10QSB

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, 2007

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)
4040 Broadway, Suite 103, San Antonio, Texas 78209
(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 4, 2008, was 3,789,256.

TABLE OF CONTENTS

		PAGE
PART 1.	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis or Plan of Operations	11
Item 3.	Controls and Procedures	18
PART 2.	OTHER INFORMATION
Item 1.	Legal Proceedings	19
Item 2.	Unregistered Sales of Securities and Use of Proceeds	19
Item 3.	Defaults Upon Senior Securities	19
Item 4.	Submissions of Matters to a Vote of Security Holders	19
Item 5.	Other Information	19
Item 6.	Exhibits
SIGNATURES		20

Part I

Financial Information

Item 1. Financial Statements

ANALYTICAL SURVEYS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

Assets	December 31, 2007			September 30, 2007
Current assets:
Cash and cash equivalents	$	154		$	426
Accounts receivable, net of allowance for doubtful accounts of $0 at December 31 and September 30, 2007, respectively		98			100
Prepaid expenses and other		30			19
Total current assets		282			545
Oil and natural gas properties and equipment; full cost method of accounting
Proved properties		680			677
Unproved properties		25			25
Less accumulated depletion		(150	)		(97	)
Net oil and natural gas properties and equipment		555			605
Equipment and leasehold improvements, at cost:
Equipment		31			198
Furniture and fixtures		—			36
Leasehold improvements		—			8
		31			242
Less accumulated depreciation and amortization		(21	)		(216	)
Net equipment and leasehold improvements		10			26
Total assets	$	847		$	1,176
Liabilities and Stockholders’ Deficit
Current liabilities:
Senior secured convertible note, net of discount	$	1,074		$	1,643
Current portion of capital lease obligations		9			13
Accounts payable		48			216
Accrued liabilities		137			152
Due to insurer		100			100
Accrued compensation – board of directors		133			109
Accrued payroll and related benefits		21			35
Total current liabilities		1,522			2,268
Asset retirement obligations		6			6
Total long-term liabilities		6			6
Total liabilities		1,528			2,274
Commitments and contingencies
Stockholders’ deficit:
Convertible preferred stock, no par value; authorized 2,500 shares; 280 issued and outstanding at December 31 and September 30, 2007		261			261
Common stock, no par value; authorized 100,000 shares; 3,779 shares issued and outstanding at December 31 and September 30, 2007		37,875			37,261
Accumulated deficit		(38,817	)		(38,620	)
Total stockholders’ deficit		(681	)		(1,098	)
Total liabilities and stockholders’ deficit	$	847		$	1,176

See accompanying notes to consolidated financial statements.

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ANALYTICAL SURVEYS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended
	December 31
	2007			2006
Revenues
GIS services	$	52		$	240
Oil and gas		91			3
Total revenues		143			243
Costs and expenses:
Salaries, wages and benefits		78			221
Lease operating expenses		16			—
Other general and administrative		77			186
Depreciation, depletion and amortization		57			5
Total operating costs and expenses		228			412
Loss from operations		(85	)		(169	)
Other income (expense):
Interest expense, net		(95	)		(99	)
Loss on sale of assets		(11	)		(28	)
Other income (expense), net		—			(36	)
Total other expense, net		(106	)		(163	)
Loss before income taxes		(191	)		(332	)
Provision for income taxes		—			—
Net loss		(191	)		(332	)
Dividends on preferred stock		(5	)		(5
Net loss available to common stockholders	$	(196	)	$	(337	)
Basic and diluted net loss per common share	$	(0.05	)	$	(0.09	)
Preferred stock dividends		—			—
Basic and diluted net loss per common share available to common shareholders	$	(0.05	)	$	(0.09	)
Weighted average common shares:
Basic and diluted		3,779			3,779

See accompanying notes to consolidated financial statements.

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ANALYTICAL SURVEYS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended
	December 31,
	2007			2006
Cash flows from operating activities:
Net loss	$	(191	)	$	(332	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation, depletion and amortization		57			5
Stock-based compensation		3			2
Interest expense related to modification of warrants		42			65
Amortization of deferred loan costs		—			149
Loss on sale of assets		11			28
Changes in operating assets and liabilities:
Accounts receivable		2			1,175
Revenue earned in excess of billings, net		—			49
Prepaid expenses and other		(11	)		38
Billings in excess of revenue earned		—			(99	)
Accounts payable and accrued liabilities		(188	)		(98	)
Accrued payroll and related benefits		10			(36	)
Net cash provided by (used in) operating activities		(265	)		946
Cash flows from investing activities:
Purchase of equipment and leasehold improvements		—			(8	)
Investment in oil and gas properties		(3	)		(300	)
Investment in nonrefundable purchase option		—			(150	)
Cash proceeds from sale of assets		—			7
Net cash used in investing activities		(3	)		(451	)
Cash flows from financing activities:
Principal payments on capital lease obligations		(4	)		(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		(4	)		(568	)
Net decrease in cash		(272	)		(73	)
Cash and cash equivalents at beginning of period		426			1,357
Cash and cash equivalents at end of period	$	154		$	1,284
Supplemental disclosures of cash flow information:
Cash paid for interest	$	37		$	18
Non-cash financing activities:
Accrual of dividends on preferred stock	$	5		$	5
Beneficial conversion of amended convertible notes	$	570		$	—

See accompanying notes to consolidated financial statements.

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ANALYTICAL SURVEYS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

(Unaudited)

(1) Description of Business.

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 experienced a steady decrease in the demand for our services over the past five years; our backlog 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. onshore oil and natural gas reserves.

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, 2007, 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, 2007. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year.  All amounts contained herein are presented in thousands unless indicated.

The preparation of these financial statements is in conformity with accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(2) Going Concern and Potential Merger

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 2007, and continuing into fiscal 2008, 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 investments in oil and natural gas properties do not generate sufficient cash flow to meet our operating expenses or debt obligation.  We were unable to repay the principal of our senior secured convertible notes (“Convertible Notes”) upon their maturity on November 24, 2007.  On December 31, 2007, we entered into an Amendment and Waiver Agreement ("Agreement") which extended the maturity date of the Convertible Notes from November 24, 2007 until March 31, 2008, and, whereby each of the holders of the Convertible Notes waived a default that occurred when we failed to repay the principal amount when due.  In connection with the extension and waiver of default, we reduced the conversion price of the Convertible Notes from $0.695 to $0.10.  If the holders of the Convertible Notes convert any or all of the outstanding principal of the Convertible Notes, we may issue up to 16,430,500 shares of our Common Stock.  Additionally, the exercise price of warrants to purchase up to 2,374,101 shares of our Common Stock that were issued pursuant to the Convertible Notes (“Note Warrants”) was reduced from $0.57 to $0.10.  As of the date of this filing, approximately $1,673,000 of principal and interest remains outstanding under the Convertible Notes.  If the holders of the Convertible Notes demand payment on March 31, 2008, we do not believe we will have sufficient resources to repay our obligation and we will be forced to liquidate our assets.  If we default on our obligation to repay the Convertible Notes on March 31, 2008, the holders may seize our assets at any time.  These factors, among others, raise substantial doubt about our ability to continue as a going concern.

To address the going concern issue, we transitioned our principal business from a provider of GIS services and devoted the cash generated from the completion of our GIS service contracts to investments in oil and gas assets.  We were able to reduce the losses that we had previously experienced in rendering GIS services, but our investments in oil and gas have resulted in additional losses.  We incurred a loss of $4.5 million in fiscal 2007, which included a $2 million impairment of oil and gas properties and $1.3 million of interest expense associated with funding our investments in oil and gas properties.  Effective May 15, 2007, we reduced our executive management from three persons to one person, eliminating two executive positions

Page 6

devoted to oil and gas pursuits.  Since that time, our chief executive officer and acting chief financial officer, Lori Jones, has devoted her efforts to expanding our business operations through an acquisition or merger transaction with another oil and gas enterprise or any other enterprise that we believe would provide potential shareholder value.

On November 20, 2007, we announced that we had entered into a merger agreement with Axion International, Inc. (“Axion).  Pursuant to the Merger Agreement, our newly formed and direct wholly-owned subsidiary, Axion Acquisition Corp. a Delaware corporation (“Merger Sub”), will merge with and into Axion, with Axion continuing as the surviving corporation and a direct wholly-owned subsidiary of the Company. As consideration for the transaction, shareholders of Axion will receive 36,762,552 shares of our Common Stock, constituting approximately 90% of our issued and outstanding capital. Axion is the exclusive licensee of advanced technology regarding plastic composition, which technology is the subject of U.S. patents and patent applications owned by Rutgers, the State University of New Jersey. Axion has not yet manufactured or distributed products. To date, its operations consist of raising capital and preparing for its first commercial product sale. There is no guarantee that it will be able to sell product or generate revenues. As such, regardless of whether the merger closes, we will have to obtain additional funds. We can provide no assurance that we will be able to obtain such funds or, if we are able to obtain funds, that the terms will be acceptable to us. As of the date of this filing, the merger, which was expected to close by December 31, 2007, has not been completed.  While all parties continue to work diligently to consummate the merger, there can be no assurance that it will occur in an acceptable time frame or at all. If consummated, the merger will result in a new change in business strategy, and there is no assurance that the new strategy will be successful.  If we do not close the merger agreement with Axion, we will seek an alternate transaction, or we may be forced to liquidate our assets in order to repay the Convertible Notes due on March 31, 2008.

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.

(3) Summary of Significant Accounting Policies

Revenue Recognition.  As of January 1, 2007, we no longer have long-term GIS contracts.  We provide GIS-related services on a time and materials basis.  We recognize revenue in the period that the services are rendered.

Oil and natural gas revenues are recognized when delivery has occurred and title to the products has transferred to the purchaser.  We estimate revenues based on production reports and estimated market prices when actual results are not available.

(4) Impact of Accounting Pronouncements

In February 2007, the FASB issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“FAS 159”). FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value, with the objective of improving financial reporting by mitigating volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The provisions of FAS 159 are effective for the Company’s fiscal year beginning October 1, 2008. We are currently evaluating the impact that the adoption of this statement will have on our consolidated financial position, results of operations and related disclosures.

(5) Oil and Natural Gas Properties and Equipment

As of December 31, 2007, we own non-operating working interests in three properties in Oklahoma.  Our 10.0% working interest (7.35% net revenue interest) in a relatively deep Anadarko Basin natural gas well known as the Adrienne 1-9, located in Washita County, Oklahoma, is our largest and most significant investment to date.  As of December 30, 2007, our gross investment in this well totaled $1.96 million, which includes our proportionate share of intangible costs of drilling and completing the well.  The Adrienne 1-9 is operated by Range Resources Corporation.

We own a 20.0% working interest (16.7% net revenue interest) in a well designated as the Welker 1-7, located in Pawnee County, Oklahoma.  Our gross capital investment to date in this property totals $300,000.  We entered into an operating agreement with the seller and owner of the remaining 80% working interest. The well was completed in March 2006 and has produced small amounts of oil from the Prue formation.  In April 2007, the operator initiated completion to the coal bed zones by perforating and fracturing the Iron Post and Dawson formations.  The de-watering process typical to coal bed zones requires four to six months or longer before reaching the full potential gas production from the well.  As of the date of this report, the well has not produced a sufficient level of gas to facilitate commercial sale.  If a sufficient level is not achieved in fiscal 2008, we plan to divest or abandon our ownership of the interest.

We own a 25% 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. One well has been permitted as a water disposal well.  The operator plans to re-enter one of the other wells and deepen to a proven structure.  If successful, the third well will also be re-entered and deepened.  Our gross investment in these wells included $150,000 cash and 129,032 shares of Common Stock having a fair market value (equal to the closing bid on March 14, 2006) of $1.55 per

Page 7

share, or $200,000. In July 2006, to eliminate additional investment in these wells, 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.  We do not plan to invest additional capital in this property.  This property is currently classified as unproven.

We follow the full cost method of accounting for oil and gas properties.  Based upon the full cost ceiling test required by this method of accounting, we recorded an impairment of oil and gas properties of $2,005,000 for the year ended September 30, 2007.  Our ceiling test for the quarter ended December 31, 2007, did not result in any additional impairment.

Depletion of producing oil and gas properties totaled $52,000 and $158 for the three months ended December 31, 2007, and 2006, respectively.

(6) Debt

The components of debt are summarized as follows.

Long-Term Debt		December 31, 2007			September 30, 2007
Other debt and capital lease obligations	$	9		$	13
Senior secured convertible notes, net of discount of $569 and $0, respectively		1,074			1,643
		1,083			1,656
Less current portion		(1,083	)		(1,656	)
	$	—		$	—

On November 24, 2006, pursuant to a Securities Purchase Agreement as of the same date, we issued to three investors, three one-year 13% senior secured Convertible Notes totaling $1.65 million that were originally convertible into 2,374,101 shares of our Common Stock.  Net proceeds received after financing costs totaled approximately $1.456 million.

We were unable to repay the remaining principal of the Convertible Notes of $1.643 million upon maturity on November 24, 2007.  On December 31, 2007, we entered into an Agreement which extended the maturity date of the Convertible Notes from November 24, 2007 until March 31, 2008, and whereby each of the holders of the Convertible Notes waived a default that occurred when we failed to repay the principal amount when due (“Amended Convertible Notes”).  In connection with the extension and waiver of default, we reduced the conversion price of the Convertible Notes from $0.695 to $0.10.  Under the revised conversion price, if the holders of the Convertible Notes convert any or all of the outstanding principal of the Convertible Notes, we may issue up to 16,430,500 shares of our Common Stock.  Additionally, we also reduced the exercise price of the Note Warrants that were originally issued pursuant to the Convertible Notes and that entitled holders to purchase up to 2,374,101 shares of our Common Stock from $0.57 to $0.10. Accordingly, the maximum potential proceeds from the exercise of these Note Warrants has been reduced to $237,410 from approximately $1.4 million.  The Note Warrants are exercisable any time before November 24, 2011.  Upon maturity of the Amended Convertible Notes at March 31, 2008, any unconverted outstanding principal and interest is due and payable in cash.  As of the date of this filing, approximately $1,673,000 of principal and interest remains outstanding under the Amended Convertible Notes.

The fair value of the Amended Convertible Notes was approximately equal to the value of the original Convertible Notes, and therefore, no gain or loss was recognized pursuant to the debt modification, which was treated as an extinguishment of debt in accordance with EITF 96-19, “Debtor’s Accounting for the Modification or Exchange of Debt Instruments.”  We also evaluated the application of EITF 98-05, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios,” and EITF 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments” and concluded that the revised conversion option of the Amended Convertible Notes was a beneficial conversion feature with intrinsic value.  We recorded the fair value of the beneficial conversion feature of the Amended Convertible Notes, which we estimate to be $569,000, as a discount to par value to be amortized over the three-month term of the Amended Convertible Notes.  We also recorded $42,000 of interest expense that represented the increase in the fair value of the Note Warrants resulting from the modification of the exercise price.   After giving effect to the value of the Note Warrants and the beneficial conversion feature, the effective rate of interest on the amended Convertible Notes is 162%.

Required principal payments on long-term debt at December 31, 2007 are $1.658 million for the year ending September 30, 2008; $300 for fiscal 2009; and $0 for fiscal 2010.

(7) Convertible Preferred Stock 

At December 31, 2007, we had outstanding 280,000 shares of Series A Convertible Preferred Stock which are convertible into 220,472 shares of Common Stock on or before February 9, 2008.

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(8) Segment Information

We classify our business operations into two segments:  our GIS service business and our oil and gas activities.  Segment data includes revenue, operating income, including allocated costs charged to each of the operating segments, equipment investment and net accounts receivable.

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, 2007
Operations
Revenues	$	52		$	91		$	—		$	143
Loss from operations		(7	)		(78	)		—			(85	)
Interest expense, net		—			—			(95	)		(95	)
Other		—			—			(11	)		(11	)
Net loss										$	(191	)
Assets
Segment assets	$	22		$	631		$	—		$	653
Non-segment assets		—			—			197			197
Consolidated assets										$	847
Capital expenditures	$	—		$	3		$	—		$	3
Depreciation, depletion, and amortization	$	3		$	57		$	2		$	57
	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 August 2007 we received an alias summons notifying us that we have been named as an additional party to a suit filed in the State of Indiana in March 2006 by certain homeowners in the Sycamore Springs neighborhood of Indianapolis, Indiana (“Toomer Litigation”).  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 various Mid-States Engineering, entities that are alleged to be subsidiaries of MSE Corporation which we acquired in 1997, adversely affected the drainage system of the Sycamore Springs neighborhood, and seek damages from flooding that occurred on September 1, 2003.  Defense actions were provided by our insurance carrier, which agreed to settle the claim in December

Page 9

2007 for an undisclosed amount.  During the fourth quarter of fiscal 2007, we recorded a $100,000 obligation payable to our insurer, which represents our deductible pursuant to the terms of our insurance coverages.

In November 2005, we received an alias summons notifying us that we have been named as a party to a similar suit filed by the Sycamore Springs Homeowners Association in the State of Indiana (“Sycamore Springs litigation”).  The summons names principally the same defendants as in the Toomer Litigation, and the claims arise from the same occurrence.  Defense actions are being provided by our professional liability insurance carrier.  We have not recorded any liability pursuant to this litigation as the claims from the two lawsuits arise from a single occurrence with one deductible applying to the matter.  Although the carrier has reserved its rights pursuant to the matter, we believe our defense is viable and may not result in any additional obligations.

In November 2007, we received a summons for a suit filed in the State of Indiana by the developers of the Sycamore Springs neighborhood.  The developers allege that Mid-States Engineering breached its contract to provide professional engineering design services in connection with the development of the Sycamore Springs neighborhood.  All parties have agreed that no actions will be taken pursuant to this claim pending the outcome of the Sycamore Springs litigation.   We believe that their claim is without merit.  Additionally, should defense be necessary, the claims arise from a single occurrence with one deductible applying to the matter.

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

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Item 2. Management’s Discussion And Analysis Or Plan Of Operations

THE DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY SET FORTH BELOW SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS FORM 10-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 experienced a steady decrease in the demand for our services over the past five years; our backlog 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. onshore oil and natural gas reserves.

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 2007, and continuing into fiscal 2008, 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. We were unable to repay the principal of the Convertible Notes upon maturity on November 24, 2007.  On December 31, 2007, we entered into an Amendment which, among other things, extended the maturity date of the Convertible Notes from November 24, 2007 until March 31, 2008. If the holders of the Convertible Notes demand payment on March 31, 2008, we do not believe we will have sufficient resources to repay our obligation and we will be forced to liquidate our assets to pay our obligations.  If we default on our obligation to repay the Convertible Notes on March 31, 2008, the holders may seize our assets at any time.  These factors, among others, raise substantial doubt about our ability to continue as a going concern.

To address the going concern issue, we transitioned our principal business from a provider of GIS services and devoted the cash generated from the completion of our GIS service contracts to transition 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. onshore oil and natural gas reserves.  We were able to reduce the losses that we had previously experienced in rendering GIS services, but our investments in oil and gas have resulted in additional losses.  We incurred a loss of $4.5 million in fiscal 2007, which included a $2 million impairment of oil and gas properties and $1.3 million of interest expense associated with funding our investments in oil and gas properties.  We began taking extreme steps to conserve our cash resources in May 2007, when we reduced our executive management from three persons to one person, eliminating two executive positions devoted to oil and gas pursuits.  We also sold two of our oil and gas investments which would have required additional investment.  Since that time, our chief executive officer and acting chief financial officer, Lori Jones, has devoted her efforts to expanding our business operations through an acquisition or merger transaction with another oil and gas enterprise or any other enterprise that we believe would provide shareholder value.

Our investments in oil and natural gas properties do not generate sufficient cash flow to meet our operating expenses or debt obligation.  The business of oil and gas investment is capital intensive, and we have been dependent on outside sources to finance future growth and acquisitions.  We raised capital through the issuances preferred stock and convertible debt in fiscal 2006 and 2007, but we have not been able to raise funds sufficient to build a portfolio of investments that generate cash flow sufficient to meet our operating expenses and capital requirements.  Our efforts to secure additional funds have been unsuccessful, which has severely limited our ability to engage in additional oil and gas activities.

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We have retained our ownership in three oil and gas properties.  We own a 10% working interest (7.35% net revenue interest) in the Adrienne 1-9, which has generated an average of $30,000 gross revenues net to our interest per month since its final completion in July 2007.  The completion is very recent, and there is no assurance the well will continue to produce volumes of gas at its current rate.  We do not anticipate that our other two properties will generate significant revenue in the near future, if ever, and we do not intend to invest additional capital for drilling or completion activities.  We may elect to sell our oil and gas investments and use the proceeds to pay our obligations and fund other transactions, if any.

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 381,890 shares of our Common Stock at $1.34 per share) and Class B Warrants (exercisable into 381,890 shares of our Common Stock at $1.49 per share) generating gross proceeds of $760,000. At December 31, 2007, 280,000 shares of Convertible Preferred were outstanding, which are convertible into 220,427 shares of our Common Stock.  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 were in final stages of completion.

On November 24, 2006, we issued three Convertible Notes totaling $1.65 million, accompanied by Note Warrants to purchase 2,374,101 shares of our Common Stock.  We were unable to repay the principal of the Convertible Notes upon maturity on November 24, 2007.  On December 31, 2007, we entered into an Amendment which extended the maturity date of the Convertible Notes from November 24, 2007 until March 31, 2008, and, whereby each of the holders of the Convertible Notes waived a default that occurred when we failed to repay the principal pursuant to the terms of the Convertible Notes.  In connection with the extension and waiver of default, we reduced the conversion price of the Convertible Notes from $0.695 to $0.10.  Under the revised terms, if the holders of the Convertible Notes convert any or all of the outstanding principal of the Convertible Notes, we may issue up to 16,430,500 shares of our Common Stock.  Additionally, the exercise price of the Note Warrants originally issued pursuant to the Convertible Notes to purchase up to 2,374,101 shares of our Common Stock was reduced from $0.57 to $0.10. Accordingly, the maximum potential proceeds from the exercise of the Note Warrants has been reduced to $237,410 from approximately $1.4 million

On April 4, 2007, our Common Stock was delisted from the NASDAQ Stock Market (“NASDAQ”).  Since that date, our Common Stock has been traded on the OTC Bulletin Board.

On November 20, 2007, we announced that we had entered into an Agreement and Plan of Merger dated November 20, 2007 (the “Merger Agreement”) with Axion International, Inc (“Axion”), a Delaware corporation, pursuant to which we agreed to acquire Axion as a wholly owned subsidiary in a tax-free exchange, acquiring all of Axion’s outstanding common stock in exchange for 36,762,552 shares of our Common Stock.  The Merger Agreement contains representations, warranties and covenants of the parties customary for agreements of this type, including covenants to conduct its business in the ordinary and normal course until the closing of the transaction.

Axion is the exclusive licensee of advanced technology regarding plastic composition, which technology is the subject of U.S. patents and patent applications owned by Rutgers, the State University of New Jersey.  Axion has not yet manufactured or distributed products.  To date, its operations consist of raising capital and preparing for its first commercial product sale.  There is no guarantee that Axion will be able to sell product or generate revenues.  As such, regardless of whether the merger closes, we will have to obtain additional funds.  We can provide no assurance that we will be able to obtain such funds or, if we are able to obtain funds, that the terms will be favorable to us.

The merger was expected to close by December 31, 2007.  While all parties continue to work diligently to consummate the merger, there can be no assurance that closing will occur within an acceptable time frame or at all. If consummated, the merger will result in a new change in business strategy, and there is no assurance that the new strategy will be successful.  If we do not close the Merger Agreement with Axion, we will seek an alternate transaction, or we may be forced to liquidate our assets in order to repay the Convertible Notes due on March 31, 2008.

At December 31, 2007, our staff was comprised of our chief executive officer and one technical support personnel.

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

It must be recognized that our ultimate objective has been to transition from a company providing a specialized service to that of an independent oil and natural gas producer.  We have not been able to make that transition and we must conduct a major restructuring.  If we do not complete the merger with Axion, such undertakings might include a merger with a privately held independent oil and natural gas producer or other suitable entity.

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Critical Accounting Policies

Revenue Recognition.   As of January 1, 2007, we no longer have long-term GIS contracts.  We provide GIS-related services on a time and materials basis.  We recognize revenue in the period that the services are rendered.

Oil and natural gas revenues are recognized when delivery has occurred and title to the products has transferred to the purchaser.  We estimate revenues based on production reports and estimated market prices when actual results are not available.

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.

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 2007 and 2006.  The current and prior year losses have generated a sizeable federal tax net operating loss, or NOL, carryforward which totals approximately $33 million as of September 30, 2007.

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.  If the Axion Merger discussed above ultimately occurs, it is possible the future utilization of our NOL could be limited under Section 382 of the Internal Revenue Code.

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Results of Operations

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

	Three Months Ended
	December 31
	2007			2006
PERCENTAGE OF REVENUES:
Revenues		100.0	%		100.0	%
Costs and expenses
Salaries, wages and related benefits		54.5			90.9
Lease operating expenses		11.2			—
Other general and administrative		53.8			76.5
Depreciation, depletion and amortization		39.9			2.1
Loss from operations		(59.4	)		(69.5	)
Other expense, net		(74.1	)		(67.1	)
Loss before income taxes		(133.5	)		(136.6	)
Provision for income taxes		—			—
Net loss		(133.5	)		(136.6	)
Dividends on preferred stock		(3.5	)		(2.1
Net loss available to common shareholders		(137.0	)%		(138.7	)%

Three Months Ended December 31, 2007 and 2006

Revenues.  We recognize revenues generated from GIS service contracts as services are performed.   In the first quarter of fiscal 2008, all of our service revenue was generated from one customer, totaling $52,000 as compared to $240,000 in fiscal 2007.  In the first quarter of 2007, our service revenue was generated from the completion of one long-term and a short-term time and materials contract with one customer.  On December 31, 2007, we ceased performing services for our one remaining customer.

We recognize oil and gas revenues when delivery has occurred and title to the products has transferred to the purchaser.  Our investment in the Adrienne 1-9 began generating revenue from the sale of natural gas in January 2007.  Prior to that time, our oil and gas revenues were limited to the sale of oil from our 20% working interest in a shallow well in Oklahoma.  As a result, we recognized approximately $91,000 in oil and gas revenues in the quarter ending December 31, 2007, as compared to approximately $3,000 in the quarter ending December 31, 2006.  We estimate revenues based on production reports and estimated market prices when actual results are not available.

Salaries, Wages and Benefits.  Salaries, wages and benefits include employee compensation for production, administrative and executive employees. Salaries, wages and related benefits decreased $143,000 to $78,000 in the first quarter of fiscal 2008 as compared to $221,000 in the same quarter in fiscal 2007. The fiscal 2008 quarter includes salaries and wages for our chief executive officer and personnel devoted to one service contract.  The fiscal 2007 quarter includes these same salaries and wages, as well as expenses for production personnel devoted completion of one long-term service contract and additional administrative and executive staff..

Lease Operating Expenses.  Subsequent to December 31, 2006, we began to incur operating expenses that include joint interest billings and taxes, and gathering and marketing fees related to the production and sale of oil and natural gas.  These expenses totaled approximately $16,000, or 17.5% of our oil and gas revenues.

Other General and Administrative.  Other general and administrative costs include rent, maintenance, travel, supplies, insurance and professional services. Such costs decreased 58.6%, or approximately $109,000 in the first quarter of fiscal 2008 to approximately $77,000 as compared to $186,000 in the same period in fiscal 2007.  The decrease was a result of lower professional fees, the absence of costs related to our former listing on NASDAQ, and general cost-cutting measures.

Depreciation, Depletion and Amortization.  Depreciation and amortization remained constant at approximately $5,000 in the quarters ending December 31, 2008 and 2007.  Depletion expense totaled approximately $52,000 in the quarter ending December 31, 2007, which was consistent with new production from the Adrienne 1-9.

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Interest Expense, Net. We incurred net interest expense totaling approximately $95,000 in the quarter ending December 31, 2007, which represented interest accrued during the entire quarter on our Convertible Notes and non-cash interest expense we incurred as a result of the modification of the exercise price of the Note Warrants on December 31, 2007.  We incurred net interest expenses totaling approximately $99,000 in the quarter ending December 31, 2006, which was comprised of .interest accrued for a partial quarter, and non cash interest expense of approximately $81,000, which included amortization of the discounts on the Convertible Notes and Senior Notes.

Loss on Sale of Assets and Other Income (Expense).  On December 31, 2007, we subleased our corporate offices as part of our cost-reduction efforts, and we disposed of furniture, equipment, and leasehold improvements that would no longer be utilized.  As a result, we recognized a loss on the disposal of these assets totaling $11,000 during the quarter ending December 31, 2007.  Net other expense for the quarter ended December 31, 2006, totaled approximately $64,000, which was comprised of the amortization of approximately $36,000 of deferred loan costs related to the Senior Notes, and a $28,000 loss on the sale of certain assets including a set of partition cubicles when 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 2008 is projected to be zero. Accordingly, an effective federal income tax rate of 0% was recorded for the three months ended December 31, 2007. 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, 2007 and 2006.

Net Loss. We recorded a net loss of approximately $191,000 in the first quarter of fiscal 2008 as compared to a net loss of approximately $332,000 in the same quarter of fiscal 2007. The variance was due to the low level of revenue offset by the lower level of expense in the fiscal 2008 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, 2007.

			Fiscal Year Ending September 30
		2008		2009		2010		2011		2012		Total
Operating leases	$	35	$	49	$	46	$	47	$	12	$	189
Capital lease obligations		9		—		—		—		—		9
Senior secured convertible notes		1716		—		—		—		—		1,716
Interest payments on preferred stock		15		—		—		—		—		15
Total	$	1,775	$	49	$	46	$	47	$	12	$	1,929

We were unable to repay the principal of the Convertible Notes upon maturity on November 24, 2007.  On December 31, 2007, we entered into an Amendment which extended the maturity date of the Convertible Notes from November 24, 2007 until March 31, 2008, and, whereby each of the holders of the Convertible Notes waived a default that occurred when we failed to repay the principal pursuant to the terms of the Convertible Notes.  In connection with the extension and waiver of default, we reduced the conversion price of the Convertible Notes from $0.695 to $0.10.  Under the revised terms, if the holders of the Convertible Notes convert any or all of the outstanding principal of the Convertible Notes, we may issue up to 16,430,500 shares of our Common Stock.  Additionally, the exercise price of Note Warrants to purchase up to 2,374,101 shares of our Common Stock was reduced from $0.57 to $0.10.  Accordingly, the maximum potential proceeds from the exercise of these Note Warrants has been reduced to $237,410 from approximately $1.4 million.  As of the date of this filing, approximately $1,673,000 of principal and interest remains outstanding under the Convertible Notes.  If the holders of the Convertible Notes demand payment on March 31, 2008, we do not believe we will have sufficient resources to repay our obligation and we will be forced to liquidate our assets to pay our obligations.  If we default on our obligation to repay the Convertible Notes on March 31, 2008, the holders may seize our assets at any time.

On December 31, 2007, we subleased our corporate offices, which lease had a remaining term of four years.  Although our subtenant is obligated to make payments equal to our contractual monthly obligation during a minimum nine-month period beginning January 1, 2008, we have included those obligations in the above table as we remain the prime obligor.

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.

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Our debt is summarized as follows (in thousands).

	December 31, 2007			September 30, 2007
Long-Term Debt
Senior secured convertible notes, at par	$	1,643		$	1,643
Other debt and capital lease obligations		9			13
		1,652			1,656
Less current portion		(1,652	)		(1,656	)
	$	—		$	—

On November 24, 2006, pursuant to a Securities Purchase Agreement as of the same date, we issued to three investors, three one-year 13% senior secured Convertible Notes totaling $1.65 million that were originally convertible into 2,374,101 shares of our Common Stock.  Net proceeds received after financing costs totaled approximately $1.456 million.

We were unable to repay the remaining principal of the Convertible Notes of $1.643 million upon maturity on November 24, 2007.  On December 31, 2007, we entered into an Agreement which extended the maturity date of the Convertible Notes from November 24, 2007 until March 31, 2008, and whereby each of the holders of the Convertible Notes waived a default that occurred when we failed to repay the principal amount when due (“Amended Convertible Notes”).  In connection with the extension and waiver of default, we reduced the conversion price of the Convertible Notes from $0.695 to $0.10.  Under the revised conversion price, if the holders of the Convertible Notes convert any or all of the outstanding principal of the Convertible Notes, we may issue up to 16,430,500 shares of our Common Stock.  Additionally, we also reduced the exercise price of the Note Warrants that were originally issued pursuant to the Convertible Notes and that entitled holders to purchase up to 2,374,101 shares of our Common Stock from $0.57 to $0.10. Accordingly, the maximum potential proceeds from the exercise of these Note Warrants has been reduced to $237,410 from approximately $1.4 million.  The Note Warrants are exercisable any time before November 24, 2011.  Upon maturity of the Amended Convertible Notes at March 31, 2008, any unconverted outstanding principal and interest is due and payable in cash.  As of the date of this filing, approximately $1,673,000 of principal and interest remains outstanding under the Amended Convertible Notes.

The fair value of the Amended Convertible Notes was approximately equal to the value of the original Convertible Notes, and therefore, no gain or loss was recognized pursuant to the debt modification, which was treated as an extinguishment of debt in accordance with EITF 96-19, “Debtor’s Accounting for the Modification or Exchange of Debt Instruments.”  We also evaluated the application of EITF 98-05, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios,” and EITF 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments” and concluded that the revised conversion option of the Amended Convertible Notes was a beneficial conversion feature with intrinsic value.  We recorded the fair value of the beneficial conversion feature of the Amended Convertible Notes, which we estimate to be $569,000, as a discount to par value to be amortized over the three-month term of the Amended Convertible Notes.  We also recorded $42,000 of interest expense that represented the increase in the fair value of the Note Warrants resulting from the modification of the exercise price.  After giving effect to the value of the Note Warrants and the beneficial conversion feature, the effective rate of interest on the amended Convertible Notes is 162%.

At December 31, 2007, 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.  Pursuant to the issuance of the Convertible Preferred on February 10, 2006, which aggregate gross proceeds totaled approximately $760,000, we issued warrants to purchase up to 763,780 shares of our Common Stock with exercise prices ranging from $1.34 and $1.49 per shares.

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, and we have recorded substantial impairments on our oil and gas investments.  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, 2007, financial statements that expresses substantial doubt about our ability to continue as a going concern.

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 and anticipated merger with Axion, if successful, will generate sufficient cash to meet our obligations in a timely manner.

In the absence of a line of credit and because of our inability to secure debt on terms that we consider reasonable based on our recent operating history, we depend on internal cash flow generated from our investments in oil and natural gas properties to sustain operations.  In order to meet our short-term cash requirements, we must collect more cash from our investments than we pay to our employees and suppliers.  We expect that we will be able to meet our short-term obligations utilizing our cash reserves, supplemented by cash flow from our investments in oil and natural gas properties, but there can be no assurance that market conditions or other factors will not prevent us from doing so or that the cash generated will be equal to the amount that we currently anticipate.  If we are unable to generate cash flow from our investments in oil and natural gas properties, we will be forced to obtain additional financing and/or restrict capital and operating expenditures to match available resources.  If these

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actions are not sufficient, and we are not able to meet our commitments when due, then we will be forced to liquidate assets and repay our secured creditors with the proceeds.

Our operating activities used $265,000 and generated $946,000 in cash in the quarters ending December 31, 2007 and 2006, respectively. We collected approximately $2 and $1.2 million from accounts receivable in the fiscal 2008 and 2007 quarters, respectively, as we made final collections on completed contracts. Accounts payable and other accrued liabilities decreased by $183,000 and $98,000 in the quarters ending December 31, 2007 and 2006, respectively, as a result of payment and completion of GIS operations and drilling and completion obligations related to the Adrienne 1-9 becoming due and payable, offset by a new $100,000 liability due to our insurer in connection with a litigation settlement in December 2007.  Accrued payroll and related benefits increased slightly in the quarter ending December 31, 2007, principally related to the accrual of fees owed to our board of directors, which have not been paid since prior to December 31, 2006.  The $36,000 decrease in accrued payroll and related benefits for the quarter ending December 31, 2006, was a result of the lower number of employees at December 31, 2006 as compared to September 30, 2006. Prepaid expenses increased slightly in the quarter ending December 31, 2007, principally as a result of the timing of payment of contractual payments.  These expenses decreased $38,000 in the quarter ending December 31, 2006, principally as a result of lower insurance and maintenance expenses that required prepayment.

Our capital expenditures included $3,000 of reclamation costs on the Adrienne 1-9 in the quarter ending December 31, 2007.  During the quarter ending December 31, 2006, we invested $300,000 in oil and gas properties and 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.  We also paid approximately $8,000 for leasehold improvements related to the relocation of our corporate offices to less expensive and more efficient space in November 2006.

During the quarter ending December 31, 2006, we used $2 million cash to repay our $2 million Senior Notes, and we issued new Convertible Notes, receiving approximately $1.466 million in proceeds.

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		$	1.270	220,472
Class A Warrants		381,890			1.340	381,890
Class B Warrants		381,890			1.490	381,890
Class E Warrants		752,072			1.186	752,072
Note Warrants issued to holders of Convertible Notes		2,374,101			0.100	2,374,101
Note Warrants issued to advisors in November 2006		189,928			0.570	189,928
Amended Convertible Notes	$	1,643,050		$	0.100	16,430,500
Total shares issuable and weighted average price				$	0.191	20,730,853

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.

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Item 3. Controls and Procedures

(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.  We have taken certain steps to improve our review process and strengthen our internal control over financial reporting (as defined in Rules 13a-13(f) and 15d-15(f) under the Exchange Act) during the period covered by this quarterly report.

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Part II

Other Information

Item 1. Legal Proceedings.

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

Item 2. Unregistered Sales of Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibits:

31.1                   Section 302 Certification of Chief Executive Officer

31.2                   Section 302 Certification of Principal Financial Officer

32.1                   Section 906 Certification of Principal Executive Officer

32.2                  Section 906 Certification of Principal Financial Officer

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SIGNATURES

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

Analytical Surveys, Inc.

(Registrant)

Date:  February 8, 2008                                                                        /s/ Lori A. Jones

Lori A. Jones

Chief Executive Officer

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EX-31.1

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 8, 2008

/s/ Lori A. Jones

Lori A. Jones

Chief Executive Officer

EX-31.2

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 8, 2008

/s/ Lori A. Jones

Lori A. Jones

Principal Financial Officer

EX-32.1

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, 2007 (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 8, 2008

/s/ Lori A. Jones

Lori A. Jones

Principal Executive Officer

EX-32.2

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, 2007 (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 8, 2008

/s/ Lori A. Jones  

Lori A. Jones

Principal Financial Officer