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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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



For the quarterly period ended March 31, 2004



or



 ̈TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Commission File Number 0-13111



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ANALYTICAL SURVEYS, INC.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|COLORADO                                                       |  | 84-0846389                          
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification Number)



11900 Crownpoint
Drive, San Antonio, Texas 78233

(Address of principal executive offices)



(210) 657-1500

(Registrants telephone number, including area code)



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 past
twelve (12) months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety (90) days. Yes x No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ̈No x



The number of shares of common stock outstanding as of May 11, 2004, was 1,089,173.



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TABLE OF CONTENTS



|              |  |                                                                |  |     
|------------- |  | -------------------------------------------------------------- |  | ----
|              |  |                                                                |  | PAGE
|              |  |                                                               
|PART 1.       |  | FINANCIAL INFORMATION                                          |  |     
|              |  |                                                               
|Item 1.       |  | Financial Statements                                           |  | 1   
|              |  |                                                               
|Item 2.       |  | Managements Discussion and Analysis and Results of Operations |  | 15  
|              |  |                                                               
|Item 3.       |  | Quantitative and Qualitative Disclosures About Market Risk     |  | 26  
|              |  |                                                               
|Item 4.       |  | Controls and Procedures                                        |  | 27  
|              |  |                                                               
|PART 2.       |  | OTHER INFORMATION                                              |  |     
|              |  |                                                               
|Item 1.       |  | Legal Proceedings                                              |  | 28  
|              |  |                                                               
|Item 6.       |  | Exhibits and Reports of Form 8-K                               |  | 29  
|              | 
|SIGNATURES    |  | 31                                                            
|              | 
|EXHIBIT INDEX |  |                                                               
|              |  |                                                               
|Exhibit 31.1  |  | Section 302 Certification of Chief Executive Officer           |  |     
|              |  |                                                               
|Exhibit 31.2  |  | Section 302 Certification of Chief Financial Officer           |  |     
|              |  |                                                               
|Exhibit 32.1  |  | Section 906 of the Sarbanes-Oxley Act of 2002                  |  |     
|              |  |                                                               
|Exhibit 32.2  |  | Section 906 of the Sarbanes-Oxley Act of 2002                  |  |     



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##### Table of Contents

Part I

Financial Information



Item 1. Financial Statements



ANALYTICAL SURVEYS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)



|                                                                             |  |                |        |   |                    |        |  
|---------------------------------------------------------------------------- |  | -------------- | ------ | - | ------------------ | ------ | -
|                                                                             |  | March 31, 2004 |        |   | September 30, 2003 |       
|                                                                             |  | (Unaudited)    |        |   |                    |       
|                                                                             |  |               
|ASSETS                                                                       |  |                |        |   |                    |        |  
|Current assets:                                                              |  |                |        |   |                    |        |  
|Cash                                                                         |  | $              | 600    |   |                    | 1,952  |  
|Accounts receivable, net of allowance for doubtful accounts of $100 and $100 |  |                | 3,054  |   |                    | 3,029  |  
|Revenue in excess of billings                                                |  |                | 4,894  |   |                    | 6,112  |  
|Prepaid expenses and other                                                   |  |                | 244    |   |                    | 166    |  
|                                                                             |  |                |        |   |                    |        |  
|                                                                             |  |               
|Total current assets                                                         |  |                | 8,792  |   |                    | 11,259 |  
|                                                                             |  |                |        |   |                    |        |  
|                                                                             |  |               
|Equipment and leasehold improvements, at cost:                               |  |                |        |   |                    |        |  
|Equipment                                                                    |  |                | 4,867  |   |                    | 4,896  |  
|Furniture and Fixtures                                                       |  |                | 484    |   |                    | 484    |  
|Leasehold improvement                                                        |  |                | 267    |   |                    | 267    |  
|                                                                             |  |                |        |   |                    |        |  
|                                                                             |  |                | 5,618  |   |                    | 5,647  |  
|Less accumulated depreciation and amortization                               |  |                | (5,253 | ) |                    | (5,126 | )
|                                                                             |  |                |        |   |                    |        |  
|Net equipment and leasehold improvements                                     |  |                | 365    |   |                    | 521    |  
|                                                                             |  |                |        |   |                    |        |  
|                                                                             |  |               
|Total assets                                                                 |  | $              | 9,157  |   |                    | 11,780 |  
|                                                                             |  |                |        |   |                    |        |  



1



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ANALYTICAL SURVEYS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)



|                                                                                                                                                                                                             |  |                |         |   |                    |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------- | ------- | - | ------------------ | ------- | -
|                                                                                                                                                                                                             |  | March 31, 2004 |         |   | September 30, 2003 |        
|                                                                                                                                                                                                             |  | (Unaudited)    |         |   | (As Restated)      |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                         |  |                |         |   |                    |         |  
|Current liabilities:                                                                                                                                                                                         |  |                |         |   |                    |         |  
|Current portion of long-term debt                                                                                                                                                                            |  |                | 77      |   |                    | 74      |  
|Billings in excess of revenue                                                                                                                                                                                |  |                | 126     |   |                    | 162     |  
|Accounts payable                                                                                                                                                                                             |  |                | 1,431   |   |                    | 2,504   |  
|Accrued liabilities                                                                                                                                                                                          |  |                | 1,049   |   |                    | 647     |  
|Accrued interest  related party                                                                                                                                                                             |  |                | 170     |   |                    | 150     |  
|Redeemable preferred stock  current portion                                                                                                                                                                 |  |                | 800     |   |                    |        |  
|Accrued payroll and related benefits                                                                                                                                                                         |  |                | 906     |   |                    | 958     |  
|Fair value of derivative features  related party                                                                                                                                                            |  |                | 204     |   |                    | 207     |  
|                                                                                                                                                                                                             |  |                |         |   |                    |         |  
|Total current liabilities                                                                                                                                                                                    |  |                | 4,763   |   |                    | 4,702   |  
|                                                                                                                                                                                                             |  |                |         |   |                    |         |  
|Long-term debt:                                                                                                                                                                                              |  |                |         |   |                    |         |  
|Notes payable, less current portion                                                                                                                                                                          |  |                | 14      |   |                    | 53      |  
|Long-term debt  related party                                                                                                                                                                               |  |                | 1,588   |   |                    | 1,832   |  
|Redeemable preferred stock; no par value. Authorized 2,500 shares; 1,600 shares issued and outstanding at March 31 and September 30
(liquidation value $2,240 and $1,600 respectively, less current portion) |  |                | 925     |   |                    | 1,450   |  
|                                                                                                                                                                                                             |  |                |         |   |                    |         |  
|Total long-term debt                                                                                                                                                                                         |  |                | 2,527   |   |                    | 3,335   |  
|                                                                                                                                                                                                             |  |                |         |   |                    |         |  
|Total liabilities                                                                                                                                                                                            |  |                | 7,290   |   |                    | 8,037   |  
|                                                                                                                                                                                                             |  |                |         |   |                    |         |  
|Stockholders equity:                                                                                                                                                                                        |  |                |         |   |                    |         |  
|Common stock; no par value. Authorized 10,000 shares; 1,085 and 824 shares issued and outstanding at March 31 and September 30,
respectively                                                                 |  |                | 33,166  |   |                    | 32,839  |  
|Accumulated deficit                                                                                                                                                                                          |  |                | (31,299 | ) |                    | (29,096 | )
|                                                                                                                                                                                                             |  |                |         |   |                    |         |  
|Total stockholders equity                                                                                                                                                                                   |  |                | 1,867   |   |                    | 3,743   |  
|                                                                                                                                                                                                             |  |                |         |   |                    |         |  
|Total liabilities and stockholders equity                                                                                                                                                                   |  | $              | 9,157   |   |                    | 11,780  |  
|                                                                                                                                                                                                             |  |                |         |   |                    |         |  



See
accompanying notes to consolidated financial statements



2



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ANALYTICAL SURVEYS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS



(In thousands, except per share amounts)

(Unaudited)



|                                                                |  |                             |       |   |                           |   |        |      |  |   |               |   |  |   |        |  
|--------------------------------------------------------------- |  | --------------------------- | ----- | - | ------------------------- | - | ------ | ---- |  | - | ------------- | - |  | - | ------ | -
|                                                                |  | Three Months EndedMarch 31, |       |   | Six Months EndedMarch 31, |  
|                                                                |  | 2004                        |       |   | 2003                      |   |        | 2004 |  |   | 2003          |  
|                                                                |  |                             |       |   | (as restated)             |   |        |      |  |   | (As restated) |  
|Revenues                                                        |  | $                           | 3,674 |   |                           | $ | 3,672  |      |  | $ | 6,229         |   |  | $ | 7,957  |  
|                                                                |  |                             |       |  
|Costs and expenses                                              |  |                             |       |   |                           |   |        |      |  |   |               |   |  |   |        |  
|Salaries, wages and related benefits                            |  |                             | 1,682 |   |                           |   | 2,402  |      |  |   | 3,396         |   |  |   | 4,998  |  
|Subcontractor costs                                             |  |                             | 1,282 |   |                           |   | 453    |      |  |   | 2,078         |   |  |   | 1,074  |  
|Other general and administrative                                |  |                             | 1,280 |   |                           |   | 1,265  |      |  |   | 2,239         |   |  |   | 2,522  |  
|Depreciation and amortization                                   |  |                             | 70    |   |                           |   | 130    |      |  |   | 156           |   |  |   | 275    |  
|Severance and related costs                                     |  |                             | 115   |   |                           |   | 54     |      |  |   | 137           |   |  |   | 307    |  
|                                                                |  |                             |       |   |                           |   |        |      |  |   |               |   |  |   |        |  
|                                                                |  |                             | 4,429 |   |                           |   | 4,304  |      |  |   | 8,006         |   |  |   | 9,176  |  
|                                                                |  |                             |       |   |                           |   |        |      |  |   |               |   |  |   |        |  
|Loss from operations                                            |  |                             | (755  | ) |                           |   | (632   | )    |  |   | (1,777        | ) |  |   | (1,219 | )
|                                                                |  |                             |       |   |                           |   |        |      |  |   |               |   |  |   |        |  
|Other income (expense)                                          |  |                             |       |   |                           |   |        |      |  |   |               |   |  |   |        |  
|Interest expense, net                                           |  |                             | (204  | ) |                           |   | (55    | )    |  |   | (430          | ) |  |   | (116   | )
|Other                                                           |  |                             | 57    |   |                           |   | (390   | )    |  |   | 4             |   |  |   | (286   | )
|                                                                |  |                             |       |   |                           |   |        |      |  |   |               |   |  |   |        |  
|                                                                |  |                             | (147  | ) |                           |   | (445   | )    |  |   | (426          | ) |  |   | (402   | )
|                                                                |  |                             |       |   |                           |   |        |      |  |   |               |   |  |   |        |  
|Loss before income taxes                                        |  |                             | (902  | ) |                           |   | (1,077 | )    |  |   | (2,203        | ) |  |   | (1,621 | )
|                                                                |  |                             |       |  
|Income tax expense                                              |  |                             |      |   |                           |   | 14     |      |  |   |              |   |  |   | 14     |  
|                                                                |  |                             |       |   |                           |   |        |      |  |   |               |   |  |   |        |  
|Net loss                                                        |  |                             | (902  | ) |                           |   | (1,091 | )    |  |   | (2,203        | ) |  |   | (1,635 | )
|Accretion of discount and dividends on preferred shares         |  |                             |      |   |                           |   | (174   | )    |  |   |              |   |  |   | (394   | )
|                                                                |  |                             |       |   |                           |   |        |      |  |   |               |   |  |   |        |  
|Net loss available to common shareholders                       |  |                             | (902  | ) |                           |   | (1,265 | )    |  |   | (2,203        | ) |  |   | (2,029 | )
|                                                                |  |                             |       |   |                           |   |        |      |  |   |               |   |  |   |        |  
|Basic loss per common share: available to common shareholders   |  |                             | (0.83 | ) |                           |   | (1.54  | )    |  |   | (2.13         | ) |  |   | (2.46  | )
|                                                                |  |                             |       |   |                           |   |        |      |  |   |               |   |  |   |        |  
|Diluted loss per common share: available to common shareholders |  |                             | (0.83 | ) |                           |   | (1.54  | )    |  |   | (2.13         | ) |  |   | (2.46  | )
|                                                                |  |                             |       |   |                           |   |        |      |  |   |               |   |  |   |        |  
|Weighted average common shares:                                 |  |                             |       |   |                           |   |        |      |  |   |               |   |  |   |        |  
|Basic                                                           |  |                             | 1,085 |   |                           |   | 824    |      |  |   | 1,033         |   |  |   | 824    |  
|Diluted                                                         |  |                             | 1,085 |   |                           |   | 824    |      |  |   | 1,033         |   |  |   | 824    |  



See
accompanying notes to consolidated financial statements



3



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ANALYTICAL SURVEYS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY



For the Six Months Ended March 31, 2004

(In thousands)

(Unaudited)



|                                                                              |  |              |  |        |        |                    |         |   |       |        |  
|----------------------------------------------------------------------------- |  | ------------ |  | ------ | ------ | ------------------ | ------- | - | ----- | ------ | -
|                                                                              |  | Common Stock |  |        |        |                    |         |  
|                                                                              |  | Shares       |  | Amount |        | AccumulatedDeficit |         |   | Total |       
|Balances at September 30, 2003 (As Restated)                                  |  | 824          |  | $      | 32,839 |                    | (29,096 | ) |       | 3,743  |  
|                                                                              |  |              |  |       
|Common stock issued pursuant to conversion of senior secured convertible note |  | 261          |  |        | 324    |                    |        |   |       | 324    |  
|                                                                              |  |              |  |       
|Issuance of inducement stock options                                          |  |             |  |        | 3      |                    |        |   |       | 3      |  
|                                                                              |  |              |  |       
|Net loss                                                                      |  |             |  |        |       |                    | (2,203  | ) |       | (2,203 | )
|                                                                              |  |              |  |        |        |                    |         |   |       |        |  
|Balances at March 31, 2004                                                    |  | 1,085        |  | $      | 33,166 |                    | (31,299 | ) |       | 1,867  |  
|                                                                              |  |              |  |        |        |                    |         |   |       |        |  



See
accompanying notes to consolidated financial statements.



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ANALYTICAL SURVEYS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                          |  |                          |        |   |               |        |  
|----------------------------------------------------------------------------------------- |  | ------------------------ | ------ | - | ------------- | ------ | -
|                                                                                          |  | Six Months EndedMarch 31 |       
|                                                                                          |  | 2004                     |        |   | 2003          |       
|                                                                                          |  |                          |        |   | (As restated) |       
|Cash flow from operating activities:                                                      |  |                          |        |   |               |        |  
|Net loss                                                                                  |  |                          | (2,203 | ) |               | (1,635 | )
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |                          |        |   |               |        |  
|Depreciation                                                                              |  |                          | 156    |   |               | 275    |  
|Issuance of inducement options                                                            |  |                          | 3      |   |               |       |  
|Accretion of interest expense on preferred stock and convertible debtrelated party       |  |                          | 331    |   |               | 56     |  
|Change in fair value of derivative featuresrelated party                                 |  |                          | (3     | ) |               | 338    |  
|Gain on sale of assets                                                                    |  |                          | 1      |   |               |       |  
|Changes in operating assets and liabilities:                                              |  |                          |        |   |               |        |  
|Accounts receivable, net                                                                  |  |                          | (25    | ) |               | 181    |  
|Revenue in excess of billings                                                             |  |                          | 1,218  |   |               | 2,122  |  
|Prepaid expenses and other                                                                |  |                          | (79    | ) |               | 115    |  
|Billings in excess of revenue                                                             |  |                          | (36    | ) |               | (302   | )
|Accounts payable and other accrued liabilities                                            |  |                          | (624   | ) |               | (1,010 | )
|Accrued payroll and related benefits                                                      |  |                          | (52    | ) |               | (466   | )
|                                                                                          |  |                          |        |   |               |        |  
|Net cash used in operating activities                                                     |  |                          | (1,313 | ) |               | (326   | )
|                                                                                          |  |                          |        |   |               |        |  
|Cash flows used in investing activities:                                                  |  |                          |        |   |               |        |  
|Purchase of equipment                                                                     |  |                          | (3     | ) |               | (131   | )
|                                                                                          |  |                          |        |   |               |        |  
|Cash flows used in financing activities:                                                  |  |                          |        |   |               |        |  
|Principal payments on long-term debt, net                                                 |  |                          | (36    | ) |               | (235   | )
|                                                                                          |  |                          |        |   |               |        |  
|                                                                                          |  |                          | (36    | ) |               | (235   | )
|Net decrease in cash                                                                      |  |                          | (1,352 | ) |               | (692   | )
|                                                                                          |  |                         
|Cash at beginning of period                                                               |  | $                        | 1,952  |   |               | 3,114  |  
|                                                                                          |  |                          |        |   |               |        |  
|Cash at end of period                                                                     |  | $                        | 600    |   |               | 2,422  |  
|                                                                                          |  |                          |        |   |               |        |  
|Supplemental disclosure of cash flow information:                                         |  |                          |        |   |               |        |  
|Cash paid for interest                                                                    |  | $                        | 2      |   |               | 17     |  
|                                                                                          |  |                          |        |   |               |        |  
|Issuance of common stock pursuant to conversion of debt                                   |  | $                        | 324    |   |               |       |  
|                                                                                          |  |                          |        |   |               |        |  
|Accretion of preferred stock                                                              |  | $                        | 275    |   |               | 350    |  
|                                                                                          |  |                          |        |   |               |        |  



See
accompanying notes to consolidated financial statements.



5



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##### Table of Contents

Notes to Consolidated Financial Statements

(Unaudited)



1.
Summary of Significant Accounting Policies



The accompanying unaudited
interim consolidated financial statements have been prepared by management in accordance with the accounting policies described in our annual report for the year ended September 30, 2003. The consolidated financial statements include the accounts of
Analytical Surveys, Inc. (ASI, we, our or the Company) and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain information and note
disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been omitted. These condensed consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and related notes included in our Annual Report on Form 10-K/A for the year ended September 30, 2003.



The consolidated balance sheet as of September 30, 2003 and the consolidated statements of operations for the three months and six months ended March 31, 2004 and the
statements of stockholders equity and cash flows for the six months ended March 31, 2003 have been restated to properly account for a conversion feature of our convertible senior secured note and related warrants that were issued on April 2,
2002.



The consolidated financial statements reflect all adjustments that are,
in the opinion of management, necessary to present fairly the financial position of ASI, and its subsidiaries at March 31, 2004, the results of their operations for the three and six months ended March 31, 2004 and 2003 and cash flows for the six
months ended March 31, 2004 and 2003.



All shares and per share amounts have
been adjusted to reflect the Companys one-for-ten reverse stock split effected in October 2002.



Stock Based Compensation. As permitted by Statement on Financial Standards (SFAS) No. 123, we account for our stock-based compensation utilizing the intrinsic-value method in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based employee compensation expense related to our stock option plans is reflected in net loss, as all options
granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Pro forma information regarding net loss and loss per share is required by SFAS No. 148. This information has been
estimated at the date of grant using the fair value method.



During the quarter
ended March 31, 2004, we recognized approximately $2,400 in compensation expense related to inducement stock options that we granted to our new Chief Executive Officer on March 22, 2004. The inducement options were not issued pursuant to our stock
option plans. The options, which vest over a twelve-month period, provide for the purchase of 75,000 shares of common stock at an exercise price equal to $1.50 per share, which was below the market value of $2.82 on the date of issuance.



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|                                                       |  |                             |       |   |                           |   |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------------ |  | --------------------------- | ----- | - | ------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                       |  | Three Months EndedMarch 31, |       |   | Six Months EndedMarch 31, |  
|                                                       |  | 2004                        |       |   | 2003                      |   |        | 2004 |  |   | 2003   |  
|                                                       |  | (in thousands)              |      
|Net loss, available to common shareholders as reported |  | $                           | (902  | ) |                           | $ | (1,265 | )    |  | $ | (2,203 | ) |  | $ | (2,029 | )
|Less: Pro forma option expense                         |  |                             | (15   | ) |                           |   | (51    | )    |  |   | (30    | ) |  |   | (102   | )
|                                                       |  |                             |       |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Pro forma net loss                                     |  | $                           | (917  | ) |                           | $ | (1,316 | )    |  | $ | (2,233 | ) |  | $ | (2,131 | )
|                                                       |  |                             |       |   |                           |   |        |      |  |   |        |   |  |   |        |  
|                                                       |  |                             |       |  
|Basic loss per share, as reported                      |  | $                           | (0.83 | ) |                           | $ | (1.54  | )    |  | $ | (2.13  | ) |  | $ | (2.46  | )
|Less: Pro forma option expense                         |  |                             | (0.01 | ) |                           |   | (0.06  | )    |  |   | (0.03  | ) |  |   | (0.13  | )
|                                                       |  |                             |       |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Pro forma basic loss per share                         |  | $                           | (0.84 | ) |                           | $ | (1.60  | )    |  | $ | (2.16  | ) |  | $ | (2.59  | )
|                                                       |  |                             |       |   |                           |   |        |      |  |   |        |   |  |   |        |  



2. Earnings Per Share



Basic earnings per share is computed by dividing earnings available to
common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share include the effects of the potential dilution of outstanding options, warrants, and convertible debt on our common stock,
determined using the treasury stock method.



All dilutive common stock
equivalents are reflected in our earnings per share calculation; the conversion of 786,607 shares under the convertible debt agreement is antidilutive for the three-month period ended March 31, 2004. Additionally, for the three-month periods ended
March 31, 2004 and 2003, potential dilutive common shares under the warrant agreement, an inducement option, and stock option plans were not included in the calculation of diluted earnings per share as these shares were antidilutive.



3. Impact of Recently Issued Accounting Pronouncements



In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 148, Accounting for Stock Based Compensation  Transition and Disclosure  an Amendment of SFAS 123. SFAS No. 148 provides additional transition guidance for those entities that elect to voluntarily adopt the provisions of
SFAS No. 123, Accounting for Stock Based Compensation. Furthermore, SFAS No. 148 mandates new disclosures in both interim and year-end financial statements of the method of accounting for stock-based employee compensation and the effect
of the method used on reported results. SFAS No. 148 is effective



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for fiscal years beginning after December 15, 2002. We adopted SFAS No. 148 on April 1, 2003. We do not expect to change
to using the fair value based method of accounting for stock-based employee compensation; and therefore, adoption of SFAS No. 148 is expected to impact only our disclosures and not our financial results. See Note 1.



In May 2003, the FASB issued SFAS No. 150, Accounting For Certain Financial Instruments
with Characteristics of Both Liabilities and Equity which establishes standards for how an issuer of financial instruments classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires
that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on a fixed monetary amount known at
inception, variations in something other than the fair value of the issuers equity shares or variations inversely related to changes in the fair value of the issuers equity shares. SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 required the reclassification of the redeemable preferred stock as debt
and future preferred stock dividends to be classified as interest expense. Effective July 1, 2003, we reclassified mandatorily redeemable shares that were issued prior to May 31, 2003 as liabilities. The total amount of the reclassification was $1.3
million.



4. Accrued Payroll and Related Benefits



Our accrued payroll and related benefits are summarized as follows (in thousands).



|                                     |  |                |     |                   |   |    
|------------------------------------ |  | -------------- | --- | ----------------- | - | ---
|                                     |  | March 31, 2004 |     | September 30,2003
|Accrued payroll                      |  | $              | 417 |                   | $ | 447
|Accrued health benefits              |  |                | 269 |                   |   | 205
|Accrued vacation                     |  |                | 220 |                   |   | 306
|                                     |  |                |     |                   |   |    
|Accrued payroll and related benefits |  | $              | 906 |                   | $ | 958
|                                     |  |                |     |                   |   |    



5. Debt



Our debt is summarized as follows (in thousands).



|                                              |  |                |       |   |                   |   |       |  
|--------------------------------------------- |  | -------------- | ----- | - | ----------------- | - | ----- | -
|                                              |  | March 31, 2004 |       |   | September 30,2003 |  
|Long-Term Debt                                |  |                |       |   |                   |   |       |  
|Senior secured convertible noterelated party |  | $              | 1,588 |   |                   | $ | 1,832 |  
|Other                                         |  |                | 91    |   |                   |   | 127   |  
|Redeemable preferred stock                    |  |                | 1,725 |   |                   |   | 1,450 |  
|                                              |  |                |       |   |                   |   |       |  
|                                              |  |                | 3,404 |   |                   |   | 3,409 |  
|Less current portion                          |  |                | (877  | ) |                   |   | (74   | )
|                                              |  |                |       |   |                   |   |       |  
|                                              |  | $              | 2,527 |   |                   | $ | 3,335 |  
|                                              |  |                |       |   |                   |   |       |  



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On April 2, 2002, we completed the sale of a $2.0 million senior secured convertible note (Note) and warrants
to purchase our common stock to Tonga Partners, L.P. (Tonga). The Note, which carries a face value of $2 million, matures on April 2, 2005, and accrues interest on its face value at an annual rate of 5.00%. Accrued interest is not
payable in cash but is to be converted into common stock upon a voluntary conversion date or maturity of the Note as described below. We recorded the Note at $1.664 million reflecting a discount after giving effect to the $200,000 and $136,000
estimated fair value of the warrants and conversion feature, respectively (derivative features) which were recorded as current liabilities.



The provisions of the Note and the warrants allow for net cash settlement by the holder of the Notes conversion feature and warrants if a registration statement
registering the shares issuable upon conversion of the Note is not declared effective within 150 days after filing such registration statement with the SEC, which filing must occur on or before December 31, 2003. As a result, both the warrants and
the Notes conversion feature (derivative features) are classified as current liabilities.



The original carrying value of the Note is being accreted to its face value as we record interest expense over its three-year term at a rate of $28,000 per fiscal quarter. The rate of interest on the Note is 12.5%.
The $336,000 current liability will be adjusted during the Notes three-year term and will be increased or decreased to reflect the fair value of the derivatives at the end of each fiscal quarter. The liability will be reduced to $0 upon
maturity or other disposition of the Note, and we will recognize net other income totaling $336,000 during the term of the Note, but not in accordance with the rate at which we record interest expense. The adjustments will result in other income or
expense and will fluctuate in accordance with the changes in the fair value of our common stock. Accordingly, our quarterly results will vary in accordance with these fluctuations as we record non-cash expense or gains as a result of the increase or
decrease in the fair value of the derivative features.



The carrying value of
the Note at March 31, 2004, is $1.588 million and represents the $1.7 million outstanding principal less the unearned discount. The unearned discount represents the estimated fair value of the derivative features of $336,000 less accretion totaling
$224,000 as of March 31, 2004.



The fair value of the derivative features
totaled $204,000, $260,000 and $207,000 on March 31, 2004, December 31, 2003, and September 30, 2003, respectively. Accordingly, we recorded other income totaling $56,000 and $3,000 for the three- and six-month periods ended March 31, 2004. The fair
value of the derivative features decreased from $246,000 on September 30, 2002 to $182,000 on December 31, 2002, and increased to $584,000 on March 31, 2003. Accordingly, we recorded other income totaling $64,000 for the three-month period and other
expense totaling $402,000 for the six-month period ended March 31, 2003.



The
Note is convertible at any time into our common stock (Common Stock) at a price (Conversion Price) equal to the least of (i) $4.00, (ii) 90% of the average closing bid prices of the Common Stock for the 90 trading days ending
the trading date immediately preceding the



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closing date, and (iii) 90% of the average closing bid prices for the three trading days having the lowest closing bid
price during the 20 trading days immediately prior to the conversion date. Accordingly, the Conversion Price and number of shares issuable upon conversion of the note will vary in accordance with the changes in the closing bid price of our Common
Stock. In any event, the number of shares issuable upon full conversion of the Note must constitute at least 38% of the issued and outstanding shares, on a fully diluted basis, as of the date of full conversion. Additionally, the number of shares
issuable upon conversion of the Note and exercise of warrants are to be no less than 55% of the outstanding Common Stock (unless Tonga exercises the warrants in a cashless exercise where Tonga uses the value of some of the warrants to pay the
exercise price for other warrants).



Tonga also received warrants to purchase
an additional 500,000 shares of Common Stock (subject to adjustment). One whole warrant entitles Tonga to acquire shares of Common Stock at an exercise price equal to 115% of the Conversion Price in effect on the date of the exercise the warrants.
Prior to the effectiveness of a registration statement registering the underlying common stock issuable upon exercise of the warrants, Tonga has the right to exercise the warrants through a cashless exercise mechanism.



On October 29, 2003, we received from Tonga a notice of conversion of $300,000 in principal
amount of the Note. On November 6, 2003, we issued 241,936 shares at a Conversion Price equal to $1.24, which represented 90% of the average closing bid prices for the three trading days having the lowest closing bid price during the 20 trading days
immediately prior to October 29, 2003. We also issued 19,522 shares at the same Conversion Price for $24,208 accrued interest on the converted principal. The Note was exchanged for the shares and a $1.7 million debenture bearing the same terms. The
newly issued shares increased our total common shares outstanding from 823,965 to 1,085,423. Tonga owned 24% of our outstanding shares immediately after the partial conversion.



For illustration purposes, if the $1,700,000 debenture had been converted in full on April 1, 2004, the Conversion Price would have been
$2.38, and we would have issued 786,607 shares to redeem the principal and accrued interest. The Conversion Price would have been equal to 90% of the average closing bid prices of the Common Stock for the three trading days having the lowest closing
bid price during the 20 trading days preceding April 1. If the warrants had been exercised on April 1, 2004, the exercise price would have been $2.74 (115% of $2.38), and the aggregate exercise price for the warrants would have been $1,370,000 for
the issuance of 500,000 shares of Common Stock. Tonga would have owned 65% of our outstanding shares immediately after such full conversion and warrant exercise.



On December 30, 2003, we filed a Registration Statement Form S-3 to register the shares issued in November 2003, as well as shares issuable
pursuant to the conversion of the Note and exercise of the warrant. Tonga may accelerate the Note if the Registration Statement is not declared effective by the Securities and Exchange Commission (SEC) on or before May 28, 2004, which is
150 days after the filing date.



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We are generally restricted from issuing additional equity securities without Tongas consent, and Tonga has a right
of first refusal as to certain subsequent financings. The note is subject to mandatory conversion in three years and is secured by all of our assets. As part of the transaction, for a period of three years from the date of the Note, Tonga has the
right to appoint a majority of our board of directors. Tonga has appointed three members to the Board and as a result, controls ASI. In addition, upon exercise of the warrants and conversion of the Note, Tonga will own a majority of the Common
Stock, thereby giving Tonga additional control over ASI.



6. Redeemable
Preferred Stock



On December 28, 2001, we issued 1.6 million shares of no
par value Series A Preferred Stock with a face value of $3.2 million, pursuant to the extinguishment of a bank credit agreement (Agreement). We recorded this preferred stock at a fair market value of $300,000 as described below. The
shares are redeemable on or before December 28, 2006. Until December 27, 2004, we are entitled to redeem the shares at $1.40 per share ($2.24 million). The redemption price increases $0.20 per year to $1.60 on December 28, 2004, $1.80 on December
28, 2005 and $2.00 on December 28, 2006.



The Agreement calls for a mandatory
redemption payment of $800,000 on or before December 28, 2004, plus any accrued dividends on such shares. Since its issuance, we have accrued but not declared or paid dividends on the preferred stock. If we pay the $800,000 mandatory redemption
payment on or before December 27, 2004, the redemption price will be $1.40, and we will redeem 571,428 shares of the preferred stock. We must also pay accrued dividends totaling $96,000 on the mandatory redemption date. Further, if we redeem the
remaining outstanding shares on December 27, 2006, we will redeem 1,028,572 at $1.80 per share, totaling $1,851,429, plus accrued dividends totaling approximately $367,000. The preferred stock earns a dividend at the annual rate of 5.00% of the then
applicable redemption price on a cumulative, non-participating basis and has a liquidation preference equal to the then applicable redemption value of shares outstanding at the time of liquidation.



The carrying value for the preferred stock is $1.725 million at March 31, 2004. The carrying
value represents the estimated fair market value of the stock on the date of issuance plus issuance costs, adjusted for accretion of the difference between fair market value at the date of issuance and the redemption value at the mandatory
redemption dates. The fair market value was based on the present value of required cash flows using a discount rate of 80%. We selected the discount rate based on discussions with third parties that took into account market conditions for similar
securities, the current economic climate and our financial condition and performance as major factors.



Until June 30, 2003, accretion was affected by a charge to retained earnings, and the rate of accretion approximates the interest method. We adopted SFAS No. 150 on July 1, 2003, which required the reclassification of
the redeemable preferred stock as debt and future preferred stock dividends as interest expense. Effective July 1, 2003, we reclassified mandatorily redeemable



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shares that were issued prior to May 31, 2003 as liabilities. The total amount of the reclassification was $1.3 million.
Additionally, effective July 1, 2003, the accretion of the preferred stock is classified as interest expense.



7. Segment Information



We evaluate
operations and make key strategic and resource decisions based on the operating results of our individual production centers. Segment data includes revenue, operating income, including allocated costs charged to each of the operating segments,
equipment investment and project investment, which includes net accounts receivables and revenue earned in excess of billings. We have presented segment data for the three and six months ended March 31, 2003, for comparative purposes.



We have not allocated interest expense and other non-segment specific expenses to individual
segments to determine our performance measure. Non-segment assets to reconcile to total assets consist of corporate assets including cash and prepaid expenses (in thousands).



|                                  |  |            |        |   |            |       |            |   |       |        |   |             |       |   |       |        |  
|--------------------------------- |  | ---------- | ------ | - | ---------- | ----- | ---------- | - | ----- | ------ | - | ----------- | ----- | - | ----- | ------ | -
|                                  |  | Location A |        |   | Location B |       | Location C |   | Total |        |   | Non-Segment |       |   | Total |       
|Three months ended March 31, 2004 |  |            |        |   |            |       |            |   |       |        |   |             |       |   |       |        |  
|Operations                        |  |            |        |   |            |       |            |   |       |        |   |             |       |   |       |        |  
|Revenues                          |  | $          | 2,380  |   |            | 1,294 |            |  |       | 3,674  |   |             |      |   |       | 3,674  |  
|Income (loss) from operations     |  |            | (865   | ) |            | 110   |            |  |       | (755   | ) |             |      |   |       | (755   | )
|Interest expense, net             |  |            |       |   |            |      |            |  |       |       |   |             | (204  | ) |       | (204   | )
|Other                             |  |            |       |   |            |      |            |  |       |       |   |             | 57    |   |       | 571    |  
|                                  |  |            |        |   |            |       |            |   |       |        |   |             |       |   |       |        |  
|Net loss                          |  |            |       |   |            |      |            |  |       |       |   |             |      |   |       | (902   | )
|                                  |  |            |        |   |            |       |            |   |       |        |   |             |       |   |       |        |  
|                                  |  |            |        |   |            |      
|Six months ended March 31, 2004   |  |            |        |   |            |       |            |   |       |        |   |             |       |   |       |        |  
|Operations                        |  |            |        |   |            |       |            |   |       |        |   |             |       |   |       |        |  
|Revenues                          |  | $          | 3,859  |   |            | 2,370 |            |  |       | 6,229  |   |             |      |   |       | 6,229  |  
|Income (loss) from operations     |  |            | (1,960 | ) |            | 183   |            |  |       | (1,777 | ) |             |      |   |       | (1,777 | )
|Interest expense, net             |  |            |       |   |            |      |            |  |       |       |   |             | (430  | ) |       | (430   | )
|Other                             |  |            |       |   |            |      |            |  |       |       |   |             | 4     |   |       | 4      |  
|                                  |  |            |        |   |            |       |            |   |       |        |   |             |       |   |       |        |  
|Net loss                          |  |            |       |   |            |      |            |  |       |       |   |             |      |   |       | (2,203 | )
|                                  |  |            |        |   |            |       |            |   |       |        |   |             |       |   |       |        |  
|                                  |  |            |        |   |            |      
|Assets at March 31, 2004          |  |            |        |   |            |       |            |   |       |        |   |             |       |   |       |        |  
|Segment assets                    |  | $          | 6,185  |   |            | 1,826 |            |  |       |       |   |             |      |   |       | 8,011  |  
|Non-segment assets                |  |            |       |   |            |      |            |  |       |       |   |             | 1,146 |   |       | 1,146  |  
|                                  |  |            |        |   |            |       |            |   |       |        |   |             |       |   |       |        |  
|Consolidated assets               |  |            |       |   |            |      |            |  |       |       |   |             |      |   |       | 9,157  |  
|                                  |  |            |        |   |            |       |            |   |       |        |   |             |       |   |       |        |  



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|                                  |  |            |        |   |            |       |            |     |   |       |       |   |             |       |   |       |        |  
|--------------------------------- |  | ---------- | ------ | - | ---------- | ----- | ---------- | --- | - | ----- | ----- | - | ----------- | ----- | - | ----- | ------ | -
|                                  |  | Location A |        |   | Location B |       | Location C |     |   | Total |       |   | Non-Segment |       |   | Total |       
|Three months ended March 31, 2003 |  |            |        |   |            |       |            |     |   |       |       |   |             |       |   |       |        |  
|Operations                        |  |            |        |   |            |       |            |     |   |       |       |   |             |       |   |       |        |  
|Revenues                          |  | $          | 2,120  |   |            | 1,439 |            | 113 |   |       | 3,672 |   |             |      |   |       | 3,672  |  
|Loss from operations              |  |            | (691   | ) |            | 113   |            | (1  | ) |       | (579  | ) |             | (53   | ) |       | (632   | )
|Interest expense, net             |  |            |       |   |            |      |            |    |   |       |      |   |             | (55   | ) |       | (55    | )
|Other                             |  |            |       |   |            |      |            |    |   |       |      |   |             | (390  | ) |       | (390   | )
|Income tax expense                |  |            |       |   |            |      |            |    |   |       |      |   |             | (14   | ) |       | (14    | )
|                                  |  |            |        |   |            |       |            |     |   |       |       |   |             |       |   |       |        |  
|Net loss                          |  |            |        |   |            |       |            |     |   |       |       |   |             |       |   |       | (1,091 | )
|                                  |  |            |        |   |            |       |            |     |   |       |       |   |             |       |   |       |        |  
|                                  |  |            |        |   |            |      
|Six months ended March 31, 2003   |  |            |        |   |            |       |            |     |   |       |       |   |             |       |   |       |        |  
|Operations                        |  |            |        |   |            |       |            |     |   |       |       |   |             |       |   |       |        |  
|Revenues                          |  |            | 4,487  |   |            | 3,253 |            | 217 |   |       | 7,957 |   |             |      |   |       | 7,957  |  
|Loss from operations              |  |            | (1,209 | ) |            | 310   |            | (14 | ) |       | (913  | ) |             | (306  | ) |       | (1,219 | )
|Interest expense, net             |  |            |       |   |            |      |            |    |   |       |      |   |             | (116  | ) |       | (116   | )
|Other                             |  |            |       |   |            |      |            |    |   |       |      |   |             | (286  | ) |       | (286   | )
|Income tax expense                |  |            |       |   |            |      |            |    |   |       |      |   |             | (14   | ) |       | (14    | )
|                                  |  |            |        |   |            |       |            |     |   |       |       |   |             |       |   |       |        |  
|Net loss                          |  |            |        |   |            |       |            |     |   |       |       |   |             |       |   |       | (1,635 | )
|                                  |  |            |        |   |            |       |            |     |   |       |       |   |             |       |   |       |        |  
|                                  |  |            |        |   |            |      
|Assets at March 31, 2003          |  |            |        |   |            |       |            |     |   |       |       |   |             |       |   |       |        |  
|Segment assets                    |  | $          | 8,123  |   |            | 1,628 |            | 125 |   |       | 9,876 |   |             |      |   |       | 9,876  |  
|Non-segment assets                |  |            |       |   |            |      |            |    |   |       |      |   |             | 2,373 |   |       | 2,373  |  
|                                  |  |            |        |   |            |       |            |     |   |       |       |   |             |       |   |       |        |  
|Consolidated assets               |  |            |        |   |            |       |            |     |   |       |       |   |             |       |   |       | 12,249 |  
|                                  |  |            |        |   |            |       |            |     |   |       |       |   |             |       |   |       |        |  



8. Litigation and Other
Contingencies



On June 26, 2002, two of our shareholders, the Epner Family
Limited Partnership and the Braverman Family Limited Partnership, (Claimants), initiated arbitration proceedings against us. They alleged that certain representations and warranties which we made in connection with our acquisition of
Cartotech in June 1998 were false because our financial condition allegedly was worse than depicted in our financial statements for 1997 and the unaudited reports for the first two quarters of fiscal 1998. In December 2003, an American Arbitration
Association panel ruled in our favor, awarding zero damages to the Claimants and ordering each side to bear its own attorneys fees. The Claimants also filed suit against four of our former officers for alleged violation of Texas and Indiana
securities laws in connection with our acquisition of Cartotech, Inc. The case was dismissed on January 30, 2004.



We submitted to our insurance carrier legal bills for the defense of the proceedings initiated by the Claimants. Defense costs totaled approximately $2,100,000. As of
March 31, 2004, we had been reimbursed $1,600,000 from our insurance carrier as reimbursement of these defense costs.



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We have included approximately $450,000 of the defense costs in accounts payable as of March 31, 2004. We have also
recorded a receivable representing an additional amount that we expect to receive as reimbursement of defense costs from our insurer.



Robert Montgomery, one of our former officers, filed suit in Hamilton County Superior Court, State of Indiana, on July 19, 2002, seeking recovery of unpaid commissions
pursuant to the Indiana Wage Payment statute. Mr. Montgomery seeks recovery of $67,611 in unpaid commissions, treble damages, costs interest and attorneys fees. We are vigorously defending this lawsuit.



We are also subject to various other routine litigation incidental to our business.
Management does not believe that any of these routine legal proceedings would have a material adverse effect on our financial condition or results of operations.



9. Concentration of Credit Risk



At March 31, 2004, we had multiple contracts with four customers that represented 86% (46%, 18%, 12% and 10%, respectively) of the total balance of net accounts
receivable and revenue in excess of billings. Revenues from these customers for the three-month period ended March 31, 2004 were 72% (15%, 37%, 11% and 9%, respectively) of total revenue. Revenues from these customers for the six-month period ended
March 31, 2004 were 73% (17%, 34%, 9% and 12%, respectively) of total revenue. At September 30, 2003, three of those customers represented 73% (58%, 7% and 8%, respectively) of the total balance of net accounts receivable and revenue in excess of
billings. Billing terms are negotiated in a competitive environment and are based on reaching project milestones. We anticipate that sufficient billing milestones or contract completion will be achieved during fiscal 2004 and the first quarter of
fiscal 2005 such that the majority of revenue in excess of billings for these customer contracts will be collected.



10. Liquidity



The accompanying financial statements have been prepared on a going concern basis that contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. During the fiscal
years of 2000 through 2004, we experienced significant operating losses with corresponding reductions in working capital and net worth, excluding the impact of debt forgiveness, and we do not currently have a line of credit in place to support
operating cash flow requirements. Our revenues and backlog have also decreased substantially during the same period. The Note also has certain immediate call provisions that are outside of our control, and if triggered and exercised, would make it
difficult for us to meet accelerated debt payments. These factors, among others, raise substantial doubt about our ability to continue as a going concern.



To address the going concern issue, we have implemented financial and operational restructuring plans designed to improve operating efficiencies, reduce and eliminate
cash losses and position ASI for profitable operations. The consolidation of our production operations to two solution centers has resulted in lower general and administrative costs and improved operating



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efficiencies. Additionally, the relocation of our corporate headquarters has resulted in additional savings realized with
a smaller corporate staff and efficiencies in occupancy and travel related expenses. Our sales and marketing team is pursuing market opportunities in both our traditional digital mapping and newly launched data management initiatives. We continue to
focus on cost control as we develop the data management initiative. We have made several changes to our management team and strengthened our focus on operations and future strategies.



The financial statements do not include any adjustments relating to the recoverability of assets and the classifications of liabilities that
might be necessary should we be unable to continue as a going concern. However, management believes that our continued turnaround efforts, if successful, will improve operations and generate sufficient cash to meet our obligations in a timely
manner.



Item 2. Managements Discussion and Analysis and Results of Operations.



THE DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY SET FORTH BELOW SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE
IN THIS FORM 10-Q. THIS FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE STATEMENTS CONTAINED IN THIS FORM 10-Q THAT ARE NOT PURELY HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. WHEN USED IN THIS FORM 10-Q, OR IN THE DOCUMENTS INCORPORATED BY REFERENCE INTO THIS FORM 10-Q, THE WORDS ANTICIPATE, BELIEVE, ESTIMATE, INTEND
AND EXPECT AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION, THE STATEMENTS REGARDING THE COMPANYS STRATEGY, FUTURE SALES, FUTURE
EXPENSES, FUTURE LIQUIDITY AND CAPITAL RESOURCES. ALL FORWARD-LOOKING STATEMENTS IN THIS FORM 10-Q ARE BASED UPON INFORMATION AVAILABLE TO THE COMPANY ON THE DATE OF THIS FORM 10-Q, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH
FORWARD-LOOKING STATEMENTS. THE COMPANYS ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN THIS FORM 10-Q. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES (CAUTIONARY STATEMENTS) INCLUDE, BUT ARE NOT LIMITED
TO, THOSE DISCUSSED IN ITEM 1. BUSINESSRISK FACTORS AND ELSEWHERE IN THE COMPANYS ANNUAL REPORT ON FORM 10-K, WHICH ARE INCORPORATED BY REFERENCE HEREIN AND IN THIS REPORT. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING
STATEMENTS ATTRIBUTABLE TO THE COMPANY, OR PERSONS ACTING ON THE COMPANYS BEHALF, ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.



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Overview



Founded in 1981, we are a provider of data conversion and digital mapping services to users of customized geographic information systems. Since fiscal 2000, our operating
results have been affected by a downturn in macroeconomic and industry market conditions and increased competition primarily from offshore competitors. These factors have resulted in a reduction of timely order flow and a corresponding reduction in
revenue generated and continued operating losses. In response to reduced demand, we have reduced the size of our operations as well as our general and administrative functions. We added $1.2 million in new contracts during the quarter ended March
31, 2004. We must continue to enter into new contracts in order to achieve profitability.



Our operating results have also been adversely affected by litigation resulting from the restatement of our financial statements for fiscal 1999, requiring the use of both financial resources and managements
time and focus. The final claim against us related to this matter was resolved in December 2003 when an arbitration panel ruled in our favor.



Our independent auditors issued a going concern qualification on our financial statements for each fiscal year since the fiscal 2000 results were reported. The
going-concern qualification, which expressed substantial doubt about our ability to continue as a going concern, was based on the significant operating losses reported in fiscal 2003 and 2002 and a lack of external financing to fund working capital
and debt requirements.



On December 30, 2003, we filed a Registration Statement
on Form S-3 to register the shares issued and issuable pursuant to the conversion of our senior secured Note and exercise of the related warrants. Tonga may accelerate the Note if the Registration Statement is not declared effective by the
Securities and Exchange Commission (SEC) on or before May 28, 2004, which is 150 days after the filing date. If a registration statement is not effective on or before May 28, 2004, Tonga may accelerate the Note.



The Note was originally recorded at $1.664 million reflecting a discount after giving effect
to the $336,000 estimated fair value of the derivative features, which were recorded as current liabilities. The carrying value is being accreted to face value as we record interest expense over the Notes three-year term at a rate of $28,000
per fiscal quarter and the $336,000 current liability will be increased or decreased to reflect the fair value of the derivatives at the end of each fiscal quarter. The liability will be reduced to $0 upon maturity or other disposition of the Note,
and we will recognize net other income totaling $336,000 during the term of the Note, but not in accordance with the rate at which we record interest expense. The adjustments will result in other income or expense and will fluctuate in accordance
with the changes in the fair value of our common stock. Accordingly, our quarterly results will vary in accordance with these fluctuations as we record non-cash expense or gains as a result of the increase or decrease in the fair value of the
derivative features.



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We recognize revenue using the percentage of completion method of accounting on a cost-to-cost basis. For each contract,
an estimate of total production costs is determined and these estimates are reevaluated monthly. Production costs consist of internal costs, primarily salaries and wages, and external costs, primarily subcontractor costs. Internal and external
production costs may vary considerably among projects and during the course of completion of each project. At each accounting period, the percentage of completion is based on production costs incurred to date as a percentage of total estimated
production costs for each of our contracts. This percentage is then multiplied by the contracts total value to calculate the sales revenue to be recognized. The percentage of completion is affected by any factors that influence either the
estimate of future productivity or the production cost per hour used to determine future costs. We recognize losses on contracts in the period such loss is determined. Sales and marketing expenses associated with obtaining contracts are expensed as
incurred.



We experience annual and quarterly fluctuations in production costs,
salaries, wages and related benefits and subcontractor costs. These fluctuations are the result of various factors, including: worker utilization and productivity; availability and quality of customer required deliverables and information; customer
responsiveness and turnaround on inquires and deliveries; and weather conditions that impact ground survey requirements. We utilize InfoTech Enterprises Ltd., an India-based company, for more than 90% of our offshore production services. These
offshore services currently represent less than 10% of our total production costs.



Backlog increases when new contracts are signed and decreases as revenues are recognized. As of March 31, 2004, our backlog was $7.2 million, $5 million of which we expect to fill in the remaining six months of fiscal 2004. Backlog totaled
$7.9 million at September 30, 2003 and $9.7 million at December 31, 2003. We believe backlog levels reflect changes in macroeconomic and industry market conditions. Adverse market conditions were first encountered in fiscal 2000 that have continued
through fiscal 2004.



We have been awarded several projects that are greater
than $2 million or longer than two years in duration, which can increase our risk due to inflation, as well as changes in schedule, customer expectations and funding availability. Our contracts are generally terminable on short notice, and while in
our experience such termination is rare, there is no assurance that we will receive all of the revenue anticipated under signed contracts.



We engage in research and development activities, however these amounts are not significant and represent less than $100,000 per year. The majority of these activities
occur as we develop software or design a product for a particular contract. These efforts are typically included as an integral part of our services for the particular project and, accordingly, the associated costs are charged to that project. Such
custom-designed software can often be applied to projects for other customers. We retain ownership of such proprietary software or products. These amounts are not significant and represent less than 5% of our total operating expense.



We streamlined our operations throughout fiscal year 2002 and 2003, and consolidated our four
main production centers to two solution centers in Texas and Wisconsin. On January 2, 2003,



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we relocated our headquarters from Indianapolis, Indiana, to our lower-cost facility in San Antonio, Texas. Beginning in
2003 and through the first two quarters of fiscal 2004, we reduced the number of corporate and administrative staff by 40%, including a reduction in the number of highly compensated administrative personnel. We currently employ approximately 117
full-time employees. We have reduced our legal and professional fees as we settled litigation against the Company. On March 22, 2004 Wayne Fuquay was appointed President and Chief Executive Officer. Livingston Kosberg, our Chairman, had served as
acting Chief Executive Officer since the resignation of Norman Rokosh on February 29, 2004. We have made several changes to our management team and strengthened our focus on operations and future strategies.



Results of Operations



The following table sets forth, for the periods indicated, selected consolidated statements of operations data expressed as a percentage of
sales:



|                                                        |  |                             |    |  |                           |    |  |       |    |  |       |   
|------------------------------------------------------- |  | --------------------------- | -- |  | ------------------------- | -- |  | ----- | -- |  | ----- | --
|                                                        |  | Three months ended March 31 |    |  | Six months ended March 31 |   
|                                                        |  | 2004                        |    |  | 2003                      |    |  | 2004  |    |  | 2003  |   
|                                                        |  |                             |    | 
|PERCENTAGE OF REVENUES:                                 |  | 100.0                       | %  |  | 100.0                     | %  |  | 100.0 | %  |  | 100.0 | % 
|Revenues                                                |  |                             |    |  |                           |    |  |       |    |  |       |   
|Costs and expenses                                      |  |                             |    |  |                           |    |  |       |    |  |       |   
|Salaries, wages and related benefits                    |  | 45.8                        |    |  | 65.4                      |    |  | 54.5  |    |  | 62.8  |   
|Subcontractor costs                                     |  | 34.9                        |    |  | 12.3                      |    |  | 33.4  |    |  | 13.5  |   
|Other general and administrative                        |  | 34.8                        |    |  | 34.5                      |    |  | 36.0  |    |  | 31.7  |   
|Depreciation and amortization                           |  | 1.9                         |    |  | 3.5                       |    |  | 2.5   |    |  | 3.5   |   
|Severance and related costs                             |  | 3.1                         |    |  | 1.5                       |    |  | 2.2   |    |  | 3.8   |   
|                                                        |  |                             |    |  |                           |    |  |       |    |  |       |   
|                                                        |  |                             |    | 
|Loss from operations                                    |  | (20.5                       | )  |  | (17.2                     | )  |  | (28.6 | )  |  | (15.3 | ) 
|                                                        |  |                             |    | 
|Other expense, net                                      |  | 4.0                         |    |  | 12.1                      |    |  | 6.8   |    |  | 5.0   |   
|Income tax expense                                      |  |                            |    |  | 0.4                       |    |  |      |    |  | 0.2   |   
|                                                        |  |                             |    | 
|Net loss                                                |  | (24.5                       | )  |  | (29.7                     | )  |  | (35.4 | )  |  | (20.5 | ) 
|Accretion of discount and dividends on preferred shares |  |                            |    |  | (4.7                      | )  |  |      |    |  | (5.0  | ) 
|                                                        |  |                             |    |  |                           |    |  |       |    |  |       |   
|Net earnings (loss) available to common shareholders    |  | (24.5                       | %) |  | (34.4                     | %) |  | (35.4 | %) |  | (25.5 | %)
|                                                        |  |                             |    |  |                           |    |  |       |    |  |       |   



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Three and Six Months Ended March 31, 2004 and 2003



Revenues. We recognize revenues as services are performed. Our revenues remained relatively constant at $3.7 million for the three
month period ended March 31, 2004, as compared to the same period in fiscal 2003. Our revenues decreased 20% for the six-month period ended March 31, 2004, and totaled $6.2 million as compared to $8 million for the same period in fiscal 2003, a
decrease of $1.8 million. The decrease in revenues is due to a lower number of active contracts in the fiscal 2004 period, as well as the impact of a change in the estimated percentage of completion on several contracts. The level of new contract
signings in fiscal 2002 and 2003 was lower than in previous years and, as a result, revenues have decreased as well. We believe this decrease in contract signings is attributable to lower demand for and reduced spending levels in information
technology products and services both in general and specific to the GIS industry.



Salaries, Wages and Related Benefits. Salaries, wages and related benefits include employee compensation for production, marketing, selling, and administrative and executive employees. Salaries, wages and related benefits decreased
$720,000 and $1,602,000 for the three- and six-month periods ended March 31, 2004, respectively, as compared to the same period in fiscal 2003. The decrease was a result of reductions in our workforce related to reduced revenue volume, our decision
to subcontract a portion of our production work to offshore subcontractors, and our use of domestic subcontractors to manage fluctuating labor needs.



Subcontractor Costs. Subcontractor costs include production costs incurred through the use of third parties for production tasks such as data conversion services
to meet contract requirements, and field survey services. The use of domestic subcontractors enables us to better manage the fluctuations in labor requirements as we complete and begin new projects as well as during the various phases of contracts.
Subcontractor costs increased $829,000 and $1,003,000 for the three- and six-month periods ended March 31, 2004, as compared to the same periods in fiscal 2003 due to our increased use of subcontractors on certain projects. A decrease in production
salaries, wages and related benefits offset the increase.



Other General and
Administrative Costs. Other general and administrative costs include rent, maintenance, travel, supplies, utilities, insurance and professional services. Such costs increased $15,000 and decreased $283,000 for the three- and six-month periods
ended March 31, 2004, respectively, from the comparable periods in fiscal 2003. The decrease was a result of the implementation of controls, the reduced cost related to fewer locations and general and administrative employees, and lower professional
fee expenses.



Depreciation.Depreciation decreased $60,000 and $119,000
in the second quarter of fiscal 2004 as compared to the fiscal 2003 quarter due to some equipment becoming fully depreciated. The replacement cost on computer equipment is significantly lower than the replaced items. Additionally, we have been able
to upgrade existing equipment, which has minimized our need to purchase new equipment. Accordingly, depreciation expense has decreased in recent periods.



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Severance and Related Costs. We incurred severance expense of $115,000 and $137,000 for the three- and six-month
periods ended March 31, 2004, as compared to $54,000 and $307,000 for the same periods in fiscal 2003. The expense in the fiscal 2003 periods was incurred as a result of the termination of an employment contract that provided for a significant
severance payment. Severance expense in the fiscal 2004 periods was incurred as a result of changes in several positions, but lower total expense.



Interest Expense. Interest expense increased $149,000 and $314,000 in the three- and six-month periods ended March 31, 2004 as compared to the same periods in
fiscal 2003. We incurred non-cash interest expense related to the senior secured promissory note and the preferred convertible stock of $181,000 and $383,000 for the three- and six-month periods ended March 31, 2004, as compared to $28,000 and
$56,000 for the same periods in fiscal 2003. The increase was a result of our adoption of SFAS No. 150 effective July 1, 2003, which required that the accretion, or the increase in the carrying value, of the preferred stock, to be classified as
interest expense. Prior to July 1, 2003, the accretion was recorded as a charge to retained earnings. See Note 6. We incurred interest expense on the Note that is payable only upon conversion or maturity of the Note totaling $21,000 and $44,000 for
the three- and six- month periods ending March 31, 2004, as compared to $25,000 and $50,000 for the same periods in fiscal 2003. The decrease was a result of the partial conversion of the Note in October 2003. Other interest expense is related to
various other debt instruments.



Other Income (Loss). Other income
(expense) is incurred as a result of the increase or decrease in the fair market values of the derivative features of the Note that change proportionately with the change in the market value of our common stock. This income or expense is non-cash
and non-operational in nature. We recorded other income totaling $56,000 and $3,000 for the three- and six-month periods ending March 31, 2004, as a result of the decrease in the fair market value of the derivative features of the Note at the end of
each period. We recorded other expense totaling $402,000 and $338,000 as a result of the increase in the fair market value of these features for the comparable periods in fiscal 2003.



Income Taxes. Federal income tax expense for fiscal year 2004 is projected to be zero. Accordingly, an effective federal income tax
rate of 0% was recorded for the three- and six-months ended March 31, 2004 and 2003. As a result of the uncertainty that sufficient future taxable income can be recognized to realize additional deferred tax assets, no income tax benefit has been
recognized for the three and six months ended March 31, 2004, and 2003.



Net
Loss. Our net loss of $902,000 in the second quarter of fiscal 2004 was $363,000 lower compared to the $1,265,000 net loss from the same quarter of fiscal 2003. The lower net loss is principally a result of the other expense incurred in the
second quarter of fiscal 2003 as a result of marking the derivative features of the Note to fair value. Our net loss of $2,203,000 in the first six months of fiscal 2004 was slightly higher than the $2,029,000 net loss incurred in the six month 2003
period principally due to the lower level of revenue in 2004 period.



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Liquidity and Capital Resources



Table Of Contractual Obligations. Below is a schedule (by period due) of the future payments (in thousands) which we are obligated to
make based on agreements in place as of March 31, 2004. The Note which matures in 2005, carries a mandatory redemption clause that provides for its conversion into Common Stock at the then-current conversion rate. See Note 5.



|                           |  |                               |     |                                 |   |       |  |      |  |       |  |   |      
|-------------------------- |  | ----------------------------- | --- | ------------------------------- | - | ----- |  | ---- |  | ----- |  | - | -----
|                           |  | Six monthsending September 30 |     | Fiscal year ending September 30 |   | Total
|                           |  | 2004                          |     | 2005                            |   | 2006  |  | 2007 |  |      
|Operating Leases           |  | $                             | 158 |                                 | $ | 116   |  |     |  |      |  | $ | 274  
|Debt                       |  |                               | 38  |                                 |   | 1,752 |  |     |  |      |  |   | 1,790
|Preferred Stock redemption |  |                               |    |                                 |   | 800   |  |     |  | 1,851 |  |   | 2,651
|                           |  |                               |     |                                 |   |       |  |      |  |       |  |   |      
|Total                      |  | $                             | 196 |                                 | $ | 2,668 |  |     |  | 1,851 |  | $ | 4,715
|                           |  |                               |     |                                 |   |       |  |      |  |       |  |   |      



To meet our short-term cash
requirements we must collect more cash from our customers than we pay to our employees and suppliers. To meet our long-term cash requirements, we must complete certain projects in fiscal 2004 and 2005 that are related to the balance of revenues in
excess of billings at March 31, 2004, in order to generate sufficient cash flow to fund operations and expenditures and to meet our debt requirements. We anticipate that the successful completion of these projects will reduce the balance of unearned
revenue and generate cash sufficient to meet both our short-term and long-term debt obligations. We expect that we will be able to complete a majority of these contracts by December 31, 2004, but there can be no assurance that market conditions or
other factors will not prevent us from doing so or that the cash generated will be equal to the amount that we currently anticipate. If we are unable to complete the contracts and generate cash by earning and collecting our unearned revenues, we
will be forced to obtain additional financing with Tongas consent and/or restrict capital and operating expenditures to match available resources. If these actions are not sufficient, and we are not able to meet our commitments when due, then
we will be forced to liquidate assets and repay our secured creditors with the proceeds.



We will be in default under the terms of the Note if the Registration Statement on Form S-3 filed with the SEC on December 30, 2003, is not declared effective on or before May 28, 2004.



Under the terms of the Note, it is an event of default if the Registration Statement filed
with the SEC on December 30, 2004 is not declared effective on or prior to May 28, 2004 which is 150 days after its filing. If such an event of default were to occur, it is continuing, Tonga, may at any time at its option (a) declare the entire
unpaid principal balance of the Note, together with interest accrued thereon, due and payable, and the Note will be accelerated without presentment, demand, protest or notice; (b) demand that we pay all or a portion of the Note at a price equal to
the



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Triggering Event Prepayment Price (as defined) which is the greater of (i) 130% of the aggregate principal amount of the
Note and (ii) the product of the Conversion Price (as defined) at such time and the Per Share Market Value (as defined) of the common stock calculated as of May 28, 2004; (c) demand that the principal amount of the Note then outstanding and all
accrued but unpaid interest be converted into shares of our common stock at a Conversion Price; or (d) exercise or otherwise enforce any one or more of Tongas rights under the Note, the other related documents or applicable law.



We may owe liquidated damages to Tonga until such time as our Registration Statement on Form
S-3 filed with the SEC on December 30, 2003 is declared effective.



Under the
terms of the Registration Rights Agreement, liquated damages may be sought beginning on April 29, 2004, if the Registration Statement filed on December 30, 2003, has not been declared effective by the SEC. If Tonga requests, we will be obligated to
pay an amount in cash or shares of our common stock, as liquidated damages to Tonga, equal to 2% for each calendar month or portion thereof of the principal amount of the Note plus the principal amount of the Note that has been converted to the
extent any of the conversion shares issued upon such conversion have not been sold from April 29, 2004 and the time at which the Registration Statement becomes effective. The liquidated damages payments are due and payable immediately upon demand in
immediately available funds. If Tonga elects to be paid in our common stock, the number of shares will be based on the liquidated damage amount divided by the Conversion Rate (as defined in the Note).



Historically, the principal source of our liquidity has consisted of cash flow from
operations supplemented by secured lines-of-credit and other borrowings. At March 31, 2004, our debt obligations included the Note with a face value of $1.7 million that is convertible into common stock upon its maturity in April 2005, redeemable
preferred stock with a current redemption value of $2.24 million, and other miscellaneous borrowings. A mandatory redemption payment of $800,000 plus accrued dividends totaling $96,000 is due on December 28, 2004. We do not have a line of credit and
we are generally restricted from additional borrowings or issuing additional equity securities without Tongas consent. Tonga also has a right of first refusal as to certain subsequent financings.



Until December 28, 2004, we are entitled to redeem all of the outstanding shares of preferred
stock at $1.40 per share ($2.24 million). The redemption price increases $0.20 per year until December 28, 2006, at which time the outstanding shares must be redeemed at a price of $2.00 per share. Since its issuance, we have accrued, but not
declared or paid, dividends on the preferred stock. Accrued dividends are included as a current liability on our consolidated balance sheet. The preferred stock earns a dividend at the annual rate of 5.00% of the then redemption price on a
cumulative, non-participating basis and has a liquidation preference equal to the then redemption value of shares outstanding at the time of such liquidation.



On December 28, 2004, we must redeem $800,000 of our preferred stock and pay $96,000 in accrued dividends. If we make the $800,000 mandatory redemption payment on or
before December 27, 2004, the payment will redeem 571,428 of the 1,600,000 outstanding shares of



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preferred stock. The remaining 1,028,572 shares may be redeemed at $1.60 per share prior to December 28, 2005, on which
date the redemption price increases to $1.80 per share. If we redeem the remaining outstanding shares on December 27, 2006, we will redeem 1,028,572 at $1.80 per share, totaling $1,851,429, plus accrued dividends.



The outstanding Note, plus accrued interest, automatically converts into common stock upon
its maturity on April 2, 2005, at a conversion rate specified in the Note (see Note 5). Tonga, at its option, may convert the outstanding principal and accrued interest into common stock at any time at the Conversion Price in effect at the time of
conversion. If Tonga converts the Note in full and exercises the related warrants, they will hold a majority ownership in ASI. The maximum potential ownership by Tonga will be dependent upon the Conversion Price, which varies with the fluctuation of
the closing bid price of our common stock. A lower closing bid price will effect a lower Conversion Price and a higher percentage of ownership by Tonga upon conversion. The Note includes a provision that Tonga will own a minimum of 55% of our common
stock upon full conversion and exercise of the warrants.



On October 29, 2003,
we received from Tonga a notice of conversion of $300,000 in principal amount of the Note. On November 6, 2003, we issued 241,936 shares pursuant to the conversion at a Conversion Price of $1.24, which represented 90% of the average closing bid
prices for the three trading days having the lowest closing bid price during the 20 trading days immediately prior to October 29, 2003. We also issued 19,522 shares at the same conversion price in payment of $24,208 accrued interest on the converted
principal. The $2 million note was exchanged for the shares and a $1.7 million note bearing the same terms. The newly issued shares increased our total common shares outstanding from 823,965 to 1,085,423. Tonga owned 24% of our outstanding shares
immediately after the partial conversion.



We are generally restricted from
issuing additional equity securities without Tongas consent, and Tonga has a right of first refusal as to certain subsequent financings. The Note is subject to mandatory conversion in three years and is secured by all of our assets. As part of
the transaction, for a period of three years from the date of the Note, Tonga has the right to appoint a majority of our Board of Directors. Tonga has appointed three members to the Board and as a result, controls ASI. In addition, upon exercise of
the warrants and conversion of the Note, Tonga will own a majority of the common stock, thereby giving Tonga additional control over ASI.



The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the
normal course of business. Since fiscal 2000, we have experienced significant operating losses with corresponding reductions in working capital. Our revenues and backlog decreased significantly during that time. These factors, among others, have
resulted in our independent auditors issuing an audit opinion in the September 30, 2003, financial statements that expressed substantial doubt about our ability to continue as a going concern.



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To address the going concern issue, we have implemented financial and operational restructuring plans designed to improve
operating efficiencies, reduce and eliminate cash losses and position the Company for profitable operations. The consolidation of our production operations to two solution centers has resulted in lower general and administrative costs and improved
operating efficiencies. Additionally, the relocation of our corporate headquarters has resulted in additional savings realized with a smaller corporate staff and efficiencies in occupancy and travel related expenses. Our sales and marketing team is
pursuing market opportunities in both our traditional digital mapping and newly launched data management initiatives. We continue to focus on cost control as we develop the data management initiative.



The financial statements do not include any adjustments relating to the recoverability of
assets and the classifications of liabilities that might be necessary if we are unable to continue as a going concern. However, we believe that our turnaround efforts, if successful, will improve operations and generate sufficient cash to meet our
obligations in a timely manner.



Our cash flow is significantly affected by
customer contract terms and progress achieved on projects. Fluctuations in cash flow from operations are reflected in three contract-related accounts: accounts receivable; revenues in excess of billings; and billings in excess of revenues. Under the
percentage of completion method of accounting, an account receivable is created when an amount becomes due from a customer, which typically occurs when an event specified in the contract triggers a billing. Revenues in excess of
billings occur when we perform under a contract even though a billing event has not been triggered. Billings in excess of revenues occur when we receive an advance or deposit against work yet to be performed. These accounts, which
represent a significant investment by us in our business, affect our cash flow as projects are signed, performed, billed and collected. At March 31, 2004, we had multiple contracts with four customers that represented 86% (46%, 18%, 12% and 10%,
respectively) of the total balance of net accounts receivable and revenue in excess of billings. Billing terms are negotiated in a competitive environment and are based on reaching project milestones. We anticipate that sufficient billing milestones
or contract completion will be achieved during fiscal 2004 and the first fiscal quarter of 2005 such that the majority of revenue in excess of billings for these customer contracts will be collected and generate cash during those fiscal periods.



Our operating activities used $1,313,000 cash during the first six months of
fiscal 2004, compared to $326,000 in the same period in fiscal 2003. We collected $1.2 and $2.1 million previously earned but not billed revenue during the six months ended March 31, 2004 and 2003, respectively.



We purchased equipment totaling $3,000 in the six months ended March 31, 2004 as compared to
purchases totaling $131,000 in the six months ended March 31, 2003. We made principal payments on notes payable totaling $36,000 and $235,000 in the six months ended March 31, 2004 and 2003, respectively. Our final bank debt payment of $175,000 is
included in the fiscal 2003 total.



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In order to fund our short term operating activities, including completing existing contracts and funding new contracts,
we must collect more cash from our customers than we will pay to our employees and suppliers. We must reduce our revenue in excess of billings through substantial completion of the related contracts in order to meet our debt obligations in fiscal
2004 and 2006.



Critical Accounting Policies



Revenue Recognition.We recognize revenue using the percentage of completion method
of accounting on a cost-to-cost basis. For each contract, an estimate of total production costs is determined and these estimates are reevaluated monthly. The estimation process requires significant subjective judgments on the costs over the life of
the contract, which are inherently uncertain. The duration of the contracts and the technical challenges included in certain contracts affect our ability to estimate costs precisely. Production costs consist of internal costs, primarily salaries and
wages, and external costs, primarily subcontractor costs. Internal and external production costs may vary considerably among projects and during the course of completion of each project. At each accounting period, the percentage of completion is
based on production costs incurred to date as a percentage of total estimated production costs for each of the contracts. This percentage is then multiplied by the contracts total value to calculate the sales revenue to be recognized. The
percentage of completion is affected by many factors which influence either the estimate of future productivity or the production cost per hour used to determine future costs. We recognize losses on contracts in the period such loss is determined.
Sales and marketing expenses associated with obtaining contracts are expensed as incurred. If we underestimate the total cost to complete a project we would recognize a disproportionately high amount of revenue in the earlier stages of the contract,
which would result in disproportionately high profit margins in the same period. This could also result in the recognition of losses in the final stages of the contract. Conversely, if we overestimate the cost to complete a project, a
disproportionately low amount of revenue would be recognized in the early stages of a contract. While our contracts generally contain termination clauses they also provide for reimbursement of costs incurred to date in the event of termination.



Valuation Of Accounts Receivable.We maintain allowances for doubtful
accounts for estimated losses resulting from the inability of our customers to make required payments. We routinely assess the financial condition of our customers and the markets in which these customers participate. If the financial condition of
our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances might be required. This could negatively affect our operating results.



Litigation.We are subject to various claims, lawsuits and administrative proceedings.
Liabilities and costs associated with these matters require estimates and judgment based on professional knowledge and experience of management and our legal counsel. When the estimates of our exposure for claims or pending or threatened litigation
matters meet the criteria of SFAS No. 5, Accounting for Contingencies, amounts are recorded as charges to net



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earnings. The ultimate resolution of our exposure may change as further facts and circumstances become known.



Income Taxes.Fiscal year 2002 was the only year out of the last three fiscal years in
which we have reported net income (and taxable income), and we reported a net loss in fiscal 2003. Prior fiscal year losses have generated a sizeable federal tax net operating loss, or NOL, carryforward of approximately $22 million as of September
30, 2003.



Generally accepted accounting principles require that we record a
valuation allowance against the deferred tax asset associated with an NOL if it is more likely than not that we will not be able to utilize it to offset future taxes. Due to the size of the NOL carryforward in relation to our recent history of
unprofitable operations and to the continuing uncertainties surrounding our future operations as discussed above, we have not recognized any of this net deferred tax asset. We currently provide for income taxes only to the extent that we expect to
pay cash taxes (primarily state taxes and the federal alternative minimum tax) for current income.



It is possible, however, that we could be profitable in the future at levels which might cause management to conclude that it is more likely than not that we will realize all or a portion of the NOL carryforward. Upon
reaching such a conclusion, we would immediately record the estimated net realizable value of the deferred tax asset at that time and would then provide for income taxes at a rate equal to our combined federal and state effective rates, which would
approximate 40% under current tax rates. Subsequent revisions to the estimated net realizable value of the deferred tax asset could cause our provision for income taxes to vary significantly from period to period, although our cash tax payments
would remain unaffected until the benefit of the NOL is utilized.



Litigation



We have been a party to various litigation matters
which are described in Note 8 to our Financial Statements included herein and in Part II, Item 1 of this quarterly report on Form 10-Q, the majority of other litigation matters have been settled as of the date of this filing. We recorded liabilities
arising from these matters and a receivable from our insurer for a portion of those liabilities.



Item 3. Quantitative and Qualitative Disclosures About Market Risk.



We may from time to time employ risk management techniques such as interest rate swaps and foreign currency hedging transactions. None of these techniques are used for speculative or trading purposes and the amounts
involved are not considered material. We did not utilize any such techniques during the current reporting period, but may employ such techniques in future periods.



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Item 4. Controls and Procedures.



We carried out
an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, as amended, (the Exchange Act)) as of the end of the period covered by this quarterly report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that the disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to ASI (including its consolidated subsidiaries) that is required to be included in our periodic filings under
the Exchange Act.



There has been no change in our internal control over
financial reporting (as defined in Rules 13a-13(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.



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Part II

Other Information



Item 1. Legal Proceedings.



Information regarding our legal proceedings can be found under Note 8, Litigation and Other Contingencies, to the Condensed Consolidated Financial Statements.



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##### Table of Contents

Item 6. Exhibits and Reports on Form 8-K.



(a) Exhibits:



|     |  |                                                                                                                                                                                                                                     
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 |  | Employment Agreement dated March 22, 2003, by and between Analytical Surveys, Inc. and Wayne Fuquay (Incorporated by reference to Exhibit 99.1 to the Companys Quarterly Report on Form
10-Q for the period ended March 31, 2004.).
|     | 
|31.1 |  | Section 302 Certification of Chief Executive Officer                                                                                                                                                                                
|     | 
|31.2 |  | Section 302 Certification of Chief Financial Officer                                                                                                                                                                                
|     | 
|32.1 |  | Section 906 Certification of Chief Executive Officer                                                                                                                                                                                
|     | 
|32.2 |  | Section 906 Certification of Chief Financial Officer                                                                                                                                                                                



(b) Reports on
Forms 8-K:



Current Report on Form 8-K
filed on January 6, 2004 announcing the Companys Year-End Results



Current Report on Form 8-K filed on January 7, 2004 announcing the Companys Provision of an Update On Auditor Opinion



Current Report on Form 8-K filed on January 29, 2004 announcing the Resignation of the Companys President and CEO



Current Report on Form 8-K filed on February 18, 2004
announcing the Companys First Quarter Results for Fiscal 2004



Current Report on Form 8-K filed on April 1, 2004 announcing the appointment of Wayne Fuquay as the Companys CEO



Current Report on Form 8-K filed on April 28, 2004 announcing the return of Hamid Akhavan to the Company and being named Senior Vice
President of Operations



Current Report on
Form 8-K filed on April 28, 2004 announcing New Braunfels Utilities (NBU) has recently received from ASI a pilot data delivery that encompasses electric, water, wastewater and utility easements data



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##### Table of Contents

Current Report on Form 8-K filed on May 13, 2004 announcing City Public Services (CPS)
awarded ASI a two-year contract for the drafting, scanning and plotting of utility features for the CPS Fossil Generation Department.



Current Report on Form 8-K filed on May 17, 2004 announcing restatement of Fiscal 2002 and 2003 for non-cash and non-operating income
and expense.



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SIGNATURES



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 thereunto duly authorized.



|                   |  |  |  |                                       |  |                     |  |                                        
|------------------ |  |  |  | ------------------------------------- |  | ------------------- |  | ---------------------------------------
|                   |  |  |  | Analytical Surveys, Inc. (Registrant)
|                   |  |  | 
|Date: May 17, 2004 |  |  |  |                                       |  | /s/ Wayne B. Fuquay
|                   |  |  |  |                                       |  |                     | 
|                   |  |  |  |                                       |  |                     |  | Wayne B. Fuquay Chief Executive
Officer

|                   |  |  |  |  |  |                   |  |                                      
|------------------ |  |  |  |  |  | ----------------- |  | -------------------------------------
|                   |  |  |  | 
|                   |  |  | 
|Date: May 17, 2004 |  |  |  |  |  | /s/ Lori A. Jones
|                   |  |  |  |  |  |                   | 
|                   |  |  |  |  |  |                   |  | Lori A. Jones Chief Financial
Officer



31