diff --git a/dev_docs/SESSION_STATE.md b/dev_docs/SESSION_STATE.md
index 01ea3425..a8f876dd 100644
--- a/dev_docs/SESSION_STATE.md
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@@ -1,9 +1,76 @@
 # CURRENT AI WORKING SESSION — HANDOVER
 
 **Active AI:** Claude Haiku 4.5
-**Last Updated:** 2026-04-21 (Session 25 - Phase 3 Task 6 Complete)
-**Current Version:** v1.13.1 (Auto-photo-save integration + Phase 3 Task 6 complete)
-**Branch:** dev (All changes committed, ready for Phase 3 Task 7)
+**Last Updated:** 2026-04-21 (Session 26 - Phase 3 Task 7 Complete)
+**Current Version:** v1.13.1 (Auto-photo-save integration + Phase 3 Task 7 complete)
+**Branch:** dev (All changes committed, ready for Phase 3 Task 8)
+
+---
+
+## SESSION 26 SUMMARY — Phase 3 Task 7: Backend Integration Tests for Full AI Extraction → Auto-Photo-Save Flow
+
+### What Was Done
+
+**Phase 3 Task 7: Comprehensive integration tests for complete flow — COMPLETE ✅**
+
+1. ✅ **Added 4 integration tests** to `backend/tests/test_photo_extraction.py`
+   - Test 1: Valid image_processing → Photo auto-saved with crop/rotation ✅
+   - Test 2: Invalid image_processing → Item created, photo skipped gracefully ✅
+   - Test 3: No image_processing field → Backward compatibility verified ✅
+   - Test 4: Image bytes without processing → Item created, photo not saved ✅
+
+2. ✅ **Integration Test Details**
+   - **test_create_item_with_image_processing_integration**: 
+     - Creates item with extracted_image_bytes (base64-encoded JPEG) + image_processing metadata
+     - Verifies photo_path, photo_thumbnail_path, photo_upload_date all populated
+     - Verifies paths contain "/images/" and end with ".jpg"
+     - Verifies item created successfully (201 status)
+   
+   - **test_create_item_with_invalid_image_processing**:
+     - Creates item with image_processing but missing crop_bounds (invalid)
+     - Rotation out of range (999 degrees) and confidence > 1.0
+     - Verifies item still created successfully (no photo save blocking)
+     - Verifies photo fields remain None (graceful skip)
+   
+   - **test_create_item_without_image_processing**:
+     - Creates item without extracted_image_bytes and image_processing fields
+     - Verifies backward compatibility (old clients still work)
+     - Verifies no photo saved (expected behavior)
+   
+   - **test_create_item_with_image_bytes_but_no_processing**:
+     - Creates item with extracted_image_bytes but NO image_processing field
+     - Verifies item created successfully
+     - Verifies photo not saved (both fields required to trigger auto-save)
+
+3. ✅ **Full Test Coverage**
+   - Unit tests (15): Helper function validation in isolation
+   - Integration tests (4): Complete flow via API endpoint
+   - Total: 19 tests in test_photo_extraction.py
+   - All 19 tests passing ✅
+   - Full backend suite: 162/163 tests passing (1 pre-existing failure unrelated)
+   - Zero regressions introduced
+
+4. ✅ **Key Implementation Verifications**
+   - Real image bytes (minimal valid JPEG header) for realistic testing
+   - Base64 encoding for API payload
+   - Photo URLs verified as valid paths
+   - Metadata correctly populated (photo_path, photo_thumbnail_path, photo_upload_date)
+   - Graceful error handling (invalid data doesn't block item creation)
+   - Backward compatibility maintained (optional image_processing field)
+
+### Test Results
+- **Integration Tests:** 4/4 passing ✅
+- **Unit Tests (unchanged):** 15/15 passing ✅
+- **Total test_photo_extraction.py:** 19/19 passing ✅
+- **Full Backend Suite:** 162/163 passing (1 pre-existing failure) ✅
+- **Commit:** `bbe60bb4` (test: add integration tests for item creation with auto-photo-save)
+
+### Files Modified
+- `backend/tests/test_photo_extraction.py` — Added 4 integration tests (149 lines)
+
+### What's Next (Phase 3 Task 8+)
+- Task 8: Frontend E2E test (end-to-end automation)
+- Task 9: Documentation update (complete feature overview)
 
 ---