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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 June 30, 2003



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 issuer (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 August 1, 2003, was 823,965.



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##### Table of Contents

TABLE OF CONTENTS



|              |  |                                                                |  | PAGE
|------------- |  | -------------------------------------------------------------- |  | ----
|PART 1.       |  | FINANCIAL INFORMATION                                          |  | 3   
|              |  |                                                               
|Item 1.       |  | Financial Statements                                           |  | 3   
|              |  |                                                               
|Item 2.       |  | Managements Discussion and Analysis and Results of Operations |  | 19  
|              |  |                                                               
|Item 3.       |  | Quantitative and Qualitative Disclosures About Market Risk     |  | 30  
|              |  |                                                               
|Item 4.       |  | Controls and Procedures                                        |  | 30  
|              |  |                                                               
|PART 2.       |  | OTHER INFORMATION                                              |  |     
|              |  |                                                               
|Item 1.       |  | Legal Proceedings                                              |  | 31  
|              |  |                                                               
|Item 6.       |  | Exhibits and Reports of Form 8-K                               |  | 33  
|              |  |                                                               
|SIGNATURES    |  |                                                                |  | 34  
|              | 
|EXHIBIT INDEX |  | 35                                                            
|              |  |                                                               
|Exhibit 31.1  |  | Section 302 Certification of Chief Executive Officer           |  | 35  
|              |  |                                                               
|Exhibit 31.2  |  | Section 302 Certification of Chief Financial Officer           |  | 37  
|              |  |                                                               
|Exhibit 32.1  |  | Section 906 of the Sarbanes-Oxley Act of 2002                  |  | 39  
|              |  |                                                               
|Exhibit 32.2  |  | Section 906 of the Sarbanes-Oxley Act of 2002                  |  | 40  



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##### Table of Contents

Part I

Financial Information



Item 1.
Financial Statements



ANALYTICAL
SURVEYS, INC.



CONSOLIDATED BALANCE SHEETS

(In thousands)



|                                                                             |  | June 30, 2003 |        |   | September 30, 2002 |       
|---------------------------------------------------------------------------- |  | ------------- | ------ | - | ------------------ | ------
|                                                                             |  | (Unaudited)   |        |   |                    |       
|ASSETS                                                                       |  |               |        |   |                    |       
|Current assets:                                                              |  |               |        |   |                    |       
|Cash                                                                         |  | $             | 2,148  |   |                    | 3,114 
|Accounts receivable, net of allowance for doubtful accounts of $100 and $479 |  |               | 2,741  |   |                    | 2,444 
|Revenue in excess of billings                                                |  |               | 6,659  |   |                    | 8,915 
|Prepaid expenses and other                                                   |  |               | 71     |   |                    | 184   
|                                                                             |  |               |        |   |                    |       
|Total current assets                                                         |  |               | 11,619 |   |                    | 14,657
|                                                                             |  |               |        |   |                    |       
|Equipment and leasehold improvements, at cost:                               |  |               |        |   |                    |       
|Equipment                                                                    |  |               | 4,879  |   |                    | 6,296 
|Furniture and Fixtures                                                       |  |               | 484    |   |                    | 484   
|Leasehold improvement                                                        |  |               | 267    |   |                    | 267   
|                                                                             |  |               |        |   |                    |       
|                                                                             |  |               | 5,630  |   |                    | 7,047 
|Less accumulated depreciation and amortization                               |  |               | (5,032 | ) |                    | (6,201
|                                                                             |  |               |        |   |                    |       
|Net equipment and leasehold improvements                                     |  |               | 598    |   |                    | 846   
|                                                                             |  |               |        |   |                    |       
|Total assets                                                                 |  | $             | 12,217 |   |                    | 15,503
|                                                                             |  |               |        |   |                    |       



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ANALYTICAL SURVEYS, INC.



CONSOLIDATED BALANCE SHEETS

(In thousands)



|                                                                                                                                                                                      |  | June 30, 2003 |         |   | September 30, 2002 |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ------------------ | -------
|                                                                                                                                                                                      |  | (Unaudited)   |         |   |                    |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                  |  |               |         |   |                    |        
|Current liabilities:                                                                                                                                                                  |  |               |         |   |                    |        
|Current portion of long-term debt                                                                                                                                                     |  | $             | 73      |   |                    | 270    
|Billings in excess of revenue                                                                                                                                                         |  |               | 529     |   |                    | 887    
|Accounts payable and other accrued liabilities                                                                                                                                        |  |               | 1,838   |   |                    | 2,214  
|Accrued payroll and related benefits                                                                                                                                                  |  |               | 1,017   |   |                    | 1,576  
|                                                                                                                                                                                      |  |               |         |   |                    |        
|Total current liabilities                                                                                                                                                             |  |               | 3,457   |   |                    | 4,947  
|Long-term debt, less current portion                                                                                                                                                  |  |               | 1,955   |   |                    | 1,960  
|                                                                                                                                                                                      |  |               |         |   |                    |        
|Total liabilities                                                                                                                                                                     |  |               | 5,412   |   |                    | 6,907  
|                                                                                                                                                                                      |  |               |         |   |                    |        
|Redeemable preferred stock; no par value. Authorized 2,500 shares; 1,600 shares issued and outstanding at June 30 and
September 30 (liquidation value $1,920 and $1,600 respectively) |  |               | 1,300   |   |                    | 800    
|                                                                                                                                                                                      |  |               |         |   |                    |        
|Stockholders equity:                                                                                                                                                                 |  |               |         |   |                    |        
|Common stock; no par value. Authorized 10,000 shares; 824 shares issued and outstanding atJune 30 and September
30                                                                    |  |               | 33,039  |   |                    | 33,039 
|Accumulated deficit                                                                                                                                                                   |  |               | (27,534 | ) |                    | (25,243
|                                                                                                                                                                                      |  |               |         |   |                    |        
|Total stockholders equity                                                                                                                                                            |  |               | 5,505   |   |                    | 7,796  
|                                                                                                                                                                                      |  |               |         |   |                    |        
|Total liabilities and stockholders equity                                                                                                                                            |  | $             | 12,217  |   |                    | 15,503 
|                                                                                                                                                                                      |  |               |         |   |                    |        



See
accompanying notes to consolidated financial statements.



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ANALYTICAL SURVEYS, INC.



CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)



|                                                                             |  | Three Months Ended June 30 |       |   | Nine Months Ended June 30 |      
|---------------------------------------------------------------------------- |  | -------------------------- | ----- | - | ------------------------- | -----
|                                                                             |  | 2003                       |       |   | 2002                      |      
|Revenues                                                                     |  | $                          | 3,753 |   |                           | 4,304
|                                                                             |  |                            |       |   |                           |      
|Costs and expenses                                                           |  |                            |       |   |                           |      
|Salaries, wages and related benefits                                         |  |                            | 2,112 |   |                           | 2,795
|Subcontractor costs                                                          |  |                            | 1,049 |   |                           | 835  
|Other general and administrative                                             |  |                            | 923   |   |                           | 1,003
|Depreciation and amortization                                                |  |                            | 113   |   |                           | 208  
|Severance and related costs                                                  |  |                            |      |   |                           |     
|                                                                             |  |                            |       |   |                           |      
|                                                                             |  |                            | 4,197 |   |                           | 4,841
|                                                                             |  |                            |       |   |                           |      
|Loss from operations                                                         |  |                            | (444  | ) |                           | (537 
|                                                                             |  |                            |       |   |                           |      
|Other income (expense)                                                       |  |                            |       |   |                           |      
|Interest expense, net                                                        |  |                            | (45   | ) |                           | (38  
|Other                                                                        |  |                            | 26    |   |                           | 117  
|Gain on extinguishment of debt                                               |  |                            |      |   |                           | 2,125
|                                                                             |  |                            |       |   |                           |      
|                                                                             |  |                            | (19   | ) |                           | 2,204
|                                                                             |  |                            |       |   |                           |      
|Income (loss) before income taxes                                            |  |                            | (463  | ) |                           | 1,667
|Income tax expense (benefit)                                                 |  |                            | (14   | ) |                           |     
|                                                                             |  |                            |       |   |                           |      
|Earnings (loss) before cumulative effect of a change in accounting principle |  |                            | (449  | ) |                           | 1,667
|Cumulative effect of a change in accounting principle                        |  |                            |      |   |                           |     
|                                                                             |  |                            |       |   |                           |      
|Net earnings (loss)                                                          |  |                            | (449  | ) |                           | 1,667
|Accretion of discount and dividends on preferred shares                      |  |                            | (174  | ) |                           | (220 
|                                                                             |  |                            |       |   |                           |      
|Net earnings (loss) available to common shareholders                         |  | $                          | (623  | ) |                           | 1,447
|                                                                             |  |                            |       |   |                           |      
|Basic earnings (loss) per common share:                                      |  |                            |       |   |                           |      
|Income (loss) before cumulative effect of a change in accounting principle   |  | $                          | (0.76 | ) |                           | 1.96 
|Cumulative effect of a change in accounting principle                        |  | $                          |      |   |                           |     
|                                                                             |  |                            |       |   |                           |      
|Net earnings (loss) available to common shareholder                          |  | $                          | (0.76 | ) |                           | 1.96 
|                                                                             |  |                            |       |   |                           |      
|Diluted earnings (loss) per common share:                                    |  |                            |       |   |                           |      
|Income (loss) before cumulative effect of a change in accounting principle   |  | $                          | (0.76 | ) |                           | 0.91 
|Cumulative effect of a change in accounting principle                        |  | $                          |      |   |                           |     
|                                                                             |  |                            |       |   |                           |      
|Net earnings (loss) available to common shareholder                          |  | $                          | (0.76 | ) |                           | 0.91 
|                                                                             |  |                            |       |   |                           |      
|Weighted average common shares:                                              |  |                            |       |   |                           |      
|Basic                                                                        |  |                            | 824   |   |                           | 739  
|Diluted                                                                      |  |                            | 824   |   |                           | 1,594



See accompanying notes to consolidated
financial statements.



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ANALYTICAL SURVEYS, INC.



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY



For the Nine Months Ended June 30, 2003

(In thousands)

(Unaudited)



|                                                        |  | Common Stock |  | AccumulatedDeficit |        |  | Total   |  
|------------------------------------------------------- |  | ------------ |  | ------------------ | ------ |  | ------- | -
|                                                        |  | Shares       |  | Amount             |        | 
|Balances at September 30, 2002                          |  | 824          |  | $                  | 33,039 |  | (25,243 | )
|Net loss                                                |  |             |  |                    |       |  | (1,723  | )
|Accretion of discount and dividends on preferred shares |  |             |  |                    |       |  | (568    | )
|                                                        |  |              |  |                    |        |  |         |  
|Balances at June 30, 2003                               |  | 824          |  | $                  | 33,039 |  | (27,534 | )
|                                                        |  |              |  |                    |        |  |         |  



See accompanying notes to consolidated
financial statements.



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ANALYTICAL SURVEYS, INC.



CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                                   |  | Nine Months Ended June 30 |       
|-------------------------------------------------------------------------------------------------- |  | ------------------------- | ------
|                                                                                                   |  | 2003                      |       
|Cash flow from operating activities:                                                               |  |                           |       
|Net earnings (loss)                                                                                |  | $                         | (1,723
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |  |                           |       
|Gain on sale of assets                                                                             |  |                           | (11   
|Gain on extinguishment of debt                                                                     |  |                           |      
|Cumulative effect of change in accounting principle                                                |  |                           |      
|Depreciation                                                                                       |  |                           | 388   
|Changes in operating assets and liabilities:                                                       |  |                           |       
|Accounts receivable, net                                                                           |  |                           | (297  
|Revenue in excess of billings                                                                      |  |                           | 2,257 
|Income taxes                                                                                       |  |                           |      
|Prepaid expenses and other                                                                         |  |                           | 113   
|Billings in excess of revenue                                                                      |  |                           | (358  
|Accounts payable and other accrued liabilities                                                     |  |                           | (377  
|Accrued payroll and related benefits                                                               |  |                           | (558  
|                                                                                                   |  |                           |       
|Net cash provided by (used in) operating activities                                                |  |                           | (566  
|                                                                                                   |  |                           |       
|Cash flows used in investing activities:                                                           |  |                           |       
|Purchase of equipment and leasehold improvements                                                   |  |                           | (145  
|Proceeds from sales of assets                                                                      |  |                           | 16    
|                                                                                                   |  |                           |       
|                                                                                                   |  |                           | (129  
|                                                                                                   |  |                           |       
|Cash flows used in financing activities:                                                           |  |                           |       
|Principal payments on long-term debt, net                                                          |  |                           | (271  
|Proceeds from issuance of senior secured convertible debt                                          |  |                           |      
|                                                                                                   |  |                           |       
|                                                                                                   |  |                           | (271  
|                                                                                                   |  |                           |       
|Net decrease in cash                                                                               |  |                           | (966  
|Cash at beginning of period                                                                        |  | $                         | 3,114 
|                                                                                                   |  |                           |       
|Cash at end of period                                                                              |  | $                         | 2,148 
|                                                                                                   |  |                           |       
|Supplemental disclosure of cash flow information:                                                  |  |                           |       
|Cash paid for interest                                                                             |  | $                         | 20    
|                                                                                                   |  |                           |       
|Refunds of income taxes                                                                            |  | $                         |      
|                                                                                                   |  |                           |       
|Accretion of preferred stock                                                                       |  | $                         | 500   
|                                                                                                   |  |                           |       
|Issuance of preferred stock to retire debt                                                         |  | $                         |      
|                                                                                                   |  |                           |       
|Issuance of common stock in litigation settlement                                                  |  | $                         |      
|                                                                                                   |  |                           |       



See
accompanying notes to financial statements.



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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, 2002. The consolidated
financial statements include the accounts of Analytical Surveys, Inc. (ASI 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 for the year ended September 30, 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 June 30, 2003, the results of their operations for the three and nine months ended June 30, 2003 and 2002 and cash flows for the nine months ended June 30, 2003 and 2002.



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



Severance And Related
Costs.    ASI incurred severance expense of $307,000 for the nine month period ended June 30, 2003. $253,000 was paid in January 2003. The remaining $54,000 will be paid over a six month period which began in March 2003.



Stock Based Compensation.    As permitted by 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 income (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 income (loss) and earnings (loss) per share is required by SFAS No. 148. This information has been estimated at the date of grant using the fair value method.



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|                                                                |  | Three Months Ended June 30, |       | Nine Months Ended June 30,
|--------------------------------------------------------------- |  | --------------------------- | ----- | --------------------------
|                                                                |  | 2003                        |       |                           
|Net income (loss), available to common shareholders as reported |  | $                           | (623  | )                         
|Less: Pro forma option expense                                  |  |                             | 46    |                           
|                                                                |  |                             |       |                           
|Pro forma net income (loss)                                     |  | $                           | (669  | )                         
|                                                                |  |                             |       |                           
|Basic earnings (loss) per share, as reported                    |  | $                           | (0.76 | )                         
|Less: Pro forma option expense                                  |  | $                           | 0.06  |                           
|                                                                |  |                             |       |                           
|Pro forma basic earnings (loss) per share                       |  | $                           | (0.82 | )                         
|                                                                |  |                             |       |                           
|Diluted earnings (loss) per share, as reported                  |  | $                           | (0.76 | )                         
|Less: Pro forma option expense                                  |  | $                           | 0.06  |                           
|                                                                |  |                             |       |                           
|Pro forma diluted earnings (loss) per share                     |  | $                           | (0.82 | )                         
|                                                                |  |                             |       |                           



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 includes the effects of the potential dilution of outstanding options, warrants, and convertible debt on the
Companys common stock, determined using the treasury stock method.



|                                                              |  | Three Months Ended June 30 |  | Nine Months Ended June 30
|------------------------------------------------------------- |  | -------------------------- |  | -------------------------
|                                                              |  | 2003                       |  | 2002                     
|Weighted-average common shares outstanding                    |  | 824                        |  | 739                      
|Dilutive effect of:                                           |  |                            |  |                          
|Stock options                                                 |  |                           |  |                         
|Convertible debt                                              |  |                           |  | 865                      
|                                                              |  |                            |  |                          
|Weighted-average common shares Outstanding, assuming dilution |  | 824                        |  | 1,594                    
|                                                              |  |                            |  |                          



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All dilutive common stock equivalents are reflected in our earnings per share calculation; the conversion of 1,932,367
shares under the convertible debt agreement is antidilutive for the three and nine month periods ended June 30, 2003. Additionally, for the three and nine month periods ended June 30, 2003 and 2002, potential dilutive common shares under the warrant
agreement and stock option plans were not included in the calculation of diluted earnings per share as these shares were antidilutive.



3.    Comprehensive Income



The following are the components of comprehensive income (loss):



|                                                                                                              |  | Three Months Ended |     
|------------------------------------------------------------------------------------------------------------- |  | ------------------ | ----
|                                                                                                              |  | June 30, 2003      |     
|Net earnings (loss)                                                                                           |  | $                  | (449
|Realized change in investment securities net of reclassification adjustment of $168 net of income taxes of $0 |  |                    |    
|                                                                                                              |  |                    |     
|                                                                                                              |  | $                  | (449
|                                                                                                              |  |                    |     



The following are the components of
comprehensive income (loss):



|                                                                                                             |  | Nine Months Ended
|------------------------------------------------------------------------------------------------------------ |  | -----------------
|                                                                                                             |  | June 30, 2003    
|Net earnings (loss)                                                                                          |  | $                
|                                                                                                             |  |                  
|Realized change in investment securities net of reclassification adjustment of$168 net of income taxes of $0 |  |                  
|                                                                                                             |  |                  
|                                                                                                             |  | $                
|                                                                                                             |  |                  



4.    Impact of
Recently Issued Accounting Pronouncements



In April 2002, the FASB issued
SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145 rescinds the provisions of SFAS No. 4 that requires companies to classify certain gains and
losses from debt extinguishments as extraordinary items, eliminates the provisions of SFAS No. 44 regarding transition to the Motor Carrier Act of 1980 and amends the provisions of SFAS No. 13 to require that certain lease modifications be treated
as sale leaseback transactions. Adoption of SFAS No.



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145 did not have a material impact on the Companys financial statements other than the reclassification of debt
extinguishment in the periods ended June 30, 2002.



In June 2002, the FASB
issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task
Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The provisions of this Statement are effective for exit or
disposal activities initiated after December 31, 2002. The Company does not believe the adoption of this standard will have a material impact on its financial statements.



In December 2002, the 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 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 the disclosures, not the financial results of ASI. See Note 8.



In May
2003, the FASB issued SFAS 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
150 will require the reclassification of the redeemable preferred stock as debt and future preferred stock dividends will be classified as interest expense. Effective July 1, 2003 we will reclassify mandatorily redeemable shares that were issued
prior to May 31, 2003 as liabilities. The total amount of the reclassification will be $1,300,000.



5.    Goodwill Impairment



We elected early adoption of FASB Statement No. 142, Goodwill and Other Intangible Assets as of October 1, 2001. As a result of this election, we determined that impairment had occurred and recorded an impairment loss of $3.6
million which is reflected as a Cumulative Effect of a Change in Accounting Principle at October 1, 2001.



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6.    Debt



The Companys debt is summarized as follows (in thousands).



|                                |  | June 30, 2003 |       |   | September 30,2002 |  
|------------------------------- |  | ------------- | ----- | - | ----------------- | -
|Long-Term Debt                  |  |               |       |   |                   |  
|Note payable                    |  | $             |      |   |                   | $
|Senior secured convertible note |  |               | 1,883 |   |                   |  
|Capital lease obligation        |  |               |      |   |                   |  
|Other                           |  |               | 145   |   |                   |  
|                                |  |               |       |   |                   |  
|                                |  |               | 2,028 |   |                   |  
|Less current portion            |  |               | (73   | ) |                   |  
|                                |  |               |       |   |                   |  
|                                |  | $             | 1,955 |   |                   | $
|                                |  |               |       |   |                   |  



On December 28, 2001, we completed a
Waiver Agreement and Amendment No. 12 to Credit Agreement and Other Loan and Lease Documents (the Agreement) with our senior lenders providing our line-of-credit, note payable and capital lease obligation. Under the Agreement, these
senior lenders accepted a cash payment of $1.25 million and non-convertible redeemable preferred stock with a face value of $3.2 million in payment of the $4.4 million line-of-credit and all but $3.0 million of the note payable. The Agreement
provided for the remaining $3.0 million note payable to be reduced to zero with a cash payment of up to $875,000 by March 31, 2002 (later amended to April 2, 2002).



On April 2, 2002, we completed the sale of a $2.0 million senior secured convertible note and warrants to purchase ASI common stock
(Common Stock). We used the proceeds to repay $700,000 to senior lenders, pay transaction expenses of approximately $95,000 and fund operations. Senior lenders accepted the $700,000 cash payment and a $175,000 unsecured promissory note
in full satisfaction of the $3.0 million note payable outstanding at March 31, 2002.



On March 31, 2003, we paid the $175,000 unsecured promissory note in full together with interest totaling $10,048. The senior secured convertible note matures April 2, 2005 and bears interest at an annual rate of five percent. Interest is
not payable until maturity or may be converted to Common Stock as described below.



The senior secured convertible note has a face value of $2.0 million and is convertible at any time into Common Stock at a 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 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, but under 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. Assuming a
conversion price of $4.00 per share, ASI would issue 500,000 shares of Common Stock if the note were fully converted. At the time of conversion,



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any unpaid interest is to be paid in shares of Common Stock. The note is subject to mandatory conversion in three years
and is secured by all of the assets of ASI. For illustration only, if the note had been converted on July 24, 2003, the conversion price would have been $1.21 and 1,761,349 shares of Common Stock would have been issued to the note holder.



The holder of the senior secured convertible note (Holder) also received
warrants to purchase an additional 500,000 shares of Common Stock (subject to adjustment). One whole warrant entitles the Holder to acquire an additional share of Common Stock at an exercise price equal to 115% of the conversion price of the note.
Assuming an exercise price of $4.60 per share (115% of $4.00), the aggregate exercise price for the warrants would be $2.3 million for the issuance of 500,000 shares of Common Stock, but the shares issuable upon conversion of the note and exercise
of warrants are to be no less than 55% of the outstanding Common Stock (unless the Holder exercises the warrants in a cashless exercise where the Holder uses the value of some of the warrants to pay the exercise price for other warrants).



If, at the time of conversion of the note, the price of the Common Stock has
dropped below $4.00 per share, the number of shares of Common Stock issuable upon conversion of the note and upon exercise of the warrants would increase. Similarly, if we issue shares of Common Stock at a price of less than $4.00 per share, the
conversion price and the exercise price decrease to that lower price, and the number of shares issuable under the note and the warrants would therefore increase. For illustration only, if the warrant had been exercised on July 24, 2003, the exercise
price would have been adjusted to $1.39 per share (115% of $1.21) for a total exercise price of $695,000 for all 500,000 shares.



Under the terms of the note and related purchase agreement and pursuant to an extension granted by the Holder, we are required to register the shares underlying the note
and warrants by August 28, 2003. On January 17, 2003, the Holder waived its rights pursuant to the requirement that the Company maintain its listing on Nasdaq Small Cap Market, as set forth in the note. We are generally restricted from issuing
additional equity securities without the Holders consent, and the Holder has a right of first refusal as to certain subsequent financings.



As part of the transaction, the Holder effectively was granted the opportunity to appoint a majority of our board of directors. The Holder has appointed members to the
Board and as a result, controls ASI. In addition, upon exercise of the warrants and conversion of the note, the Holder will own a majority of the Common Stock, thereby giving the Holder additional control over ASI.



The carrying value of the senior secured convertible note is $1.88 million at June 30, 2003
and represents the cash received of $2.0 million less the estimated fair value of the warrants of $200,000 which was recorded in Common Stock. The carrying value of the senior secured convertible note is being accreted to the face amount by
charges to interest expense through the maturity date.



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The Agreement resulted in a gain on extinguishment of debt in the three months and nine months ended June 30, 2002, which
is calculated as follows (in thousands):



|                                        |  | Three Months Ended June 30, 2002 |       |   | Nine Months Ended June 30, 2002 |  
|--------------------------------------- |  | -------------------------------- | ----- | - | ------------------------------- | -
|Outstanding debt:                       |  |                                  |       |   |                                 |  
|Line-of-credit                          |  | $                                |      |   |                                 | $
|Note payable                            |  |                                  | 3,000 |   |                                 |  
|                                        |  |                                  |       |   |                                 |  
|Total                                   |  |                                  | 3,000 |   |                                 |  
|Less:                                   |  |                                  |       |   |                                 |  
|Cash paid                               |  |                                  | (700  | ) |                                 |  
|Fair value preferred stock (See Note 7) |  |                                  |      |   |                                 |  
|Remaining note payable                  |  |                                  | (175  | ) |                                 |  
|                                        |  |                                  |       |   |                                 |  
|Gain on extinguishment of debt          |  | $                                | 2,125 |   |                                 | $
|                                        |  |                                  |       |   |                                 |  



7.    Redeemable Preferred Stock



Pursuant
to the Agreement with senior lenders described in Note 6, on December 28, 2001, we issued preferred stock in the form of 1.6 million shares of no par value Series A Preferred Stock, at an original issue price of $2.00 per share. Until December 28,
2003, we are entitled to redeem the shares at $1.20 per share ($1.8 million), and the redemption price increases $.20 per year until the fifth anniversary, or December 28, 2006, at which time the shares must be redeemed at a price of $2.00 per
share. The Agreement calls for a mandatory payment toward the redemption price of $800,000 on December 28, 2004. 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 $1.3 million at June 30, 2003. 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. Accretion is effected by a charge to retained earnings, and the rate of accretion approximates the interest method.



8.    Segment Information



Management evaluates operations and makes key strategic and resource decisions based on operating results of our individual production centers. In previous years, we made
these decisions based on our two different operating segments: the utilities division which uses its industry expertise and proprietary geographical information systems (GIS) for data conversion



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for electric, gas and water management utility customers; and the land division which creates land base maps using
techniques in both general cartography and specialized photogrammetric mapping. We have completed a majority of our contracts in the land division and our primary focus is now on our utilities division operations. 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 months and nine months ended June 30, 2002 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, prepaid
expenses and deferred taxes (in thousands).



|                                 |  | Utilities Location A |        |   | Utilities Location B |       | Utilities Location C |     |   | Total Utilities |        |   | Land |   | Non-Segment |       |   | Total |       
|-------------------------------- |  | -------------------- | ------ | - | -------------------- | ----- | -------------------- | --- | - | --------------- | ------ | - | ---- | - | ----------- | ----- | - | ----- | ------
|Three months ended June 30, 2003 |  |                      |        |   |                      |       |                      |     |   |                 |        |   |      |   |             |       |   |       |       
|Operations                       |  |                      |        |   |                      |       |                      |     |   |                 |        |   |      |   |             |       |   |       |       
|Revenues                         |  | $                    | 2,471  |   |                      | 1,282 |                      |    |   |                 | 3,753  |   |      |  |             |      |   |       | 3,753 
|Income/(loss) from operations    |  |                      | (583   | ) |                      | 146   |                      | (7  | ) |                 | (444   | ) |      |  |             |      |   |       | (444  
|Interest expense, net            |  |                      |        |   |                      |       |                      |     |   |                 |        |   |      |   |             | (45   | ) |       | (45   
|Other                            |  |                      |        |   |                      |       |                      |     |   |                 |        |   |      |   |             | 26    |   |       | 26    
|Income tax expense               |  |                      |        |   |                      |       |                      |     |   |                 |        |   |      |   |             | 14    |   |       | 14    
|                                 |  |                      |        |   |                      |       |                      |     |   |                 |        |   |      |   |             |       |   |       |       
|Net loss                         |  |                      |        |   |                      |       |                      |     |   |                 |        |   |      |   |             |       |   |       | (449  
|                                 |  |                      |        |   |                      |       |                      |     |   |                 |        |   |      |   |             |       |   |       |       
|Nine months ended June 30, 2003  |  |                      |        |   |                      |       |                      |     |   |                 |        |   |      |   |             |       |   |       |       
|Operations                       |  |                      |        |   |                      |       |                      |     |   |                 |        |   |      |   |             |       |   |       |       
|Revenues                         |  |                      | 6,958  |   |                      | 4,535 |                      | 217 |   |                 | 11,710 |   |      |  |             |      |   |       | 11,710
|Income/(loss) from operations    |  |                      | (1,988 | ) |                      | 354   |                      | (30 | ) |                 | (1,664 | ) |      |  |             |      |   |       | (1,664
|Interest expense, net            |  |                      |        |   |                      |       |                      |     |   |                 |        |   |      |   |             | (138  | ) |       | (138  
|Other                            |  |                      |        |   |                      |       |                      |     |   |                 |        |   |      |   |             | 79    |   |       | 79    
|Income tax expense               |  |                      |        |   |                      |       |                      |     |   |                 |        |   |      |   |             |      |   |       |      
|                                 |  |                      |        |   |                      |       |                      |     |   |                 |        |   |      |   |             |       |   |       |       
|Net loss                         |  |                      |        |   |                      |       |                      |     |   |                 |        |   |      |   |             |       |   |       | (1,723
|                                 |  |                      |        |   |                      |       |                      |     |   |                 |        |   |      |   |             |       |   |       |       
|Assets at June 30, 2003          |  |                      |        |   |                      |       |                      |     |   |                 |        |   |      |   |             |       |   |       |       
|Segment assets                   |  | $                    | 7,929  |   |                      | 1,466 |                      |    |   |                 | 9,395  |   |      |  |             |      |   |       | 9,395 
|Non-segment assets               |  |                      |        |   |                      |       |                      |     |   |                 |        |   |      |   |             | 2,822 |   |       | 2,822 
|                                 |  |                      |        |   |                      |       |                      |     |   |                 |        |   |      |   |             |       |   |       |       
|Consolidated assets              |  |                      |        |   |                      |       |                      |     |   |                 |        |   |      |   |             |       |   |       | 12,217
|                                 |  |                      |        |   |                      |       |                      |     |   |                 |        |   |      |   |             |       |   |       |       



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|                                                      |  | UtilitiesLocation A |        |   | Utilities Location B |       | Utilities Location C |       |   | Total Utilities |        |   | Land |        |   | Non-Segment |        |   | Total |       
|----------------------------------------------------- |  | ------------------- | ------ | - | -------------------- | ----- | -------------------- | ----- | - | --------------- | ------ | - | ---- | ------ | - | ----------- | ------ | - | ----- | ------
|Three months ended June 30, 2002                      |  |                     |        |   |                      |       |                      |       |   |                 |        |   |      |        |   |             |        |   |       |       
|Operations                                            |  |                     |        |   |                      |       |                      |       |   |                 |        |   |      |        |   |             |        |   |       |       
|Revenues                                              |  | $                   | 2,215  |   |                      | 1,778 |                      | 247   |   |                 | 4,239  |   |      | 64     |   |             |       |   |       | 4,304 
|Income/(loss) from operations                         |  |                     | (350   | ) |                      | 138   |                      | (141  | ) |                 | (353   | ) |      | (184   | ) |             |       |   |       | (537  
|Interest expense, net                                 |  |                     |        |   |                      |       |                      |       |   |                 |        |   |      |        |   |             | (38    | ) |       | (38   
|Other                                                 |  |                     |        |   |                      |       |                      |       |   |                 |        |   |      |        |   |             | 2,242  |   |       | 2,242 
|Income tax benefit                                    |  |                     |        |   |                      |       |                      |       |   |                 |        |   |      |        |   |             |       |   |       |      
|                                                      |  |                     |        |   |                      |       |                      |       |   |                 |        |   |      |        |   |             |        |   |       |       
|Net earnings                                          |  |                     |        |   |                      |       |                      |       |   |                 |        |   |      |        |   |             |        |   |       | 1,667 
|                                                      |  |                     |        |   |                      |       |                      |       |   |                 |        |   |      |        |   |             |        |   |       |       
|Nine months ended June 30, 2002                       |  |                     |        |   |                      |       |                      |       |   |                 |        |   |      |        |   |             |        |   |       |       
|Operations                                            |  |                     |        |   |                      |       |                      |       |   |                 |        |   |      |        |   |             |        |   |       |       
|Revenues                                              |  |                     | 7,245  |   |                      | 5,780 |                      | 1,223 |   |                 | 14,248 |   |      | 659    |   |             |       |   |       | 14,907
|Income/(loss) from operations                         |  |                     | (1,203 | ) |                      | 189   |                      | (713  | ) |                 | (1,727 | ) |      | (1,567 | ) |             |       |   |       | (3,295
|Interest expense, net                                 |  |                     |        |   |                      |       |                      |       |   |                 |        |   |      |        |   |             | (264   | ) |       | (264  
|Other                                                 |  |                     |        |   |                      |       |                      |       |   |                 |        |   |      |        |   |             | 11,847 |   |       | 11,847
|Income tax benefit                                    |  |                     |        |   |                      |       |                      |       |   |                 |        |   |      |        |   |             | 1,240  |   |       | 1,240 
|Cumulative effect of a change in accounting principle |  |                     |        |   |                      |       |                      |       |   |                 |        |   |      |        |   |             | (3,557 | ) |       | (3,557
|                                                      |  |                     |        |   |                      |       |                      |       |   |                 |        |   |      |        |   |             |        |   |       |       
|Net earnings                                          |  |                     |        |   |                      |       |                      |       |   |                 |        |   |      |        |   |             |        |   |       | 5,971 
|                                                      |  |                     |        |   |                      |       |                      |       |   |                 |        |   |      |        |   |             |        |   |       |       
|Assets at September 30, 2002                          |  |                     |        |   |                      |       |                      |       |   |                 |        |   |      |        |   |             |        |   |       |       
|Segment assets                                        |  | $                   | 9,185  |   |                      | 2,858 |                      | 118   |   |                 | 12,161 |   |      |       |   |             |       |   |       | 12,161
|Non-segment assets                                    |  |                     |       |   |                      |      |                      |      |   |                 |       |   |      |       |   |             | 3,342  |   |       | 3,342 
|                                                      |  |                     |        |   |                      |       |                      |       |   |                 |        |   |      |        |   |             |        |   |       |       
|Consolidated assets                                   |  |                     |        |   |                      |       |                      |       |   |                 |        |   |      |        |   |             |        |   |       | 15,503
|                                                      |  |                     |        |   |                      |       |                      |       |   |                 |        |   |      |        |   |             |        |   |       |       



9.    Litigation and Other Contingencies



We have been named with certain former directors, as defendants in an action that was filed on September 20, 2000, by Sidney V. Corder, the former President, Chief Executive Officer and Director of the Company. On July 23, 2002, we
entered into a Settlement Agreement and Mutual General Release to settle the lawsuit. The settlement provided for, among other things, the payment of approximately $200,000 to Mr. Corder by ASI and its insurance carrier, the mutual release of
present or future actions, suits or claims, and a waiver by Mr. Corder of any claims for indemnification for any present or future actions, suits or claims arising out of his employment. Pursuant to the settlement, the litigation has been dismissed.



Two shareholders of ASI, the Epner Family Limited Partnership and the
Braverman Family Limited Partnership, (Claimants), filed suit in Indiana state court (Hamilton County Superior



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Court, State of Indiana) against four former officers of the Company on May 8, 2001. The former officers are: Sidney
Corder, Chief Executive Officer; Scott Benger, Senior Vice President of Finance; Randy Sage, Chief Operations Officer; and John Dillon, Chief Administrative Officer. The plaintiffs claimed that the former officers violated Texas and Indiana
securities laws and other provisions of Texas law in connection with ASIs acquisition of Cartotech, Inc., in June 1998. The four defendants have sent ASI written demands for indemnification. We have no further obligation to indemnify Mr.
Corder as specified in the Settlement Agreement described above. We have notified our insurance carrier of these claims and have requested coverage. In response, the insurance carrier has reserved its rights to deny or limit coverage. Recently the
court denied defendants motions to dismiss. Most of the defendants are seeking a stay of this litigation pending an outcome in the arbitration between ASI and the plaintiffs described in the following paragraph.



On June 26, 2002, the Claimants initiated arbitration proceedings against ASI. As set forth
in the preceding paragraph, the Claimants are the plaintiffs in related Indiana state court litigation against former officers of ASI. In the Statement of Claim they filed with the American Arbitration Association, Claimants allege that certain
representations and warranties made by ASI in the Cartotech merger agreement 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. They allege that the restatement of our financial statements for fiscal year 1999 should have included the financial statements referenced in the merger agreement. The Claimants allege that we violated the Texas Securities Act and the
Indiana Securities Act and that we breached warranties in the merger agreement. The Claimants seek recission or damages in the principal amount of approximately $5,546,533, which they allege to be the net loss in value of our
Common Stock which they received in the merger, and attorneys fees. We have filed a response to the Claimants Statement of Claim denying their material allegations. We intend to vigorously assert defenses. The arbitration hearing is
presently scheduled to occur in October 2003.



We have submitted to our
insurance carrier legal bills for the defense of the proceedings initiated by Claimants. The terms of the Companys insurance policy provide for the carrier to reimburse reasonable and necessary defense costs. Our coverage is subject to a
$150,000 deductible which we accrued as legal expense in the quarter ended September 30, 2002. Additional legal defense costs totaling $665,000 have been recorded as a current liability and as a receivable from our insurance carrier as of June 30,
2003. We anticipate we will receive an initial reimbursement totaling $400,000 prior to September 30, 2003.



Robert Montgomery, a former officer of ASI, 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 have responded to the lawsuit and deny all claims in the action. We are vigorously defending this lawsuit, including the
preparation of a motion for summary judgment.



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On January 23, 2002, we announced that the Securities and Exchange Commission has commenced a formal investigation of
ASI, certain of our former officers, directors and others in connection with our accounting policies, procedures, disclosures and system of internal controls relating to the period from October 1998 through March 2000. On March 7, 2000, we restated
earnings for the fiscal year ended September 30, 1999. We have cooperated fully with the SEC in this investigation.



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.





10.    Concentration of Credit Risk



At June 30, 2003, we had multiple contracts with two customers that represented 72% (59% and 13%, respectively) of the total balance of net accounts receivable and
revenue in excess of billings. Revenues from these customers for the fiscal quarter ended June 30, 2003 were 43% (24% and 19%, respectively) of total revenue. Additionally, for the quarter ended June 30, 2003, two other customers comprised another
42% of total revenues. Revenues from these four customers for the nine months ended June 30, 2003 were 67% (18%, 16%, 19% and 14%, respectively) of total revenue. At September 30, 2002, three customers represented 72% (43%, 17% and 12%,
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
will be achieved during fiscal 2003 such that revenue in excess of billings for these customer contracts will begin to decline.





11.    Liquidity



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. During the fiscal years of 2000 through 2002, 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. Our
senior secured convertible note also has certain immediate call provisions that are outside of our control, which if triggered and exercised, would make it difficult for us to meet accelerated debt payments. These factors, among others, raise
substantial doubt about the Companys ability to continue as a going concern.



To address the going concern issue, management has implemented financial and operational restructuring plans designed to improve operating efficiencies, reduce and eliminate cash losses and position ASI for profitable operations. In 2002,
we improved our working capital position by reducing our bank debt through the issuance of preferred stock and convertible debt and with the collection of a $1.2 million federal income tax refund. The consolidation of our production operations to
two solution centers has resulted in lower general and administrative costs and



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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 should we be unable to continue as a going concern. However, management believes that its continued
turnaround efforts, if successful, will improve operations and generate sufficient cash to meet its obligations in a timely manner.





12.    Nasdaq Delisting



On December 27, 2002, we were notified by Nasdaq that our Common Stock had not maintained a
minimum market value of publicly held shares of $1,000,000 as required for continued inclusion on the Nasdaq SmallCap Market by Marketplace Rule 4310(c)(7). On February 3, 2003, Nasdaq notified us that our stock price had fallen below Nasdaqs
minimum bid price of $1.00. As of April 9, 2003, the market value of our publicly held shares and the closing bid price of our common stock met or exceeded the minimum requirements of $1,000,000 and $1.00 respectively for at least ten consecutive
days. We regained compliance with Nasdaq Small Cap Marketplace rules, and both matters were closed.





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



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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.





Overview



ASI, founded in 1981, is a provider of data conversion maintenance and digital mapping
services to users of customized geographic information systems.



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 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.



We experience annual and quarterly fluctuations in production costs, salaries, wages and related benefits and subcontractor costs. These costs may vary as a percentage of
sales from period to period. We utilize InfoTech Enterprises Ltd., an India-based company, for a significant percentage of our offshore production services.



Backlog increases when new contracts are signed and decreases as revenues are recognized. Changes in macroeconomic and industry market conditions first encountered in
fiscal 2000 have continued through fiscal 2003, and have resulted in a reduction of timely order flow. As of June 30, 2003, our backlog was $10.9 million as compared with $19.5 million at September 30, 2002. We believe these adverse market
conditions were and continue to be primarily caused by the recessionary economic climate, consolidation in the utility industry, our adverse financial results for fiscal years 2002 and 2003 and increased competition from companies with offshore
operations.



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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. 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. These amounts are not included in research and development expenses but are expensed as
incurred as part of contract costs. We retain ownership of such proprietary software or products.



We streamlined our operations throughout fiscal year 2002 and 2003. We reduced our four main production centers to two centers. In the quarter ended March 31, 2002, we completed the consolidation of our Cary, North
Carolina, facility into our Texas and Wisconsin solution centers. In the quarter ended September 30, 2002, we completed the consolidation and relocation of our Indiana staff to smaller, lower cost facilities. Finally, on January 2, 2003, we
relocated our headquarters to our facility in San Antonio, Texas. We currently employ approximately 150 full-time employees.



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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 June 30, |    |  | Nine months ended June 30, |  
|-------------------------------------------------------------------------- |  | --------------------------- | -- |  | -------------------------- | -
|                                                                           |  | 2003                        |    |  | 2002                       |  
|PERCENTAGE OF REVENUES:                                                    |  |                             |    |  |                            |  
|Revenues                                                                   |  | 100.0                       | %  |  | 100.0                      | %
|                                                                           |  |                             |    |  |                            |  
|Costs and expenses                                                         |  |                             |    |  |                            |  
|Salaries, wages and related benefits                                       |  | 56.3                        |    |  | 64.9                       |  
|Subcontractor costs                                                        |  | 28.0                        |    |  | 19.4                       |  
|Other general and administrative                                           |  | 24.9                        |    |  | 23.4                       |  
|Depreciation and amortization                                              |  | 2.6                         |    |  | 4.8                        |  
|Severance and related costs                                                |  |                            |    |  |                           |  
|                                                                           |  |                             |    |  |                            |  
|                                                                           |  | 111.8                       |    |  | 112.5                      |  
|                                                                           |  |                             |    |  |                            |  
|Loss from operations                                                       |  | (11.8                       | )  |  | (12.5                      | )
|                                                                           |  |                             |    |  |                            |  
|Other income (expense), net                                                |  | (0.5                        | )  |  | 1.8                        |  
|Gain on extinguishment of debt                                             |  |                            |    |  | 49.4                       |  
|                                                                           |  |                             |    |  |                            |  
|                                                                           |  | (0.5                        | )  |  | 51.2                       |  
|                                                                           |  |                             |    |  |                            |  
|Income (loss) before income taxes                                          |  | (12.3                       | )  |  | 38.7                       |  
|Income tax expense (benefit)                                               |  | (0.4                        | )  |  |                           |  
|                                                                           |  |                             |    |  |                            |  
|Income (loss) before cumulative effect of a change in accounting principle |  | (11.9                       | )  |  | (38.7                      | )
|Cumulative effect of a change in accounting principle                      |  |                            |    |  |                           |  
|                                                                           |  |                             |    |  |                            |  
|Net earnings (loss)                                                        |  | (11.9                       | )  |  | 38.7                       |  
|Accretion of discount and dividends on preferred shares                    |  | (4.7                        | )  |  | (5.1                       | )
|                                                                           |  |                             |    |  |                            |  
|Net earnings (loss) available to common shareholders                       |  | (16.6                       | %) |  | 33.6                       | %
|                                                                           |  |                             |    |  |                            |  



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Three And Nine Months Ended June 30, 2003 And 2002



Revenues.    We recognize revenues as services are performed. Revenues for the three months ended June 30, 2003
totaled $3.75 million as compared to $4.3 million for the same period in fiscal 2002, a decrease of $550,000. Revenues totaled $11.7 million for the first nine months of fiscal 2003 as compared to $14.9 million for the first nine months of fiscal
2002, a decrease of $3.2 million. The decrease in revenues for both periods is a result of a lower level of new contract signings during fiscal 2003. 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,
administrative and executive employees. Salaries, wages and related benefits decreased 24.5% and 31.8% to $2.1 and $7.1 million for the third quarter and first nine months of fiscal 2003, respectively, from $2.8 and $10.4 million for the comparable
periods in fiscal 2002. The decrease was a result of reductions in our workforce related to reduced anticipated revenue volume and our decision to subcontract a portion of our production work to offshore subcontractors. As a percentage of revenues,
salaries, wages and related benefits decreased to 56.3% and 60.7% for the third quarter and the first nine months of fiscal 2003, respectively, from 64.9% and 69.9% for the comparable periods in fiscal 2002. We anticipate we will be able to realize
additional efficiencies in labor costs with the relocation of our corporate headquarters to San Antonio.



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, aerial photography and ground and airborne survey services. Subcontractor costs increased 25.7% for the three months ended June 30, 2003, to $1 million as compared to $0.8 million in the same period in fiscal 2002. The increase was a
result of the increased use of subcontractors on certain projects. A decrease in salaries, wages and related benefits offset the increase. As a percentage of revenue, subcontractor costs increased to 28% in the third fiscal quarter of 2003 as
compared to 19.4% in the same quarter of fiscal 2002.



Subcontractor costs
decreased 21.9% to $2,110,000 for the first nine months of fiscal 2003, from $2,721,000 for the same period in fiscal 2002. This decrease was due to a decline in the number and size of customer contracts and the completion of backlog that utilized
subcontractor labor. Subcontractor costs decreased as a percentage of revenues to 18.1% the first nine months of fiscal 2003 from 18.3% for the same period in fiscal 2002.



Other General And Administrative Costs.    Other general and administrative costs include rent, maintenance,
travel, supplies, utilities, insurance and professional services. Such costs decreased to $923,000 for the third quarter of fiscal 2003 from $1,003,000 for the comparable period in fiscal 2002, a decrease of 7.9%. These costs decreased 19.9% to
$3,446,000 for the first nine months of fiscal 2003, from $4,301,000 for the respective period in fiscal 2002, as a result of reductions in workforce and general cost cutting measures. As a percentage of revenues, other



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general and administrative costs increased to 24.9% and 29.5% for the third quarter and the first nine months of fiscal 2003, respectively, from 23.4% and
28.8% for the respective periods in fiscal 2002.



Depreciation.    Depreciation decreased $95,000 and $366,000 to $113,000 and $388,000 for the third quarter and first nine months of fiscal 2003, respectively, as compared to $208,000 and $754,000 in the
respective periods in fiscal 2002 due to some equipment becoming fully depreciated. As a percentage of revenues, depreciation decreased to 2.6% and 3.3% for the third quarter and the first nine months of fiscal 2003, respectively, from 4.8% and 5.1%
in the respective periods in fiscal 2002.



Severance And Related
Costs.    We incurred severance expense of $307,000 for the nine month period ended June 30, 2003. We paid $253,000 of these costs in cash in January 2003. The remaining $54,000 will be paid over a six month period which
began in March 2003. There was no comparable charge in the comparable periods in fiscal 2002.



Interest Expense.    Interest expense increased 18.7% to $44,500 in the third quarter of fiscal 2003, as compared to $37,500 in the third fiscal quarter of 2002. The increase was a result of
interest expense on the senior secured note payable issued on April 2, 2002. See Note 6. Interest expense decreased 47.7% to $138,000 for the first nine months of fiscal 2003, from $264,000 for the comparable period in fiscal 2002. The decrease is a
result of decreased borrowings outstanding and lower interest rates resulting from the extinguishment of bank debt.



Other Income/Expense.    Other income decreased 77.4% and 43% to $26,000 and $79,000 for the third quarter and the first nine months of fiscal
2003, respectively, from $117,000 and $139,000 for the comparable periods in fiscal 2002. Other income was generated from the disposal of miscellaneous furniture and equipment during fiscal 2002.



Income Taxes.    Federal income tax expense for fiscal year 2003
is projected to be zero. Accordingly, an effective federal income tax rate of 0% plus actual state income tax expense was recorded for the three and nine months ended June 30, 2003. As a result of the uncertainty that sufficient future taxable
income can be recognized to realize additional deferred tax assets, other than state income tax benefit, no income tax benefit has been recognized for the three months ended June 30, 2003. We recorded an income tax benefit of $1,240,000 in the nine
months ended June 30, 2002, as a result of a change in federal tax regulations. The regulation increased the carryback period for net operating losses from two to five years, enabling us to claim a refund of taxes paid in prior years.



Gain On Extinguishment Of Debt.    We recognized a gain of $2.1
million in the quarter ended June 30, 2002. Such gain is the result of the debt forgiveness related to a $700,000 cash payment and the issuance of a $175,000 unsecured promissory note in full satisfaction of the $3 million note payable balance. The
gain of $11.7 million in the first nine months of fiscal 2002 represents the debt forgiveness related to a $1.95 million cash payment, the issuance of the $175,000 unsecured promissory note, and the issuance of a non-convertible preferred stock with
a fair



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value of $300,000 to fully retire debt of $14.6 million under our debt agreement in place as of December 28, 2001.



Cumulative Effect Of A Change In Accounting Principle.    We
elected early adoption of FASB Statement No. 142, Accounting for Goodwill and Other Intangible Assets, as of October 1, 2001. We determined that goodwill had been significantly impaired under the provisions of FASB 142 and we
consequently recognized a loss of $3.6 million as the cumulative effect of this change in accounting principle during the first three months of fiscal 2002.



Net Loss.    Net loss of $623,000 in the third quarter of fiscal 2003 is a decrease of $2,070,000 compared to the $1,447,000 net earnings from
the same period of fiscal 2002. Net loss of $2.3 million in the first nine months of fiscal 2003 is a decrease of $7.9 million compared to the $5.6 million net earnings from the same period in fiscal 2002. As discussed above, non-operational items
accounted for a substantial portion of the variance. The non-operational items included the $11.7 million gain in the first nine months of fiscal 2002, offset by the $3.6 million charge relating to the write-off of goodwill.





Liquidity
And Capital Resources



Historically, the principal source of our liquidity
has consisted of cash flow from operations supplemented by secured lines-of-credit and other borrowings. Although we did not have a working capital line-of-credit as of June 30, 2003, other borrowings consisted of a $1.9 million senior secured
convertible note.



Pursuant to a Waiver Agreement and Amendment No. 12 to
Credit Agreement and Other Loan and Lease Document (the Agreement), on December 28, 2001, we issued 1.6 million shares of no par value Series A Preferred Stock, at an original issue price of $2.00 per share. We are entitled to redeem the
shares within one year of issuance at $1.00 per share ($1.6 million), and the redemption price increases $.20 per year until the fifth anniversary, at which time the shares must be redeemed at a price of $2.00 per share. The Agreement calls for a
mandatory payment of $800,000 by the third anniversary. The preferred stock earns a dividend at the annual rate of five percent 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
April 2, 2002 we completed the sale of a $2.0 million senior secured convertible note and warrants to purchase ASI common stock (Common Stock). We used the proceeds to repay $700,000 to senior lenders, pay transaction expense of
approximately $95,000 and fund operations. Senior lenders accepted the $700,000 cash payment and a $175,000 unsecured promissory note in full satisfaction of the $3.0 million note payable outstanding on March 31, 2002.



On March 31, 2003, we paid in full the unsecured promissory note in the amount of $175,000,
together with interest of $10,048. The senior secured note matures on April 2, 2005, and bears



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interest at an annual rate of five percent. Interest is not payable until maturity or may be converted to Common Stock as described below.



The senior secured convertible note is convertible at any time into Common Stock at a 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 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, but under 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. Assuming a conversion price of $4.00 per share, ASI would issue 500,000 shares of Common Stock if the note were fully converted. At the time of conversion, any unpaid
interest is to be paid in shares of Common Stock. The note is subject to mandatory conversion in three years and is secured by all of the assets of ASI. For illustration only, if the note had been converted on July 24, 2003, the conversion price
would have been $1.21 and 1,761,349 shares of Common Stock would have been issued to the note holder.



The holder of the senior secured convertible note (Holder) also received warrants to purchase an additional 500,000 shares of Common Stock (subject to adjustment). One whole warrant entitles the Holder to acquire an
additional share of Common Stock at an exercise price equal to 115% of the conversion price of the note. Assuming an exercise price of $4.60 per share (115% of $4.00), the aggregate exercise price for the warrants would be $2.3 million for the
issuance of 500,000 shares of Common Stock, but the shares issuable upon conversion of the note and exercise of warrants are to be no less than 55% of the outstanding Common Stock (unless the Holder exercises the warrants in a cashless exercise
where the Holder uses the value of some of the warrants to pay the exercise price for other warrants).



If at the time of conversion of the note, the price of the Common Stock has dropped below $4.00 per share, the number of shares of Common Stock issuable upon conversion of the note and upon exercise of the warrants
would increase. Similarly, if ASI issues shares of Common Stock at a price of less than $4.00 per share, the conversion price and the exercise price decrease to that lower price, and the number of shares issuable under the note and the warrants
would therefore increase. For illustration only, if the warrant had been exercised on July 24, 2003, the exercise price would have been adjusted to $1.39 per share (115% of $1.21) for a total redemption price of $695,000 for all 500,000 shares.



Under the terms of the note and related purchase agreement, and pursuant to an
extension granted by the Holder we are required to register the shares underlying the note and warrants by August 28, 2003. On January 17, 2003 the Holder waived its rights pursuant to the requirement that the Company maintain its listing on the
Nasdaq SmallCap Market, as set forth in the note (See Note 6). We are generally restricted from issuing additional equity securities without the Holders consent, and the Holder has a right of first refusal as to certain subsequent financings.



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As part of the transaction, the Holder effectively was granted the opportunity to appoint a majority of our board of
directors. The Holder has appointed members to the Board and as a result, controls ASI. In addition, upon exercise of the warrants and conversion of the note, the Holder will own a majority of the Common Stock, thereby giving the Holder 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, 2002, financial statements which emphasized
substantial doubt about our ability to continue as a going concern.



To address
the going concern issue, we implemented financial and operational restructuring plans designed to improve operating efficiencies, reduce and eliminate cash losses and position the Company for profitable operations. In 2002, we improved our working
capital position by reducing our bank debt through the issuance of preferred stock and convertible debt and the collection of a $1.2 million federal income tax refund. 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 should we be 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 June 30, 2003, we had multiple contracts with two customers that
represented 72% (59% and 13%, respectively) of the total balance of net accounts receivable and revenue in excess of billings. At September 30, 2002, three customers represented 72% (43%, 17% and 12%, respectively) of the total balance of net
accounts receivable and revenue in excess of billings. Billing terms are negotiated in a competitive



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environment and are based on reaching project milestones. We anticipate that sufficient billing milestones will be achieved during fiscal 2003 such that
revenue in excess of billings for these customer contracts will begin to decline.



Net cash used by our operating activities was $566,000 for the first nine months of fiscal 2003, compared to net cash of $506,000 provided in the same period in fiscal 2002. We collected a significant amount of cash related to accounts
receivable in the fiscal 2002 period and revenue in excess of billings in the fiscal 2003 period. We reduced our current liabilities with the proceeds of these collections.



Cash used by investing activities for the first nine months of fiscal year 2003 was $129,000 compared to cash generated from investing
activities totaling $288,000 in the same period in fiscal 2002. Such investing activities principally consisted of payments for purchases of equipment and leasehold improvements.



Cash used by financing activities for the first nine months of fiscal year 2003 was $271,000 as compared to $486,000 used by financing
activities for the first nine months of fiscal 2002. Financing activities consisted primarily of payments on bank indebtedness and the issuance of the senior secured convertible debt as described in Note 6.





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.



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



Income Taxes.    Fiscal 2002 was the first year out of the last
three in which we have reported net income (and taxable income). These prior year losses generated a federal tax net operating loss, or NOL, carryforward as of September 30, 2002, which may be subject to Section 382 limitations.



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.





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 June 30, 2003. The $2 million senior secured 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 6.



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|                           |  | Nine monthsended June 30 |     | Fiscal year ending September 30 |   | Total
|-------------------------- |  | ------------------------ | --- | ------------------------------- | - | -----
|                           |  | 2003                     |     | 2004                            |   | 2005 
|Operating Leases           |  | $                        | 141 |                                 | $ | 120  
|Debt                       |  |                          | 19  |                                 |   | 76   
|Preferred Stock redemption |  |                          |    |                                 |   |     
|                           |  |                          |     |                                 |   |      
|Total                      |  | $                        | 160 |                                 | $ | 196  
|                           |  |                          |     |                                 |   |      





Litigation



We are a party to various litigation matters which are described in detail in Note 10 to our Financial Statements included herein and in Part II, Item 1 of this quarterly report on Form 10-Q. We have incurred
significant expenses and expect to incur additional expenses related to these matters. We have recorded expenses which we have incurred to date in the accompanying financial statements. The outcome of these matters cannot currently be determined nor
can we forecast an estimate of the financial impact of any outcome. Further, we may be entitled to recover a portion of our expenses, as well as a portion of any damages or judgments that may ultimately be imposed against us, from our insurance
carriers, although we cannot assure that such coverage will be provided.



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.





Item 4.
Controls and Procedures.



Our Chief Executive
Officer and Chief Financial Officer carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934, as amended, (the
Exchange Act)) as of the end of the period covered by this quarterly report and 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) which is required to be included in our periodic filings under the Exchange Act.



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Part II

Other Information



Item 1.
Legal Proceedings.



We have been named with
certain former directors, as defendants in an action that was filed on September 20, 2000, by Sidney V. Corder, the former President, Chief Executive Officer and Director of the Company. On July 23, 2002, we entered into a Settlement Agreement and
Mutual General Release to settle the lawsuit. The settlement provided for, among other things, the payment of approximately $200,000 to Mr. Corder by ASI and its insurance carrier, the mutual release of present or future actions, suits or claims,
and a waiver by Mr. Corder of any claims for indemnification for any present or future actions, suits or claims arising out of his employment. Pursuant to the settlement, the litigation has been dismissed.



Two shareholders of ASI, the Epner Family Limited Partnership and the Braverman Family
Limited Partnership, (Claimants), filed suit in Indiana state court (Hamilton County Superior Court, State of Indiana) against four former officers of the Company on May 8, 2001. The former officers are: Sidney Corder, Chief Executive
Officer; Scott Benger, Senior Vice President of Finance; Randy Sage, Chief Operations Officer; and John Dillon, Chief Administrative Officer. The plaintiffs claimed that the former officers violated Texas and Indiana securities laws and other
provisions of Texas law in connection with ASIs acquisition of Cartotech, Inc., in June 1998. The four defendants have sent ASI written demands for indemnification. We have no further obligation to indemnify Mr. Corder as specified in the
Settlement Agreement described above. Recently the court denied defendants motions to dismiss. Most of the defendants are seeking a stay of this litigation pending an outcome in the arbitration between ASI and the plaintiffs described in the
following paragraph.



On June 26, 2002, the Claimants initiated arbitration
proceedings against ASI. As set forth in the preceding paragraph, the Claimants are the plaintiffs in related Indiana state court litigation against former officers of ASI. In the Statement of Claim they filed with the American Arbitration
Association, Claimants allege that certain representations and warranties made by ASI in the Cartotech merger agreement 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. They allege that the restatement of our financial statements for fiscal year 1999 should have included the financial statements referenced in the merger agreement. Claimants allege that we
violated the Texas Securities Act and the Indiana Securities Act, and that we breached warranties in the merger agreement. The Claimants seek recission or damages in the principal amount of approximately $5,546,533, which
they allege to be the net loss in value of our Common Stock which they received in the merger, and attorneys fees. We have filed a response to the Claimants Statement of Claim denying their material allegations. We intend to vigorously
assert defenses. The arbitration hearing is presently scheduled to occur in October 2003.



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We have submitted to our insurance carrier legal bills for the defense of the proceedings initiated by Claimants. The
terms of the Companys insurance policy provide for the carrier to reimburse reasonable and necessary defense costs. Our coverage is subject to a $150,000 deductible which we accrued as legal expense in the quarter ended September 30, 2002.
Additional legal defense costs totaling $665,000 have been recorded as a current liability and as a receivable from our insurance carrier as of June 30, 2003. We anticipate we will receive an initial reimbursement totaling $400,000 prior to
September 30, 2003.



Robert Montgomery, a former officer of ASI, 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 attorneys fees. We have responded to the lawsuit and deny all claims in the action. We are vigorously defending this lawsuit, including the preparation of a motion for summary judgment.



On January 23, 2002, we announced that the Securities and Exchange Commission has commenced a
formal investigation of ASI, certain of our former officers, directors and others in connection with our accounting policies, procedures, disclosures and system of internal controls relating to the period from October 1998 through March 2000. On
March 7, 2000, we restated earnings for the fiscal year ended September 30, 1999. We have cooperated fully with the SEC in this investigation.



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.



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



|(a) Exhibits:             |  |                                                                                                                                  |  |                                                                                                                                                
|------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|                          |  | 10.1                                                                                                                             |  | Third Amendment to Registration Rights Agreement effective as ofAugust 1, 2003, by and between Analytical Surveys, Inc. and TongaPartners, L.P.
|                          |  |                                                                                                                                 
|                          |  | 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 April 21, 2003 announcing the Companysreceipt of notice of regained
compliance with Nasdaq.
|                          | 
|                          |  | Current Report on Form 8-K filed on May 16, 2003 announcing the CompanysSecond Quarter
Results.                                
|                          | 
|                          |  | Current Report on Form 8-K filed on August 14, 2003 announcing the CompanysThird Quarter
Results.                              



|
|

|
|



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##### Table of Contents

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: August 14, 2003 |  |  | 
|                      |  |  | 
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|                      |  |  | 
|                      |  |  | 
|Date: August 14, 2003 |  |  | 
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