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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004

OR

COMMISSION FILE NUMBER 0-13111

ANALYTICAL SURVEYS, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

11900 CROWNPOINT DRIVE, SAN ANTONIO, TEXAS 78233

(Address of principal executive offices)

(210) 657-1500

(Registrant’s telephone number, including area code)

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PAST TWELVE (12) MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST NINETY (90) DAYS.    YES  x    NO  ¨

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT).    YES  ¨    NO  x

THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF AUGUST 1, 2004, WAS 1,089,173.

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Part I

Financial Information

Item 1. Financial Statements

ANALYTICAL SURVEYS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

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ANALYTICAL SURVEYS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

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)

See accompanying notes to consolidated financial statements

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ANALYTICAL SURVEYS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Nine Months Ended June 30, 2004

(In thousands)

(Unaudited)

See accompanying notes to consolidated financial statements.

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ANALYTICAL SURVEYS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

See accompanying notes to consolidated financial statements.

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Notes to Consolidated Financial Statements

June 30, 2004

(Unaudited)

1. Summary of Significant Accounting Policies

The accompanying unaudited interim consolidated financial statements have been prepared by management in accordance with the accounting policies described in our annual report for the year ended September 30, 2003. 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 note disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K/A for the year ended September 30, 2003.

The consolidated statements of operations and cash flows for the three and nine months ended June 30, 2003 have been restated to properly account for the beneficial conversion feature of our convertible senior secured note and related warrants that were issued on April 2, 2002. (See Note 5).

The restatements have the following impact on the consolidated statements of operations and cash flows for the three and nine months ended June 30, 2003:

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The consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary to present fairly the financial position of ASI, and its subsidiaries at June 30, 2004, the results of their operations for the three and nine months ended June 30, 2004 and 2003 and cash flows for the nine months ended June 30, 2004 and 2003. All such adjustments are of a normal recurring nature.

Revenue Recognition. We recognize revenue using the percentage of completion method of accounting on a cost-to-cost basis. For each contract, an estimate of total production costs is determined and these estimates are reevaluated monthly. Production costs consist of internal costs, primarily salaries and wages, and external costs, primarily subcontractor costs. Internal and external production costs may vary considerably among projects and during the course of completion of each project. At each accounting period, the percentage of completion is based on production costs incurred to date as a percentage of total estimated production costs for each of our contracts. This percentage is then multiplied by the contract’s total value to calculate the sales revenue to be recognized. The percentage of completion is affected by many factors that influence either the estimate of future productivity or the production cost per hour used to determine future costs. We recognize losses on contracts in the period such loss is determined. Sales and marketing expenses associated with obtaining contracts are expensed as incurred.

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

During the three and nine months ended June 30, 2004, we recognized approximately $24,700, and $27,000, respectively, in compensation expense related to inducement stock options that we granted to our Chief Executive Officer on March 22, 2004. The inducement options were not issued pursuant to our stock option plans. The options, which vest over a twelve-month period, provide for the purchase of 75,000 shares of common stock at an exercise price equal to $1.50 per share, which was below the market value of $2.82 on the date 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 income (loss) and net income (loss) per share would have decreased to the pro forma amounts indicated below:

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Basic earnings per share is computed by dividing earnings available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share 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 earnings per share for periods in which we incurred losses, as the effect of potentially dilutive shares is anti-dilutive.

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3. Impact of Recently Issued Accounting Pronouncements

In December 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 148, “Accounting for Stock Based Compensation – Transition and Disclosure – an Amendment of SFAS 123”. SFAS No. 148 provides additional transition guidance for those entities that elect to voluntarily adopt the provisions of SFAS No. 123, “Accounting for Stock Based Compensation”. Furthermore, SFAS No. 148 mandates new disclosures in both interim and year-end financial statements of the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 is effective for fiscal years beginning after December 15, 2002. We adopted SFAS No. 148 on April 1, 2003. We do not expect to change to using the fair value based method of accounting for stock-based employee compensation; and therefore, adoption of SFAS No. 148 is expected to impact only our disclosures and not our financial results. (See Note 1).

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In May 2003, the FASB issued SFAS No. 150, “Accounting For Certain Financial Instruments with Characteristics of Both Liabilities and Equity” which establishes standards for how an issuer of financial instruments classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on a fixed monetary amount known at inception, variations in something other than the fair value of the issuer’s equity shares or variations inversely related to changes in the fair value of the issuer’s equity shares. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 required the reclassification of our redeemable preferred stock as debt and future preferred stock dividends to be classified as interest expense. Effective July 1, 2003, we reclassified mandatorily redeemable shares that were issued prior to May 31, 2003 as liabilities. The total amount of the reclassification was $1.3 million.

4. Accrued Payroll and Related Benefits

Our accrued payroll and related benefits are summarized as follows (in thousands).

5. Debt

Our debt is summarized as follows (in thousands).

On April 2, 2002, we completed the sale of a $2.0 million senior secured convertible note (“Old Note”) and a warrant (“Warrant”) to purchase 500,000 shares of our common stock (“Common Stock”) to Tonga Partners, L.P. (“Tonga”). The Old Note, which carried a face value of $2 million, matured on April 2, 2005, and accrued interest on its face value at an annual rate of 5.00%. Accrued interest was not payable in cash but was to be converted into Common Stock upon the Old Note’s voluntary conversion date or maturity. We recorded the Old Note at $1.664

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million reflecting a discount after giving effect to the $200,000 and $136,000 estimated fair value of the Warrant and the conversion feature, respectively, (“derivative features”) which were recorded as current liabilities.

On October 29, 2003, we received a notice of conversion from Tonga for $300,000 in principal of the Old Note. On November 6, 2003, we issued 241,936 shares at a conversion price equal to $1.24, which represented 90% of the average closing bid prices for the three trading days having the lowest closing bid price during the 20 trading days immediately prior to October 29, 2003. We also issued 19,522 shares at the same conversion price for $24,208 of accrued interest on the converted principal. The Old Note was exchanged for the shares and a $1.7 million debenture (“Second Note”) bearing the same terms. The newly issued shares increased our total common shares outstanding from 823,965 to 1,085,423. Tonga owned 24% of our outstanding shares immediately after the partial conversion.

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

On June 30, 2004, the event of default was cured when we restructured the Second Note. The restructured $1.7 million senior secured convertible promissory note (the “Restructured Note”) bears interest at a rate of 5% per annum with such interest accruing beginning on November 4, 2003. The principal amount of the Restructured Note, together with accrued and unpaid interest, is due and payable at Tonga’s option in cash or shares of our Common Stock on January 2, 2006. Tonga may, however, convert the Restructured Note for shares of our Common Stock at any time. Tonga waived accrued interest on the Second Note through November 3, 2004, which totaled $134,000. Tonga also waived its rights to assess liquidated damages pursuant to the Second Note, relinquished its rights under the Warrant and canceled the Warrant.

The carrying value of the Second Note immediately prior to execution of the Restructured Note was $1.616 million, which reflected the $1.7 million face value less an $84,000 unamortized discount. Additionally, immediately prior to the execution of the Restructured Note, the fair value of the Warrant totaled approximately $67,000, and the fair value of the conversion feature of the Second Note totaled approximately $62,000. As a result of the extended term of the Restructured Note, the estimated fair value of the conversion feature increased to approximately $119,000. We recorded the Restructured Note at $1.581 million reflecting a discount for the $119,000 estimated fair value of the conversion feature, which was recorded as a current liability. This transaction resulted in a net decrease in total liabilities of approximately $180,000. The decrease consisted of $134,000 waived interest, the $67,000 fair value of the canceled Warrant, and a $35,000 decrease in the carrying value of the Restructured Note, offset by a $57,000 increase in the fair value of the conversion feature. We recorded the $180,000 decrease in liabilities as a capital contribution pursuant to Staff Accounting Bulletin Topic 1:B.

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Pursuant to the terms of the Restructured Note, we are required to register 2,500,000 shares of Common Stock, including the 261,548 shares that were issued upon the partial conversion of the Old Note on November 7, 2003. Tonga may accelerate the Restructured Note if a Registration Statement registering 2,500,000 shares is not declared effective by the SEC on or before September 28, 2004, and demand a cash payment equal to 100% of the principal amount of the Restructured Note.

Prior to the issuance of the Restructured Note, the carrying value of the Second Note was accreted to its face value as we recorded interest expense over its three-year term at a rate of $28,000 per fiscal quarter. The effective rate of interest on the Second Note was 12.5%. The $336,000 current liability was increased or decreased to reflect the fair value of the derivatives at the end of each fiscal quarter. The $1.581 million carrying value of the Restructured Note will be accreted to its face value as we record interest expense over the remaining eighteen-month term at a rate of approximately $20,000 per fiscal quarter. The effective interest of the Restructured Note is 12.14%. Additionally, the $119,000 current liability will be increased or decreased to reflect the fair value of the conversion feature at the end of each fiscal quarter.

The liability will be reduced to $0 upon maturity or other disposition of the Restructured Note, and we will recognize other income totaling $119,000 during the term of the Restructured Note, but not in accordance with the rate at which we record interest expense. The adjustments will result in other income or expense and will fluctuate in accordance with the changes in the fair value of our Common Stock. Accordingly, our quarterly results will vary in accordance with these fluctuations as we record non-cash expense or income as a result of the increase or decrease in the fair value of the derivative features.

The fair value of the derivative features of the Second Note decreased from $207,000 on September 30, 2003, and from $204,000 on March 31, 2004, to $129,000 on June 30, 2004, prior to issuance of the Restructured Note. Accordingly, we recorded other income totaling $75,000 and $78,000 for the three- and nine-month periods ended June 30, 2004. The fair value of the derivative features decreased from $246,000 on September 30, 2002, and from $584,000 on March 31, 2003, to $182,000 on June 30, 2003. Accordingly, we recorded other income totaling $402,000 and $64,000 for the three- and nine-month periods ended June 30, 2003.

The Restructured Note is convertible at any time into our Common Stock at a price (“Conversion Price”) equal to the least of (i) $4.00, (ii) 90% of the average closing bid prices of the Common Stock for the 90 trading days ending the trading date immediately preceding the closing date, and (iii) 90% of the average closing bid prices for the three trading days having the lowest closing bid price during the 20 trading days immediately prior to the conversion date. Accordingly, the Conversion Price and number of shares issuable upon conversion of the Restructured Note will vary in accordance with the changes in the closing bid price of our Common Stock.

For illustration purposes, if the $1,700,000 Restructured Note had been converted in full on July 1, 2004, the Conversion Price would have been $1.50, and we would have issued 1,170,954 shares to redeem the principal and accrued interest. The Conversion Price would have been

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equal to 90% of the average closing bid prices of the Common Stock for the three trading days having the lowest closing bid price during the 20 trading days preceding July 1, 2004. Tonga would have owned approximately 60% of our outstanding shares immediately after such full conversion.

We are generally restricted from issuing additional equity securities without Tonga’s consent, and Tonga has a right of first refusal as to certain subsequent financings. The Restructured Note is secured by all of our assets. As part of the transaction, for a period of three years from the date of the Old Note, Tonga has the right to appoint a majority of our board of directors. Tonga has appointed three members to the Board and as a result, controls ASI. Should Tonga exercise its conversion rights under the Restructured Note, Tonga may own a majority of our Common Stock, thereby giving Tonga additional control over ASI.

6. Redeemable Preferred Stock

On December 28, 2001, we issued 1.6 million shares of no par value Series A Preferred Stock (“Preferred Stock”) with a face value of $3.2 million, pursuant to the extinguishment of a bank credit agreement (“Agreement”). We recorded this Preferred Stock at a fair market value of $300,000 as described below. In June 2004, we redeemed 1,341,100 shares of our Preferred Stock (“Shares”), or 84%, of the outstanding Shares. We paid the holders of the Shares $251,456 to redeem the Shares, which, on the redemption dates, were carried at approximately $1,535,000 plus accrued dividends totaling approximately $191,000, resulting in a gain of approximately $1,475,000. The early redemption reduced the mandatory redemption payment due in December 2004, to the holders of the Preferred Stock from $800,000 to $129,450. On June 30, 2004, the redemption value of the redeemed Shares totaled approximately $1,877,500.

At June 30, 2004, 258,900 shares of Preferred Stock are outstanding which are redeemable on or before December 28, 2006. Until December 27, 2004, we are entitled to redeem these shares at $1.40 per share, or $362,460. The redemption price increases $0.20 per year to $1.60 on December 28, 2004, $1.80 on December 28, 2005 and $2.00 on December 28, 2006.

On December 28, 2004, we must redeem $129,450 of the outstanding Preferred Stock. If we pay the $129,450 mandatory redemption payment on or before December 27, 2004, the redemption price will be $1.40, and we will redeem 92,464 shares of Preferred Stock. If we redeem the remaining outstanding shares on December 27, 2006, we will redeem 166,436 shares at $1.80 per share, totaling $299,585. The Preferred Stock earns a dividend at the annual rate of 5.00% of the then applicable redemption price on a cumulative, non-participating basis and has a liquidation preference equal to the then applicable redemption value of shares outstanding at the time of liquidation. Since its issuance, we have accrued but not declared or paid dividends on the Preferred Stock. Accrued dividends at June 30, 2004, totaled $37,540.

The carrying value for the outstanding Preferred Stock is approximately $299,000 at June 30, 2004. The carrying value represents the estimated fair market value of the stock on the date of issuance plus issuance costs, adjusted for accretion of the difference between fair market value at

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the date of issuance and the redemption value at the mandatory redemption dates. The fair market value was based on the present value of required cash flows using a discount rate of 80%. We selected the discount rate based on discussions with third parties that factored in market conditions for similar securities, the current economic climate and our financial condition and performance.

Until June 30, 2003, accretion was affected by a charge to retained earnings, and the rate of accretion approximates the interest method. We adopted SFAS No. 150 on July 1, 2003, which required the reclassification of the redeemable Preferred Stock as debt and future Preferred Stock dividends as interest expense. Effective July 1, 2003, we reclassified these mandatorily redeemable shares of Preferred Stock that were issued prior to May 31, 2003, as liabilities. The total amount of the reclassification was $1.3 million. Additionally, effective July 1, 2003, the accretion of the Preferred Stock is classified as interest expense.

7. Segment Information

We evaluate operations and make key strategic and resource decisions based on the operating results of our individual production centers. Segment data includes revenue, operating income, including allocated costs charged to each of the operating segments, equipment investment and project investment, which includes net accounts receivables and revenue earned in excess of billings. We have presented segment data for the three- and nine-months ended June 30, 2003, for comparative purposes.

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