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EX-31.1 - EXHIBIT 31.1 CEO - EARTH SEARCH SCIENCES INCexhibit311.htm
EX-32.1 - EXHIBIT 32.1 CEO - EARTH SEARCH SCIENCES INCexhibit321.htm
EX-32.2 - EXHIBIT 32.2 CFO - EARTH SEARCH SCIENCES INCexhibit322.htm
EX-31.2 - EXHIBIT 31.2 CFO - EARTH SEARCH SCIENCES INCexhibit312.htm
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x           QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended December 31, 2009

¨           TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______to_______

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 Identification 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 Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by a check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting companyx

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
 
Number of shares of common stock outstanding at February 12, 2009: 199,487,890
 
 
 

 

EARTH SEARCH SCIENCES, INC.

TABLE OF CONTENTS

FORM 10-Q

QUARTER ENDED December 31, 2009


PART I
 
FINANCIAL INFORMATION
 
Item 1. Consolidated Financial Statements (Unaudited)
Page
     
 
Consolidated Balance Sheets as of December 31, 2009 and March 31, 2009
3
     
 
Consolidated Statements of Expenses for the three and nine months ended December 31, 2009 and 2008
4
     
 
Consolidated Statements of Cash Flows for the nine months ended December 31, 2009 and 2008
5
     
 
Consolidated Statement of Changes in Stockholders’ Deficit for the nine months ended December 31, 2009
6
     
 
Selected notes to consolidated unaudited financial statements
7-8
     
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
9-12
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk
12
   
Item 4T. Controls and Procedures
12
PART II
 
OTHER INFORMATION REQUIRED
 
Item 1. Legal Proceedings
13
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
13
Item 3. Defaults Upon Senior Securities
13
Item 4. Submission of Matters of a Vote of Security Holders
13
Item 5. Other information
13
Item 6. Exhibits
13

 
 

 


EARTH SEARCH SCIENCES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

   
December 31, 2009
   
March 31, 2009
 
             
ASSETS
           
Current assets:
           
Cash
 
$
110,263
   
$
70,618
 
Prepaid expenses
   
1,250
     
13,448
 
Loan costs, net of accumulated amortization of $261,261 and $258,003, respectively
   
14,309
     
17,567
 
Total current assets
   
125,822
     
101,633
 
                 
Property and equipment, net accumulated depreciation of $1,117,790 and $1,040,180, respectively
   
24,362
     
102,247
 
Intangible asset – patent
   
25,300
     
25,300
 
Deposits
   
887,076
     
914,516
 
TOTAL ASSETS
 
$
1,062,560
   
$
1,143,696
 
                 
LIABILITIES
               
Current liabilities:
               
Accounts payable
 
$
1,427,467
   
$
1,513,631
 
Accounts Payable – related parties
   
413,132
     
389,968
 
Accrued expenses
   
4,226,638
     
3,395,875
 
Current portion of notes payable
   
2,028,440
     
2,128,440
 
Settlement obligation
   
8,686,824
     
8,686,824
 
Current portion of notes payable – related parties
   
1,745,716
     
2,557,258
 
Total current liabilities
   
18,528,217
     
18,671,996
 
                 
Long term portion of notes payable
   
-
     
500,000
 
Long term portion of notes payable – related parties
   
-
     
500,000
 
                 
Total liabilities
   
18,528,217
     
19,671,996
 
                 
                 
STOCKHOLDERS’ DEFICIT
               
Preferred stock, 300,000,000 shares authorized, $.001 par value, 31,250,000 and 0 issued and outstanding, respectively or none issued and outstanding
   
31,250
     
-
 
Common stock, $.001 par value; 300,000,000 shares authorized; 199,487,890 and 194,655,705 shares issued and outstanding, respectively
   
199,487
     
194,654
 
Additional paid-in capital
   
55,188,118
     
53,315,070
 
Treasury Stock
   
(200,000)
     
(200,000)
 
Accumulated deficit
   
(72,684,512
)
   
(71,838,024
)
Total stockholders’ deficit
   
(17,465,657
)
   
(18,528,300
)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
$
1,062,560
   
$
1,143,696
 
                 
                 





See accompanying notes to unaudited consolidated financial statements.

 
 

 

EARTH SEARCH SCIENCES, INC.
CONSOLIDATED STATEMENTS OF EXPENSES
(UNAUDITED)




       
Three months ended December 31,
 
Nine months ended December 31,
 
2009
 
2008
 
2009
 
2008
                       
Revenues
$
-
 
$
-
 
$
-
 
$
-
                       
Operating expenses
                     
Depreciation and amortization
 
25,962
   
25,962
   
77,886
   
51,924
General and administrative
 
382,208
   
6,410,526
   
1,121,375
   
6,686,232
                       
Total expenses
 
408,170
   
6,436,488
   
1,199,261
   
6,738,156
                       
Loss from operations
 
(408,170)
   
(6,436,488)
   
(1,199,261)
   
(6,738,156)
                       
Gain on conversion of debt
 
-
         
781,250
   
-
Interest expense
 
(146,230)
   
(153,129)
   
(428,475)
   
(272,708)
                       
Net loss
$
(554,400)
 
$
(6,589,617)
 
$
(846,486)
 
$
(7,010,864)
                       
Basic and diluted:
                     
Loss per common share
$
(0.00)
 
$
(0.04)
 
$
(0.00)
 
$
(0.05)
Weighted average common shares outstanding - basic and diluted
 
199,487,890
   
156,926,195
   
199,487,890
   
134,276,016









See accompanying notes to unaudited consolidated financial statements.


 
 

 

EARTH SEARCH SCIENCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

   
Nine Months Ended
 
   
December 31,
 
   
2009
   
2008
 
             
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net loss
 
$
(846,486)
   
$
(7,010,864)
 
Adjustments to reconcile net loss to cash used in operating activities:
               
Depreciation and amortization
   
77,886
     
51,924
 
Amortization of deferred finance costs
   
3,258
     
14,008
 
Gain on conversion of debt
   
(781,250)
     
-
 
Common stock issued for services
   
96,644
     
843,004
 
Common stock issued for vendor payable
   
-
     
129,969
 
Common stock issued for services related to the purchase of asset – General Synfuels International
   
-
     
2,994,700
 
Payable issued for services related to the purchase of asset- General Synfuels International
   
-
     
2,500,000
 
Imputed interest
   
93,738
     
61,117
 
                 
Changes in assets and liabilities:
               
Accounts payable and accrued expenses
   
715,214
     
(170,574)
 
Accounts payable – related party
   
25,583
     
60,199
 
Accrued interest – related parties
   
149,402
     
18,478
 
Deposits
   
-
     
(652,056)
 
Prepaid expenses and other current asset
   
12,198
     
(11,960)
 
NET CASH USED IN OPERATING ACTIVITIES
   
(453,813)
     
(519,999)
 
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
    Cash paid for equipment
   
(95,000)
     
-
 
    Deposits           (652,056)   
                 
NET CASH USED IN INVESTING ACTIVITIES
   
(95,000)
     
(652,056)
 
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Proceeds from stockholder loans, net
   
(61,542)
     
3,000
 
Repayment on related party debt
   
-
     
(88,541)
 
Proceeds from issuance of common stock
   
-
     
1,363,500
 
Proceeds from issuance of convertible notes
   
650,000
     
-
 
Principal payments on short-term debt
   
-
     
(103,686)
 
NET CASH PROVIDED BY FINANCING ACTIVITIES
   
588,458
     
1,174,273
 
                 
NET INCREASE (DECREASE) IN CASH
   
39,645
     
2,218
 
CASH AT BEGINNING OF PERIOD
   
70,618
     
8,821
 
CASH AT END OF PERIOD
 
$
110,263
   
$
11,039
 
                 
                 
SUPPLEMENTAL CASH FLOW INFORMATION:
               
Interest paid
 
$
56
   
$
169,192
 
Taxes paid
   
-
     
-
 
                 
Non-cash financing and investing activities
               
 Common stock issued for asset
 
$
-
   
$
5,300
 
 Deposit included in account payable
 
$
27,440
   
$
119,881
 
     Prepaid compensation in account payable
 
$
-
   
$
75,000
 
     Preferred stock issued for convertible related party  debt
 
$
1,250,000
   
$
-
 
                 

See accompanying notes to unaudited consolidated financial statements.

 
 

 

EARTH SEARCH SCIENCES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
Nine months ended December 31, 2009
(Unaudited)

 

                 
Additional
           
 
Preferred
 
Stock
 
Common
 
Stock
 
Paid-in
 
Treasury
 
Retained
   
Description
Stock
 
Amount
 
Shares
 
Amount
 
Capital
 
Stock
 
Deficit
 
Total
                               
 Balances at March 31. 2009
-
 
-
 
194,655,705
 
194,654
 
53,315,070
 
(200,000)
 
(71,838,024)
 
(18,528,300)
                               
 Imputed Interest
               
93,736
         
93,736
 Issue Preferred stock for convertible debt
15,625,000
 
15,625
         
453,125
         
468,750
 Issue Preferred stock for convertible related party debt
15,625,000
 
15,625
         
1,234,375
         
1,250,000
 Issue Common stock for services
       
4,832,188
 
4,832
 
91,812
         
7,001
 Net Loss
                       
(846,486)
 
(846,486)
 Balances at December 31, 2009
31,250,000
 
31,250
 
199,487,893
 
199,487
 
55,188,118
 
(200,000)
 
(72,684,510)
 
(17,465,656)










See accompanying notes to unaudited consolidated financial statements


 
 

 

EARTH 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-K for the fiscal year ended March 31, 2009. 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 2009 as reported in the 10-KSB have been omitted.

We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.

NOTE 2 - GOING CONCERN

As shown in the accompanying financial statements, we incurred a net loss for the nine months ended December 31, 2009 and had an accumulated deficit and a working capital deficit as of December 31, 2009. 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 and or loans to the Company. The financial statements do not include any adjustments that might be necessary if ESSI is unable to continue as a going concern.

NOTE 3 – CONVERSION OF DEBT TO PREFERRED STOCK

On July 9, 2009, we issued 31,250,000 shares of Series C Convertible Preferred Stock in exchange for $2,500,000 of convertible debt outstanding at that time. Each preferred share is convertible into one share of common at the holder’s option until July 9, 2014, at which time the preferred shares are automatically converted to common stock provided that the company is in compliance with certain terms. Holders of preferred shares have voting rights equal to the equivalent number of common shares and participate in any cash dividends declared by the Board of Directors. In addition, holders of the preferred shares have a preferential right over other classes of stock in the event of liquidation. Based on its characteristics, the preferred shares are reported as equity.

We evaluated the notes conversion features under FASB ASC 470 and determined that the convertible notes is settled with preferred stock and therefore do not meet the criteria for troubled debt restructuring  or a modification of debt.

The preferred stock is convertible at $0.08 cents per share and the entire $2.5 million is convertible into an aggregate 31,250,000 shares of series C preferred shares.

The Series C Convertible Preferred shares contain dividend participation and voting rights on an as converted basis.  In addition, the Series C Convertible Preferred shareholders have preferential rights over other classes of stock in the event of liquidation. The Series C Convertible Preferred shares contain a mandatory conversion feature which is triggered on the fifth anniversary of the closing date, or July 8, 2014.  These preferred shares are convertible into an aggregate of 31,250,000 common shares. The conversion feature was evaluated under FASB ASC 815 to determine whether it should be bifurcated and recorded as a derivative liability. Based on this evaluation, the embedded feature is clearly and closely related to the host contract and is therefore not bifurcated under the appropriate accounting guidance. As a result, there is no derivative liability.

NOTE 4 - EQUITY

On November 15, 2009, the Company issued 1,482,188 shares of common stock valued at $29,644 for consulting services.  Also on November 15, 2009 the Company issued 3,000,000 shares of common stock valued at $60,000 for compensation expense.  The value of the stock was based on the quoted market price on the measurement date, which was primarily the date of grant.

NOTE 5 - DEBT

On September 18, 2009 we issued $400,000 of 10% promissory notes.

On May 22, 2009 our subsidiary General Synfuels International issued $250,000 of 10% convertible promissory notes. These notes will automatically convert into GSI, at a price equal to 70% of the purchase price per share paid by equity investors, upon an equity financing in GSI of at least $3,000,000. The notes contain a change of control feature and become due and payable at 1.5 times the principal amount upon a change of control. We evaluated the conversion feature under FASB ASC 815 and determined that the conversion feature should not be bifurcated and therefore there is no derivative liability.

In connection with the notes, we issued a warrant that allows the debt holder to purchase $250,000 in GSI’s Series A Preferred Stock at fair market value. The warrants allow the note holder to purchase GSI Preferred stock at the fair market price. Consequently, there was no value assigned to the warrant.

NOTE 6 – SUBSEQUENT EVENTS

The Company evaluated subsequent events through February 16, 2010 and determined there were none requiring disclosure.


 
 

 

FORWARD-LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Item 2 of Part I of this Quarterly Report include forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by forward-looking statements.

In some cases, you can identify forward-looking statements by terminology such as "may," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "proposed," "intended," or "continue" or the negative of these terms or other comparable terminology. You should read statements that contain these words carefully, because they discuss our expectations about our future operating results or our future financial condition or state other "forward-looking" information. There may be events in the future that we are not able to accurately predict or control. You should be aware that the occurrence of any of the events described in this Quarterly Report could substantially harm our business, results of operations and financial condition, and that upon the occurrence of any of these events, the trading price of our securities. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, growth rates, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this Quarterly Report to conform these statements to actual results.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CORPORATE FOCUS

Earth Search Sciences, Inc. (ESSI) is a Nevada corporation. We have five wholly-owned subsidiaries: Skywatch Exploration, Inc., Polyspectrum Imaging, Inc., Geoprobe, Inc., STDC, Inc and General Synfuels International (GSI). 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 2007 and 2008. General Synfuels International became active during the quarter ending December 31, 2008.

We did not generate any revenue during fiscal year 2008, have no current business operations and are currently focused on two potential business ventures.

Effective December 14, 2009, Luis F. Lugo and Charles G. Bridge resigned as the Chief Executive Officer and Chief Financial Officer of Earth Search Sciences, Inc. (the “Company”) respectively.  Both Mr. Lugo and Mr. Bridge will continue with their positions as President and CEO, and Chief Financial Officer of Earth Search Sciences wholly own subsidiary General Synfuels..

There were no disagreements between Mr. Lugo or Mr. Bridge and any officer or director of the Company.
Upon the resignation of Mr. Lugo, Mr. Larry Vance adopted the role of Chief Executive Officer of the Company effective December 14, 2009.  Mr. Vance, along with The Board of Directors of the company, has initiated immediately the search for Mr. Lugo’s replacement by an individual with experience in the core business of Earth Search Sciences that is Hyperspectral technology as well as mineral discoveries.

Mr. Lugo and Mr. Bridge will focus on the continuous development of General Synfuels as it has increased substantially its business activities and requires full attention of these officers.

First, we are working with certain investors to develop and employ technology in the extraction of oil and gas from oil shale. During the third quarter of 2008 ESSI acquired General Synfuels International, Inc, owner of the world-wide proprietary rights, patent, technology, construction plans and materials and operational capability for a gasification process to recover the oil and gas from oil shale. GSI has refined the design and begun development of our first plant. However, the current state of the financial markets has negatively impacted our ability to raise the additional funds necessary to complete our plant. Our current plan is to complete a field test of this technology as early as the fourth quarter of 2009 and subsequent commercial development as early as 2011.  Additionally we have secured oil shale land in both Wyoming and Colorado.

GSI continues to develop additional patents related to our technology and as part of that process we are exploring a tar sands application.  We anticipate the tar sands application to be used internationally.

Second, we are seeking joint venture opportunities with private industry, universities and state and federal agencies to develop, package and deliver, through the application of our hyperspectral remote sensing solutions, applications and associated technologies, superior airborne mapping products and services. Our airborne hyperspectral remote sensing technology is designed to identify specific surface substances and materials by measuring the reflectance of light from their surface. Their first spectroscopic instrument, the PROBE 1, was initially developed with the assistance of NASA and used a small aircraft as the instrument platform to obtain data from high altitudes over many different terrains. The information was precise enough to enable detailed analysis of a dynamic environment or object in a manner previously unattainable, and can be used for the discovery of certain natural resources.

Exploitation of Oil and Gas from Oil Shale

On August 15th of 2008 ESSI acquired all of the outstanding shares of General Synfuels International, Inc. (GSI), an entity controlled by certain management and directors of ESSI. This transaction was accounted for as an asset purchase due to the fact that GSI was dormant, did not have customers or employees and only held certain proprietary rights, patent, technology and construction plans for a gasification process to recover the oil and gas from oil shale. In addition, the asset was recorded at its historical cost due to the fact that this transaction was between entities under common control. Prior to the acquisition, both entities were controlled by certain members of management. The $5,494,700 value in excess of the historical cost of the asset was recorded as compensation expense.

ESSI paid the individual GSI Shareholders $5,500,000: 33,333,333 shares of common stock valued at $3,000,000 based on the closing price of ESSI’s stock on the date of the transaction; and $2,500,000 in the form of promissory notes payable to the GSI shareholders in five equal payments of $500,000. On July 9, 2009, the holders of our $2.5 million convertible promissory notes that were issued in connection with the purchase of GSI agreed to exchange their convertible notes for convertible preferred stock with an equal face value. The preferred stock is convertible at $0.08 cents per share and the entire $2.5 million is convertible into an aggregate 31,250,000 shares of series C preferred shares.

The Series C Convertible Preferred shares contain dividend participation and voting rights on an as converted basis.  In addition, the Series C Convertible Preferred shareholders have preferential rights over other classes of stock in the event of liquidation. The Series C Convertible Preferred shares contain a mandatory conversion feature which is triggered on the fifth anniversary of the closing date, or July 8, 2014.  These preferred shares are convertible into an aggregate of 31,250,000 common shares.

GSI is currently examining various private oil shale sites in Colorado and Wyoming for a test plant as well as starting the process of applying for a Bureau of Land Management R&D oil shale lease. The first plant is budgeted for approximately $8 million as a first stage development cost. The purpose of this plant is to prove certain operating variables.

During the quarter ended December 31, 2009, we held $887,076 in deposits related to the development of a plant related to the oil shale gasification process acquired through GSI.  During the quarter, nothing was paid with the balance of $40,020 recorded as accounts payable.  Once the plant is complete, further investment will be required for commercial production.

Hyperspectral Remote Sensing Solutions

In the past, we have utilized 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.

We are actively seeking funding to engineer and manufacture a third generation probe instrument, which will be capable of analyzing substantially more data inputs, including chemical, light, pressure, vibration, and acceleration. The new design will operate at extremely high speed with excellent resolution. We expect that the combination of substantially improved analysis and higher resolution will open up new markets.

We are currently evaluating hyperspectral imagery collected to date so that we can determine whether this archive of information can be used to locate mineral properties.

Our aircraft was grounded in 2006 for FAA required maintenance and repairs. As a result, our hyperspectral remote sensing operations have ceased until such time that we raise sufficient funding to repair our aircraft or purchase a new aircraft.

RESULTS OF OPERATIONS

Our data collection aircraft was grounded for repairs for FAA required maintenance in 2006 and has not been operational since that time. As a result, we had no revenues during the nine months ended December 31, 2009 or 2008.

Depreciation and amortization expense was $77,886 for the nine month period ended December 31, 2009 and December 31, 2008.

General and administrative expenses were $1,121,375 for the nine month period ended December 31, 2009, compared to $6,686,232 for the corresponding period of 2008. General and administrative expenses are higher primarily for the nine month ended December 31, 2008 is due to the acquisition of General Synfuels International, Inc.

Interest expense for the nine month period ended December 31, 2009, was $428,475 compared to interest expense of $272,708 for the corresponding period in 2008.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities was $453,813 for the nine month period ended December 31, 2009 compared to net cash used by operating activities of $1,172,055 for the nine month period ended December 31, 2008. The decrease in cash used in operations is primarily due to compensation expense related to the acquisition of GSI.

Net cash used by investing activities was $95,000 for the nine month ended December 31, 2009 compared to $0 for the nine month period ended December 31, 2008. The increase in cash used in investing is entirely due to deposit related to our oil shale recovery plant.

Net cash provided by financing activities was $588,458 for the nine month period ended December 31, 2009 compared to cash provided of $1,174,273 for the same period of 2008. During the nine months ended December 31, 2009, we received $650,000 in debt financing. This compared to cash proceeds from a private placement of $1,363,500 and debt financing and shareholder loans of $243,000 for the similar period in 2008 that was offset by payments on debt and financing costs of $192,227.

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 no 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 development of our oil shale extraction technology and 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, ESSI is not required to provide disclosure under this Part I, Item 3.

ITEM 4T. CONTROLS AND PROCEDU RES

Disclosure Controls and Procedures

Our management, principally our Chief Executive Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our management concluded that our disclosure controls and procedures as of the end of the period covered by this report were not effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i.) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding disclosure. As part of our management’s assessment of internal controls over financial reporting as of March 31, 2009 we identified material weaknesses in our internal controls which we viewed as an integral part of our disclosure controls and procedures. The material weakness is identified below and as of December 31, 2009 have been partially remediated.

There is an over-reliance upon independent financial reporting consultants for review of critical accounting areas and disclosures and material non-standard transactions.

There is a lack of sufficient accounting staff which results in a lack of segregation of duties necessary for a good system of internal control. 

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or that are reasonably likely to materially affect our internal control over financial reporting.



 
 

 

PART II
OTHER INFORMATION REQUIRED

Item 1.   Legal proceedings

None

Item 2.  Unregistered sales of equity securities

On November 5, 2009, the Company issued 1,482,188 shares of common stock valued at $29,644 for consulting services and 3,000,000 shares of common stock valued at $60,000 for compensation expense. The value of the stock was based on the quoted market price on the measurement date, which was primarily the date of grant.

Item 3. Defaults upon senior securities

None

Item 4. Submission of matters to a vote of security holders

None

Item 5.  Other information

None

Item 6. Exhibits

Exhibit Number
Description
   
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).
   
10.1
Purchase and Sale of Business Agreement between Earth Search Sciences, Inc. and Ken Danchuk, Ron McQueen and Larry Vance dated August 15, 2008 (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8K as filed September 9, 2008)
   
10.2
Promissory Note of Earth Search Sciences, Inc. in favor of Ken Danchuk dated August 15, 2008 (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8K as filed September 9, 2008)
   
10.3
Promissory Note of Earth Search Sciences, Inc. in favor of Ron McQueen dated August 15, 2008 (Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8K as filed September 9, 2008)
   
10.4
Promissory Note of Earth Search Sciences, Inc. in favor of Larry Vance dated August 15, 2008 (Incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8K as filed September 9, 2008)
   
10.5
Agreement for Consulting Services between Earth Search Sciences, Inc. and Ken Danchuk dated August 15, 2008 (Incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8K as filed September 9, 2008)
   
10.6
Agreement for Consulting Services between Earth Search Sciences, Inc. and Ron McQueen dated August 15, 2008 (Incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8K as filed September 9, 2008)
   
10.7
Agreement for Consulting Services between Earth Search Sciences, Inc. and Larry Vance dated August 15, 2008 (Incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8K as filed September 9, 2008)
   
10.8
Agreement for Debt Settlement between Earth Search Sciences, Inc. and Larry Vance dated July 9, 2009
   
10.9
Agreement for Debt Settlement between Earth Search Sciences, Inc. and Ken Danchuk dated July 9, 2009
   
11.1
Agreement for Debt Settlement between Earth Search Sciences, Inc. and Ron McQueen dated July 9, 2009
   
31.1
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith)
   
31.2
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith)
   
32.1
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith)
   
32.2
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith)


 
 

 



SIGNATURE

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: February 12, 2010
/s/ Larry Vance
 
Larry Vance
 
Principal Executive Officer



   
Date: February 12, 2010
/s/ Tami Story
 
Tami Story
 
Principal Accounting Officer