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


[X]      Annual  report  pursuant  to  Section  13 or  15(d)  of the  Securities
         Exchange Act of 1934 For the fiscal year ended March 31, 1997 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  nonaffiliated  of the
Registrant  at March 31, 1997  $27,470,367.  For  purposes of this  calculation,
officers and directors are considered affiliates.

   Number of shares of Common Stock outstanding at March 31, 1997: 70,256,693


This Form 10-K consists of 43 pages.

                                       1
<PAGE>


                                TABLE OF CONTENTS

Item of Form 10-K                                                     Page

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

Item 1 -        Business    ..........................................  3
Item 2 -        Properties   ......................................... 10
Item 3 -        Legal Proceedings   .................................. 10

Item 4 -        Submission of Matters to a Vote of
                Security Holders  .................................... 11

Item 4(a)       Executive Officers of the Registrant.................. 11

PART II. ............................................................. 13

Item 5 -        Market for the Registrant's Common
                Equity and Related Shareholder Matters      .......... 14
Item 6 -        Selected Financial Data   ............................ 14
Item 7 -        Management's Discussion and Analysis of Financial
                   Condition and Results of Operations  .............. 14
Item 8 -        Financial Statements and Supplementary Data .......... 18
Item 9 -        Changes in and Disagreements with Accountants
                   on Accounting and Financial Disclosure ............ 18

PART III ............................................................. 19

Item 10 -       Directors and Executive Officers of the Registrant.... 19
Item 11 -       Executive Compensation    ............................ 19
Item 12 -       Security Ownership of Certain Beneficial Owners and
                  Management      .................................... 19
Item 13 -       Certain Relationships and Related Transactions ....... 19

PART IV  ............................................................. 20

Item 14 -       Exhibits, Financial Statement Schedules, and Reports
                  on Form 8-K       .................................. 20

SIGNATURES        .................................................... 22


                                       2
<PAGE>
                                     PART I

ITEM 1.  BUSINESS

GENERAL

         Earth Search  Sciences,  Inc.  (formerly  Turnabout  Corporation)  (the
"Registrant" or the "Company") was incorporated as a Utah corporation on May 15,
1984. The Company,  up until 1985, had limited  activity except for expenditures
for exploration and acquisition of mining claims in Alaska. On December 5, 1985,
the  Registrant  acquired  all of the  outstanding  common stock of Earth Search
Sciences,  Inc.  ("ESSI"),  in exchange for 13,639,600  shares of its previously
authorized,  unissued  $.001 par value common  stock.  On August 11,  1987,  the
Registrant  changed its name to Earth Search Sciences,  Inc. and on November 19,
1987, the former subsidiary was dissolved.

         The Company has been in a research and  development  posture  since its
inception,  and has reported immaterial revenues.  The Company and its chairman,
Larry Vance, have spent the last ten years 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 as a means of limiting the universe of available  mining
sites in a given region.  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.

         The Company  has  developed  a  two-prong  strategy  to convert  from a
research and development company to an operating company. With the experience of
Dr. John Peel,  the  Company's  CEO, the Company has a strong base from which to
develop remote sensing business aimed at the United States  Government sector of
customers,  principally with respect to the use of remote sensing in identifying
environmental  exposures  and  aiding the  Government  in  designing  economical
remediation   programs.   Unfortunately,   the  funding  uncertainties  at  most
Governmental  agencies and defense contracting firms has hampered development of
this prong of the Company's strategy.

         The second prong of the  Company's  strategy  involves  development  of
commercial  opportunities  involve remote  sensing,  particularly  in the mining
area.  To better focus the  Company's  commercial  plans,  the Company  formed a
wholly owned  subsidiary,  Earth Search  Resources,  Inc. ("ESR") and on June 1,
1996, hired Brian C. Savage,  formerly director of the investment banking mining
group of Nesbitt  Burns  Securities,  Inc., in New York, as president of ESR and
Vice  President-Resource  Development of the Company. Mr. Savage's experience in
the mining  industry and his investment  banking  background  should provide the
Company with  significant  assistance in developing the  commercial  side of the
business.  The Company has further  consolidated  and  strengthened  its natural
resources  exploration  and  production  capabilities  with the  April  9,  1997
appointment of Mr. Savage as President of Earth Search Sciences.  Mr. Savage has
over 17 years of experience in all aspects of the mining industry including mine
operations,  management,  engineering, mining software specialist, and corporate
finance specialist  including equity financing,  project financing,  gold loans,
production  payments,  public  debt  financing,   financial  advisory,   general
corporate banking and investment  banking.  Mr. Savage has been involved in more
than $10 billion of debt and equity  financing for the mining  companies.  While
with  Nesbitt  Burns  Securities  in New York Mr.  Savage  held the  position of
director  investment banking mining group. Mr. Savage's experience also includes
serving in the  position  of  director,  mining and metals for Bank of  Montreal
where his  responsibilities  included business development in the United States.
Mr.  Savage  earned a bachelor  of science  degree in mining  engineering  and a
master of science degree in mineral economics from the Colorado school of mines.
Mr. Vance remains chairman, and Dr. Peel remains CEO.

                                       3
<PAGE>
IMAGERY DATABASE

         In the summer of 1987,  the Company  obtained  airborne  multi-spectral
scanner imagery over sites in Oregon, Arizona 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. The Company's
cost basis in this database includes imagery produced in photographic form (hard
copy) as well as the data on digital tape. This information was then interpreted
by a geologist  having expertise in the ATM method.  The initial  interpretation
was complete by June,  1988 and produced  approximately  500 anomalies that will
require   exploration   work  to  determine   mineralization.   In  addition  to
identification of potential mineralization, the database can be used for oil and
gas exploration,  environmental  exposure  identification and other purposes for
which geology is a major  consideration.  The Company has fully  depreciated the
cost of acquiring this database but still intends as financial  resources become
available to use the data base to focus ESR on promising  target  properties for
further remote sensing and exploration.

         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"  instrument) 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 in a study  entitled  "Developing  the use of AVIRIS,
TIMS  and TM Data to  evaluate  Hydrothermal  alteration  types  as  related  to
geologic structures in the Cuprite,  Nevada Region," Series VIP-002-93,  Stennis
Space Center, Remote Sensing  Technologies.  As a result of participation in the
program the Company acquired a large amount of unprocessed data. The useful life
of this information is expected to be in the range of five to ten years.

         The Company's  data  collected in 1987 and 1991 has been stored and can
be used many times  interactively  to determine the fine detail that go with the
use of remote sensing as an  exploration  tool for locating  mineral  prospects.
That same data can be used for other applications such as environmental  issues,
resource management issues and corridor development.

         The Company  intends to structure  its  relationship  with ESR so Earth
Search  Sciences  receives  licensing  fees for  access  to data and  technology
available  to the  Company  and  overriding  royalties  on  minerals  ultimately
exploited  by ESR or any of its  customers.  ESR is presently  preparing  with a
joint  venture  mining  company  partner to develop data  packages  based on the
imagery data the Company has acquired.  The Company  anticipates that the mining
partner will provide the capital necessary to exploit this very valuable asset.

         As with ESR, the Company anticipates  structuring its relationship with
its  strategic  alliance  partners  for the  Government  sector in a manner that
provides the Company with  licensing  fees for  exclusive use of the seven meter
imagery on government  programs,  including  but not limited to the U.S.  Forest
Service, Bureau of Land Management,  Environmental Protection Agency, Department
of Energy,  Department of  Agriculture,  and Department of Defense.  The Company
will  reserve  the rights to this  imagery  for the  perpetual  duration  of the
licensing contract.

                                       4
<PAGE>
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.  The new mining  laws  imposed a  financial  burden on the  Company by
requiring a payment in advance of a flat fee per claim plus filing costs instead
of  the  prior  arrangement  under  which  the  Company  could  perform  general
assessment work prior to making a significant financial commitment.

         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  believes that a miniaturized  hyperspectral  remote sensing  instrument
must be  developed  so that more  economical  aircraft  can be utilized  for the
airborne  sensing.  The Landsat sensor is configured with 11 channels of data in
comparison  with a  hyperspectral  instrument that has 224 channels of data. The
difference is achieved by splitting  the light  spectrum 213 times more than the
Landsat sensor and by providing better resolution.  The resulting improvement in
resolution  enables the Company to be able to read the  chemistry of the spectra
giving  us  more  substantial  information.   The  comparison  between  the  two
instruments  enables  the user to  identify  what is  there  instead  of  merely
learning that something is there.

         On April 12,  1991,  the Company  commenced  entering  into  semiannual
agreements  with  NASA  to  participate  in  the  VIP  program  to  utilize  the
specialized   resources   and  sensing   technology  of  NASA  to  the  goal  of
commercialization.   The  agreements   allowed  the  Company  access  to  NASA's
sophisticated  facilities  that are  capable of a full  range of remote  sensing
activities. Pursuant to the agreement NASA supplied administrative and technical
support  and the  Company  was  responsible  for the  expenses  and costs of the
project .The Company has gained  several years  experience in the  hyperspectral
field under this  agreement.  The  mission of JPL/NASA is to conduct  high risk,
proof of principle investigations and release the findings to the general public
through programs such as the VIP and Space Act Agreement.  Industry participants
must  submit a  scientific  project  of merit for  evaluation  by NASA.  The non
proprietary , non exclusive  data resulting  from NASA's  investigations  can be
utilized by private industry in their own decision making process  regarding the
development  of  commercial  hyperspectral  imaging  technologies.  Earth Search
Sciences,  in its early stages of development utilized cost shared hyperspectral
image  collections  from the NASA/ JPL AVIRIS  instrument  to  provide  proof of
principle  images to its  managers  and  directors  during the  decision  making
process over the issue of whether or not to proceed with the  development of the
company's own proprietary, privately funded instrument, Probe 1.

         In July,  1993, the Company flew an EPA superfund site at  Summitville,
Colorado, jointly with the EPA, USGS, Colorado DEQ, JPL and NASA to characterize
the extent of the environmental  exposure at the site and to prove the Company's
remote sensing capabilities.  The final report has been completed by the Company
and  Analytical  Imaging  and  Geophysics  and the  findings  will  be used  for
environmental and mineral purposes.  The Summitville flight provided the Company
with the  opportunity  to prove the value of remote  sensing in a commercial and
governmental  setting,  and ultimately  led to the  development of the Company's
current business plan.

                                       5
<PAGE>
CURRENT BUSINESS PLAN

         The Company believes that hyperspectral  remote sensing technology,  if
economical,  can  play a  central  role  in a  multitude  of  settings,  and has
application  both in the United  States and abroad.  The Company 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.

         The  key  to   accessing   these  market   opportunities   remains  the
miniaturization  of the remote sensing technology and usage of the technology on
an economical  basis.  The Company plans to continue its efforts to  miniaturize
and  downsize  the  technology  with  continued  economic  improvements  in  the
operation and maintenance of the sensor the ultimate objective.

         Earth Search  Sciences,  Inc. and Integrated  Spectronics Pty Ltd. have
jointly developed a remote sensing instrument, the ESSI Probe 1, that spectrally
measures the  reflectance of the sun from the earth and is considered one of the
most advanced hyperspectral instruments in the world. The Company and Integrated
Spectronics  have  signed  a series  of  agreements  to  engineer,  develop  and
manufacture  sensors as needed for each  market  that the  Company  contemplates
entering.

         Earth Search Sciences has developed a financial  strategy,  and through
that strategy has begun to acquire the necessary capital for the purchase of its
own miniaturized hyperspectral remote measurement instrument,  ESSI Probe 1. The
financial  strategy is centered  around the direct funding of the manufacture of
ESSI's  own  sensor  design  by  existing   qualified   Earth  Search   Sciences
shareholders  familiar with the company's business strategy.  The manufacture of
the Probe1 sensor is to be accomplished  through the strategic alliance that the
Company has been developing since 1994 between Integrated Spectronics Pty. Ltd.

         ESSI  believes  it  can  offer  territorial  concessions  to  qualified
shareholders  who  fund  the  acquisition  of  Probe  1s.  The  terms  of  these
concessions include ownership in a subsidiary that is licensed by the Company to
use the Probe 1 in a  specified  location  utilizing  services  provided  by the
Company or ESR (data  collection,  processing,  interpretation,  technical  data
packages, and management and marketing).

         On June 1,  1997,the  company  took  delivery  of one of three  Probe 1
instruments  currently on order . This  instrument has been installed in a Naval
research Laboratory P-3 aircraft as part of a deployment to Kazakstan in Central
Asia for a U.S. Government/ Earth Search Sciences cost shared scientific mission
sponsored by the U.S. Department of Energy,  Battelle Pacific Northwest National
Laboratory (PNNL), The Remote Sensing Laboratory-Las Vegas, Nevada, and Sandia
National Laboratory.  Economic  development issues,  including natural resources
mapping  and  environmental  surveillance  are  being  addressed  as part of the
mission.

         The Company also believes that the recent  appointment  of Brian Savage
as President of Earth Search will  strengthen  the Company's  ability to develop
the commercial side of the business and enhance the Company's  ability to access
funds to fulfill the  business  plan.  Mr.  Savage has been  representing  Earth
Search's  interests in Central Asia and is currently  participating in the joint
scientific  mission to  Kazakstan  sponsored  by the  Department  of Energy with
Battelle Pacific Northwest National Laboratories,  The Remote Sensing Laboratory
(RSL)-Las Vegas, Nevada, and Sandia National Laboratory,  and the Naval Research
Laboratory.  The mission is scheduled from June 19, 1997 to July 5, 1997.  Earth
Search will collect imagery with its Probe-1 instrument that is currently flying
aboard  the Naval  Research  Laboratory's  P-3  aircraft.  The  imagery  will be
utilized  by Earth  Search  and its  Kazakstani  partner,  SEMTECH  for  natural
resources  mapping.  This  represents  the  first  deployment  of  the  Probe  1
instrument for commercial purposes.

                                       6
<PAGE>
         Falconbridge,  Limited  (approximately  $2.5  billion  Canadian  annual
revenue  mining  company)  has signed a  memorandum  of agreement to explore and
develop the base metals on the Polygon  (Kazakstan).  Falconbridge  has provided
assistance  to Earth  Search in  meeting  the terms  and  conditions  of the new
Kazakstan  mining laws that require  that a major mining  company be part of any
team that seeks to develop Kazakstan's mineral resources.

         Falconbridge,  Limited  and Earth  Search  have also signed a letter of
intent to form a new company whose mission is  exploration  and  development  of
resource opportunities.  The relationship continues to develop within the stated
conditions of the letter.

         During the fiscal year ended March 31, 1996,  the Company  negotiated a
concession license to develop  hydrocarbons and minerals and formed a team for a
mission to Kazakstan  in 1996.  The team  includes the Company and  contractors:
Battelle/PNNL  and the  Department of Energy's  AMPS program.  A letter from the
Kazakhstan  Ministry of Science and New  Technologies  has been  received by the
U.S. State Department  addressed to the Secretary of Energy. This letter invites
Earth Search  Sciences,  its contractors and Department of Energy to perform the
mission. In addition to the concession license the Company has acquired a twenty
percent (20%)  ownership in Semtech from Scientech and commenced the acquisition
of a complex  mining  license.  The Company is  negotiating  with a large mining
company that has international holdings. Prior to March 31, 1997, John Peel, CEO
of Earth Search Sciences,  Brian Savage,  President of Earth Search Sciences and
Bill Farrand,  senior remote  sensing  geologist  from Applied  Signal and Image
Technology  visited   prospective   (candidate)  sites  for  field  exploration.
Mineralization   was  found  and  ore  samples  were  collected  for  laboratory
examination.  The extent of  mineralization  is  unknown  at this  time.  Ground
truthing  of seven  acres was  performed  in  support of the  contemplated  AMPS
flyover.

         Earth  Search  Sciences  engaged  Behre  Dolbear  &  Company,  Inc.  to
undertake property examination of the Polygon in September 1996. Behre Dolbear's
commission was among other things to (I) conduct a site visit,  visit and sample
mineral properties  occurring within the Polygon;  (ii) determine their economic
potential;  and (iii)  develop an  exploration  program  which  would  bring the
properties  to a  prefeasibility  level of  confidence.  The site visit was made
during the period of September 20 through  September  28,  1996.  Behre  Dolbear
submitted  its findings in a report titled  "Review of the Mineral  Potential of
the former Semipalatinsk Test Site Eastern Kazakstan" dated November 1996. While
this  report  remains  "Company  Confidential",  based  upon  its  visit  to  15
prospects,  Behre  Dolbear  believes  that the Polygon  represents  a remarkable
concentration of potentially viable precious and base metal properties. The true
economic  potential of the Polygon remains  unknown  pending  exploration of the
area. There are no known bodies of commercial ore on any of the above referenced
mineral  exploration  properties and the  activities of ESRL will  constitute an
exploratory  search for ore.  Any  exploration  or  development  activities  are
contingent upon the receipt of licenses in proper form.

                                       7
<PAGE>
         Earth Search through a Kazakstani Joint Stock Company,  Semtech, (which
it wons 20% of) submitted a license application  covering the entire area of the
Polygon  in  November  1996.  Semtech  was formed to assist in the  transfer  of
peaceful nuclear  technology,  provide remote sensing expertise,  and to develop
mineral  deposits  on the former  Semipalatinsk  following  the  break-up of the
Soviet  Union,  control  of all  operations  on  the  territory  of  the  former
Semipalatinsk  Nuclear  Test Site known as the Polygon was given to the National
Nuclear  Center of the  Republic  of  Kazakstan  (NNC).  "Decree of the  Cabinet
Ministers of the Republic of Kazakstan No. 44" dated January 7, 1994 granted the
NNC  certain  priority  rights  including  the right to  utilize  and manage the
mineral  rights within the Polygon.  The NNC  subsequently  transferred  certain
exclusive rights through Semtech, a joint stock company organized under the laws
of Kazakstan,  to Earth Search,  who owns 20% of Semtech including (I) Access to
the data available to the NNC regarding the Polygon  connected  with  commercial
development of minerals,  oil, gas and coal except for objects  already found or
currently being  exploited;  and (ii) The rights of the NNC to explore,  develop
and mine mineral  resources  within the borders of the Polygon,  except  objects
already found or currently being exploited.  The only exclusions are a producing
coal mine and an exploration  and  developmental  license that is believed to be
for  Molybdenum.  At the same time Earth Search  Sciences  submitted its license
application, it was made known that several licenses were granted on the Polygon
territory.  These licenses were granted without the approval of the NNC. Semtech
submitted  its license  application  on December  4, 1996  exercising  the NNC's
priority rights to mineral exploration on the Polygon. Earth Search Sciences and
Semtech determined that attempting to negotiate mutually satisfactory agreements
was a better  alternative than taking legal action.  During January and February
1997, the Company,  through Semtech  negotiated letter of intent agreements with
three of the four licensees and submitted an application  for the Balykshy area,
which is outside the Polygon area. Two of the agreements  resulted in the intent
to form joint ventures and the third agreement resulted in the intent to acquire
four (4) individual licenses held by the same company.

         During the fiscal year ended March 31,  1996,  the Company has signed a
Co-operative  Research and Development  Agreement (CRADA) with the Department of
Energy's Pacific Northwest National  Laboratories and the Battelle  Corporation.
The Agreement allows the Company a very strong research and development  partner
who also provides  capital for sensor  research and  development  and technology
transfer.  This cost sharing philosophy keeps with the ESSI strategy to minimize
our research and development  costs. To date, Earth Search has paid and expensed
all  costs  associated  with its  cost  share  obligations  as they  pertain  to
supporting the June 1997 mission to Kazakstan.

         The Company is in the process of forming  Earth Search  Resources  Ltd.
(ESRL),  an  Ontario,  Canada  mineral  exploration  company  who,  through  its
subsidiaries  and affiliates,  will engage in locating,  evaluating,  acquiring,
exploring,  and if warranted,  developing mineral properties in Kazakstan.  Upon
completion  of the  formation of ESRL,  ESRL through  Semtech,  will  register 3
mineral  exploration and development joint ventures ("Joint Ventures") that will
hold 7 mineral  exploration  licenses and 1 mineral  exploration and development
license.  Semtech  is also in the  process of  negotiating  with  Botamoynak,  a
Kazakstani  company that holds a mineral  exploration  license  covering a large
portion of the Polygon.  The 3 Joint Venture Companies that will be submitted to
the Ministry of Justice for Registration are Polygon  Resources,  LLP; Besshoky,
LLP;  and  SemGeo,  LLP.  Semtech  will be the  licensee  for 6 of the 8 mineral
exploration  licenses that are awaiting final  ratification by the Government of
the Republic of Kazakstan (the "Government").  The other 2 licenses have already
been  ratified  by  the  Government  and  are  currently  held  separately  by 2
Kazakstani  companies.  Each  of  these  licenses  will  be  transferred  to its
respective  Joint Venture Company upon the completion of the legal  registration
of each company.

                                       8
<PAGE>
         The Company intends for ESRL to fund the Company's expected commitments
of  approximately  $20,000,000  over  the next  several  years  relating  to the
Kazakstan venture.  The Company  anticipates that most of this funding will come
from a mining company or companies and from a private placement of securities of
ESRL.  There can be no  assurance  that the Company  will succeed in raising the
required capital.

         The Company has taken steps to develop its infrastructure and expertise
independently  or obtain  access to it through  teaming  agreements or strategic
alliances.

         On January 16, 1997, the Company  signed an agreement  with  California
Microwave  Inc.  (CMI) and  Applied  Signal and Image  Technology  Inc.  (ASIT).
California Microwave is a leader in wireless and satellite  communications.  CMI
Airborne Systems Integration  Division will provide a dedicated aircraft for the
joint project, ASIT will provide the software and hardware for the processing of
all data and ESSI will provide the Probe 1 sensor.  The first mission will be to
display  the   aircraft,   software  and  hardware  and  the  sensor  the  Third
International  Airborne Remote Sensing  Conference and Exhibition in Copenhagen,
Denmark, July 7-10, 1997.

         The Company also believes that a merger with or  acquisition  of one or
more companies may be the most expeditious and cost-effective way to achieve the
goals of  commercializing  the remote  sensing  technology  and  converting  the
Company to an operating, revenue-producing entity. A merger or acquisition would
provide  the  Company  with a  revenue  base and with more  immediate  access to
prospective users of remote sensing  technology.  The Company would not rule out
the creation of a joint venture or "newco" as part of this strategy.

         The Company had  attempted to acquire a revenue  producing  entity that
could enhance the  Company's  remote  sensing  business  prospects,  and in fact
signed a  definitive  agreement  on June 30,  1995 to acquire all of the capital
stock of Lamb Associates, Inc. ("LAI"), an established engineering and technical
services  company  with a  strong  U.S.  Government  contracting  practice.  The
definitive  agreement  was  contingent  on, among other  things,  receipt by the
Company of financing or equity capital to fund the acquisition.  At one point in
time, the Company and William Lamb believed they had closed the transaction in a
restructured  format.  However,  the  restructured  format  proved  fragile  and
ultimately,  on July 11, 1996,  the Company and the LAI  Shareholders  broke off
discussions concerning the restructuring of the definitive agreement. There were
three  principle  reasons  for  this  decision.  First,  the  needs  of the  LAI
shareholders to receive cash were incompatible  with the Company's  inability to
raise funding to acquire LAI, second, the profitability of LAI declined somewhat
due to the present uncertainty surrounding Government contracting, and third the
personal requirements of Mr. Lamb for free trading shares were unacceptable.

         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 present  commercial  competition in the
field of hyperspectral  spectroscopy.  The only knowledge the Company has of any
other use of hyperspectral data today is in academic and federal research.

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

                                       9
<PAGE>
EMPLOYEES

         As of March 31, 1997, the Company had 3 full-time employees: Larry F.
Vance, Chairman and John W. Peel, III, Chief Executive Officer, and Brian
Savage, President. Also the Company retains Tami J. Story, Company Secretary,
as a full-time administrative and support person on an independent contractor
basis.

ITEM 2.  PROPERTIES

         The  Company  leases  its  corporate   headquarters   and  all  of  the
furnishings  from an unrelated third party, and has  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. The Company  anticipates
that ESR will require office space later this year. The Company intends that ESR
will lease  office  space in a site  conducive  to  conducting  mineral  related
business,  and Mr.  Savage has  indicated  that  perhaps  ESR should  locate its
headquarters  in Denver,  Colorado.  The Company  also  anticipates  that future
subsidiaries  set up to develop  data  packages  in other  countries,  including
perhaps Quasar and Bear Creek, may be set up as foreign entities and may require
leased space in their locality.

         As part of the  Company's  involvement  in  Kazakstan,  the Company has
acquired  office  space in the  Kazakstan  city of  Kurchatov  in March of 1997,
consisting of two  buildings  for $1,700 in cash.  Kurchatov is located near the
Polygon  and is linked to the capital  city of Almaty by air  through  Kazakstan
Airlines which offers  scheduled air service  between  Semipalatinsk  and Almaty
three  times per week.  The  buildings  are  directly  across  from each  other.
Building  number  one is 30 meters by 60  meters  or 1800 sq.  meters.  Building
number two is 60 meters by 90 meters or 5400 sq.  meters.  Both buildings are in
need  of  remodeling  and  new  construction  to  bring  them  into  local  code
compliance.  Conversion of the facility to the Kazakstan  headquarters  of Earth
Search is  expected to cost  $150,000.  Work will  commence  as funding  becomes
available to the Company.  Since the  cessation of the existence of the USSR and
the curtailment of nuclear testing,  facilities in Kurchatov have  significantly
deteriorated.  Once  a  city  of  50,000  in  population,  Kurchatov  now  hosts
approximately  10,000  residents;  most  underemployed  or  unemployed.  Skilled
technical  workers are  available in both  Kurchatov  and  Semipalatinsk.  These
professionals will be of great assistance in any mineral development activities.

ITEM 3.  LEGAL PROCEEDINGS

         On January 10,  1997 , the State of Idaho  Department  of Finance  sued
earth Search  Sciences,  Inc. and Larry F. Vance for alleged  violations  of the
Idaho  Securities  Act.  The  lawsuit is pending in the  District  Court for the
Fourth Judicial District of the State of Idaho, Ada County,  CV OC 9700155D.  In
the lawsuit,  the State  contends that ESSI and Mr. Vance  violated Idaho law by
making sales of unregistered securities without a license and with no applicable
exemption.  In addition, the State contends that ESSI and Mr. Vance violated the
antifraud  provision of the Idaho Securities Act by making untrue  statements of
material facts.  The alleged untrue  statements  include (I)  misrepresentations
regarding   the  lack  of   compensation   paid  to   certain   officers;   (ii)
misrepresentations  regarding the ownership by ESSI of remote sensing equipment;
(iii)  misrepresentations  regarding  revenue  producing  contracts that did not
materialize or produce revenues; (iv) misrepresentations regarding the rights of
investors to convert promissory notes to stock; (v) misrepresentations regarding
the nature of ESSI's interest in the mineral concession in Kazakstan;  and (vii)
misrepresentations  regarding the  acquisition by ESSI of Lamb  Associates  Inc.
when in fact such  acquisition  never closed.  The State also alleges that press
releases  and other  written  literature  released  by ESSI were  advertisements
regarding ESSI securities that should have been filed with the State.

                                       10
<PAGE>
         The State requests injunctive relief, including an order requiring ESSI
to offer all  investors  who acquired  securities  from ESSI  recission of their
investment  in ESSI.  The  State  also  requests  a penalty  of US $ 10,000  per
violation and reimbursement for the State's attorney's fees and costs.

         ESSI and Mr. Vance are  vigorously  defending the lawsuit,  and believe
all of the fraud claims are without  merit.  ESSI and Mr. Vance believe they may
have misunderstood certain rules regarding sales of unregistered securities, and
have announced their intention to offer recission to certain  residents of Idaho
who purchased convertible debt and equity securities from ESSI during the period
from 1994 to  present.  To make that  offer,  ESSI  needs to secure  funding  of
approximately US $143,545 and will need to make certain filings with the SEC and
the  State.  ESSI is not yet in a  position  to fund  the  offer  or to make the
requisite filings,  but is hopeful that it will be able to do so within the next
several months. There can be no assurance of the outcome of this litigation, and
an adverse  result would be material and might affect ESSI's  ability to survive
as an ongoing  enterprise.  Unfortunately,  the State's tactics in investigating
and pursuing  its claims  against the Company and Mr. Vance has made certain key
people with whom the Company does business  nervous.  The  Company's  efforts to
fulfill its business plan have been hampered by this nervousness and the need to
reassure the people of the Company's  legitimacy.  The Company  believes that it
has successfully  overcome most of these issues but the costs have been high and
the delays have been untimely.

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

                  Not applicable

ITEM 4(a).  EXECUTIVE OFFICERS OF THE REGISTRANT

         The following table sets forth certain  information with respect to the
executive officers of the Company as of June 29, 1997.

                                NAME            AGE              POSITION

                         Larry Vance            62               Chairman
                         John W. Peel           51      Chief Executive Officer
                         Brian C. Savage        37                President
                         Tami J. Story          34        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.

         John W. Peel, III joined the Company as Chief Executive Officer in
April 1995.  Prior to joining the Company, Dr. Peel served for the past 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.

         Brian C. Savage joined the Company as Vice President-Resource
Development and President of the Company's wholly owned subsidiary, Earth Search
Resources, Inc. in June 1996. Mr. Savage was appointed President of Earth Search
Sciences on April 9, 1997. Mr. Savage, for the past four years, was formerly
director of the Investment Banking Mining Group of Nesbitt Burns Securities
Inc., in New York. Savage holds a bachelor's degree in mining engineering and a
master's in resources economics from the Colorado School of Mines.

         Tami J. Story joined the Company as Secretary and Treasurer in 1993.
Ms. Story has been with the Company for 6 years in an administrative support
capacity as an independent contractor.  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.

                                       11
<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, 1994               $0.10       $0.07
              September 30, 1994          $0.10       $0.08
              December 31, 1994           $0.20       $0.10
              March 31, 1995              $0.20       $0.16

              June 30, 1995               $0.28       $0.24
              September 30, 1995          $0.35       $0.30
              December 31, 1995           $0.41       $0.38
              March 28, 1996              $0.84       $0.81

              June 30, 1996               $0.75       $0.68
              September 30, 1996          $0.37       $0.34
              December 31, 1996           $0.20       $0.17
              March 28, 1997              $0.41       $0.38

         (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,  1997,  was
approximately  735. 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.

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>

                                    Cumulative
                                     Amounts
                                    During the
                                   Development                   As of or for the fiscal year ended
                                      Stage           1997          1996           1995        1994        1993
             <S>                     <C>            <C>           <C>           <C>         <C>         <C>

             Operating
               Revenue                   21,332     $   -0-       $     6,332   $    -0-     $   -0-     $   -0-

             Net Loss                (8,233,202)     (2,549,823)   (2,408,292)   (1,122,541)  (340,004)   (333,657)
             Net Loss per
               Common Share                  n/a          (0.04)        (0.05)        (0.02)     (0.01)      (0.01)
             Total Assets             3,951,914       3,951,914       922,377        95,861     49,598     139,669
             Long-term 
               Obligations              873,462         873,462       736,209     1,231,217    300,052     443,227
             Stockholders'
               Deficit               (2,960,610)     (2,960,610)   (1,295,908)   (1,899,435)  (843,440)   (829,081)
             Cash Dividends
             Declared                         0               0             0             0          0           0
</TABLE>
                                       13
<PAGE>
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,
1997 and 1996 and 1995.

LIQUIDITY AND CAPITAL RESOURCES

         During the  fiscal  year  ended  March 31,  1995,  the  Company  had no
operating  revenues.  The Company was required to obtain working capital through
the sale of its  unissued  common stock and the  issuance of  short-term  notes.
Aggregate  amounts  received  are  approximately  $113,325  from stock sales and
$460,810  from the  issuance of notes.  In  addition,  the  Company's  operating
payables and accrued  liabilities  increased  approximately  $34,675.  The large
operating  payables and short-term  notes create a substantial  working  capital
deficiency.

         During the fiscal  year ended March 31,  1996,  the Company had limited
operating  revenues of $6,332 that derived from two  consulting  agreements  for
time and  materials  with  Lockheed  Martin  Group.  The Company was required to
obtain  working  capital  through the sale of its unissued  common stock and the
issuance of  short-term  notes.  Aggregate  amount  received  are  approximately
$192,400 for stock sales and $570,574  from the issuance of notes.  In addition,
the Company's operating payables and accrued liabilities increased approximately
$178,832. The large operating payables and short-term notes create a substantial
working  capital  deficiency.  If the Company  cannot  continue to raise working
capital  from  private  placements  of stock  and/or  notes,  the  Company  will
experience a substantial hardship in continuing to operate.

         During the fiscal year ended March 31, 1996, the Company  experienced a
large increase in general and administrative  expense from $952,500 for the year
ended March 31, 1995,  to  $2,143,013.  Approximately  $240,320 of that increase
relates to deferred  compensation to the three principal officers of the Company
at March 31,  1996.  The balance of the  increase in general and  administrative
expense  relates to the recording by the Company of  $1,150,000 in  compensation
expense in the fiscal year ended  March 31,  1996,  relating  to the  difference
between the exercise price for stock options  granted to officers of the Company
in their employment  agreements,  and the market price of the Company's stock on
the  date  the  options  were   granted.   The  remainder  of  the  general  and
administrative expense resulted mostly from significant research and development
and financing related activities  undertaken by the Company utilizing consulting
services.  The  Company  paid for many of such  consulting  services  by issuing
shares of its common stock to the consultants.

         During the fiscal  year ended March 31,  1997,  the Company had limited
operating revenues.  This does not reflect the working capital held back per the
ESSI agreement with ISPL discussed below in the section on Accuprobe, Inc. These
funds are accounted for separately in the financial section of this report it is
considered a sales/leaseback  transaction for accounting purposes.  In addition,
the Company's  operating payables and accrued liabilities  increased.  The large
operating  payables and short-term  notes create a substantial  working  capital
deficiency.

                                       14
<PAGE>

         Subsequent to March 31, 1997,  the Company  formed a new company,  ESSI
Probe 1 LC, to acquire a third Probe 1  instrument  manufactured  by  Integrated
Spectronics Pty Ltd. of Australia. The new company is a joint venture managed by
Earth Search  Sciences and owned 50% by Earth Search  Sciences,  who contributed
$500,000  and  certain  rights  to its  proprietary  technology  and  50% by two
shareholders,  who  contributed  $1 million for their  interest in the  company.
Under the terms of the joint venture arrangement, Earth Search Sciences will use
the Probe 1 instrument for the  identification  and  exploitation of minerals as
well as environmental remediation and other projects. The joint venture hopes to
receive certain  royalties on minerals  discovered and exploited  through use of
the instrument, as well as other fees paid by third parties for data gathered by
the  instrument.  This  instrument is slated for delivery  between the third and
fourth quarters of 1997.

         The Company  restructured  the commitment from Accuprobe,  Inc. to fund
two (2) sensors, in June 1997, by agreeing to sell to Accuprobe, Inc. one Probe1
under a  sale-leaseback  arrangement with an option to repurchase the instrument
outright  and by agreeing to a loan from  Accuprobe,  Inc.  for a portion of the
proceeds  to fund a second  Probe1  secured  by a pledge  of the  contract  with
Integrated Spectronics Pty Ltd related to the manufacture of such second Probe1.
The  Company  must repay this loan of  $2,200,000  upon  delivery  of the second
Probe1,  which is presently  scheduled for Fall 1997.  The Company and Accuprobe
continue to seek ways to renegotiate  the  agreements to provide  Accuprobe with
more long term upside in exchange for relieving the Company from short-term cash
flow stresses.  There can be no assurance that the Company and Accuprobe will be
successful in  restructuring  their  agreements.  If the Company defaults in its
obligations  to  Accuprobe,   the  Company  could  lose  the  instruments   that
collateralize  those obligations.  This would have potentially  material adverse
competitive consequences to the Company.

         In  1996,   the  Company  set  up   subsidiaries   to  develop   mining
opportunities in the following  markets:  Canada,  Brazil and the United States.
The Canadian market is controlled through Quasar Resources,  Inc.; and Brazil is
controlled by Bear Creek  Exploration,  Inc. Earth Search currently controls the
exploration  activities  associated with the United States. The Company recently
acquired  all the  stock  in  Quasar  Resources,  Inc.  and  Bear  Creek  and is
determining their future use.

         The  Company  has also  signed an  agreement  with  Applied  Signal and
Imaging  Technology  Inc.  ("ASIT"),  pursuant  to which ASIT will work with the
Company to develop a system to provide real time  translation  of remote sensing
data  into  usable   information.   The  Company  expects  that  this  technical
advancement will significantly  enhance the value of air-borne remote sensing in
a large  variety  of  contexts,  where the  present  delay in  receiving  usable
information  of  several  months  has been an  impediment  to the use of  remote
sensing technology.

         The financial statements reflect consolidation of the Company's results
with  the  financial  statements  of  the  Company's  subsidiaries.  One  of the
Company's subsidiaries, Quasar Resources, Inc., a Wyoming corporation, completed
a private placement to certain  qualified  individuals of 30% of its outstanding
capital stock. In fiscal 1997 and 1996,  Quasar received  $165,945 and $157,100,
respectively  in net proceeds from the private  placement.  ESR received its 70%
interest in Quasar for nominal  consideration and certain agreements relating to
technology. Accordingly, the Company has recorded a minority interest of $49,798
and $47,130,  respectively  relating to the shares purchased by the unaffiliated
Quasar  shareholders  and has recorded  $116,197 and $109,970,  respectively  as
additional paid-in capital.  In March 1997 and subsequent to March 31, 1997, the
Company  and the  outside  shareholders  of Quasar  agreed to swap shares of the
Company's  common stock for shares of Quasar on a 2-to-1  basis.  As a result to
Company now owns all of the outstanding stock of Quasar Resources, Inc.

                                       15
<PAGE>
         During the fiscal  year ended March 31,  1996,  the Company had entered
into an agreement to acquire all  outstanding  shares of LAI, an engineering and
professional service company, which provides technical services primarily to the
environmental industry. As of July 11, 1996, the Company and LAI could not reach
an agreement on a restructuring  of the  transaction.  As a result,  the Company
recorded  a  charge  in  fiscal  year  1997  for its  expenses  relating  to the
transaction, which approximated $130,000.

RESULTS OF OPERATIONS

         The Company has continued to pursue  strategic  alliances  with several
substantial companies and Federal laboratories.

         The Company has also collected  hyperspectral data and performed ground
truthing on a target using the AVIRIS instruments and NASA's UER-2 aircraft. The
target was a Superfund site at  Summitville,  Colorado,  allowing the Company to
characterize  the site for  environmental  purposes.  The final  report has been
completed by the Company and Analytical  Imaging and Geophysics and the findings
will be used for environmental and mineral purposes.

         During the fiscal year ended March 31, 1996,  the Company has continued
working with NASA's research and development department,  to assist in continual
efforts to commercialize remote sensing. In addition,  the Company will endeavor
to secure  additional  capital  necessary to continue the  Company's  efforts to
commercialize remote sensing.

JOINT VENTURE AND OPERATING ENTITY RELATIONSHIP

         During the fiscal  year ended  March 31,  1996,  the  Company  signed a
Memorandum of Agreement (MOA) and a Teaming  Agreement with Hughes Santa Barbara
Research  facilities.  The Agreements will provide  certain Hughes  instruments,
manufacturing and Hughes support for the ESSI Kazakhstan mission in August 1996,
which will include the Department of Energy,  Navy Research  Laboratory,  Sandia
National Laboratory,  Lawrence Livermore Laboratory,  Pacific Northwest National
Laboratory and Battelle.  As reported in subsequent SEC 10-Q filings, the August
1996  mission  to  Kazakstan  was  delayed  until the  spring of 1997 and Hughes
withdrew  from  participating  in  the  mission  because  of  prior  commitments
conflicting  with the schedule  change.  Earth Search is not  conducting any new
business with Hughes at this time.

         In October  1994,  the Company  obtained  JPL  support to retrofit  the
AVIRIS  instrument  to the NASA  C-130  aircraft.  This will  enable  the AVIRIS
instrument to collect 5 x 5 meter pixel data flying at 5,000 meter AGL, which is
a 16-fold increase in spatial resolution over the resolution available currently
with the ER-2  aircraft.  Although  a  contract  was  issued to Earth  Search to
retrofit a C-130  aircraft ,  utilizing  funds to be provided  by Earth  Search,
negotiations  were  suspended with NASA over this issue in the fourth quarter of
1996 because of  programmatic  uncertainties  contributed by Federal budget cuts
and the  elimination of a key aircraft from the NASA fleet which would have been
a candidate for  conversion to a test  platform.  While Earth Search  recognizes
that  NASA's not for profit  status  precludes  the agency  from  endorsing  any
commercial product or instrument, Earth Search intends to contract with NASA/JPL
to evaluate the Probe 1 instrument against AVIRIS.

                                       16
<PAGE>
         Earth  Search and a private  Canadian  group are in the final stages of
the  formation  of a company  whose  mission is to raise  capital and manage the
development of remote sensing opportunities in the Canadian territory.

         Dr. Larry Lass,  University of Idaho teamed with Earth Search  Sciences
on a joint  proposal  to the Farm Bureau and won a contract to overfly the Snake
River  Basin  (Hell's  Canyon)  to prove the use of  hyperspectral  imagery  for
control and  eradication  of noxious week  intrusion.  The results of which will
enable Earth Search to determine the  applicability of Probe1 technology to this
potentially lucrative agricultural market.

         During the fiscal  year ended  March 31,  1995,  the  Company  signed a
multi-year  Space Act  Agreement  with JPL,  California  Institute of Technology
(CALTECH) and NASA's high altitude missions branch. JPL is to provide the AVIRIS
hyperspectral  instrument  to collect  data and  process the same and NASA is to
provide the airborne  platform  and UER-2  aircraft to fly the  instrument  over
targets of interests generated by (1) the Company,  (2) major  mineral/petroleum
companies and (3) environmental/engineering  targets. Under this Agreement, NASA
has flown Summitville, Colorado, an EPA superfund project, the San Jacinto River
oil spill  (pipeline  break),  the Coeur d'Alene mining district and the Payette
National Forest.  The Company is currently  developing data packages for each of
such flights for interpretation.

         During the fiscal year ended March 31,  1996,  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.

FUTURE OPERATIONS

         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.

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-22 of this report.

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

                  None

                                       17
<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 1997  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, 1997.

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 1997  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 1997 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  1997  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.



                                       18
<PAGE>

                                     PART IV


Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
             FORM 8-K
<TABLE>
<CAPTION>

         (a)(1)   Financial Statements                                          Page in this Report
         <S>      <C>                                                              <C>

                  Reports of Independent Accountants                            F-1
                  Balance Sheet at March 31, 1997 and 1996                      F-2
                  Statement of Loss for the Years
                     Ended March 31, 1997, 1996 and 1995                        F-3
                  Statement of Changes in Shareholders'
                     Equity (Deficit) for the Years Ended
                     March 31, 1997, 1996 and 1995                              F-4/F-5/F-6
                  Statement of Cash Flows for the Years
                     Ended March 31, 1997, 1996 and 1995                        F-7
                  Notes to Financial Statements                                 F-8--F-22

         (a)(2)   Financial Data Schedules                                      F-23

         (a)(3)   Exhibits                                                      Filed

</TABLE>

3.1      Articles of Incorporation;  incorporated by reference to Exhibit 3.1 to
         the  Registrant's  Form 10-K for the fiscal  year ended  March 31, 1995
         (Amendment authorizing additional shares is attached hereto)

3.2      Bylaws; incorporated by reference to Exhibit 3.2 to the Registrant's
         Form 10-K for the fiscal year ended March 31, 1995

4.1      See Exhibit 3.1 and Exhibit 3.2

10.1     NASA  Agreement;  incorporated  by  reference  to  Exhibit  3a  to  the
         Registrant's Amended Form 10-K for the fiscal year ended March 31, 1993

10.2     Space Act  Agreement  between  NASA and the  Registrant  dated June 30,
         1994;  incorporated  by reference  to exhibit 10.4 to the  Registrant's
         Form 10-K for fiscal year ended March 31, 1995

10.3     Settlement  Agreement and Release dated November 7, 1994;  incorporated
         by reference to exhibit 10.5 to the  Registrant's  Form 10-K for fiscal
         year ended March 31, 1995

10.4     Agreement dated February 16, 1995 between Graham, Hamilton & Dwyer,
         Inc. and the Registrant; incorporated by reference to exhibit 10.6 to
         the Registrant's Form 10-K for fiscal year ended March 31, 1995

10.5     Agreement  dated  September 11, 1995 between  Registrant and Integrated
         Spectronics Pty Ltd.;  incorporated by reference to exhibit 10.5 to the
         Registrant's Form 10-K for fiscal year ended March 31, 1996

10.6     Memorandum of  Understanding  between  the  Registrant  and  Applied
         Signal and Imaging Technology,  Inc. dated May 27, 1996; incorporated
         by reference to exhibit  10.6 to the  Registrant's  Form 10-K for
         fiscal  year ended March 31, 1996

10.7     Agreement dated September 11, 1995 between Registrant and Integrated
         Spectronics Pty. Ltd. for $2 million

10.8     Agreement dated September 11, 1995 between Registrant and Integrated
         Spectronics Pty. Ltd. for $1.9 million

10.9     Agreement dated June 10, 1997 between Registrant and Accuprobe, Inc.

10.10    Operating Agreement of ESSI Probe1 LC, dated June 3, 1997

16.1     Letter   re:  change in  certifying  accountant;  incorporated  by
         reference to exhibit 16.1 to the Registrant's Form 10-K for fiscal
         years ended March 31, 1995 and March 31, 1996

21.1     Earth Search Resources, Inc., Wyoming Quasar Resource Inc., Wyoming and
         Bear Creek  Exploration,  Inc.,  Nevada;  incorporated  by reference to
         exhibit 21.1 to the Registrant's  Form 10-K for fiscal year ended March
         31, 1996

(b)      Reports on Form 8-K.
               Filed a Form 8-K on  December 6, 1996 Filed a Form 8-K on January
               15,  1997 Filed a Form 8-K on March 25,  1997 Filed a Form 8-K on
               April 9, 1997 Filed a Form 8-K on June 19, 1997

                                       19
<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, 1996.
<TABLE>
<CAPTION>


 Signature                                           Title
<S>                                         <C>

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

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

/s/ Brian C. Savage                         Director
Brian C. Savage

/s/ Tami Story                              Director
Tami J. Story

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

</TABLE>


                                       20
<PAGE>

<TABLE>
<CAPTION>

                                  EXHIBIT INDEX
Exhibit           Sequential
  No.             Description                                                                  Page No.
<S>      <C>                                                                                   <C>


27.      Financial Data Schedules                                                                --

3.1      Articles of Incorporation                                                               --

3.2      Bylaws                                                                                  --

4.1      See Exhibit 3.1 and Exhibit 3.2                                                         --

101      NASA Agreement;  incorporated by reference to Exhibit 3a to the Registrant's
         Amended Form 10-K for the fiscal year ended March 31, 1993                              --

10.2     UURI Agreement;  incorporated by reference to Exhibit 3b to the Registrant's
         Amended Form 10-K for the fiscal year ended March 31, 1993                              --

10.3     Agreement  dated  January  25,  1994  among  the  Registrant,   Emerald
         Operating Company and Spectral International; incorporated by reference
         to exhibit 10.3 to registrant for 10-K for fiscal year
         ended March 31, 1995                                                                    --

10.4     Space Act Agreement  between  NASA and the  Registrant  dated June 30, 1994;
         incorporated by reference to exhibit 10.4 to registrant for 10-K for fiscal
         year ended March 31, 1995                                                               --

10.5     Settlement Agreement and Release dated November  7, 1994; incorporated by
         reference to exhibit 10.5 to registrant for 10-K for fiscal year ended
         March 31, 1995                                                                          --

10.6     Agreement dated February 16, 1995 between Graham, Hamilton & Dwyer, Inc.
         and the Registrant; incorporated by reference to exhibit 10.6 to
         registrant for 10-K  for fiscal year ended March 31, 1995                               --

10.7     Agreement dated September 11, 1995 between Registrant and Integrated
         Spectronics Pty. Ltd. for $2 million                                                  Filed

10.8     Agreement dated September 11, 1995 between Registrant and Integrated
         Spectronics Pty. Ltd. for $1.9 million                                                Filed

10.9     Agreement dated June 10, 1997 between Registrant and Accuprobe, Inc.                  Filed

10.10    Operating Agreement of ESSI Probe1 LC, dated June 3, 1997                             Filed

16.1     Letter re: change in certifying accountant                                              --
</TABLE>


                                       21
<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  changes  redeemable  common  stock  and
nonredeemable  in  shareholders'  equity  (deficit)  and of cash  flows  present
fairly,  in all  material  respects,  the  financial  position  of Earth  Search
Sciences,  Inc. and its subsidiaries  (collectively,  the Company, a development
stage company) at March 31, 1997 and 1996,  and the results of their  operations
and their cash flows for each of the three  years in the period  ended March 31,
1997 and for the period from inception (May 15, 1984) through March 31, 1997, in
conformity with generally  accepted  accounting  principles.  These consolidated
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  consolidated
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the consolidated 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
consolidated  financial statements,  the Company is in the development stage and
has not  generated  operating  revenues to date.  In  addition,  the Company has
suffered  recurring  losses since its  inception  and, at March 31, 1997,  has a
deficit aggregating  $8,233,202  accumulated during its development stage and an
excess of current  liabilities  over current assets of $5,469,551.  Such factors
raise  substantial  doubt  about the  Company's  ability to  continue as a going
concern.  Management's  plans in regard to these  matters are also  described in
Note 1. The  consolidated  financial  statements do not include any  adjustments
that might result from the outcome of this uncertainty.



PRICE WATERHOUSE LLP

Portland, Oregon
June 26, 1997


                                      F-1
<PAGE>
EARTH SEARCH SCIENCES, INC.
(A Development Stage Company)
Consolidated Balance Sheet
<TABLE>
<CAPTION>


                                                                                           March 31,
                                                                                   1997                1996
                                                                             ----------------    ---------------
<S>                                                                          <C>                 <C>
Assets
Current assets:
   Cash                                                                      $         51,666    $       670,325
                                                                             ----------------    ---------------
      Total current assets                                                             51,666            670,325
Property and equipment (Note 2)                                                     3,840,460            122,276
Other long-term assets                                                                 59,788            129,776
                                                                             ----------------    ---------------

      Total assets                                                           $      3,951,914    $       922,377
                                                                             ================    ===============

Liabilities, Redeemable Common Stock and
Nonredeemable Shareholders' Deficit
Current liabilities:
   Notes payable (Note 5)                                                    $        203,250    $       444,981
   Accounts payable                                                                 1,764,836            188,818
   Accrued payroll taxes                                                               64,733             34,000
   Accrued interest (Notes 5 and 6)                                                   406,273            314,277
   Advance deposits                                                                 3,082,125            500,000
                                                                             ----------------    ---------------
        Total current liabilities                                                   5,521,217          1,482,076

Long-term liabilities:
   Shareholder loans (Note 6)                                                          37,090             96,519
   Deferred officers' compensation (Note 4)                                           779,818            592,560
   Minority interest (Note 9)                                                          56,554             47,130
                                                                             ----------------    ---------------
        Total liabilities                                                           6,394,679          2,218,285
                                                                             ----------------    ---------------

Commitments and contingencies (Note 11)
Redeemable common stock, $.001 par value, 1,725,914 shares
  issued and outstanding at March 31, 1997 (Note 9)                                   517,845                  -
                                                                             ----------------    ---------------

Nonredeemable shareholders' deficit (Note 1, 8 and 9):
   Common stock $.001 par value; 200,000,000 shares
     authorized; 68,530,779 and 66,551,663 shares, respectively,
     issued (excluding redeemable common stock)                                        68,531             66,551
   Additional paid-in capital                                                       5,204,061          4,320,920
   Deficit accumulated during the development stage                                (8,233,202)        (5,683,379)
                                                                             ----------------    ---------------
                                                                                   (2,960,610)        (1,295,908)

        Total liabilities, redeemable common stock and
          nonredeemable shareholders' deficit                                $      3,951,914    $       922,377
                                                                             ================    ===============
                                                            F-2

</TABLE>
<PAGE>
EARTH SEARCH SCIENCES, INC.
(A Development Stage Company)
Consolidated Statement of Loss
<TABLE>
<CAPTION>


                                                     From inception
                                                     (May 15, 1984)
                                                         through
                                                        March 31,          For the years ended March 31,
                                                          1997           1997           1996            1995

<S>                                                  <C>             <C>            <C>            <C>
Revenue                                              $      21,332   $           -  $       6,332  $           -
                                                     -------------   -------------  -------------  -------------
Expenses:
    Exploration (Note 1)                                 1,604,004         606,169        150,419         14,865
    Depreciation                                           248,226          29,668         20,004         16,327
    General and administrative                           5,784,239       1,646,063      2,143,013        952,500
                                                     -------------   -------------  -------------  -------------
                                                         7,636,469       2,281,900      2,313,436        983,692
                                                     -------------   -------------  -------------  -------------

Loss from operations                                    (7,615,137)     (2,281,900)    (2,307,104)      (983,692)

Interest income                                             10,002               -          6,762              -
Interest expense (Notes 5 and 6)                          (744,441)       (305,297)      (107,950)      (138,849)
                                                     -------------   -------------  -------------  -------------
Loss before minority interest                           (8,349,576)     (2,587,197)    (2,408,292)    (1,122,541)

Minority interest in losses of consolidated
  subsidiary                                                37,374          37,374              -              -
                                                     -------------   -------------  -------------  -------------
Loss before extraordinary item                          (8,312,202)     (2,549,823)    (2,408,292)    (1,122,541)
Extraordinary item                                          79,000               -              -              -
                                                     -------------   -------------  -------------  -------------

Net loss                                             $  (8,233,202)  $  (2,549,823) $  (2,408,292) $  (1,122,541)
                                                     =============   =============  =============  =============

Net loss per common share (Note 1)                                   $       (.04)  $        (.05) $         (.02)
                                                                     ============   =============  ==============

Weighted average shares outstanding                                     66,556,995     53,150,421     49,543,726
                                                                     =============  =============  =============














                                                                                                                F-3
   The accompanying notes are an integral part of these financial statements.


</TABLE>
<PAGE>

<TABLE>
<CAPTION>
EARTH SEARCH SCIENCES, INC.
(A Development Stage Company)
Consolidated Statement of Redeemable Common Stock and Nonredeemable Shareholders' Equity (Deficit)  Page 1 of 3

                                                                          NONREDEEMABLE SHAREHOLDERS' EQUITY (DEFICIT)

                                                                      Redeemable                                Additional
                                                                    Common stock           Common stock         paid-in
                                                                 Shares       Amount     Shares     Amount      capital
<S>                                                              <C>         <C>         <C>         <C>       <C>
Balance at May 15, 1984 (date of inception)                              -   $       -            -  $      -  $       -
    Issuance of common stock to incorporators
     for cash (Notes 1 and 9)                                                             7,000,000    7,000     28,000
    Net loss
                                                                 ---------   ---------    ---------- -------   --------
Balance at March 31, 1985                                                -           -    7,000,000    7,000     28,000
    Issuance of common stock in connection with
     public offering, net of offering costs of
     $23,892 (Notes 1 and 9)                                                              2,129,100    2,129     80,434
    Issuance of common stock in connection with
     merger (Notes 1 and 9)                                                              13,639,600   13,640    (12,640)
    Net loss
                                                                 ---------   ---------   ----------  -------   --------
Balance at March 31, 1986                                                -           -   22,768,700   22,769     95,794
    Net loss                                                     ---------   ---------   ----------  -------   --------

Balance at March 31, 1987                                                -           -   22,768,700   22,769     95,794
    Acquisition of treasury stock (Notes 1 and 9)
    Net loss
                                                                 ---------   ---------   ---------- --------   --------
Balance at March 31, 1988                                                -           -   22,768,700   22,769     95,794
   Net loss
                                                                 ---------   ---------   ---------- --------   --------
Balance at March 31, 1989                                                -           -   22,768,700   22,769     95,794
   Net loss                                                      ---------   ---------   ----------  --------  --------

Balance at March 31, 1990                                                -           -   22,768,700   22,769     95,794
   Issuance of common stock in exchange for
     services rendered                                                                    1,944,977    1,945      56,655
   Sale of treasury stock (Note 9)                                                                                98,500
   Net loss
                                                                 ---------   ---------   ----------  -------   ---------
Balance at March 31, 1991                                                -           -   24,713,677   24,714     250,949
   Issuance of common stock for cash                                                      3,335,196    3,335     235,729
   Issuance of common stock to a director
     pursuant to stock option                                                             1,000,000    1,000       9,000
   Issuance of common stock in exchange
     for services rendered                                                                  872,000      872      84,188
   Issuance of common stock in exchange
     for mineral properties (Notes 1 and 2)                                               1,500,000    1,500      73,500
   Issuance of common stock in exchange for equipment                                       140,000      140       7,768
   Sale of treasury stock (Notes 1 and 9)                                                                         54,500
   Net loss
                                                                 ---------   ---------   ----------  --------   --------
Balance at March 31, 1992                                                -           -   31,560,873    31,561    715,634
</TABLE>
                                      F-4

<PAGE>

<TABLE>
<CAPTION>
EARTH SEARCH SCIENCES, INC.
(A Development Stage Company)
Consolidated Statement of Redeemable Common Stock and Nonredeemable Shareholders' Equity (Deficit)       Page 1a of 3

                                                                 NONREDEEMABLE SHAREHOLDERS' EQUITY (DEFICIT)
                                               
                                                                   Deficit
                                                                 accumulated
                                                                  during the
                                                                 development         Treasury
                                                                    stage              stock        Total
<S>                                                              <C>                 <C>            <C> 
Balance at May 15, 1984 (date of inception)                      $        -          $       -      $      -
    Issuance of common stock to incorporators
     for cash (Notes 1 and 9)                                                                         35,000
    Net loss                                                           (604)                            (604)
                                                                 ----------          ---------      --------
Balance at March 31, 1985                                              (604)                 -        34,396
    Issuance of common stock in connection with
     public offering, net of offering costs of
     $23,892 (Notes 1 and 9)                                                                          82,563
    Issuance of common stock in connection with
     merger (Notes 1 and 9)                                                                            1,000
    Net loss                                                        (27,451)                         (27,451)
                                                                 ----------          ---------      --------
Balance at March 31, 1986                                           (28,055)                 -        90,508
    Net loss                                                        (47,625)                         (47,625)
                                                                 ----------          ---------      --------
Balance at March 31, 1987                                           (75,680)                 -        42,883
    Acquisition of treasury stock (Notes 1 and 9)                                      (33,000)      (33,000)
    Net loss                                                       (102,616)                        (102,616)
                                                                 ----------          ---------      --------
Balance at March 31, 1988                                          (178,296)           (33,000)      (92,733)
   Net loss                                                        (123,463)                        (123,463)
                                                                 ----------          ---------      --------
Balance at March 31, 1989                                          (301,759)           (33,000)     (216,196)
   Net loss                                                        (256,125)                        (256,125)
                                                                 ----------          ---------      --------
Balance at March 31, 1990                                          (557,884)           (33,000)     (472,321)
   Issuance of common stock in exchange for
     services rendered                                                                                58,600
   Sale of treasury stock (Note 9)                                                      26,000       124,500
   Net loss                                                        (171,742)                        (171,742)
                                                                 ----------          ---------      --------
Balance at March 31, 1991                                          (729,626)            (7,000)     (460,963)
   Issuance of common stock for cash                                239,064                          239,064
   Issuance of common stock to a director
     pursuant to stock option                                                                         10,000
   Issuance of common stock in exchange
     for services rendered                                                                            85,060
   Issuance of common stock in exchange
     for mineral properties (Notes 1 and 2)                                                           75,000
   Issuance of common stock in exchange for equipment                                                  7,908
   Sale of treasury stock (Notes 1 and 9)                                                7,000        61,500
   Net loss                                                        (749,259)                        (749,259)
                                                                 ----------          ---------      --------
Balance at March 31, 1992                                        (1,478,885)                 -      (731,690)
</TABLE>
                                      F-4a

<PAGE>

<TABLE>
<CAPTION>
EARTH SEARCH SCIENCES, INC.
(A Development Stage Company)
Consolidated Statement of Redeemable Common Stock and Nonredeemable Shareholders' Equity (Deficit)                   Page 2 of 3

                                                                          NONREDEEMABLE SHAREHOLDERS' EQUITY (DEFICIT)

                                                                      Redeemable                                Additional
                                                                    Common stock           Common stock         paid-in
                                                                 Shares       Amount     Shares     Amount      capital
<S>                                                              <C>         <C>         <C>         <C>           <C>
Balance at March 31, 1992                                                -   $       -    31,560,873  $ 31,561     $  715,634
   Issuance of common stock for cash                                                       2,308,611     2,308         78,192
   Issuance of common stock in exchange
     for services rendered (Notes 1 and 9)                                                 1,810,000     1,810         52,583
   Issuance of common stock in exchange
     for notes payable or accounts payable                                                 2,404,697     2,405         98,968
   Net loss
                                                                 ---------   ---------    ----------    ------      ---------
Balance at March 31, 1993                                                -           -    38,084,181    38,084        945,377
   Issuance of common stock for cash                                                       2,043,904     2,044         67,456
   Issuance of common stock in exchange for
     services rendered (Notes 1 and 9)                                                       125,000       125          6,125
   Issuance of common stock in exchange for
     notes payable or accounts payable (Notes 6 and 9)                                     8,405,094     8,405        241,490
   Net loss
                                                                 ---------   ---------    ----------    ------      ---------
Balance at March 31, 1994                                                -           -    48,658,179    48,658      1,260,448
   Issuance of common stock for cash                                                         360,000       360         17,640
   Issuance of common stock in exchange for
     services rendered, excluding treasury
     stock (Notes 1 and 9)                                                                   200,000       200          9,800
   Conversion of debentures into shares of
     common stock, excluding treasury stock (Note 9)                                         531,821       532         20,696
   Issuance of common stock in exchange
     for equipment (Note 9)                                                                  250,000       250         12,250
   Common stock relinquished to the Company (Notes 6 and 9)
   Sale of treasury stock (Note 9)
   Issuance of treasury stock in exchange for
     services rendered (Notes 2 and 9)
   Conversion of debentures through issuance of
     treasury stock (Note 9)
   Stock purchase warrants and options
     issues (Notes 3 and 8)                                                                                           172,500
   Adjustment resulting from issuance of
     treasury stock (Notes 1 and 9)                                                                                  (167,118)
   Net loss
                                                                 ---------   ---------    ----------    ------      ---------
Balance at March 31, 1995                                                -           -    50,000,000    50,000      1,326,216
</TABLE>
                                       F-5

<PAGE>

<TABLE>
<CAPTION>
EARTH SEARCH SCIENCES, INC.
(A Development Stage Company)
Consolidated Statement of Redeemable Common Stock and Nonredeemable Shareholders' Equity (Deficit)                   Page 2a of 3

                                                                 NONREDEEMABLE SHAREHOLDERS' EQUITY (DEFICIT)

                                                                   Deficit
                                                                 accumulated
                                                                  during the
                                                                 development         Treasury
                                                                    stage              stock        Total
<S>                                                              <C>                 <C>            <C>
Balance at March 31, 1992                                        $(1,478,885)        $              $
   Issuance of common stock for cash                                                                    80,500
   Issuance of common stock in exchange for
     services rendered (Notes 1 and 9)                                                                  54,393
   Issuance of common stock in exchange for
     notes payable or accounts payable                                                                 101,373
   Net loss                                                         (333,657)                         (333,657)
                                                                 -----------         ----------     ----------
Balance at March 31, 1993                                         (1,812,542)                 -       (829,081)
   Issuance of common stock for cash                                                                    69,500
   Issuance of common stock in exchange for
     services rendered (Notes 1 and 9)                                                                   6,250
   Issuance of common stock in exchange for
     notes payable or accounts payable
     (Notes 6 and 9)                                                                                   249,895
   Net loss                                                         (340,004)                         (340,004)
                                                                 -----------         ----------     ----------
Balance at March 31, 1994                                         (2,152,546)                 -       (843,440)
   Issuance of common stock for cash                                                                    18,000
   Issuance of common stock in exchange for
     services rendered, excluding treasury
     stock (Notes 1 and 9)                                                                              10,000
   Conversion of debentures into shares of
     common stock, excluding treasury stock
     (Note 9)                                                                                           21,228
   Issuance of common stock in exchange
     for equipment (Note 9)                                                                             12,500
   Common stock relinquished to the
     Company (Notes 6 and 9)                                                           (705,935)      (705,935)
   Sale of treasury stock (Note 9)                                                       95,325         95,325
   Issuance of treasury stock in exchange
     for services rendered (Notes 2 and 9)                                              169,141        169,141
   Conversion of debentures through issuance
     of treasury stock (Note 9)                                                         273,787        273,787
    Stock purchase warrants and options
     issues (Notes 3 and 8)                                                                            172,500
       172,500
    Adjustment resulting from issuance of
     treasury stock (Notes 1 and 9)                                                     167,118              -
    Net loss                                                      (1,122,541)                       (1,122,541)
                                                                 -----------         ----------     ----------
Balance at March 31, 1995                                         (3,275,087)              (564)    (1,899,435)
</TABLE>
                                      F-5a
<PAGE>

<TABLE>
<CAPTION>
EARTH SEARCH SCIENCES, INC.
(A Development Stage Company)
Consolidated Statement of Redeemable Common Stock and Nonredeemable Shareholders' Equity (Deficit)         Page 3 of 3

                                                                          NONREDEEMABLE SHAREHOLDERS' EQUITY (DEFICIT)

                                                                      Redeemable                                    Additional
                                                                    Common stock           Common stock              paid-in
                                                                 Shares       Amount     Shares        Amount        capital
<S>                                                              <C>          <C>        <C>          <C>          <C>
Balance at March 31, 1995                                              -      $      -    50,000,000  $  50,000    $1,326,216
   Issuance of common stock for
     cash (Note 9)                                                                         1,058,880      1,059       191,341
   Issuance of common stock in exchange
     for services (Note 9)                                                                 1,379,355      1,379       271,497
   Conversion of debentures into shares of
     common stock (Note 9)                                                                 3,596,861      3,596       566,978
   Liquidation of shareholders loans for
     shares of common stock (Note 9)                                                      10,466,567     10,467       695,468
   Adjustment to additional paid-in-capital
     related to sale of subsidiary common
     stock (Note 9)                                                                                                   109,970
   Stock purchase warrants and options
     issued (Note 9)                                                                                                1,150,000
   Shares issued to a related party (Note 9)                                                  50,000         50         8,450
     Purchase of treasury stock (Note 9)
     Adjustment resulting from issuance of
     treasury stock                                                                                                     1,000
   Sale of treasury stock
   Net loss
                                                               ---------      --------    ----------     ------    ----------
Balance at March 31, 1996                                              -             -    66,551,663     66,551     4,320,920
   Issuance of common stock in exchange
     for services (Note 9)                                                                 1,836,140      1,837       535,404
   Issuance of common stock in exchange
     for scanner (Note 9)                                      1,000,000       400,000
   Conversion of debentures into shares
     of common stock (Note 9)                                                                828,890        829       345,699
   Issuance of common stock for shares
     of subsidiary common stock                                                               40,000         40         2,960
   Adjustment to additional paid-in-capital
     related to sale of subsidiary
     common stock (Note 9)                                                                                            116,197
   Common stock subject to potential
     rescission offering (Note 11)                               725,914       117,845      (725,914)      (726)     (117,119)
   Net loss
                                                               ---------      --------    ----------  ---------    ----------
Balance at March 31, 1997                                      1,725,914      $517,845    68,530,779  $  68,531    $5,204,061
                                                               =========      ========    ==========  =========    ==========
</TABLE>
                                       F-6

<PAGE>

<TABLE>
<CAPTION>
EARTH SEARCH SCIENCES, INC.
(A Development Stage Company)
Consolidated Statement of Redeemable Common Stock and Nonredeemable Shareholders' Equity (Deficit)       Page 3a of 3

                                                                      NONREDEEMABLE SHAREHOLDERS' EQUITY (DEFICIT)

                                                                   Deficit
                                                                 accumulated
                                                                  during the
                                                                 development         Treasury
                                                                    stage              stock        Total
<S>                                                              <C>                 <C>            <C>
Balance at March 31, 1995                                        $(3,275,087)        $    (564)     $(1,899,435)
   Issuance of common stock for cash (Note 9)                                                           192,400
   Issuance of common stock in exchange 
     for services (Note 9)                                                                              272,876
   Conversion of debentures into shares
     of common stock (Note 9)                                                                           570,574
   Liquidation of shareholders loans 
     for shares of common stock (Note 9)                                                                705,935
   Adjustment to additional paid-in-capital
     related to sale of subsidiary common
     stock (Note 9)                                                                                     109,970
   Stock purchase warrants and options issued (Note 9)                                                1,150,000
   Shares issued to a related party (Note 9)                                                              8,500
     Purchase of treasury stock (Note 9)                                               (15,000)         (15,000)
     Adjustment resulting from issuance of treasury stock                               (1,000)               -
   Sale of treasury stock                                                               16,564           16,564
   Net loss                                                       (2,408,292)                        (2,408,292)
                                                                 -----------         ---------      -----------
Balance at March 31, 1996                                         (5,683,379)                -       (1,295,908)
   Issuance of common stock in exchange
     for services (Note 9)                                                                              537,241
   Issuance of common stock in exchange
     for scanner (Note 9)                                                                                     -
   Conversion of debentures into shares
     of common stock (Note 9)                                                                           346,528
   Issuance of common stock for shares
     of subsidiary common stock                                                                           3,000
   Adjustment to additional paid-in-capital
     related to sale of subsidiary 
     common stock (Note 9)                                                                              116,197
   Common stock subject to potential
     rescission offering (Note 11)                                                                     (117,845)
   Net loss                                                       (2,549,823)                        (2,549,823)
                                                                 -----------         ---------      -----------

Balance at March 31, 1997                                        $(8,233,202)        $       -      $(2,960,610)
                                                                 ============        =========      ===========
</TABLE>
                                      F-6a

<PAGE>
EARTH SEARCH SCIENCES, INC.
(A Development Stage Company)
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>

                                                     From inception
                                                     (May 15, 1984)
                                                         through
                                                        March 31,           For the years ended March 31,
                                                          1997           1997           1996            1995
<S>                                                  <C>                <C>         <C>            <C>    
Cash flows from operating activities:
    Net loss                                         $  (8,233,202)     (2,549,823) $  (2,408,292) $  (1,122,541)
    Adjustments to reconcile net loss to net cash
      used in operating activities:
       Notes payable issued for services and
         interest expense                                   36,892               -              -              -
       Common stock issued for services and
         interest expense                                1,290,843         730,674        322,974         28,765
       Treasury stock issued for services                  169,141               -              -        169,141
       Expense resulting from issuance of warrants
         and options to purchase common stock            1,322,500               -      1,150,000        172,500
       Charge off of capitalized costs for
         mineral properties                                206,715               -              -              -
       Extraordinary items                                 (79,000)              -              -              -
       Loss attributed to minority interest                (37,374)        (37,374)             -              -
       Depreciation                                        248,226          29,668         20,004         16,327
       Loss/(gain)on sale of equipment                         997               -         (5,765)         6,762
       Changes in assets and liabilities
          Prepaid expenses                                       -               -            837            263
          Other assets                                     (59,788)         69,988       (129,776)
          Accounts payable                               1,781,538       1,576,018         88,916        (82,909)
          Accrued liabilities                              500,561         129,593         89,916        117,584
          Deferred officers compensation                   779,818         187,258        240,320        352,240
                                                     -------------   -------------  -------------  -------------

Net cash used in operating activities                   (2,072,133)        136,002       (630,866)      (341,868)
                                                     --------------  -------------  -------------  -------------
Cash flow from investing activities:
    Capital expenditures                                (3,755,440)     (3,347,852)       (87,611)       (27,695)
    Advance deposits                                     3,082,125       2,582,125        500,000              -
    Proceeds from sale of property and equipment            33,527               -         15,700          1,000
                                                     -------------   -------------  -------------  -------------
    Net cash used in investing activities                 (639,788)       (765,727)       428,089        (26,695)
                                                     -------------   -------------- -------------  -------------

Cash flows from financing activities:
    (Decrease) increase in book overdraft                        -               -              -           (690)
    Proceeds from notes payable                          1,394,749               -        569,267        460,810
    Repayments on notes payable                           (210,451)        (95,500)        (9,062)       (47,452)
    Proceeds from shareholder loans                      1,186,694               -
    Repayments of shareholder loans                       (907,852)        (59,429)       (68,023)      (127,010)
    Issuance of common stock                               728,027               -        192,400         18,000
    Issuance of subsidiary common stock                    323,095         165,995        157,100              -
    Purchase of treasury stock                             (48,000)              -        (15,000)             -
    Proceeds from sale of treasury stock                   297,325               -         16,000         95,325
                                                     -------------   -------------  -------------  -------------
Net cash provided by financing activities                2,763,587          11,066        842,682        398,983
                                                     -------------   -------------  -------------  -------------

Net increase (decrease) in cash                             51,666        (618,659)       639,905         30,420
Cash at beginning of period                                      -         670,325         30,420              -
                                                     -------------   -------------  -------------  -------------
Cash at end of period                                $      51,666   $      51,666  $     670,325  $      30,420
                                                     =============   =============  =============  =============
</TABLE>
                                       F-7
<PAGE>
EARTH SEARCH SCIENCES, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements

1.   SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

     The Company was incorporated on May 15, 1984 pursuant to the laws of the 
     state of Utah under the name Turnabout Corporation.  In November, 1984 the
     Company commenced a public offering of its common stock.

     In December,  1985 the Company  acquired all of the  outstanding  shares of
     common stock of a privately  held company  known as Earth Search  Sciences,
     Inc.  (ESSI),  a Utah  corporation  formed on August 29, 1985.  The Company
     issued  13,639,600  shares  of its  common  stock in  exchange  for  ESSI's
     outstanding shares. This merger was a reverse acquisition and accounted for
     as a pooling of interests.  Accordingly,  the assets and liabilities of the
     two  companies  were  combined at their  recorded net book  values.  ESSI's
     principal assets were unpatented mining claims in Alaska that were acquired
     from ESSI's incorporators at a cost of $126,715. ESSI's operations were the
     continuing  operations of the Company,  and ESSI was the entity,  which had
     substance and control both before and after the merger.

     In August, 1987 the Company changed its name to Earth Search Sciences, Inc.
     and in November, 1987 ESSI was dissolved.

     The Company has three  subsidiaries:  Earth Search  Resources,  Inc.;  Bear
     Creek  Exploration,   Inc.  ("Bear  Creek");  and  Quasar  Resources,  Inc.
     ("Quasar").  As of March 31, 1996,  these  entities  were not  operational;
     however, during the period from February to April 1996, the Company sold 30
     percent  of Quasar  in a  private  placement  offering.  In March  1997 and
     subsequent  to March 31,  1997,  the Company  repurchased  all  outstanding
     Quasar common stock. See Note 9.

     The Company's  activities  have included the acquisition of the ATM imagery
     database  which  can  be  utilized  by  the  Company  in  mineral  property
     exploration  activities or the development of information  that can be sold
     to third parties. In addition,  the Company has acquired mineral properties
     and has  performed  certain  exploration  work.  Direct  exploration  costs
     incurred to date have been principally geologists' salaries and consulting
     fees.

     In April, 1991, the Company commenced  entering into semiannual  agreements
     with National Aeronautics and Space Administration (NASA) to participate in
     the  Visiting  Investigator  Program  ("VIP")  to utilize  the  specialized
     resources and sensing technology of NASA to the goal of  commercialization.
     The agreements allow the Company access to NASA's sophisticated  facilities
     that are capable of a full range of remote sensing activities.  Pursuant to
     the agreement NASA supplies  administrative  and technical  support and the
     Company  is  responsible  for  its  expenses  and  costs  relating  to  its
     participation in VIP. Information and technology which may be developed are
     to be shared between NASA and the Company.

     In addition, the Company has established a non-exclusive agreement with the
     University  of Utah Research  Institute  ("UURI") and its center for remote
     sensing to mutually conduct, on a  project-by-project  basis,  research and
     development activities relating to remote sensing. UURI is obligated to
     
                                       F-8
<PAGE>
1.   SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

     provide  technical support for mineral and petroleum  exploration,  related
     environmental  analysis  and  laboratory  and field  training.  The Company
     provides geological personnel and funding for the projects.

     GOING CONCERN
     The Company is  experiencing  working capital  deficiencies  because it has
     incurred operating losses and has not generated operating revenues to date.
     In  addition  the  Company  has been  unable to meet some of its  financial
     obligations (see Note 6). 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.

     Management  expects to continue to raise capital through private  placement
     of  its  unissued  stock  to  meet  its  financial   obligations  and  cash
     requirements.  In addition,  management intends to pursue potential markets
     for its ATM  imagery  database  and for  potential  products,  which may be
     developed, from its NASA VIP research and development agreement to generate
     operating  revenues  and  adequate  cash  flows.  However,  there can be no
     assurance  that  the  Company  will be able to  raise  such  capital  or to
     generate operating revenues to sustain its operations.

     DEVELOPMENT STAGE ENTERPRISE
     The Company is  considered  a  development  stage  company.  The  Company's
     planned principal  operations have commenced,  but have not resulted in any
     significant  revenue to date.  Pursuant to the  requirements  of  Financial
     Accounting Standards Board Statement No. 7, the Company has included in the
     accompanying  financial  statements its  cumulative  results of operations,
     changes  in  shareholders'  deficit  and  cash  flows  from  the  Company's
     inception (May 15, 1984) through March 31, 1997.

     MINERAL PROPERTIES AND EXPLORATION COSTS
     Cost  incurred  to  acquire  mineral  properties  are  capitalized.   Costs
     associated  with mineral  properties  determined  to be impaired or to have
     little or no value are  expensed.  Exploration  costs are  expensed  in the
     period  incurred.  The Company  considers  geologist  salaries,  studies of
     geologic structures,  mapping and incidental  expenditures  incurred in the
     field to assess mineral deposits as exploration costs.

     DEPRECIATION AND DEPLETION
     The Company recognizes depreciation on its property and equipment using the
     straight-line method over estimated useful lives of five years.

     Depletion of mineral properties is calculated using the  unit-of-production
     method.  There has been no mining activity  performed by the Company on its
     mineral  properties  to date;  therefore,  no depletion is reflected in the
     accompanying financial statements.

                                       F-9

<PAGE>
1.   SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

     INCOME TAXES
     Effective  April 1,  1994,  the  Company  adopted  on a  prospective  basis
     Statement of Financial Accounting  Standards No. 109 (FAS 109),  Accounting
     for Income Taxes.  FAS 109 requires the  recognition of deferred tax assets
     and liabilities for the expected tax effects from  differences  between the
     financial reporting and tax basis of assets and liabilities.  In estimating
     future tax effects,  FAS 109 generally considers all expected future events
     other than  enactments of changes in tax law or statutorily  imposed rates.
     The adoption of FAS 109 had no effect on loss or shareholders' deficit.

     COMMON STOCK
     Expenses and commissions  incurred in connection with the Company's  public
     offering of its common stock and the  subsequent  sales of common stock for
     cash have been recorded as reductions of proceeds received.

     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.

     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 net loss per share calculation  because the
     effect on net loss per share would be anti-dilutive.

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

     CHANGES IN CLASSIFICATION
     Certain  reclassifications  have been  made to the  fiscal  1996,  1995 and
     cumulative  financial  statements to conform with the  financial  statement
     presentation for fiscal 1997. Such  reclassifications  had no effect on the
     Company's results of operations or shareholders' deficit.

                                      F-10

<PAGE>
1.   SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

     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.   PROPERTY AND EQUIPMENT

     Property and equipment consist of the following:
                                                              March 31,
                                                         1997           1996
                                                     ------------    ----------
         Mineral properties (A)                      $     5,833   $      5,833
         ATM imagery database (B)                        134,000        134,000
         Computers and software                           57,490         44,852
         Vehicles and equipment                           53,053         41,529
         Construction in progress (C)                  3,770,000         69,789
                                                      ----------      ---------
                                                       4,020,376        296,003

         Accumulated depreciation                       (179,916)      (173,727)
                                                      ----------     ----------

                                                      $3,840,460     $  122,276
                                                      ==========     ==========

     (A) In  December,  1993 the  Company  acquired a 58%  working  interest  in
         mineral  tracts  aggregating  3,389  acres  in  Colorado.  The  mineral
         interest was acquired  through a joint  venture with Emerald  Operating
         Company  located  in  Denver,   Colorado.   Presently,   management  is
         evaluating the commercial viability of the property and the Company has
         expended $15,000 in geological exploration costs.

     (B) 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.

                                      F-11

<PAGE>
2.    PROPERTY AND EQUIPMENT (Continued)

         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.

         The cost of ATM imagery database was fully  depreciated as of March 31,
         1994; however, the Company believes that it continues to have economic
         value.

     (C) The Company  entered  into  agreements  to have an  Australian  company
         manufacture  three airborne  hyperspectral  scanners for $2.5, $1.9 and
         $2.0 million,  respectively. The Company has paid or owes $3,770,000 to
         date on these scanners,  which is recorded as  construction-in-progress
         at March 31, 1997 based on the terms of the contract.  The remainder of
         $2,600,000 will become due as additional milestones are met.


3.   ADVANCE DEPOSITS

     In 1997 and 1996,  the Company  received cash  deposits of  $2,582,125  and
     $500,000,  respectively,  through its subsidiaries for the sale of airborne
     hyperspectral scanners which are currently being manufactured (see Note 2).
     The  scanners  will be leased  back to the  Company in a  "sales/leaseback"
     transaction.  Subsequent  to  year-end,  the  terms of the  agreement  were
     finalized (see Note 12).

4.   DEFERRED OFFICERS' COMPENSATION

     Deferred compensation consists of the cumulative unpaid compensation due to
     corporate  officers  (Chairman,  CEO,  President  and  Secretary).  Partial
     salaries  have  been  paid to such  officers  since  the  inception  of the
     Company. The Company recorded deferred officer compensation of $187,258 and
     $240,520  during the year ended March 31, 1997 and 1996,  respectively.  In
     addition,  effective  March 31,  1995,  the  Company's  Board of  Directors
     approved  cash  compensation  aggregating  $300,000  and  $52,240  for  the
     Chairman and Secretary,  respectively,  for services rendered through March
     31, 1995.  Such  compensation  was  reported as general and  administrative
     expenses  for the year ended March 31,  1995.  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, 1997 and 1996.

                                      F-12

<PAGE>
4.   DEFERRED OFFICERS' COMPENSATION (Continued)

     In addition,  as part of the Chairman's  compensation package, the Company,
     as of March 31,  1995,  granted  the  Chairman  stock  options to  purchase
     1,500,000 shares of restricted common stock at $.105 per share. The options
     hold certain  registration rights and expire on March 31, 2005. The Company
     recognized  the estimated fair value of the options,  $157,800,  as general
     and  administrative  expenses  for the year ended  March 31,  1995,  with a
     corresponding  increase to additional paid-in capital as of March 31, 1995.
     The estimated fair value of the options  represents the difference  between
     the market  value of common stock at March 31, 1995 (the date of grant) and
     the exercise price.  See Note 8 regarding 1996 issuance of stock options to
     officers.

5.   NOTES PAYABLE

     During  the years  ended  March 31,  1996 and 1995,  the  Company  obtained
     interim working capital by issuing  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 12.5% to 12.99%.  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.  As of March 31, 1997 and 1996,  the Company has various
     outstanding notes aggregating $203,250 and $444,981, respectively. Interest
     paid on such notes  during the years  ended March 31,  1997,  1996 and 1995
     aggregated $11,801, $2,500 and $2,500, respectively.

     In fiscal 1997 and 1996,  $346,528  and  $570,574,  respectively,  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  $155,990  in  additional  interest  expense due to the
     conversions.

6.   SHAREHOLDER LOANS

     The Company has financed its development  stage activities in part by funds
     received from advances from shareholders, primarily an officer and director
     of the Company, and Universal Search Technology, a private company owned by
     that same officer and director.  It is anticipated that these advances will
     be repaid  when and if the  Company  generates  cash  flow from  operations
     and/or sales of shares of its common stock. During the year ended March 31,
     1994, upon approval by the board of directors, the Company issued 7,953,567
     shares to Universal Search  Technology in exchange for principal  reduction
     aggregating $238,607 on outstanding advances previously made by it.

     Outstanding  advances bear annual interest at 10%. As of March 31, 1997 and
     1996, interest accrued on such advances, aggregating $224,385 and $217,705,
     respectively,  has been  included in accrued  interest in the  accompanying
     consolidated balance sheet.
                                      F-13


<PAGE>
6.   SHAREHOLDER LOANS (Continued)

     In fiscal 1995, the Company  classified as  shareholder  loans the value of
     common stock relinquished by the above shareholder to the Company (see Note
     8).  The  Company  reissued   replacement  shares  to  the  shareholder  in
     satisfaction  of this obligation in 1996,  subsequent to the  shareholders=
     approval of an increase in the number of shares authorized. This obligation
     aggregated  $705,935  (10,466,567 shares of common stock) at March 31, 1995
     and accrued  interest at 10%. The accrued interest of $170,916 has not been
     paid as of March 31, 1997.

     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.

7.   INCOME TAXES

     The Company recorded no provision for income taxes in fiscal 1997, 1996 and
     1995 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:
<TABLE>
<CAPTION>
                                                                                           March 31,
                                                                                   1997                1996
                                                                             ----------------    ---------------
         <S>                                                                 <C>                 <C>    

         Net operating loss carryforwards                                    $     (2,981,354)   $    (2,036,328)
         Accrued liabilities                                                         (311,927)          (237,024)
                                                                             ----------------    ---------------
         Gross deferred tax assets                                                 (3,293,281)        (2,273,352)

         Deferred tax assets valuation allowance                                    3,293,281          2,273,352
                                                                             ----------------    ---------------
                                                                             $              -    $             -
                                                                             ================    ===============
</TABLE>
     The deferred tax asset has been fully  reserved in accordance  with FAS 109
     because the Company cannot  anticipate future taxable income to realize the
     potential benefits of the gross deferred tax asset.

                                      F-14
<PAGE>
7.   INCOME TAXES (Continued)

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

                                                                     1997             1996              1995
                                                                -------------     -------------    -------------
         <S>                                                    <C>               <C>              <C>    
         Benefit from income taxes at statutory rate            $   1,019,929     $     963,317    $     449,016
         Decrease in benefit resulting from:
         Deferred tax valuation allowance                          (1,019,929)         (963,317)        (449,016)
                                                                -------------     -------------    -------------
                                                                $           -     $           -    $           -
                                                                =============     =============    =============
</TABLE>

     The Company has tax net operating loss  carryforwards  at March 31, 1997 of
     $7,453,384.  Such  carry-forwards  may be used to offset taxable income, if
     any,  in future  years  through  their  expiration  in 2000 - 2011.  Future
     expiration  of tax loss  carryforwards,  if not  utilized,  are as follows:
     2000,  $604; 2001,  $27,451;  2002,  $47,625;  2003,  $102,616;  thereafter
     $7,275,088.  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.


8.   OFFICER AND DIRECTOR STOCK OPTIONS

     At March 31, 1995 the Board of Directors awarded the Chairman stock options
     to purchase  1,500,000  shares of  restricted  common  stock as part of his
     deferred compensation agreement. See Note 4.

     In April 1995,  the Board of Directors  granted  options for the  Company's
     President and Chairman of the Board through  employment  agreements to each
     purchase  5,000,000  shares of the  Company's  common  stock at an exercise
     price of $0.21 per share.  Fifty percent of the options are  exercisable at
     any time. The remaining fifty percent are deemed "Performance  Options" and
     are exercisable as follows:  (I) one-third shall become  exercisable if and
     when the  Company  reports a  positive  net after tax profit for any fiscal
     year  commencing on or after March 31, 1995;  (II) another  one-third shall
     become  exercisable if and when the Company  reports a net after tax profit
     of greater than $1 million for any fiscal year commencing on or after March
     31, 1996; (III) all of the options shall become exercisable if and when the
     Company  reports a net after tax profit of greater  than $2 million for any
     fiscal year  commencing  on or after March 31, 1996;  and IV) any remaining
     options which have not become  exercisable  as aforesaid  shall become null
     and void when the  Company  reports its net after tax profits or losses for
     the fiscal year ended March 31, 1998. Any options remaining  unexercised on
     December  31,  2004 shall  lapse and be deemed  null and void.  The Company
     recognized  $1,150,000  in  compensation  expense  during 1996  related the
     granting of the above  "non-performance" stock options which represents the
     difference between fair value and the exercise price at the grant date.

                                      F-15
<PAGE>
8.   OFFICER AND DIRECTOR STOCK OPTIONS (Continued)

     Notwithstanding  the  foregoing,  all  Performance  Options issued to these
     employees become immediately exercisable if employment is terminated by the
     Company  without  cause or by the  employee  with  cause.  In the  event of
     proposed  dissolution  or  liquidation  of the Company or in the event of a
     transfer of more than 50% of the outstanding shares of the Company,  or the
     sale of all or substantially all of the assets of the Company,  to a person
     or persons who were not, as of April 8, 1995,  shareholders or employees of
     the  Company  (a "Change  in  Control"),  all  Performance  Options  become
     immediately exercisable.

     In May 1995,  the Board of  Directors  granted  options  for the  Company's
     Secretary/Treasurer  to  purchase  300,000  shares  of  common  stock at an
     exercise  price of $0.21 per share  exercisable  upon grant.  In  addition,
     options  were  granted to a director of the  Company to purchase  1,000,000
     shares of common  stock of the  Company  at a  purchase  price of $0.21 per
     share. The director's options are exercisable at any time within five years
     after the individual  becomes a full-time  employee of the Company based on
     certain mutually agreeable performance criteria.

     The Company  adopted  Statement of Financial  Accounting  Standards No. 123
     (FAS  123),  "Accounting  for  Stock-Based   Compensation"  in  1996.  This
     statement  allows  companies to choose  whether to account for  stock-based
     compensation   under  the  current   method  as  prescribed  by  Accounting
     Principles  Board  Opinion  No.  25  (APB  25) or use a fair  value  method
     described in FAS 123. The Company continues to follow the provisions of APB
     25.

     The Company has  determined  that the pro forma effects of applying FAS 123
     would have an immaterial  effect on the results of operations  for 1997 and
     1996. This determination was made using the following assumptions for 1996:
     dividend  yield of zero for all years;  risk-free  interest rates of 6.75%;
     and an expected life of 10 years.

                                      F-16
<PAGE>
8.   STOCK OPTIONS (Continued)

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

                                                 Shares             Weighted
                                                  under              average
                                                 option          exercise price
              Balance, March 31, 1994           1,500,000        $     .105
                  Options granted              10,300,000              .21
                  Options canceled                      -                -
                  Options exercised                     -                -
                                               ----------
              Balance, March 31, 1995          11,800,000              .187
                  Options granted                       -                -
                  Options canceled                      -                -
                  Options exercised                     -                -
                                               ----------
              Balance, March 31, 1996          11,800,000              .187

                  Options granted                       -                 - 
                  Options canceled                      -                 -
                  Options exercised                     -                 -
                                               ----------         ----------
              Balance, March 31, 1997          11,800,000        $      .187
                                               ==========        ============

     The following table summarizes  information about stock options outstanding
at March 31, 1997:
<TABLE>
<CAPTION>
                                                                                      OPTIONS
                                                  OPTIONS OUTSTANDING                EXERCISABLE
          <S>                           <C>                 <C>                    <C> 
                                                                 Weighted
                                             Number              average                Number
              Exercise                     outstanding          remaining             exercisable
                price                      at 3/31/97        contractual life          at 3/31/97
           --------------               ---------------     -----------------     --------------------
           $        .105                    1,500,000            8.0 years              1,500,000
                    .21                     10,300,000           6.9 years              5,300,000
</TABLE>

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
     airborne hyperspectral scanner (note 2). As part of the stock issuance, the
     Company  granted  "put  rights"  that may  require  the  Company  to redeem
     1,000,000  shares of its  common  stock at a  redemption  price of $.40 per
     share.  The  redemption  period began on January 28, 1997 and will continue
     until  the  contract  is  completed  and  final  payment  is made.  If such
     shareholder  does not place a  redemption  request  during  the  redemption
     period,  the "put  right"  will  expire when the above terms are met by the
     Company.

                                      F-17

<PAGE>
9.   REDEEMABLE COMMON STOCK AND NONREDEEMABLE SHAREHOLDER'S EQUITY (Continued)

     The shares of common stock subject to the "put rights" are presented in the
     accompanying  balance sheets as redeemable  common stock.  Such shares have
     been  recorded  at  their  approximate  fair  market  value  at the date of
     issuance. Such fair market value equals the maximum redemption amount.

     Also included in redeemable common stock are amounts related to a potential
     rescission  offering  related to certain shares sold in the state of Idaho,
     see Note 11.

     COMMON STOCK ISSUED
     During the years ended March 31, 1996,  1995 and 1994,  the Company  issued
     shares of common stock in exchange for services rendered as follows:
<TABLE>
<CAPTION>


                                                                     1997             1996              1995
                                                                -------------     -------------    -------------
         <S>                                                    <C>               <C>              <C> 
         Consulting and other                                   $     537,241     $     273,440    $     179,141
                                                                =============     =============    =============
         Number of shares issued, including
           treasury stock                                           1,836,140(a)      1,374,355        4,902,833
                                                                =============     =============    =============
</TABLE>

     (a)  Inclusive  of  shares  issued in  conjunction  with the  research  and
     development contract disclosed in Note 11.

     During the fiscal year ended  March 31,  1997,  1996 and 1995,  the Company
     issued 828,890,  3,596,861 and 5,499,388  shares of common stock (including
     treasury stock) to satisfy $146,231,  $521,040 and $276,250,  respectively,
     of principal and $201,500, $49,534 and $18,765,  respectively,  of interest
     relating to convertible notes payable (see Note 5).

     During the year ended March 31, 1995,  the Company issued 250,000 shares of
     common stock to purchase office equipment with a purchase price of $12,500.

     COMMON STOCK LOANS FROM SHAREHOLDER
     In fiscal 1995, a shareholder relinquished to the Company 10,466,567 shares
     of common stock for the Company to use for additional  issuances to outside
     shareholders. The shareholder relinquished all ownership and voting rights;
     however, the Company was obligated to reissue to the shareholder 10,466,576
     replacement  shares  upon  and the  shareholders'  approval  of a  proposed
     increase in authorized  shares from 50,000,000 to 200000,000.  These shares
     were accounted for as treasury  stock and the Company  recorded a liability
     of  $705,935  due  to  shareholder   for  the  fair  value  of  the  shares
     relinquished.  Such  obligation  was included in  shareholder  loans in the
     accompanying  consolidated  balance  sheet at March 31,  1995.  The Company
     received  shareholder  approval  in 1996 to  increase  the number of shares
     authorized and as such,  the above shares were reissued to the  shareholder
     in 1996.
                                      F-18

<PAGE>
9.   REDEEMABLE COMMON STOCK AND NONREDEEMABLE SHAREHOLDER'S EQUITY (Continued)

     TREASURY STOCK
     In May 1987, the Company acquired 3.3 million shares of its common stock 
     from three of its initial incorporators.  The purchase price was $33,000,
     or $.001 per share. Funding for the stock acquisition was obtained through
     loans from certain shareholders of the Company.

     During the year ended March 31, 1991, the Company sold 2,600,000  shares of
     its treasury stock in eleven separate transactions,  resulting in aggregate
     proceeds of $129,500.  Prices for the shares  ranged from $.03 per share to
     $.12 per share with the average price approximating $.05 per share. Selling
     expenses paid from the proceeds totaled $5,000.

     During the fiscal year ended  March 31,  1992,  the  Company  sold the then
     remaining   700,000   shares  of  its  treasury   stock  in  five  separate
     transactions  aggregating  $61,500.  Prices  ranged  from $.05 to $.125 per
     share.

     In fiscal 1995, the Company issued  10,462,066 shares of its treasury stock
     for cash,  services and debt  conversions.  The excess cost of the treasury
     stock  issued over the amounts  received  aggregated  $167,118 and has been
     recorded as a reduction of additional paid-in capital.

     STOCK WARRANTS
     Warrants to  purchase  1,500,000  shares of common  stock at $.21 per share
     were issued to an investment  banker in connection with financial  advisory
     services  provided.  The  estimated  fair value of the warrants  aggregated
     $15,000. Such value was recorded as general and administrative expenses for
     the year ended March 31, 1995, with a corresponding  increase to additional
     paid-in-capital as of March 31, 1995. The warrants expire on March 1, 2000.

     PRIVATE PLACEMENT OF QUASAR COMMON STOCK
     In 1997 and 1996,  Quasar,  a wholly owned  subsidiary,  issued 331,990 and
     314,200 shares of its common stock, respectively,  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  and  $47,130,  respectively  relating to the
     outside investors share of net equity in Quasar. The difference between the
     stock  proceeds of $165,995 and  $157,100,  respectively,  and the minority
     interest  of $49,798 and  $47,130,  respectively,  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  increase  in  nonredeemable
     shareholders' deficit.  Subsequent to year end, 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 increase in nonredeemable  shareholders'
     deficit.  As a result, the Company now owns all of the outstanding stock of
     Quasar Resources, Inc.

                                      F-19
<PAGE>
9.   REDEEMABLE COMMON STOCK AND NONREDEEMABLE SHAREHOLDER'S EQUITY (Continued)

     RELATED PARTY COMMON STOCK ISSUANCE
     In December  1995,  the Company  issued  50,000 shares of common stock to a
     relative of the  Chairman.  The fair value of the common  stock  issued was
     recorded as a reduction in the Chairman's  shareholder  loan balance as and
     as an increase in common stock and additional paid-in capital.

10.  EQUITY INVESTMENTS

     In fiscal 1996,  the Company  entered into an agreement to purchase  twenty
     percent of a Kazahstan  "joint  stock"  company,  Semtech.  As of March 31,
     1997,  the  Company  has paid all of the  $30,000  purchase  price  and has
     recorded the investment as a long-term asset.

11.  COMMITMENTS AND CONTINGENCIES

     RESEARCH AND DEVELOPMENT CONTRACT
     In fiscal  1997,  the Company  entered  into a contract to receive  certain
     services  related to future remote  sensing  projects and have research and
     development  performed  to develop the next  generation  of remote  sensing
     software.  Total payments under the contract will be $320,000.  The Company
     has paid $90,000 as of March 31, 1997.  Such payments have been recorded as
     research and development  expense. The Company expects the remainder of the
     contract to be completed  and paid in fiscal 1998. In addition to the above
     cash  consideration,  the Company issued  1,000,000  shares of unregistered
     common stock with a fair value of $390,000 as part of the  agreement.  This
     amount was recorded as research  and  development  expense  during the year
     ended March 31, 1997.

     AIRBORNE HYPERSPECTRAL SCANNER COMMITMENTS
     As discussed in Note 2, pursuant to the manufacturing contract, relating to
     the manufacture of three scanners, in fiscal 1998 the Company has committed
     to pay the remaining $2,600,000 of the contract as additional manufacturing
     milestones are met.

     LITIGATION
     On January 10, 1997,  the Company  filed a declaratory  relief  against the
     Idaho  Department of Finance in the District  Court of the Fourth  Judicial
     District  of the State of Idaho,  in and for the  County of  Valley,  Civil
     No.CV-97-000C.  The Company's declaratory relief action seeks a declaration
     from the court that the Company did not  violate the Idaho  Securities  Act
     with regard to certain  transactions  taking place  subsequent  to April 1,
     1994.  The  Company's  declaratory  relief  action was filed in response to
     repeated  threats by the  Department  that it would file suit  against  the
     Company.

     On January 10,  1997,  the  Department  of Finance  filed suit  against the
     Company and its  Chairman,  in the  district  Court of the Fourth  Judicial
     District of the State of Idaho, in and for the Country of Ada, Civil No. CV
     OC 9700155D.  The  Department's  complaint set forth five counts,  alleging
     that the Company and the Chairman (1) sold unregistered securities to Idaho
     and   non-Idaho   residents  in  violation  of  Idaho  law,  (2)  acted  as
     broker-dealer or securities salesmen without having

                                      F-20
<PAGE>
11.  COMMITMENTS AND CONTINGENCIES (Continued)

     LITIGATION (continued)
     registered  as such,  (3)  made  untrue  statements  of  material  facts in
     violation of the Idaho antifraud law, (4) by making said untrue  statements
     of material  facts,  engaged in a practice  which operates as a deceit upon
     persons,  and (5) distributed  press releases and other written  literature
     without filing same with the Director of the Idaho Department of Finance in
     violation of the Department's rules.

     The Department's  complaint seeks the following  relief:  (A) a declaration
     that the Company and the Chairman have  violated  Idaho law, (B) entry of a
     permanent injunction prohibiting the Company and the Chairman from claiming
     the  availability  of, using or offering or selling  securities,  under any
     exemptions under Idaho law without seeking the prior written consent of the
     Director  of the  Department,  (D) an order  requiring  the Company and the
     Chairman to make an offer of  rescission  to all persons who  purchased  or
     received  securities  sold by the Company or the  Chairman in  violation of
     Idaho law,  (E) an order  requiring  the Company and the  Chairman to pay a
     penalty of $10,000 for each violation of Idaho law, and (F) an award to the
     State of its attorneys fees and costs.

     With  respect  to  sales  of  securities   violation  of  the  registration
     requirements of Idaho law, the Company  believes it may have  misunderstood
     certain state regulations in completing  transactions with a limited number
     of Idaho-based  investors.  The Company is preparing to offer approximately
     19 Idaho  residents  offers of  rescission  for  certain  convertible  debt
     instruments  and common stock issued  which,  if accepted by all  offerees,
     would cost the Company approximately $143,545. The Company does not believe
     it  violated  the  laws  of  any  other  state  or  any  federal  laws  and
     regulations,  and  vehemently  denies  all  other  allegations  made in the
     Department's  complaint.  However,  as  management  anticipates  offering a
     rescission,  $117,845  related to 725,914  shares of common  stock has been
     recorded in redeemable common stock as of March 31, 1997.

12.  SUBSEQUENT EVENTS

     On June 10, 1997, the Company  completed a  sales/leaseback  transaction of
     its first airborne hyperspectral scanner "Probe 1." The instrument was sold
     for its cost of $2,500,000.  The terms of the leaseback are as follows:  1)
     the Company will lease Probe 1 for  $250,000  per year bearing  interest of
     prime plus 2% for three years;  2) at anytime 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 anytime prior to
     the repurchase, the lessor may convert the remaining obligation into shares
     of Quasar  Resources,  Inc. common stock at a conversion rate of 40% of the
     stock's then fair market value.  In the event Quasar 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 the 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.

                                      F-21
<PAGE>
12.  SUBSEQUENT EVENTS (Continued)

     The  Company  also  signed a  promissory  note  for  $2,200,000  to  settle
     obligations  for cash  advances of  $1,200,000  received as deposits  for a
     second  scanner.  The note is due on October 31, 1997 and bears interest at
     prime plus 2%. The Company  will  recognize a debt  extinguishment  loss of
     $1,000,000  during  the first  quarter  of  fiscal  1998 as a result of the
     settlement.

     Subsequent to March 31, 1997, the Company formed a new company,  ESSI Probe
     1 LC, to acquire the third Probe 1 instrument  manufactured  by  Integrated
     Spectronics  Pty Ltd.  of  Australia.  The new  company is a joint  venture
     managed by Earth Search  Sciences  and owned 50% by Earth Search  Sciences,
     who  contributed  certain  instrument  rights and $500,000,  and 50% by two
     shareholders, who contributed $1 million for their interest in the company.
     Under the terms of the joint  venture  arrangement,  Earth Search  Sciences
     will use the Probe 1 instrument for the  identification and exploitation of
     minerals as well as environmental remediation and other projects. The joint
     venture  hopes to receive  certain  royalties  on minerals  discovered  and
     exploited  through  use of the  instrument,  as well as other  fees paid by
     third  parties for data  gathered by the  instrument.  This  instrument  is
     scheduled for delivery between the third and fourth quarters of 1998.

                                      F-22
<PAGE>