SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

[X]      Annual  report  pursuant  to  Section  13 or  15(d)  of the  Securities
         Exchange Act of 1934 For the fiscal year ended March 31, 2000 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 No X

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

     Aggregate  market  value  of  Common  Stock  held by  nonaffiliates  of the
Registrant at March 31, 2000:  $201,966,936.  For purposes of this  calculation,
officers and directors are considered affiliates.

Number of shares of Common Stock outstanding at March 31, 2000: 126,536,204


This Form 10-K consists of 40 pages.

<PAGE>

<TABLE>
<CAPTION>

                                TABLE OF CONTENTS
<S>                                                                                                       <C>

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

   Item 1 -     Business ................................................................................. 3
   Item 2 -     Properties  .............................................................................. 9
   Item 3 -     Legal Proceedings.........................................................................10
   Item 4 -     Submission of Matters to a Vote of Security Holders.......................................10
   Item 4(a)    Executive Officers of the Registrant......................................................10

PART II...................................................................................................11

   Item 5 -     Market for the Registrant's Common Stock
                       Equity and Related Shareholder Matters.............................................11
   Item 6 -     Selected Financial Data...................................................................12
   Item 7 -     Management's Discussion and Analysis of Financial Condition
                       and Results of Operations..........................................................12
   Item 7A.     Quantitative and Qualitative Disclosures About Market Risk................................15
   Item 8 -     Financial Statements and Supplementary Data...............................................15
   Item 9 -     Changes in and Disagreements with Accountants
                       on Accounting and Financial Disclosure.............................................16

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

   Item 10 -    Directors and Executive Officers of the Registrant........................................16
   Item 11 -    Executive Compensation....................................................................16
   Item 12 -    Security Ownership of Certain Beneficial Owners and
                       Management.........................................................................16
   Item 13 -    Certain Relationships and Related Transactions............................................16

PART IV...................................................................................................17

   Item 14 -    Exhibits, Financial Statement Schedules, and Reports on Form 8-K..........................17

SIGNATURES................................................................................................19

</TABLE>
<PAGE>


                                     PART I

ITEM 1.  BUSINESS

Organization

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

Corporate Focus

          The Company's mission is to commercially exploit the science of remote
sensing in a wide variety of industries  around the globe. The science of remote
sensing includes  acquiring,  processing and  interpreting  imagery of the earth
captured from instruments deployed on aircraft or satellites.  The advantages of
airborne and satellite  remote  sensing over other  methods of gathering  visual
information  are that data can be  collected  better,  faster and  cheaper  over
larger areas including sites inaccessible from the ground. By collecting data at
different times,  changes can be detected that may be due to significant natural
or   man-made   processes.   Detection   of   such   changes   can   assist   in
environmental/land use management. Remote sensing instruments measure reflected,
visible and infrared  sunlight  from the earth's  surface over a spectral  range
seven times broader than the human eye can see. This  collected data can then be
digitally analyzed using personal computers.  The digitally analyzed imagery can
provide  information  useful  to a wide  range of  industries  such as,  but not
limited to, natural resource development (including oil and mineral exploration,
fisheries and forestry),  land use  development,  environmental  remediation and
monitoring,  agriculture  (including  vegetation  stress analysis and fertilizer
treatment), disaster assessment, marine sciences and military sciences.

Original Business Plan

         The Company acquired an imagery database  obtained from the utilization
of remote  sensing  instruments  owned and operated by third parties in 1987 and
1991 for the  purpose of mineral  exploration.  Based on an analysis of obtained
imagery, the Company procured mining patents and land leases and sought partners
to develop  several  prospective  mining  properties.  The Company  entered into
several  arrangements  with mining  entities for the  development of some of the
Company's properties, but none of those arrangements resulted in the development
of operating  mines. Due to the lack of capital to fund advance  royalties,  due
diligence  requirements  associated  with the Company's  mining  properties  and
changes in mining laws which  required  increased  and more timely due diligence
expenditures,  the  Company  opted  to  release  virtually  all  of  its  mining
properties starting in 1991. The Company completed this divesture in 1994.

         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), along with other less advanced instruments, in locating geologic areas
of interest in a test area in Nevada. The results of that program were published
in January 1993. As a result of its  participation  in the program,  the Company
acquired a large amount of unprocessed imagery data.

<PAGE>

         The Company  recognized the need to refine existing remote sensing
technology  in order to improve  the  economics  of  commercial  remote  sensing
applications.   The  Company  decided  to  use   hyperspectral   remote  sensing
instruments  which expands the image  resolution  and,  thus,  the usefulness of
acquired imagery.  To achieve its goal, the Company undertook the development of
a  miniaturized  hyperspectral  remote  sensing  instrument,  Probe 1,  which is
designed to be used with cost effective and easily available aircraft.
Current Business Plan

         The Company is evolving  from a mineral  exploration  and  research and
development  organization into a leading provider of remote sensing services. On
June 1, 1997, the Company took delivery of the first Probe 1 instrument.  In its
first full year of  commercial  operation,  the  Company  developed  markets and
generated  revenue from multiple  clients.  In August of 1999,  the Company took
delivery of its second Probe 1 instrument.  Since June 1, 1997,  the Company has
collected and  currently  owns a  substantial  archive of Probe 1  hyperspectral
imagery from Kazakhstan,  Australia,  British Columbia,  Ontario, Quebec, Chile,
Mexico,  California,  Nevada,  Arizona,  Idaho, Montana and Utah. At the present
time,  the value of this data archive has not been  independently  appraised and
its value is not reflected in the Company's financial statements.

         The Company  believes cost effective  hyperspectral  remote sensing and
imagery processing has tremendous  potential in various global  applications and
markets.  The Company is  establishing  subsidiaries  to focus on  hyperspectral
remote sensing applications,  marketing, and distribution in various industries.
Each subsidiary will focus on a specific  segment of commercial  remote sensing.
The  Company,  if  applicable,  will  provide an  exclusivity  license  for each
subsidiary,  provide use of the  Company's  hyperspectral  instruments,  provide
processing  support,  and  provide  marketing  and  management  support  to each
subsidiary.  In  addition,  the Company will receive a royalty from any resource
development  that occurs as a result of the subsidiaries'  use of the  Company's
instruments  and technology.  Until the successful  launch and deployment of the
Naval Earth Map Observer (NEMO) satellite described below, the subsidiaries will
utilize the Company's airborne hyperspectral  instruments.  After the successful
launch of the NEMO satellite and depending on the application  both the airborne
and  satellite   hyperspectral   instruments  will  be  made  available  to  the
subsidiaries.  Following  the launch,  the  subsidiaries  expect to use the NEMO
satellite's  instrument  in  addition  to the  airborne  instrument.  Additional
capital will be raised for each  subsidiary  by means of private  placements  or
public offerings.

         To complement  its Probe 1 technology,  the Company  recently  acquired
Space  Technology  Development  Corporation and its ownership in satellite based
imagery  technology  (discussed  below).  The  combination of a  high-resolution
airborne Probe system and the lower resolution  larger area coverage achieved by
satellite  based imagery will provide a powerful and unrivaled  capability.  The
use of aircraft to collect large areas of remote sensing imagery  throughout the
world is an expensive  and  time-consuming  task.  Satellite  gathered data will
allow remote sensing  customers to gather imagery from any large area around the
world,   including  those  areas  which  currently  are   inaccessible   due  to
restrictions  by foreign  governments.  This  imagery can then be  processed  to
determine if a closer look using the Company's airborne instruments is necessary
or desirable. The joint use of satellite and airborne remote sensing instruments
will  combine   economical  large  area  imagery  collection  by  the  satellite
instrument  and  high-resolution  imagery  collection  of  target  areas by the
airborne  instruments.  All collected  imagery can be processed by the Company's
imagery processors.

<PAGE>

         The Company also plans to pursue mergers and  acquisitions  as the most
expeditious  and  cost-effective  way to  consolidate  commercial  hyperspectral
remote sensing.  The Company intends over the next year to continue pursuing (a)
acquisitions that aid in the  commercialization  of hyperspectral remote sensing
technology,  (b) contracts that produce  revenues from the application of remote
sensing  to the  existing  markets  in  environmental  remediation  and  mineral
identification  and the  undeveloped  markets  for  other  appropriate  projects
involving a multitude of  applications  of the  technology,  (c)  financing  the
development  of additional  miniaturized  remote  sensing  instruments,  and (d)
development  of promising  mineral,  oil and gas properties in which the Company
has or acquires an  interest,  identifying  such  properties  by  utilizing  its
existing imagery database or acquiring such data.

Acquisition of Space Technology Development Corporation

         In fiscal  2000,  the Company  acquired  Space  Technology  Development
Corporation  (STDC)  of  Alexandria,  Virginia.  The  Company  acquired  all the
outstanding  shares of STDC in exchange for four million shares of the Company's
common stock and the option to purchase  another four million shares at exercise
prices ranging from $0.50 to $5.00 per share. The Company's management views the
acquisition of STDC and the NEMO project  (discussed  below) as a way to advance
its long-range strategic plan to become a vertically integrated service provider
for clients requiring precise identification of materials on the earth's surface
from satellite, airborne and ground platform instruments.

         In early 1997, the Navy issued a broad agency announcement that it
would conduct a competition on several  "dual-use"  projects,  including the
development of hyperspectral remote sensing technology in space. STDC bid on the
project,  which developed into NEMO. STDC signed an agreement with the Office of
Naval Research in December of 1997 for the development,  operation and launch of
NEMO as a dual use project.  Under the rules of the dual use  program,  the U.S.
government  will  fund  half or less of the  program  cost,  while  STDC and its
industrial  partners provide funding or in-kind  contributions for the remaining
costs of the  program.  The dual use  program  is  administered  by the  Defense
Advanced  Research  Projects  Agency  (DARPA) in the Office of the  Secretary of
Defense.  Dual-use  projects  are  designed so that both the armed  services and
private  companies  contribute to the projects and share in the benefits.  DARPA
works with the Army,  the Navy and the Air Force to design a number of  advanced
technology  projects that might qualify as dual-use  projects  worthy of special
funding.

         The  agreement  between  the Navy and STDC  states  its goals as to the
successful  launch of the NEMO  satellite and the  acquisition  of image data of
interest to the U.S. government.  An additional goal is to form the basis for a
commercially viable enterprise that will continue to provide imagery data to the
U.S. Government for the life of the satellite.

         The  principal  partner  of STDC  for the  NEMO  project  is the  Naval
Research  Laboratory  (NRL),  which operates under the direction of the Chief of
the  Office  of Naval  Research.  The NRL will  modify,  assemble and test the
satellite and prepare it for launch.

         Industrial  partners of STDC include  Space  Systems/Loral  ("SS/L") of
Palo Alto, California;  Science Applications  International Corporation ("SAIC")
of La Jolla, California; AlliedSignal Technical Services Corporation ("ATSC") of
Columbia,  Maryland (which recently merged with Honeywell);  and Litton Advanced
Systems ("Litton") of College Park, Maryland. SS/L provided the basic satellite,
a  Globalstar(R)  bus.  ATSC will manage  satellite  operations  and collect the
imagery data  transmitted  from the  satellite  and Litton is producing the NEMO
spacecraft controller.

<PAGE>

         Through  launch and the first 60 days of orbit,  the NEMO  program will
cost  approximately  $250  million.  This  figure  includes  the  space  segment
(satellite,  sensor  and  other  electronics),  the  launch  and the  commercial
business  segment -  imagery  processing,  product  development,  marketing  and
administration.   Of  this  amount,   the   government  has  committed  to  fund
approximately  $63 million,  and STDC and its industry  partners are expected to
contribute the balance.

         The NEMO  satellite is the core of STDC's  strategic plan to become the
dominant provider of satellite gathered hyperspectral global imagery and related
processing  services.  STDC has  attained the  required  Department  of Commerce
Remote Sensing License that permits hyperspectral and panchromatic imagery to be
sold commercially to a global market. This is the first license ever granted for
a space-based hyperspectral system.

         NEMO is a high  performance,  highly sensitive  imaging and information
generating  satellite  that  leverages  the U.S.  government's  state of the art
hyperspectral technology R&D programs. NEMO is designed to collect large volumes
of 30 or 60-meter  resolution  hyperspectral  data to  spectrally  identify  and
characterize  objects and collected  5-meter  resolution  panchromatic  data for
precise visual  interpretation  of the imagery.  NEMO provides the potential for
mapping all of the  earth's  landmass with 5-m  panchromatic,  30-m and/or 60-m
hyperspectral data over its three-year mission life. NEMO has a design life of 5
years.  The Navy desires the imagery  data NEMO will collect, but without the
expense  of  satellite  ownership.  STDC  will own and  operate  the  satellite,
providing  the Navy with the  imagery  it needs  and  ensuring  the  commercial
success of the venture through the sale of processed imagery.

         Of keen interest to the Navy and commercial  clients is NEMO's unique
ability to  characterize  the  littoral  regions of the world  (i.e.,  water and
coastline  areas  within 50 km of shore).  Specific  areas of interest to the
Navy include  bathymetry,  water  clarity,  currents,  oil slicks,  bottom type,
atmospheric   visibility,   tides,   bioluminescence,   beach  characterization,
underwater  hazards,  total column  atmospheric  water vapor  and detection and
mapping of sub-visible cirrus.

         A key  technology  developed for NEMO by NRL is an extraction  and data
compression   software   algorithm   called  the  Optical   Real-Time   Spectral
Identification  System  (ORASIS(TM)).  ORASIS(TM)  offers automated and adaptive
signature  recognition  capability,  improving  the  operational  efficiency  to
analyze  both  military and  commercial  data sets.  ORASIS(TM)  is a high-speed
processing  system that  identifies  the spectral  signatures  corresponding  to
physical  objects  an area  without  supervision  or  prior  knowledge.  It will
minimize  subsequent  ground  processing  for data  exploitation  and  maps.  In
essence, ORASIS(TM) enables the on-board production of data products and results
in a  greater  than  tenfold  data  compression,  relieving  hyperspectral  data
bottlenecks of on-board data storage and transmission to the ground.

<PAGE>

Formation of Petro Probe, Inc.

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

         Petro Probe Inc.'s concept is to develop the competitive advantages of
Probe  1  resource  mapping   capability,   combining  this  with   conventional
hydrocarbon   exploration   information  and  then  applying  newer  value-added
technology  such  as 3D  seismic  to  acquire  equity  positions  in oil and gas
properties.  3D  seismic  is  the  technology  of  measuring  explosions  to map
subsurface  geologic  structures.  In fiscal 2000,  Petro Probe,  Inc.  acquired
working  interests  in four  oil and gas  properties  in the  U.S.  The  Probe 1
instrument  played a key role in the  selection  of these  properties  for Petro
Probe,  Inc.  The first property  acquired was the  Louisiana  West Scott Field,
Prospect  where an oil well has been drilled and logged based on data from Probe
1 as well as other  exploration  measurements.  This  well is  expected  to be a
revenue producing natural gas property in the second quarter of 2001.

         In addition,  in fiscal 2000 Petro Probe, Inc. has surveyed targets for
hydrocarbon  exploration  in the oil & gas basins of Greater  Green River Basin,
Wyoming,  Paradox Basin,  Utah and  Australian  Basin and is ready to proceed to
further evaluation.

Formation of Geoprobe, Inc.

         The Company formed Geoprobe, Inc. to pursue remote sensing applications
in the  mineral  exploration  industry.  Mineral  deposits  are  part of  larger
geological systems that typically have mineralogical zonations that are mappable
using Probe 1 imagery.  In  vegetated  areas,  the subtle  effects  that bedrock
geology has on plants can be measured to identify hidden minerals.  As permitted
by the Company's  agreement with Noranda that gives Noranda exclusive  rights to
certain   geological  areas  for  certain  types  of  mineral   exploration  and
development, Geoprobe, Inc. will use the Company's remote sensing instruments to
survey areas that have  promise for the location of minerals  either for its own
use or for third party customers.

Formation of Ecoprobe, Inc.

         The Company formed Ecoprobe, Inc. to pursue remote sensing applications
in the  environmental  industry.  The same  indicators  that can be used to find
mineral deposits can also be used to monitor the environmental  impact of active
and past-producing mines, mills, smelters, refineries and pipelines. The Company
has taken an industrial leadership role in working with U.S. government agencies
such as the Environmental  Protection  Agency, the Bureau of Land Management and
the  Office  of  Surface  Mining  on  setting  up  applications  for  commercial
monitoring of industries,  forest  inventory and health issues,  slope stability
assessment  and the spread of noxious  weeds.  Ecoprobe, Inc. will continue such
activities.

<PAGE>

Formation of Terranet, Inc.

         The Company formed Terranet,  Inc. as the Company's  e-commerce content
provider to globally  market and distribute  its airborne and satellite  imagery
over its internet and broadband imagery  distribution  system. This imagery can
be sold repeatedly to multiple end users.  In addition to selling the Company's
own imagery,  Terranet,  Inc.  will pursue the resale of imagery  obtained  from
third parties.  Terranet is preparing for a late-2000 launch of a portal design,
multi-media  imagery "supermarket" on the internet that will have the capability
to individually  customize data packages for customers.  A proprietary  software
application  service  available on line will allow simple data  acquisition  and
processing with a "pay as you go" billing system. Its site on the world wide web
will be Earthmap.net  website.  Terranet,  Inc. has engaged  Hewlett-Packard  to
provide  the  business  case  consulting  and  system  architecture  design  for
Earthmap.net.   An   agreement   has  also  been  signed   with  OnSat   Network
Communications  of Salt Lake City,  Utah to provide  global  broadband  wireless
internet connectivity for major Earthmap.net users.

Fiscal 2000 Significant Projects

         The Company has  completed  mapping  assignments  in Canada,  Chile and
Argentina in partial fulfillment of the contractual requirements with Noranda, a
major  mining  company,  to map for  natural  resources  on a global  scale.  In
addition to the fees the Company has  received for these  services,  the Company
earns either net smelter  royalties or net profits  interest on  properties  not
previously  owned or  controlled  by Noranda  upon which a discovery  of mineral
resources  occurs as the result of using the Company's  Probe 1 technology.  To
date, gigabyte  quantities of imagery have been collected by the Company.  These
data  tapes  are being  processed  and the  imagery  is being  examined  for the
presence  of mineral  properties  exhibiting  the  qualifications  necessary  to
establish  them  for  candidacy  as  "royalty  properties".   While  no  royalty
properties  have been  recorded at this time,  the Company is  operating  on two
continents  targeted by the mining  industry as exhibiting  significant  mineral
potential.  A substantial backlog of collected imagery from these two continents
exists,  and the evaluation  process  continues to move forward.  As the Company
continued  to  perform  under its  Noranda  mapping  contract  in  fiscal  2000,
additional  mapping  assignments have come from new customers in emerging growth
areas such as hydrocarbon  exploration,  environmental damage assessments,  land
use  planning  and weed  species.  These  additional  imagery  data  collections
continue to expand and improve the commercial  applications  of the Company's
remote sensing library.

         The Company  cooperated with the Dian Fossey Gorilla Fund International
organization  to utilize  hyperspectral  remote sensing to examine the detail of
vegetation in gorillas'  habitat in the jungles of Rwanda.  The imagery captured
revealed the  abundance and  location of the  gorillas'  principal  foods in the
Virungas National Park. This information will be used to determine the number of
gorillas the habitat can support.  National  Geographic  Explorer chronicled the
mission in a television documentary that was broadcast on several occassions.

         The  Company  completed  work on its  EOCAP  contract  with NASA to map
Yellowstone  National  Park that began in fiscal  1999.  The  Company  collected
imagery at lower altitudes, which meant higher resolution imagery was collected.
It was anticipated that, with the increased  resolution obtained utilizing Probe
1, Yellowstone's  scientists  responsible for tracking seasonal variability
of plant species and,  hence,  food supplies,  will be able to gain insight into
environmental conditions affecting the Park's wildlife. The ability of the Probe
1 technology to differentiate  between tree and plant species suggests a new and
economical method for characterizing habitat.  To date, the Company continues to
publish technical papers resulting from its collection of 1-meter  hyperspectral
images over the fragile ecosystem of Yellowstone  National Park.  Samples of the
images  were  featured  in the New  York  Times  science  section  and  National
Geographic Magazine.  This  high-resolution  imagery is enhancing the scientific
community's  ability to understand key ecosystems.  This first of a kind mission
was  accomplished  using Probe 1 in  conjunction  with a  heliocourier  aircraft
provided by the Boeing Company and a specially equipped helicopter.

<PAGE>

         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.

         In  the  Canadian  province  of  Nova  Scotia,  the  Company  assembled
twenty-six exclusive mineral exploration licenses covering  approximately 70,000
acres on 1,756 claims. The Company will conduct Probe 1 remote sensing and other
mineral exploration  techniques to locate and quantify  under-developed  mineral
potential  where  numerous  quartz vein  related  gold and some copper have been
discovered.  There  have  been  seven  past  producing  gold  properties  in the
Company's  license  area  as  well  as  two  past  producing   sandstone  copper
properties.

         The  Company completed  a  new  corporate   website,   Earthsearch.com,
featuring "flash"  technology for animation and streaming video for personal and
mission presentations.  The website's objective will be to contain comprehensive
information about hyperspectral  remote sensing technology as well as to provide
an interactive forum for the Company's business around the world.

Business Segment Information

         Included in the  attached  financial  statements  is  business  segment
information for the Company.

Employees

         As of March 31, 2000, the Company had 8 full-time employees.

Available Information

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

ITEM 2.  PROPERTIES

         The  Company  leases  its  corporate   headquarters   and  all  of  the
furnishings  from  an  unrelated  third  party.  Its  headquarters   consist  of
approximately 2,000 square feet of office space in McCall, Idaho. In addition, a
wholly owned  subsidiary  leases  office space in  Alexandria,  Virginia from an
unrelated third party. The Company believes its offices are adequate to meet its
needs for the foreseeable future.

<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

                                 Not applicable

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 for fiscal 1999 to the present.

                   Name                Age     Position

             Larry F. Vance            65      Chairman
             John W. Peel, III         54      Chief Executive Officer
             Rory J. Stevens           42      Chief Financial Officer
             Tami J. Story             37      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 also a director of the Company  and has  been a
full-time  employee  of the  Company  since  1985.  Mr.  Vance's  training is in
business and marketing. He served in a management capacity for the 3M companies,
IBM, and Computer Usage Corporation prior to founding the Company.

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

         Rory J. Stevens,  CPA, a certified public  accountant became a director
of the  Company  in 1994 and joined the  Company as Chief  Financial  Officer in
January 2000. Prior to joining the Company,  Mr. Stevens was employed by Chiyoda
International  Corporation,  an engineering and construction company, for eleven
years, the last six years as corporate controller.  Mr. Stevens holds a Bachelor
of Business  Administration from Boise State University and a Master of Business
Administration  and Masters of  Professional  Accounting  from the University of
Washington.

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

<PAGE>
                                     PART II

ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON STOCK EQUITY AND
              RELATED STOCKHOLDER MATTERS

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

                         Quarter Ended              High         Low

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

                        June 30, 1999               .21          .19
                        September 30, 1999          .15          .13
                        December 31, 1999          1.32         1.25
                        March 31, 2000             1.81         1.70

         (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, 2000 was  approximately  877.  This does not include
                  shareholders   that   hold   stock   in  their   accounts   at
                  brokers/dealers.

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

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

         The following table sets forth certain selected financial data for each
of the last five fiscal  years with  respect to the Company and is  qualified in
its entirety by reference to the  Company's  audited  financial  statements  and
notes thereto.  Space Technology  Development Corporation (STDC) was acquired by
the Company on December 21, 1999. The results of operations for 2000 include the
results of operation for STDC from December 22, 1999 to March 31, 2000.
<TABLE>
<CAPTION>

                                                                    As of or for the fiscal year ended
                                             2000            1999            1998            1997            1996
                                       -----------------------------------------------------------------------------
<S>                                     <C>             <C>             <C>             <C>             <C>
Operating revenue                       $  1,526,446    $    881,006    $    55,000     $         -     $     6,332
Net loss                                  (5,177,983)     (2,271,428)    (5,849,999)     (2,549,823)     (2,408,292)
Net loss per common share                     (0.033)          (0.03)         (0.08)          (0.04)          (0.05)
Total assets                              19,532,230       3,992,233      4,880,652       3,951,914         922,377
Long-term obligations                      7,515,118       6,594,080      5,767,961         873,462         736,209
Stockholders' equity  (deficit)            2,663,656      (3,998,137)    (3,005,765)     (2,960,610)     (1,295,908)
Cash dividends declared                            -               -              -               -               -
</TABLE>

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

         Financial comparisons will be made between the fiscal years ended March
31, 2000 and 1999 and 1998.

RESULTS OF OPERATIONS

         The company  recognized  revenue of  $1,526,446  in 2000  compared with
$881,006 and 55,000 in 1999 and 1998  respectively.  Included in 2000 revenue is
$662,791 from STDC. In 2000, costs of services provided was $1,796,412  compared
with  $767,570  and  $132,083  in 1999 and  1998,  respectively.  STDC  costs of
services provided included in 2000 is $1,078,990.

         Exploration  costs  in 2000  were  $6,282  compared  with  $68,229  and
$399,756 in 1999 and 1998, respectively.  The decrease in exploration costs from
1998 to 2000 is primarily a result of the Company's  focus on utilization of the
Probe for revenue  producing  projects.  General and  administrative  costs were
$2,397,484  in 2000 compared with  $1,417,514  and  $3,062,669 in 1999 and 1998,
respectively. Included in 2000 general and administrative costs is $233,397 from
STDC.

         In 2000,  the  Company  recognized  non-cash  compensation  expense  of
$1,608,001  for the vesting of options.  Of this amount,  $1,593,600  relates to
performance options issued to officers of the company in 1997. At the time these
options were granted,  officer's  salary was deferred and the  Company's  common
stock price was approximately $0.48 These options allow the officers to purchase
restricted  shares in the Company at exercise prices ranging from $.50 per share
to $2.50 per share,  for up to 24 months  after  vesting.  The  vesting of these
options is dependent on the Company's  stock price  reaching  certain prices and
maintaining  that level for a specified  number of days.  In 2000,  3,000,000 of
options met the performance criteria and resulted in the recording of $1,593,600
of  compensation  expense.  As of March 31, 2000 none of these options have been
exercised.

<PAGE>

         Interest  income in 2000 was $38,821  compared  to $17,449 in 1998.  In
2000, the Company recognized interest expense of $1,136,995 compared to $773,228
and $689,600 in 1999 and 1998.  Included in 2000 interest expense is $70,846 for
STDC.  The  increase  in  interest  expense  over prior years is a result of the
Company's  increase in  borrowings to fund  operations.  Other expense was $641,
$10,810, and $473,340 in 2000, 1999, and 1998 respectively.

         In  2000,  the  company  recorded   minority   interest  in  losses  of
consolidated  subsidiaries of $202,565. In 2000, ESSI Probe 1 LC, a consolidated
subsidiary  with a 50%  minority  interest  took  delivery  of the second  Probe
instrument  and started  operations.  ESSI Probe 1 LC minority  interest loss in
2000 was $201,298.

         The company  recognized a net loss of $5,177,983 in fiscal 2000 compare
with a net loss of $2,271,428 and $5,849,999 in 1999 and 1998. The loss on a per
share basis was  $0.048,  $0.025,  and $0.077 is fiscal  2000,  1999,  and 1998,
respectively.  Included  in the loss in 2000 is a loss of  $879,250 or $.008 per
share from the operations of STDC.

LIQUIDITY AND CAPITAL RESOURCES

         The Company has financed its  activities to date with a combination  of
cash flow from operations and the use of equity securities and promissory notes.

         Net  cash  used in  operating  activities  was  $(3,343,109)  in  2000,
resulting  primarily from a net loss of $(3,569,982),  and payment for salaries,
services and  depreciation.  Cash used in operating  activities  was $374,023 in
1999,  resulting  primarily  from a net loss of  $2,271,428,  and  payments  for
salaries,  services and depreciation.  Cash used in operations was $2,599,410 in
1998,  resulting  primarily  from a net loss of  $5,849,999,  and  payments  for
salaries, services and depreciation.

         Capital  expenditures for March 31, 2000 were primarily for payments on
airborne  hyperspectral  instruments  and  purchases of new computer  equipment,
purchases  of  working  interests  in  mining  properties,  and  payments  on  a
subsidiary's satellite hyperspectral instrument.

         At March  31,  2000,  the  Company  had cash  and cash  equivalents  of
$6,119,562 and working capital of $(2,384,930).

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

         The Company believes that funds generated from its operations, together
with future borrowings,  will be adequate to meet the Company's anticipated cash
needs  during the  immediate  term.  In  addition,  the  Company  plans to raise
approximately  $3,250,000  to  pursue  engineering,   design,  feasibility,  and
construction of additional airborne instruments.

         STDC  will  need to  raise  private  industry  funds  of  approximately
$125,000,000 in order to complete,  launch and operate the hyperspectral imaging
satellite and instrument.

         There can be no assurance  that  additional  capital beyond the amounts
currently  forecasted  by the  Company  will not be  required  nor that any such
required  additional capital will be available on reasonable terms, at such time
or times as required by the Company.

<PAGE>

         Additions to the  permanent  staff of the Company saw Rory Stevens take
on the role of Chief Financial Officer, Joe Zamudio become the Vice-President of
Technical  Operations,  and Laurel Gordner move to Director of Image Processing.
The total number of employees now numbers  eight people plus numerous  specialty
area contractors.

FUTURE OPERATIONS

         The Company  will focus on  expanding  its  markets for remote  sensing
services by marketing its remote sensing imagery  collection  services and value
added imagery processing.  In addition,  in the mineral and hydrocarbon resource
exploration  areas the Company will operate its remote sensing  instruments  for
its own use and secure equity interests in promising properties  identified from
the remote sensing imagery.  The Company under its subsidiary STDC will continue
to focus on raising  capital to finish  construction of NEMO in expectation of a
launch in 2002. Further, the Company will continue to look for equity funding to
develop  additional  instruments  including  hand-held,   as  well  as  airborne
spectrometers.  Lastly,  the  Company  will  seek to  acquire  revenue-producing
companies in the natural resources and environmental monitoring field.

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

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

         As of June 29, 2000,  the Company  believes  that  available  funds and
those generated  through its operations will be adequate to meet its anticipated
cash needs for the next fiscal year.  However,  there can be no  assurance  that
additional capital beyond the amounts currently forecast by the Company will not
be required nor that any such required  additional  capital will be available on
reasonable  terms,  if at all, at such time or times as required by the Company.
Additional  financing may involve public or private  offerings of debt or equity
securities, and may include bank debt. Debt financing may increase the Company's
leveraged  position,  require the Company to devote  significant cash to service
debt and limit funds available for working capital,  capital  expenditures,  and
general  corporate   purposes,   all  of  which  could  increase  the  Company's
vulnerability  to adverse  economic  and  industry  conditions  and  competitive
pressures.  Equity financing may cause additional  dilution to purchasers of the
Company's common stock.

         The Company believes other  commercially  available current and planned
remote sensing instruments pose competitive pressures.  While the Company's plan
is to  develop  better  hyperspectral  airborne  and  satellite  instruments  to
maintain the Company's competitive position,  there can be no assurance that the
Company's  new  instrument  developments  will be  commercially  or  financially
successful.

<PAGE>

         The current  prices of oil and natural gas has  intensified  efforts to
locate new  reserves and use new  technologies  for  exploration  such as remote
sensing.  Fluctuations in the prices of oil and gas could negatively  impact the
commercial  applications  for  the  Company's  instruments  in the  oil  and gas
exploration  area  as  well  as any  revenue  on its  interests  in oil  and gas
properties.

           Lower  prices for  minerals  could  negatively  impact the  Company's
commercial  prospects  for  marketing  its remote  sensing  instruments  and its
strategy to earn revenue by  identifying  minerals for its own  exploration  and
development.

           The STDC  agreement  with the Office of Naval Research to develop and
deploy NEMO requires STDC to raise  additional  industry funds of  approximately
$125,000,000  to complete the project.  There can be no assurances that the STDC
will be able to raise funds necessary to complete the project.

OUTLOOK

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                                 Not applicable

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-21 of this Report.

<PAGE>

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

                                      None

                                    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 2000  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, 2000.

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 2000  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 2000 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

                                 Not applicable

<PAGE>
                                     PART IV

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

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

                Report of Independent Accountants                              F-1
                Consolidated Balance Sheet at March 31, 2000 and 1999          F-2
                Consolidated Statement of Loss for the Years
                   Ended March 31, 2000, 1999 and 1998                         F-3
                Consolidated Statement of Redeemable Common Stock
                   And Nonredeemable Shareholders' Equity (Deficit) for
                   the Years Ended March 31, 2000, 1999 and 1998               F-4
                Consolidated Statement of Cash Flows for the Years
                   Ended March 31, 2000, 1999 and 1998                         F-5
                Notes to Consolidated Financial Statements                     F-6 - F-21

         (a)(2) Financial Statement Schedules                                  None

         (a)(3) Exhibits
</TABLE>

          2.1   Agreement and Plan of Merger by and among Earth Search
                Sciences, Inc.,  ESS  Acquisition  Corp.,   Space  Technology
                Development Corporation and the shareholders of Space
                Technology  Development Corporation, dated December 21, 1999

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

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

          4.1   See exhibits 3.1 and 3.2

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

          10.2  Contract of Sale  and  Leaseback  dated  June 10,  1997  between
                Registrant and Accuprobe, Inc.

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

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

<PAGE>

          10.5  Agreement  between  the  Office  of  Naval  Research  and  Space
                Technology Development  Corporation  Agreement for NAVY EARTHMAP
                OBSERVER (NEMO) dated December 10, 1997

          10.6  Sales Contract between Science Applications  International Corp.
                and Space  Technology  Development  Corp. Dated:  30 March 1998,
                Contract No.: STDC-98-NEMO-0003

          10.7  Sales Contract between Science Applications  International Corp.
                and Space  Technology  Development Corp.  Dated:  30 March 1998,
                Contract No.: STDC-98-NEMO-004

          10.8  Sales Contract  between  Space  Systems/Loral  (SS/L)  and Space
                Technology Development Corporation (STDC). Dated 21 January
                1999, Contract Number: Stdc-98-Nemo-0001

          10.9  Sales Contract between Litton  Systems,  Inc.,  Amecom  Division
                (Litton Amecom)and Space Technology  Development  Corp.  (STDC).
                Date 29 October 1998, Contract Number: STDC-NEMO-98-0009

        21.1.1  List of Subsidiaries

          27.1  Financial Data Schedule

          (b)   The Registrant filed the Following Reports on Form 8-K during
                the quarter  ended  March  31,  2000:

                       DATE OF REPORT           ITEM REPORTED
                     February 18, 2000              5
                     February 2, 2000               5

<PAGE>

                                   SIGNATURES

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

                                        EARTH SEARCH SCIENCES, INC.



                                        By /s/ Larry F. Vance
                                           Larry F. Vance
                                           Chairman
                                           Date:July 13, 2000

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

 Signature                               Title

/s/ Larry F Vance                Chairman and Director
Larry F. Vance
Date: July 13, 2000

/s/ John W. Peel, III            Chief Executive Officer and Director
John W. Peel, III
Date:July 13, 2000

/s/ Rory J. Stevens              Chief Financial Officer and Director
Rory J. Stevens
Date:July 13, 2000

/s/ Tami Story                   Corporate Secretary and Treasurer and Director
Tami J. Story
Date:July 13, 2000

<PAGE>


                        Report of Independent Accountants

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

In our opinion, the  accompanying  consolidated  balance  sheets and the related
consolidated  statements of loss, of redeemable  common stock and  nonredeemable
shareholders' equity (deficit) and of cash flows present fairly, in all material
respects,  the  financial  position  of  Earth  Search  Sciences,  Inc.  and its
subsidiaries  at March 31,  2000 and March 31,  1999,  and the  results of their
operations  and their cash flows for each of the three years in the period ended
March 31, 2000 in conformity with accounting  principles  generally  accepted in
the United States.  These  financial  statements are the  responsibility  of the
Company's  management;  our  responsibility  is to  express  an opinion on these
financial  statements  based on our  audits.  We  conducted  our audits of these
statements  in  accordance  with auditing  standards  generally  accepted in the
United  States,  which  require  that we plan and  perform  the  audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.

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

PricewaterhouseCoopers LLP
Portland, Oregon

June 9, 2000

<PAGE>

<TABLE>
<CAPTION>

EARTH SEARCH SCIENCES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND 1999
-----------------------------------------------------------------------------------------------------
<S>                                                                     <C>             <C>
                                                                             2000           1999
                                                                        --------------  -------------
Assets
Current assets:
    Cash                                                                $    6,119,562  $      47,642
    Other current assets                                                       803,682        120,995
                                                                        --------------  -------------
Total current assets                                                         6,923,244        168,637

Property and equipment, net                                                 12,608,986      3,823,596
                                                                        ==============  =============
Total assets                                                            $   19,532,230  $   3,992,233
                                                                        ==============  =============
Liabilities and Shareholders' Deficit
Current liabilities:
    Notes payable                                                       $    2,687,212  $     450,125
    Accounts payable and accrued expenses                                    6,287,548        552,061
    Accrued interest                                                           356,962        236,259
    Unearned revenue                                                                 -         40,000
                                                                        --------------  -------------
Total current liabilities                                                    9,331,722      1,278,445

Long-term liabilities
    Shareholder loans                                                          459,844        372,322
    Capital lease obligation                                                 3,000,000      2,514,378
    Deferred officers' compensation                                          2,037,846      1,707,380
    Minority interest                                                        2,017,428      2,000,000
                                                                        --------------  -------------
Total liabilities                                                           16,846,840      7,872,525
                                                                        ==============  =============
Commitments and contingencies

Redeemable common stock, $.001 par value,  134,160 and 725,914
shares issued and outstanding at March 31, 2000 and 1999,
respectively                                                                    21,734        117,845
                                                                        --------------  -------------
Nonredeemable shareholders' equity (deficit):
  Series A preferred Stock; 200,000 shares authorized,
    issued and outstanding at March 31, 2000 and 1999                        1,000,000      1,000,000
  Common stock, $.001 par value; 200,000,000 shares
    authorized; 126,402,044 and 97,411,367 shares
    respectively, issued and outstanding                                       126,402         97,411
  Additional paid-in capital                                                22,906,866     11,459,081
  Common stock subscribed                                                      363,000              -
  Treasury stock                                                              (200,000)      (200,000)
Retained deficit                                                           (21,532,612)   (16,354,629)
                                                                        --------------  -------------
                                                                             2,663,656     (3,998,137)
                                                                        --------------  -------------
 Total liabilities and shareholders' equity (deficit)                   $   19,532,230  $   3,992,233
                                                                        ==============  =============


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

</TABLE>
<PAGE>

<TABLE>
<CAPTION>

EARTH SEARCH SCIENCES, INC.
CONSOLIDATED STATEMENTS OF LOSS
FOR THE YEARS ENDED MARCH 31, 2000, 1999 AND 1998
------------------------------------------------------------------------------------------------------
<S>                                                         <C>            <C>                <C>


                                                                2000           1999           1998
                                                            ------------   ------------   ------------

Revenue                                                     $  1,526,446   $    881,006   $     55,000
Costs of services provided                                    (1,796,412)      (767,570)      (132,083)
                                                            ------------   ------------   ------------
Gross (deficit) margin                                          (296,966)       113,436        (77,083)
                                                            ------------   ------------   ------------
Expenses:
    Exploration                                                    6,282         68,229        399,756
    General and administrative                                 2,397,484      1,417,514      3,062,669
     Non-cash compensation expense                             1,608,001              -              -
                                                            ------------   ------------   ------------
                                                               4,011,767      1,485,743      3,462,425
                                                            ------------   ------------   ------------

Loss from operations                                          (4,281,733)    (1,372,307)    (3,539,508)

Interest income                                                   38,821              -         17,449
Interest expense                                              (1,136,995)      (773,288)      (689,600)
Other expense                                                       (641)       (10,810)      (473,340)
                                                            ------------   ------------   ------------
Loss before minority interest                                 (5,380,548)    (2,156,405)    (4,684,999)


Minority interest in losses of consolidated subsidiaries         202,565              -              -
                                                            ------------   ------------   ------------

Loss before extraordinary item                                (5,177,985)    (2,156,405)    (4,684,999)

Extraordinary item                                                     -       (115,023)    (1,165,000)
                                                            ------------   ------------   ------------

Net loss                                                    $ (5,177,983)  $ (2,271,428)  $ (5,849,999)
                                                            ============   ============   ============

Shares applicable to basic and diluted loss per share        107,778,285     90,388,446     76,369,220

Basic and diluted loss per share                            $     (0.048)  $     (0.025)  $     (0.077)

Basic and diluted extraordinary loss per share              $          -   $     (0.001)  $     (0.015)


            The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>

<TABLE>
<CAPTION>

EARTH SEARCH SCIENCES, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE COMMON STOCK AND NONREDEEMABLE SHAREHOLDERS' EQUITY (DEFICIT)
MARCH 31, 2000, 1999 AND 1998
------------------------------------------------------------------------------------------------------------------------------------
                                                                        Redeemable
                                                                       Common Stock        Preferred Stock         Common Stock
                      Description                                     Shares   Amount     Shares     Amount     Shares    Amount
---------------------------------------------------------          --------- ---------  --------  --------  ----------  ---------
<S>                                                                <C>       <C>        <C>       <C>       <C>         <C>

Balance March 31, 1997:                                            1,725,914   517,845        -           -    68,530,779    68,531
  Issuance of common stock for services rendered                                                                1,286,476     1,286
  Issuance of common stock for cash                                                                               870,334       870
  Shares issued in conjunction with sale/leaseback for purchase
   of Probe 1                                                                                                   1,000,000     1,000
  Issuance of common stock for shares of subsidiary common stock                                                1,252,000     1,252
  Issuance of common stock for shares of Skywatch common stock                                                  1,185,199     1,185
  Conversion of debentures into shares of common stock                                                            865,988       866
  Issuance of common stock in lieu of future lease payments                                                     1,725,000     1,725
  Issuance of stock subscription in lieu of future lease payments
  Issuance of common stock in lieu of debt obligations                                                          8,076,800     8,077
  Issuance of warrant for cash proceeds to minority holder in
   Probe 1 LC
  Conversion of note payable for Series A preferred stock                               100,000     500,000
  Issuance of Series A preferred stock for cash                                         100,000     500,000
  Net Loss
                                                                  ---------- ---------  -------   ---------  ------------  ---------
Balance at March 31, 1998:                                         1,725,914   517,845  200,000   1,000,000    84,792,576    84,792
  Issuance of common stock for services rendered                                                                3,104,414     3,104
  Issuance of common stock for cash                                                                             1,924,166     1,924
  Issuance of common stock on behalf of Skywatch Exploration
   for purchase of Skywatch Northern                                                                              465,000       465
  Issuance of common stock previously subscribed                                                                1,000,000     1,000
  Issuance of common stock in lieu of future lease payments                                                       547,727       548
  Shares issued in conjunction with note for cash                                                                 300,000       300
  Shares issued as incentive for new debt obligation                                                            1,285,000     1,285
  Issuance of shares in lieu of interest payment                                                                   70,817        71
  Issuance of shares as bonus                                                                                     275,000       275
  Issuance of shares in exchange for minority owned shares
   of subsidiary                                                                                                2,646,667     2,647
  Redeemable shares received back into Treasury                   (1,000,000) (400,000)                         1,000,000     1,000
  Treasury Stock Sold
  Net Loss
                                                                  ---------- ---------  -------  ----------  ------------  ---------
Balance at March 31, 1999:                                           725,914 $ 117,845  200,000  $1,000,000    97,411,367  $ 97,411
  Issuance of common stock for services rendered                                                                3,344,687     3,345
  Issuance of common stock for cash                                                                            17,708,175    17,708
  Issuance of stock subscription
  Issuance of shares in lieu of interest payment                                                                1,900,000     1,900
  Issuance of shares for loan conversions                                                                         849,663       850
  Issuance of shares for acquisition of STDC                                                                    4,000,000     4,000
  Issuance of shares for interests in oil and gas properties                                                      596,398       596
  Shares no longer subject to redeemtion                            (591,754)   96,111                            591,754       592
  Non cash compensation expense
  Net Loss
                                                                  ---------- ---------  -------  ----------  ------------  ---------
Balance at March 31, 2000:                                           134,160 $  21,734  200,000  $1,000,000   126,402,044  $126,402
                                                                  ========== =========  =======  ==========  ============  =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EARTH SEARCH SCIENCES, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE COMMON STOCK AND NONREDEEMABLE SHAREHOLDERS' EQUITY (DEFICIT)
MARCH 31, 2000, 1999 AND 1998
------------------------------------------------------------------------------------------------------------------------------------
                                                                     Additional
                                                                       paid-in                 Treasury   Retained
                      Description                                      capital    Subscribed     stock     Deficit         Total
---------------------------------------------------------           -----------  ----------   --------   ------------  -------------
<S>                                                                 <C>          <C>          <C>       <C>            <C>
Balance March 31, 1997:                                             $ 5,204,061          -           -  $ (8,233,202)  $ (2,960,610)
  Issuance of common stock for services rendered                        350,329                                             351,615
  Issuance of common stock for cash                                     179,130                                             180,000
  Shares issued in conjunction with sale/leaseback for purchase
   of Probe 1                                                           374,000                                             375,000
  Issuance of common stock for shares of subsidiary common stock         55,302                                              56,554
  Issuance of common stock for shares of Skywatch common stock          472,155                                             473,340
  Conversion of debentures into shares of common stock                  160,197                                             161,063
  Issuance of common stock in lieu of future lease payments             498,275                                             500,000
  Issuance of stock subscription in lieu of future lease payments                $ 165,000                                  165,000
  Issuance of common stock in lieu of debt obligations                2,334,195                                           2,342,272
  Issuance of warrant for cash proceeds to minority holder in
   Probe 1 LC                                                           200,000                                             200,000
  Conversion of note payable for Series A preferred stock                                                                   500,000
  Issuance of Series A preferred stock for cash                                                                             500,000
  Net Loss                                                                                                (5,849,999)    (5,849,999)
                                                                    -----------  ---------   ---------  ------------   ------------
Balance at March 31, 1998:                                            9,827,644    165,000           -   (14,083,201)    (3,005,765)
  Issuance of common stock for services rendered                        272,197                                             275,301
  Issuance of common stock for cash                                     204,076                                             206,000
  Issuance of common stock on behalf of Skywatch Exploration
   for purchase of Skywatch Northern                                    101,019                                             101,484
  Issuance of common stock previously subscribed                        164,000   (165,000)                                       0
  Issuance of common stock in lieu of future lease payments             114,475                                             115,023
  Shares issued in conjunction with note for cash                        55,950                                              56,250
  Shares issued as incentive for new debt obligation                    136,340                                             137,625
  Issuance of shares in lieu of interest payment                         10,552                                              10,623
  Issuance of shares as bonus                                            18,475                                              18,750
  Issuance of shares in exchange for minority owned shares
   of subsidiary                                                        245,353                                             248,000
  Redeemable shares received back into Treasury                         399,000              $ 400,000                      400,000
  Treasury Stock Sold                                                   (90,000)              (200,000)                    (290,000)
  Net Loss                                                                                                (2,271,428)    (2,271,428)
                                                                    -----------  ---------   ---------  ------------   ------------
Balance at March 31, 1999:                                           11,459,081  $       -     200,000  $(16,354,629)  $ (3,998,137)
  Issuance of common stock for services rendered                        466,129                                             469,474
  Issuance of common stock for cash                                   6,767,718                                           6,785,426
  Issuance of stock subscription                                                   363,000                                  363,000
  Issuance of shares in lieu of interest payment                        271,850                                             273,750
  Issuance of shares for loan conversions                                88,328                                              89,178
  Issuance of shares for acquisition of STDC                          1,924,203                                           1,928,203
  Issuance of shares for interests in oil and gas properties            226,036                                             226,632
  Shares no longer subject to redeemtion                                 95,520                                              96,112
  Non cash compensation expense                                       1,608,001                                           1,608,001
  Net Loss                                                                                                (5,177,983)    (5,177,983)
                                                                    -----------  ---------   ---------  ------------   ------------
Balance at March 31, 2000:                                          $22,906,866  $ 363,000   $ 200,000  $(21,532,612)  $  2,663,656
                                                                    ===========  =========   =========  ============   ============
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
EARTH SEARCH SCIENCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 2000, 1999 AND 1998
-------------------------------------------------------------------------------------------------------------
<S>                                                             <C>             <C>             <C>
                                                                    2000              1999          1998
                                                                -------------   -------------   ------------
Cash flows from operating activities:
  Net loss                                                      $ (5,177,983)   $ (2,271,428)  $ (5,849,999)
Adjustments to reconcile net loss to net cash  used
in operating activities:
  Non-cash compensation expense                                    1,608,001               -              -
  Common stock issued for services                                   743,224         462,549        364,912
  Common stock issued for Skywatch stock                                   -         101,484        473,340
  Subsidiary common stock issued for compensation                          -               -      1,000,000
  Extraordinary items                                                      -         115,023      1,165,000
  Loss attributed to minority interest                              (202,565)              -              -
  Depreciation                                                       356,364         279,212        167,768
  Amortization of lease discount                                     485,622         484,968        404,410
  Allowance for doubtful accounts                                     33,912               -              -
  Loss on sale of equipment                                                -          79,584              -
Changes in operating assets and liabilities,
 excluding balances acquired
  Other assets                                                      (673,222)        237,877        (99,085)
  Accounts payable and accrued expenses                             (829,394)       (137,720)      (873,399)
  Accrued interest                                                   104,452         (45,491)             -
  Unearned revenue                                                  (121,986)              -         40,000
  Deferred officers compensation                                     330,466         319,919        607,643
                                                                ------------    ------------    -----------
Net cash used in operating activities                             (3,343,109)       (374,023)    (2,599,410)
                                                                ------------    ------------    -----------
Cash flow from investing activities:
  Capital expenditures                                              (456,545)       (660,558)      (306,487)
  Net cash  from acquisition of STDC                                 168,046               -              -
  Advance deposits                                                         -               -        217,875
  Proceeds from sale of property and equipment                             -          58,346              -
                                                                ------------    ------------    -----------
Net cash used in investing activities                               (288,499)       (602,212)       (88,612)
                                                                ------------    ------------    -----------
Cash flows from financing activities:

  Proceeds from notes payable                                      2,324,983         386,000        524,956
  Repayments on notes payable                                        (10,593)        (24,955)       (40,000)
  Proceeds from shareholder loans                                    333,602         476,317        102,000
  Repayments of shareholder loans                                   (312,883)       (208,085)       (35,000)
  Issuance of common stock for cash                                6,785,426         242,000        180,000
  Issuance of subsidiary common stock                                      -               -        247,000
  Proceeds from common stock subscribed                              363,000               -              -
  Proceeds from minority interest                                    219,993               -              -
  Proceeds from sale of treasury stock                                     -         110,000              -
  Issuance of Series A preferred stock                                     -               -        500,000
  Proceeds from establishment of joint venture                             -               -      1,000,000
  Issuance of warrant to purchase common stock                             -               -        200,000
                                                                ------------    ------------    -----------
Net cash provided by financing activities                          9,703,528         981,277      2,678,956
                                                                ------------    ------------    -----------
Net increase (decrease) in cash                                    6,071,920           5,042         (9,066)

Cash at beginning of period                                           47,642          42,600         51,666
                                                                ------------    ------------    -----------
Cash at end of period                                           $  6,119,562    $     47,642    $    42,600
                                                                ============    ============    ===========
Interest paid                                                   $     22,798    $     61,363    $    15,384

            The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>

EARTH SEARCH SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
--------------------------------------------------------------------------------
1.   Summary of Operations and Significant Accounting Policies

The business of Earth Search  Sciences,  Inc. ("the Company") is the collections
of high value imagery of the earth's surface utilizing the Company's proprietary
hyperspectral imaging instruments.  This imagery is either sold to end users via
contracts  to  collect  the   information,   collected  for  the  Company's  own
exploration  purposes,  or to be sold to third  parties  through  its web  based
e-commerce  site.  The  Company  also  performs  a range of  imagery  processing
services.  Information  collected by the instrument has  applications in natural
resources  development,   environmental  monitoring  and  remediation,  wildlife
habitat  monitoring,  hydrocarbon  exploration  and  development,   agricultural
assessment  and  planning  including  weed  species  identification,   land  use
planning, forestry monitoring and planning and defense surveillance. The current
principal  application  involves  the  preparation  of  global  mineral  deposit
information  on an  exclusive  basis for a Toronto  based  international  mining
company.

The  Company  has  five  wholly  owned  subsidiaries:   Quasar  Resources,  Inc.
("Quasar"),  Skywatch Exploration,  Inc.,  Polyspectrum Imaging,  Inc., Geoprobe
Inc., and Space Technology Development Corporation ("STDC"). In addition,  there
are four majority owned consolidated subsidiaries: Earth Search Resources, Inc.,
ESSI Probe 1 LC, Petro Probe Inc. and Terranet, Inc. As of March 31, 2000, Earth
Search Resources,  Inc.,  Skywatch  Exploration Inc.,  Geoprobe Inc., and Quasar
Resources,  Inc.  are  inactive.  The 50% owned  subsidiary  ESSI Probe 1 LC was
formed  as a  joint  venture  to  own  and  operate  hyperspectral  instruments.
Polyspectrum  Imaging  Inc.  was formed to  develop  design,  engineer,  explore
feasibility of and construct additional airborne instruments.

The  majority  owned  Petro  Probe,  Inc.  was formed to  identify  and  develop
hydrocarbon  properties by utilizing the  Company's  hyperspectral  instruments,
hydrocarbon geologists, and imagery processors.

In fiscal 2000,  Terranet,  Inc. was launched as the  Company's  internet  based
global information and imagery distribution system. The system will provide high
value added data  packages,  tailored for end users that can be downloaded  over
the  Company's  high-speed  delivery  system.  It is  through  the  use of  this
high-speed  delivery system that  information can be provided to a wide customer
base using high-speed broad band delivery of imagery and video.

The Company entered into an Agreement and Plan of Merger ("Agreement") with STDC
dated November 15, 1999. Under the Agreement,  the Company  exchanged  4,000,000
shares of its common  stock and  options to  purchase  an  additional  4,000,000
shares of its common  stock at exercise  prices  ranging from $0.50 to $5.00 per
share for all of the shares of common stock of STDC. The merger was finalized as
of  December  21,  1999 and was  accounted  for  under  the  purchase  method of
accounting  at a cost of  $1,928,203.  The  excess  of the cost of STDC over the
historical  cost of STDC net  assets is  allocated  to the value of a  satellite
included in construction  in progress.  STDC results of operation for the period
December 22, 1999 through March 31, 2000 are included in the  Company's  results
of operations  for the year ended March 31, 2000.  Included in the footnotes are
the pro forma  results of  operation  for the  Company  and STDC for the periods
ended March 31, 2000 and 1999.

STDC, in  cooperation  with the U.S. Navy and several  commercial  partners,  is
developing  a  remote-sensing  instrument  to be mounted on a  satellite,  Naval
EarthMap  Observer  (NEMO),  that will,  after  launch and  deployment,  provide
imagery  for  applications  in  natural  resources  development,   environmental
monitoring and remediation, wildlife habitat monitoring, hydrocarbon exploration
and  development,  agricultural  assessment and planning  including weed species
identification,  land use planning, forestry monitoring and planning and defense
surveillance markets throughout the world.

<PAGE>
EARTH SEARCH SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
--------------------------------------------------------------------------------

In fiscal  2000,  the  Company  operated  its  hyperspectral  instruments  under
contracts  with third  parties in several  areas around the world.  Contracts to
operate the  hyperspectral  instrument  overseas for major mining companies with
the   objective  of   identifying   potential   mineral   deposits   contributed
approximately  $720,000  (see note 14) in revenue in 2000.  Contracts to operate
Probe  1, the  Company's  airborne  hyperspectral  scanner,  in the  U.S.  as an
ecological,  agricultural,  hydrocarbon,  and fisheries application  contributed
approximately $143,000 to revenue in 2000.

Going concern

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

Development stage enterprise

In fiscal 1998,  the Company was  considered a  development  stage  company.  In
fiscal year 1999, the Company  commenced  principal  operations and no longer is
considered to be operating as a development stage company.

Principles of consolidation

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

Revenue recognition

The Company recognizes revenue and costs as services are rendered under contract
for airborne hyperspectral services and imaging processing services.

STDC  receives  funds in the form of grants from the U.S.  Navy to construct its
satellite   and  to  manage  the  NEMO  program.   The  grants  are   considered
cost-reimbursement  instruments  under  Office of  Management  and Budget  (OMB)
circulars.  Therefore,  STDC  recognizes  a  proportionate  share of  revenue as
allowable, government-reimbursable costs are incurred. Government funds received
in excess of government-reimbursable costs are deferred until reimbursable costs
are incurred.

Research and development costs and exploration costs

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

Depreciation

The Company  recognizes  depreciation  on its property and  equipment  using the
straight-line  method over  estimated  useful lives  ranging from five years for
computers  and software,  vehicles and equipment to ten years for  hyperspectral
instruments  (Probe 1). The Probes  included in construction in progress will be
depreciated from the time they are placed into service. The ATM imagery database
is fully  depreciated.  Satellite  construction in progress  represents only the
Company's  direct  investment  in  the  construction  of  the  satellite  and an
allocation  of the excess of the purchase  price of STDC over the net book value
of STDC assets.  Upon  successful  launch and deployment of the  satellite,  the
total costs incurred will be depreciated  over a five year period,  which is the
expected life of the satellite.

<PAGE>
EARTH SEARCH SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
--------------------------------------------------------------------------------

Income taxes

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

Common stock

Common  stock  issued  for other than cash  consideration  is  reflected  in the
accompanying financial statements at estimated fair value on the date of issue.

Dividends

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

Treasury stock

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

Cash Equivalents

Cash in banks and  short-term  investments  with  original  maturities  of three
months or less are considered cash equivalents.

Net loss per common share

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

Changes in classification

Certain  reclassifications  have been made to the fiscal 1999 and 1998 financial
statements to conform with the financial statement presentation for fiscal 2000.
Such  reclassifications  had no effect on the Company's results of operations or
shareholders' equity (deficit).

Use of estimates in the preparation of financial statements

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

Financial instruments

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


<PAGE>
EARTH SEARCH SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
--------------------------------------------------------------------------------

2.  Supplemental Cash Flow Information
<TABLE>
<CAPTION>
     <S>                                                                     <C>        <C>        <C>

                                                                                   Year ended March 31,
                                                                               2000        1999         1998
                                                                             ---------   ---------    ----------
     Common stock issued in conjunction with sale/leaseback of Probe 1
     (Note 3)                                                                        -           -       375,000
     Notes payable issued to settle advance deposits                                 -           -     2,200,000
     Notes payable converted into common stock (Notes 5 and 10)                 89,178           -     2,740,038
     Common stock issued in lieu of interest payments                          273,750           -             -
     Common stock issued in lieu of future lease payments (Note 3)                   -           -       500,000
     Common stock subscription issued in lieu of future lease payments               -           -       165,000
     Common stock subscription for subsidiary common stock (Note 10)                 -           -        56,554
     Note payable converted into Series A preferred stock                            -           -       500,000
     Redeemable common stock issued for scanner (Note 10)                            -           -        56,554
     Issuance of shares in exchange for minority interest in subsidiary              -     248,000             -
     Reduction of fixed assets for redeemable stock returned                         -    (400,000)            -
     Redeemable shares received into Treasury                                        -     400,000             -
     Issuance of common stock previously subscribed                                  -     165,000             -
     Issuance of shares for mineral properties                                 226,632           -             -
     Issuance of shares for acquisition of STDC                              1,928,203           -             -
</TABLE>

3.  Property and Equipment

    Property and equipment consist of the following:

                                                         March 31,
                                                    2000             1999
                                                ------------    -------------
        Mineral properties (A)                  $    424,632    $         -
        ATM imagery database (B)                     134,000        134,000
        Computers and software                       157,698        123,289
        Vehicles and equipment                       114,012         70,446
        Hyperspectral instruments (C)              4,058,000      2,500,000
        Construction in progress (D)               8,703,401      1,620,000
                                                ------------    -----------
                                                  13,591,743      4,447,735
        Accumulated depreciation (E)                (982,757)      (624,139)
                                                ------------    -----------
                                                $ 12,608,986    $ 3,823,596
                                                ============    ===========

      (A) In fiscal 2000, the Company  acquired  working  interests in three oil
          and gas  properties.  One  property was acquired for $195,000 in cash.
          The other two properties  were purchased by exchanging  596,398 shares
          of the Company's stock valued at $226,632. Based on the agreements for
          the working  interests,  the  Company  will  proportionately  share in
          future  revenues  as well as  future  operating  and  drilling  costs.
          Subsequent to fiscal year-end, the Company paid an additional $107,000
          for its share of operating and drilling  costs on the  properties.  No
          revenue has been received from the properties as of fiscal year-end.

          In fiscal 2000, the Company purchased mineral leases in Nova Scotia
          with the intention of surveying the properties and exploring  mineral
          exploration possibilities for its own purposes.
<PAGE>
EARTH SEARCH SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
--------------------------------------------------------------------------------

     (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.

          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  as  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.  This asset has
          been fully depreciated.

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

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

          The cost of the equipment  under capital  leases at March 31, 2000 and
          1999 was $2,500,000 with related accumulated  depreciation of $625,000
          and $375,000 as of March 31, 2000 and 1999, respectively.

          Total future minimum lease payments remaining under the non-cancelable
          capital  lease at March 31, 2000 are  $3,000,000.  The total amount is
          due  during  fiscal  2001.  The  present  value of the  capital  lease
          obligation is $3,000,000.
<PAGE>
EARTH SEARCH SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
--------------------------------------------------------------------------------

          In fiscal 2000, the Company completed purchase and received its second
          hyperspectral  instrument.  The capitalized cost of the instrument was
          $1,558,000.

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

          Included  in  construction  in  progress  is  $8,429,853  of costs and
          allocated  purchase  price  related  to the  development  of a  remote
          sensing  instrument  and  satellite.  The  satellite is scheduled  for
          completion  and launch in the fourth  quarter of  calendar  year 2001.
          Upon launch and  deployment of the  satellite,  the total  capitalized
          costs  will be  depreciated  over a five  year  period,  which  is the
          expected life of the satellite.

     (E)  Fixed assets are depreciated over their assigned useful livesfes
          ranging from 3 to 10 years under the straight line method of
          depreciation.

4.   Deferred Officers' Compensation

     Deferred compensation consists of the cumulative unpaid compensation due to
     corporate  officers  (Chairman,  Chief  Executive  Officer,  President  and
     Secretary).  The Company recorded  deferred officer  compensation,  accrued
     payroll  taxes and accrued  interest of  $425,104,  $744,134,  and $507,271
     during the fiscal years ended March 31, 2000, 1999 and 1998,  respectively,
     and included  these  amounts in general and  administrative  expenses.  The
     Company is accruing  interest on the  deferred  compensation  balances at a
     rate of 8.5%,  compounded  quarterly.  In the fourth  quarter of 2000,  the
     Company  started  making  full  salary  payments  to  the  Chairman,  Chief
     Executive Officer, and Secretary.

     In 1999, the employment  agreement with the Company's  former President was
     terminated.  The approximately $157,000 due as a result of terminating this
     agreement was charged to expense in fiscal 1999 and is included in accounts
     payable at March 31,  1999.  This amount was paid in its entirety in fiscal
     2000.

5.   Notes Payable

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

     In fiscal 2000,  $89,178 of notes  outstanding  plus accrued  interest were
     converted into common stock at the agreed upon conversion rates.

<PAGE>
EARTH SEARCH SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
--------------------------------------------------------------------------------

6.   Shareholder Loans

     The Company has  financed its  operations  in part by funds  received  from
     advances  by  shareholders.  These  advances  are in the form of  unsecured
     promissory notes and bear interest at rates ranging from 8% to 10%. As of
     March 31,  2000 and 1999,  interest  accrued  on such  advances  aggregated
     $218,133  and  $197,113,  respectively,  and has been  included  in accrued
     interest in the accompanying consolidated balance sheet.

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

7.   Unaudited Pro Forma Results of Operations

     The  operations  of STDC from the  acquisition  date of STDC,  December 21,
     2000,  to March 31,  2000 are  included in the  results of  operations  for
     fiscal 2000. The following pro forma information is the combined results of
     operation  for the years  ended March 31, 2000 and March 31, 1999 as if the
     companies had been combined at the beginning of the period.

<TABLE>
<CAPTION>

                                                Unaudited Pro Forma Results of Operations
                                                      Period ending March 31, 2000

<S>                                  <C>                  <C>                  <C>
                                      ESSI and other
                                       subsidiaries             STDC                Combined
                                     -----------------    -----------------    --------------------
Revenue                              $       863,655      $     7,022,680      $        7,886,335
Loss before extraordinary items           (4,298,733)          (1,463,815)             (5,744,479)
Net loss                                  (4,298,733)          (1,463,815)             (5,744,479)
Loss per share                                 (0.04)              (0.014)                 (0.053)

                                                Unaudited Pro Forma Results of Operations

                                                   Period ending March 31, 1999
                                      ESSI and other
                                       subsidiaries             STDC                Combined
                                     -----------------    -----------------    --------------------
Revenue                              $       881,006      $    19,619,052      $       20,500,058
Loss before extraordinary items           (2,156,405)            (444,826)             (2,601,231)
Net loss                                  (2,271,428)            (444,826)             (2,716,254)
Loss per share                                (0.025)              (0.005)                  (0.03)

</TABLE>
<PAGE>
EARTH SEARCH SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
--------------------------------------------------------------------------------

8.  Business Segment Information

The major activities of the Company and its subsidiaries are broken down into an
Airborne  Hyperspectral  Services  business  segment,  a  Satellite  Development
business segment,  and an Other Industries business segment.  While the Airborne
Hyperspectral  Services segment and Satellite  Development  segment will utilize
remote  sensing  instruments  to earn  revenue  from the  sale of  hyperspectral
imagery,  the  Satellite  Development  segment will share  responsibilities  for
tasking the  satellite  instrument  with the Office of Navy  Research and is not
scheduled to begin operations until the fourth quarter of 2001.  Currently,  the
Airborne  Hyperspectral  business segment revenue is primarily from one external
customer,  an international mining company.  The Satellite  Development business
segment revenue is from a contract with the U.S. Navy.  Transactions between the
business  segments  are  loans,  interest,  and  management  fees  based  on  an
allocation of incurred costs for general and administrative  expenses. All three
business segments are operating at a net loss position; therefore, no income tax
expense or benefit is provided.  Prior to fiscal 2000, the Company's  activities
were focused in the Airborne Hyperspectral Services segment

<TABLE>
<CAPTION>
                                                                   Business Segment Information
<S>                                     <C>             <C>             <C>             <C>             <C>

                                           Airborne                                     Adjustments
                                         Hyperspectral    Satellite        Other           and
                                          Services       Development     Industries     Eliminations      Combined
                                        --------------  -------------   -----------     ------------    ------------
Revenue                                 $      863,655  $     662,791   $         -     $          -    $  1,526,446
                                        ==============  =============   ===========     ============    ============
Operating Loss                          $   (2,901,504) $    (740,392)  $  (549,041)    $    (90,796)   $ (4,281,733)
                                        ==============  =============   ===========     ============    ============
Interest income                                 15,396         23,425             -                -          38,821
Other expense                                        -           (641)            -             -               (641)
                                                                                                        ------------
Interest expense                            (1,066,149)      (161,642)            -           90,796      (1,136,995)
                                                                                                        ------------
Loss from continuing operations before
income taxes and minority interests         (3,952,257)      (879,250)     (549,041)               -      (5,380,548)
                                                                                                        ============
Identifiable assets at March 31, 2000   $    7,235,170   $ 11,825,838   $   471,312     $          -    $ 19,532,320
                                        ==============   ============   ===========     ============    ============
Depreciation and amortization for the
period ended March 31, 2000             $      841,124   $          -   $       862     $          -    $    841,986
                                        ==============   ============   ===========     ============    ============
Capital expenditures for the period
ended March 31, 2000                    $      250,084   $  2,595,677   $   433,248     $          -    $  3,279,009
                                        ==============   =============   ===========     ============    ============

</TABLE>
<PAGE>
EARTH SEARCH SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
--------------------------------------------------------------------------------

9.   Income Taxes

     The Company recorded no provision for income taxes in fiscal 2000, 1999 and
     1998 due to the operating losses incurred from inception to date.

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

                                                             March 31,
                                                      2000              1999
                                                --------------    -------------
         Net operating loss carryforwards       $    5,934,544    $   4,945,499
         Other net deferred tax assets               1,841,648          833,206
                                                --------------    -------------
         Gross deferred tax assets                   7,776,192        5,778,705

         Deferred tax assets valuation allowance    (7,776,192)      (5,778,705)
                                                --------------    --------------
                                                $            -    $           -
                                                ==============    ==============

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

     The benefit for income taxes differs from the amount computed using the
     statutory federal income tax rate as follows:
<TABLE>
<CAPTION>

                                                                            Year ended March 31,
<S>                                                             <C>             <C>               <C>
                                                                     2000             1999            1998
                                                                -------------   -------------     ------------
         Income tax benefits at statutory rate                  $   2,058,593   $     908,571     $  2,340,000
         Decrease in benefit resulting from:
         Deferred tax valuation allowance                          (2,058,593)       (908,571)      (2,340,000)
                                                                -------------   -------------     ------------
                                                                $           -   $           -     $          -
                                                                =============   =============     ============
</TABLE>

     The Company has net tax operating loss  carryforwards  at March 31, 2000 of
     $14,836,361.  Such carry forwards may be used to offset taxable income,  if
     any,  in  future  years  through  their  expiration  in  2001-2017.  Future
     expiration  of tax loss  carryforwards,  if not  utilized,  are as follows:
     2001,  $80,975;  2002,  $47,625;  2003,  $104,696,  2004,  $176,084,  2005,
     $225,957;  and  thereafter,  $14,201,024.  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 may occur in the  future.  Such
     limitations  could  result  in  the  expiration  of  a  part  of  the  loss
     carryforwards before their utilization.

10.  Officer and Director Stock Options

     In  April  1995,  the  Board  of  Directors  granted,   through  employment
     agreements,  options to the Company's Chief Executive  Officer and Chairman
     to each  purchase  5,000,000  shares of the  Company's  common  stock at an
     exercise  price of $0.21 per share.  Because half of these  options  vested
     only if the Company reached  profitability by March 31, 1998,  5,000,000 of
     these  options  expired on April 1, 1998 as a result of the  failure of the
     Company to reach profitability.

<PAGE>
EARTH SEARCH SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
--------------------------------------------------------------------------------

     In August 1997, the Board of Directors granted performance based options to
     the  Company's  Chairman,  President  and Chief  Executive  Officer to each
     purchase  5,000,000  shares of the Company's  restricted  stock at exercise
     prices ranging from $0.50 per share to $2.50 per share and to the Company's
     Secretary to purchase 1,000,000 shares of the Company's restricted stock at
     an exercise price of $0.50 per share. All of these  performance based stock
     options are exercisable for a period of 24 months from the date of vesting.
     The options will be deemed vested for each individual if that individual is
     employed by the Company on the first date on which the closing market price
     of the  Company's  common  stock  equals  or  exceeds  the  price per share
     performance  targets for 30 consecutive  days. At the time the  performance
     based options were granted,  each  officer's  salary was being deferred and
     the Company's  common stock price was $0.48 per share.  In fiscal 1999, the
     former  President left the Company and thus  forfeited  options to purchase
     5,000,000  shares of the  Company's  common  stock.  The Board of Directors
     subsequently  reissued  4,000,000 of the options to the Secretary under the
     same terms as listed  above for the August 1997  issuance to the  Chairman,
     Chief Executive Officer and President.  These options, which were to expire
     on July 31, 1999, were extended for an additional  three years by the Board
     of Directors.

     The specific vesting criteria for these options are described below:

     1.   When and if the closing market price of common stock equals or exceeds
          $0.50 per share for 30 consecutive days, each of the three individuals
          shall become fully vested with an option to purchase  1,000,000 shares
          of common stock as a price equal to $0.50 per share, exercisable for a
          period of 24 months from the date of vesting.  These options are fully
          vested and exercisable.

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

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

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

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

     In fiscal 2000, the Company's common stock maintained a price that resulted
     in the vesting of the above  options with the $1.00  exercise  price.  As a
     result of the vesting of these  options,  the Company  recognized  non-cash
     compensation  expense of  $1,593,600  in fiscal 2000. As of March 31, 2000,
     none of these options have been exercised.

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

<PAGE>
EARTH SEARCH SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
--------------------------------------------------------------------------------

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

     During fiscal 2000, the Board of Directors issued options to a new employee
     to purchase  650,000  shares of the Company's  common  stock.  The exercise
     price for these options is $0.14 per share. These options expire on various
     dates  ranging  from 3 years to 7 years  from the date of grant.  In fiscal
     2000,  the  Company  recognized  $14,401 of non-cash  compensation  expense
     related to these options.

     During fiscal 2000,  the Board of Directors  issued options to the Chairman
     and  Chief  Executive  Officer  to each  purchase  2,500,000  shares of the
     Company's  common stock.  The exercise price for these options is $0.21 per
     share and the options expire in 2005.

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

<PAGE>
EARTH SEARCH SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
--------------------------------------------------------------------------------

     The Company has  determined  that the pro forma effects of applying FAS 123
     would increase the net loss in 2000 by  approximately  $1,044,000 and would
     have had an immaterial effect on the results of operation in 1999 and 1998,
     respectively.  The  determination  was made  using the  following  weighted
     average assumptions:

                                           Fiscal         Fiscal        Fiscal
                                            2000           1999          1998
                                       ------------   ------------  ------------
        Risk-free interest rate            5.63%          5.62%         6.05%
        Expected dividend yield               -              -             -
        Expected lives                     4.78           4.23          5.43
        Expected volatility              127.97%          82.5%         86.7%

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

                                                  Shares           Weighted
                                                  under            average
                                                  option        exercise price
                                               ------------     --------------
               Balance, March 31,1997           11,800,000      $         0.19
                 Options granted                23,000,000                0.18
                 Options cancelled                       -                   -
                 Options exercised                       -                   -
                                               -----------      --------------

              Balance, March 31,1998            34,800,000                0.78
                 Options granted                 6,200,000                1.23
                 Options cancelled             (10,500,000)               0.83
                 Options exercised                       -                   -
                                               -----------      --------------
              Balance, March 31,1999            30,500,000                0.90
                 Options granted                 5,650,000                0.20
                 Options cancelled                       -                   -
                 Options exercised              (1,800,000)               0.12
                                               -----------      --------------
              Balance, March 31,2000            34,350,000      $         0.83
                                               ===========      ==============

     The weighted  average per share fair value of options granted during fiscal
     year 1999 is $0.11.  In addition  to the above  options,  the Company  also
     granted options to purchase  2,500,000  shares at a purchase price of fifty
     percent  (50%) of the closing  market price per share.  These  options were
     granted to the  President,  and were  forfeited when he left the Company in
     fiscal 1999.

     In fiscal 2000, the Company exchanged  4,000,000 shares of its common stock
     and options to purchase an additional 4,000,000 shares of its common stock,
     at exercise  prices  ranging from $0.50 to $5.00 per share,  for all of the
     shares of common stock of STDC.


<PAGE>
EARTH SEARCH SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
--------------------------------------------------------------------------------

     The following table summarizes information about employee stock options and
     the options issued as part of the acquisition of STDC  outstanding at March
     31, 2000.
                                                       Options
                               Options Outstanding   exercisable
     ------------------------------------------------------------
                                     Weighted
                                     average
      Exercise       Number         remaining          Number
       Price       outstanding   contractual life    exercisable
     ----------    ------------  ----------------  --------------
                                     (Years)
           0.07        200,000              0.80         200,000
           0.14        650,000               4.1         150,000
           0.21     11,000,000                 5      11,000,000
           0.25        250,000               0.7         250,000
           0.30      2,000,000               0.8       2,000,000
           0.50      8,250,000               0.7       8,250,000
           0.75        250,000                 2         250,000
           1.00      3,750,000               2.8       3,750,000
           1.50      3,500,000               2.9         500,000
           2.00      4,250,000               2.7       1,250,000
           2.50      3,000,000               2.7               -
           3.00        750,000               3.8         750,000
           4.00        250,000               3.8         250,000
           5.00        250,000               3.8         250,000
                   -----------
                    38,350,000
                   ===========

11.  Redeemable Common Stock and Nonredeemable Shareholder's Equity

     Redeemable common stock

     In fiscal  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 an  airborne  hyperspectral  instrument  (Note 3).  The  shares of
     common stock were subject to certain  "put  rights" and,  accordingly  were
     presented in the  accompanying  balance sheets as redeemable  common stock.
     Such shares were  recorded at their  approximate  fair market  value at the
     date  of  issuance,  where  the  fair  market  value  equaled  the  maximum
     redemption  amount.  During 1999,  the contract with the  manufacturer  was
     cancelled  and these  redeemable  shares  were  returned  at no cost to the
     Company.

     Also included in redeemable common stock are amounts related to a potential
     rescission  offer related to certain shares sold in the state of Idaho (see
     Note 10). During fiscal 2000,  591,754 shares of redeemable stock were sold
     and thus reclassified as common stock and additional paid in capital.

     Preferred stock

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

<PAGE>
EARTH SEARCH SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
--------------------------------------------------------------------------------
     Common stock

     During the fiscal years ended March 31, 2000 and 1998,  the Company  issued
     849,663 and 865,988  shares of common  stock  (including  treasury  stock),
     respectively,  to satisfy $75,500, and $99,126,  respectively, of principal
     and $13,678 and $61,937,  respectively, of interest relating to convertible
     notes  payable  (see  Note 5). No common  stock was  issued in fiscal  1999
     relating to the conversion of notes payable.

     Common Stock Subscribed

     In fiscal  2000,  the Company  received  $363,000  for  purchases of common
     stock. The shares were issued subsequent to fiscal year-end.

     Treasury stock

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

     Stock Warrants

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

     Private placement of Quasar Resources, Inc. common stock

     In fiscal 1997,  Quasar  Resources,  Inc., a wholly owned subsidiary of the
     Company, issued 331,990 shares of its common stock, at $0.50 per share in a
     private  placement  offering.  As the Company  owns a majority  interest in
     Quasar Resources,  Inc., its financial statements are consolidated into the
     Company's.  Accordingly,  the Company has  recorded a minority  interest of
     $49,798  relating to the outside  investors' share of net equity in Quasar.
     Resources,  Inc. The difference  between the stock proceeds of $165,995 and
     the  minority  interest  of $49,798  has been  recorded  as an  addition to
     paid-in-capital.

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

     Private placement of Earth Search Resources, Inc. common stock

     During fiscal 1998, Earth Search Resources, Inc., a wholly owned subsidiary
     of the Company,  issued  2,494,000  shares of its common stock at $0.50 per
     share.  Two  million of the shares  were  issued to  certain  officers  and
     directors  of  the  Company  as   compensation   for   services   rendered.
     Accordingly,  the  costs  of these  shares  are  included  in  general  and
     administrative  expenses  within the  statement of loss in 1998.  In fiscal
     1999, the Company  exchanged  2,646,667 shares of its owned stock for Earth
     Search Resources, Inc. stock not previously owned. This transaction reduced
     minority interest by $248,000.

<PAGE>
EARTH SEARCH SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
--------------------------------------------------------------------------------

     Private placement of Terranet, Inc. common stock

     In fiscal 2000,  Terranet,  Inc., a wholly owned subsidiary of the Company,
     issued 62,965 shares of its common stock at approximately  $3.00 per share.
     This transaction increased minority interest by $189,493.

     Private placement of Petro Probe, Inc. common stock

     In fiscal  2000,  Petro  Probe,  Inc.,  a wholly  owned  subsidiary  of the
     Company,  issued 10,166 shares of its common stock at  approximately  $3.00
     per share. This transaction increased minority interest by $30,500.

12.  Commitments and Contingencies

     Contractual Commitments

     The Company has outstanding  purchase  orders,  commitments,  and contracts
     with future milestone  payments totaling  $3,250,000.  In addition,  during
     fiscal  1999,   the  Company   entered  into  a  36-month   sales-leaseback
     transaction of the aircraft  previously  owned by its  subsidiary  Skywatch
     Exploration Inc. In accordance with the terms of the agreement, the Company
     has  committed to pay for a minimum of 15 hours of flight time per month at
     a rate of $425 per hour. In fiscal 2000,  due to  scheduling  problems with
     the aircraft, the agreement was terminated without cost to the Company.

     Operating Rent

     Future   minimum   rental   payments  and  sublease   rental  income  under
     non-cancelable  leases  with  initial  terms in  excess  of one year are as
     follows at March 31, 2000:

         Year ending       Total       Sublease
           March 31     Commitments  Rental Income      Net Rent
        -------------   -----------  ---------------  ------------
        2001            $    93,108  $      (23,543)  $     69,565
        2002                 93,868         (23,184)        70,684
        2003                 79,435         (19,253)        60,183
        2004                 24,225          (5,834)        18,391
        Thereafter                -               -              -
                        -----------  ---------------  ------------
                        $   290,636  $      (71,814)  $    218,823
                        ===========  ==============   ============


     Rental  expense for office space is included in  operations  for the fiscal
     years ended March 31,  2000,  1999 and 1998 and is  $30,341,  $19,200,  and
     $19,200, respectively.

     Litigation

     In fiscal 1997, the Company  settled its lawsuit with the Idaho  Department
     of Finance.  As a result of the  settlement,  the Company agreed to proceed
     with a rescission  offer to certain  Idaho  residents  who  invested in the
     Company at the $0.16 to $0.18 per share at which they originally  purchased
     the Company's common stock. In fiscal 2000, 591,754 shares of the Company's
     common stock subject to rescission were sold by such Idaho investors.  The
     Company  anticipates  making a formal offer of rescission for the remaining
     shares in fiscal 2001. In conjunction  with the rescission  offer,  $21,734
     and  $117,845,  related  to 134,160  and  725,914  shares of common  stock,
     respectively, have been recorded in redeemable common stock as of March 31,
     2000 and 1999.

<PAGE>
EARTH SEARCH SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
--------------------------------------------------------------------------------

13.  Related Party Transactions

     During fiscal 1998,  the Company  entered into various  agreements  with an
     international  mining company.  The agreements executed between the Company
     and the mining company provide,  under certain  restrictions,  an exclusive
     license to use Probe 1 for commercial mining purposes.  The agreements have
     a  three-year  term,  with  an  automatic  three-year  renewal  unless  the
     agreements  are  terminated  by  either  party  at the  end of the  initial
     three-year  period.  Under  the terms of the  agreements,  the  Company  is
     guaranteed  minimum  services  work of $750,000 in year one,  $2,000,000 in
     year two, $3,000,000 in year three, and $3,000,000 in each subsequent year.
     While the second year  milestone has not been met, the Company  anticipates
     that the deficiency  will be made up in subsequent  years. In year one, the
     Company  earned  $810,000  in revenue  with  related  costs of  $652,000 on
     missions flown under this contract.  In year 2, the Company earned $511,000
     in revenue  with direct  costs of  $331,000  on  missions  flown under this
     contract.  Furthermore,  the  agreement  grants  the  Company  net  smelter
     royalties ranging from 1.5 percent to 2.5 percent of revenues on properties
     subsequently owned or optioned by the mining company. 200,000 shares of the
     Company's Series A preferred stock were issued to the mining company and an
     affiliate for consideration equal to $1,000,000;  furthermore,  the mining
     company and affiliate were granted warrants to purchase 1,000,000 shares of
     the Company's common stock at a price of $2.00 per share.

14.  Subsequent Events

     Subsequent  to the  end of  fiscal  2000,  the  Company  purchased  a Turbo
     Commander  aircraft to be used for its aerial surveys for  approximately
     $950,000 in cash.
<PAGE>