**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**Washington, D.C.   20549

** **

**FORM 10-QSB**

 

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

 

**For the quarterly period ended MARCH 31, 2005**

 

**or**

 

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

 

**Commission File Number 0-13111**

 

**ANALYTICALSURVEYS, INC.**

(Exact name of registrant as specified in its charter)

 
| **Colorado**                                                    | ** ** | **84-0846389**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |       | (IRS Employer  Identification Number) |
|                                                            |       |                                  |
| **9725 DATAPOINT DRIVE, SUITE 300B, SAN ANTONIO, TEXAS  78229** |
| (Address of principal executive offices)                        |
|                                                            |       |                                  |
| **(210) 657-1500**                                              |
| (Registrant’s telephone number, including area code)       |

 

INDICATE BY CHECK MARK WHETHERTHE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PAST TWELVE (12) MONTHS(OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCHREPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PASTNINETY (90) DAYS.   YES ý  NO o

 

INDICATE BY CHECK MARK WHETHERTHE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN RULE 12b-2 OF THEEXCHANGE ACT).  YES o  NO ý

 

The number of shares of common stock outstanding asOF MAY 1, 2005, was 2,869,272.

 

 

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**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 | 16       |
|       |                                                                                        |     |
| Item  3.   | Quantitative  and Qualitative Disclosures About Market Risk                                 | 24       |
|       |                                                                                        |     |
| Item 4.    | Controls and Procedures                                                                     | 24       |
|       |                                                                                        |     |
| PART 2.    | OTHER INFORMATION                                                                           |     |
|       |                                                                                        |     |
| Item 1.    | Legal Proceedings                                                                           | 25       |
|       |                                                                                        |     |
| Item 2.    | Unregistered Sales of  Securities and Use of Proceeds                                       | 25       |
|       |                                                                                        |     |
| Item 3.    | Defaults Upon Senior  Securities                                                            | 25       |
|       |                                                                                        |     |
| Item 4.    | Submissions of Matters to a  Vote of Security Holders                                       | 25       |
|       |                                                                                        |     |
| Item 5.    | Other Information                                                                           | 25       |
|       |                                                                                        |     |
| Item  6.   | Exhibits                                                                                    | 25       |
|       |                                                                                        |     |
| SIGNATURES | 26                                                                                          |

 

2

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**Part I**

**Financial Information**

 

**Item 1.  Financial Statements**

**ANALYTICAL SURVEYS, INC.**

**CONSOLIDATED BALANCE SHEETS**

**(In thousands****)******
| ** **                                                                                                                                                                                                | ** ** | **March 31,  2005** | ** ** | **September 30,  2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|-------------------------|------------|
| ** **                                                                                                                                                                                                | ** ** | **(Unaudited)**     | ** ** | ** **              | ** ** |
| **Assets**                                                                                                                                                                                                | ** ** | ** **          | ** ** | ** **              | ** ** |
| Current assets:                                                                                                                                                                                           |       |                |       |                    |       |
| Cash and cash equivalents                                                                                                                                                                                 |       | $                   | 723        |                    | $          | 867 |   |
| Accounts receivable, net of allowance for  doubtful accounts of $54 and $54 at March 31, 2005 and September 30, 2004,  respectively                                                                       |       | 1,963               |       | 3,431                   |       |
| Revenue earned in excess of billings                                                                                                                                                                      |       | 2,578               |       | 3,006                   |       |
| Prepaid expenses and other                                                                                                                                                                                |       | 187                 |       | 183                     |       |
| Total current assets                                                                                                                                                                                      |       | 5,451               |       | 7,487                   |       |
| Equipment and leasehold improvements, at  cost:                                                                                                                                                           |       |                |       |                    |       |
| Equipment                                                                                                                                                                                                 |       | 3,881               |       | 4,751                   |       |
| Furniture and fixtures                                                                                                                                                                                    |       | 363                 |       | 484                     |       |
| Leasehold improvements                                                                                                                                                                                    |       | 75                  |       | 267                     |       |
| Vehicles                                                                                                                                                                                                  |       | 32                  |       | 32                      |       |
|                                                                                                                                                                                                      |       | 4,351               |       | 5,534                   |       |
| Less accumulated depreciation and  amortization                                                                                                                                                           |       | (4,177              | )          | (5,274                  | )          |
| Net equipment and leasehold improvements                                                                                                                                                                  |       | 174                 |       | 260                     |       |
| Total assets                                                                                                                                                                                              |       | $                   | 5,625      |                    | $          | 7,747 |   |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                                            |       |                |       |                    |       |
| Current liabilities:                                                                                                                                                                                      |       |                |       |                    |       |
| Current portion of long-term debt                                                                                                                                                                         |       | $                   | 13         |                    | $          | 53 |   |
| Billings in excess of revenue earned                                                                                                                                                                      |       | 362                 |       | 468                     |       |
| Accounts payable                                                                                                                                                                                          |       | 321                 |       | 882                     |       |
| Accrued interest – related party                                                                                                                                                                     |       | —              |       | 78                      |       |
| Accrued liabilities                                                                                                                                                                                       |       | 306                 |       | 479                     |       |
| Accrued payroll and related benefits                                                                                                                                                                      |       | 602                 |       | 678                     |       |
| Redeemable preferred stock – current  portion                                                                                                                                                        |       | —              |       | 129                     |       |
| Fair value of derivative feature – related  party                                                                                                                                                    |       | —              |       | 122                     |       |
| Total current liabilities                                                                                                                                                                                 |       | 1,604               |       | 2,889                   |       |
| Long-term liabilities:                                                                                                                                                                                    |       |                |       |                    |       |
| Long-term debt – related party                                                                                                                                                                       |       | —              |       | 1,601                   |       |
| Redeemable preferred stock, no par value;  authorized 2,500 shares; 166 and 259 shares issued and outstanding at March  31, 2005 and September 30, 2004, (liquidation value $266 and $362),  respectively |       | 222                 |       | 190                     |       |
| Total long-term liabilities                                                                                                                                                                               |       | 222                 |       | 1,791                   |       |
| Total liabilities                                                                                                                                                                                         |       | 1,826               |       | 4,680                   |       |
| Commitments and contingencies                                                                                                                                                                             |       |                |       |                    |       |
| Stockholders’ equity:                                                                                                                                                                                |       |                |       |                    |       |
| Common stock, no par value; authorized  10,000 shares; 2,869 and 1,104 shares issued and outstanding at March 31,  2005 and September 30, 2004, respectively                                              |       | 35,312              |       | 33,410                  |       |
| Accumulated deficit                                                                                                                                                                                       |       | (31,513             | )          | (30,343                 | )          |
| Total stockholders’ equity                                                                                                                                                                           |       | 3,799               |       | 3,067                   |       |
| Total liabilities and stockholders’ equity                                                                                                                                                           |       | $                   | 5,625      |                    | $          | 7,747 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

3

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**ANALYTICAL SURVEYS, INC.**

**CONSOLIDATED STATEMENTS OFOPERATIONS**

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

 
| ** **                                                          | ** ** | **Three Months Ended  March 31** | ** ** | **Six Months Ended  March 31** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                          | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                          | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                                                            |       | $                                | 1,544      |                           | $          | 3,674 |   | $ | 3,572 |   | $ | 6,229 |   |
| ** **                                                          | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Costs and expenses:                                                 |       |                             |       |                           |       |   |   |   |   |
| Salaries, wages and benefits                                        |       | 1,293                            |       | 1,682                          |       | 2,849 |   | 3,396 |   |
| Subcontractor costs                                                 |       | 434                              |       | 1,282                          |       | 811 |   | 2,078 |   |
| Other general and administrative                                    |       | 384                              |       | 1,280                          |       | 819 |   | 2,239 |   |
| Depreciation and amortization                                       |       | 48                               |       | 70                             |       | 103 |   | 156 |   |
| Severance and related costs                                         |       | —                           |       | 115                            |       | 67 |   | 137 |   |
| Total operating costs                                               |       | 2,159                            |       | 4,429                          |       | 4,649 |   | 8,006 |   |
| Loss from operations                                                |       | (615                             | )          | (755                           | )          | (1,077 | ) | (1,777 | ) |
| Other income (expense):                                             |       |                             |       |                           |       |   |   |   |   |
| Interest expense, net                                               |       | (11                              | )          | (204                           | )          | (52 | ) | (430 | ) |
| Other income (expense), net                                         |       | (53                              | )          | 57                             |       | (41 | ) | 4 |   |
| Total other expense                                                 |       | (64                              | )          | (147                           | )          | (93 | ) | (426 | ) |
| Loss before income taxes                                            |       | (679                             | )          | (902                           | )          | (1,170 | ) | (2,203 | ) |
| Provision for income taxes                                          |       | —                           |       | —                         |       | — |   | — |   |
| Net loss available to common shareholders                           |       | $                                | (679       | )                              | $          | (902 | ) | $ | (1,170 | ) | $ | (2,203 | ) |
|                                                                |       |                             |       |                           |       |   |   |   |   |
| Basic net loss per common share available  to common shareholders   |       | $                                | (0.24      | )                              | $          | (0.83 | ) | $ | (0.48 | ) | $ | (2.13 | ) |
| Diluted net loss per common share available  to common shareholders |       | $                                | (0.24      | )                              | $          | (0.83 | ) | $ | (0.48 | ) | $ | (2.13 | ) |
|                                                                |       |                             |       |                           |       |   |   |   |   |
| Weighted average common shares:                                     |       |                             |       |                           |       |   |   |   |   |
| Basic                                                               |       | 2,869                            |       | 1,085                          |       | 2,418 |   | 1,033 |   |
| Diluted                                                             |       | 2,869                            |       | 1,085                          |       | 2,418 |   | 1,033 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

4

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**ANALYTICAL SURVEYS, INC.**

**CONSOLIDATED STATEMENT OFSTOCKHOLDERS’ EQUITY**

**For the Six Months Ended March31, 2005**

**(In thousands)**

**(Unaudited)**

 
| ** **                                                                                      | ** ** | **Common Stock** | ** ** | **Accumulated** | ** ** | **Total  Stockholders’** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|------------------|------------|-----------------|------------|-------------------------------|------------|
| ** **                                                                                      | ** ** | **Shares**       | ** ** | **Amount**      | ** ** | **Deficit**                   | ** ** | **Equity** | ** ** |
| Balances at September 30, 2004                                                                  |       | 1,104            |       | $               | 33,410     |                          | $          | (30,343 | ) | $ | 3,067 |   |
| Net loss                                                                                        |       | —           |       | —          |       | (1,170                        | )          | (1,170 | ) |
| Common stock issued pursuant to conversion  of senior secured convertible note, net of expenses |       | 1,701            |       | 1,788           |       | —                        |       | 1,788 |   |
| Issuance of inducement stock options                                                            |       | —           |       | 22              |       | —                        |       | 22 |   |
| Common stock issued pursuant to exercise of  stock options                                      |       | 64               |       | 92              |       | —                        |       | 92 |   |
| Balances at March 31, 2005                                                                      |       | 2,869            |       | $               | 35,312     |                          | $          | (31,513 | ) | $ | 3,799 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

5

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**ANALYTICAL SURVEYS, INC.**

**CONSOLIDATED STATEMENTS OF CASHFLOWS**

**(In thousands)**

**(Unaudited)**

 
| ** **                                                                                                           | ** ** | **Six Months Ended  March 31** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                           | ** ** | **2005**                       | ** ** | **2004** | ** ** |
| Cash flows from operating activities:                                                                                |       |                           |       |   |   |
| Net loss                                                                                                             |       | $                              | (1,170     | ) | $ | (2,203 | ) |
| Adjustments to reconcile net loss to net  cash provided by operating activities:                                     |       |                           |       |   |   |
| Depreciation and amortization                                                                                        |       | 103                            |       | 156 |   |
| Issuance of inducement stock options                                                                                 |       | 22                             |       | 3 |   |
| Accretion of interest expense on preferred  stock                                                                    |       | 32                             |       | 275 |   |
| Accretion of interest expense on  convertible debt – related party                                              |       | 9                              |       | 56 |   |
| Change in fair value of derivative  instrument or carrying value of premium on convertible debt – related party |       | (12                            | )          | (3 | ) |
| Loss on disposal of assets                                                                                           |       | 53                             |       | 1 |   |
| Changes in operating assets and liabilities:                                                                         |       |                           |       |   |   |
| Accounts receivable                                                                                                  |       | 1,468                          |       | (25 | ) |
| Revenue earned in excess of billings                                                                                 |       | 428                            |       | 1,218 |   |
| Prepaid expenses and other                                                                                           |       | (4                             | )          | (79 | ) |
| Billings in excess of revenue earned                                                                                 |       | (106                           | )          | (36 | ) |
| Accounts payable and other accrued  liabilities                                                                      |       | (725                           | )          | (624 | ) |
| Accrued payroll and related benefits                                                                                 |       | (77                            | )          | (52 | ) |
| Net cash provided by (used in) operating  activities                                                                 |       | 21                             |       | (1,313 | ) |
|                                                                                                                 |       |                           |       |   |   |
| Cash flows from investing activities:                                                                                |       |                           |       |   |   |
| Purchase of equipment and leasehold  improvements                                                                    |       | (70                            | )          | (3 | ) |
| Net cash used in investing activities                                                                                |       | (70                            | )          | (3 | ) |
|                                                                                                                 |       |                           |       |   |   |
| Cash flows from financing activities:                                                                                |       |                           |       |   |   |
| Principal payments on long-term debt                                                                                 |       | (40                            | )          | (36 | ) |
| Redemption of preferred stock                                                                                        |       | (129                           | )          | — |   |
| Fees associated with issuance of common  stock                                                                       |       | (18                            | )          | — |   |
| Proceeds from common stock issued pursuant  to exercise of options                                                   |       | 92                             |       | — |   |
| Net cash used in financing activities                                                                                |       | (95                            | )          | (36 | ) |
|                                                                                                                 |       |                           |       |   |   |
| Net decrease in cash                                                                                                 |       | (144                           | )          | (1,352 | ) |
|                                                                                                                 |       |                           |       |   |   |
| Cash and cash equivalents at beginning of  period                                                                    |       | 867                            |       | 1,952 |   |
|                                                                                                                 |       |                           |       |   |   |
| Cash and cash equivalents at end of period                                                                           |       | $                              | 723        |   | $ | 600 |   |
|                                                                                                                 |       |                           |       |   |   |
| Supplemental disclosures of cash flow  information:                                                                  |       |                           |       |   |   |
| Cash paid for interest                                                                                               |       | $                              | 1          |   | $ | 2 |   |
| Non-cash financing activities:                                                                                       |       |                           |       |   |   |
| Issuance of common stock pursuant to  conversion of debt—related party                                          |       | $                              | 1,806      |   | $ | 324 |   |
| Accretion of interest on preferred stock                                                                             |       | $                              | 32         |   | $ | 275 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

6

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**ANALYTICAL SURVEYS, INC.**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**March 31, 2005**

**(Unaudited)**

** **

**1.**         Summary of Significant Accounting Policies

 

The accompanying interim consolidated financial statements have beenprepared by management without audit, pursuant to the rules and regulations ofthe Securities and Exchange Commission, in accordance with the accountingpolicies described in our Annual Report on Form 10-K for the year endedSeptember 30, 2004, and reflect all adjustments which are, in the opinion ofmanagement, necessary to present a fair statement of the results for theinterim period on a basis consistent with the annual audited consolidatedfinancial statements.  All suchadjustments are of a normal recurring nature. The consolidated financial statements include the accounts of AnalyticalSurveys, Inc. (“ASI”, “we”, “our” or the “Company”) and its subsidiaries.  All significant intercompany balances andtransactions have been eliminated in consolidation.  Certain information and footnote disclosuresnormally included in consolidated financial statements prepared in accordancewith U.S. generally accepted accounting principles have been omitted.  These consolidated financial statementsshould be read in conjunction with the audited consolidated financial statementsand related notes included in our Annual Report on Form 10-K for the year endedSeptember 30, 2004.  All amountscontained herein are presented in thousands unless indicated.

 

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 eachaccounting period, the percentage of completion is based on production costsincurred to date as a percentage of total estimated production costs for eachof our contracts. This percentage is then multiplied by the contract’s totalvalue 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 ourstock-based compensation utilizing the intrinsic-value method in accordancewith Accounting Principles Board Opinion No. 25, “Accounting for Stock Issuedto Employees,” and related interpretations. No stock-based employeecompensation expense related to our stock option plans is reflected in netloss, as all options granted under those plans had an exercise price equal tothe market value of the 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-BasedCompensation—Transition and Disclosures.” This information has been estimated at the date of grant using the fairvalue method.

 

Wegranted inducement stock options (“Option”) to our former Chief ExecutiveOfficer on March 22, 2004.  The Optionwas not issued pursuant to our stock option plans, and would have vested at 

 

7

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theend of a twelve-month period.  The Optionoriginally provided for the purchase of 75,000 shares of****common stock at an exercise price equal to$1.50 per share, which was below the market value of $2.82 on the date ofgrant.  Upon his resignation onDecember 20, 2004, we accelerated his vesting rights on 56,250 shares, with amarket value of $1.93 per share, and cancelled his right to purchase theremaining 18,750 shares.  The intrinsicvalue of the vested shares totaled approximately $24,000. Mr. Fuquay exercisedhis rights under the Option on December 28, 2004, and purchased 56,250 sharesof our common stock.  Compensationexpense for the three and six months ended March 31, 2005, includes $22,173related to the original grant of the Options as well as the remeasured value ofthe accelerated Options.   During thequarter ended March 31, 2005, 40,000 options were granted to our two new directors,and 70,000 options were granted to three members of the management team,including 40,000 options to our CEO. Hadcompensation costs for our stock based compensation been determined at thegrant date consistent with the provisions of SFAS No. 123, our net loss and netloss per share would have increased to the pro forma amounts indicated below:

 
| ** **                                                            | ** ** | **Three Months Ended  March 31**              | ** ** | **Six Months Ended  March 31**                | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                            | ** ** | **2005**                                      | ** ** | **2004**                                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                            | ** ** | **(in thousands except  per share earnings)** | ** ** | **(in thousands except  per share earnings)** | ** ** |
| Net loss available to common shareholders  as reported                |       | $                                             | (679       | )                                             | $          | (902 | ) | $ | (1,170 | ) | $ | (2,203 | ) |
| Add: Stock-based employee compensation  included in reported net loss |       | —                                        |       | 2                                             |       | 22 |   | 2 |   |
| Less: Pro forma option expense                                        |       | (9                                            | )          | (17                                           | )          | (39 | ) | (32 | ) |
| Pro forma net loss                                                    |       | $                                             | (688       | )                                             | $          | (917 | ) | $ | (1,187 | ) | $ | (2,233 | ) |
|                                                                  |       |                                          |       |                                          |       |   |   |   |   |
| Basic net loss per share, as reported                                 |       | $                                             | (0.24      | )                                             | $          | (0.83 | ) | $ | (0.48 | ) | $ | (2.13 | ) |
| Less: Pro forma option expense                                        |       | —                                        |       | (0.01                                         | )          | (0.01 | ) | (0.03 | ) |
| Pro forma basic net loss per share                                    |       | $                                             | (0.24      | )                                             | $          | (0.84 | ) | $ | (0.49 | ) | $ | (2.16 | ) |
|                                                                  |       |                                          |       |                                          |       |   |   |   |   |
| Diluted net loss per share, as reported                               |       | $                                             | (0.24      | )                                             | $          | (0.83 | ) | $ | (0.48 | ) | $ | (2.13 | ) |
| Less: Pro forma option expense                                        |       | —                                        |       | (0.01                                         | )          | (0.01 | ) | (0.03 | ) |
| Pro forma diluted net loss per share                                  |       | $                                             | (0.24      | )                                             | $          | (0.84 | ) | $ | (0.49 | ) | $ | (2.16 | ) |

 

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

 

Basicearnings per share is computed by dividing earnings available to commonshareholders by the weighted average number of common shares outstanding forthe period.  Diluted earnings per share 

 

8

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includethe effects of the potential dilution of outstanding options and warrantsdetermined using the treasury stock method, as well as convertible debt on ourcommon stock, determined using the if-converted method. We do not presentdiluted earnings per share for periods in which we incurred losses, as theeffect of potentially dilutive shares is anti-dilutive.  Net loss per share for the three and sixmonth periods ended March 31, 2005 and 2004 is provided below:

 
| ** **                                           | ** ** | **Three Months Ended  March 31** | ** ** | **Six Months Ended  March 31** | ** ** |
|------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                           | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                           | ** ** | **(in thousands except**         | ** ** | **(in thousand except**        | ** ** |
| ** **                                           | ** ** | **per share earnings)**          | ** ** | **per share earnings)**        | ** ** |
| **Basic**                                            |       |                             |       |                           |       |   |   |   |   |
| Net loss  available to common shareholders           |       | $                                | (679       | )                              | $          | (902 | ) | $ | (1,170 | ) | $ | (2,203 | ) |
| Weighted average  shares                             |       | 2,869                            |       | 1,085                          |       | 2,418 |   | 1,033 |   |
| Net loss per  share available to common shareholders |       | $                                | (0.24      | )                              | $          | (0.83 | ) | $ | (0.48 | ) | $ | (2.13 | ) |
| **Diluted**                                          |       |                             |       |                           |       |   |   |   |   |
| Net loss  available to common shareholders           |       | $                                | (679       | )                              | $          | (902 | ) | $ | (1,170 | ) | $ | (2,203 | ) |
| Weighted average  shares                             |       | 2,869                            |       | 1,085                          |       | 2,418 |   | 1,033 |   |
| Net loss per  share available to common shareholders |       | $                                | (0.24      | )                              | $          | (0.83 | ) | $ | (0.48 | ) | $ | (2.13 | ) |

 

**3.****             ****Impact Of RecentlyIssued Accounting Pronouncements**

 

In December 2004, the FASB published revisions to SFAS No.123.  The revised SFAS No. 123 requirescompanies to account for share-based payment transactions using a fair-valuebased method, thereby eliminating the disclosure-only provisions of SFAS No.123.  The revised SFAS No. 123R (asamended on April 14, 2005 by the SEC) is effective for all small businesspublic entities as of the beginning of their next fiscal year beginning afterDecember 15, 2005.  We are currentlyevaluating the impact on our financial condition and the results ofoperations.  We currently elect thedisclosure-only provisions of Statement SFAS No. 123.

 

In December 2004, the FASB issued SFAS No. 153, “Accountingfor Non-monetary Tansactions” (“SFAS 153”). SFAS 153 requires non-monetary exchanges to be accounted for at fairvalue, recognizing any gain or loss, if the transactions meet acommercial-substance criterion and fair value is detrminable.  SFAS No. 153 is effective for non-monetarytransactions occurring in fiscal years beginning after June 15, 2005.  The Company believes that the implementationof this standard will not have a material effect on the Company’s consolidatedfinancial position or results of operations.

 

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

 

Ouraccrued payroll and related benefits are summarized as follows.

 
| ** **                           | ** ** | **March 31,  2005** | ** ** | **September 30,  2004** | ** ** |
|--------------------------------------|------------|---------------------|------------|-------------------------|------------|
|                                 |       |                |       |                    |       |
| Accrued payroll                      |       | $                   | 330        |                    | $          | 358 |   |
| Accrued health benefits              |       | 98                  |       | 130                     |       |
| Accrued vacation                     |       | 174                 |       | 190                     |       |
| Accrued payroll and related benefits |       | $                   | 602        |                    | $          | 678 |   |

 

9

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

 

**The components of debt are summarized as follows.**

 
| **Long-Term Debt**                                  | ** ** | **March 31,  2005** | ** ** | **September 30,  2004** | ** ** |
|-----------------------------------------------------|------------|---------------------|------------|-------------------------|------------|
|                                                |       |                |       |                    |       |
| Senior secured convertible note—related  party |       | $                   | —     |                    | $          | 1,601 |   |
| Other                                               |       | 13                  |       | 53                      |       |
| Redeemable preferred stock (See Note 6)             |       | 222                 |       | 319                     |       |
|                                                |       | 235                 |       | 1,973                   |       |
| Less current portion                                |       | (13                 | )          | (182                    | )          |
|                                                |       | $                   | 222        |                    | $          | 1,791 |   |

 

On April 2, 2002, we completedthe sale of a $2.0 million senior secured convertible note (“Old Note”) and awarrant (“Warrant”) to purchase 500,000 of our common stock (“Common Stock”) toTonga Partners LP (“Tonga”).

 

The Old Note, which carried aface value of $2 million, had a maturity date of April 2, 2005, and accruedinterest at an annual rate of 5.00%. Accrued interest was not payable in cash but was to be converted into CommonStock upon the Old Note’s voluntary conversion date or maturity.  We recorded the Old Note at $1.664 millionreflecting a discount after giving effect to the $200,000 and $136,000estimated fair value of the Warrant and the conversion feature, respectively (“derivativefeatures”), which were recorded as current liabilities.

 

On October 29, 2003, we receiveda notice of conversion from Tonga for $300,000 in principal of the OldNote.  On November 6, 2003, we issued241,936 shares at a conversion price equal to $1.24, which represented 90% ofthe average closing bid prices for the three trading days having the lowestclosing bid price 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 newly issued shares increasedour total common shares outstanding from 823,965 to 1,085,423.  Tonga owned 24% of our outstanding sharesimmediately after the partial conversion. The carrying value of the Second Note was accreted to its face value aswe recorded interest expense over its three-year term at a rate of $28,000 perquarter.  The effective rate of intereston the Second Note was 12.5%.  Therelated $336,000 current liability was increased or decreased to reflect thefair value of the derivative at the end of each quarter.

 

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

 

On June 30, 2004, the event ofdefault 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 

 

10

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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, 2003, 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.  We recordedthe Restructured Note at $1.581 million reflecting a discount for the $119,000estimated fair value of the conversion feature, which was recorded as a currentliability.  This transaction resulted ina net decrease in total liabilities of approximately $179,000.  The decrease consisted of $134,000 of waivedinterest, the $67,000 fair value of the canceled Warrant, and a $35,000decrease in the carrying value of the Restructured Note, offset by a $57,000increase in the fair value of the conversion feature.  We recorded the $179,000 decrease inliabilities as a capital contribution pursuant to Staff Accounting BulletinTopic 1:B.

 

The $1.581 million carrying valueof the Restructured Note was being accreted to its face value as we recordedinterest expense over its eighteen-month term at a rate of approximately$20,000 per quarter.  The effectiveinterest rate of the Restructured Note was 12.14%.  On September 7, 2004, our amendedRegistration Statement on Form S-3/A was declared effective by the SEC.  On that date, the derivative was extinguishedand its fair value, consisting of the conversion feature, was revalued andreclassified as a conversion premium (“Premium”) to be amortized to income overthe remaining term of the Restructured Note. At September 30, 2004, accrued interest on the Restructured Note totaledapproximately $78,000, and the carrying value of the unamortized Premiumtotaled approximately $122,000.

 

On November 11, 2004, we received a notice ofconversion (“Conversion”) dated November 10, 2004, from Tonga to convert theoutstanding principal of the Restructured Note and the related 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 trading dayshaving the lowest closing bid price during the 20 trading days immediatelyprior to November 10, 2004.  The newlyissued shares increased our total common shares outstanding from 1,104,173 to2,805,522.  Tonga owned 67% of ouroutstanding shares immediately after the Conversion.  According to filings made by Tonga underSection 16 of the Exchange Act, Tonga liquidated its holdings of our CommonStock by November 15, 2004.

 

On November 10, 2004, thecarrying value of the Restructured Note and accrued interest thereon totaledapproximately $1,719,420 ($1.7 million less unamortized discount of $90,857,plus unamortized Premium of $110,277) and $86,417, respectively.  The Conversion resulted in a decrease inrelated party debt consisting of the carrying value of the Restructured Noteand the related accrued interest, totaling $1,805,837, and a correspondingincrease in stockholders’ equity.

 

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 

 

11

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secured by all of our assets.  Aspart of the transaction, for a period of three years from the date of the OldNote, Tonga had the right to appoint a majority of our board of directors.  Tonga appointed three members to the Boardand as a result, controlled ASI.  However, the conversion of the Restructured Note released the securityinterest in all of our assets.  Upon Tonga’sdisposal of its holdings of our Common Stock, Tonga relinquished its right toappoint directors.  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.

 

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

 

On December 28, 2001, we issued1.6 million shares of no par value Series A Preferred Stock (“Preferred Stock”)with a face value of $3.2 million, pursuant to the extinguishment of a bankcredit 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 inDecember 2004 and redeemed 92,465 shares of Preferred Stock at $1.40 per share.

** **

**At March 31, 2005, 166,435 shares of Preferred Stockare outstanding which are redeemable on or before December 28, 2006.  Until December 27, 2005, we are entitled toredeem these shares at $1.60 per share, or $266,296.  The redemption price increases by $0.20 peryear to $1.80 on December 28, 2005 ($299,583), and to $2.00 on December 28,2006 ($332,870).  We must redeem thePreferred Stock on or before December 28, 2006.**

** **

**The Preferred Stock earns 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.  Since its issuance, we haveaccrued but not declared or paid dividends on the Preferred Stock.   Accrued dividends at March 31, 2005, totaledapproximately $50,000.**

** **

**The carrying value for the outstanding Preferred Stock is approximately$222,000 at March 31, 2005.  The carryingvalue represents the estimated fair market value of the stock on the date ofissuance plus issuance costs, adjusted for accretion of the difference betweenfair market value at the date of issuance and the redemption value at themandatory redemption dates.  The fairmarket value was based on the present value of required cash flows using adiscount rate of 80%.  We selected thediscount rate based on discussions with third parties that factored in marketconditions for similar securities, the current economic climate and ourfinancial condition and performance.  Theaccretion of the Preferred Stock is classified as interest expense.**

 

12

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**7.****                     ****SegmentInformation**

 

We evaluate operations and makekey strategic and resource decisions based on operating results of ourindividual production centers.  Segmentdata includes revenue, operating income, including allocated costs charged toeach of the operating segments, equipment investment and project investment,which includes net accounts receivables and revenue earned in excess ofbillings.

 

We have not allocated interestexpense and other non-segment specific expenses to individual segments todetermine our performance measure. Non-segment assets to reconcile to total assets consist of corporateassets including cash, prepaid expenses and deferred taxes.

 
| ** **                            | ** ** | **Location****A** | ** ** | **Location****B** | ** ** | **Total**  | ** ** | **Non-  Segment** | ** ** | **Total**  | ** ** |
|---------------------------------------|------------|-------------------|------------|-------------------|------------|------------|------------|-------------------|------------|------------|------------|
| **Three months ended March 31, 2005** | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** | ** **        | ** ** | ** ** | ** ** |
| Operations                            |       |              |       |              |       |       |       |              |       |       |       |
| Revenues                              |       | $                 | 305        |              | $          | 1,239      |       | $                 | 1,544      |       | $          | — |   | $ | 1,544 |   |
| Loss from                             |       |              |       |              |       |       |       |              |       |       |       |
| operations                            |       | (593              | )          | (22               | )          | (615       | )          | —            |       | (615       | )          |
| Interest expense,  net                |       | —            |       | —            |       | —     |       | (11               | )          | (11        | )          |
| Other                                 |       | —            |       | —            |       | —     |       | (53               | )          | (53        | )          |
|                                  |       |              |       |              |       |       |       |              |       |       |       |
| Net loss                              |       |              |       |              |       |       |       |              |       | $          | (679       | ) |
|                                  |       |              |       |              |       |       |       |              |       |       |       |
| **Six months ended March 31, 2005**   |       |              |       |              |       |       |       |              |       |       |       |
| Operations                            |       |              |       |              |       |       |       |              |       |       |       |
| Revenues                              |       | $                 | 1,065      |              | $          | 2,507      |       | $                 | 3,572      |       | $          | — |   | $ | 3,572 |   |
| Income (loss)  from                   |       |              |       |              |       |       |       |              |       |       |       |
| Operations                            |       | (1,111            | )          | 34                |       | (1,077     | )          | —            |       | (1,077     | )          |
| Interest expense,  net                |       | —            |       | —            |       | —     |       | (52               | )          | (52        | )          |
| Other                                 |       | —            |       | —            |       | —     |       | (41               | )          | (41        | )          |
|                                  |       |              |       |              |       |       |       |              |       |       |       |
| Net loss                              |       |              |       |              |       |       |       |              |       | $          | (1,170     | ) |
|                                  |       |              |       |              |       |       |       |              |       |       |       |
| Assets at March  31, 2005             |       |              |       |              |       |       |       |              |       |       |       |
| Segment assets                        |       | $                 | 3,466      |              | $          | 1,057      |       | $                 | 4,523      |       | $          | — |   | $ | 4,523 |   |
| Non-segment  assets                   |       | —            |       | —            |       | —     |       | 1,102             |       | 1,102      |       |
| Consolidated  assets                  |       |              |       |              |       |       |       |              |       | $          | 5,625      |   |

 

13

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

 

**8.****                     ****Litigation**

 

On June 26, 2002, two of ourstockholders, the Epner Family Limited Partnership and the Braverman FamilyLimited Partnership, (“Claimants”), initiated arbitration proceedings againstus.  They alleged that certainrepresentations and warranties which we made in connection with our acquisitionof Cartotech, Inc., in June 1998 were false because our financial conditionallegedly was worse than depicted in our financial statements for 1997 and theunaudited reports for the first two quarters of fiscal 1998.   In December 2003, an American ArbitrationAssociation panel ruled in our favor, awarding zero damages to the Claimantsand ordering each side to bear its own attorneys’ fees.  The Claimants also filed suit against four ofour former officers for alleged violation of Texas and Indiana securities lawsin connection with our acquisition of Cartotech.  The case was dismissed on January 30,2004.  Our insurer reimbursed $1.8million of the defense costs which totaled approximately $2.1 million.

 

Robert Montgomery, a former officer of ASI, filed suit in HamiltonCounty Superior Court, State of Indiana, on July 19, 2002, seeking recovery ofunpaid commissions pursuant to the Indiana Wage Payment statute.  Mr. Montgomery seeks recovery of $67,611 inunpaid commissions, treble damages, costs interest and attorney’s fees.  We have responded to the lawsuit and we arevigorously defending this action.

 

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

 

14

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**9.**                      Concentrationof Credit Risk

** **

At March 31, 2005, we had multiple contractswith four customers, the aggregate of which accounted for 73% of ourconsolidated revenues for the three months ended March 31, 2005 (WorldwideServices, Inc, and Intergraph (“WWS”), 14%; Michigan Consolidated Gas Company (“MichCon”),16%; British Telecommunications PLC (“BT”), 24%; and MWH Americas, Inc.,19%.)  One of these customers accountedfor 80% of our total accounts receivable at March 31, 2005 (WWS, 80%).   Four customers accounted for 70% of ourconsolidated revenues for the six months ended March 31, 2005 (WWS, 22%; BT,18%; MWH, 17% and MichCon, 13%, respectively) of total revenue.  Two customers accounted for 69% of totalaccounts receivable and revenue in excess of billings at September 30, 2004(WWS, 58% and KeySpan, 11%).  Billingterms are negotiated in a competitive environment and are based on reachingproject milestones.  We anticipate thatsufficient billing milestones or contract completion will be achieved duringfiscal 2005 such that the majority of revenue in excess of billings for thesecustomer contracts will be collected.

 

**10.****         ****Liquidity**

 

The accompanying financialstatements have been prepared on a going concern basis, which contemplates therealization of assets and the satisfaction of liabilities in the normal courseof business. During the fiscal years of 2000 through 2004, and continuing intofiscal 2005, we have experienced significant operating losses withcorresponding reductions in working capital and net worth, excluding the impactof debt forgiveness.  We do not currentlyhave any external financing in place to support operating cash flowrequirements. Our revenues and backlog have also decreased substantially duringthe same period.  If we do not have the cash flownecessary to meet our operating and capital requirements, we will be forced torestrict capital and operating expenditures to match available resources orseek additional financing, which if available, may be available only atunfavorable interest rates, if at all.  These factors, among others, raisesubstantial 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. We reduced our occupancy expenses in fiscal 2005 relatedto our corporate headquarters relocation providing for a more efficient andappropriate facilities.  Financial stepsincluded the retirement of 84% of our preferred stock for 12% of its redemptionvalue and accrued dividends, which also reduced future interest expenseincurred on the preferred stock.  Werestructured our convertible debt by issuing the Restructured Note to cure anevent of default and reduced the total interest payable thereon.  The conversion of the Restructured Note byTonga in November 2004 reduced our debt by $1,696,000, eliminated futurerelated interest expense and improved our debt to equity ratio.  We have reduced our general and administrativeexpenses by reducing occupancy costs and streamlining our executive, senior andmiddle management teams.

 

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.

 

15

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**Item 2.**** Management’s Discussion and Analysis of Financial Condition and Resultsof Operations**.

 

THE DISCUSSION OF THE FINANCIAL CONDITION ANDRESULTS OF OPERATIONS OF THE COMPANY SET FORTH BELOW SHOULD BE READ IN CONJUNCTIONWITH THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDEDELSEWHERE IN THIS FORM 10-QSB. THIS FORM 10-QSB CONTAINS FORWARD-LOOKINGSTATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE STATEMENTS CONTAINED INTHIS FORM 10-QSB THAT ARE NOT PURELY HISTORICAL ARE FORWARD-LOOKING STATEMENTSWITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THEEXCHANGE ACT. WHEN USED IN THIS FORM 10-QSB, OR IN THE DOCUMENTS INCORPORATEDBY REFERENCE INTO THIS FORM 10-QSB, THE WORDS “ANTICIPATE,” “BELIEVE,” “ESTIMATE,”“INTEND” AND “EXPECT” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCHFORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUTLIMITATION, THE STATEMENTS REGARDING THE COMPANY’S STRATEGY, FUTURE SALES,FUTURE EXPENSES, FUTURE LIQUIDITY AND CAPITAL RESOURCES. ALL FORWARD-LOOKINGSTATEMENTS IN THIS FORM 10-QSB ARE BASED UPON INFORMATION AVAILABLE TO THECOMPANY ON THE DATE OF THIS FORM 10-QSB, AND THE COMPANY ASSUMES NO OBLIGATIONTO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY’S ACTUAL RESULTSCOULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN THIS FORM 10-QSB. FACTORS THATCOULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES (“CAUTIONARY STATEMENTS”)INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN ITEM 1. BUSINESS—”RISKFACTORS” AND ELSEWHERE IN THE COMPANY’S ANNUAL REPORT ON FORM 10-K, WHICH AREINCORPORATED BY REFERENCE HEREIN AND IN THIS REPORT.  ALL SUBSEQUENT WRITTEN AND ORALFORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY, OR PERSONS ACTING ONTHE COMPANY’S BEHALF, ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THECAUTIONARY STATEMENTS.

 

**Overview**

 

Founded in 1981, we are aprovider of data conversion and digital mapping services to users of customizedgeographic information systems.

 

Our independent auditors, PannellKerr Forster of Texas, P.C., issued a going concern qualification on ourfinancial statements for the fiscal year ended September 30, 2004.  The going-concern qualification, which expressedsubstantial doubt about our ability to continue as a going concern, is based onthe significant operating losses reported in fiscal 2004 and 2003, and a lackof external financing.  Our formerindependent auditors, KPMG, LLP, issued a going concern qualification on ourfinancial statements for the fiscal years ended September 30, 2003, 2002, 2001,and 2000, based on the significant operating losses reported in those fiscalyears and a lack of external financing to fund working capital and debtrequirements.

 

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.  

 

16

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In September 2004, our five-yearexclusive supply agreement with InfoTech Enterprises, Ltd., an India-basedcompany, to provide production capacity for data conversion and other relatedservices expired.  We utilized InfoTechto provide more than 90% of our offshore subcontractor services (this workconstitutes less than 10% of our total production costs).  We have continued to utilize InfoTech foroffshore conversion capacity but may also engage alternate sources of offshoresubcontractor services in India.  Thismay increase our cost of offshore services in the short term as we train a newsupplier.  We intend to continue toutilize offshore subcontractors for a large percentage of certain data entryproduction work in fiscal 2005 to reduce production costs and develop new services.

 

Backlog increases when newcontracts are signed and decreases as revenues are recognized.  As of March 31, 2005, our backlog was $5.7million, $3.6 million of which we expect to earn during the remaining sixmonths of fiscal 2005.  Backlog totaled$6.5 million at September 30, 2004.   Webelieve backlog levels reflect changes in macroeconomic and industry marketconditions.

 

We have been awarded several projects that aregreater than $2 million or longer than two years in duration, which canincrease our risk due to inflation, as well as changes in schedule, customerexpectations and funding availability. Our contracts are generally terminableon short notice, and while in our experience such termination is rare, there isno assurance that we will receive all of the revenue anticipated under signedcontracts.

 

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, accordingly, theassociated costs are charged to that project. Such custom-designed software canoften be applied to projects for other customers, since we retain ownership ofsuch proprietary software or products.

 

Westreamlined our operations throughout fiscal year 2003 and 2004, andconsolidated our four main production centers to two solution centers in Texasand Wisconsin.  Beginning in 2003 andthrough fiscal 2004, we reduced the number of corporate and administrativestaff by 40%, including a reduction in the number of highly compensated administrativepersonnel.  We have made several changesto our management team that are designed to strengthen our focus on operationsand future strategies.  On December 20,2004, Wayne Fuquay resigned as director and Chief Executive Officer.  Simultaneously, Lori Jones, who has served asour Chief Financial Officer, was appointed Chief Executive Officer.  Our controller, Mr. Barry Golko, will serveas Chief Accounting Officer.  Consolidationof these executive functions may result in further reductions to compensationexpense in the final six months of fiscal 2005. We currently employ approximately 100 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 compliance withthe requirements of Sarbanes-Oxley will require substantial financial andmanagement resources and result in additional expenses.

 

**Resultsof Operations**

 

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

 

17

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| ** **                                | ** ** | **Three Months Ended  March 31** | ** ** | **Six Months Ended  March 31** | ** ** |
|-------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Percentage of Revenues:**               |       |                             |       |                           |       |   |   |   |   |
| Revenues                                  |       | 100.0                            | %          | 100.0                          | %          | 100.0 | % | 100.0 | % |
| Costs and expenses                        |       |                             |       |                           |       |   |   |   |   |
| Salaries, wages and related benefits      |       | 83.8                             |       | 45.8                           |       | 79.8 |   | 54.5 |   |
| Subcontractor costs                       |       | 28.1                             |       | 34.9                           |       | 22.7 |   | 33.4 |   |
| Other general and administrative          |       | 24.9                             |       | 34.8                           |       | 22.9 |   | 36.0 |   |
| Depreciation and amortization             |       | 3.1                              |       | 1.9                            |       | 2.9 |   | 2.5 |   |
| Severance and related costs               |       | 0.0                              |       | 3.1                            |       | 1.9 |   | 2.2 |   |
|                                      |       |                             |       |                           |       |   |   |   |   |
| Loss from operations                      |       | (39.9                            | )          | (20.5                          | )          | (30.2 | ) | (28.6 | ) |
|                                      |       |                             |       |                           |       |   |   |   |   |
| Other expense, net                        |       | (4.1                             | )          | (4.0                           | )          | (2.6 | ) | (6.8 | ) |
|                                      |       |                             |       |                           |       |   |   |   |   |
| Loss before income taxes                  |       | (44.0                            | )          | (24.5                          | )          | (32.8 | ) | (35.4 | ) |
| Provision for income taxes                |       | —                           |       | —                         |       | — |   | — |   |
| Net loss available to common shareholders |       | (44.0                            | )%         | (24.5                          | )%         | (32.8 | )% | (35.4 | )% |

** **

**Three and Six Months EndedMarch 31, 2005 and 2004**

** **

**Revenues**.  Werecognize revenues as services are performed. Our revenues decreased 57.9% forthe three months ended March 31, 2005, and totaled $1,544,000 as compared to$3,674,000 for the same period in fiscal 2004, a decrease of approximately$2,130,000.  Our revenuesdecreased 42.6% for the six-month period ended March 31, 2005, and totaled$3,572,000 as compared to $6,229,000 for the same period in fiscal 2004, adecrease of $2,657,000. The decrease inrevenues is due to a lower number of active contracts in the fiscal 2005 firstand second quarters.  The level of newcontract signings in recent fiscal years, including fiscal 2003 and 2004, waslower than in previous years and, as a result, revenues have decreased aswell.  We believe this decrease incontract signings is attributable to lower demand for and reduced spendinglevels for data conversion services both in general and specific to the GISindustry.

 

**Salaries, Wages and Benefits.** Salaries, wages and benefits include employee compensation forproduction, marketing, selling, and administrative and executive employees. Salaries,wages and benefits decreased $389,000 and $547,000 for the three and six-monthperiods ended March 31, 2005, respectively, as compared to the same period infiscal 2004.  The decrease was a result of reductions in ourworkforce related to reduced revenue volume, our decision to subcontract aportion of our production work to offshore subcontractors, and our use ofdomestic subcontractors to manage fluctuating labor needs.

 

**Subcontractor Costs.**  Subcontractor costs includeproduction costs incurred through the use of third parties for production taskssuch as data conversion services to meet contract requirements, and fieldsurvey services. The use of domestic subcontractors enables us to better managethe fluctuations in labor requirements as we complete and begin new projects aswell as during the various phases of contracts. Subcontractor costs decreased $848,000 and $1,267,000 for thethree and six-month 

 

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periods ended March 31, 2005, as compared to the same periods in fiscal2004 due to due tothe completion of several contracts in fiscal 2005 that have not been replacedwith new contracts.

 

**Other General and Administrative. **Other general and administrative costs include rent, maintenance,travel, supplies, utilities, insurance and professional services.  Such costs decreased $896,000 and$1,420,000 for the three and six-month periods ended March 31, 2005, respectively,as compared to the same periods in fiscal 2004. The decrease was a result of theimplementation of controls, the reduced cost related to fewer general andadministrative employees, and lower professional fee expenses.

 

**Depreciation and Amortization. **Depreciation and amortization decreased $22,000 and $53,000 inthe second quarter of fiscal 2005 as compared to the same quarter in fiscal2004 due to some equipment becoming fully depreciated.  The replacement cost oncomputer equipment is significantly lower than the replaced items.  Additionally, we have extended the life ofexisting equipment and elected to postpone investment in new equipment.  Accordingly, depreciation and amortizationexpense has decreased in recent periods.

 

**Severance and Related Costs.**  Weincurred severance expense of $0 and $67,000 for the three and six-monthperiods ended March 31, 2005, as compared to $115,000 and $137,000 for the sameperiods in fiscal 2004.  The expense in fiscal 2005 was incurred as aresult of the termination of our Chief Executive Officer’s employment contractthat provided for payment of the contract through March 21, 2005.

 

**Interest Expense, Net.**  Weincurred interest expense totaling $11,000 in the quarter ended March 31, 2005as compared to $204,000 in the quarter ended March 31, 2004.  For the six months ended March 31, 2005,interest expense totaled $52,000 as compared to $430,000 for the correspondingprior year period.  The decrease, whichtotaled $193,000 in the quarter and $378,000 for the six months ended March 31,2005, was a result of the lower levels of debt outstanding during the quarterand six months ended March 31, 2005, effected by the conversion of theRestructured Note on November 10, 2004 and the early redemption of ourPreferred Stock in June 2004. See Notes 5 and 6 to the Consolidated FinancialStatements.

 

**Other Income (Expense).** Otherincome or expense is principally a result of the change in fair value of thederivative features of the Second Note or Restructured Note, and subsequent tothe reclassification of the derivative features, amortization of the Premium onthe Restructured Note.  The Premium wasamortized to other income until the Conversion date and the unamortized balancewas reclassified to stockholders’ equity upon Conversion of the RestructuredNote on November 10, 2004.  Accordingly,we recorded other income totaling $0 and $12,000 for the three and six-monthperiods ended March 31, 2005, respectively. The fair value of the derivativefeatures totaled $204,000, $260,000, and $207,000 March 31, 2004, December 31,2003 and September 30, 2003, respectively. Accordingly, we recorded other expense totaling $3,000 and $56,000 forthe three and six-month periods ended March 31, 2004.  Additionally, we recorded $53,000 in other expenseduring the three and six-month periods ended March 31, 2005 related to thedisposition of assets when we relocated.

 

**Income Taxes**.  Federal income tax expense forfiscal year 2005 is projected to be zero. Accordingly, an effective federal income tax rate of 0% was recorded forthe three and six months ended March 31, 2005. As a result of the uncertainty that sufficient future taxable income canbe 

 

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recognizedto realize additional deferred tax assets, no income tax benefit has beenrecognized for the three and six months ended March 31, 2005 and 2004.

 

**Net Loss. **We recorded a net loss of $679,000 in thesecond quarter of fiscal 2005 as compared to a net loss of $902,000 in the samequarter of fiscal 2004.  Our netloss of $1,170,000 in the first six months of fiscal 2005 was $1,033,000 or46.9% lower than the $2,203,000 net loss incurred during the correspondingsix-month period in 2004.  The variance was principally due to lowersalaries, wages, and benefits, subcontractor costs, general and administrativeexpenses, lower interest expense, and fluctuations in other income and expense.

 

**Liquidity and Capital Resources**

** **

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

 
| ** **                 | ** ** | **Fiscal Year Ending September 30** | ** ** |
|----------------------------|------------|-------------------------------------|------------|
| ** **                 | ** ** | **2005**                            | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **Total** | ** ** |
| Operating leases           |       | $                                   | 91         |   | 41 |   | — |   | — |   | — |   | $ | 132 |   |
| Financing leases           |       | 1                                   |       | 3 |   | 3 |   | 1 |   | — |   | 8 |   |
| Debt                       |       | 33                                  |       | — |   | — |   | — |   | — |   | 33 |   |
| Preferred stock redemption |       | —                              |       | — |   | 300 |   | — |   | — |   | 300 |   |
| Total                      |       | $                                   | 125        |   | 44 |   | 303 |   | 1 |   | — |   | $ | 473 |   |

 

**Historically, the principal source of ourliquidity consisted of cash flow from operations supplemented by securedlines-of-credit and other borrowings.  AtMarch 31, 2005, related contractual obligations included redeemable preferredstock with a redemption value of approximately $278,000 and other miscellaneousborrowings.  We do not have a line ofcredit and there is no assurance that we will be able to obtain additionalborrowings should we seek to do so.**

** **

Our debt is summarized as follows.

 
| ** **                                          | ** ** | **March 31,  2005** | ** ** | **September 30,  2004** | ** ** |
|-----------------------------------------------------|------------|---------------------|------------|-------------------------|------------|
|                                                |       |                |       |                    |       |
| **Long-Term Debt**                                  |       |                |       |                    |       |
| Senior secured convertible note—related  party |       | $                   | —     |                    | $          | 1,601 |   |
| Other                                               |       | 13                  |       | 53                      |       |
| Redeemable preferred stock                          |       | 222                 |       | 319                     |       |
|                                                |       | 235                 |       | 1,973                   |       |
| Less current portion                                |       | (13                 | )          | (182                    | )          |
|                                                |       | $                   | 222        |                    | $          | 1,791 |   |

 

On April 2, 2002, we completedthe sale of a $2.0 million senior secured convertible note (“Old Note”) and awarrant (“Warrant”) to purchase 500,000 of our common stock (“Common Stock”) toTonga.  The Old Note, which carried aface value of $2 million, had a maturity date of April 2, 2005, 

 

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and accrued interest at an annualrate of 5.00%.  Accrued interest was notpayable in cash but was to be converted into Common Stock upon the Old Note’svoluntary conversion date or maturity.

 

On October 29, 2003, we receiveda notice of conversion from Tonga for $300,000 in principal of the OldNote.  On November 6, 2003, we issued241,936 shares at a conversion price equal to $1.24, which represented 90% ofthe average closing bid prices for the three trading days having the lowestclosing bid price 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 newly issued shares increasedour total common shares outstanding from 823,965 to 1,085,423.  Tonga owned 24% of our outstanding sharesimmediately after the partial conversion.

 

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

 

On June 30, 2004, the event ofdefault 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, 2003, 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 $1.581 million carrying valueof the Restructured Note was being accreted to its face value as we recordedinterest expense over its eighteen-month term at a rate of approximately$20,000 per quarter.  The effectiveinterest rate of the Restructured Note was 12.14%.  On September 7, 2004, our amendedRegistration Statement on Form S-3/A was declared effective by the SEC.  On that date, the derivative was extinguishedand its fair value, consisting of the conversion feature, was revalued andreclassified as a conversion premium (“Premium”) to be amortized to income overthe remaining term of the Restructured Note. At September 30, 2004, accrued interest on the Restructured Note totaledapproximately $78,000, and the carrying value of the unamortized Premiumtotaled approximately $122,000.

 

On November 11, 2004, we receiveda notice of conversion (“Conversion”) dated November 10, 2004, from Tonga toconvert the outstanding principal of the Restructured Note and the relatedaccrued interest into our Common Stock at the conversion price set forth in theRestructured Note.  The conversion pricewas $1.05, and was equal to 90% of the average closing bid prices for the threetrading days having the lowest closing bid price during the 20 trading daysimmediately prior to November 10, 2004. The newly issued shares increased our total common shares outstandingfrom 1,104,173 to 2,805,522.  Tonga owned67% of our outstanding shares immediately after the Conversion.  According to filings made by Tonga underSection 16 of the Exchange Act, Tonga liquidated its holdings of our CommonStock by November 15, 2004.

 

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On November 10, 2004, thecarrying value of the Restructured Note and accrued interest thereon totaledapproximately $1,719,420 ($1.7 million less unamortized discount of $90,857,plus unamortized Premium of $110,277) and $86,417, respectively.  The Conversion resulted in a decrease inrelated party debt consisting of the carrying value of the Restructured Noteand the related accrued interest, totaling $1,805,837, and a correspondingincrease in stockholders’ equity.

 

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 the securityinterest in all of our assets.  UponTonga’s disposal of its holdings of our Common Stock, Tonga relinquished itsright to appoint directors.  In December2004, we appointed two new independent directors in conjunction with theresignation of the three Tonga-appointed directors.  As a result, Tonga relinquished control ofASI.

 

At September 30, 2004, 258,900 shares of Preferred Stock wereoutstanding,  which are redeemable on orbefore December 28, 2006.  In December2004, we redeemed 92,465 shares pursuant to the terms of the Preferred Stock,which provided for a mandatory redemption payment on December 28, 2004.  We paid the holder of the Preferred Stock$129,450 and redeemed the shares at $1.40 per share.  The redemption price increases by $0.20 peryear to $1.80 on December 28, 2005 ($299,583), and to $2.00 on December 28,2006 ($332,870).  We must redeem thePreferred Stock on or before December 28, 2006.

 

The Preferred Stock earns a dividend at the annual rate of 5.00% of thethen applicable redemption price on a cumulative, non-participating basis andhas a liquidation preference equal to the then applicable redemption value ofshares outstanding at the time of liquidation. Since its issuance, we have accrued but not declared or paid dividendson the Preferred Stock.  Accrueddividends at March 31, 2005, totaled approximately $50,000.

 

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 the September 30, 2004, financial statements thatexpressed substantial doubt about our ability to continue as a going concern.

 

To address thegoing concern issue, management implemented financial and operational restructuringplans designed to improve operating efficiencies, reduce and eliminate cashlosses, and position us for profitable operations.****Financial steps included theretirement of 84% of our preferred stock for 12% of its redemption value andaccrued dividends, which also reduced future interest expense incurred on thepreferred stock.  We restructured ourconvertible debt by issuing the Restructured Note to cure an event of defaultand reduced the total interest payable thereon. The conversion of the Restructured Note by Tonga in November 2004reduced our debt by $1,696,000, eliminated future related interest expense andimproved our debt to equity ratio.  Wehave reduced our general and administrative expenses by reducing occupancycosts and streamlining our executive, senior and 

 

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middle management teams.  We reduced our occupancyexpenses in fiscal 2005 related to our corporate headquarters relocationproviding for a more efficient and appropriate facilities.

 

**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.**

** **

**In the absence of a line of creditand because 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” (unearnedrevenues) occur when we receive an advance or deposit against work yet to beperformed.

 

These accounts, which represent a significantinvestment by us in our business, affect our cash flow as projects are signed,performed, billed and collected.  At March31, 2005, we had multiple contracts with four customers, the aggregate of whichaccounted for 73% of our consolidated revenues for the three months ended March31, 2005 (Worldwide Services, Inc, and Intergraph (“WWS”), 14%; MichiganConsolidated Gas Company (“MichCon”), 16%; British Telecommunications PLC (“BT”),24%; and MWH Americas, Inc., 19%.)  Oneof these customers (WWS) accounted for 80% of our total accounts receivable atMarch 31, 2005.  Four customers accountedfor 70% of our consolidated revenues for the six months ended March 31, 2005(WWS, 22%; BT, 18%; MWH, 17% and MichCon, 13%, respectively) of totalrevenue.  Two customers accounted for 69%of total accounts receivable and revenue in excess of billings at September 30,2004 (WWS, 58% and KeySpan, 11%). Billing terms are negotiated in a competitive environment and are basedon reaching project milestones.  Weanticipate that sufficient billing milestones or contract completion will beachieved during fiscal 2005 and 2006 such that the majority ofrevenue in excess of billings for these customer contracts will be collected.

 

In order to meet our short-term cash requirements we must collect morecash from our customers than we pay to our employees and suppliers.  To meet our short and long-term cashrequirements, we must complete certain projects in fiscal 2005 and 2006 thatare related to the balance of revenues earned in excess of billings at March31, 2005, in order to generate sufficient cash flow to fund operations andexpenditures and to meet our debt requirements. We anticipate that the successful completion of these projects willreduce the balance of unearned revenue and generate cash sufficient to meetboth our short-term and long-term debt obligations.  We expect that we will be able to complete amajority of these contracts by December 31, 2005, but there can be no assurancethat market conditions or other factors may prevent us from doing so or thatthe cash generated will be equal to the amount that we currently anticipate.  If we are unable to complete the contractsand 

 

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generate cash by earning and collecting our unearned revenues, we willbe forced to obtain additional financing and/or restrict capital and operatingexpenditures to match available resources. If these actions are not sufficient, and we are not able to meet ourcommitments when due, then we will be forced to liquidate assets and repay oursecured creditors with the proceeds.

 

**Our operating activities provided $21,000 and used$1,313,000 cash during the six months ended March 31, 2005 and 2004,respectively.  The decrease in cash usedby operations was a result of the smaller operating loss and the collection ofcontract related accounts during the six months ended March 31, 2005.  Our operating loss totaled $1,077,000 for thesix months ended March 31, 2005 as compared to $1,777,000 for the six monthsended March 31, 2004.  Contract-relatedaccounts declined $1.9 million and $1.2 million during the respective periods.**

** **

**We purchased equipment and leasehold improvements totaling$70,000 and $3,000, during the six months ended March 31, 2005 and 2004.  We paid $129,450 in accordance with themandatory redemption terms of our preferred stock and redeemed 92,465 shares inDecember 2004.**

** **

**Item 3.** Quantitative and Qualitative Disclosures AboutMarket Risk

** **

Wemay from time to time employ risk management techniques such as interest rateswaps and foreign currency hedging transactions. None of these techniques areused for speculative or trading purposes and the amounts involved are notconsidered material. We did not utilize any such techniques during the currentreporting period, but may employ such techniques in future periods.

 

**Item 4.**** Controls and Procedures**

 

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 13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)).Based upon that evaluation, the Chief Executive Officer and Chief AccountingOfficer have concluded that the disclosure controls and procedures areeffective alerting them on a timely basis to material information relating tothe Company (including our consolidated subsidiaries) that is required to beincluded in our periodic filings under the Exchange Act.

 

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

 

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**Part II**

**Other Information**

** **

**Item 1.  Legal Proceedings**.

 

Informationregarding our legal proceedings can be found under Note 8, “Litigation”, to theConsolidated Financial Statements.

 

**Item 2.   Unregistered Sale****s of Securities and Useof Proceeds.**

 

None.

 

**Item 3.   Defaults Upon Se****nior Securities.**

 

None.

 

**Item 4.  Submission of Ma****tters to a Vote ofSecurity Holders.**

 

None.

 

**Item 5.  Other Informatio****n.**

 

None.

 

**Item6.  Exhibits.**

 

**Exhibits:**

 

31.1                           Section 302 Certification of ChiefExecutive Officer

 

31.2                           Section 302 Certification of ChiefAccounting Officer

 

32.1                           Section 906 Certification of ChiefExecutive Officer

 

32.2                           Section 906 Certification of ChiefAccounting Officer

 

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**SIGNATURES**

** **

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 
|   |                          | Analytical Surveys, Inc. |
|--------|-------------------------------|--------------------------|
|   |                          | (Registrant)             |
|   |                          |                     |
|   | Date:  May 16, 2005 | /s/ Lori A. Jones        |   |   |
|   |                          | Lori A. Jones            |   |
|   |                          | Chief Executive Officer  |   |
|   |                          |                     |   |
|   |                          |                     |   |
|   | Date:  May 16, 2005 | /s/ Barry Golko          |   |   |
|   | Barry Golko                   |                     |
|   | Chief Accounting Officer      |                     |

 

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