-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EhMP5DJB8SFfcg0SZgJskRytC+axBFFk7ho6GbHzb6P0m0QP8a8Y0fdFK849hgAu QoDMFFcIo+y+UDfFRPNXJA== 0000753048-07-000004.txt : 20070214 0000753048-07-000004.hdr.sgml : 20070214 20070214172943 ACCESSION NUMBER: 0000753048-07-000004 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20061231 FILED AS OF DATE: 20070214 DATE AS OF CHANGE: 20070214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANALYTICAL SURVEYS INC CENTRAL INDEX KEY: 0000753048 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 840846389 STATE OF INCORPORATION: CO FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-13111 FILM NUMBER: 07622912 BUSINESS ADDRESS: STREET 1: 8610 N. NEW BRAUNFELS SUITE 205 STREET 2: . CITY: SAN ANTONIO STATE: TX ZIP: 78217 BUSINESS PHONE: 210-657-1500 MAIL ADDRESS: STREET 1: 8610 N. NEW BRAUNFELS SUITE 205 STREET 2: . CITY: SAN ANTONIO STATE: TX ZIP: 78217 10QSB 1 form10qsb-123106.htm FORM 10-QSB FOR QUARTER ENDED DECEMBER 31, 2006 Form 10-QSB for Quarter Ended December 31, 2006
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-QSB

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended December 31, 2006

or

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

Commission File Number 0-13111
 
ANALYTICAL SURVEYS, INC.
(Exact name of registrant as specified in its charter)
 

Colorado
  
84-0846389
(State or other jurisdiction of
incorporation or organization)
  
(IRS Employer
Identification Number)
 
8610 N. NEW BRAUNFELS, SUITE 205, SAN ANTONIO, TEXAS 78217
(Address of principal executive offices)
 
(210) 657-1500
(Registrant’s telephone number, including area code)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No_____

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ___ No X

The number of shares of common stock outstanding as of February 12, 2007, was 3,779,256.
 


1
 

 


   
PAGE
PART 1.
FINANCIAL INFORMATION
  
     
Item 1.
3
     
Item 2.
17
     
Item 3.
28
     
PART 2.
OTHER INFORMATION
  
     
Item 1.
29
     
Item 2.
29
 
    
Item 3.
29
     
Item 4.
29
     
Item 5.
29
     
Item 6.
 
     
30



 
Part I
Financial Information

ANALYTICAL SURVEYS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)

Assets
  
December 31,
2006
  
September 30,
2006
  
Current assets:
  
(Unaudited)
      
Cash and cash equivalents
  
$
1,284
  
$
1,357
  
Accounts receivable, net of allowance for doubtful accounts of $0 and $50 at December 31 and September 30, 2006, respectively
    
147
    
1,322
  
Revenue earned in excess of billings, net
    
—
    
49
  
Prepaid expenses and other
    
55
    
93
  
Deferred financing costs
    
168
    
133
  
Total current assets
    
1,654
    
2,954
  
Oil and natural gas properties and equipment; full cost method of accounting
    
2,319
    
2,019
  
Equipment and leasehold improvements, at cost:
              
Equipment
    
335
    
570
  
Furniture and fixtures
    
48
    
98
  
Leasehold improvements
    
8
    
1
  
     
391
    
669
  
Less accumulated depreciation and amortization
    
(359
)
  
(605
)
Net equipment and leasehold improvements
    
32
    
64
  
Other assets
    
150
    
—
  
Total assets
  
$
4,155
  
$
5,037
  
Liabilities and Stockholders’ Equity
              
Current liabilities:
              
Senior secured convertible note, net of discount
  
$
1,400
  
$
1,957
  
Current portion of capital lease obligations
    
16
    
16
  
Billings in excess of revenue earned
    
—
    
99
  
Accounts payable
    
112
    
45
  
Accrued liabilities
    
74
    
239
  
Accrued payroll and related benefits
    
96
    
132
  
Total current liabilities
    
1,698
    
2,488
  
Long-term debt:
              
Capital lease obligations, less current portion
    
9
    
13
  
Total long-term liabilities
    
9
    
13
  
Total liabilities
    
1,707
    
2,501
  
Commitments and contingencies
              
Stockholders’ equity:
              
Convertible preferred stock, no par value; authorized 2,500 shares; 280 issued and outstanding at December 31 and September 30, 2006
    
261
    
261
  
Common stock, no par value; authorized 100,000 shares; 3,779 shares issued and outstanding at December 31 and September 30, 2006
    
36,590
    
36,341
  
Accumulated deficit
    
(34,403
)
  
(34,066
)
Total stockholders’ equity
    
2,448
    
2,536
  
Total liabilities and stockholders’ equity
  
$
4,155
  
$
5,037
  

See accompanying notes to consolidated financial statements.




ANALYTICAL SURVEYS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

   
Three Months Ended
  
   
December 31
  
   
2006
  
2005
  
           
Revenues
          
GIS services
  
$
240
  
$
1,360
  
Oil and gas
   
3
    
—
  
Total revenues
    
243
    
1,360
  
               
Costs and expenses:
              
Salaries, wages and benefits
    
221
    
781
  
Subcontractor costs
    
—
    
139
  
Other general and administrative
    
186
    
452
  
Depreciation, depletion and amortization
    
5
    
21
  
Total operating costs
    
412
    
1,393
  
Loss from operations
    
(169
)
  
(33
)
Other income (expense):
              
Interest expense, net
    
(99
)
  
(13
)
Gain (loss) on sale of assets
    
(28
)
  
3
  
Other income (expense), net
   
(36
)
  
—
  
Total other income (expense), net
    
(163
)
  
(10
)
Loss before income taxes
    
(332
)
  
(43
)
Provision for income taxes
    
—
    
—
  
Net loss
    
(332
)
  
(43
)
Dividends on preferred stock
    
(5
)
  
—
  
Net loss available to common stockholders
  
$
(337
)
$
(43
)
               
Basic net loss per common share
 
$
(0.09
)
$
(0.01
)
Preferred stock dividends
    
—
    
—
  
Basic net loss per common share available to common shareholders
  
$
(0.09
)
$
(0.01
)
               
Diluted net loss per common share
 
$
(0.09
)
$
(0.01
)
Preferred stock dividends
    
—
    
—
  
Diluted net loss per common share available to common shareholders
  
$
(0.09
)
$
(0.01
)
               
Weighted average common shares:
              
Basic
    
3,779
    
2,869
  
Diluted
    
3,779
    
2,869
  

See accompanying notes to consolidated financial statements.



ANALYTICAL SURVEYS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the Three Months Ended December 31, 2006
(In thousands)
(Unaudited)

 
  
Convertible
Preferred Stock 
Common Stock
 
Accumulated
 
 
Total Stockholders’
 
 
    
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Deficit
 
 
Equity
  
Balances at September 30, 2006
    
280
  
$
261
    
3,779
  
$
36,341
  
$
(34,066
)
$
2,536
  
Amortization of stock-based compensation
    
—
    
—
    
—
    
2
    
—
    
2
  
Registration costs for Class E Warrants
    
—
    
—
    
—
    
(25
)
  
—
    
(25
)
Warrants issued pursuant to Senior Convertible Notes
    
—
    
—
    
—
    
272
    
—
    
272
  
Dividends on preferred stock
    
—
    
—
    
—
    
—
    
(5
)
  
(5
)
Net loss
    
—
    
—
    
—
    
—
    
(332
)
  
(332
)
Balances at December 31, 2006
    
280
  
$
261
    
3,779
  
$
36,590
  
$
(34,403
)
$
2,448
  


See accompanying notes to consolidated financial statements.



ANALYTICAL SURVEYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)


   
Three Months Ended
  
   
December 31,
  
   
2006
  
2005
  
Cash flows from operating activities:
          
Net loss
  
$
(332
)
$
(43
)
Adjustments to reconcile net loss to net cash provided by operating activities:
              
Depreciation, depletion and amortization
    
5
    
21
  
Amortization of stock-based compensation expenses
    
2
    
—
  
Accretion of interest on convertible note
    
65
    
—
  
Amortization of deferred loan costs
    
149
    
—
  
Accretion of interest expense on preferred stock
    
—
    
12
  
Loss (gain) on sale of assets
    
28
    
(3
)
Changes in operating assets and liabilities:
              
Accounts receivable
    
1,175
    
306
  
Revenue earned in excess of billings, net
    
49
    
(95
)
Prepaid expenses and other
    
38
 
  
13
  
Billings in excess of revenue earned
    
(99
)
  
(68
)
Accounts payable and accrued liabilities
    
(98
)
  
(171
)
Accrued payroll and related benefits
    
(36
)
  
(264
)
Net cash provided by (used in) operating activities
    
946
    
(292
)
Cash flows from investing activities:
              
Purchase of equipment and leasehold improvements
    
(8
)
  
(6
)
Investment in oil and gas properties
    
(300
)
  
—
  
Investment in nonrefundable purchase option
    
(150
)
  
—
  
Cash proceeds from sale of assets
    
7
    
4
  
Net cash used in investing activities
    
(451
)
  
(2
)
Cash flows from financing activities:
              
Principal payments on capital lease obligations
    
(4
)
  
—
  
Dividends paid on preferred stock
    
(5
)
  
—
  
Principal payment on convertible note
    
(2,000
)
  
—
  
Issuance of convertible note, net of expenses
    
1,466
    
—
  
Fees associated with registration of warrants
    
(25
)
  
—
  
Net cash used in financing activities
    
(568
)
  
—
  
Net decrease in cash
    
(73
)
  
(294
)
Cash and cash equivalents at beginning of period
    
1,357
    
622
  
Cash and cash equivalents at end of period
  
$
1,284
  
$
328
  
Supplemental disclosures of cash flow information:
              
Cash paid for interest
  
$
18
  
$
1
  
Non-cash financing activities:
              
Accretion of interest on preferred stock
    
—
    
12
  
Accrual of dividends on preferred stock
  
$
5
  
$
—
  
Warrants issued related to convertible debt
  
$
272
  
$
—
  

See accompanying notes to consolidated financial statements.

 

 
ANALYTICAL SURVEYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
(Unaudited)

1. Summary of Significant Accounting Policies

The accompanying interim consolidated financial statements have been prepared by management without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, in accordance with the accounting policies described in our Annual Report on Form 10-KSB for the year ended September 30, 2006, and reflect all adjustments which are, in the opinion of management, necessary to present a fair statement of the results for the interim period on a basis consistent with the annual audited consolidated financial statements. All such adjustments are of a normal recurring nature. The consolidated financial statements include the accounts of Analytical Surveys, Inc. (“ASI”, “we”, “our” or the “Company”) and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-KSB for the year ended September 30, 2006. All amounts contained herein are presented in thousands unless indicated.

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. During the fiscal years of 2000 through 2006, and continuing into fiscal 2007, we have experienced significant operating losses with corresponding reductions in working capital and stockholders’ equity. We do not currently have any external financing in place to support operating cash flow requirements. Our revenues and backlog have also decreased substantially and consistently over the last five years, which ultimately led to our decision to complete contracts that would generate short term cash flow, sell operations and assign contracts that required investment of working capital, and expand our business strategy to include, and ultimately to principally be an oil and gas enterprise focused on leveraging non-operating participation in drilling and production prospects for the development of U.S. on-shore oil and natural gas reserves. If we are not able to generate cash flow from our investments in oil and gas properties sufficient to meet our operating and capital requirements, we will be forced to restrict capital and operating expenditures to match available resources or seek additional financing, which if available, may be available only at unfavorable interest rates, if at all. These factors, among others, raise substantial doubt about our ability to continue as a going concern.

To address the going concern issue, management implemented financial and operational plans designed to improve operating efficiencies, reduce overhead and accelerate cash from our GIS service contracts, reduce and eliminate cash losses, and position us for profitable operations. We have reduced our general and administrative expenses by reducing occupancy costs, streamlining our executive team, and eliminating, senior and middle management teams. Upon completion of our GIS service contract with Worldwide Services, Inc, and Intergraph (“WWS”) we reduced our total headcount to six persons. In August 2006, we sold our Wisconsin-based operations, completed contracts that were not directly connected to the Wisconsin operation and collected accounts receivable and retained amounts, phased out production personnel and management as contracts were completed, and took aggressive steps toward becoming a valid participant within the energy sector.

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

On July 21, 2006, we received a notice from the National Association of Security Dealers Stock Market (“NASDAQ”) that we were no longer in compliance with the requirements for continued inclusion of our common stock on NASDAQ pursuant to the NASDAQ’s Marketplace Rule 4310(c)(4) (the “Rule”) because our common stock had closed below $1.00 per share for 30 consecutive business days. We did not regain compliance during the 180 calendar days granted by NASDAQ. On January 24, 2007 have appealed the Staff’s determination and have been granted a hearing by the NASDAQ Listing Qualifications Panel regarding our listing qualifications. The hearing has been scheduled for March 1, 2007.

If we are unable to provide an acceptable plan to regain compliance with the Rule at the hearing that shows evidence that we can regain compliance with the continued listing requirements of the NASDAQ Stock Market, including the minimum bid price per share requirement and the minimum stockholders’ equity requirement, we may be delisted from trading on such market, and thereafter trading in our common stock, if any, would be conducted through the over-the-counter market or on the Electronic Bulletin Board of the National Association of Securities Dealers, Inc. There is no guarantee that an active trading market for our common stock will be maintained on NASDAQ . If we are delisted from NASDAQ, Shareholders may not be able to sell shares quickly at the market price, or at all.

Revenue Recognition. We recognize revenue from GIS services using the percentage of completion method of accounting on a cost-to-cost basis. For each contract, an estimate of total production costs is determined and these estimates are reevaluated monthly. The estimation process requires substantial judgments on the costs over the life of the contract, which are inherently uncertain. The duration of the contracts and the technical challenges included in certain contracts affect our ability to estimate costs precisely. Production costs consist of internal costs, primarily salaries and wages, and external costs, primarily subcontractor costs. Internal and external production costs may vary considerably among projects and during the course of completion of each project. At each accounting period, the percentage of completion is based on production costs incurred to date as a percentage of total estimated production costs for each of the contracts. This percentage is then multiplied by the contract’s total value to calculate the sales revenue to be recognized. The percentage of completion is affected by any factors which influence either the estimate of future productivity or the production cost per hour used to determine future costs. Sales and marketing expenses associated with obtaining contracts are expensed as incurred.

Oil, natural gas revenues are recognized when delivery has occurred and title to the products has transferred to the purchaser.

 
 
Stock Based Compensation. Prior to October 1, 2006, we accounted for employee options under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” ("APB 25"). Accordingly, we would recognize compensation expense only if we granted options with a discounted exercise price. Any resulting compensation expense would then have been recognized ratably over the associated service period. Except for the grant of inducement options to our former chief executive officer in a period not covered by this report, no stock-based employee compensation expense relating to our stock options was reflected in net loss, as all options granted had an exercise price equal to or greater than the market value of the underlying Common Stock on the respective date of grant. Prior to October 1, 2006, we provided pro-forma disclosure amounts in accordance with Statement of Financial Accounting Standard, (“SFAS”) No. 148, "Accounting for Stock-Based Compensation--Transition and Disclosure" ("SFAS No. 148"), as if the fair value method defined by “Accounting for Stock-Based Compensation” ("SFAS No. 123"), SFAS No. 123 had been applied to its stock-based compensation.

Effective October 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123R , Share Based Payment, using the modified prospective transition method, and therefore we have not restated prior periods' results. Under this transition method, employee stock-based compensation expense for the three months ended December 31, 2006, includes compensation expense for all stock-based compensation awards granted, but not yet fully exercisable, prior to October 1, 2006. The fair value of the options granted was determined at the original grant dates in accordance with the provisions of SFAS No. 123. Stock-based compensation expense for all share-based payment awards granted after September 30, 2006, is based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R. We recognize these compensation costs over the requisite service period of the award, which is generally the vesting term of the options.

As a result of adopting SFAS No. 123R, we recorded $2,116 additional compensation expense for the three months ended December 31, 2006, than would have been recorded if we had continued to account for stock-based compensation under APB 25. There was no impact of the adoption of SFAS No. 123R on either basic and diluted earnings per share for the three months ended December 31, 2006. At December 31, 2006, the unamortized value of employee stock options under SFAS No. 123R was approximately $2,650. The unamortized portion will be expensed at the rate of $2,050, $300, and $300 in the second, third and fourth quarters of fiscal 2007, respectively.

Option valuation models require the input of highly subjective assumptions including the expected life of the option. Because our employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of our employee stock options.

We did not grant any options during the three months ended December 31, 2006.

A summary of the status of the outstanding options and the changes during the three months ended December 31, 2006, is presented in the table below:

 
  
Number of Options (thousands)
  
Weighted Average Exercise Price
  
 
  
 
  
 
  
Balance, October 1, 2006
    
521
  
$
1.46
  
Granted
   
—
    
—
  
Exercised
    
—
    
—
  
Forfeited
    
(31
)
  
5.73
  
Balance, December 31, 2006
    
490
  
$
1.19
  

 
 
At December 31, 2005, and 2006, approximately 33,000 and 465,000 options, respectively, were exercisable.

A summary of our stock options outstanding and exercisable at December 31, 2006, is presented in the table below:
 
Range of
Exercise
Price
  
Number
Outstanding
at
December 31,
2006
  
Weighted
Average
Exercise
Price
  
Weighted
Average
Remaining
Contractual
Life (years)
  
Number
Exercisable
at December 31,
2006
  
Weighted
Average
Exercise
Price
  
$0.00 - 1.00
    
225,000
  
$
0.69
    
9.7
    
225,000
  
$
0.69
  
1.01 - 2.00
    
195,000
    
1.32
    
8.7
    
187,500
    
1.31
  
2.01 - 3.00
    
70,000
    
2.35
    
8.1
    
52,500
    
2.35
  
3.01 - 20.00
    
200
    
20.00
    
0.1
    
200
    
20.00
  
20.01 - 500.00
    
25
    
45.90
    
0.2
    
25
    
45.90
  
$ 0.00 - 500.00
    
490,225
  
$
1.19
    
9.1
    
465,225
  
$
1.14
  

We have determined that shares of the Common Stock for future exercises shall be from authorized but unissued shares of stock.

A summary of non- exercisable options at December 31, 2006, is shown below:
 
 
  
Non-Vested
Shares
  
Fair Value
  
Non-exercisable at September 30, 2006
    
37,500
  
$
1.94
  
Granted
    
—
    
—
  
Became exercisable
    
8,750
    
1.34
 
Forfeited
    
(3,750
)
  
2.30
  
Non-exercisable at December 31, 2006
    
25,000
  
$
2.09
  

For the three months ended December 31, 2005, under APB 25, no stock-based employee compensation expense relating to our stock options was reflected in net loss, as all options granted under our plans had an exercise price equal to or greater than the market value of the underlying Common Stock on the respective dates of grant.

For our pro forma information for the three months ended December 31, 2005, the fair value of each option grant was estimated on the respective date of grant using the Black-Scholes option pricing model with the following assumptions used:

   
Three Months Ended December 31, 2005
  
Dividend yield
    
0
%
Anticipated volatility
    
92
%
Risk-free interest rate
    
4.0
%
Expected lives
    
2 years
  

 
 
The weighted average fair value of the options on the respective dates of grant, using the fair value based method, for the three months ended December 31, 2005 was $0.15.

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

Had compensation costs for our stock based compensation been determined at the grant date consistent with the provisions of SFAS No. 123, our net loss and net loss per share would have increased to the pro forma amounts indicated below:

 

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

2.  
Earnings Per Share

Basic net earnings (loss) per share are computed by dividing earnings (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net earnings (loss) per share include the effects of the potential dilution of outstanding options and warrants determined using the treasury stock method, as well as convertible debt on our Common Stock, determined using the if-converted method. We do not present diluted net earnings (loss) per share for periods in which we incurred losses, as the effect of potentially dilutive shares is anti-dilutive. Net earnings (loss) per share for the three-month periods ended December 31, 2006 and 2005 is provided below:
 
   
Three Months Ended
  
   
December 31,
  
 
 
 
2006
    
2005
  
 
(in thousands except
 
per share earnings)
Basic
    
Net loss available to common shareholders
  
$
(337
)
$
(43
)
Weighted average shares
    
3,779
    
2,869
  
Net loss per share
  
$
(0.09
)
$
(0.01
)
Preferred stock dividends
    
—
    
—
  
Net loss per share available to
              
common shareholders
  
$
(0.09
)
$
(0.01
)
Diluted
              
Net loss available to common shareholders
  
$
(337
)
$
(43
)
Weighted average shares
    
3,779
    
2,869
  
Net loss per share
  
$
(0.09
)
$
(0.01
)
Preferred stock dividends
    
—
    
—
  
Net loss per share available to
              
common shareholders
  
$
(0.09
)
$
(0.01
)
 
3.  
Impact of Accounting Pronouncements
 

 
SFAS No. 69, “Disclosures about Oil and Gas Producing Activities”, establishes a comprehensive set of disclosures for oil and gas producing activities. We will add appropriate disclosures when our oil and gas activities are significant and material. Such disclosure will include supplementary information including:
 
a.  
proved oil and gas reserve quantities;
 
b.  
capitalized costs relating to oil and gas producing activities;
 
c.  
costs incurred in oil and gas property acquisition, exploration, and development activities;
 
d.  
results of operations for oil and gas producing activities; and
 
e.  
a standardized measure of discounted future net cash flows relating to proved oil and gas reserve quantities.

4.  
Oil and Natural Gas Properties and Equipment

On February 15, 2006, we purchased a twenty percent (20%) working interest in a well designated as the Welker 1-7, located in Pawnee County, Oklahoma for $300,000 in cash. Contemporaneously with such purchase, we entered into an operating agreement with the seller and owner of the other 80% working interest. The well was completed in March 2006 and is currently producing small amounts of oil from the Prue formation. However, as the true targets for this well are the Iron Post and Dawson coal bed zones, and as coal beds require a de-watering process, completion of these zones will occur after the operator drills a water disposal well adjacent to the property. The operator has indicated that a water disposal well will be drilled as part of a separate investment program in fiscal 2007. The de-watering process typically requires four to six months before reaching the full potential gas production from the well.

On March 15, 2006, we completed the purchase of a 50% working interest in three wells designated as Shields No. 1, 2, and 3, located in Pawnee County, Oklahoma, plus a 100% interest in certain fixtures and equipment used in connection with the operation of the wells. We paid $150,000 cash and issued 129,032 shares of Common Stock having a fair market value (equal to the closing bid on March 14, 2006) of $1.55 per share, or $200,000. In July 2006, we exchanged one-half of our working interest in return for a carry of all costs associated with drilling and recompletion activities associated with our remaining working interest in the three wells. One well has been permitted as a water disposal well. A second well is planned for recompletion in fiscal 2007. We plan to recomplete the third well at a later date.

 
 
On May 15, 2006, we purchased a 10.0% working interest in a relatively deep Anadarko Basin natural gas well known as the Adrienne 1-9, located in Washita County, Oklahoma, for $120,000 in cash. As of December 31, 2006, we funded our proportionate share of intangible costs of drilling and completing the well, which totaled approximately $1.5 million. Our net revenue interest is proportionately reduced to a 75% net revenue interest, or 7.5%. The Adrienne 1-9 is operated by Range Resources Corporation and is currently testing through fracture-stimulated perforations at a rate of approximately one million cubic feet of gas per day. Initial tests are being performed on the Boatwright formation, however, additional zones with productive potential remain behind pipe. We funded this obligation through the issuance of a convertible senior secured promissory note on May 31, 2006 (see Note 6).

As of December 31, 2006, we had no proved reserves. Accordingly, supplementary disclosures, including the presentation of standardized measures and changes in standard measures are not presented in this quarterly report on Form 10-QSB.

5.  
Accrued Payroll and Related Benefits

Our accrued payroll and related benefits are summarized as follows.

   
December 31,
 2006
    
September 30, 2006
  
Accrued payroll
  
$
66
  
$
81
  
Accrued health benefits
    
4
    
15
  
Accrued vacation
    
26
    
36
  
Accrued payroll and related benefits
  
$
96
  
$
132
  

6.  
Debt

The components of debt are summarized as follows.

Long-Term Debt
    
December 31,
2006
    
September 30, 2006
  
Senior secured convertible notes, net of discount
  
$
1,400
  
$
1,957
  
Capital lease obligations
    
25
    
29
  
     
1,425
    
1,986
  
Less current portion
    
(1,416
)
  
(1,973
)
   
$
9
  
$
13
  

On November 24, 2006, we issued to three investors, three one-year senior secured convertible notes (“collectively, the Convertible Notes”) totaling $1.65 million pursuant to a Securities Purchase Agreement dated as of November 24, 2006 (the "Purchase Agreement"). The Convertible Notes, together with interest that accrues at the rate of 13% per annum, are convertible into 2,374,101 shares of our Common Stock at a conversion price of $0.695 per share, which was $0.135 per share above fair market value of the Common Stock on the trading date preceding the closing date of November 24, 2006. Upon maturity at November 24, 2007, any unconverted outstanding principal and interest is due and payable in cash. In connection with the Purchase Agreement, we issued to the investors warrants to purchase 2,374,101 shares of our Common Stock at $0.57 per share (“Note Warrants”), which was $0.01 above the fair market value of the Common Stock on the trading date preceding the closing date. The Warrants are exercisable any time after May 24, 2007, and before November 24, 2011. Net proceeds after expenses totaled approximately $1.466 million. We also paid a cash finder’s fee of $132,000 and issued Note Warrants to purchase 189,928 shares of our Common Stock at an exercise price of $0.57 per share to the placement agent, Palladium Capital Advisors, LLC. Proceeds are being used for working capital and to fund additional investments in oil and natural gas non-operating interests.

 
 
The sale of the Convertible Notes and Note Warrants was made pursuant to Section 4(2) of the Securities Act of 1933 as amended, and Rule 506 promulgated thereunder. Pursuant to the terms of the Registration Rights Agreement, on December 22, 2006, we filed a registration statement on Form S-3 to register 130% of the total shares issuable under the transaction.

We recorded the Convertible Notes at a discount after giving effect to the $272,300 estimated fair market value of the Note Warrants, which was credited to equity. The Note Warrants were valued using the Black Scholes Option Pricing model with the following assumptions: dividend yield of 0%, annual volatility of 125%, and risk free interest rate of 4.56%. The carrying value of the Convertible Notes is being accreted to the face amount by charges to interest expense over the one year term until maturity on November 24, 2007. The carrying value at December 31, 2006, was $1.4 million and represents the $1.65 million outstanding principal less the unearned discount of approximately $250,000.

We incurred financing costs totaling $183,500 pursuant to the Convertible Notes, including the finder’s fee, a 1% due diligence fee paid to the investors, and legal and professional fees. These deferred financing costs are being amortized to interest expense over the one year term of the Convertible Notes. After giving effect to the value of the Note Warrants and the financing costs, the effective rate of interest on the Convertible Notes is 56%.

On May 30, 2006, we issued 14% convertible senior secured promissory notes to two holders in the principal amount of $1.5 million and $0.5 million, respectively, (each, a “Senior Note”, and collectively the “Senior Notes”). The holders also received warrants entitling them to purchase, in the aggregate, 752,072 shares of the Common Stock at an exercise price of $1.186 per share, which was the closing bid price of the Common Stock on May 31, 2006, (“Class E Warrants”). On September 19, 2006, the holders exercised their right to accelerate the maturity of the Senior Notes to October 19, 2006, due to the failure of our shareholders to approve certain conversion terms and the issuance of additional warrants at our Annual Meeting of Shareholders held on August 29, 2006. On October 18, 2006, we paid the outstanding principal and interest of the Senior Notes, which totaled $2,012,274, utilizing cash reserves and the collection of $1.0 million of accounts receivable subsequent to September 30, 2006.
 
We recorded the Senior Notes at a discount after giving effect to the $80,424 estimated fair value of the Class E Warrants, which was credited to equity. We amortized the discount as interest expense over the two-year term of the Senior Notes until September 19, 2006, on which date we accelerated the rate of accretion to reflect the new maturity date of October 19, 2006. The remaining unearned discount of $43,196 as of September 30, 2006, were recorded as interest expense through October 19, 2006.

 
 
We incurred expenses totaling approximately $249,000 related to the issuance of the Senior Notes. We recorded these expenses as prepaid or deferred financing costs. These expenses were amortized to other expense over the two-year term of the Senior Notes until September 19, 2006, on which date we accelerated the rate of amortization to reflect the new maturity date of October 19, 2006. The unamortized balance of these deferred costs, which totaled $133,728 on September 30, 2006, was recorded as other expense through October 19, 2006.

7.  
Convertible Preferred Stock 

At December 31, 2006, we had outstanding 280,000 shares of Series A Convertible Preferred (“Convertible Preferred”), which are convertible into 220,472 of Common Stock on or before February 9, 2008.

On February 10, 2006, we issued 760,000 shares of Convertible Preferred with gross aggregate proceeds of approximately $760,000. The holders of 480,000 shares of Convertible Preferred converted their shares into 377,952 shares of Common Stock at $1.27 per share, which was determined by applying a 10% discount to the 5-day trailing average closing price of Common Stock of $1.41 on February 9, 2006. The holders of the Convertible Preferred received Class A Warrants that entitle them to purchase up to 299,212 shares of Common Stock at $1.34, or 101% of the closing bid price on February 10, 2006, and an equivalent number of Class B Warrants (collectively, the “February Warrants”) that carry an exercise price of $1.49, or 112% of the closing bid price on February 10, 2006. We also issued 82,678 Class A Warrants and 82,678 Class B Warrants to certain parties as a finder’s fee. The February Warrants are exercisable after six months from the date of closing until their expiration three years from the date of closing. A Registration Statement on Form S-3 to register all shares issuable pursuant to the Convertible Preferred and related February Warrants was declared effective on April 12, 2006. If the holders of the Convertible Preferred elect to receive future dividends in the form of Common Stock, we may issue up to an additional 25,500 shares of Common Stock in lieu of cash.

The Convertible Preferred earns dividends at a rate of 7% per annum. We recorded the Convertible Preferred at its offering price of $1 per share, net of the estimated $22,171 fair value of the February Warrants. The market value of Common Stock on the date that the Convertible Preferred was sold was $1.32 per share. In accordance with EITF 00-27, this created a beneficial conversion feature to the holders of the Convertible Preferred and a deemed dividend to the preferred stockholders totaling approximately $30,000. The intrinsic value of the beneficial conversion feature is the difference in fair market value of Common Stock on the grant date of the Convertible Preferred less the conversion price, multiplied by the number of shares that are issuable upon conversion of the Convertible Preferred, or $0.05 for each of 598,425 shares of Common Stock.

The deemed dividend was recorded in the quarter ending March 31, 2006, with a corresponding amount recorded as convertible preferred stock. The deemed dividend is calculated as the difference between the fair value of the underlying Common Stock less the proceeds that have been received for the Convertible Preferred.

 
 
 
8.  
Segment Information

Principally all of our operations for the periods covered in this report are related to our GIS business. However, at December 31, 2006, a substantial portion of our assets are related to our oil and gas activities. Segment data includes revenue, operating income, including allocated costs charged to each of the operating segments, equipment investment and project investment, which includes net accounts receivables and revenue earned in excess of billings. We did not own any assets or engage in activities related to our oil and gas activities in the three months ended December 31, 2005, and therefore we have limited our presentation of segment data to the three months ended December 31, 2006.

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


   
GIS
Services
  
Energy
Division
  
Non-
Segment
  
Total
  
Quarter ending December 31, 2006
                          
Operations
                         
Revenues
  
$
240
  
$
3
  
$
—
  
$
243
  
Loss from operations
    
(19
)
  
(150
)
  
—
    
(169
)
Interest expense, net
    
—
    
—
    
(99
)
  
(99
)
Other
    
—
    
—
    
(64
)
  
(64
)
Net loss
                    
$
(332
)
Assets
                          
Segment assets
  
$
151
  
$
2,319
  
$
—
  
$
2,470
  
Non-segment assets
    
—
    
—
    
1,685
    
1,685
  
Consolidated assets
                    
$
4,155
  
Capital expenditures
  
$
—
  
$
300
  
$
8
  
$
308
  
Depreciation, depletion, and amortization
  
$
4
  
$
—
  
$
1
  
$
5
  

9.  
Litigation and Other Contingencies

In November 2005, we received an alias summons notifying us that we have been named as a party to a suit filed by Sycamore Springs Homeowners Association in the Hamilton Superior Court of the State of Indiana. The summons names the developer of the Sycamore Springs neighborhood as well as other firms that may have rendered professional services during the development of the neighborhood. The claimants allege that the services of Mid-States Engineering, which was a subsidiary of MSE Corporation which we acquired in 1997, affected the drainage system of Sycamore Springs neighborhood, and seek damages from flooding that occurred on September 1, 2003. The summons does not quantify the amount of damages that are being sought nor the period that the alleged wrongful actions occurred. We sold Mid-States Engineering in September 1999. We believe that we have been wrongfully named in the suit and we are diligently pursuing dismissal without prejudice.

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

 
 
 
10.  
Concentration of Credit Risk

Our GIS services have historically been subject to a concentration of credit risk. At December 31, 2006, our accounts receivable related to GIS services, which totaled $147,000, was comprised principally from two customers, representing 70% (WWS) and 21% (Utility Pole Technologies (“UPT”). For the quarter ending December 31, 2006, our GIS service revenue was earned from services rendered to these two customers, representing 70% (WWS) and 30% (UPT), respectively.

At December 31, 2005, we had multiple contracts with three customers, the aggregate of which accounted for 74% of our consolidated revenues during the three months ending December 31, 2005, (WWS, 43%; AGL Resources, 17%; and MWH Americas, Inc., 14%.) One of these customers (WWS) accounted for 85% of our total accounts receivable at December 31, 2005.

11.  
Subsequent Events

On December 23, 2006, we entered into a Purchase and Sale Agreement for the acquisition of a non-operating working interest in three oil and gas fields located in the South Texas Gulf Coast region. Pursuant to the terms of the Agreement, we paid $150,000 to the seller of the property as a non-refundable option fee. On February 14, 2006, we determined the transaction is not in the best interest of the Company or our shareholders as the cost of available capital would have made the transaction only marginally successful. We will record the option fee as other expense in the quarter ending March 31, 2007.


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

 
 
Overview

Founded in 1981, we have historically served as a provider of data conversion and digital mapping services to users of customized geographic information systems. However, we have experienced a steady decrease in the demand for our services over the past five years; our backlog has decreased substantially in each of the past five years; and we have been unsuccessful in winning new business at acceptable margins. In fiscal 2006, we acted upon our belief that we would not be able to sustain the operations of our historical business. We transitioned our principal business into that of an independent oil and gas enterprise focused on leveraging non-operating participation in drilling and production prospects for the development of U.S. on-shore oil and natural gas reserves.

We have built a senior management team that we believe is capable of executing a balanced growth strategy that includes participation in lower risk development drilling, combined with higher potential exploratory locations. We formed a division called ASI Energy and hired Mr. Don Fryhover in April 2006, as senior vice president, to lead the division, and in September 2006, we appointed Mr. Louis Dorfman, Jr. as executive vice president.

We have issued equity and convertible debt instruments to finance several investments in oil and gas interests. In February 2006, we issued 760,000 shares of Series A Convertible Preferred Stock (convertible into 598,425 shares of our Common Stock) (the “Convertible Preferred”), accompanied by Class A Warrants (exercisable into 299,212 shares of our Common Stock at $1.34 per share) and Class B Warrants (exercisable into 299,212 shares of our Common Stock at $1.49 per share) generating gross proceeds of $760,000. At December 31, 2006, 280,000 shares of Convertible Preferred were outstanding, which are convertible into 220,427 shares of our Common Stock. On November 24, 2006, we issued three one-year senior secured convertible notes (“Convertible Notes”) totaling $1.65 million (convertible into 2,374,101 shares of our Common Stock), accompanied by warrants to purchase 2,374,101 shares of our Common Stock at $0.57 per share. The Convertible Notes bear interest at a rate of 13% per annum, payable quarterly. Upon maturity on November 23, 2007, any unconverted outstanding principal and interest is due and payable in cash. In October 2006, we repaid 14% convertible senior secured promissory notes in the aggregate principal amount of $2.0 million (the “Senior Notes”), utilizing cash generated from the sale of our production center in Wisconsin and collections of receivables from contracts that are in final stages of completion. We have made investments in three oil and gas properties which are in various stages of drilling and completion or recompletion and are not generating significant quantities of oil or gas. We intend to continue to finance these acquisitions through the private placement of equity supplemented by issuance of debt, which is dependent on the terms on which we are able to negotiate, if any.

Our decision to transition our principal business from our traditional GIS data conversion business to an independent oil and gas enterprise was based on the dramatic decrease of the GIS business in past years and the severe operating losses we have incurred. Effective August 1, 2006, we sold the assets associated with our Wisconsin-based production center to RAMTeCH Software Solutions, Inc. ("RAMTeCH") for $235,000 in cash, which includes $85,000 for fixed assets with a net book value of approximately $30,000, $5,000 for a non-competition clause prohibiting us from indirectly contacting or marketing data conversion or data maintenance services in the continental United States for a period of three years, and $145,000 for transitional consulting services to assist RAMTeCH with the operation of the production center until December 31, 2006. There are no direct costs related to the consulting agreement. We transferred several ongoing GIS service contracts to RAMTeCH, who assumed the employment obligations relating to the personnel associated with the production center. RAMTeCH will be entitled to payment for services rendered pursuant to the assigned contracts after that date, and is responsible for all costs related to those contracts as well as the operation of the production facility located in Waukesha, Wisconsin.

 
 
We completed the performance of our contract with Worldwide Services, Inc. and Intergraph, (“WWS”) in fiscal 2006, and delivered and reconciled the final deliverable and billable quantities in the quarter ending December 31, 2006. This reconciliation resulted in additional revenue, after the release of reserves on our accounts receivable and revenues in excess of billings, totaling approximately $163,000. We have elected to continue to perform services for an additional customer in fiscal 2007, although we do not anticipate that revenue generated from these services will be material. Substantially all of our accounts receivable at December 31, 2006, are related to these two customers.

At December 31, 2006, we employed approximately six full-time employees. While we have and will continue to reduce our general and administrative expenses, we are incurring legal and professional fee expenses related to our initiative into new business ventures. We also anticipate that compliance with the requirements of the Sarbanes-Oxley Act, as applicable, will require substantial financial and management resources and result in additional expenses.

Our entry into the oil and natural gas exploration and production business is very recent. Although several oil and gas investments have been made, the Washita County well (the “Adrienne 1-9”) is our largest investment to date and therefore significant emphasis has been placed upon this investment. The Adrienne 1-9 is operated by Range Resources Corporation and is currently testing through fracture-stimulated perforations at a rate of approximately one million cubic feet of gas per day. Initial tests are being performed on the Boatwright formation, however, additional zones with productive potential remain behind pipe. We own a 10% working interest and a 7.5% net revenue interest in the well. However, there is no assurance that the Adrienne 1-9 will produce natural gas at volumes that will generate significant cash flows. There is also no assurance that, upon completion, any of the wells will ultimately yield production in amounts necessary to support the financial projections. In either case, we may not realize the revenue expected by us. In the extreme case, where no revenue is realized because the operator is forced to plug and abandon the wells, our overall business will be significantly harmed, and we could be forced to liquidate our assets.

On December 23, 2006, we entered into a Purchase and Sale Agreement for the acquisition of a non-operating working interest in three oil and gas fields located in the South Texas Gulf Coast region. Pursuant to the terms of the agreement, we paid $150,000 to the seller of the property as a non-refundable option fee. On February 14, 2006, we determined the transaction is not in the best interest of the Company or our shareholders as the cost of available capital would have made the transaction only marginally successful. We will record the option fee as other expense in the quarter ending March 31, 2007.

Other than Messrs. Fryhover and Dorfman, we do not have personnel who have experience in oil and natural gas exploration and production. In order to successfully implement and manage our entry into the oil and natural gas business, we may have to recruit additional qualified personnel having experience in the oil and natural gas exploration and production business. Competition in the oil and natural gas sector for qualified individuals is intense. We may not be able to find, attract and retain qualified personnel on acceptable terms.

 
 
We believe that our current cash position will be sufficient to meet our share of the operating expenses and capital expenditures required to exploit completely the oil and natural gas interests we have acquired thus far, including the Washita County well. However, in order to fully implement our strategy of transitioning into the oil and gas sector, we will need to acquire additional oil and natural gas interests and will, therefore, require additional capital. Although we may receive approximately $1.9 million, less expenses, from the exercise of the warrants described in Notes 6 and 7, we have no way of estimating the ultimate amount that we will receive from the exercise of warrants. Also, we do not know if additional financing will be available when needed, or if it is available, if it will be available on acceptable terms. Insufficient funds may prevent us from implementing our business strategy.

The oil and natural gas industry is intensely competitive and we compete with other companies that have greater resources. Many of these companies not only explore for and produce oil and natural gas, but also carry on refining operations and market petroleum and other products on a regional, national or global basis. These companies may be able to pay more for productive oil and natural gas properties and exploratory prospects or define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit. In addition, these companies may have a greater ability to continue exploration activities during periods of low oil and natural gas market prices. Our larger competitors may be able to absorb the burden of present and future federal, state, local and other laws and regulations more easily than we can, which would adversely affect our competitive position. Our ability to acquire additional properties and to discover reserves in the future will be dependent upon our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. In addition, because we have fewer financial and human resources than many companies in our industry, we may be at a disadvantage in bidding for exploratory prospects and producing oil and natural gas properties.

The marketability of natural resources that may be acquired or discovered by us will be affected by numerous factors beyond our control. These factors include market fluctuations in oil and natural gas pricing and demand, the proximity and capacity of natural resource markets and processing equipment, governmental regulations, land tenure, land use, regulations concerning the importing and exporting of oil and gas and environmental protection regulations. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in us not receiving an adequate return on invested capital to be profitable or viable.

We may not be able to reach a level of operating income from oil and natural gas activities that will generate cash flow sufficient to meet the operating and capital requirements of that business, plus the shortfall in cash flow arising from our traditional business. Given the risks associated with this endeavor, there is no assurance that we can achieve the necessary level of operating income in a timely manner.

It must be recognized that our ultimate objective is a transition from a company providing a specialized service to that of an independent oil and natural gas producer. Given the risks associated with this transition, there is no assurance that such transition will be seamless, or require us to undertake a major restructuring. Such undertakings might include a merger with a privately held independent oil and natural gas producer or other suitable entity.

 
 
Critical Accounting Policies

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

Oil, natural gas revenues are recognized when delivery has occurred and title to the products has transferred to the purchaser.

Oil and Gas Properties. We follow the full cost method of accounting for oil and natural gas properties. Accordingly, all costs associated with the acquisition, exploration and development of oil and natural gas properties, including costs of undeveloped leasehold, geological and geophysical expenses, dry holes, leasehold equipment and legal due diligence costs directly related to acquisition, exploration and development activities, are capitalized. Capitalized costs of oil and gas properties also include estimated asset retirement costs recorded based on the fair value of the asset retirement obligation when incurred. Proceeds received from disposals are credited against accumulated cost except when the sale represents a significant disposal of reserves, in which case a gain or loss is recognized.
 
The sum of net capitalized costs and estimated future development and dismantlement costs is depleted on the equivalent unit-of-production method, based on proved oil and natural gas reserves as determined by independent petroleum engineers. Oil and natural gas are converted to equivalent units based upon the relative energy content, which is six thousand cubic feet of natural gas to one barrel of oil.

Valuation of Accounts Receivable. We released our allowances for doubtful accounts as of December 31, 2006, as we were able to determine that our customers are able and plan to make required payments on those accounts. Management routinely assesses the financial condition of our customers and the markets in which these customers participate. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances might be required.

 
 
Litigation. We are subject to various claims, lawsuits and administrative proceedings that arise from the ordinary course of business. Liabilities and costs associated with these matters require estimates and judgment based on professional knowledge and experience of management and our legal counsel. When estimates of our exposure for claims or pending or threatened litigation matters meet the criteria of SFAS No. 5 “Accounting for Contingencies”, amounts are recorded as charges to operations. The ultimate resolution of any exposure may change as further facts and circumstances become known.

Income Taxes. We reported a net loss in fiscal 2006 and 2005. The current and prior year losses have generated a sizeable federal tax net operating loss, or NOL, carryforward which totals approximately $25.4 million as of September 30, 2006.

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

It is possible, however, that we could be profitable in the future at levels which may cause management to conclude that it is more likely than not that we will realize all or a portion of the NOL carryforward. Upon reaching such a conclusion, we would immediately record the estimated net realizable value of the deferred tax asset at that time and would then provide for income taxes at a rate equal to our combined federal and state effective rates, which would approximate 39% under current tax rates. Subsequent revisions to the estimated net realizable value of the deferred tax asset could cause our provision for income taxes to vary significantly from period to period, although our cash tax payments would remain unaffected until the benefit of the NOL is utilized.

Results of Operations

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


   
Three Months Ended
  
   
December 31,
  
   
2006
  
2005
  
PERCENTAGE OF REVENUES:
              
Revenues
    
100.0
%
  
100.0
%
Costs and expenses
              
Salaries, wages and related benefits
    
90.9
    
57.5
  
Subcontractor costs
    
—
    
10.2
  
Other general and administrative
    
76.5
    
33.3
  
Depreciation, depletion and amortization
    
2.1
    
1.5
  
               
Loss from operations
    
(69.5
)
  
(2.5
)
               
Other expense, net
    
(67.1
)
  
(0.7
)
               
Loss before income taxes
    
(136.6
)
  
(3.2
)
Provision for income taxes
    
—
    
—
  
Net loss
    
(136.6
)
  
(3.2
)
Dividends on preferred stock
    
(2.1
)
  
—
  
Net loss available to common shareholders
    
(138.7
)%
  
(3.2
)%

 
 
Three Months Ended December 31, 2006 and 2005

Revenues. We recognize revenues as services are performed. Our GIS service revenues were earned from only two customers during the three months ended December 31, 2006, totaling $240,000 for as compared to $1,360,000 for the same period in fiscal 2006, a decrease of approximately $1,120,000. This 82.3% decrease was a result of the completion of long-term contracts that were not replaced with new contracts and the assignment of certain contracts pursuant to the sale of our Wisconsin-based production center in the fourth quarter of fiscal 2006. The level of new contract signings has steadily decreased in recent fiscal years, and, as a result, revenues have decreased. We did not generate any significant revenue from our oil and gas investments during the three months ended December 31, 2006.

Salaries, Wages and Benefits. Salaries, wages and benefits include employee compensation for production, administrative and executive employees. Salaries, wages and related benefits decreased $560,000 to $221,000 in the first quarter of fiscal 2007 as compared to $781,000 in the same quarter in fiscal 2006. The fiscal 2006 quarter includes expenses related to the Wisconsin production center. The fiscal 2007 quarter does not include salaries and wages for the Wisconsin production center, and we have steadily reduced our production staff as we have completed retained contracts. Additionally, we reduced the size of our administrative staff during the first quarter of fiscal 2007.
 
Subcontractor Costs. Subcontractor costs include production costs incurred through the use of third parties, both domestic and offshore, for production tasks such as data conversion and field survey services to meet contract requirements. No subcontractors were used to perform services during the first fiscal quarter of 2007, nor do we anticipate subcontractors will be used in future periods to perform GIS services.

Other General and Administrative. Other general and administrative costs include rent, maintenance, travel, supplies, utilities, insurance and professional services. Such costs decreased 58.8%, or approximately $266,000 in the first quarter of fiscal 2007 to approximately $186,000 as compared to $452,000 in the same period in fiscal 2006. We eliminated all of these costs related to the Wisconsin based production center, including approximately $80,000 in consulting fees, prior to the beginning of the 2007 quarter. We also relocated our corporate offices in November 2006 to more suitable and economical facilities.

Depreciation, Depletion and Amortization. Depreciation, depletion and amortization decreased $16,000 in the first three months of fiscal 2007 as compared to the same period in fiscal 2006 due to some equipment becoming fully depreciated. The replacement cost on computer equipment is significantly lower than the replaced items, and the need for investment in new equipment has diminished. Accordingly, depreciation and amortization expense has decreased in recent periods.

 
 
Interest Expense, Net. We incurred net interest expense totaling approximately $99,000 in the quarter ending December 31, 2006, as compared to $13,000 in the quarter ending December 31, 2005, which was comprised of non-cash interest totaling approximately $15,000 related to the accretion of our Series A Redeemable Preferred Stock, offset by interest earned. During the first quarter of fiscal 2007, we paid approximately $18,000 interest in cash on our Convertible Notes, and we incurred non-cash interest expense of approximately $81,000, which included amortization of the discounts on the Convertible Notes and Senior Notes.

Other Income (Expense). Net other expense for the quarter ended December 31, 2006, totaled approximately $64,000, as compared to other income totaling approximately $3,000 that was generated from the sale of an asset during the comparable fiscal 2006 quarter. During the quarter ended December 31, 2006, we recognized approximately $98,000 in consulting fee income related to the sale of the Wisconsin-based production center. Additionally, we amortized deferred loan costs to other expense totaling approximately $134,000, and we sold a set of partition cubicles at a loss of approximately $28,000. We relocated our corporate offices in November 2006, at which time we disposed of additional computer equipment, furniture, and software items that were not being utilized and which had no material net book value.

Income Taxes. Federal income tax expense for fiscal year 2007 is projected to be zero. Accordingly, an effective federal income tax rate of 0% was recorded for the three months ended December 31, 2006. As a result of the uncertainty that sufficient future taxable income can be recognized to realize additional deferred tax assets, no income tax benefit has been recognized for the three months ended December 31, 2006 and 2005.

Net Loss. We recorded a net loss of approximately $332,000 in the first quarter of fiscal 2007 as compared to a net loss of approximately $43,000 in the same quarter of fiscal 2006. The variance was due to the low level of revenue offset by the lower level of expense in the fiscal 2007 quarter.

Liquidity and Capital Resources

Table of Contractual Obligations. Below is a schedule (by period due) of the future payments that we are obligated to make over the next five years based on agreements in place as of December 31, 2006.

   
Fiscal Year Ending September 30,
  
     
2007
    
2008
  
2009
 
 
2010
 
 
2011
 
 
Thereafter
 
 
Total
  
Operating leases
  
$
35
  
$
47
  
$
49
  
$
46
  
$
47
  
$
12
  
$
236
  
Capital lease obligations
    
17
    
14
    
—
    
—
    
—
    
—
    
31
  
Senior secured convertible notes
    
179
    
1,686
    
—
    
—
    
—
    
—
    
1,865
  
Interest payments on preferred stock
    
15
    
12
    
—
    
—
    
—
    
—
    
27
  
Total
  
$
246
 
$
1,759
  
$
49
  
$
46
  
$
47
  
$
12
  
$
2,159
  

 
 
Historically, the principal source of our liquidity has consisted of cash flow from operations supplemented by secured lines-of-credit and other borrowings. We do not have a line of credit and there is no assurance that we will be able to obtain additional borrowings should we seek to do so.

Our debt is summarized as follows.

Long-Term Debt
  
December 31,
 2006
  
September 30, 
2006
  
Senior secured convertible notes, net of discount
  
$
1,400
  
$
1,957
  
Other debt and capital lease obligations
    
25
    
29
  
     
1,425
    
1,986
  
Less current portion
    
(1,416
)
  
(1,973
)
   
$
9
  
$
13
  

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Since fiscal 2000, we have experienced significant operating losses with corresponding reductions in working capital. Our revenues and backlog decreased significantly during that time. These factors, among others, have resulted in our independent auditors issuing an audit opinion on the September 30, 2006, financial statements that expressed substantial doubt about our ability to continue as a going concern.

To address the going concern issue, management implemented financial and operational plans designed to improve operating efficiencies, reduce overhead and accelerate cash from our GIS service contracts, reduce and eliminate cash losses, and position us for profitable operations. We have reduced our general and administrative expenses by reducing occupancy costs, streamlining our executive team, and eliminating, senior and middle management teams. Upon completion of our GIS service contract with WWS we reduced our total headcount to six persons. In August 2006, we sold our Wisconsin-based operations. We completed contracts that were not directly connected to the Wisconsin operation and collected accounts receivable and retained amounts, phased out production personnel and management as contracts were completed, and took aggressive steps toward becoming a valid participant within the energy sector.

In the absence of a line of credit and because of our inability to secure debt on terms that would be considered reasonable based on our recent operating history, we depend on internal cash flow to sustain operations. Historically, internal cash flow has been affected by customer contract terms and progress achieved on projects. Fluctuations in internal cash flow were reflected in three contract-related accounts: (i) accounts receivable, (ii) revenues in excess of billings, and (iii) billings in excess of revenues. Under the percentage of completion method of accounting:

i.  
"Accounts receivable" is created when an amount becomes due from a customer, which typically occurs when an event specified in the contract triggers a billing.
ii.  
"Revenues in excess of billings" occur when we performed under a contract even though a billing event was not triggered.
iii.  
"Billings in excess of revenues" occur when we received an advance or deposit against work yet to be performed. 

 
 
These accounts, which represent a significant investment by us in our business, affect our cash flow as projects are signed, performed, billed and collected. At December 31, 2006, we had completed all contracts with GIS customers. We had no revenues in excess of billings or billings in excess of revenues. Our accounts receivable were comprised of two customers, represented by WWS (70%) and UPT (21%).

We intend to continue to provide services to UPT during the remainder of fiscal 2007. The services will not be provided under a long-term contract.

In order to meet our short-term cash requirements we must generate more cash from our investments in oil and gas interests than we pay to our employees and suppliers. If we are unable to realize cash from these investments, we will be forced to obtain additional financing and/or restrict capital and operating expenditures to match available resources.

On November 24, 2006, we issued three one-year senior secured convertible notes (“Convertible Notes”) totaling $1.65 million pursuant to a Securities Purchase Agreement dated as of November 24, 2006, (the "Purchase Agreement"). The Convertible Notes, together with interest that accrues at the rate of 13% per annum, are convertible into 2,374,101 shares of our Common Stock at a conversion price of $0.695 per share, which was $0.135 per share above fair market value of the Common Stock on the trading date preceding the closing date of November 24, 2006. Upon maturity at November 23, 2007, any unconverted outstanding principal and interest is due and payable in cash. In connection with the Purchase Agreement, we issued to the investors warrants to purchase 2,374,101 shares of our Common Stock at $0.57 per share (“Note Warrants”), which was $0.01 above the fair market value of the Common Stock on the trading date preceding the closing date. The Warrants are exercisable any time after May 24, 2007, and before November 24, 2011. Net proceeds after expenses totaled approximately $1.466 million. We also paid a cash finder’s fee of $132,000 and issued Note Warrants to purchase 189,928 shares of our Common Stock at an exercise price of $0.57 per share to the placement agent, Palladium Capital Advisors, LLC. Proceeds are being used for working capital and to fund additional investments in oil and natural gas non-operating interests.

We recorded the Convertible Notes at a discount after giving effect to the $272,300 estimated fair market value of the Note Warrants, which was credited to equity. The Note Warrants were valued using the Black Scholes Option Pricing model with the following assumptions: dividend yield of 0%, annual volatility of 125%, and risk free interest rate of 4.56%. The carrying value of the Convertible Notes is being accreted to the face amount by charges to interest expense over the one year term until maturity on November 24, 2007. The carrying value at December 31, 2006, was $1.4 million and represents the $1.65 million outstanding principal less the unearned discount of approximately $250,000.

We incurred financing costs totaling $183,500 pursuant to the Convertible Notes, including the finder’s fee, a 1% due diligence fee paid to the investors, and legal and professional fees. These deferred financing costs are being amortized as interest expense over the one year term of the Convertible Notes. After giving effect to the value of the Note Warrants and the financing costs, the effective rate of interest on the Convertible Notes is 56%.

 
 
In May 2006, we issued Senior Notes to two holders totaling $2.0 million, to fund the drilling and completion of a 12.5% working interest in a natural gas well located in Washita County, Oklahoma. The holders also received Class E Warrants entitling them to purchase, in the aggregate, 752,072 shares of the Common Stock at an exercise price of $1.186 per share, which was the closing bid price of the Common Stock on May 31, 2006. When shareholders did not approve conversion terms of the Senior Notes and the issuance of additional warrants to the holders at our Annual Meeting of Shareholders held on August 29, 2006. On September 19, 2006, the holders exercised their right to accelerate the maturity of the Senior Notes to October 19, 2006, on which date the principal amount, together with accrued and unpaid and the issuance interest and all other sums due under the Senior Notes became due and payable in cash. On October 18, 2006, we paid the outstanding principal and interest due on the Senior Notes, which totaled $2,012,274, utilizing cash reserves and the collection of $1.0 million of accounts receivable subsequent to September 30, 2006.

We recorded the Senior Notes at a discount after giving effect to the $80,424 estimated fair value of the Class E Warrants, which was credited to equity. The carrying value of the Senior Notes was accreted to the face amount by charges to interest expense over the two year term until September 19, 2006, on which date we accelerated the rate of accretion to reflect the new maturity date of October 19, 2006. The unearned discount of $43,196 as of September 30, 2006, was recorded as interest expense during the quarter. We recorded deferred loan costs totaling approximately $249,000 related to the issuance of the Senior Notes, and amortized the costs to other expense over the two-year term of the Senior Notes until September 19, 2006, on which date we accelerated the rate of amortization to reflect the new maturity date. The unamortized balance of the deferred expense at September 30, 2006, of $133,728, was amortized to other expense during the quarter ending December 31, 2006.

On February 10, 2006, we completed the placement of a new Series A Convertible Preferred Stock (“Convertible Preferred”) with aggregate gross proceeds of approximately $760,000. The two-year Convertible Preferred, which bears interest at 7% annually, may be converted into 598,425 shares of our Common Stock at fixed conversion price of $1.27, which was determined by applying a 10% discount to the 5-day trailing average closing price of our Common Stock of $1.41 as of the NASDAQ Stock Market close on February 9, 2006. We also issued warrants to purchase up to 748,031 shares of our Common Stock pursuant to this transaction.

The following table sets forth the number of shares of Common Stock that are issuable upon conversion of our outstanding preferred stock, convertible debt, and warrants:
 

       
Conversion Price
 
Common Shares Issuable
  
Series A Convertible Preferred Stock
    
280,000
  
$
1.27
    
220,472
  
Class A Warrants
    
381,890
    
1.34
    
381,890
  
Class B Warrants
    
381,890
    
1.49
    
381,890
  
Class E Warrants
    
752,072
    
1.186
    
752,072
  
Warrants issued in November 2006
    
2,564,079
    
0.58
    
2,564,029
  
Senior secured convertible note
  
$
1,650,000
    
0.695
    
2,374,101
  
Total shares issuable and weighted average price
        
$
0.80
    
6,674,454
  

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

 
 
Our operating activities provided $946,000 and used $292,000 cash during the three months ended December 31, 2006 and 2005, respectively. We collected approximately $1,125,000 and $143,000 from contract-related accounts during the respective periods. We reduced our accounts payable and accrued expense liabilities by $134,000 and $435,000 during the three months ended December 31, 2006 and 2005, respectively.

We purchased equipment and leasehold improvements totaling $8,000 and $6,000, during the three months ended December 31, 2006 and 2005, respectively. We also invested $300,000 in oil and gas properties during the three months ended December 31, 2006. We paid a nonrefundable option fee for the acquisition of a non-operating working interest in three oil and gas fields located in the South Texas Gulf Coast region.
 

(a) Evaluation of disclosure controls and procedures. We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, or the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, who also serves as our Principal Accounting Officer, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on her evaluation as of the end of the period covered by this Quarterly Report on Form 10-QSB, our Chief Executive Officer, who also serves as our Principal Financial Officer, has concluded that, as of that date, our disclosure controls and procedures were effective at the reasonable assurance level.

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

Our Chief Accounting Officer resigned effective November 30, 2006. His departure was part of our plan to streamline the management team in accordance with our reduced operational requirements. Our Chief Executive Officer will continue to perform the role of Principal Financial Officer, supported by other accounting personnel.



Part II
Other Information


Information regarding our legal proceedings can be found under Note 9, “Litigation and Other Contingencies”, to the Consolidated Financial Statements.

 
On November 24, 2006, we issued three one-year senior secured convertible notes (“Convertible Notes”) totaling $1.65 million pursuant to a Securities Purchase Agreement dated as of November 24, 2006, (the "Purchase Agreement"). The Convertible Notes, together with interest that accrues at the rate of 13% per annum, are convertible into 2,374,101 shares of our Common Stock at a conversion price of $0.695 per share, which was $0.135 per share above fair market value of the Common Stock on the trading date preceding the closing date of November 24, 2006. Upon maturity, any unconverted outstanding principal and interest is due and payable in cash. In connection with the Purchase Agreement, we issued to the investors warrants to purchase 2,374,101 shares of our Common Stock at $0.57 per share, which was $0.01 above the fair market value of the Common Stock on the trading date preceding the closing date. The warrants are exercisable any time after May 24, 2007, and before November 24, 2011. Net proceeds after expenses totaled approximately $1.466 million. We also paid a finder’s fee of $132,000 in cash and issued warrants to purchase 189,928 shares of our Common Stock at $0.57 to the placement agent, Palladium Capital Advisors, LLC. Proceeds will be used to fund additional investments in oil and natural gas non-operating interests.

The sale of the Convertible Notes and warrants was made pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder. Pursuant to the terms of the Registration Rights Agreement we agreed to file a series of registration statements to register 130% of the total shares issuable under the transaction.


None.


None.


None.

Item 6. Exhibits.

Exhibits:



 







Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Analytical Surveys, Inc.
(Registrant)


Date:  February 14, 2007 /s/ Lori A. Jones 
Lori A. Jones
Chief Executive Officer






 
30
 


 EX-31.1 2 ex31-1.htm SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER Section 302 Certification of Chief Executive Officer
Exhibit 31.1
CERTIFICATIONS
Chief Executive Officer

I, Lori A. Jones, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Analytical Surveys, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13(a)-15(e) and 15(d)-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this quarterly report based on such evaluation; and

c) Disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Dated: February 14, 2007

/s/ Lori A. Jones
Lori A. Jones
Chief Executive Officer
 EX-31.2 3 ex31-2.htm SECTION 302 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER Section 302 Certification of Principal Financial Officer
Exhibit 31.2
CERTIFICATIONS
Principal Financial Officer

I, Lori A. Jones, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Analytical Surveys, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13(a)-15(e) and 15(d)-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this quarterly report based on such evaluation; and

c) Disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Dated: February 14, 2007

/s/ Lori A. Jones
Lori A. Jones
Principal Financial Officer
 EX-32.1 4 ex32-1.htm SECTION 906 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER Section 906 Certification of Principal Executive Officer
Exhibit 32.1

Certification of Principal Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C §1350)



I, Lori A. Jones, of Analytical Surveys, Inc., certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Quarterly Report on Form 10-QSB for the quarterly period ended December 31, 2006 (the “Report”) which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Analytical Surveys, Inc.


Dated: February 14, 2007

/s/ Lori A. Jones
Lori A. Jones
Principal Executive Officer
 EX-32.2 5 ex32-2.htm SECTION 906 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER Section 906 Certification of Principal Financial Officer
Exhibit 32.2

Certification of Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C §1350)



I, Lori A. Jones, of Analytical Surveys, Inc., certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Quarterly Report on Form 10-QSB for the quarterly period ended December 31, 2006 (the “Report”) which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Analytical Surveys, Inc.


Dated: February 14, 2007

/s/ Lori A. Jones  
Lori A. Jones
Principal Financial Officer
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