrent  liability  in the  accompanying  consolidated
     balance sheet at March 31, 1999 and 1998.

<PAGE>

4.   DEFERRED OFFICERS' COMPENSATION (CONTINUED)

     In  1999  the  employment   agreement  with  the  Company's  President  was
     terminated.  The  amount due to the former  president,  resulting  from the
     termination  agreement  including  deferred  compensation is  approximately
     $157,000  and is included in  accounts  payable and accrued  expenses as it
     will be paid in fiscal 2000.

5.   NOTES PAYABLE

     Notes  payable  consist  of  unsecured  promissory  notes  with  rights  of
     conversion.  The  terms of these  debt  instruments  are  typically  for an
     initial period of ninety days or one year and are renewable at maturity for
     one year.  The notes bear  interest  at rates  ranging  from 4.5% to 12.5%.
     Holders of the notes have the right to convert  the  principal  amount plus
     interest into restricted shares of the Company common stock, subject to the
     terms in the promissory notes.

     In fiscal 1998 and 1997,  $161,063 and $346,528 of notes  outstanding  plus
     accrued  interest  were  converted  into  common  stock at the agreed  upon
     conversion rates. In 1997, certain notes contained conversion provisions at
     50% of  fair  value  at the  date  of  conversion.  As  such,  the  Company
     recognized  $61,937 in additional  interest  expense due to the conversions
     during 1997.

6.   SHAREHOLDER LOANS

     The Company has  financed its  operations  in part by funds  received  from
     advances  by  shareholders.  These  advances  are  evidenced  by  unsecured
     promissory notes and bear interest at rates ranging from 8% to 11.5%. As of
     March 31,  1999 and 1998,  interest  accrued  on such  advances  aggregated
     $197,113  and  $231,289,  respectively,  and has been  included  in accrued
     interest in the accompanying consolidated balance sheet.

     Shareholder loans are reflected as a noncurrent liability in the
     accompanying consolidated financial statements due to: a) the undefined
     terms of repayments, b) the inability of the Company to repay the advances
     unless and until it achieves positive cash flow, and c) the possibility
     that the obligations will be satisfied through the issuance of shares of
     the Company's common stock.

<PAGE>

7.   INCOME TAXES

     The Company recorded no provision for income taxes in fiscal 1999, 1998 and
     1997 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:

                                                          March 31,
                                                       1999           1998
                                                  ------------   ------------
       Net operating loss carryforwards           $ (4,945,499)  $ (4,080,747)
       Accrued liabilities                            (833,206)      (705,172)
                                                  ------------   ------------
       Gross deferred tax assets                    (5,778,705)    (4,785,919)

       Deferred tax assets valuation allowance       5,778,705      4,785,919
                                                  ------------    -----------
                                                  $          -    $         -
                                                  ============    ===========

     The deferred tax asset has been fully  reserved  because the Company cannot
     anticipate  future taxable income to realize the potential  benefits of the
     gross deferred tax asset.

     The benefit for income  taxes  differs  from an amount  computed  using the
     statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
                                                                 Year ended March 31,
                                                          1999         1998          1997
                                                       ---------   -----------    ---------
       <S>                                             <C>         <C>          <C>

       Benefit from income taxes at statutory rate     $ 908,571   $ 2,340,000  $ 1,019,929
       Decrease in benefit resulting from:
       Deferred tax valuation allowance                 (908,571)   (2,340,000)  (1,019,929)
                                                       ---------    ----------  -----------

                                                       $       -    $        -  $         -
                                                       =========    ==========  ===========
</TABLE>

     The Company has tax net operating loss  carryforwards  at March 31, 1999 of
     $12,363,747.  Such carry forwards may be used to offset taxable income,  if
     any,  in  future  years  through  their  expiration  in  2000-2017.  Future
     expiration  of tax loss  carryforwards,  if not  utilized,  are as follows:
     2000, $0; 2001, $80,975;  2002, $47,625;  2003,  $104,696,  2004, $176,084;
     thereafter $11,954,367.  The annual amount of tax loss carryforward,  which
     can be  utilized,  may be  limited  due to the  substantial  changes in the
     Company's  ownership  which have occurred or may occur in the future.  Such
     limitations  could result in the expiration of a part of the  carryforwards
     before their utilization.

<PAGE>

8.   OFFICER AND DIRECTOR STOCK OPTIONS

     In April 1995, the Board of Directors  granted options  through  employment
     agreements for the Company's Chief  Executive  Officer and Chairman to each
     purchase  5,000,000  shares of the  Company's  common  stock at an exercise
     price of $0.21 per share.  As half of the options became null and void when
     the  Company  did not  reach  profitability  by March 31,  1998,  5,000,000
     options expired on April 1, 1998.

     In addition,  500,000  options that were granted to a non-employee in March
     of 1996 expired when their term ended at the end of fiscal 1998.

     In August  1997,  the Board of Directors  granted to each of the  Company's
     Chairman,  President and Chief  Executive  Officer and Secretary  option to
     purchase 1,000,000 shares of the Company's common stock at a price equal to
     $0.50 per  share  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 the  Company  on the  first  date on which the
     closing  market price of the  Company's  stock equals or exceeds  $0.50 per
     share for 30 consecutive  days, and the options shall lapse and be null and
     void if they have not become exercisable by July 31, 1999.

     In August  1997,  the Board of Directors  granted to each of the  Company's
     Chairman, President and Chief Executive Officer options to purchase a total
     of 4,000,000 shares of the Company's common stock as follows:

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

<PAGE>


8.   OFFICER AND DIRECTOR STOCK OPTIONS (CONTINUED)

     The  individual  must be employed by the Company on the first date of which
     the closing  market price of the  Company's  common stock equals or exceeds
     the relevant  price for the options to vest. The options shall lapse and be
     null and void if they have not become exercisable by July 31, 1999.

     During  fiscal 1998,  the Board of Directors  issued  option to various new
     employees to purchase a total of 7,000,000  shares of the Company's  common
     stock.  The exercise prices for these options range from $0.25 to $1.00 per
     share. The options generally expire three (3) years from date of grant.

     During fiscal 1999, the Board of Directors issued options to a new employee
     to purchase  200,000 shares of the Company common stock. The exercise price
     for these  options is $0.07 per share and expire two years from the date of
     grant.  In  addition,  the  Board  of  Directors  issued  options  to a new
     independent contractor to purchase 2,000,000 shares of the Company's common
     stock at an exercise  price of $0.30,  which also expire two years from the
     date of grant. The total valuation of this issuance to a non-employee using
     the   Black-Scholes   model  is  $32,000,   of  which  the  related  annual
     compensation expense is $16,000.

     In 1999,  the  President  left the  Company  and thus  forfeited  5,000,000
     options.  The Board of  Directors  subsequently  reissued  4,000,000 of the
     options to the Corporate Secretary under the same terms as listed above for
     the August  1997  issuance to the  Chairman,  Chief  Executive  Officer and
     President.

     The Company  adopted  Statement  of Financial  Accounting  Standard No. 123
     ("FAS 123"),  Accounting for  Stock-Based  Compensation,  during 1996. This
     statement  allows  companies to choose  whether to account for  stock-based
     compensation  under  the  intrinsic  method  as  prescribed  by  Accounting
     Principles  Board  Opinion  No.  25  (APB)  or to use a fair  value  method
     described in FAS 123. The Company continues to follow the provisions of APB
     25. No compensation  cost has been recognized on the Company's stock option
     grants except as described  above, as the options include an exercise price
     equal to or exceeding the fair value on the date of grant.

     The Company has  determined  that the pro forma effects of applying FAS 123
     would have an immaterial effect on the results of operations for 1999, 1998
     and 1997. The determination  was made using the following  weighted average
     assumptions:

                                      Fiscal    Fiscal   Fiscal
                                       1999      1998     1997
                                      ------    ------   ------
       Risk-free interest rate         5.62%     6.05%    6.75%
       Expected dividend yield            -         -        -
       Expected lives                  4.23      5.43       10
       Expected volatility             82.5%     86.7%    95.0%

<PAGE>

8.   OFFICER AND DIRECTOR STOCK OPTIONS (CONTINUED)

     The  following  table  summarizes  the employee  stock option  transactions
described above.
                                                Shares        Weighted
                                                 under         average
                                                option      exercise price
                                             -----------    --------------
       Balance, March 31, 1996 and 1997       11,800,000    $         .19
         Options granted                      23,000,000              .18
         Options cancelled                             -                -
         Options exercised                             -                -
                                             -----------    -------------

       Balance, March 31, 1998                34,800,000              .78
         Options granted                       6,200,000             1.23
         Options cancelled                   (10,500,000)             .83
         Options exercised                             -                -
                                             -----------    -------------
       Balance, March 31, 1999                30,500,000    $         .90
                                             ===========    =============

     The weighted  average per share fair value of options granted during fiscal
     1999 is $0.001. In addition to the above options,  the Company also granted
     options to purchase  2,500,000  shares at a purchase price of fifty percent
     (50%) of the closing market price per share.  These options were granted to
     the president,  and  therefore,  were forfeited when he left the Company in
     fiscal 1999.

     The following table summarizes  information about stock options outstanding
at March 31, 1999.

                                                         Options
                             Options Outstanding       exercisable
        -----------------------------------------------------------
                                      Weighted
                      Number          average            Number
          Exercise  outstanding      remaining         exercisable
            Price    at 3/31/99   contractual life     at 3/31/99
        ---------- ------------  -----------------   --------------
                                                         (Years)
            .07       200,000           1.75              200,000
           0.10     1,500,000              6            1,500,000
           0.21     6,300,000            4.9            5,300,000
           0.25       250,000            1.7              250,000
           0.30     2,000,000           1.75            2,000,000
           0.50     7,750,000            1.5            1,500,000
           0.75       250,000              3                    -
           1.00     3,250,000            .45                    -
           1.50     3,000,000            .33                    -
           2.00     3,000,000            .33                    -
           2.50     3,000,000            .33                    -
                   ------------
                   30,500,000
<PAGE>

9.   REDEEMABLE COMMON STOCK AND NONREDEEMABLE SHAREHOLDER'S EQUITY

     REDEEMABLE COMMON STOCK
     In 1997, the Company issued to a vendor  1,000,000  unregistered  shares of
     common stock valued at $400,000 for partial payment of amounts owed for the
     an airborne hyperspectral  instrument (Note 3). The shares of common stock,
     which were subject to certain "put rights" and,  accordingly were presented
     in the accompanying  balance sheets as redeemable common stock. Such shares
     were  recorded  at  their  approximate  fair  market  value  at the date of
     issuance,  where the fair  market  value  equaled  the  maximum  redemption
     amount.  During 1999 the contract with the  manufacturer  was cancelled and
     these redeemable shares were returned at no cost to the Company.

     Also included in redeemable common stock are amounts related to a potential
     rescission  offering  related to certain  shares sold in the state of Idaho
     (Note 10).

     PREFERRED STOCK
     During the year ended March 31, 1998 the Company  issued  200,000 shares of
     Series A preferred  stock:  100,000 of these shares were issued as a result
     of the conversion of a note payable (Note 5). Each share of preferred stock
     is  convertible  into five shares of the Company's  common stock.  As such,
     2,000,000  shares of the  Company's  common  stock have been  reserved  for
     issuance upon the conversion of the Series A preferred  stock. In addition,
     the  recipient  of the  preferred  stock was  granted  warrants to purchase
     1,000,000 shares of the Company's common stock.

     COMMON STOCK
     During the fiscal year ended March 31,  1998 and 1997,  the Company  issued
     865,988, and 828,890,  shares of common stock (including treasury stock) to
     satisfy $99,126, and $146,231,  respectively,  of principal and $61,937 and
     $200,297,  respectively,  of interest relating to convertible notes payable
     (see Note 5). No common stock was issued in 1999 relating to the conversion
     of notes payable.

     TREASURY STOCK
     In 1999, the Company received into treasury  1,000,000 shares of redeemable
     common stock  previously  issued to a vendor as payment for a hyperspectral
     instrument   contract  that  was   subsequently   cancelled.   The  Company
     subsequently reissued 500,000 of these shares during 1999.

     STOCK WARRANTS
     During fiscal 1998,  warrants to purchase  4,000,000  shares of the Company
     common stock were granted, with exercise prices ranging from $1.30 to $2.00
     per share.  These  warrants  were  issued to  investors  of the Company and
     expire 3-5 years after issuance.

<PAGE>

9.   REDEEMABLE COMMON STOCK AND NONREDEEMABLE SHAREHOLDER'S EQUITY (CONTINUED)

     PRIVATE PLACEMENT OF QUASAR COMMON STOCK
     In 1997,  Quasar, a wholly owned  subsidiary,  issued 331,990 shares of its
     common stock, at $.50 per share of its common stock, in a private placement
     offering.   As  the  Company  owns  a  majority  interest  in  Quasar,  the
     subsidiary's   financial  statements  are  consolidated  into  the  parent.
     Accordingly,  the  Company  has  recorded  a minority  interest  of $49,798
     relating  to the  outside  investors  share of net  equity in  Quasar.  The
     difference between the stock proceeds of $165,995 and the minority interest
     of $49,798 has been recorded as an addition to paid-in-capital.

     In 1997,  the Company  repurchased  20,000 shares of Quasar common stock by
     issuing  40,000 shares of the Company's  common stock,  which resulted in a
     $3,000  decrease  in  minority   interest  and  decrease  in  nonredeemable
     shareholders'  deficit.  In 1998,  the Company  repurchased  the  remaining
     626,190  shares of Quasar  common stock  outstanding  by issuing  1,252,380
     shares of the Company's common stock,  which resulted in a $56,554 decrease
     in minority interest and decrease in nonredeemable  shareholders'  deficit.
     As a result,  the Company now owns all of the  outstanding  stock of Quasar
     Resources, Inc.

     PRIVATE PLACEMENT OF EARTH SEARCH RESOURCES COMMON STOCK
     During fiscal 1998,  Earth Search  Resources,  a wholly owned subsidiary of
     Earth Search Sciences, Inc., issued 2,494,000 shares of its common stock at
     $.50 per share.  Two million of the shares were issued to certain  officers
     and  directors  of the  Company  as  compensation  for  services  rendered.
     Accordingly,  the  costs  of these  shares  are  included  in  general  and
     administrative  expenses within the statement of loss in 1998. In 1999, the
     Company  exchanged  2,646,667  shares of its owned  stock for Earth  Search
     Resources not previously owned. This transaction  reduced minority interest
     by $248,000.

10.  COMMITMENTS AND CONTINGENCIES

     CONTRACTUAL COMMITMENTS
     The Company has outstanding  purchase  orders,  commitments,  and contracts
     with future milestone  payments totaling  $1,750,000.  In addition,  during
     fiscal  1999,   the  Company   entered  into  a  36-month   sales-leaseback
     transaction of the aircraft  previously  owned by its  subsidiary  Skywatch
     Exploration Inc. In accordance with the terms of the agreement, the Company
     has  committed to pay for a minimum of 15 hours of flight time per month at
     a rate of $425 per  hour.  As the  plane is not used  every  month  for the
     minimum hours, the Company is exposed to an adverse purchase commitment not
     to exceed  $76,500 per year.  The Company's plan is to utilize the plane up
     to or in excess of the minimum monthly commitment.

     LITIGATION
     In 1997 the  Company  settled  its  lawsuit  with the Idaho  Department  of
     Finance. As a result of the settlement,  the Company agreed to proceed with
     an  offering  of  rescission  to  certain  Idaho  investors.   The  Company
     anticipates  making a formal offer of  rescission  in fiscal year 2000.  In
     conjunction  with the  rescission  offering,  $117,845  related  to 725,914
     shares of common stock has been recorded in  redeemable  common stock as of
     March 31, 1999 and 1998.

<PAGE>

11.  RELATED PARTY TRANSACTIONS

     During  fiscal 1998,  the Company  entered into various  agreements  with a
     major mining company.  The agreements  executed between the Company and the
     mining company provide, under certain restrictions, an exclusive license to
     use  Probe  1  for  commercial  mining  purposes.  The  agreements  have  a
     three-year term, with an automatic three-year renewal unless the agreements
     are terminated by either party at the end of the initial three-year period.
     Under  the terms of the  agreements,  the  Company  is  guaranteed  minimum
     services work of $750,000 in year one,  $2,000,000 in year two,  $3,000,000
     in year three,  and  $3,000,000 in each  subsequent  year. In year one, the
     Company  earned  $810,000  in revenue  with  related  costs of  $652,000 on
     missions flown under this contract.  Furthermore,  the agreement grants net
     smelter royalties to the Company ranging from 1.5 percent to 2.5 percent of
     revenues or  currently  owned or optioned  by the mining  company.  200,000
     shares of the Company's  Series A preferred stock were issued to the mining
     company for  consideration  equal to  $1,000,000;  furthermore,  the mining
     company was granted options to purchase  1,000,000  shares of the Company's
     common stock at a price of $2.00 per share.

12.  SUBSEQUENT EVENTS

     The Company  launched the startup and funding of it's internet based global
     information and imagery  distribution  system,  Terranet,  Inc., which is a
     wholly-owned  subsidiary.  The system  will  provide  high value added data
     packages,  tailored for end users that can be downloaded over the Company's
     high-speed  delivery  system.  It is  through  the use of  this  high-speed
     delivery  system that  information  can be provided to a wide customer base
     using high-speed broad band delivery of imagery and video.