** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

** **

**FORM 10-QSB**

** **

**ý****QUARTERLY REPORT PURSUANT TO SECTION 13or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**FORTHE QUARTERLY PERIOD ENDED DECEMBER 31, 2005**

 

**OR**

 

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

 

**COMMISSION FILE NUMBER 0-13111**

 

**ANALYTICALSURVEYS, INC.**

(EXACT NAME OFREGISTRANT AS SPECIFIED IN ITS CHARTER)

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

 

**9725 DATAPOINT DRIVE, SUITE300B, SAN ANTONIO, TEXAS 78229**

(Address of principal executive offices)

 

**(210) 657-1500**

(Registrant’s telephone number, including area code)

 

INDICATEBY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TOBE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 DURING THE PAST TWELVE (12) MONTHS (OR FOR SUCH SHORTER PERIOD THAT THEREGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TOSUCH FILING REQUIREMENTS FOR THE PAST NINETY (90) DAYS.   YES  ý  NO  o

 

INDICATEBY CHECK MARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED IN RULE 12b-2OF THE EXCHANGE ACT).  YES  o  NO  ý

 

THENUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF FEBRUARY 5, 2006, WAS 3,262,272.

 

 

----

 

**TABLE OF CONTENTS**

 
| ** **   | ** **                                                                                  | **PAGE** |
|--------------|---------------------------------------------------------------------------------------------|----------|
|         |                                                                                        |     |
| PART 1. | FINANCIAL INFORMATION                                                                       |     |
|         |                                                                                        |     |
| Item  1.     | Financial  Statements                                                                       | 3        |
|         |                                                                                        |     |
| Item 2.      | Management’s Discussion and Analysis of Financial Condition and  Results of Operations | 15       |
|         |                                                                                        |     |
| Item 3.      | Controls and Procedures                                                                     | 25       |
|         |                                                                                        |     |
| PART 2. | OTHER INFORMATION                                                                           |     |
|         |                                                                                        |     |
| Item 1.      | Legal Proceedings                                                                           | 26       |
|         |                                                                                        |     |
| Item 2.      | Unregistered Sales of  Securities and Use of Proceeds                                       | 26       |
|         |                                                                                        |     |
| Item 3.      | Defaults Upon Senior  Securities                                                            | 26       |
|         |                                                                                        |     |
| Item 4.      | Submissions of Matters to a  Vote of Security Holders                                       | 26       |
|         |                                                                                        |     |
| Item 5.      | Other Information                                                                           | 26       |
|         |                                                                                        |     |
| Item 6.      | Exhibits                                                                                    | 26       |
|         |                                                                                        |     |
| SIGNATURES   | 27                                                                                          |

 

----

 

**Part I**

**Financial Information**

 

**Item 1.  Financial Statements**

 

**ANALYTICAL SURVEYS, INC.**

**CONSOLIDATEDBALANCE SHEETS**

**(In thousands****)******
| ** **                                                                                                                                                                       | ** ** | **December 31,  2005** | ** ** | **September 30,  2005** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|------------------------------|------------|
| ** **                                                                                                                                                                       | ** ** | **(Unaudited)**             | ** ** | ** **                   | ** ** |
| **Assets**                                                                                                                                                                       |       |                        |       |                         |       |
| Current assets:                                                                                                                                                                  |       |                        |       |                         |       |
| Cash and cash equivalents                                                                                                                                                        |       | $                           | 328        |                         | $          | 622 |   |
| Accounts receivable, net of allowance for  doubtful accounts of $50 at December 31, 2005 and September 30,  2005                                                       |       | 1,223                       |       | 1,529                        |       |
| Revenue earned in excess of billings                                                                                                                                             |       | 1,707                       |       | 1,612                        |       |
| Prepaid expenses and other                                                                                                                                                       |       | 68                          |       | 81                           |       |
| Total current assets                                                                                                                                                             |       | 3,326                       |       | 3,844                        |       |
| Equipment and leasehold improvements, at  cost:                                                                                                                                  |       |                        |       |                         |       |
| Equipment                                                                                                                                                                        |       | 3,967                       |       | 3,979                        |       |
| Furniture and fixtures                                                                                                                                                           |       | 363                         |       | 363                          |       |
| Leasehold improvements                                                                                                                                                           |       | 75                          |       | 75                           |       |
|                                                                                                                                                                             |       | 4,405                       |       | 4,417                        |       |
| Less accumulated depreciation and  amortization                                                                                                                                  |       | (4,252                      | )          | (4,249                       | )          |
| Net equipment and leasehold improvements                                                                                                                                         |       | 153                         |       | 168                          |       |
| Total assets                                                                                                                                                                     |       | $                           | 3,479      |                         | $          | 4,012 |   |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                   |       |                        |       |                         |       |
| Current liabilities:                                                                                                                                                             |       |                        |       |                         |       |
| Current portion of long-term debt and  capital lease obligations                                                                                                                 |       | $                           | 19         |                         | $          | 17 |   |
| Billings in excess of revenue earned                                                                                                                                             |       | 357                         |       | 425                          |       |
| Accounts payable                                                                                                                                                                 |       | 241                         |       | 289                          |       |
| Accrued liabilities                                                                                                                                                              |       | 565                         |       | 688                          |       |
| Accrued payroll and related benefits                                                                                                                                             |       | 423                         |       | 687                          |       |
| Redeemable preferred stock –  current portion, no par value, authorized 2,500 shares; 166 shares issued and  outstanding at December 31, 2005 (liquidation value $299) |       | 259                         |       | —                       |       |
| Total current liabilities                                                                                                                                                        |       | 1,864                       |       | 2,106                        |       |
| Long-term debt:                                                                                                                                                                  |       |                        |       |                         |       |
| Capital lease obligations less current  portion                                                                                                                                  |       | 29                          |       | 30                           |       |
| Redeemable preferred stock, no par value;  authorized 2,500 shares; 166 shares issued and outstanding at  September 30, 2005 (liquidation value $266)                       |       | —                      |       | 247                          |       |
| Total long-term liabilities                                                                                                                                                      |       | 29                          |       | 277                          |       |
| Total liabilities                                                                                                                                                                |       | 1,893                       |       | 2,383                        |       |
| Commitments and contingencies                                                                                                                                                    |       |                        |       |                         |       |
| Stockholders’ equity:                                                                                                                                                       |       |                        |       |                         |       |
| Common stock, no par value; authorized  100,000 shares; 2,869 shares issued and outstanding at December 31, 2005  and September 30, 2005                               |       | 35,312                      |       | 35,312                       |       |
| Accumulated deficit                                                                                                                                                              |       | (33,726                     | )          | (33,683                      | )          |
| Total stockholders’ equity                                                                                                                                                  |       | 1,586                       |       | 1,629                        |       |
| Total liabilities and stockholders’ equity                                                                                                                                  |       | $                           | 3,479      |                         | $          | 4,012 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

3

----

 

**ANALYTICAL SURVEYS, INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(****In thousands, except per shareamounts)(Unaudited**)

 
| ** **                                                         | ** ** | **Three Months Ended  December 31** | ** ** |
|--------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                         | ** ** | **2005**                                 | ** ** | **2004** | ** ** |
| ** **                                                         | ** ** | ** **                               | ** ** | ** ** | ** ** |
| Revenues                                                           |       | $                                        | 1,360      |   | $ | 2,028 |   |
| ** **                                                         | ** ** | ** **                               | ** ** | ** ** | ** ** |
| Costs and expenses:                                                |       |                                     |       |   |   |
| Salaries, wages and benefits                                       |       | 781                                      |       | 1,554 |   |
| Subcontractor costs                                                |       | 139                                      |       | 378 |   |
| Other general and administrative                                   |       | 452                                      |       | 436 |   |
| Depreciation and amortization                                      |       | 21                                       |       | 55 |   |
| Severance and related costs                                        |       | —                                   |       | 67 |   |
| Total operating costs                                              |       | 1,393                                    |       | 2,490 |   |
| Loss from operations                                               |       | (33                                      | )          | (462 | ) |
| Other income (expense):                                            |       |                                     |       |   |   |
| Interest expense, net                                              |       | (13                                      | )          | (41 | ) |
| Other income, net                                                  |       | 3                                        |       | 12 |   |
| Total other income (expense)                                       |       | (10                                      | )          | (29 | ) |
| Loss before income taxes                                           |       | (43                                      | )          | (491 | ) |
| Income taxes                                                       |       | —                                   |       | — |   |
| Net loss available to common shareholders                          |       | $                                        | (43        | ) | $ | (491 | ) |
|                                                               |       |                                     |       |   |   |
| Basic net loss per common share available to common shareholders   |       | $                                        | (0.01      | ) | $ | (0.25 | ) |
|                                                               |       |                                     |       |   |   |
| Diluted net loss per common share available to common shareholders |       | $                                        | (0.01      | ) | $ | (0.25 | ) |
|                                                               |       |                                     |       |   |   |
| Weighted average common shares:                                    |       |                                     |       |   |   |
| Basic                                                              |       | 2,869                                    |       | 1,976 |   |
| Diluted                                                            |       | 2,869                                    |       | 1,976 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

4

----

 

**ANALYTICAL SURVEYS, INC.**

**CONSOLIDATEDSTATEMENT OF STOCKHOLDERS’ EQUITY**

**For the Three Months Ended December 31,2005**

**(In thousands)**

**(Unaudited)**

 
| ** **                          | ** ** | **Common Stock** | ** ** | **Accumulated** | ** ** | **Total Stockholders’** | ** ** |
|-------------------------------------|------------|------------------|------------|-----------------|------------|------------------------------|------------|
| ** **                          | ** ** | **Shares**       | ** ** | **Amount**      | ** ** | **Deficit**                  | ** ** | **Equity** | ** ** |
| Balances at September 30, 2005 |       | 2,869            |       | $               | 35,312     |                         | $          | (33,683 | ) | $ | 1,629 |   |
| Net loss                            |       | —           |       | —          |       | (43                          | )          | (43 | ) |
| Balances at December 31, 2005  |       | 2,869            |       | $               | 35,312     |                         | $          | (33,726 | ) | $ | 1,586 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

5

----

 

**ANALYTICAL SURVEYS, INC.**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(In thousands)**

**(Unaudited)**

 
| ** **                                                                                                           | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                                           | ** ** | **December 31,**  | ** ** |
| ** **                                                                                                           | ** ** | **2005**               | ** ** | **2004** | ** ** |
| Cash flows from operating activities:                                                                                |       |                   |       |   |   |
| Net loss                                                                                                             |       | $                      | (43        | ) | $ | (491 | ) |
| Adjustments to reconcile net loss to net  cash provided by operating activities:                                     |       |                   |       |   |   |
| Depreciation and amortization                                                                                        |       | 21                     |       | 55 |   |
| Issuance of inducement stock options                                                                                 |       | —                 |       | 22 |   |
| Accretion of interest expense on preferred  stock                                                                    |       | 12                     |       | 20 |   |
| Accretion of interest expense on  convertible debt – related party                                              |       | —                 |       | 9 |   |
| Change in fair value of derivative  instrument or carrying value of premium on convertible debt – related party |       | —                 |       | (12 | ) |
| Gain on disposal of assets                                                                                           |       | (3                     | )          | — |   |
| Changes in operating assets and  liabilities:                                                                        |       |                   |       |   |   |
| Accounts receivable                                                                                                  |       | 306                    |       | 1,396 |   |
| Revenue earned in excess of billings                                                                                 |       | (95                    | )          | 377 |   |
| Prepaid expenses and other                                                                                           |       | 13                     |       | 15 |   |
| Billings in excess of revenue earned                                                                                 |       | (68                    | )          | (75 | ) |
| Accounts payable and other accrued  liabilities                                                                      |       | (171                   | )          | (381 | ) |
| Accrued payroll and related benefits                                                                                 |       | (264                   | )          | (105 | ) |
| Net cash provided by (used in) operating  activities                                                                 |       | (292                   | )          | 830 |   |
|                                                                                                                 |       |                   |       |   |   |
| Cash flows from investing activities:                                                                                |       |                   |       |   |   |
| Purchase of equipment and leasehold  improvements                                                                    |       | (6                     | )          | (5 | ) |
| Proceeds from sale of assets                                                                                         |       | 4                      |       | — |   |
| Net cash used in investing activities                                                                                |       | (2                     | )          | (5 | ) |
|                                                                                                                 |       |                   |       |   |   |
| Cash flows from financing activities:                                                                                |       |                   |       |   |   |
| Principal payments on long-term debt                                                                                 |       | —                 |       | (19 | ) |
| Redemption of preferred stock                                                                                        |       | —                 |       | (129 | ) |
| Proceeds from common stock issued pursuant  to exercise of options                                                   |       | —                 |       | 92 |   |
| Net cash used in financing activities                                                                                |       | —                 |       | (56 | ) |
|                                                                                                                 |       |                   |       |   |   |
| Net increase (decrease) in cash                                                                                      |       | (294                   | )          | 769 |   |
|                                                                                                                 |       |                   |       |   |   |
| Cash and cash equivalents at beginning of period                                                                     |       | 622                    |       | 867 |   |
|                                                                                                                 |       |                   |       |   |   |
| Cash and cash equivalents at end of period                                                                           |       | $                      | 328        |   | $ | 1,636 |   |
|                                                                                                                 |       |                   |       |   |   |
| Supplemental disclosures of cash flow information:                                                                   |       |                   |       |   |   |
| Cash paid for interest                                                                                               |       | $                      | —     |   | $ | 1 |   |
| Equipment acquired under capital leases                                                                              |       | $                      | 1          |   | $ | — |   |
| Non-cash financing activities:                                                                                       |       |                   |       |   |   |
| Issuance of common stock pursuant to  conversion of debt – related party                                        |       | $                      | —     |   | $ | 1,806 |   |
| Accretion of interest on preferred stock                                                                             |       | $                      | 12         |   | $ | 20 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

6

----

 

**ANALYTICAL SURVEYS, INC.**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2005**

**(Unaudited)**

 

**1.             Summaryof Significant Accounting Policies**

 

The accompanying interim consolidated financial statements have beenprepared by management without audit, pursuant to the rules andregulations of the Securities and Exchange Commission, in accordance with theaccounting policies described in our Annual Report on Form 10-KSB for theyear ended September 30, 2005, and reflect all adjustments which are, inthe opinion of management, necessary to present a fair statement of the resultsfor the interim period on a basis consistent with the annual auditedconsolidated financial statements.  Allsuch adjustments are of a normal recurring nature.  The consolidated financial statements includethe accounts of Analytical Surveys, Inc. (“ASI”, “we”, “our” or the “Company”)and its subsidiaries.  All significantintercompany balances and transactions have been eliminated inconsolidation.  Certain information andfootnote disclosures normally included in consolidated financial statementsprepared in accordance with U.S. generally accepted accounting principles havebeen omitted.  These consolidatedfinancial statements should be read in conjunction with the auditedconsolidated financial statements and related notes included in our AnnualReport on Form 10-KSB for the year ended September 30, 2005.  All amounts contained herein are presented inthousands unless indicated.

 

The accompanying consolidatedfinancial statements have been prepared on a going concern basis, whichcontemplates the realization of assets and the satisfaction of liabilities inthe normal course of business. During the fiscal years of 2000 through 2005,and continuing into fiscal 2006, we have experienced significant operatinglosses with corresponding reductions in working capital and stockholders’equity, excluding the impact of debt forgiveness.  We do not currently have any externalfinancing in place to support operating cash flow requirements. Our revenuesand backlog have also decreased substantially during the same period.  If we do not have the cash flow necessary to meet ouroperating and capital requirements, we will be forced to restrict capital andoperating expenditures to match available resources or seek additionalfinancing, which if available, may be available only at unfavorable interestrates, if at all.  These factors, among others, raise substantialdoubt about our ability to continue as a going concern.

 

Toaddress the going concern issue, management implemented financial andoperational restructuring plans designed to improve operating efficiencies,reduce and eliminate cash losses, and position us for profitableoperations.  The conversion of our seniorsecured convertible note into common stock in November 2004 reduced ourdebt by $1,696,000, eliminated future related interest expense and improved ourdebt to equity ratio.  During February 2006,we retired principally all of our debt when we issued 318,000 shares of ourcommon stock in exchange for all outstanding shares of our Preferred Stock anddividends accrued thereon, eliminating the need to reserve cash to meet thisobligation.  We have reduced our generaland administrative expenses by reducing occupancy costs and streamlining ourexecutive, senior and middle management teams. Ongoing viability as a business compels us to act swiftly and decisivelyregarding new business pursuits and, as such, we have engaged Pluris Partners, Inc.,to facilitate the expansion of our business endeavors into the energy sector.

 

7

----

 

**On December 30, 2005, we receivednotice from the NASDAQ Stock Market indicating we are not in compliance withone of NASDAQ’s requirements for continued listing because we do not have: (i) aminimum of $2,500,000 in stockholders’ equity as of September 30, 2005; (ii) atleast $35,000,000 in market value of listed securities, or (iii) at least$500,000 of net income from continuing operations for the most recentlycompleted fiscal year or two of the three most recently completed fiscalyears.  NASDAQ requires compliance withone of the foregoing criteria for continued inclusion under NASDAQ Marketplace Rule 4310(c)(2)(B).  We have implemented a plan to regaincompliance.  The issuance of 318,000shares of our common stock in February 2006, in exchange for our PreferredStock, which was classified as debt, increased our stockholders’ equity byapproximately $300,000.  We arenegotiating equity financings that, upon closing, may allow the Company todemonstrate compliance with NASDAQ’s stockholders’ equity test.  These equity placements are part of along-term plan to expand our service offering into the energy sector.**

** **

The financial statements do notinclude any adjustments relating to the recoverability of assets and theclassifications of liabilities that might be necessary should we be unable tocontinue as a going concern. However, we believe that our continued turnaroundefforts, if successful, will improve operations and generate sufficient cash tomeet our obligations in a timely manner.

 

RevenueRecognition.  We recognize revenue usingthe percentage of completion method of accounting on a cost-to-cost basis. Foreach contract, an estimate of total production costs is determined, and theseestimates are reevaluated monthly. Production costs consist of internal costs,primarily salaries and wages, and external costs, primarily subcontractorcosts. Internal and external production costs may vary considerably amongprojects and during the course of completion of each project. At the end ofeach accounting period, the percentage of completion is based on productioncosts incurred to date as a percentage of total estimated production costs foreach of our contracts. This percentage is then multiplied by the contract’stotal value to calculate the sales revenue to be recognized.  The percentage of completion is affected bymany factors that influence either the estimate of future productivity or theproduction cost per hour used to determine future costs.  We recognize losses on contracts in theperiod such loss is determined.  Salesand marketing expenses associated with obtaining contracts are expensed asincurred.

 

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

 

Wegranted inducement stock options (“Option”) to our former Chief ExecutiveOfficer (“CEO”) on March 22, 2004. The Option was not issued pursuant to our stock option plans, and wouldhave vested at the end of a twelve-month period.  The Option originally provided for thepurchase of 75,000 shares of common stock at an exercise price equal to $1.50per share, which was below the market value of $2.82 on the date of grant.  Upon his resignation on December 20,2004, we accelerated his vesting rights on 56,250 shares, with a market valueof $1.93 per share, and cancelled

 

8

----

 

his right to purchase the remaining 18,750 shares.  The intrinsic value of the vested sharestotaled approximately $24,000.  Ourformer CEO exercised his rights under the Option on December 28, 2004, andpurchased 56,250 shares of our common stock. Compensation expense for the three months ended December 31, 2004,included $22,173 related to the original grant of the Options as well as theremeasured value of the accelerated Options.

 

Duringthe quarter ended December 31, 2005, 90,000 options were granted tomembers of our workforce as incentive to sustain project performance.  These options have an exercise price of $1.34which was the market price of the underlying common stock on the date of grant.

 

Hadcompensation costs for our stock based compensation been determined at thegrant date consistent with the provisions of SFAS No. 123, our net lossand net loss per share would have increased to the pro forma amounts indicatedbelow:

 
| ** **                                                           | ** ** | **Three Months Ended**   | ** ** |
|----------------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                           | ** ** | **December 31,**    | ** ** |
| ** **                                                           | ** ** | **2005**                 | ** ** | **2004** | ** ** |
| ** **                                                           | ** ** | **(in thousands except** | ** ** |
| ** **                                                           | ** ** | **per share earnings)**  | ** ** |
| Net loss available to common shareholders as reported                |       | $                        | (43        | ) | $ | (491 | ) |
| Add: Stock-based employee compensation included in reported net loss |       | —                   |       | 22 |   |
| Less: Pro forma option expense                                       |       | (6                       | )          | (30 | ) |
| Pro forma net loss                                                   |       | $                        | (49        | ) | $ | (499 | ) |
|                                                                 |       |                     |       |   |   |
| Basic net loss per share, as reported                                |       | $                        | (0.01      | ) | $ | (0.25 | ) |
| Less: Pro forma option expense                                       |       | (0.01                    | )          | — |   |
| Pro forma basic net loss per share                                   |       | $                        | (0.02      | ) | $ | (0.25 | ) |
|                                                                 |       |                     |       |   |   |
| Diluted net loss per share, as reported                              |       | $                        | (0.01      | ) | $ | (0.25 | ) |
| Less: Pro forma option expense                                       |       | (0.01                    | )          | — |   |
| Pro forma diluted net loss per share                                 |       | $                        | (0.02      | ) | $ | (0.25 | ) |

 

**2.****                   ****Earnings Per Share**

 

Basicnet earnings (loss) per share are computed by dividing earnings (loss)available to common stockholders by the weighted average number of commonshares outstanding for the period. Diluted net earnings (loss) per share include the effects of thepotential dilution of outstanding options and warrants determined using thetreasury stock method, as well as convertible debt on our common stock, determinedusing the if-converted method. We do not present diluted net earnings (loss)per share for periods in which we incurred losses, as the effect of potentiallydilutive shares is anti-dilutive.  Netearnings (loss) per share for the three-month periods ended December 31,2005 and 2004 is provided below:

 

9

----

 
| ** **                                           | ** ** | **Three Months Ended**   | ** ** |
|------------------------------------------------------|------------|--------------------------|------------|
| ** **                                           | ** ** | **December 31,**    | ** ** |
| ** **                                           | ** ** | **2005**                 | ** ** | **2004** | ** ** |
| ** **                                           | ** ** | **(in thousands except** | ** ** |
| ** **                                           | ** ** | **per share earnings)**  | ** ** |
| **Basic**                                            |       |                     |       |   |   |
| Net loss  available to common shareholders           |       | $                        | (43        | ) | $ | (491 | ) |
| Weighted average  shares                             |       | 2,869                    |       | 1,976 |   |
| Net loss per  share available to common shareholders |       | $                        | (0.01      | ) | $ | (0.25 | ) |
| **Diluted**                                          |       |                     |       |   |   |
| Net loss  available to common shareholders           |       | $                        | (43        | ) | $ | (491 | ) |
| Weighted average  shares                             |       | 2,869                    |       | 1,976 |   |
| Net loss per  share available to common shareholders |       | $                        | (0.01      | ) | $ | (0.25 | ) |

 

**3.****                   ****Impact of RecentlyIssued Accounting Pronouncements**

 

In December 2004, the Financial Accounting StandardsBoard (“FASB”) published revisions to SFAS No. 123.  The revised SFAS No. 123 (“SFAS No. 123R”)requires companies to account for share-based payment transactions using afair-value based method, thereby eliminating the disclosure-only provisions ofSFAS No. 123.  SFAS No. 123R iseffective for all small business public entities as of the beginning of thefirst interim or annual reporting period for fiscal years beginning after December 15,2005.  We are currently evaluating theimpact on our financial condition and the results of operations.  We currently elect the disclosure-onlyprovisions of Statement SFAS No. 123R.

 

In December 2004, the FASB issued SFAS No. 153, “*Accounting for Non-monetary Transactions*”(“SFAS 153”).  SFAS 153 requiresnon-monetary exchanges to be accounted for at fair value, recognizing any gainor loss, if the transactions meet a commercial-substance criterion and fairvalue is determinable.  SFAS No. 153is effective for non-monetary transactions occurring in fiscal years beginningafter June 15, 2005.  Theimplementation of this standard did not have a material effect on the Company’sconsolidated financial position or results of operations.

 

In May 2005, the FASB issued Statement of FinancialAccounting Standards No. 154 (“SFAS 154”), “*Accounting for Changes and Error Corrections—a replacement of APBOpinion No. 20 and FASB Statement No. 3*.”  This statement changes the requirements forthe accounting for and reporting of a change in accounting principle.  This statement applies to all voluntarychanges in accounting principle.  It alsoapplies to changes required by an accounting pronouncement in the unusualinstance that the pronouncement does not include specific transitionprovisions.  When a pronouncementincludes specific transition provisions, those provisions should befollowed.  This statement is effectivefor fiscal years beginning after December 15, 2005 and is not expected tohave a material impact on the Company’s consolidated financial statements.

 

10

----

 

**4.****                   ****Accrued Payrolland Related Benefits**

 

Our accrued payroll and relatedbenefits are summarized as follows.

 
| ** **                           | ** ** | **December 31,  2005** | ** ** | **September 30,  2005** | ** ** |
|--------------------------------------|------------|-----------------------------|------------|------------------------------|------------|
|                                 |       |                        |       |                         |       |
| Accrued payroll                      |       | $                           | 195        |                         | $          | 426 |   |
| Accrued health benefits              |       | 90                          |       | 109                          |       |
| Accrued vacation                     |       | 138                         |       | 152                          |       |
| Accrued payroll and related benefits |       | $                           | 423        |                         | $          | 687 |   |

 

**5.****                   ****Debt**

 

**The components of debt aresummarized as follows.**

 
| ** **                               | ** ** | **December 31,  2005** | ** ** | **September 30, 2005** | ** ** |
|------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
|                                     |       |                        |       |                        |       |
| **Long-Term Debt**                       |       |                        |       |                        |       |   |   |
| Other debt and capital lease obligations |       | $                           | 48         |                        | $          | 47 |   |
| Redeemable preferred stock (See Note 6)  |       | 259                         |       | 247                         |       |
|                                     |       | 307                         |       | 294                         |       |
| Less current portion                     |       | (278                        | )          | (17                         | )          |
|                                     |       | $                           | 29         |                        | $          | 277 |   |

 

On April 2, 2002, wecompleted the sale of a $2.0 million senior secured convertible note (“Old Note”)and a warrant (“Warrant”) to purchase 500,000 of our common stock (“CommonStock”) to Tonga.  We used the proceedsto repay $700,000 to senior lenders, pay transaction expenses of approximately$95,000 and fund operations.

 

The Old Note, which carried aface value of $2.0 million, had a maturity date of April 2, 2005, andaccrued interest on its face value at an annual rate of 5.00%.  Accrued interest was not payable in cash butwas to be converted into Common Stock upon the Old Note’s voluntary conversiondate or maturity.  We recorded the OldNote at $1.664 million reflecting a discount after giving effect to the$200,000 and $136,000 estimated fair value of the Warrant and the conversionfeature, respectively (“derivative features”), which were recorded as currentliabilities.  This $336,000 currentliability was increased or decreased to reflect the fair value of thederivatives at the end of each quarter.

 

On October 29, 2003, Tongaconverted $300,000 in principal of the Old Note, and we issued 241,936 sharesat a conversion price equal to $1.24, which represented 90% of the averageclosing bid prices for the three trading days having the lowest closing bidprice during the 20 trading days immediately prior to October 29,2003.  We also issued 19,522 shares atthe same conversion price for $24,208 of accrued interest on the convertedprincipal.  The Old Note was exchangedfor the shares and a $1.7 million debenture (“Second Note”) bearing the sameterms.  The carrying value of the SecondNote was accreted to its face value as we recorded interest expense over itsthree-year term at an effective rate of interest of 12.5%.

 

11

----

 

On May 28, 2004, an event ofdefault was triggered under the Second Note when our Registration Statement on Form S-3filed with the SEC on December 30, 2003, to register shares of our CommonStock that were issued or are issuable pursuant to the Old Note, the SecondNote, and the Warrant was not declared effective by the SEC.

 

On June 30, 2004, the eventof default was cured when we restructured the Second Note.  The restructured $1.7 million senior securedconvertible promissory note (the “Restructured Note”) bore interest at a rateof 5% per annum with such interest accruing beginning on November 4,2003.  The principal amount of theRestructured Note, together with accrued and unpaid interest, was due andpayable at Tonga’s option in cash or shares of our Common Stock on January 2,2006.  Tonga retained the right toconvert the Restructured Note for shares of our Common Stock at any time.  Tonga waived accrued interest on the SecondNote through November 3, 2004, which totaled $134,000.  Tonga also waived its rights to assessliquidated damages pursuant to the Second Note, relinquished its rights underthe Warrant, and canceled the Warrant.

 

The carrying value of the SecondNote immediately prior to execution of the Restructured Note was $1.616million, which reflected the $1.7 million face value less the $84,000unamortized discount.  Additionally,immediately prior to the execution of the Restructured Note, the fair value ofthe Warrant totaled approximately $67,000, and the fair value of the conversionfeature of the Second Note totaled approximately $62,000.  As a result of the extended term of theRestructured Note, the estimated fair value of the conversion feature increasedto approximately $119,000, which was recorded as a current liability.  We recorded the Restructured Note at $1.581million, to be accreted to its face value at an effective interest rate of 12.14%.  This transaction resulted in a net decreasein total liabilities of approximately $180,000. The decrease consisted of $134,000 of waived interest, the $68,000 fairvalue of the canceled Warrant, and a $35,000 decrease in the carrying value ofthe Restructured Note, offset by a $57,000 increase in the fair value of theconversion feature.  We recorded the$180,000 decrease in liabilities as a capital contribution pursuant to StaffAccounting Bulletin Topic 1:B.

 

The estimated fair value of thederivative feature of the Second Note totaled approximately $129,000 on September 7,2004, when the SEC declared our amended Registration Statement on Form S-3/Aeffective.  Simultaneous to theeffectiveness of the registration, the net cash settlement provisions in theRestructured Note that effected the derivative classification of the conversionfeature were extinguished.  We revaluedand reclassified the conversion feature as a conversion premium (“Premium”)with an estimated value of $129,000, which would be amortized to income overthe remaining term of the Restructured Note. During the first quarter of fiscal 2005, we recognized approximately$12,000 in other income as we amortized the premium through November 11,2004.  We received a notice of conversiondated November 10, 2004, from Tonga to convert the outstanding principaland accrued interest into our Common Stock at the conversion price set forth inthe Restructured Note.  The conversionprice was $1.05, and was equal to 90% of the average closing bid prices for thethree trading days having the lowest closing bid price during the 20 tradingdays immediately prior to November 10, 2004.  The newly issued shares increased our totalcommon shares outstanding from 1,104,173 to 2,805,522.  Tonga owned 67% of our outstanding sharesimmediately after the conversion. According to filings made by Tonga under Section 16 of the ExchangeAct, Tonga liquidated its holdings of our Common Stock by November 15,2004.

 

12

----

 

We were generally restricted fromissuing additional equity securities without Tonga’s consent, and Tonga had aright of first refusal as to certain subsequent financings.  The Restructured Note was secured by all of ourassets.  As part of the transaction, for a period of three years from the date ofthe Old Note, Tonga had the right to appoint a majority of our board ofdirectors.  Tonga appointed three membersto the Board and as a result, controlled ASI.  However, the conversion of the Restructured Note released all of ourassets as collateral.  Upon Tonga’sdisposal of its holdings of our Common Stock, Tonga relinquished its right toappoint directors.  In December 2004,we appointed two new independent directors in conjunction with the resignationof the three Tonga-appointed directors.  As a result, Tonga relinquished control ofASI.

 

**6.****                   ****RedeemablePreferred Stock**

 

On December 28, 2001, weissued 1.6 million shares of no par value Series A Preferred Stock (“PreferredStock”) with a face value of $3.2 million, pursuant to the extinguishment of abank credit agreement (“Agreement”).  Werecorded this Preferred Stock at a fair market value of $300,000 as describedbelow.  In June 2004, we redeemed1,341,100 shares of our Preferred Stock (“Shares”), or 84%, of the outstandingShares.  We paid the holders of theShares $251,456 to redeem the Shares, which, on the redemption dates, werecarried at approximately $1,535,000 plus accrued dividends totalingapproximately $191,000, resulting in a gain of approximately $1,475,000.  The early redemption reduced the number ofpreferred shares outstanding to 258,900 shares and reduced a mandatoryredemption payment, which was classified as a current liability, from $800,000to $129,450.  We paid this obligation in December 2004and redeemed 92,465 shares of Preferred Stock at $1.40 per share.

 

**At December 31, 2005, 166,435 shares ofPreferred Stock were outstanding which are redeemable on or before December 28,2006.  Until December 27, 2006, wewere entitled to redeem these shares at $1.80 per share, or $299,583.  The Preferred Stock carried a mandatoryredemption date of December 28, 2006 at $2.00 per share or $332,870.  On February 1, 2006, we exchanged318,000 shares of Common Stock for all of the outstanding Preferred Stock andaccrued dividends thereon (See Note 9).**

** **

**The Preferred Stock earned a dividend at the annualrate of 5.00% of the then applicable redemption price on a cumulative,non-participating basis and has a liquidation preference equal to the thenapplicable redemption value of shares outstanding at the time ofliquidation.  Dividends were recorded asinterest expense.  Accrued dividends at December 31,2005 and 2004, totaled approximately $59,900 and $46,600, respectively.**

** **

**The carrying value for the outstandingPreferred Stock was approximately $258,900 at December 31, 2005.  The carrying value represents the estimatedfair 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 dateof issuance and the redemption value at the mandatory redemption dates.  The accretion of Preferred Stock is recordedas interest expense.  The fair marketvalue was based on the present value of required cash flows using a discountrate of 80%.  We selected the discount ratebased on discussions with third parties that factored in market conditions forsimilar securities, the current economic climate and our financial conditionand performance.**

 

**13**

----

 

**7.****                   ****Litigation**

 

**In November 2005, we received analias summons notifying us that we have been named as a party to a suit filedby Sycamore Springs Homeowners Association. The summons names the developer of the Sycamore Springs neighborhood as wellas other firms that may have rendered professional services during thedevelopment of the neighborhood.  Theclaimants allege that the services of Mid-States Engineering, which was asubsidiary of MSE Corporation when we acquired MSE in 1997, affected thedrainage system of Sycamore Springs neighborhood, and seek damages fromflooding that occurred on September 1, 2003.  The summons does not quantify the amount ofdamages that are being sought nor the period that the alleged wrongful actionsoccurred.  We sold Mid-States Engineeringon September 30, 1999.   We believethat we have been wrongfully named in the suit and we are diligently pursuingdismissal without prejudice.**

 

**We are also subject to various otherroutine litigation incidental to our business. Management does not believe thatany of these routine legal proceedings would have a material adverse effect onour financial condition or results of operations.**

** **

**8.****                   ****Concentrationof Credit Risk**

 

At December 31, 2005, we had multiplecontracts with three customers, the aggregate of which accounted for 74% of ourconsolidated revenues during the three months ending December 31, 2005(Worldwide Services, Inc, and Intergraph (“WWS”), 43%; AGL Resources, 17%; andMWH Americas, Inc., 14%).  One ofthese customers (WWS) accounted for 85% of our total accounts receivable at December 31,2005.   At December 31, 2004, we hadmultiple contracts with four customers, the aggregate of which accounted for71% of our consolidated revenues during the three months ending December 31,2004 (WWS, 34%; Michigan Consolidated Gas Company (“MichCon”), 14%; BritishTelecommunications PLC (“BT”), 13%; and MWH Americas, Inc., 10%).  Two of these customers accounted for 87% ofour total accounts receivable at December 31, 2004 (WWS, 77% and BT,10%).  Billing terms are negotiated in acompetitive environment and are based on reaching project milestones.  We anticipate that sufficient billingmilestones or contract completion will be achieved during fiscal 2006such that the majority of revenue in excess of billings for these customercontracts will be collected.

 

**9.****                   ****Subsequent Events**

 

OnFebruary 1, 2006, we issued 318,000 shares of our common stock in exchangefor all outstanding shares and accrued dividends thereon of our Series ARedeemable Preferred Stock, which had a carrying value of approximately$259,000, a current redemption price of $299,583, plus accrued dividendstotaling approximately $60,000.  Theretirement of the Preferred Stock could have a material impact on our resultsfor the second fiscal quarter of 2006. Management is currently evaluating the financial statement impact of theeffect of the transaction.

 

On February 10, 2006, we completed theplacement of a new Series A Convertible Preferred Stock (“ConvertiblePreferred”) with gross aggregate proceeds of approximately $760,000.  The two-year Convertible Preferred may beconverted into 598,425 shares of our common stock at fixed conversion price of$1.27, which was determined by applying a 10% discount to the 5-day trailingaverage closing price of ASI common stock of $1.41 as of the Nasdaq StockMarket close on

 

14

----

 

February 9, 2006.  Theholders of the Convertible Preferred Stock received Class A warrants thatentitle them to purchase up to 299,213 shares of our common stock at $1.34, or101% of the closing bid price on February 10, 2006, and an equivalentnumber of Class B warrants that carry an exercise price of $1.49, or 112%of the closing bid price on February 10, 2006.  We also issued 98,425 Class A Warrantsand 98,425 Class B Warrants to certain parties as a finder’s fee.  The warrants will be exercisable after sixmonths from the date of closing until their expiration three years from thedate of closing.  The securities issuedin this transaction have not yet been registered under the Securities Act of1933, as amended, and may not be offered or sold in the United States in theabsence of an effective registration statement or exemption from registrationrequirements. We plan to file a registration statement to register the resaleof the shares sold in the offering and the underlying warrants.  Proceeds will be used to fund the Company’sexpansion into the energy market, including the purchase of rights in oil andgas prospects.

 

**Item 2.    Management’s Discussion and Analysis ofFinancial Condition and Results of****Operations**

 

THE DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OFTHE COMPANY SET FORTH BELOW SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATEDFINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS FORM 10-QSB.THIS FORM 10-QSB CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKSAND UNCERTAINTIES. THE STATEMENTS CONTAINED IN THIS FORM 10-QSB THAT ARENOT PURELY HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27AOF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. WHEN USED INTHIS FORM 10-QSB, OR IN THE DOCUMENTS INCORPORATED BY REFERENCE INTO THIS FORM 10-QSB,THE WORDS “ANTICIPATE,” “BELIEVE,” “ESTIMATE,” “INTEND” AND “EXPECT” ANDSIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS.SUCH FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION, THE STATEMENTSREGARDING THE COMPANY’S STRATEGY, FUTURE SALES, FUTURE EXPENSES, FUTURELIQUIDITY AND CAPITAL RESOURCES. ALL FORWARD-LOOKING STATEMENTS IN THIS FORM 10-QSBARE BASED UPON INFORMATION AVAILABLE TO THE COMPANY ON THE DATE OF THIS FORM 10-QSB,AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKINGSTATEMENTS. THE COMPANY’S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSEDISCUSSED IN THIS FORM 10-QSB. FACTORS THAT COULD CAUSE OR CONTRIBUTE TOSUCH DIFFERENCES (“CAUTIONARY STATEMENTS”) INCLUDE, BUT ARE NOT LIMITED TO,THOSE DISCUSSED IN ITEM 1. BUSINESS—”RISK FACTORS” AND ELSEWHERE IN THE COMPANY’SANNUAL REPORT ON FORM 10-KSB, WHICH ARE INCORPORATED BY REFERENCE HEREINAND IN THIS REPORT.  ALL SUBSEQUENTWRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY, ORPERSONS ACTING ON THE COMPANY’S BEHALF, ARE EXPRESSLY QUALIFIED IN THEIRENTIRETY BY THE CAUTIONARY STATEMENTS.

 

15

----

 

**Overview**

 

Founded in 1981, we are aprovider of data conversion and digital mapping services to users of customizedgeographic information systems.  We helpcustomers by transforming or updating raw, often confusing information frommultiple sources (maps, blueprints, construction drawings, databases, aerialphotography, field inventory of asset attributes, satellite imagery, etc.) intoa high-resolution, large-scale, richly detailed digital and visualrepresentation on which organizations can rely to make better decisions withspeed and confidence.  We havehistorically targeted our services to utilities and state and localgovernments.  While there seems to havebeen an increase in demands for GIS solutions in response to catastrophicevents and homeland security initiatives in 2004 and 2005, we have notexperienced a corresponding increase in demands for GIS data conversionservices.  As noted in the 2005Geospatial Technology Report published by the Geospatial Information andTechnology Association (“GITA”), the federal government has shifted increasedresponsibilities to the state and local levels without a corresponding shift infunding.  The result is critically tightbudgets driven by these economics adversely impacting service providers.  We believe that many of the new GIS softwaresolutions reduce the need for data conversion services.

 

Our independent auditors, PannellKerr Forster of Texas, P.C., issued a going concern qualification on ourfinancial statements for the fiscal years ended September 30, 2005 and2004.  The going-concern qualification,which expressed substantial doubt about our ability to continue as a goingconcern, is based on the significant operating losses reported in fiscal 2005and 2004, and a lack of external financing.

 

We experience yearly andquarterly fluctuations in production costs, salaries, wages and relatedbenefits and subcontractor costs. These costs may vary as a percentage of salesfrom period to period.    We havehistorically utilized offshore subcontractors for a large percentage of certaindata entry production work to reduce production costs and develop new services,and we will continue to do so in fiscal 2006. We do not have a long term contract with an offshore service provider,but we do not anticipate that we will encounter difficulty in obtaining suchservices in sufficient quantities and at acceptable prices.

 

Backlog increases when newcontracts are signed and decreases as revenues are recognized.  As of December 31, 2005, our backlog was$2.9 million, $2.5 million of which we expect to earn during the remaining ninemonths of fiscal 2006.  Backlog totaled$4.0 million at September 30, 2005.  We believe backlog levels reflect changes specific to GIS industrymarket conditions, and lower demands for data conversion services.

 

We currently have two projectsthat have a contract value greater than $1 million or longer than one year induration, which can increase risk due to inflation, as well as changes incustomer expectations and funding availability. Our contracts are generally terminable on short notice, and while werarely experience such termination, there is no assurance that we will receive allof the revenue anticipated under signed contracts.

 

We engage in research and development activities;however, associated expenses are not significant and represent less than$100,000 per year, or less than 5% of our total operating expense.  The majority of these activities occur as wedevelop software or design a product for a particular contract.  These efforts are typically included as anintegral part of our services for the particular project and,

 

16

----

 

accordingly, the associated costs are charged tothat project. Such custom-designed software can often be applied to projectsfor other customers, since we retain ownership of such proprietary software orproducts.

 

**Our sales and marketing efforts have not beensuccessful.  We have acquired three newcustomers with material contracts during the past two years, and the majorityof our current contracts are ongoing services from past customers.  We reduced our staff in 2005 to meet thelower demands of our existing business, and we experienced additional loss ofpersonnel in fiscal 2005 due to the uncertainty of the acquisition of new GIScontracts.  To address concern created bythis loss of personnel on the part of our customers, partners, and employees, weengaged Wind Lake Solutions, Inc. (“WLS”), to manage our Wisconsin-basedpersonnel in October 2005.  The WLSmanagement team includes several professionals who have longstandingrelationships with ASI and its customer base, including two individuals whosuccessfully managed the Wisconsin office, or Intelligraphics, prior to itsacquisition by ASI in December 1995. We believe this strategy has stabilized our Wisconsin office andsatisfied our customer’s concerns regarding our ability to provide consistentservice to them.  We believe WLS’slong-term involvement is necessary to maintain stability in our Wisconsinoffice.  WLS’s management agreement (“Agreement”)carries a one-year term with a one-year renewal option.  Either party may terminate the Agreement upon90 days written notice.  WLS has anexclusive option to purchase the Wisconsin-based operations during the term ofthe Agreement, which if exercised, may include a non-compete in the US-basedutility market.**

** **

**During fiscal 2005, we evaluated a broad spectrum ofbusiness opportunities.  We engaged aconsultant and evaluated acquisitions that would facilitate our entrance intothe federal markets, and we also evaluated various opportunities, includingsoftware and service solutions for location based services, state and local GISinitiatives.  As of the date of thispublication, we have not identified an acceptable acquisition serving the GISmarketplace that produces suitable margins or sufficient returns on acquisitioncosts.**

** **

On December 7, 2005, we engaged Pluris Partners, Inc.,a merchant banking firm specializing in merger and acquisition, private equityplacement and financial advisory services, to facilitate the expansion of ourservice offering into the energy sector, including the acquisition of oil andgas exploration and production rights. We intend to acquire working interests of oil and gas properties in aseries of drilling programs.  We willevaluate other acquisition opportunities in the energy sector, including bothexploration and production operations and technology solutions, as well as anyother sector that presents attractive opportunities for our shareholders.  We intend to finance this expansion throughprivate placement of equity supplemented by issuance of debt, which is dependenton the terms on which we are able to negotiate, if any.

 

EffectiveDecember 2, 2005, Brian Morrow resigned as president and chief operatingofficer to pursue other opportunities.  Mr. Morrowjoined the Company on June 9, 2005. Our chief executive officer assumed Mr. Morrow’s duties.  We will seek additional executive teammembers appropriately as we expand our business as described in the precedingparagraph.

 

Wecurrently employ approximately 70 full-time employees.  While we have reduced our legal andprofessional fees as we settled litigation against the Company and completedour obligations under the Restructured Note, we anticipate that our initiativeinto new business ventures and compliance

 

17

----

 

with the requirements of Sarbanes-Oxley, if applicable, will requiresubstantial financial and management resources and result in additionalexpenses.

 

**Resultsof Operations**

 

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

 
| ** **                                | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------|------------|------------------------|------------|
| ** **                                | ** ** | **December 31,**  | ** ** |
| ** **                                | ** ** | **2005**               | ** ** | **2004** | ** ** |
| **PERCENTAGE OF REVENUES:**               |       |                   |       |   |   |
| Revenues                                  |       | 100.0                  | %          | 100.0 | % |
| Costs and expenses                        |       |                   |       |   |   |
| Salaries, wages and related benefits      |       | 57.5                   |       | 76.6 |   |
| Subcontractor costs                       |       | 10.2                   |       | 18.6 |   |
| Other general and administrative          |       | 33.3                   |       | 21.5 |   |
| Depreciation and amortization             |       | 1.5                    |       | 2.7 |   |
| Severance and related costs               |       | 0.0                    |       | 3.3 |   |
|                                      |       |                   |       |   |   |
| Loss from operations                      |       | (2.5                   | )          | (22.7 | ) |
|                                      |       |                   |       |   |   |
| Other expense, net                        |       | (0.7                   | )          | (1.4 | ) |
|                                      |       |                   |       |   |   |
| Loss before income taxes                  |       | (3.2                   | )          | (24.1 | ) |
| Provision for income taxes                |       | —                 |       | — |   |
| Net loss available to common shareholders |       | (3.2                   | )%         | (24.1 | )% |

** **

**Three Months Ended December 31,2005 and 2004**

** **

**Revenues**.  Werecognize revenues as services are performed. Our revenues decreased 32.9% forthe three months ended December 31, 2005, and totaled $1,360,000 ascompared to $2,028,000 for the same period in fiscal 2005, a decrease ofapproximately $668,000.  The decrease inrevenues is due to a lower number of active contracts in the first quarter of2006.  The level of new contract signingsin recent fiscal years, including fiscal 2004 and 2005, was lower than inprevious years and, as a result, revenues have decreased.  We believe this decrease in contract signingsis attributable to lower demand and reduced spending levels for data conversionservices specific to the GIS industry.

 

**Salaries, Wages and Benefits.** Salaries, wages and benefits include employee compensation forproduction, marketing, selling, and administrative and executive employees.Salaries, wages and related benefits decreased $773,000 for the first quarterof fiscal 2006 as compared to the same quarter in fiscal 2005.  The decrease was a result of reductions inour workforce related to reduced revenue volume as well as a lower number ofselling, general and administrative staff members.

 

**Subcontractor Costs.**  Subcontractor costs includeproduction costs incurred through the use of third parties for production taskssuch as data conversion and field survey services to meet contractrequirements. The use of both domestic and offshore subcontractors enables usto better manage the

 

18

----

 

fluctuationsin labor requirements as we complete and begin new projects as well as duringthe various phases of contracts. Subcontractor costs decreased 63.1%, or $239,000, for the three monthsended December 31, 2005, as compared to the same period ended December 31,2004, due to the completion of several contracts in fiscal 2005 that have notbeen replaced with new contracts.

 

**Other General and Administrative. **Other general and administrative costs include rent, maintenance,travel, supplies, utilities, insurance and professional services.  Such costs increased slightly in the firstquarter of fiscal 2006 as compared to the same period in fiscal 2005, anincrease of 3.7%.  Consulting feesassociated with Wind Lakes Solutions, Inc., providing management servicesto our Wisconsin operations, primarily drove the increase.

 

**Depreciation and Amortization. **Depreciation and amortization decreased $34,000 in the first threemonths of fiscal 2006 as compared to the same period in fiscal 2005 due to someequipment becoming fully depreciated. The replacement cost on computer equipment is significantly lower thanthe replaced items.  Accordingly,depreciation and amortization expense has decreased in recent periods.

 

**Severance and Related Costs.**  Weincurred severance expense of $67,000 in the quarter ended December 31,2004, as compared to $0 for the fiscal 2006 quarter.  The expense in the fiscal 2005 quarter wasincurred as a result of the termination of our Chief Executive Officer’semployment contract that provided for payment of the contract through March 21,2005.

 

**Interest Expense, Net.**  Weincurred interest expense totaling $13,000 in the quarter ending December 31,2005, as compared to $41,000 in the quarter ending December 31, 2004. Thedecrease, which totaled $28,000, was a result of the lower levels of debt outstandingduring the quarter ending December 31, 2005, effected by the conversion ofthe Restructured Note on November 16, 2004, and the mandatory redemptionpayment on Preferred Stock of $129,450 in December 2004, which redeemed92,465 shares of Preferred Stock.

 

**Other Income (Expense).** Infiscal 2005, other income or expense was principally a result of the change infair value of the derivative features of the Second Note or Restructured Note,and subsequent to the reclassification of the derivative features, amortizationof the Premium on the Restructured Note. The Premium was amortized to other income until the conversion of theRestructured Note on November 10, 2004, and the unamortized balance wasreclassified to stockholders’ equity. Accordingly, we recorded other income totaling $12,000 for thethree-month period ended December 31, 2004. For the three-month periodended December 31, 2005 we had $3,000 of other income primarily associatedwith disposal of assets.

 

**Income Taxes**.  Federal income tax expense forfiscal year 2006 is projected to be zero. Accordingly, an effective federal income tax rate of 0% was recorded forthe three months ended December 31, 2005. As a result of the uncertainty that sufficient future taxable income canbe recognized to realize additional deferred tax assets, no income tax benefithas been recognized for the three months ended December 31, 2005 and 2004.

 

**Net Loss. **We recorded a net loss of $43,000 in thefirst quarter of fiscal 2006 as compared to a net loss of $491,000 in the samequarter of fiscal 2005.  The variance wasprincipally due to lower

 

19

----

 

revenues,salaries, wages, and benefits, subcontractor costs, as well as the absence ofseverance costs in fiscal 2006.

 

**Liquidity and Capital Resources**

** **

**Table of Contractual Obligations.**  Belowis a schedule (by period due) of the future payments that we are obligatedto make over the next five years based on agreements in place as of December 31,2005. 

 
| ** **                 | ** ** | **Fiscal Year Ending September 30,** | ** ** |
|----------------------------|------------|-------------------------------------------|------------|
| ** **                 | ** ** | **2006**                                  | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **Total** | ** ** |
| Operating leases           |       | $                                         | 58         |   | — |   | — |   | — |   | — |   | $ | 58 |   |
| Financing leases           |       | 18                                        |       | 24 |   | 19 |   | — |   | — |   | 61 |   |
| Debt                       |       | —                                    |       | — |   | — |   | — |   | — |   | — |   |
| Preferred stock redemption |       | —                                    |       | 300 |   | — |   | — |   | — |   | 300 |   |
| Total                      |       | $                                         | 76         |   | 324 |   | 19 |   | — |   | — |   | $ | 419 |   |

 

**Historically, the principal source of ourliquidity has consisted of cash flow from operations supplemented by securedlines-of-credit and other borrowings.  AtDecember 31, 2005, related contractual obligations included PreferredStock with a redemption value of approximately $299,000.  However, in February 2006, we retiredthat obligation when we issued 318,000 shares of Common Stock in exchange forall outstanding Preferred Stock and accrued dividends.  We do not have a line of credit and there isno assurance that we will be able to obtain additional borrowings should weseek to do so.**

** **

Our debt is summarized as follows.

 
| ** **                               | ** ** | **December 31,  2005** | ** ** | **September 30,  2005** | ** ** |
|------------------------------------------|------------|-----------------------------|------------|------------------------------|------------|
|                                     |       |                        |       |                         |       |
| **Long-Term Debt**                       |       |                        |       |                         |       |
| Other debt and capital lease obligations |       | $                           | 48         |                         | $          | 47 |   |
| Redeemable preferred stock               |       | 259                         |       | 247                          |       |
|                                     |       | 307                         |       | 294                          |       |
| Less current portion                     |       | (278                        | )          | (17                          | )          |
|                                     |       | $                           | 29         |                         | $          | 277 |   |

 

On April 2, 2002, wecompleted the sale of a $2.0 million senior secured convertible note (“Old Note”)and a warrant (“Warrant”) to purchase 500,000 of our common stock (“CommonStock”) to Tonga.  We used the proceedsto repay $700,000 to senior lenders, pay transaction expenses of approximately$95,000 and fund operations.

 

The Old Note, which carried aface value of $2.0 million, had a maturity date of April 2, 2005, andaccrued interest on its face value at an annual rate of 5.00%.  Accrued interest was not payable in cash butwas to be converted into Common Stock upon the Old Note’s voluntary conversiondate or maturity.  We recorded the OldNote at $1.664 million reflecting a discount after giving effect to the$200,000 and $136,000 estimated fair value of the Warrant and the conversionfeature, respectively (“derivative features”), which were recorded as currentliabilities.  This $336,000 currentliability was increased or decreased to reflect the fair value of thederivatives at the end of each quarter.

 

20

----

 

On October 29, 2003, Tongaconverted $300,000 in principal of the Old Note, and we issued 241,936 sharesat a conversion price equal to $1.24, which represented 90% of the averageclosing bid prices for the three trading days having the lowest closing bidprice during the 20 trading days immediately prior to October 29,2003.  We also issued 19,522 shares atthe same conversion price for $24,208 of accrued interest on the convertedprincipal.  The Old Note was exchangedfor the shares and a $1.7 million debenture (“Second Note”) bearing the sameterms.  The carrying value of the SecondNote was accreted to its face value as we recorded interest expense over itsthree-year term at an effective rate of interest of 12.5%.

 

On May 28, 2004, an event ofdefault was triggered under the Second Note when our Registration Statement on Form S-3filed with the SEC on December 30, 2003, to register shares of our CommonStock that were issued or are issuable pursuant to the Old Note, the SecondNote, and the Warrant was not declared effective by the SEC.

 

On June 30, 2004, the eventof default was cured when we restructured the Second Note.  The restructured $1.7 million senior securedconvertible promissory note (the “Restructured Note”) bore interest at a rateof 5% per annum with such interest accruing beginning on November 4, 2003. The principal amount of the RestructuredNote, together with accrued and unpaid interest, was due and payable at Tonga’soption in cash or shares of our Common Stock on January 2, 2006.  Tonga retained the right to convert theRestructured Note for shares of our Common Stock at any time.  Tonga waived accrued interest on the SecondNote through November 3, 2004, which totaled $134,000.  Tonga also waived its rights to assessliquidated damages pursuant to the Second Note, relinquished its rights underthe Warrant, and canceled the Warrant.

 

The carrying value of the SecondNote immediately prior to execution of the Restructured Note was $1.616million, which reflected the $1.7 million face value less the $84,000unamortized discount.  Additionally, immediatelyprior to the execution of the Restructured Note, the fair value of the Warranttotaled approximately $67,000, and the fair value of the conversion feature ofthe Second Note totaled approximately $62,000. As a result of the extended term of the Restructured Note, the estimatedfair value of the conversion feature increased to approximately $119,000, whichwas recorded as a current liability.  Werecorded the Restructured Note at $1.581 million, to be accreted to its facevalue at an effective interest rate of 12.14%. This transaction resulted in a net decrease in total liabilities ofapproximately $180,000.  The decreaseconsisted of $134,000 of waived interest, the $68,000 fair value of thecanceled Warrant, and a $35,000 decrease in the carrying value of theRestructured Note, offset by a $57,000 increase in the fair value of theconversion feature.  We recorded the$180,000 decrease in liabilities as a capital contribution pursuant to StaffAccounting Bulletin Topic 1:B.

 

The estimated fair value of thederivative feature of the Second Note totaled approximately $129,000 on September 7,2004, when the SEC declared our amended Registration Statement on Form S-3/Aeffective.  Simultaneous to theeffectiveness of the registration, the net cash settlement provisions in theRestructured Note that effected the derivative classification of the conversionfeature were extinguished.  We revaluedand reclassified the conversion feature as a conversion premium (“Premium”)with an estimated value of $129,000, which would be amortized to income overthe remaining term of the Restructured Note. During the first quarter of fiscal 2005, we recognized approximately$12,000 in other income as we amortized the premium through November 11,2004.  We received a notice of conversiondated November 10, 2004, from Tonga to convert the outstanding

 

21

----

 

principal and accrued interestinto our Common Stock at the conversion price set forth in the RestructuredNote.  The conversion price was $1.05,and was equal to 90% of the average closing bid prices for the three tradingdays having the lowest closing bid price during the 20 trading days immediatelyprior to November 10, 2004.  Thenewly issued shares increased our total common shares outstanding from1,104,173 to 2,805,522.  Tonga owned 67%of our outstanding shares immediately after the conversion.  According to filings made by Tonga under Section 16of the Exchange Act, Tonga liquidated its holdings of our Common Stock by November 15,2004.

 

We were generally restricted fromissuing additional equity securities without Tonga’s consent, and Tonga had aright of first refusal as to certain subsequent financings.  The Restructured Note was secured by all of ourassets.  As part of the transaction, for a period of three years from the date ofthe Old Note, Tonga had the right to appoint a majority of our board ofdirectors.  Tonga appointed three membersto the Board and as a result, controlled ASI.  However, the conversion of the Restructured Note released all of ourassets.  Upon Tonga’s disposal of itsholdings of our Common Stock, Tonga relinquished its right to appointdirectors.  In December 2004, weappointed two new independent directors in conjunction with the resignation ofthe three Tonga-appointed directors.  Asa result, Tonga relinquished control of ASI.

 

On December 28, 2001, weissued 1.6 million shares of no par value Series A Preferred Stock (“PreferredStock”) with a face value of $3.2 million, pursuant to the extinguishment of abank credit agreement (“Agreement”).  Werecorded this Preferred Stock at a fair market value of $300,000 as describedbelow.  In June 2004, we redeemed1,341,100 shares of our Preferred Stock (“Shares”), or 84%, of the outstandingShares.  We paid the holders of theShares $251,456 to redeem the Shares, which, on the redemption dates, werecarried at approximately $1,535,000 plus accrued dividends totalingapproximately $191,000, resulting in a gain of approximately $1,475,000.  The early redemption reduced the number ofpreferred shares outstanding to 258,900 shares and reduced a mandatoryredemption payment, which was classified as a current liability, from $800,000to $129,450.  We paid this obligation in December 2004and redeemed 92,465 shares of Preferred Stock at $1.40 per share.

 

**At December 31, 2005, 166,435 shares ofPreferred Stock were outstanding which are redeemable on or before December 28,2006.  Until December 27, 2006, wewere entitled to redeem these shares at $1.80 per share, or $299,583.  The Preferred Stock carried a mandatoryredemption date of December 28, 2006 at $2.00 per share or $332,870.  On February 1, 2006, we exchanged318,000 shares of Common Stock for all of the outstanding Preferred Stock andaccrued dividends thereon.**

** **

The Preferred Stock earned adividend at the annual rate of 5.00% of the then applicable redemption price ona cumulative, non-participating basis and has a liquidation preference equal tothe then applicable redemption value of shares outstanding at the time ofliquidation.  Dividends were recorded asinterest expense.  Accrued dividends at December 31,2005 and 2004, totaled approximately $59,900 and $46,600, respectively.

 

The accompanying financial statements have been prepared on a goingconcern basis, which contemplates the realization of assets and thesatisfaction of liabilities in the normal course of business.  Since fiscal 2000, we have experiencedsignificant operating losses with corresponding reductions in workingcapital.  Our revenues and backlogdecreased significantly during that time. These factors, among others, have resulted in our independent auditorsissuing an audit opinion on

 

22

----

 

the September 30, 2005, financial statements that expressedsubstantial doubt about our ability to continue as a going concern.

 

**To address the going concern issue, managementimplemented financial and operational restructuring plans designed to improveoperating efficiencies, reduce and eliminate cash losses, and position us forprofitable operations.  The conversion ofour senior secured convertible note into common stock in November 2004reduced our debt by $1,696,000, eliminated future related interest expense andimproved our debt to equity ratio.  During February 2006 we retiredprincipally all of our debt when we issued 318,000 shares of our common stockin exchange for all outstanding shares of our series A Redeemable PreferredStock (“Preferred Stock”) and dividends accrued thereon, eliminating the needto reserve cash to meet this obligation. We have reduced our general and administrative expenses by reducingoccupancy costs and streamlining our executive, senior and middle managementteams.  Ongoing viability as a businesscompels us to act swiftly and decisively regarding new business pursuits and,as such, we have engaged Pluris Partners, Inc. to facilitate the expansionof our business endeavors into the energy sector.**

** **

**In the absence of a line of credit andbecause of our inability to secure debt on terms that would be consideredreasonable based on our recent operating history, we depend on internal cashflow to sustain operations.  Internalcash flow is significantly affected by customer contract terms and progressachieved on projects.  Fluctuations ininternal cash flow are reflected in three contract-related accounts: accountsreceivable; revenues in excess of billings; and billings in excess of revenues.Under the percentage of completion method of accounting:**

** **

•                  “Accounts receivable” is created when anamount becomes due from a customer, which typically occurs when an eventspecified in the contract triggers a billing.

•                  “Revenues in excess of billings” occur whenwe have performed under a contract even though a billing event has not beentriggered.

•                  “Billings in excess of revenues” occur whenwe receive an advance or deposit against work yet to be performed.

 

Theseaccounts, which represent a significant investment by us in our business,affect our cash flow as projects are signed, performed, billed andcollected.  At December 31, 2005, wehad multiple contracts with three customers, the aggregate of which accountedfor 74% of our consolidated revenues during the three months ending December 31,2005 (Worldwide Services, Inc, and Intergraph (“WWS”), 43%; AGL Resources, 17%;and MWH Americas, Inc., 14%).  Oneof these customers (WWS) accounted for 85% of our total accounts receivable at December 31,2005.   At December 31, 2004, we hadmultiple contracts with four customers, the aggregate of which accounted for71% of our consolidated revenues during the three months ending December 31,2004 (WWS, 34%; Michigan Consolidated Gas Company (“MichCon”), 14%; BritishTelecommunications PLC (“BT”), 13%; and MWH Americas, Inc., 10%).  Two of these customers accounted for 87% ofour total accounts receivable at December 31, 2004 (WWS, 77% and BT,10%).  Billing terms are negotiated in acompetitive environment and, as stated above, are based on reaching projectmilestones.  We anticipate that sufficientbilling milestones will be achieved during fiscal 2006 such that revenue inexcess of billings for these customer contracts will decline.

 

Inorder to meet our short-term cash requirements we must collect more cash fromour customers than we pay to our employees and suppliers.  To meet our short and long-term cashrequirements, we must complete certain projects in fiscal 2006 and 2007 thatare related to the balance of revenue

 

23

----

 

earnedin excess of billings at December 31, 2005, in order to generatesufficient cash flow to fund operations and expenditures.  We expect that we will be able to complete amajority of these contracts by December 31, 2006, but there can be noassurance that market conditions or other factors may prevent us from doing soor that the cash generated will be equal to the amount that we currentlyanticipate.  If we are unable to completethe contracts and generate cash by earning and collecting our unearnedrevenues, we will be forced to obtain additional financing and/or restrictcapital and operating expenditures to match available resources.

 

**On December 30, 2005, we receivednotice from the NASDAQ Stock Market indicating we are not in compliance withone of NASDAQ’s requirements for continued listing because we do not have: (i) aminimum of $2,500,000 in stockholders’ equity as of September 30, 2005; (ii) atleast $35,000,000 in market value of listed securities, or (iii) at least$500,000 of net income from continuing operations for the most recentlycompleted fiscal year or two of the three most recently completed fiscalyears.  NASDAQ requires compliance withone of the foregoing criteria for continued inclusion under NASDAQ Marketplace Rule 4310(c)(2)(B).  We have implemented a plan to regaincompliance by the issuance of 318,000 shares of our common stock in February 2006,in exchange for our Preferred Stock, which was classified as debt, increasedour stockholders’ equity by approximately $300,000.**

** **

**On February 10, 2006, we completedthe placement of a new Series A Convertible Preferred Stock (“ConvertiblePreferred”) with aggregate gross proceeds of approximately $760,000.  The two-year Convertible Preferred, whichbears interest at 7% annually, may be converted into 598,425 shares of ourcommon stock at fixed conversion price of $1.27, which was determined byapplying a 10% discount to the 5-day trailing average closing price of ASIcommon stock of $1.41 as of the NASDAQ Stock Market close on February 9,2006.  We also issued warrants topurchase up to 795,276 shares of our common stock pursuant to thistransaction.  We plan to file aregistration statement to register the resale of the shares sold in theoffering and the underlying warrants**.  This equity placement is part of a long-term plan to expand our serviceoffering into the energy sector.

** **

**We believe that these two separatetransactions may allow the Company to demonstrate compliance with NASDAQ’sstockholders’ equity test.  NASDAQ iscurrently reviewing our plan to regain compliance with Marketplace Rule4310(c)(2)(B).**

** **

**The financial statements do not includeany adjustments relating to the recoverability of assets and theclassifications of liabilities that might be necessary should we be unable tocontinue as a going concern.  However, webelieve that our turnaround efforts, if successful, will improve operations andgenerate sufficient cash to meet our obligations in a timely manner.**

** **

**Our operating activities used $292,000 and provided$830,000 cash during the three months ended December 31, 2005 and 2004,respectively.  Contract-related accountsdeclined $143,000 and $1.7 million during the respective periods.  We reduced our accounts payable and accruedexpense liabilities by $435,000 and $486,000 during the three months ended December 31,2005 and 2004, respectively.**

** **

**We purchased equipment and leasehold improvementstotaling $6,000 and $5,000, during the three months ended December 31,2005 and 2004.  We paid $129,450 inaccordance with the mandatory redemption terms of our Preferred Stock andredeemed 92,465 shares in December 2004.**

** **

**24**

----

** **

**Item 3.  Controls andProcedures**

 

Asof the end of the period covered by this report, we carried out an evaluation,under the supervision and with the participation of our management, includingour Chief Executive Officer and Chief Accounting Officer, of the effectivenessof our disclosure controls and procedures (as defined in rules 13(a)-15(e) and15(d)-15(e) of the Securities Exchange Act of 1934, as amended (the “ExchangeAct”)). Based upon that evaluation, the Chief Executive Officer and the ChiefAccounting Officer have concluded that the disclosure controls and proceduresare effective in alerting them on a timely basis to material informationrelating to the Company (including our consolidated subsidiaries) that isrequired to be included in our periodic filings under the Exchange Act.

 

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

 

25

----

 

**Part II**

**Other Information**

** **

**Item 1.  Legal Proceedings**.

 

Informationregarding our legal proceedings can be found under Note 7, “Litigation”, to theConsolidated Financial Statements.

 

**Item 2.  Unregistered Sales of Securities and Use ofProceeds.**

 

OnFebruary 1, 2006, the Company issued 318,000 shares of its common stock (“CommonStock”) in exchange for all outstanding shares and accrued dividends thereon ofits Series A Redeemable Preferred Stock, which had a current redemptionprice of $299,583 plus accrued dividends totaling approximately $60,000. The Preferred Stock had a mandatory redemption date of December 28, 2006,at which time the redemption price increased to $332,872.  The transactionqualifies under Section 3(a)(9) of the Securities Act of 1933, andunder Rule 144(d)(3)(ii) and Rule 144(k).  The exchange wasexecuted in order to increase the Company’s stockholders’ equity to regaincompliance with Nasdaq regulations.  The Preferred Stock was sold by theoriginal holder to the exchanging holder, whose holding period in the PreferredStock tacks to the original holder’s holding period in such shares.  Undersection 3(a)(9), the exchanging holders’ holding period in the PreferredStock tacks to the holding period in the Common Stock received in theexchange.  None of the parties are affiliates of the Company within themeaning of Rule 144.

 

OnFebruary 2, 2006, the Company issued 75,000 shares of Common Stock to theprincipal of Pluris Partners pursuant to the Consulting Agreement dated December 7,2005.  The Common Stock carries piggybackregistration rights.  The purchaser is an accredited investor, and as aresult, this sale is exempt under section 4(2) of the Securities Actof 1933.

 

**On February 10, 2006, we completedthe placement of a new Series A Convertible Preferred Stock (“ConvertiblePreferred”) with aggregate gross proceeds of approximately $760,000.  The two-year Convertible Preferred, whichbears interest at 7% annually, may be converted into 598,425 shares of ourcommon stock at fixed conversion price of $1.27, which was determined byapplying a 10% discount to the 5-day trailing average closing price of ASIcommon stock of $1.41 as of the NASDAQ Stock Market close on February 9,2006.  We also issued warrants topurchase up to 795,276 shares of our common stock pursuant to thistransaction.  We plan to file aregistration statement to register the resale of the shares sold in theoffering and the underlying warrants**.  This equity placement is part of a long-term plan to expand our serviceoffering into the energy sector.

 

**Item 3.  Defaults Upon Senior Securities.**

 

None.

 

**Item 4.  Submission of Matters to a Vote of SecurityHolders.**

 

None.

 

**Item 5.  Other Information.**

 

None.

 

**Item6.  Exhibits.**

 

**Exhibits:**

 

31.1                           Section 302Certification of Chief Executive Officer

 

31.2                           Section 302Certification of Chief Accounting Officer

 

32.1                           Section 906Certification of Chief Executive Officer

 

32.2                           Section 906Certification of Chief Accounting Officer

 

26

----

 

**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 theundersigned thereunto duly authorized.

 
|                                     | Analytical Surveys, Inc.            |       |
|------------------------------------------|------------------------------------------|------------|
|                                     | (Registrant)                             |       |
|                                     |                                     |       |
|                                     |                                     |       |
| Date:  February 14,  2006 | /s/    Lori A. Jones | ** ** |   |
|                                     | Lori A. Jones                            |       |
|                                     | Chief Executive Officer                  |       |
|                                     |                                     |       |
|                                     |                                     |       |
| Date:  February 14,  2006 | /s/    Barry Golko   |       |   |
|                                     | Barry Golko                              |       |
|                                     | Chief Accounting Officer                 |       |
|                                          |                                          |            |  |  |

 

27

----