================================================================================

                       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, 2001 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.)

  1729 Montana Highway 35, Kalispell, Montana                       59901
  -------------------------------------------                       -----
   (Address of principal executive offices)                       (Zip Code)

Registrant's telephone number, including area code: (406) 751-5200

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

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]  No [  ]

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

     Aggregate market value of Common Stock held by nonaffiliates of the
Registrant at March 31, 2001: $37,706,592. For purposes of this calculation,
officers and directors are considered affiliates.

   Number of shares of Common Stock outstanding at June 28, 2001: 154,201,609

This Form 10-K consists of 40 pages.
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                                TABLE OF CONTENTS

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 ......18
   Item 8 -  Financial Statements and Supplementary Data......................18
   Item 9 -  Changes in and Disagreements with Accountants
                    on Accounting and Financial Disclosure....................18

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

   Item 10 - Directors and Executive Officers of the Registrant...............19
   Item 11 - Executive Compensation...........................................20
   Item 12 - Security Ownership of Certain Beneficial Owners and
              Management......................................................21
   Item 13 - Certain Relationships and Related Transactions...................22

PART IV.......................................................................22

   Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K.22

SIGNATURES....................................................................25
<PAGE>

                                     PART I

ITEM 1.  BUSINESS

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

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

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

          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.

                                                                               3
<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 expand 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 for
both its own mineral and hydrocarbon exploration purposes as well as for third
party customers. 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, Peru, Mexico, California, Nevada, Arizona, Idaho,
Montana, Wyoming, Louisiana, Florida and Utah. At the present time, the value of
this data archive has not been independently appraised and its value is not
reflected in the Company's financial statements.

         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
and have a management team with relevant skills and expertise. 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 in fiscal 2000
acquired Space Technology Development Corporation and its ownership in satellite
based imagery technology (discussed below). The combination of a high-resolution
airborne Probe 1 system and the lower resolution, larger area coverage achieved
by satellite based imagery will provide a powerful and too strong 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

                                                                               4
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remote sensing instruments, as well as the Companys intent to use handheld
instruments it develops, 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.

         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 launch 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.
                                                                               5
<PAGE>

         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.

         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 in 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.

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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 goal 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 identify and acquire equity positions in oil
and gas properties. 3D seismic is the technology of measuring explosions to map
subsurface geologic structures. From Petro Probe's inception in 2000 through
March 31, 2001, Petro Probe, Inc. has acquired working interests in five oil and
gas projects in the U.S. The first project 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. The property was acquired for
$195,000. This well contributed $417,319 to revenue in fiscal 2001. Based on an
independent analysis, the estimated reserves of this well are 17.31 billion
cubic feet of gas and 17,000 barrels of oil as of March 31, 2001. Petro Probe
Inc,'s interest in the discounted cashflows from this well are estimated at
$1,767,000 based on oil and gas prices as of March 31, 2001.

         In fiscal 2002, four (4) more of Petro Probe, Inc.'s projects are
anticipated to be drilled and if successful will begin production in fiscal
2002. In addition, Petro Probe, Inc.'s working interests offer them the right to
participate in drilling additional wells within the five (5) oil and gas
projects. Petro Probe Inc. will determine whether or not to participate in
additional drilling efforts on a case by case basis.

         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 the Australian Basin and is proceeding to
further evaluation.

         For a more detailed discussion of the Company's oil and gas operations,
see note 3 to the Notes to Consolidated Financial Statements.

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. The Company's
mapping agreement with Noranda, major mining company, expired in

                                                                               7
<PAGE>

2000. Thus, Geoprobe, Inc. will use the Company's remote sensing instruments to
globally survey any areas that have promise for the location of minerals either
for its own use or for third party customers.

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. undertook hyperspectral surveys and performed fieldwork
in Florida for two vegetation-related projects. The primary goal is to evaluate
the efficacy of hyperspectral remote sensing for identifying diseased citrus
trees. Citrus canker is a serious threat to the Florida citrus industry. The
second goal is to map the location of non-native invasive vegetation species
that are threatening the ecological systems of the Florida Everglades. Analysis
of the data for these projects is ongoing and the work will continue in fiscal
2002. Researchers from the University of Idaho are performing much of the data
analysis for the Florida work. With their contributions, Ecoprobe, Inc. hopes to
demonstrate the commercial applicability of hyperspectral remote sensing for the
detection of diseased vegetation as well as the detection and monitoring of
invasive weed species. Ecoprobe, Inc. expects that environmental problems caused
by the spread of non-native noxious weeds such as loss of wildlife habitat, soil
erosion, diminished water quality, loss of fish habitat, and reduced crop
production will precipitate a commercial demand for the use of Probe
hyperspectral data for both initial noxious weed detection and subsequent
monitoring.

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-2001 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 domain name on the world
wide web will be Earthmapsearch.com. Terranet, Inc. has engaged Hewlett-Packard
to provide the business case consulting and system architecture design for
Earthmapsearch.com. An agreement has also been signed with OnSat Network
Communications of Salt Lake City, Utah to provide global broadband wireless
internet connectivity for major Earthmapsearch.com users where required.

Fiscal 2001 Significant Projects
--------------------------------
         In fiscal 2001, the Company completed hyperspectral surveys for major
mining
                                                                               8
<PAGE>

companies in areas in North America and South America. These projects produced
the majority of the Company's 2001 revenue. The imagery from these collections
will be available for resale on Terranet, Inc's website two (2) years after the
data collection.

            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" under the agreement with
Noranda, a major mining company. A substantial backlog of collected imagery
exists, and the evaluation process continues to move forward. As the Company
continued to perform under its Noranda mapping contract in fiscal 2001,
additional mapping assignments have come from new customers in emerging growth
areas such as hydrocarbon exploration, environmental damage assessments, land
use planning and noxious weed species detection. These additional imagery data
collections continue to expand and improve the commercial applications of the
Company's remote sensing library.

         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 surveyed for its
own use several sites for potential mineral and hydrocarbon deposits. This
region is where numerous quartz vein related gold and some copper have been
discovered. There have been seven past producing gold properties in the
Company's surveyed area as well as two past producing sandstone copper
properties. In fiscal 2002, the Company will continue to review its collected
imagery from this region for potential economic mineral and hydrocarbon
deposits.

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

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

Employees
---------

         As of March 31, 2001 the Company had 16 full-time employees and
consultants.

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 two officers of the Company. Its headquarters consist of
approximately 6,400 square feet of office space in Kalispell, Montana. In
addition, a wholly owned subsidiary leases office space in Alexandria, Virginia
from an unrelated third party. The Company believes its offices are

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adequate to meet its needs for the foreseeable future.

         In addition, the Company owns working interests in five (5) oil and gas
properties. See note 3 to the Notes to Consolidated Financial Statements.

ITEM 3.  LEGAL PROCEEDINGS

         In November 2000, the Circuit Court of Baltimore County, Third Judicial
Circuit of Maryland issued a ruling on certain matters. Among other things, the
Court denied the Company's motion for summary judgment. In May 2000 against the
Company by Applied Signal and Image Technologies, Inc. (ASIT). ASIT's complaint
alleges that the Company has not paid ASIT 500,000 shares of the Company's
stock, which it claims it is owed pursuant to a written contract between ASIT
and the Company in which ASIT agreed to perform certain services for the
Company.

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            66                 Chairman
           John W. Peel, III         55          Chief Executive Officer
           John J. Sciuto            58                 President
           Rory J. Stevens           43          Chief Financial Officer
           Tami J. Story             38            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.

          John J. Sciuto joined the company as President on May 1, 2001. Prior
to joining the company, Mr. Sciuto served fourteen years with Comptek Research,
a publicly traded defense electronics and information technology company. He
joined Comptek in 1986 as a Junior Vice President. He assumed duties as
President and Chief Operating Officer of Comptek Federal

                                                                              10
<PAGE>
Systems, Comptek Research" defense focused subsidiary in 1991. In 1996, Mr.
Sciuto was installed as President and CEO of Comptek Research and was voted to
the position of Chairman in 1997.

         Prior to joining Comptek, Mr. Sciuto was the Director at EW Systems
with Engineering Research Associates of McLean, VA from 1983 to 1986. Mr. Sciuto
also served 23 years with the United States Navy, rising through the enlisted,
warrant officer and commissioned officer ranks, retiring with the rank of
Lieutenant Commander in 1983.

         Mr. Sciuto holds a Bachelor of Applied Science Degree in Aviation
Electronics from Troy State University and is a 1991 graduate of Stanford
University's Senior Executive Institute for the Management of High Technology
Companies.

         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.

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

                             June 30, 2000              1.72         .75
                             September 30, 2000          .97         .44
                             December 31, 2000           .67         .31
                             March 31, 2001              .50         .28

         (b)      Approximate Number of Holders of Common Stock. The number of
                  record
                                                                              11
<PAGE>
                  owners of the Company's $.001 par value common stock at March
                  31, 2001 was approximately 1080. This does not include
                  shareholders that hold stock in their accounts at
                  brokers/dealers.

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

         (d)      During the fiscal year ended March 31, 2001, the Company
                  issued an aggregate of 27,665,405 unregistered shares of its
                  common stock. The consideration of such issuances consisted of
                  cash, services rendered, conversion of debentures, interests
                  in mineral properties and exercise of stock options. All of
                  these issuances were exempt from registration under Section
                  4(2) of the Securities Act of 1933, as amended.

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 2001 and 2000
include the results of operation for STDC from December 22, 1999 to March 31,
2001.
<TABLE><CAPTION>
                                                              As of or for the fiscal year ended
                                         2001              2000              1999              1998             1997
                                    ------------------------------------------------------------------------------------
<S>                                 <C>               <C>               <C>               <C>               <C>
Operating revenue                   $  2,678,986      $  1,526,446      $    881,006      $     55,000      $       --
Net loss                              (6,636,480)       (5,177,983)       (2,271,428)       (5,849,999)       (2,549,823)
Net loss per common share                  (0.05)            (0.03)            (0.03)            (0.08)            (0.04)
Total assets                          19,710,126        19,532,230         3,992,233         4,880,652         3,951,914
Long-term obligations                  5,253,135         4,515,118         6,594,080         5,767,961           873,462
Stockholders' equity  (deficit)        2,346,846         2,663,656        (3,998,137)       (3,005,765)       (2,960,610)
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, 2001 and 2000 and 1999.

Results of Operations
---------------------
         The Company recognized revenue of $2,678,986 in 2001 compared with
$1,526,446 and $881,006 in 2000 and 1999, respectively. The increase in revenue
in 2001 compared with 2000 is the beginning of revenue on oil and gas properties
in 2001 of approximately $417,000 and a significant hyperspectral survey in Peru
that resulted in approximately $860,000 in revenue in 2001. In 2001, costs of
services provided was $1,777,437 compared with $1,796,412 and $767,570 in 2000
and 1999, respectively.
                                                                              12
<PAGE>
         Exploration costs in 2001 were $95,540 compared with $6,282 and $68,229
in 2000 and 1999, respectively. The increase in exploration costs from 2000 to
2001 is primarily a result of the Company's focus on utilization of the Probe
for the Company's own exploration projects. General and administrative costs
were $3,854,000 in 2001 compared with $2,397,484 and $1,417,514 in 2000 and
1999, respectively. The increase in 2001 and 2000 compared to 1999 is from an
inclusion of $1,458,662 and $233,397 of STDC costs included in general and
administrative costs in 2001 and 2000, respectively.

         During 2001, the Board of Directors approved the issuance of 8,587,000
shares against options as a performance based stock bonus. The issuance of these
shares resulted in non-cash compensation expense of $2,926,781. 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, the
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.

         Interest income in 2001 was $98,436 compared to $38,821 in 2000. The
increase was due to $73,721 in interest from STDC in 2001 compared to $23,425 in
2000. In 2001, the Company recognized interest expense of $1,035,856 compared to
$1,136,995 and $773,228 in 2000 and 1999, respectively. The decrease in interest
expense over prior year is a result of the Company's conversion of convertible
notes to equity in the 4th quarter of 2001. Other expense was $641 and $10,810
in 2000 and 1999, respectively.

         In 2001, the Company recorded minority interest in losses of
consolidated subsidiaries of $290,336 compared to $202,565 in 2000. 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. In 2001, ESSI Probe 1 LC completed
its first full year of operations and incurred a minority loss of $270,252.

         The Company recognized a net loss of $6,636,480 in fiscal 2001 compare
with a net loss of $5,177,983 and $2,271,428 in 2000 and 1999, respectively. The
loss on a per share basis was $0.05, $0.05, and $0.03 in fiscal 2001, 2000, and
1999, respectively. Included in the loss in 2001 and 2000 is a loss of
$1,822,434 and $879,250 or $0.13 and $.01 per share, respectively, 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.
Subsequent to March 31, 2001, the Company signed a definitive agreement with an
investor for an equity line of up to $10,000,000 for one year with an extension
option for a second year. The terms of the equity line are that the Company,
after the effectiveness of a registration statement, at its option can sell its
registered shares of common stock to the investor on a monthly basis. The
maximum amount

                                                                              13
<PAGE>

of funds that can be raised in any month is $1,500,000 limited by a calculation
based on the average volume of the stock for the preceding month and the price
of the stock. The stock will be sold at 88% of the average of the lowest five
(5) trading days over the ten (10) days of trading immediately proceeding the
sale date.

         Net cash used in operating activities was $525,414 in 2001, resulting
primarily from payment for salaries and services. Cash used in operating
activities was $3,343,109 in 2000, resulting primarily from a net loss of
$5,177,983, and payments for salaries, services and depreciation. Cash used in
operations was $374,023 in 1999, resulting primarily from a net loss of
$2,271,428, and payments for salaries, services and depreciation.

         Capital expenditures for March 31, 2001 were primarily for payments on
airborne hyperspectral instruments and purchases of new computer equipment,
purchases of working interests in mining properties, purchase of an airplane
specially equipped for flying the Company's hyperspectral instruments and
payments on a subsidiary's satellite hyperspectral instrument.

         At March 31, 2001 and 2000, the Company had cash of $367,902 and
$6,119,562 and working deficit of $10,750,323 and $5,408,478, respectively.

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

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

         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. The Company has engaged investment banker Houlihan,
Lokey, Howard and Zukin to assist in this capital raise.

         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.

         The total number of employees and consultants employed by the Company
now numbers sixteen people.

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. Further, collected imagery will be analyzed and
processed to aid in the Company's decisions to take new or additional equity
interests in prospective properties.

                                                                              14
<PAGE>

         The Company, through its subsidiary STDC, will continue to focus on
raising capital to finish construction of NEMO in expectation of a launch in
2003. Further, the Company will continue to look for equity funding to develop
additional instruments including handheld, as well as airborne spectrometers.

          The Company has entered into an agreement to use an Inertial
Measurement Unit (IMU) provided by The Boeing Corporation. Use of the IMU will
enable the Company to more accurately geoposition its Probe hyperspectral data
and assist in the insertion of its data into a customer's Geographical
Information System (GIS) database. In addition, collection of field spectra
using the Company's field spectrometer provides customers both ground and
airborne spectral information that can be incorporated into a customer's GIS to
provide a custom, leading edge information product.

            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
-----

Risks Related to Our Industry

Competitive pressures may adversely affect our operating revenues. We have
numerous competitors in the remote sensing services (airborne hyperspectral
services) and natural resource development industries. Competition in the remote
sensing industry comes from several primary sources. Our principal competitors
in the natural resource development industry include traditional exploration
companies using a variety of other technologies. Some of our competitors in both
remote sensing and natural resource development have substantially greater
financial and other resources than we do. Competitive pressures in either
industry may materially adversely affect our operating revenues and in turn, our
business and financial condition.

Factors that have an adverse impact on the natural resources or energy industry
may adversely affect our results of operations. A substantial percentage of our
gross profit and operating income is derived from our airborne hyperspectral
services business segment. Our airborne hyperspectral operations are focused, in
part, on discovering potential deposits of hydrocarbons and minerals. Therefore,
our business is directly affected by economic factors and other trends that
affect our customers in the energy and natural commodities industries, including
a possible decrease in the cost of energy or projected market growth that may
not materialize or be sustainable. When these economic and other factors depress
the price of energy, they tend to reduce the overall customer demand for natural
resources development services, which decreases our operating income. Economic
and other factors that might affect the energy industry may have an adverse
impact on our results of operations.

We may need to expend significant capital to keep pace with technological
developments in our industry. The remote sensing industry (as well as the
computing industry instrumental in processing the raw data) is constantly
undergoing development and change and it is likely that new technology, whether
embodied in new equipment or techniques, will be introduced in the future. In
order to keep pace with any new developments, we may need to expend significant
capital to develop or purchase new equipment or to train our employees in the
new

                                                                              15
<PAGE>

techniques. The Company is pursuing financing to develop additional remote
sensing instruments; however, we may not be able to raise sufficient funds and
if we do so, there is no guaranty that the new instruments will out perform
instruments used by our competitors.

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

Risks Related to Our Business

The loss of our key customers could have a material adverse effect on us. For
the twelve months ended March 31, 2001, a significant survey in South American
accounted for approximately 32% of our total revenue. We are pursuing contracts
that produce revenues from the application of hyperspectral remote sensing
technology. In the future, however, we may not receive significant contracts and
our results of operations may be materially adversely affected.

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

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

We may need additional financing for acquisitions and capital expenditures and
such financing may not be available on terms acceptable to us. A key element of
our strategy has been, and continues to be, internal growth and growth through
the acquisition of other companies engaged in commercial hyperspectral remote
sensing. In order to grow internally, we may need to make significant capital
expenditures and may need to obtain additional capital to do so. Our ability to
grow is dependent upon, and may be limited by, among other things, our capital
structure, the price of our stock and our existing financing arrangements. If
additional funding sources are needed, we may not be able to obtain the
additional capital necessary to pursue our internal growth and acquisition
strategy or, if we can obtain additional financing, the additional financing may
not be on financial terms that are satisfactory to us.

                                                                              16
<PAGE>

Our NEMO Project may not be successful. The NEMO project, the Company's
satellite-based hyperspectral instrument, is the cornerstone of STDC's strategic
plan. The satellite is not yet in orbit. In the third quarter of 2000, the
Company retained the investment-banking firm of Houlihan Lokey Howard & Zukin to
raise funds to expand our hyperspectral services market and to satisfy our
financial commitment to the NEMO project to enable completion and successful
launch of the satellite. We cannot guaranty that sufficient financing will be
raised. If sufficient funding is raised, we cannot guarantee that the satellite
will be properly completed, launched and set into orbit. Although the satellite
has an expected lifetime of five years, we cannot guarantee that the satellite
will not be rendered inoperable sooner.

We expect that ESSI's future ownership of the NEMO Project may be diluted to a
minority interest. The Company currently owns 100% of STDC, the Company
responsible for developing and launching NEMO. Earthmap, a subsidiary of the
Company, was formed to raise capital to fund the completion and launch of the
NEMO sensor and satellite. Currently, the Company owns 100% of Earthmap. As
capital is raised into Earthmap, the Company will contribute its assets,
primarily STDC, to Earthmap. In order to raise the funds necessary to complete
and launch NEMO, the Company's interest in Earthmap may be diluted to a minority
interest.

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

Cancellations, reductions or delays in customer orders may adversely affect our
results of operations. Our overall operating results are affected by many
factors, including the timing of survey contracts from large clients and the
timing of capital expenditures to increase our capacity for gathering data in
anticipation of future sales of products and services. A [large] portion of our
operating expenses are relatively fixed; [however, a significant portion of our
expenses relating to airborne surveys are variable]. Because several of our
operating divisions and subsidiaries are new businesses and have not obtained
long-term commitments from our clients, we must anticipate the future demand for
our services based upon our discussions with clients. Cancellations, reductions
or delays in orders by a client or group of clients could have a material
adverse effect on our business, financial condition and results of operations.

Our acquisition strategy exposes us to risks, including the risk that we may not
be able to successfully integrate acquired businesses. The Company views the
STDC acquisition (and the NEMO project) as a means to achieving our stated goal
of becoming a vertically integrated remote sensing services provider. The NEMO
project may not be successfully integrated as an affiliate of the Company. Our
ability to grow by acquisition is dependent upon, among other things, the
availability of suitable acquisition candidates. Growth by acquisition involves
risks that could adversely affect our operating results, including difficulties
in integrating the operations and personnel of acquired companies, the potential
amortization of acquired intangible assets and the potential loss of key
employees of acquired companies. We may not be able to consummate acquisitions
on satisfactory terms or, if any acquisitions are consummated, satisfactorily
integrate these acquired businesses.

                                                                              17
<PAGE>
The unavailability of skilled personnel may have an adverse effect on our
operations.

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

Outlook
-------

         This Report on Form 10-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.

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

         On May 25, 2001, the Board of Directors of the Company dismissed the
Company's current accountants, PricewaterhouseCoopers LLP.
PricewaterhouseCoopers LLP served as the Company's auditor for the fiscal year
ended March 31, 2000. The Board of Directors has

                                                                              18
<PAGE>

appointed Grant Thornton LLP as the Company's auditor for the year ended March
31, 2001. Grant Thornton's office is located at 701 Pike Street Suite 1500
Seattle, Washington 98101.

         The reports of PricewaterhouseCoopers LLP on the financial statements
for the past two fiscal years contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle except for the inclusion in both reports of an explanatory
paragraph regarding the Registrant's ability to continue as a going concern.

         In connection with its audits for the two most recent fiscal years and
through May 25, 2001, there have been no disagreements with
PricewaterhouseCoopers LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of PricewaterhouseCoopers LLP
would have caused them to make reference thereto in their report on the
financial statements for such years.

         During the two most recent fiscal years and through May 25, 2001, there
have been no reportable events (as defined in Regulation S-K Item 304(a)(1)(v)).

         The Registrant has requested that PricewaterhouseCoopers LLP furnish it
with a letter addressed to the SEC stating whether or not it agrees with the
above statements. A copy of such letter, dated May 25, 2001, was filed as
Exhibit 16.1 to the Company's Form 8-K filed June 1, 2001.

                                    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 2001 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, 2001.

                                                                              19
<PAGE>



ITEM 11.  EXECUTIVE COMPENSATION

Table below summarizes information on Executives and Directors compensation


<TABLE>
<CAPTION>
                                                          SUMMARY COMPENSATION TABLE
                                                                                                  Long-Term Compensation
                                   Annual Compensation                       Awards                      Payouts
                        ------------------------------------------------------------------------------------------------------------
                                                                                  Securities
                                                     Other Annual                 underlying                             All other
  Name and Principal    Fiscal                       Compensation       Stock    Stock Option   options/SARS LTIP pay-  Compensation
       Position          Year   Salary($)  Bonus($)       ($)        Award(s)($)    Grants          (#)       outs($)       ($)
------------------------------ ------------------------------------------   ------------------    -------    --------      ------
<S>                      <C>     <C>         <C>       <C>            <C>          <C>                <C>      <C>         <C>
Larry Vance/Chairman     2001    160,000      --          --          875,000(4)         --           -         -           --
(1)                      2000    160,000      --       157,500(2)        --        10,000,000         -         -           --
                         1999    160,000      --          --             --         9,000,000         -         -           --


John Peel/CEO (1)        2001    150,000      --          --          875,000(4)         --           -         -           --
                         2000    150,000      --          --             --        10,000,000         -         -           --
                         1999    150,000      --          --             --         7,500,000         -         -           --


Rory J. Stevens/CFO (1)  2001    125,000      --          --          218,750(4)         --           -         -           --
                         2000    125,000      --          --             --         2,500,000         -         -           --
                         1999       --        --          --             --         2,500,000         -         -           --

Tami J. Story/Secretary  2001     80,000      --          --          437,500(4)         --           -         -           --
and Treasurer            2000     80,000      --          --             --         5,000,000         -         -           --
                         1999     80,000    63,000(2)     --             --         5,300,000         -         -           --
</TABLE>

(1) Prior to January 2000, the Chairman's and Secretary's salary and one half of
    the CEO's salary was deferred.

(2) In 1997, the Chairman and Secretary relinquished deferred salary in order to
    entice a third party to invest in the Company. As the investment didn't
    materialize, in fiscal 2000 the Company treated 1,500,000 ($0.105 exercise
    price) and 300,000 ($0.21 exercise price) of the Chairman's and
    Secretary/Treasurer's options, respectively, as paid in full to offset the
    deferred salary previously foregone.

(3) The CFO joined the Company in January 2000 and has been a director of the
    Company since 1994.

(4) In 2001, the Board of Directors approved the issuance of 6,875,000
    restrictive shares to officers as a stock bonus. Outstanding officer options
    were reduced by 6,875,000.

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

                                                    Number of securities         Value of Unexercised
                                                   underlying unexercised      In-the Money Options at
                  Shares Acquired     Value          options at FY-End                FY-End ($)
Name                on Exercise    Realized ($)   Exercisable/Unexercisable    Exercisable/Unexercisable
----------------------------------------------------------------------------  ---------------------------
<S>              <C>              <C>                   <C>                                    <C>
Larry Vance      2,500,000        875,000               4,500,000/3,000,000(2)                 256,250/0
John Peel        2,500,000        875,000               4,500,000/3,000,000(2)                 256,250/0
Rory J. Stevens    625,000        218,750                 375,000/1,500,000(2)                  38,438/0
Tami Story       1,250,000        437,500                 750,000/3,000,000(2)                       0/0
</TABLE>

(1) In 2001, the Board of Directors approved the issuance of 6,875,000
    restrictive shares to officers as a stock bonus. Outstanding officer options
    were reduced by 6,875,000.

(2) Exercise prices range from $0.21 - $2.50 per share.

Employment Contracts
--------------------

         In October 28, 2000, the Company entered into a new employment
agreement with Mr. Larry Vance. Pursuant to the agreement, the Company will pay
Mr. Vance an annual salary of

                                                                              20
<PAGE>

$160,000. In the event of termination of Mr. Vance without cause or due to a
change in control, the Company will pay Mr. Vance two years of annual salary. Mr
Vance's options and vesting criteria are described above and in note 10 to the
attached annual financial statements.

         On October 28, 2000, the Company entered into a new employment
agreement with Dr. John Peel. Pursuant to the agreement, the Company will pay
Dr. Peel an annual salary of $150,000. In the event of termination of Dr. Peel
without cause or due to a change in control, the Company will pay Dr. Peel two
years of annual salary. Dr Peel's options and vesting criteria are described
above and in note 10 to the attached annual financial statements.

         On October 28, 2000, the Company entered into a new employment
agreement with Mr. Rory Stevens. Pursuant to the agreement, the Company will pay
Mr. Stevens an annual salary of $125,000. In the event of termination of Mr.
Stevens without cause or due to a change in control, the Company will pay Mr.
Stevens two years of annual salary. Mr. Stevens 's options and vesting criteria
are described above and in note 10 to the attached annual financial statements.

         On October 28, 2000, the Company entered into a new employment
agreement with Ms. Tami Story. Pursuant to the agreement, the Company will pay
Ms. Story an annual salary of $80,000. In the event of termination of Ms. Story
without cause or due to a change in control, the Company will pay Ms. Story two
years of annual salary. Ms. Story 's options and vesting criteria are described
above and in note 10 to the attached annual financial statements.

         On May 1, 2001, the Company entered into an employment agreement with
Mr. John J. Sciuto. Pursuant to the agreement, the Company will pay Mr. Sciuto
an annual salary of $300,000. Mr Sciuto can earn options in the Company and
equity in a newly formed subsidiary as certain performance milestones are
achieved. In the event Mr. Sciuto is terminated without cause or due to a change
of control and he has successfully achieved certain milestones, then the Company
will pay Mr. Sciuto a severance equal to one-half years salary if a minimum of
$5,000,000 in equity has been raised into a newly formed subsidiary and two
years salary if a minimum of $10,000,000 has been raised into a newly formed
subsidiary.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT

         The following table sets forth certain information regarding ownership
of the Company's Common Stock as of June 15, 2001 by each person known by the
company to own beneficially more than five percent of the Common Stock and by
all directors and officers and as a group:

                                            Amount and nature
          Name and address of beneficial    of beneficial           Percent of
                      owner                 ownership(1)               class
        ---------------------------------------------------------- ------------
        Larry Vance                        15,465,003 (2)(3)             9.74%
        P.O. Box 763
        Lakeside, MT  59922

        John Peel                          7,146,500 (3)                 4.50%
        100 North Pitt Street, Suite 403
        Alexandria, VA  22314

                                                                              21
<PAGE>
        Rory J. Stevens                    1,025,000 (5)                 0.66%
        455 Orchard Ridge Road
        Kalispell, MT  59901

        Tami Story                         2,365,169 (4)                 1.53%
        P.O. Box 763
        Lakeside, MT  59901

        Accuprobe                          17,663,842                   11.46%
        42-07 30th Avenue
        Astoria, NY  11103

        Monte Meltzer                      11,280,667                    7.32%
        8531 W. Howell Rd
        Bethesda, Maryland  20817
        All directors and officers         26,001,672                   26.37%

---------------------------
(1)      All shares are held directly with sole voting and investment power
         unless otherwise indicated.
(2)      Includes 1,775,000 shares held by Universal Search Technology, a
         private company owned by Mr. Vance.
(3)      Includes 4,500,000 options, which are exercisable on March 31, 2001.
(4)      Includes 750,000 options, which are exercisable on March 31, 2001.
(5)      Includes 375,000 options, which are exercisable on March 31, 2001.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         In fiscal 2001, the Company entered into a lease for its office in
Kalispell, Montana. The lease is with two officers of the Company and is for a
term of 5 years with minimum monthly payments of $6,400.

                                     PART IV
                                     -------

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

<TABLE><CAPTION>
         <S>                                                                    <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, 2001 and 2000                 F-2
                  Consolidated Statement of Loss for the Years
                     Ended March 31, 2001, 2000 and 1999                                F-3
                  Consolidated Statement of Redeemable Common Stock
                     And Nonredeemable Shareholders' Equity (Deficit) for
                     the Years Ended March 31, 2001, 2000 and 1999                      F-4
                  Consolidated Statement of Cash Flows for the Years

                     Ended March 31, 2001, 2000 and 1999                                F-5
                  Notes to Consolidated Financial Statements                         F-6 - F-21

         (a)(2)   Financial Statement Schedules                                        None

         (a)(3)   Exhibits
</TABLE>
                                                                              22
<PAGE>

         2.1      Agreement and Plan of Merger by and among Earth Search
                  Sciences, Inc., ESS Acquisition Corp., Space Technology
                  Development Corporation and the shareholders of Space
                  Technology Development Corporation, dated December 21, 1999
                  (Incorporated by reference to Exhibit 2.1 to the Registrant's
                  Form 10-K for fiscal year ended March 31, 2000).

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

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

         4.1      See exhibits 3.1 and 3.2.

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

         10.2     Contract of Sale and Leaseback dated June 10, 1997 between
                  Registrant and Accuprobe, Inc. (Incorporated by reference to
                  Exhibit 10.2 to the Registrant's Form 10-K for fiscal year
                  ended March 31, 2000).

         10.3     Operating Agreement of ESSI Probe1 LC, dated June 3, 1997
                  (Incorporated by reference to Exhibit 10.3 to the Registrant's
                  Form 10-K for fiscal year ended March 31, 2000).

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

         10.5     Agreement between the Office of Naval Research and Space
                  Technology Development Corporation Agreement for NAVY EARTHMAP
                  OBSERVER (NEMO) dated December 10, 1997 (Incorporated by
                  reference to Exhibit 10.5 to the Registrant's Form 10-K for
                  fiscal year ended March 31, 2000).

         10.6     Sales Contract between Science Applications International
                  Corp. and Space Technology Development Corp. Dated: 30 March
                  1998, Contract No.: STDC-98-NEMO-0003 (Incorporated by
                  reference to Exhibit 10.6 to the Registrant's Form 10-K for
                  fiscal year ended March 31, 2000).

         10.7     Sales Contract between Science Applications International
                  Corp. and Space Technology Development Corp. Dated: 30 March
                  1998, Contract No.: STDC-98-NEMO-004 (Incorporated by
                  reference to Exhibit 10.2 to the Registrant's Form 10-K for
                  fiscal year ended March 31, 2000).

         10.8     Sales Contract between Space Systems/Loral (SS/L) and Space
                  Technology Development Corporation (STDC). Dated 21 January
                  1999, Contract Number:
                                                                              23
<PAGE>
                  STDC-98-NEMO-0001 (Incorporated by reference to Exhibit 10.2
                  to the Registrant's Form 10-K for fiscal year ended March 31,
                  2000).

         10.9     Sales Contract between Litton Systems, Inc., Amecom Division
                  (Litton Amecom) and Space Technology Development Corp. (STDC).
                  Date 29 October 1998, Contract Number: STDC-98-NEMO-0009
                  (Incorporated by reference to Exhibit 10.2 to the Registrant's
                  Form 10-K for fiscal year ended March 31, 2000).

         10.10    Common Stock Purchase Agreement between Alpha Venture Capital,
                  Inc. and Earth Search Sciences, Inc. (ESSI). Dated May 23,
                  2001.

         10.11    Registration Rights Agreement between Alpha Venture Capital,
                  Inc. and Earth Search Sciences, Inc. (ESSI). Dated May 23,
                  2001.

         10.12    Common Stock Purchase Warrant A between Alpha Venture Capital,
                  Inc. and Earth Search Sciences, Inc. (ESSI). Dated May 23,
                  2001.

         10.13    Common Stock Purchase Warrant B between Alpha Venture Capital,
                  Inc. and Earth Search Sciences, Inc. (ESSI). Dated May 23,
                  2001.

         10.14    Larry F. Vance employment agreement (Incorporated by reference
                  to Exhibit 10.1 to the Registrant's Form 10-Q for fiscal
                  quarter ended December 31, 2000).

         10.15    John W. Peel employment agreement (Incorporated by reference
                  to Exhibit 10.2 to the Registrant's Form 10-Q for fiscal
                  quarter ended December 31, 2000).

         10.16    Rory J. Stevens employment agreement (Incorporated by
                  reference to Exhibit 10.3 to the Registrant's Form 10-Q for
                  fiscal quarter ended December 31, 2000).

         10.17    Tami J. Story employment agreement (Incorporated by reference
                  to Exhibit 10.4 to the Registrant's Form 10-Q for fiscal
                  quarter ended December 31, 2000).

         10.18    John J. Sciuto employment agreement

         16.1     Letter re change in certifying accountant (Incorporated by
                  reference to the Registrant's for 8-K filed on May 25, 2001).

         21.1.1   List of Subsidiaries (Incorporated by reference to Exhibit
                  21.1.1 to the Registrant's Form 10-K for fiscal year ended
                  March 31, 2000)

         (b)      The Registrant filed the Following Reports on Form 8-K during
                  the quarter ended March 31, 2001:

                        Date of Report                        Item Reported
                        --------------                        -------------
                         May 25, 2001                                4

                                                                              24
<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: June 28, 2001

         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: June 28, 2001

/s/ John W. Peel, III               Chief Executive Officer and Director
-------------------------
John W. Peel, III
Date: June 28, 2001

/s/ Rory J. Stevens                 Chief Financial Officer and Director
-------------------------
Rory J. Stevens
Date: June 28, 2001

/s/ Tami Story                      Corporate Secretary and Treasurer and
-------------------------           Director
Tami J. Story
Date: June 28, 2001










                                                                              25
<PAGE>

               Report of Independent Certified Public Accountants
               --------------------------------------------------

Board of Directors and Shareholders
Earth Search Sciences, Inc.

We have audited the accompanying balance sheet of Earth Search Sciences, Inc.
and subsidiaries (the Company) as of March 31, 2001, and the related statements
of loss, redeemable common stock and changes in nonredeemable shareholders'
equity and cash flows for the year then ended. 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 audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Earth Search Sciences, Inc. as
of March 31, 2001, and the results of its operations and its cash flows for the
year then ended, in conformity with accounting principles generally accepted in
the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $6,636,480 during the year ended March 31,
2001, and, as of that date, the Company's current liabilities exceeded its
current assets by $10,750,323. These factors, among others, as discussed in Note
1 to the financial statements, raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

GRANT THORNTON LLP
Seattle, Washington
June 15, 2001
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of loss, of redeemable common stock and changes in
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 the results of their operations and
their cash flows for each of the two years in the period ended March 31, 2000 in
conformity with accounting principles generally accepted in the United States of
America. 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 our opinion.

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>

Earth Search Sciences, Inc.
Consolidated Balance Sheets
March 31, 2001 and 2000
<TABLE><CAPTION>
-------------------------------------------------------------------------------------------------
                                                                       2001              2000
                                                                   ------------      ------------
<S>                                                                <C>               <C>
Assets
Current assets:
    Cash                                                           $    367,902      $  6,119,562
    Accounts receivable                                                 900,531           433,709
    Other current assets                                                 73,408           369,973
                                                                   ------------      ------------
Total current assets                                                  1,341,841         6,923,244

Property and equipment, net                                          18,368,285        12,608,986
                                                                   ------------      ------------
Total assets                                                       $ 19,710,126      $ 19,532,230
                                                                   ============      ============
Liabilities and Shareholders' Equity
Current liabilities:
    Notes payable                                                  $    352,425      $  2,687,212
    Capital lease obligation                                          3,058,603         3,000,000
    Accounts payable                                                  7,216,731         5,984,602
    Accrued expenses                                                    107,422           302,946
    Accrued interest                                                    356,983           356,962
    Investor deposit                                                  1,000,000              --
                                                                   ------------      ------------
Total current liabilities                                            12,092,164        12,331,722

Long-term liabilities
    Shareholder loans                                                   825,844           459,844
    Deferred officers' compensation                                   2,178,195         2,037,846
    Minority interest                                                 2,249,096         2,017,428
                                                                   ------------      ------------
Total liabilities                                                    17,345,299        16,846,840

Commitments and contingencies                                              --                --
Redeemable common stock, $.001 par value                                 17,981            21,734
                                                                   ------------      ------------
Nonredeemable shareholders' equity:
    Series A preferred stock; 200,000 shares authorized,
     issued and outstanding; liquidation preference $1,000,000        1,000,000         1,000,000
    Common stock, $.001 par value; 200,000,000 shares
     authorized;154,090,616 and 126,402,044 shares,
     respectively, issued and outstanding                               154,091           126,402
    Additional paid-in capital                                       29,561,847        22,906,866
    Common stock subscribed                                                --             363,000
    Treasury stock                                                     (200,000)         (200,000)
    Accumulated deficit                                             (28,169,092)      (21,532,612)
                                                                   ------------      ------------
                                                                      2,346,846         2,663,656
                                                                   ------------      ------------
Total liabilities and shareholders' equity                         $ 19,710,126      $ 19,532,230
                                                                   ============      ============
</TABLE>
   The accompanying notes are an integral part of these financial statements.
<PAGE>

Earth Search Sciences, Inc.
Consolidated Statements of Loss
For the Years Ended March 31, 2001, 2000 and 1999
<TABLE><CAPTION>
------------------------------------------------------------------------------------------------------------
                                                               2001               2000              1999
                                                          -------------      -------------      ------------
<S>                                                       <C>                <C>                <C>
Revenue                                                   $   2,678,986      $   1,526,446      $    881,006
Costs of revenue                                             (1,777,437)        (1,796,412)         (767,570)
                                                          -------------      -------------      ------------
Gross margin (deficit)                                          901,549           (269,966)          113,436
Expenses:

    Exploration                                                  95,540              6,282            68,229
    General and administrative expenses
      Other                                                   3,854,000          2,397,484         1,417,514

      Non-cash compensation expense                           2,941,405          1,608,001              --
                                                          -------------      -------------      ------------
                                                              6,890,945          4,011,767         1,485,743
                                                          -------------      -------------      ------------
Loss from operations                                         (5,989,396)        (4,281,733)       (1,372,307)
Other income (expense)

    Interest income                                              98,436             38,821              --
    Interest expense                                         (1,035,856)        (1,136,995)         (773,288)

    Other expense                                                  --                 (641)          (10,810)
                                                          -------------      -------------      ------------
Loss before minority interest                                (6,926,816)        (5,380,548)       (2,156,405)
Minority interest in losses of consolidated
subsidiaries                                                    290,336            202,565              --
                                                          -------------      -------------      ------------
Loss before extraordinary item                               (6,636,480)        (5,177,983)       (2,156,405)

Extraordinary item                                                 --                 --            (115,023)
                                                          -------------      -------------      ------------
Net loss                                                  $  (6,636,480)     $  (5,177,983)     $ (2,271,428)
                                                          =============      =============      ============
Shares applicable to basic and diluted loss per share       135,941,012        107,778,285        90,388,446
Basic and diluted loss per share                          $       (0.05)     $       (0.05)     $      (0.03)
</TABLE>
   The accompanying notes are an integral part of these financial statements.
<PAGE>

Earth Search Sciences, Inc.
Consolidated Statements of Cash Flows
For the Years Ended March 2001, 2000 and 1999
<TABLE><CAPTION>
------------------------------------------------------------------------------------------------------
                                                            2001              2000             1999
                                                         -----------      -----------      -----------
<S>                                                      <C>              <C>              <C>
Cash flows from operating activities:
  Net loss                                               $(6,636,480)     $(5,177,983)     $(2,271,428)
  Adjustments to reconcile net loss to net cash used
  in operating
  activities:
  Non cash compensation expense                            2,941,405        1,608,001             --
  Common stock issued for services and interest expense      568,347          743,224          462,549
  Common stock issued for Skywatch stock                        --               --            101,484
  Extraordinary items                                           --               --            115,023
  Loss attributed to minority interest                      (290,336)        (202,565)            --
  Depreciation, amortization and depletion                   576,350          356,364          279,212
  Amortization of lease discount                                --            485,622          484,968
  Allowance for doubtful accounts                            287,371           33,912             --
  Loss on sale of equipment                                     --               --             79,584
Changes in assets and liabilities
  Accounts receivable                                       (754,193)        (406,645)         (17,600)
  Other current assets                                       296,565         (266,577)         255,477
  Accounts payable and accrued expenses                    1,036,605         (829,394)        (137,720)
  Accrued interest                                           308,603          104,452          (45,491)
  Investor deposits                                        1,000,000         (121,986)            --
  Deferred officers compensation                             140,349          330,466          319,919
                                                         -----------      -----------      -----------
Net cash used in operating activities                       (525,414)      (3,343,109)        (374,023)
                                                         -----------      -----------      -----------
Cash flow from investing activities:
  Capital expenditures                                    (6,272,164)        (456,545)        (660,558)
  Net cash acquired from acquisition of STDC                    --            168,046             --
  Proceeds from sale of property and equipment                  --               --             58,346
                                                         -----------      -----------      -----------
Net cash used in investing activities                     (6,272,164)        (288,499)        (602,212)
                                                         -----------      -----------      -----------
Cash flows from financing activities:
  Proceeds from notes payable                                250,000        2,324,983          386,000
  Repayments on notes payable                                (25,000)         (10,593)         (24,955)
  Repayments on capital lease obligation                    (250,000)            --               --
  Proceeds from shareholder loans                            141,000          333,602          476,317
  Repayments on shareholder loans                               --           (312,883)        (208,085)
  Proceeds from sale of common stock                         407,914        6,785,426          242,000
  Proceeds from common stock subscribed                         --            363,000             --
  Proceeds from sale of common stock of subsidiaries         522,004          219,993             --
  Proceeds from sale of treasury stock                          --               --            110,000
                                                         -----------      -----------      -----------
Net cash provided by financing activities
                                                           1,045,918        9,703,528          981,277
                                                         -----------      -----------      -----------
Net (decrease) increase in cash                           (5,751,660)       6,071,920            5,042

Cash at beginning of period                                6,119,562           47,642           42,600
                                                         -----------      -----------      -----------
Cash at end of period                                    $   367,902      $ 6,119,562      $    47,642
                                                         ===========      ===========      ===========
Interest paid                                            $     4,818      $    22,798      $    61,363
</TABLE>
   The accompanying notes are an integral part of these financial statements.
<PAGE>

<TABLE><CAPTION>
Earth Search Sciences, Inc.
Consolidated Statements of Redeemable Common Stock and Changes in Nonredeemable Shareholders' Equity (Deficit)
March 31, 2001, 2000 and 1999
--------------------------------------------------------------------------------------------------------------------------
                                                                       Redeemable
                                                                      Common Stock
                                                               ---------------------------           Perferred Stock
             Description                                           Shares        Amount           Shares         Amount
--------------------------------------------------             ------------   ------------     ------------   ------------
<S>                                                               <C>          <C>                  <C>       <C>
Balance at March 31, 1998                                         1,725,914    $    517,845         200,000   $  1,000,000

  Issuance of common stock for services rendered                       --              --              --             --
  Issuance of common stock for cash                                    --              --              --             --
  Issuance of common stock on behalf of Skywath Exploration
  for purchase of Skywatch Northern                                    --              --              --             --
  Issuance of common stock previously subscribed                       --              --              --             --
  Issuance of common stock in lieu of future lease payments            --              --              --             --
  Shares issued in conjunction with note for cash                      --              --              --             --
  Shares issued as incentive for new debt obligation                   --              --              --             --
  Issuance of shares in lieu of interest payment                       --              --              --             --
  Issuance of Shares as bonus                                          --              --              --             --
  Issuance of shares in exchange for minority owned shares
  of subsidiary                                                        --              --              --        2,646,667
  Redeemable shares received back into Treasury                  (1,000,000)       (400,000)           --             --
  Treasury Stock Sold                                                  --              --              --             --
Net Loss                                                               --              --              --             --
                                                               ------------    ------------    ------------   ------------
Balance at March 31, 1999                                           725,914         117,845         200,000      1,000,000
                                                               ------------    ------------    ------------   ------------


  Issuance of common stock for services rendered                       --              --              --             --
  Issuance of common stock for cash                                    --              --              --             --
  Issuance of stock subscription                                       --              --              --             --
  Issuance of shares in lieu of interest payment                       --              --              --             --
  Issuance of shares for loan conversions                              --              --              --             --
  Issuance of shares for acquisition of STDC                           --              --              --             --
  Issuance of shares for interests in oil and gas properties           --              --              --             --
  Shares no longer subject to redeemtion                           (591,754)        (96,111)           --             --
  Non cash compensation expense                                        --              --              --             --
Net Loss                                                               --              --              --             --
                                                               ------------    ------------    ------------   ------------
Balance at March 31, 2000                                           134,160          21,734         200,000      1,000,000
                                                               ------------    ------------    ------------   ------------

  Issuance of common stock for services rendered                       --              --              --             --
  Issuance of common stock for cash                                    --              --              --             --
  Issuance of shares for loan and interest conversions                 --              --              --             --
  Issuance of shares for interests in mineral properties               --              --              --             --
  Issuance of common stock for exercise of options                     --              --              --             --
  Non-cash compensation expense                                        --              --              --             --
  Shares no longer subject to redeemtion                            (23,167)         (3,753)           --             --
  Issuance of stock for bonus                                          --              --              --             --
Net Loss                                                               --              --              --             --
                                                               ------------    ------------    ------------   ------------
Balance at March 31, 2001                                           110,993    $     17,981    $    200,000   $  1,000,000
                                                               ============    ============    ============   ============
</TABLE>
<TABLE><CAPTION>

                                                                               Nonredeemable Shareholders' Equity

                                                                                              Additional       Common
                                                                      Common Stock             paid-in          Stock
                                                                  Shares         Amount        capital        Subscribed
                                                               ------------   ------------   ------------    ------------
<S>                                                              <C>          <C>            <C>             <C>
Balance at March 31, 1998                                        84,792,576   $     84,792   $  9,827,644    $    165,000

  Issuance of common stock for services rendered                  3,104,414          3,104        272,197            --
  Issuance of common stock for cash                               1,924,166          1,924        204,076            --
  Issuance of common stock on behalf of Skywath Exploration
  for purchase of Skywatch Northern                                 465,000            465        101,019            --
  Issuance of common stock previously subscribed                  1,000,000          1,000        164,000        (165,000)
  Issuance of common stock in lieu of future lease payments         547,727            548        114,475            --
  Shares issued in conjunction with note for cash                   300,000            300         55,950            --
  Shares issued as incentive for new debt obligation              1,285,000          1,285        136,340            --
  Issuance of shares in lieu of interest payment                     70,817             71         10,552            --
  Issuance of Shares as bonus                                       275,000            275         18,475            --
  Issuance of shares in exchange for minority owned shares
  of subsidiary                                                       2,647        245,353           --              --
  Redeemable shares received back into Treasury                   1,000,000          1,000        399,000            --
  Treasury Stock Sold                                                  --             --          (90,000)           --
Net Loss                                                               --             --             --              --
                                                               ------------   ------------   ------------    ------------
Balance at March 31, 1999                                        97,411,367         97,411     11,459,081            --
                                                               ------------   ------------   ------------    ------------


  Issuance of common stock for services rendered                  3,344,687          3,345        466,129            --
  Issuance of common stock for cash                              17,708,175         17,708      6,767,718            --
  Issuance of stock subscription                                       --             --             --           363,000
  Issuance of shares in lieu of interest payment                   ,900,000          1,900        271,850            --
  Issuance of shares for loan conversions                           849,663            850         88,328            --
  Issuance of shares for acquisition of STDC                      4,000,000          4,000      1,924,203            --
  Issuance of shares for interests in oil and gas properties        596,398            596        226,036            --
  Shares no longer subject to redeemtion                            591,754            592         95,520            --
  Non cash compensation expense                                        --             --        1,608,001            --
Net Loss                                                               --             --             --              --
                                                               ------------   ------------   ------------    ------------
Balance at March 31, 2000                                       126,402,044        126,402     22,906,866         363,000
                                                               ------------   ------------   ------------    ------------

  Issuance of common stock for services rendered                    576,024            576        125,701            --
  Issuance of common stock for cash                               2,037,441          2,037        718,892        (363,000)
  Issuance of shares for loan and interest conversions           16,097,874         16,099      2,760,737            --
  Issuance of shares for interests in mineral properties            167,066            167         63,318            --
  Issuance of common stock for exercise of options                  200,000            200         49,785            --
  Non-cash compensation expense                                        --             --           14,624            --
  Shares no longer subject to redeemtion                             23,167             23          3,730            --
  Issuance of stock for bonus                                     8,587,000          8,587      2,918,194            --
Net Loss                                                               --             --             --              --
                                                               ------------   ------------   ------------    ------------
Balance at March 31, 2001                                       154,090,616   $    154,091   $ 29,561,847    $       --
                                                               ============   ============   ============    ============
</TABLE>
<TABLE><CAPTION>
                                                                Accumulated      Treasury
                                                                  Deficit         stock           Total
                                                               ------------    ------------    ------------
<S>                                                            <C>             <C>             <C>
Balance at March 31, 1998                                      $(14,083,201)   $       --      $ (3,005,765)

  Issuance of common stock for services rendered                       --              --           275,301
  Issuance of common stock for cash                                    --              --           206,000
  Issuance of common stock on behalf of Skywath Exploration
  for purchase of Skywatch Northern                                    --              --           101,484
  Issuance of common stock previously subscribed                       --              --                 0
  Issuance of common stock in lieu of future lease payments            --              --           115,023
  Shares issued in conjunction with note for cash                      --              --            56,250
  Shares issued as incentive for new debt obligation                   --              --           137,625
  Issuance of shares in lieu of interest payment                       --              --            10,623
  Issuance of Shares as bonus                                          --              --            18,750
  Issuance of shares in exchange for minority owned shares
  of subsidiary                                                        --           248,000
  Redeemable shares received back into Treasury                        --          (400,000)           --
  Treasury Stock Sold                                                  --           200,000         110,000
Net Loss                                                         (2,271,428)           --        (2,271,428)
                                                               ------------    ------------    ------------
Balance at March 31, 1999                                       (16,354,629)       (200,000)     (3,998,137)
                                                               ------------    ------------    ------------


  Issuance of common stock for services rendered                       --              --           469,474
  Issuance of common stock for cash                                    --              --         6,785,426
  Issuance of stock subscription                                       --              --           363,000
  Issuance of shares in lieu of interest payment                       --              --           273,750
  Issuance of shares for loan conversions                              --              --            89,178
  Issuance of shares for acquisition of STDC                           --              --         1,928,203
  Issuance of shares for interests in oil and gas properties           --              --           226,632
  Shares no longer subject to redeemtion                               --              --            96,112
  Non cash compensation expense                                        --              --         1,608,001
Net Loss                                                       $ (5,177,983)           --        (5,177,983)
                                                               ------------    ------------    ------------
Balance at March 31, 2000                                       (21,532,612)       (200,000)      2,663,656
                                                               ------------    ------------    ------------

  Issuance of common stock for services rendered                       --              --           126,277
  Issuance of common stock for cash                                    --              --           357,929
  Issuance of shares for loan and interest conversions                 --              --         2,776,836
  Issuance of shares for interests in mineral properties               --              --            63,485
  Issuance of common stock for exercise of options                     --              --            49,985
  Non-cash compensation expense                                        --              --            14,624
  Shares no longer subject to redeemtion                               --              --             3,753
  Issuance of stock for bonus                                          --              --         2,926,781
Net Loss                                                       $ (6,636,480)           --        (6,636,480)
                                                               ------------    ------------    ------------
Balance at March 31, 2001                                      $(28,169,092)   $   (200,000)   $  2,346,846
                                                               ============    ============    ============
</TABLE>
 The accompanying notes are an integral part of these financial statements.
<PAGE>

Earth Search Sciences, Inc.
Notes to Consolidated Financial Statements
March 31, 2001 and 2000
--------------------------------------------------------------------------------

1.   Summary of Operations and Significant Accounting Policies

The business of Earth Search Sciences, Inc. ("the Company") is the collection of
high value imagery of the earth's surface utilizing the Company's proprietary
hyperspectral imaging sensors principally in North America and globally. 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 sensor has
applications in natural resources development, environmental monitoring and
remediation, wildlife habitat monitoring, hydrocarbon exploration and
development, agricultural assessment and planning including weed species
identification, land use planning, forestry monitoring and planning and defense
surveillance.

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, 2001,
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. At March 31, 2001, Petro Probe,
Inc. holds interest in five oil and gas projects.

In fiscal 2000, Terranet, Inc. was formed 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 broadband delivery of imagery and video. It is expected that in
fiscal 2002 Terranet will start operations.

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 operations 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. In fiscal 2001, a full year of
STDC results of operations are consolidated with the Company.

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
<PAGE>

Earth Search Sciences, Inc.
Notes to Consolidated Financial Statements
March 31, 2001 and 2000
--------------------------------------------------------------------------------

development, agricultural assessment and planning including weed species
identification, land use planning, forestry monitoring and planning and defense
surveillance markets throughout the world.

In fiscal 2001, the Company operated its hyperspectral sensors under contracts
with third parties in several areas around the world. Contracts to operate the
airborne hyperspectral sensors overseas for major mining companies with the
objective of identifying potential mineral deposits contributed approximately
$1,087,000 (see note 7) in revenue in 2001. Contracts to operate the airborne
hyperspectral sensor in the U.S. as an ecological, agricultural, hydrocarbon,
and fisheries application contributed approximately $81,000 to revenue in 2001.
STDC's contract with the Office of Naval Research to design, build, and operate
a hyperspectral sensor mounted on a satellite contributed approximately
$1,094,000 to revenue in 2001. In fiscal 2001, projects with three clients and
the revenue from the oil and gas property accounted for approximately 89% of
total revenue.

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 sensors and has
entered into an agreement for an equity line (see note 11), which should allow
the Company to continue as a going concern.

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 change of ownership in its subsidiaries as a
result of the sale of its subsidiaries common stock is charged against
additional paid-in capital in the Company's financial statements. 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.

OIL AND GAS PROPERTIES
The Company uses the successful efforts method to account for its oil and gas
properties. Under this method, it capitalizes costs incurred for property
acquisition, exploration, and drilling related to its oil and gas properties.
Once the project is completed, and, if oil or gas is located, costs capitalized
to date on the specific project are amortized under the unit-of-production
method as revenue is recognized. Capitalized costs for unsuccessful projects
will be expensed when that determination is made. Costs capitalized on
properties in fiscal 2001 were $320,262.

Based on the agreements for the working interests in oil and gas properties, the
Company will proportionately share in future revenues as well as future
operating and drilling costs.

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

Earth Search Sciences, Inc.
Notes to Consolidated Financial Statements
March 31, 2001 and 2000
--------------------------------------------------------------------------------

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. As allowable government-reimbursable costs are incurred, STDC
recognizes a proportionate share of revenue. 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 AND AMORTIZATION
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
sensors (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.

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.

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.

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

NET LOSS PER COMMON SHARE
Net loss per common share has been computed based on the weighted average number
of the Company's common shares outstanding. Common stock equivalents have not
been considered in the diluted net loss per share calculation because their
effect on net loss per share is anti-dilutive. Exercisable stock option and
warrant shares outstanding as of March 31, 2001, 2000 and 1999 totaled
20,575,000, 32,850,000 and 14,750,000, respectively.
<PAGE>

Earth Search Sciences, Inc.
Notes to Consolidated Financial Statements
March 31, 2001 and 2000
--------------------------------------------------------------------------------

CHANGES IN CLASSIFICATION
Certain reclassifications have been made to the fiscal 2000 and 1999 financial
statements to conform with the financial statement presentation for fiscal 2001.
Such reclassifications had no effect on the Company's results of operations or
shareholders' equity.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

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

2.  SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE><CAPTION>
                                                                        Year ended March 31,
                                                                 2001           2000          1999
                                                              ----------     ----------     ---------
<S>                                                           <C>            <C>            <C>
Non-cash financing and investing activities
  Notes payable and interest converted into common stock      $2,776,836     $   89,178     $    --
  Common stock issued in lieu of interest payments                  --          273,750          --
  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                       63,485        226,632          --
  Issuance of shares for acquisition of STDC                        --        1,928,203          --
</TABLE>

3.  PROPERTY AND EQUIPMENT

     Property and equipment consist of the following:

<TABLE> <CAPTION>
                                                                March 31,
                                                         2001               2000
                                                     ------------      ------------
<S>                                                  <C>               <C>
          Mineral properties (A)                     $  1,363,785      $    424,632
          ATM imagery database                            134,000           134,000
          Computers and software                          297,639           157,698
          Vehicles and equipment                        1,054,468           114,012
          Hyperspectral instruments (B)                 4,058,000         4,058,000
          Construction in progress (C)                 13,019,501         8,703,401
                                                     ------------      ------------
                                                       19,927,393        13,591,743
          Accumulated depreciation, amortization
             and depletion                             (1,559,108)         (982,757)
                                                     ------------      ------------
                                                     $ 18,368,285      $ 12,608,986
                                                     ============      ============
</TABLE>
<PAGE>

Earth Search Sciences, Inc.
Notes to Consolidated Financial Statements
March 31, 2001 and 2000
--------------------------------------------------------------------------------

     (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. In fiscal 2001, the Company
         acquired working interests in two additional oil and gas properties for
         $555,406 in working capital and the issuance of 167,066 shares of its
         common stock value at $63,485.

         In fiscal 2001, one of the oil and gas properties with capitalized
         costs totaling approximately $250,000 began production and the Company
         recognized $417,319 in revenue from that property. Capitalized costs
         for that project amortized under the unit-of-production method were
         $34,633. Based on an outside engineering study, the current producing
         well has estimated reserves of 17.31 billion cubic feet of natural gas
         and 17,000 barrels of oil as of March 31, 2001. The Company's interest
         in the discounted net cash flows from this well is estimated to be
         $1,767,000 as of March 31, 2001 based on prices for natural gas and oil
         as of March 31, 2001.

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

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

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

         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.

     (B) The Company entered into a sale-leaseback of a hyperspectral instrument
         in 1997. The instrument was sold for $2,500,000 and leased back under
         the following terms: 1) the Company will lease the instrument for
         $250,000 per year bearing interest at the prime rate plus 2% through
         June 2007; 2) at any time during the above lease period but no later
         than
<PAGE>

Earth Search Sciences, Inc.
Notes to Consolidated Financial Statements
March 31, 2001 and 2000
--------------------------------------------------------------------------------

         April 10, 2000, the Company can 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 Companys subsidiary'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 related to the shares
         of common stock and stock purchase warrants issued in conjunction with
         the above transaction.

         In fiscal 1999, 547,727 restricted shares of the Company's common stock
         was issued in lieu of the lease payment due on April 10, 1999,
         respectively. The Company recognized an extraordinary loss of $115,000
         in 1999 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 subscribed shares
         were issued as of March 31, 1999.

         In fiscal 2001, the Company issued a promissory note for $250,000 for
         the third lease payment due on April 2001. This note was later
         converted to common stock per the terms of the note.

         The cost of the equipment under capital leases at March 31, 2001 and
         2000 was $2,500,000 with related accumulated depreciation of $875,000
         and $625,000 as of March 31, 2001 and 2000, respectively.

         As of March 31, 2001, the total amount of $3,058,603 is currently due
         as the Company anticipates repurchase of the instrument. The Company is
         pursuing the possibility of issuing subsidiary common stock to satisfy
         the obligation with the lessor.

         In fiscal 2000, the Company completed purchase and received its second
         hyperspectral instrument. The capitalized cost of the instrument was
         $1,558,000 with accumulated depreciation of $233,700 and $77,900 as of
         March 31, 2001 and 2000, respectively.

     (C) Included in construction in progress is $12,119,500 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 third quarter of calendar year 2002. 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.

4.   NOTES PAYABLE

     Notes payable consist of unsecured promissory notes with rights of
     conversion. The terms of these


<PAGE>

Earth Search Sciences, Inc.
Notes to Consolidated Financial Statements
March 31, 2001 and 2000
--------------------------------------------------------------------------------

     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 10% 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 2001 and 2000, $2,776,836 and $89,178, respectively, of notes
     outstanding plus accrued interest were converted into common stock at the
     agreed upon conversion rates.

5.   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, 2001 and 2000, interest accrued on such advances aggregated
     $294,332 and $226,347, 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. The Company does not anticipate repayment of
     the loans during the fiscal 2002.

6.   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 $140,349, $425,104, and $744,134
     during the fiscal years ended March 31, 2001, 2000 and 1999, 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. The Company is making full salary
     payments to the Chairman, Chief Executive Officer, and Secretary as
     cashflow allows.

     The Company does not anticipate repayment of these amounts during fiscal
     2002.

     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 paid in its entirety in
     fiscal 2000.

7.   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, Oil and Gas property 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 fiscal 2001.
     Currently, the Airborne Hyperspectral business segment revenue is primarily
     from one external customer, an


<PAGE>

Earth Search Sciences, Inc.
Notes to Consolidated Financial Statements
March 31, 2001 and 2000
--------------------------------------------------------------------------------

     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. As
     the consolidated group is operating at a net loss position 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 for Fiscal Year 2001
                                         Airborne                                                     Adjustments
                                      Hyperspectral     Satellite     Oil and Gas        Other            and
                                         Services      Development     Properties      Industries     Eliminations      Combined
                                      ------------    ------------    ------------    ------------    ------------    ------------
<S>                                   <C>             <C>             <C>             <C>             <C>             <C>
Revenue                               $  1,167,741    $  1,093,926    $   417,319         --                --        $  2,678,986
                                      ============    ============    ============    ============    ============    ============
Operating Income (Loss)               $ (4,166,052)   $ (1,324,622)   $    39,064     $ (537,786)           --        $ (5,989,396)
                                      ============    ============    ============    ============    ============    ============
Interest income                             24,715          73,721           --             --              --              98,436
Interest expense                          (464,323)       (571,533)          --             --              --          (1,035,856)
Income from continuing operations
before income taxes and minority
interests                                     --              --             --             --              --          (6,926,816)
Identifiable assets at 3/31/2001      $  4,934,159    $ 13,091,253    $ 1,570,357     $  114,357            --        $ 19,710,126
                                      ============    ============    ============    ============    ============    ============
Total Assets at 3/31/2001                     --              --             --             --              --        $ 19,710,126
                                                                                                                      ============
Depreciation and amortization for
the period ending 3/31/2001           $    538,419    $      1,575    $    34,633     $    1,723            --        $    576,350
                                      ============    ============    ============    ============    ============    ============
Capital expenditures for the period
ending 3/31/2001                      $  1,624,647    $  3,666,100    $   939,153     $  105,750            --        $  6,335,650
                                      ============    ============    ============    ============    ============    ============
</TABLE>

<TABLE><CAPTION>
                                                           Business Segment Information for Fiscal Year 2000
                                         Airborne                                                     Adjustments
                                      Hyperspectral     Satellite     Oil and Gas        Other            and
                                         Services      Development     Properties      Industries     Eliminations      Combined
                                      ------------    ------------    ------------    ------------    ------------    ------------
<S>                                   <C>             <C>             <C>             <C>             <C>             <C>
Revenue                               $    863,655    $    662,791            --              --              --      $  1,526,446
                                      ============    ============    ============    ============    ============    ============
Operating Loss                        $ (2,933,764)   $   (740,392)   $   (143,843)   $   (372,938)   $    (90,796)   $ (4,281,733)
                                      ============    ============    ============    ============    ============    ============
Interest income                             15,396          23,425            --              --              --            38,821

Interest expense                        (1,066,149)       (161,642)           --              --            90,796      (1,136,995)

Other expense                                 (641)           --              --              --              --              (641)
Income from continuing operations
before income taxes and minority
interests                                     --              --              --              --              --        (5,380,548)
Identifiable assets at 3/31/2000      $  7,235,839    $ 11,825,838    $    452,142    $     18,411            --      $ 19,532,230
                                      ============    ============    ============    ============    ============    ============
Total Assets at 3/31/2000                     --              --              --              --              --      $ 19,532,230
                                                                                                                      ============
Depreciation and amortization for
the period ending 3/31/3000           $    355,502            --              --      $        862            --      $    356,364
                                      ============    ============    ============    ============    ============    ============
Capital expenditures for the period
ending 3/31/2000                      $    253,084    $  2,595,677    $    421,632    $      8,616            --      $  3,279,009
                                      ============    ============    ============    ============    ============    ============
</TABLE>
<PAGE>
Earth Search Sciences, Inc.
Notes to Consolidated Financial Statements
March 31, 2001 and 2000
--------------------------------------------------------------------------------

8.   QUARTERLY FINANCIAL DATA (UNAUDITED):

<TABLE><CAPTION>
                                                              Fiscal 2001
                                        First           Second           Third           Fourth
                                   ----------------------------------------------------------------
<S>                                <C>              <C>              <C>              <C>
Revenue                            $     463,014    $     259,863    $   1,159,048    $     797,061

Gross margin (deficit)                  (518,350)         (66,035)         650,450          835,484

Loss before minority interest         (1,507,523)      (1,296,457)      (3,570,273)        (552,563)
Net loss                           $  (1,435,247)   $  (1,225,342)   $  (3,505,087)   $    (470,804)
Shares applicable to basic and
diluted loss per share               128,179,335      130,112,623      134,509,211      146,471,805
Basic and diluted loss per share   $       (0.01)   $       (0.01)   $       (0.03)   $       (0.00)

                                                              Fiscal 2000
                                        First           Second           Third           Fourth
                                   ----------------------------------------------------------------
Revenue                            $     101,784    $     238,317    $      79,678    $   1,106,667

Gross margin (deficit)                    27,741           12,964          (62,247)        (248,424)

Loss before minority interest           (347,460)        (726,078)      (1,293,270)      (3,013,740)
Net loss                           $    (548,830)   $    (726,078)   $  (1,293,270)   $  (2,609,805)
Shares applicable to basic and
diluted loss per share                98,327,779       98,610,500      104,354,564      117,972,227
Basic and diluted loss per share   $       (0.01)   $       (0.01)   $       (0.01)   $       (0.02)
</TABLE>
9.   INCOME TAXES

     The Company recorded no provision for income taxes in fiscal 2001, 2000 and
     1999 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,
                                                      2001            2000
                                                 -------------    ------------
       Net operating loss carryforwards          $   9,169,227    $  6,035,665
       Other net deferred tax assets                 1,326,707       1,849,148
                                                 -------------    ------------
       Gross deferred tax assets                    10,495,934       7,884,813
       Deferred tax assets valuation allowance     (10,495,934)     (7,884,813)
                                                 --------------   -------------
                                                 $           -    $          -
                                                 =============    ============

     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.
<PAGE>

Earth Search Sciences, Inc.
Notes to Consolidated Financial Statements
March 31, 2001 and 2000
--------------------------------------------------------------------------------

     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,
                                                       2001             2000             1999
                                                   -----------      -----------      -----------
<S>                                                <C>              <C>              <C>
         Income tax benefits at statutory rate     $ 2,654,593      $ 2,058,593      $   908,571
         Decrease in benefit resulting from:
         Permanent differences and other               (43,472)         103,830          (11,378)
         Increase in valuation allowance            (2,611,121)      (2,162,423)        (897,193)
                                                   -----------      -----------      -----------
                                                   $     --         $     --         $     --
                                                   ===========      ===========      ===========
</TABLE>

     The Company has net tax operating loss carryforwards at March 31, 2001 of
     approximately $22,923,068. Such carry forwards may be used to offset
     taxable income, if any, in future years through their expiration in
     2002-2021. Future expiration of tax loss carryforwards, if not utilized,
     are as follows: 2002, $47,625; 2003, $104,696; 2004, $176,084; 2005,
     $225,957; and 2006, $143,645; and thereafter, $22,225,061. The annual
     amount of tax loss carryforward, which can be utilized, may be limited due
     to the substantial changes in the Company's ownership as defined by section
     382 of the Internal Revenue Code, which may occur in the future. Such
     limitations could result in the expiration of a part of the loss
     carryforwards before their utilization.

10.  OFFICER AND DIRECTOR STOCK OPTIONS

     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. The specific vesting criteria
     for these options are described below:

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

     During 2001, the Board of Directors approved performance based bonuses in
     the form of options to the officers of the Company. These bonus clauses
     provide for immediate vesting of stock options at certain points in time
     dependent on the Company raising predetermined amounts of capital. The
     specific vesting criteria for these options are described below:

         15% of all options shall become vested and paid in full when the
         Company is successful in obtaining a commitment from a strategic
         partner, financial institution, reputable investment banker or other
         source in raising capital sufficient to fund the NEMO program; 20%
         vested and paid in full when successful in raising gross capital of at
         least $6,000,000; 20% vested and paid


<PAGE>

Earth Search Sciences, Inc.
Notes to Consolidated Financial Statements
March 31, 2001 and 2000
--------------------------------------------------------------------------------

         in full when successful in raising gross capital of at least
         $30,000,000; 20% vested and paid in full when successful in raising
         gross capital of at least $100,000,000; and 15% vested and paid in full
         in the event the NEMO program is successfully funded.

     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, 2001, no
     additional options were vested.

     During fiscal 2000, the Board of Directors issued options to a new employee
     to purchase 650,000 shares of the Company's common stock with an exercise
     price below fair value. In fiscal 2001 and 2000, the Company recognized
     $14,624 and $14,401, respectively, of non-cash compensation expense related
     to these options.

     During fiscal 2001, the Board of Directors approved the issuance of
     8,587,000 shares against options as a stock bonus. The Company reduced
     options outstanding by 8,587,000 and recorded compensation expense of
     $2,926,781.

     The Company has adopted the disclosure requirements of Statement of
     Financial Accounting Standard No. 123 ("FAS 123"), Accounting for
     Stock-Based Compensation. 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.

     The Company has determined that the pro forma effects of applying FAS 123
     would increase the net loss in 2001 and 2000 by approximately $986,000 and
     $1,044,000, respectively, and would have had an immaterial effect on the
     results of operation in 1999. The fair value was determined using the
     Black-Scholes option pricing model using the following weighted-average
     assumptions:

                                         Fiscal      Fiscal     Fiscal
                                          2001        2000       1999
                                        -------     -------    -------
         Risk-free interest rate          5.59%       5.63%      5.62%
         Expected dividend yield           --          --         --
         Expected lives                   2.54        4.78       4.23
         Expected volatility            131.20%     127.97%     82.50%
<PAGE>

Earth Search Sciences, Inc.
Notes to Consolidated Financial Statements
March 31, 2001 and 2000
--------------------------------------------------------------------------------

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

                                      Shares
                                      under      Weighted-average
                                      option      exercise price
                                    -----------      --------
         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
            Options granted           4,750,000          0.49
            Options cancelled        (4,500,000)         0.46
            Options exercised        (8,787,000)         0.27
                                    -----------      --------
         Balance, March 31,2001      25,813,000      $   1.01
                                    ===========      ========

     The weighted average per share fair value of options granted during fiscal
     year 2001, 2000 and 1999 was $0.31, $0.11 and $0.11, respectively.

     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, 2001 and 2000
--------------------------------------------------------------------------------

     The following table summarizes information about employee stock options and
     the options issued as part of the acquisition of STDC outstanding at March
     31, 2001.

<TABLE><CAPTION>
                                                    Options Outstanding
                           -----------------------------------------------------------------------
                                                          Weighted
                                                          average
           Exercise                Number                remaining                 Number
            Price               Outstanding           contractual life          exercisable
     --------------------- -----------------------  ---------------------  -----------------------
                                                          (Years)
<S>             <C>                  <C>                       <C>                   <C>
                0.07                 150,000                   1.67                  150,000

                0.14                 487,500                   3.50                  237,500
                                   5,375,000                   4.69                5,375,000
                0.21

                                   1,500,000                   1.59                1,500,000
                0.30
                                   6,350,000                   1.71                3,412,500
                0.50
                                     250,000                   2.76                  250,000
                0.75

                                     113,000                   2.16                  113,000
                0.84

                                   3,537,500                   1.75                3,537,500
                1.00
                                   3,550,000                   1.65                  500,000
                1.50
                                   4,250,000                   1.97                1,250,000
                2.00
                                   3,000,000                   1.33                        -
                2.50
                3.00                 750,000                   3.50                  750,000
                4.00                 250,000                   3.50                  250,000
                5.00                 250,000                   3.50                  250,000
                          ------------------                              ------------------
                                  29,813,000                                      17,575,500
                          ==================                              ==================
</TABLE>

11.  REDEEMABLE COMMON STOCK AND NONREDEEMABLE SHAREHOLDER'S EQUITY

     REDEEMABLE COMMON STOCK
     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 12). During fiscal 2001 and 2000, 23,167 and 591,754 shares of
     redeemable stock were sold by the original investors 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. Each share of the Company's
     Series A preferred stock is convertible into five shares of the Company's
     common stock. The preferred stock has liquidation preference in the amount
     of $5.00 per share or $1,000,000. The preferred stock is redeemable by the
     Company and has no voting rights. In addition, the recipient of the
     preferred stock was granted warrants as discussed below 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, 2001 and 2000
--------------------------------------------------------------------------------

     COMMON STOCK
     During the fiscal years ended March 31, 2001 and 2000, the Company issued
     16,097,874 and 849,663 shares of common stock, respectively, to satisfy
     $2,334,787 and $75,500, respectively, of principal and $442,049 and
     $13,678, respectively, of interest relating to convertible notes payable.

     COMMON STOCK SUBSCRIBED
     In fiscal 2000, the Company received $363,000 for purchases of common
     stock. The shares were issued during the year ended March 31, 2001.

     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. In fiscal 2001, 1,000,000 of these
     warrants expired.

     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. In fiscal 1999, the Company exchanged 2,646,667 shares of its own
     common stock for Earth Search Resources, Inc.'s stock not previously owned.
     This transaction reduced minority interest by $248,000 in 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 2001 and 2000, Petro Probe, Inc., a wholly owned subsidiary of
     the Company, issued 22,332 and 10,166 shares, respectively, of its common
     stock at approximately $3.00 per share. This transaction increased minority
     interest by $67,000 and $30,500, respectively.

     PRIVATE PLACEMENT OF ECO PROBE, INC. COMMON STOCK
     In fiscal 2001, Eco Probe, Inc., a wholly owned subsidiary of the Company,
     issued 151,667 shares of its common stock at approximately $3.00 per share.
     This transaction increased minority interest by $455,004.

     In fiscal 2001, warrants to purchase 100,000 shares of either Petro Probe
     or Terranet at $3.00 per share for two years and 100,000 shares of either
     Petro Probe or Terranet at $5.00 per share for five years were issued to a
     consultant of the Company.
<PAGE>

Earth Search Sciences, Inc.
Notes to Consolidated Financial Statements
March 31, 2001 and 2000
--------------------------------------------------------------------------------

     EQUITY LINE
     Subsequent to March 31, 2001, the Company signed a definitive agreement
     with an investor for an equity line of up to $10,000,000 for one year with
     an extension option for another year. The terms of the equity line are that
     the Company, after the effectiveness of a registration statement, at its
     option can sell its registered common shares to the investor on a monthly
     basis. The maximum amount of funds that can be raised in any month is
     $1,500,000 limited by a calculation based on the average volume of the
     stock for the preceding month and the price of the stock. In conjunction
     with the equity line, the Company issued warrants to the investor to
     purchase 1,500,000 shares of the Company's common stock for 5 years at a
     price equal to the lesser of 95% of an average stock price after the
     definitive documents were signed or 95% of the market price at the date of
     effectiveness of the registration statement. Additional warrants up to
     1,500,000 will be issued pro rata as the equity line is used. The price of
     these additional warrants will be based on the market price immediately
     following sale to the investor.

12.  COMMITMENTS AND CONTINGENCIES

     CONTRACTUAL COMMITMENTS
     The Company has outstanding purchase orders, commitments, and contracts
     with future milestone payments totaling $2,350,000

     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, 2001:

           Year ending            Total       Sublease Rental
             March 31          Commitments         Income          Net Rent
         ----------------- ------------------ ---------------- ----------------
         ----------------- ------------------ ---------------- ----------------
         2002                   $    181,050     $   (24,006)      $   157,044
         2003                        172,619         (24,006)          148,613
         2004                         92,813          (2,001)           90,812
         2005                         77,256            -               77,256
         Thereafter                   25,600            -               25,600
                                ------------     -----------       -----------
                                $    549,338     $   (50,013)      $   499,325
                                ============     ===========       ===========

     Rental expense for office space is included in operations for the fiscal
     years ended March 31, 2001, 2000 and 1999 and is $132,529, $30,341, and
     $19,200, respectively. In fiscal 2001, the Company entered into a lease for
     its office in Kalispell, Montana. The lease is with two officers of the
     Company and is for a term of 5 years with minimum monthly payments of
     $6,400.

     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 2001 and 2000, 23,167 and 591,754
     shares of the Company's common stock subject to rescission were sold by
     such Idaho investors. In conjunction with the rescission settlement,
     $17,981 and $21,734, related to 110,993 and 134,160 shares of common stock,
     respectively, have been recorded in redeemable common stock as of March 31,
     2001 and 2000.
<PAGE>

Earth Search Sciences, Inc.
Notes to Consolidated Financial Statements
March 31, 2001 and 2000
--------------------------------------------------------------------------------

     In November 2000, a lawsuit was filed against the Company by a vendor. The
     vendor alleges that the Company has not paid them 500,000 shares of the
     Company's stock, which it is owed pursuant to a written contract between
     the vendor and the Company in which the vendor agreed to perform certain
     services for the Company in return for cash and the Company's common stock.
     The relief sought by the vendor in the lawsuit includes significant
     compensatory and punitive damages; however, the Company believes that it
     will be able to settle the lawsuit for less than the relief sought. The
     Company has recorded a contingency loss accrual of $185,000. It is
     management's opinion that the loss accrual is their best estimate of the
     potential liability and associated legal costs of the dispute.

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. In December 2000 the agreement was terminated and the
     Company is reviewing its options under their agreement. Under the terms of
     the agreements, the Company was 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. The Company has not recorded the
     difference between committed revenue under the agreement and actual
     revenue. In year one, the Company earned $810,000 in revenue with direct
     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. In year 3 the Company earned $631,000
     in revenue with direct costs of $397,824 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.  SIGNIFICANT RISKS AND UNCERTAINTIES

     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 STDC
     will be able to raise funds necessary to complete the project.