SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
AMENDMENT NO. 1 TO
FORM 10-QSB

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended:   SEPTEMBER 30, 2007

Commission File No. 000-19566

EARTH SEARCH SCIENCES, INC.
(Exact Name of Registrant as Specified in its Charter)


Nevada
87-0437723
(State or other Jurisdiction of Incorporation or Organization)
(IRS Employer Identifcation Number)


306 Stoner Loop Road, Lakeside, MT 59922
(Address of Principal Executive Offices, Including Zip Code)

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

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 and 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 requirement for the past 90 days.   Yes T   No £

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

The number of shares outstanding of each of the registrant's classes of common stock, as of November 15, 2007, covered by this report: 97,868,489 shares.  The registrant has only one class of common stock.

Transitional Small Business Disclosure Format (check one):    Yes £ No T
 
 
EXPLANATORY NOTE
 
This Amendment No.1 to Form 10QSB (“Amendment”) is filed to clarify certain disclosures regarding the capital lease obligation with Accuprobe pursuant to which the Registrant continues to accrue liabilities.  These revised disclosures may be found on page 5 under the heading “Note 3 – Litigation” and on page 12 under the heading “Litigation”.  Further, this Amendment revises disclosures found on page 13 under the heading  “Item 3 – Controls and Procedures”  to be consistent with requirements of Item 308 of Regulation S-B and disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” found on page 7 under the heading “Corporate Focus”.
 

EAR TH SEARCH SCIENCES, INC.

TABLE OF CONTENTS

FORM 10-QSB

QUARTER ENDED SEPTEMBER 30, 2007

PART I

FINANCIAL INFORMATION




PART II

OTHER INFORMATION REQUIRED



EAR TH SEARCH SCIENCES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

   
September 30, 2007
   
March 31,   2007
 
ASSETS
           
Current assets:
           
Cash
  $ 9,345     $ 23,182  
Accounts receivable
    22,882       132  
Loan costs, net of accumulated amortization of $208,088 and $199,998, respectively
    59,591       28,225  
Total current assets
    91,818       51,539  
                 
Property and equipment, net accumulated depreciation  of $858,170 and $832,208, respectively
    258,020       309,944  
TOTAL ASSETS
  $ 349,838     $ 361,483  
                 
LIABILITIES
               
Current liabilities:
               
Accounts payable
  $ 1,160,774     $ 1,151,437  
Accrued expenses
    827,029       733,917  
Accrued officers’ compensation
    1,267,986       1,147,986  
Notes payable - current portion
    613,595       836,618  
Settlement obligation
    7,440,687       5,434,259  
Short-term debt – related parties
    2,987,304       2,698,954  
Total current liabilities
    14,297,375       12,003,171  
                 
Notes payable less current portion
    294,455       369,820  
Total liabilities
    14,591,830       12,372,991  
                 
Commitments and contingencies
    -       -  
                 
STOCKHOLDERS’ DEFICIT
               
Preferred stock, 300,000,000 shares authorized, none issued and outstanding
    -       -  
Common stock, $.001 par value; 300,000,000 shares authorized; 97,226,726 and 96,327,474 shares issued and outstanding, respectively
    97,227       96,328  
Additional paid-in capital
    46,855,675       46,577,053  
Treasury stock
    (200,000 )     (200,000 )
Subscription receivable
    -       (250,000 )
Accumulated deficit
    (60,994,894 )     (58,234,889 )
Total stockholders’ deficit
    (14,241,992 )     (12,011,508 )
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
  $ 349,838     $ 361,483  


See accompanying notes to consolidated financial statements.


E ART H SEARCH SCIENCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

   
Three months ended   September 30,
   
Six months ended   September 30,
 
   
2007
   
2006
   
2007
   
2006
 
                         
Revenues
  $ 22,750     $ 43,250     $ 22,750     $ 91,429  
                                 
Operating expenses
                               
Late fees related to settlement agreement
    1,006,668       529,687       1,866,708       977,749  
Depreciation and amortization
    32,966       51,925       67,905       51,925  
General and administrative
    318,496       273,353       640,535       1,064,432  
                                 
Total expenses
    1,358,130       854,965       2,575,148       2,094,106  
                                 
Loss from operations
    (1,335,380 )     (811,715 )     (2,552,398 )     (2,002,677 )
                                 
Other income (expense)
                               
Gain on settlement of debt
    -       -       15,049       -  
Loss on extinguishment of related party note
    -       (75,000 )     -       (75,000 )
Interest expense
    (110,354 )     (310,908 )     (222,656 )     (424,446 )
                                 
Net loss
  $ (1,445,734 )   $ (1,197,623 )   $ (2,760,005 )   $ (2,502,123 )
                                 
Basic and diluted:
                               
Loss per share
  $ (0.01 )   $ (0.01 )   $ (0.03 )   $ (0.03 )
Weighted average common shares outstanding
    97,060,667       80,093,719       96,816,931       79,490,033  


See accompanying notes to consolidated financial statements.


E ART H SEARCH SCIENCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

   
Six Months Ended
 
   
September 30,
 
   
2007
   
2006
 
             
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net loss
  $ (2,760,005 )   $ (2,502,123 )
Adjustments to reconcile net loss to cash used in operating activities:
               
Common stock issued for extension of loan
    -       72,000  
Loss on extinguishment of related party debt
    -       75,000  
Imputed interest
    22,357       -  
Common stock issued for services
    231,164       635,015  
Gain on settlement of debt
    (15,049 )     -  
Depreciation and amortization
    67,905       51,925  
                 
Changes in assets and liabilities:
               
Other current assets
    -       136,172  
Accounts receivable
    (22,750 )     (26,396 )
Accounts payable – related party
    (48,150 )     328,679  
Accounts payable and accrued expenses
    68,133       145,909  
Accrued officers compensation
    120,000       120,003  
Accrued settlement liability
    2,006,428       977,749  
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
    (329,967 )     13,933  
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Proceeds from stockholder loans, net
    336,500       -  
Proceeds from subscription receivable
    250,000       -  
Financing costs
    (47,347 )     -  
Payment on long-term debt
    (223,023 )     -  
Repayments on notes payable
    -       (49,007 )
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
    316,130       (49,007 )
                 
NET DECREASE IN CASH
    (13,837 )     (35,074 )
CASH AT BEGINNING OF PERIOD
    23,182       40,900  
CASH AT END OF PERIOD
  $ 9,345     $ 5,826  
                 
                 
SUPPLEMENTAL CASH FLOW INFORMATION:
               
Interest paid
  $ 35,100     $ -  
Taxes paid
    -       -  
                 
Non-cash financing and investing activities:
               
Common stock issued for debt repayment
  $ 26,000     $ 72,000  
Equity issued for loan extension
    -       75,000  


See accompanying notes to consolidated financial statements.


EA RTH SEARCH SCIENCES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
Six months ended September 30, 2007
(Unaudited)

   
Common   Shares
   
Stock   Amount
   
Additional   Paid-in   Capital
   
Treasury   Stock
   
Subscription   Receivable
   
Accumulated   Deficit
   
Total
 
Balances at March 31, 2007
    96,327,473     $ 96,328     $ 46,577,053     $ (200,000 )   $ (250,000 )   $ (58,234,889 )   $ (12,011,508 )
                                                         
Payment of subscription receivable
                                    250,000               250,000  
                                                         
Issuance of common stock for debt
    65,000       65       25,935                               26,000  
                                                         
Issuance of common stock for services rendered
    300,287       300       113,196                               113,496  
                                                         
Issuance of common stock for services rendered
    533,966       534       117,134                               117,668  
                                                         
Imputed interest
                    22,357                               22,357  
                                                         
Net loss
                                    -       (2,760,005 )     (2,760,005 )
                                                         
Balances at June 30, 2007
    97,226,726     $ 97,227     $ 46,855,675     $ (200,000 )   $ -     $ (60,994,894 )   $ (14,241,992 )


See accompanying notes to consolidated financial statements.


EA RTH SEARCH SCIENCES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements of Earth Search Sciences, Inc. ("ESSI") have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the audited financial statements and notes thereto contained in ESSI's Annual Report filed with the SEC on Form 10-KSB.  In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein.  The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.  Notes to the financial statements which would substantially duplicate the disclosure contained in the audited consolidated financial statements for 2007 as reported in the 10-KSB have been omitted.

Certain prior period amounts have been reclassified to conform with the current period presentation.

NOTE 2 - EQUITY

During the six months ended September 30, 2007 we issued:

 
·
834,253 shares of stock valued at $231,164 to various individuals for consulting services. The value of the stock was based on the quoted market price on the date of grant.

 
·
65,000 shares of stock valued at $26,000 for debt pursuant to a settlement agreement between ESSI and the third-party debtor. The value of the stock was based on the quoted market price on the date of grant. The $15,049 difference between the liability settled and the value of the stock was recognized as a gain on settlement of debt in accordance with SFAS No. 140.

NOTE 3 - LITIGATION

We were in dispute with another party over a leaseback purchase agreement for a Hyperspectral Probe.  On March 23, 2005, ESSI entered into a settlement agreement (2005 Settlement Agreement) with Accuprobe to return the airborne hyperspectral sensor (Probe) and to settle the outstanding debt obligations under the related capital lease. Under this agreement, ESSI was required to return the Probe on or before August 31, 2005, and did so in early 2007.  As the Probe was not returned by the August 2005 due date, ESSI was subject to a shipping, handling and disposition fee of $250,000.  Interest related to the $250,000 began accruing on September 2, 2005 at an annual rate of prime plus 4%.  In addition, rent is being accrued at $250,000 per year beginning April 10, 2000.  Interest on unpaid rent accrued at a rate of prime plus 2% through August 31, 2005 and was due quarterly. After August 31, 2005, interest related to the unpaid rent ceased and was replaced with a 5% late fee calculated on the entire balance due at the end of each month.
 
We have been unsuccessful in our attempts to contact Accuprobe for return of the probe. As a result, in January 2007, we shipped the probe to an acquaintance of Accuprobe with instructions to hold the probe until Accuprobe provides further instructions. Because we have been unable to reach Accuprobe regarding our return of the probe, we have continued to accrue rents, interest and late fees.
 
Under the 2005 Settlement Agreement, we had accrued $7,440,687 in rents, interest and late fees as of September 30, 2007.

NOTE 4 - GOING CONCERN

As shown in the accompanying financial statements, we incurred a net loss of $2,760,005 for the six months ended September 30, 2007 and had an accumulated deficit of $60,994,894 and a working capital deficit of $14,205,557 as of September 30, 2007.  These conditions raise substantial doubt as to ESSI's ability to continue as a going concern.  Management is trying to raise additional capital through sales of stock.  The financial statements do not include any adjustments that might be necessary if ESSI is unable to continue as a going concern.


NOTE 5 – NEW ACCOUNTING PRONOUNCEMENTS

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (FIN 48). This Interpretation provides guidance on recognition, classification and disclosure concerning uncertain tax liabilities. The evaluation of a tax position requires recognition of a tax benefit if it is more likely than not it will be sustained upon examination. We adopted this Interpretation effective January 1, 2007. The adoption did not have a material impact on our consolidated financial statements.

NOTE 6 – SUBSEQUENT EVENTS

Subsequent to September 30, 2007, we granted and issued 641,763 shares of common stock for services valued at $49,176.  The stock was valued based on the quoted market price on the date of grant.


M ANAG EMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CORPORATE FOCUS

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

We have four wholly-owned subsidiaries: Skywatch Exploration, Inc., Polyspectrum Imaging, Inc., Geoprobe, Inc., and STDC, Inc. In addition, there are five majority-owned consolidated subsidiaries: Earth Search Resources, Inc., Eco Probe, Inc., ESSI Probe 1 LC, Petro Probe, Inc. and Terranet, Inc. All subsidiaries except Petro Probe were inactive during fiscal 2006 and 2007.

The Company utilizes an aircraft mounted hyperspectral remote sensing instrument to gather precise geological data from the surface of the Earth. Solar energy is reflected from surface materials and the instrument, called "Probe-1", captures the data in digital form. The Probe-1 is a "whiskbroom style" instrument that collects data in a cross-track direction by mechanical scanning and in an along-track direction by movement of the airborne platform. The instrument acts as an imaging spectrometer in the reflected solar region of the electromagnetic spectrum (0.4 to 2.5 nm). In the VNIR and SWIR, the at-sensor radiance is dispersed by four spectrographs onto four detector arrays. Spectral coverage is nearly continuous in these regions with small gaps in the middle of the 1.4 and 1.9 nm atmospheric water bands. In order to avoid geometric distortions in the recorded imagery, the Probe-1 is mounted on a 3 axis, gyro-stabilized mount. Geolocation of nadir pixels is assisted by the recording of aircraft GPS positional data and tagging each scan line with a time that is referenced to the UTC time interrupts from the GPS receiver.

The spectral data is processed to identify unique spectra in the image. The captured and processed spectra are compared to a library of known material spectra called "digital fingerprints" and the output allows the identification of mineral, compounds and organic matter and the determination of vegetative conditions.

In the fiscal years from 2004 to 2006 the Company's sensors were operated in the United States and abroad.  Contracts to operate the sensors in the United States as an ecological, mining, agricultural, and hydrocarbon target identification tool produced revenues of $302,901, $192,297 and $258,843, in fiscal 2006, 2005, and 2004, respectively.

In 1997 we began a two-year contract with Noranda Minerals Inc. to provide hyperspectral remote sensing data over multi-continents The agreements called for a series of flights for Noranda Mining and Exploration Inc. and its affiliates including Falconbridge Limited (collectively, the "Noranda Group"). The agreements provided the Noranda Group with an exclusive license to use the instruments for commercial mining exploration, as long as the Noranda Group continued to purchase remote sensing services from the Company in certain specified quantities.  The Company was entitled to receive fees for services and net smelter royalties or net profit interest royalties from certain discoveries by the Noranda Group. The licensing agreement with the Noranda Group provided a $1,000,000 equity investment in ESSI by way of 200,000 preferred shares, convertible into 1,000,000 shares of common stock and an option to purchase 1,000,000 shares of ESSI common stock at a price of $2.00 per share. Targets were flown in Chile, Peru and the North West Territories in Canada.

Since 1997, the Company has also collected and holds a substantial archive of Probe 1 imagery from Kazakhstan, Australia, British Columbia, Ontario, Quebec, Chile, Mexico, California, Nevada, Arizona, Idaho, Montana, and Utah.  At the present time the value of this data archive has not been independently appraised nor is the value of this archive reflected in the financial statements.


The Company concluded a memorandum of agreement with Boeing that included the use of a unique Boeing aircraft possessing exceptional slow flight characteristics to be used in a variety of applications, the first being the flight over Yellowstone National Park as part of a NASA/Yellowstone Ecosystems Studies (Y.E.S.) project utilizing ESSI's Probe 1 hyperspectral imaging technology to collect one meter data to be utilized in addressing riparian issues.  Several test flights were performed during the period using the Probe 1 technology onboard a Boeing heliocourier aircraft.

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

The Company teamed with the University of Idaho in a joint proposal to the Farm Bureau and won a contract to overfly the Snake River Basin (Hell's Canyon).  The Company also collected hyperspectral data for the control and eradication of noxious weed intrusion.  The test results were published and initial results proved that airborne hyperspectral imagery is a useful tool for control of weeds, as well as providing information regarding economic indicators pertaining to forecasting crop yield.

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

The Company co-operated with the Dian Fossey Gorilla Fund International organization to utilize hyperspectral remote sensing in a unique project to examine the detail of vegetation in the gorillas' habitat in the jungles of Rwanda.  Hyperspectral imagery revealed the abundance and distribution of the gorillas' principal foods in the Virungas. This information was used to determine the number of gorillas the habitat can support. National Geographic Explorer chronicled the mission in a television documentary that was subsequently played on numerous following dates.

In 1999 the company was approached by the US Navy to participate in a joint venture to acquire ownership of a proposed remote sensing satellite. Under the direction of Office of Naval Research's Naval Space Science and Technology Program Office, the Naval EarthMap Observer (NEMO) satellite would be capable of meeting the hyperspectral and panchromatic needs of many end users with timeliness and spatial resolution improved over existing commercial systems. The Navy's environmental models supporting operations in the littoral would be considerably enhanced by hyperspectral imagery and data products provided by NEMO to improve knowledge of the littoral environment with information on bathymetry, water clarity and trafficability.

The ONR signed an Other Transaction with the Space Technology Development Corporation (STDC) of Arlington, VA to develop NEMO in conjunction with the Defense Advanced Research Projects Agency (DARPA) Dual Use Applications Program (DUAP). DUAP is a joint program of the Army, Navy, Air Force, DARPA, Director Defense Research and Engineering (DDR&E), and the Deputy Under Secretary of Defense for International and Commercial Programs.  Earth Search Sciences Inc. subsequently acquired STDC and its prime contractor partner position with the ONR. The project was to have a cost of approximately $150 million with the private sector portion approximately one-half of that amount. Earth Search Sciences Inc. undertook to meet the key funding milestone payments necessary to ensure progress of the project.

The Hyperspectral Imager (HSI) would sample over a 30 km swath width with a 60 m ground sample distance (GSD) with the option to go to 30 m GSD by utilizing the systems attitude control system to 'nod' (i.e. use a satellite pitch maneuver to slow down the ground track of the field of view). A 5m panchromatic imager will provide simultaneous high spatial resolution imagery (black & white photography). A sun   synchronous circular orbit of 600 km will allow continuous repeat coverage of the whole earth in 7 days providing hyperspectral data over a 1,000,000 sq. km area each day.


The combined HSI and panchromatic images would satisfy a number of requirements of the commercial and science communities for moderate spatial and high spectral resolution remote sensing data over land and water such as agriculture, forestry, environmental monitoring , geology/mineralogy, hydrology and land use. Specific areas of interest for the Navy included 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 subvisible cirrus.

It was anticipated that NEMO would be launched in early 2002. Its subsequent data flow would be in the order of 56 gigabytes per day. Much of the commercial information was to be marketed through Earth Search Sciences Inc. Under the original agreement with the ONR, STDC needed to raise private industry funds of approximately $125,000,000 in order to complete, launch and operate the hyperspectral imaging satellite and instrument. Subsequent to March 31, 2002, STDC received notification from the ONR that it would not be giving STDC an extension to the agreement.

These examples and others indicated the world-wide interest in the technology and a bright future for the industry and Company. Unfortunately the advent of the September 11, 2001 tragedy changed the approach of individual countries to the acceptance of data collection over their borders and an industry-wide slow down occurred as a result. The commercial interest in developing satellite technology also changed as investors decided the risk level had dramatically increased due to international tensions.

CURRENT BUSINESS

As a result of the changes in the market for geological remote sensing data, the Company changed its strategy from operating as a service provider to establishing a group of subsidiary companies focused on specific market applications. Petro Probe, Inc. was a new subsidiary company formed for the oil & gas industry while Geo Probe, Inc. was formed for mineral exploration.

The resurgence of the mining industry and the emphasis for new sources of supply for oil and gas in recent years created a greater interest in using exploration tools that were faster and more accurate. The new subsidiary companies would seek joint ventures with partners who could provide technologies, human and capital resources to synergize with the Company's assets. This strategy will lead to the creation of more demand for ESSI's hyperspectral remote sensing services while providing the company with prospects for more diversified revenue generation.

The  Company  experiences  the  highest  demand for its collection services April  through  October  in the Northern Hemisphere and October through April in the  Southern  Hemisphere.  Contracts are being sought in the following market segments: mining, hydrocarbon, agriculture, ecological and environmental monitoring. With the advent of the world-wide recognition for control of global-warming issues the Company will commence the development of an environmentally focused marketing plan to portray the advantages of airborne hyperspectral remote sensing to these market segments.

SUBSIDIARY COMPANIES

Petro Probe, Inc.'s goal is to develop the competitive advantages of its resource mapping capability, combine that with conventional hydrocarbon exploration tools and then apply newer value-added technologies to identify good oil and gas properties.

Geo Probe, Inc. will use the hyperspectral mapping technology to find new mineral deposits and monitor the environmental impact of active and past-producing mines, mills, smelters, refineries and pipelines.  The Company’s mapping agreement with Noranda Minerals provided the ability to develop and prove these new approaches to mineral exploration.


Geo Probe has also attracted potential new alliance partners, Advanced Exploration  Inc. and Geological  Business Inc., two Canadian companies, have discussed the formation of new  exploration  and mine development  business with the Company. Further discussions are forthcoming.

Eco Probe, Inc. was formed to pursue hyperspectral remote sensing applications in the environmental industry.  The Company has strived to take 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 mineral industries, forest inventory and health issues, slope stability assessment and the spread of noxious weeds.

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

The Company formed Terranet, Inc. to act as an imagery product distribution conduit and perform as the Company’s e-commerce content provider. Recognizing  that imagery  collected  today  and yesterday could be sold repeatedly to multiple end users the Company's subsidiary company, Terranet, completed the copyright design and testing of a database and internet centered marketing system. Terranet anticipates new joint venture partners to be available when the hyperspectral industry begins to grow again.

Of the other ESSI wholly-owned subsidiaries: Skywatch Exploration, Inc., Polyspectrum Imaging, Inc., and Space Technology Development Corp.are inactive. Of the other majority-owned consolidated subsidiaries: Earth Search Resources, Inc. and ESSI Probe 1 LC are inactive.

Historically ESSI's core business has been focused on collecting and processing airborne hyperspectral data for the production of detailed surface maps. These maps indicate the exact chemical and physical characteristics of all the materials exposed on the surface of the Earth. The Company was one of the early pioneers in developing the technology globally and has now served a number of clients in various countries.

The company realizes that opportunity exists in using the technology to discover properties for mineral and hydrocarbon exploitation. It was a natural growth step to create a strategy of developing subsidiary companies in key natural resource markets wherein exploration discoveries could be maximized by "in-house" development. The company is currently pursuing these avenues in the mineral and oil and gas industries.

RESULTS OF OPERATIONS

Our data collection aircraft was grounded for repairs for FAA required maintenance in 2006 and was not operational during the first two fiscal quarters of 2008.  However, we generated revenue from the sale of certain prove-data previously gathered.  As a result, our revenues for the three and six months ended September 31, 2007 was $22,750 and $22,750, respectively, compared to revenues of $43,250 and $91,429 for the same periods of 2006.

Late fees related to a settlement agreement were $1,006,668 and $1,866,708 for the three and six month periods ended September 30, 2007, compared to $529,687 and $977,749 for the same periods in 2006. The late fee is based on a 5% cumulative fee, which increases each quarter due to the compounding effect.

Depreciation and amortization expense was $32,966 and $67,905 for the three and six month periods ended September 30, 2007, compared to $51,925 and $51,925 for the same periods of 2006.

General and administrative expenses were $318,496 and $640,535 for the three and six month periods ended September 30, 2007, compared to $273,353 and $1,064,432 for the corresponding periods of 2006.

Interest expense for the three and six month periods ended September 30, 2007 was $110,354 and $222,656, compared to interest expense of $310,908 and $424,446 for the corresponding period in 2006.


LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities was $329,967 for the six months ended September 30, 2007 compared to net cash provided by operating activities of $13,933 for the six months ended September 30, 2006 resulting primarily from a net loss of $2,760,005 during the six months ended September 30, 2007, net of certain non-cash expenses.

Net cash provided by financing activities was $316,130 for the six months ended September 30, 2007 compared to cash used of $49,007 for the same period of 2006.

During the six months ended September 30, 2007, two stockholders, who are also the primary management of the Company, loaned us $336,500. In addition, we received $250,000 of cash from a subscription receivable both of which accounted for the cash provided by financing activities.

We are experiencing working capital deficiencies because of operating losses. We have operated with funds received from the sale of common stock, the issuance of notes and limited operating revenue. Our ability to continue as a going concern is dependent upon continued debt or equity financings until or unless we are able to generate cash flows to sustain ongoing operations. We plan to increase the number of revenue producing services through the use of additional hyperspectral instruments and thereby continue as a going concern.  There can be no assurance that we can generate sufficient operating cash flows or raise the necessary funds to continue as a going concern.

FUTURE OPERATIONS

The Company is actively researching new exploration and exploitation technologies to complement and integrate with its hyperspectral capabilities.

General Synfuels International, Inc., (GSI) a Nevada private company, owns the world-wide proprietary rights, patent, technology, construction plans and materials and operational capability for a gasification process recover the oil and gas from oil shale. Petro Probe, Inc. signed a non-exclusive license agreement with GSI to obtain the use of these rights in a world-wide territory. PPI will pay a license fee in the amount of Five Hundred Thousand United States Dollars ($500,000) and shall issue to GSI 500,000 fully paid and non-assessable shares of PPI Common Stock, $.001 par value per share.  PPI also agreed to assign to GSI an overriding net revenue interest of five and one-half percent (5 %) of the hydrocarbonaceous products produced by PPI, payable quarterly.

PPI is examining various oil shale sites in Colorado and Utah for a test plant. Five acres of premium oil shale land is sought. The test plant is budgeted for approximately $1.5 million as a first stage development cost. This will prove the technology. The second and third stages will cost approximately $8 million more at which time the plant could operate at full capacity. The time line for completion of all stages is one year.

In its search for new complementing technologies, PPI encouraged the creation of an alliance with two other companies in oil shale R&D. Independent Energy Partners, Inc. (IEP) and Phoenix Wyoming Inc., (PWI) both Colorado private companies, have their own non-competitive interests in oil shale. IEP owns the exclusive rights to a broad, patented Geothermic Fuel CellTM (GFC) method, (US Patent No. 6,684,948 B1-Apparatus and Method For Heating Subterranean Formations Using Fuel Cells), to economically produce oil and natural gas from unconventional resources such as oil shale, while producing electricity as a byproduct.  IEP also has acquired the mineral rights on property in Rio Blanco County, Colorado on some of the richest "Mahogany Zone" oil shale property in the world, holding an estimated 1.4-2.4 billion barrels of oil. PWI owns certain proprietary intellectual property and methods designed to bring the advantages of microwave technology to an oil shale borehole. This alliance effort is being examined by the parties. Continuing its interest to maintain an industry leadership positioning hyperspectral work ESSI is developing a joint venture with Intellisense Corporation to design and construct a third generation hyperspectral instrument design. This design is proposed in patent pending application #0050046822 which the Company is negotiating an LOI position for purchase. The new instrumentation would allow for faster, less expensive and more precise data collection.


The capability to design and maintain new technologies is key to the Company's success in future operations. It will be a vital component to allow continuing exploration and exploitation of the Earth's natural resources.

The Company has the knowledge and experience to build on the opportunities being presented at this time.

Each subsidiary will focus on a specific sector of commercial remote sensing and have a management team with relevant skills and expertise.  The Company will provide a license to use the Company's hyperspectral instruments and processing support. This strategy creates a ready market for the Company, as well as positioning the Company to receive a royalty from any resource development that occurs as a result of the subsidiaries' use of the Company's instruments and technology. Additional capital will be raised for each subsidiary by means of private placements or public offerings.

The Company's intent is to create partnerships, strategic alliances, mergers or acquisitions for the subsidiaries as the most expeditious and cost-effective way to grow the commercial hyperspectral remote sensing market.

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

1.     contracts that produce revenues from the application of remote sensing;

2.     the development of additional miniaturized remote sensing instruments and newer generation airborne instruments to replace the current PROBE-1 model;

3.     the integration of other advanced technology exploration instruments with hyperspectral technology to offer clients a "one-stop" convenience;

4.     the development of promising mineral, oil and gas properties;

5.     the acquisition of licenses or options to new technologies for minerals or oil and gas production that can assist the company to become a resource developer and producer as well as an exploration oriented business.

The company will continue to develop a market for its securities under the new trading symbol ESSE.

LITIGATION

We entered into a civil law suit in the United States District Court for the Eastern District of Virginia as a plaintiff along with our subsidiary company, Space Technology Development Corporation. The Company charged that The Boeing Company caused the plaintiffs substantial damages as a direct result of their breach of the covenant of good faith and fair dealing.

We were in dispute with another party over a leaseback purchase agreement for a Hyperspectral Probe.  On March 23, 2005, ESSI entered into a settlement agreement (2005 Settlement Agreement) with Accuprobe to return the airborne hyperspectral sensor (Probe) and to settle the outstanding debt obligations under the related capital lease. Under this agreement, ESSI was required to return the Probe on or before August 31, 2005 .  As the Probe was not returned by the August 2005 due date, ESSI was charged a shipping, handling and disposition fee of $250,000.  Interest related to the $250,000 began accruing on September 2, 2005 at an annual rate of prime plus 4%.  In addition, rent is being accrued at $250,000 per year beginning April 10, 2000.  Interest on unpaid rent accrued at a rate of prime plus 2% through August 31, 2005 and was due quarterly. After August 31, 2005, interest related to the unpaid rent ceased and was replaced with a 5% late fee calculated on the entire balance due at the end of each month.
 
We have been unsuccessful in our attempts to contact Accuprobe for return of the probe. As a result, in January 2007, we shipped the probe to an acquaintance of Accuprobe with instructions to hold the probe until Accuprobe provides further instructions. Because we have been unable to reach Accuprobe regarding our return of the probe, we have continued to accrue rents, interest and late fees.
 
Under the 2005 Settlement Agreement, we had accrued $7,440,687 in rents, interest and late fees as of September 30, 2007.


ITEM 3.  CONTROLS AND PROCEDU RES

We carried out an evaluation, under the supervision and with the participation of the our management, including the Chairman and Chief Executive Officer of the Company and Chief Financial Officer of the Company, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) as of September 30, 2007. Based upon that evaluation, the Chairman and Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective. Specifically, in prior periods, some of the accounting entries relating to accounts payable, accrued interest unrecorded debt, stock issued for services, imputed interest, debt commissions and recognition of liabilities from legal settlement required adjustment upon review by our independent auditors. We undertook measures to remedy this situation by working with the auditors and engaged an outside advisor to provide accounting advice and assistance with implementing internal procedures to ensure that controls and procedures are adequate and effective. These deficiencies were reported to our Board of Directors with the intent to improve and strengthen our controls and procedures.  As a result of the engagement of the outside advisor and the assistance provided to us, there were no major adjustments made by our independent auditors for the quarter ended September 30, 2007, based on their review.
 
During the period, we engaged an outside advisor to provide accounting and reporting advice and oversight. This advisor reviewed the accounting entries and disclosures included this Form 10-QSB.  There has not been any change in our internal control over financial reporting that occurred during the quarter ended September 30, 2007 that has materially affected, or that is reasonably likely to materially affect our internal control over financial reporting.



PART II
OTHER INFORMATION REQUIRED

Item 1.
Legal pro cee dings

None

Item 2.
Un regi stered sales of equity securities and use of proceeds
None

Item 3.
Def aul ts upon senior securities

None

Item 4.
Subm issi on of matters to a vote of security holders

None

Item 5.
Other inf orma tion

Not applicable.
 
Item 6.
Ex hibi ts

 
Exhibit Number
Description
   
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith)
   
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith)
   
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith)
   
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith)



SI GNA TURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned.


 
EARTH SEARCH SCIENCES, INC.
   
   
Date:  April 21, 2008
/s/ Larry F. Vance
 
Larry F. Vance
 
Principal Executive Officer



 
/s/ Tami J. Story
 
Tami J. Story
 
Principal Accounting Officer
 
 
14
Earth Search Sciences (CE) (USOTC:ESSE)
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