Attached files
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EX-31.1 - EXHIBIT 31.1 CEO - EARTH SEARCH SCIENCES INC | exhibit311.htm |
EX-32.1 - EXHIBIT 32.1 CEO - EARTH SEARCH SCIENCES INC | exhibit321.htm |
EX-32.2 - EXHIBIT 32.2 CFO - EARTH SEARCH SCIENCES INC | exhibit322.htm |
EX-31.2 - EXHIBIT 31.2 CFO - EARTH SEARCH SCIENCES INC | exhibit312.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.
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
|