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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

For the Fiscal Year ended September 30, 2004

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)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: COMMON STOCK

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 preceding 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

Indicate by check mark if registrant is an accelerated filer (as defined in Rule 12 B-2 of the Act). Yes    ¨  No    x

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant is $2,500,022, based on the closing price of the Common Stock on March 31, 2004.

The number of shares outstanding of the registrant’s Common Stock, as of December 6, 2004, was 2,805,522.

Documents incorporated by reference: None

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TABLE OF CONTENTS

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PART I

Item 1. Business

Overview

Analytical Surveys, Inc. (“ASI”, “we”, “our” or the “Company”), formed in 1981, provides customized data conversion, spatial data management and technical services for the geographic information systems market. Geographic information systems (“GIS”) consist of computer software, hardware, data, and personnel that are designed to help manipulate, analyze, and present information that is tied to a spatial (geographic) location. GIS benefits users in various ways. Business and industry rely on GIS to promote enhanced infrastructure management and decision support for planning and analysis, and to provide focused development of operational needs based on efficient modeling techniques. Such systems are used by federal, state and local governments, utilities, telecommunications companies, emergency services, and other businesses to present multi-dimensional information about the physical location and characteristics of their diverse assets. We help customers by transforming or updating raw, often confusing information from multiple sources (maps, blueprints, construction drawings, databases, aerial photography, field inventory of asset attributes, satellite imagery, etc.) into a high-resolution, large-scale, richly detailed digital and visual representation on which organizations can rely to make better decisions with speed and confidence. We have historically targeted our services to utilities and state and local governments, and are implementing strategies to expand the range of GIS-related spatial data management and technical services offered to these markets.

We believe that the market for GIS systems and GIS-related services has grown due to growing awareness of the benefits of GIS technology coupled with lower hardware prices and increased software capability. Our customers today use GIS technology to:

We believe that GIS outsourcing is a growing trend that enables our customers to focus on their core competencies. We believe this trend provides us with the opportunity to leverage our GIS expertise into longer-term program contracts allowing us to maintain existing GIS systems in addition to our traditional contracts to build new GIS systems. Many utilities invested in GIS technology in the late 1990s resulting in improvements in operations and customer service levels. Our belief is that while many of these same companies desire new levels of improvement and maintenance of quality information, they are challenged to do so because of the cost of training and retaining highly specialized GIS technicians. We are GIS specialists and we believe that we are well positioned to provide such specialized services to these companies.

Our ongoing involvement with technology leaders such as Intergraph and ESRI, has kept our employees abreast of the latest GIS technology. We think that by entering into long-term outsourcing contracts with us, our customers can spare the expense and risk of developing the internal resource capability necessary to provide them with higher cost savings through an efficient implementation of the latest GIS technologies.

Global economic conditions have slowed the rate of growth in the GIS market since 2000. It is our belief that there will be delays in growth consistent with other technology-related companies until our utility customers resume significant spending on information technology products and services, but there is no guarantee that such spending will resume. Newer competition, primarily from service firms with a large labor content in India, has resulted in lower margins and increased competition in the industry. The technologies utilized by our GIS customer base continue to advance and demand a current and accurate depiction of their spatially located assets. We believe, therefore, that the long-term outlook for the GIS industry is positive and that we are well positioned to serve evolving customer needs.

We enter into long-term fixed price contracts. Payments for these contracts are often spread throughout the term of the contract and may be based on successful interim data deliveries or milestone payments. We attempt to negotiate new contracts to minimize negative cash flow and be self-funding throughout the life of the contract.

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Strategy

Our objective is to maintain and enhance our competitive position in the data conversion and digital mapping industry. This objective is reflected in the following summary of our strategy:

Turnaround Efforts. Our near-term strategy is to return to profitability and positive cash flow. To achieve this goal, we have:

Expand Business in Existing Markets. We have expanded our products and services to our existing customer base to include outsourcing services for our utility and municipal customers. We will continue to promote our services to potential customers to capitalize on the increasing sophistication and number of GIS users in our core utilities markets. In addressing our market, we have adopted a more technical focus and consultative approach to marketing and business development.

Continue to Maintain and Develop Technological and Operational Leadership. We developed and acquired proprietary software and procedures that automate portions of otherwise labor-intensive data conversion processes. This has enabled us to provide cost-effective and high-quality services on a timely basis. We will continue to develop new technology and improve existing technology and procedures. These activities will enhance our ability to expand into additional markets and further improve our production capacity and productivity. See “Research and Development”.

ASI Services

We offer a full range of services to create digital land base maps and databases of related geo-referenced information used in GIS. We use specialized computers and internally developed proprietary software to create land surveys and legal descriptions. These base maps are created using photogrammetric and cadastral mapping technologies. Once the base map is produced, links to tabular databases are created, and other geo-referenced data, such as buildings, telephone poles and zoning restrictions, are collected, verified, converted into digital format and added to the base map to create a GIS. We provide an experienced field inventory staff to collect and verify information and use computerized and manual techniques to verify and digitize data from paper sources and legacy electronic systems. Once a GIS is completed, users can view the base map and any or all of the layers of data on a computer screen and can retrieve selected data concerning any desired location appearing on the screen or all data matching one or more variables. We maintain these databases for customers on an as-needed basis.

Dispositions and Facility Consolidations and Relocations

In April 2001, we sold substantially all of our assets of the Colorado Springs, Colorado-based digital orthophotography and photogrammetric mapping facility to Sanborn Map Company for a total consideration of $10.1 million. The sale agreement contains clauses that prohibit us from competing directly with the buyer in the orthophotography and photogrammetric markets for three years. Both companies agreed to cooperate to complete customer contracts where services are provided by more than one of our production facilities. The sale allowed us to reduce debt and to refocus attention on utility and municipal mapping services.

In March 2002, we consolidated our Cary, North Carolina facility and transferred existing project work to our Texas and Wisconsin facilities. The principal activity of the North Carolina facility had been cadastral and photogrammetric mapping.

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In June 2002, we consolidated and relocated our Indianapolis, Indiana office to smaller office space. We consolidated offices in response to reduced demand for technology services in the government and utility marketplace. Existing project work in Indiana was also transferred to our Texas and Wisconsin facilities.

On January 1, 2003, we moved our corporate headquarters from Indianapolis, Indiana to San Antonio, Texas, so that the executive team could be closer in proximity to the production staff. The Indianapolis, Indiana, office was closed effective January 2, 2003.

Customers

We derive revenues primarily from two core markets: utilities and state and local governments. We also serve commercial businesses. Four of our current customers accounted for 67% of our consolidated revenues in fiscal 2004 (KeySpan Corporate Services LLC (“KeySpan”), 27%; Worldwide Services, Inc, and Intergraph (“WWS”), 16%; LogicaCNG, Inc., 12%; and Michigan Consolidated Gas Company, 12%). All four of these customers fall within our utility market. Two customers, KeySpan and WWS, accounted for 11% and 58%, respectively, or 69%, of total accounts receivable and revenue in excess of billings at September 30, 2004. The loss of any of these customers would have a material adverse effect on us. See “Risk Factors — Our customer contracts may be adversely modified, changed or terminated prior to the expiration of the contract terms” and “— Our business comes from two core markets and adverse changes in those markets could cause a reduction in the demand for our services,” and Note 9 to the consolidated financial statements.

Sales and Marketing

We market our products and services in domestic and international markets primarily through an internal sales force. We augment direct sales efforts by:

Our sales cycle is generally lengthy, as customers normally take several months to go through the bidding/planning and award phases of a GIS project. Once awarded, it generally takes 30 to 60 days until the final contract is signed. Most projects take from 6 to 24 months to complete. See “Risk Factors — We receive some business from referrals and any reduction in those referrals could effect our business”.

Subcontractors

We use subcontractors when necessary to expand capacity, meet deadlines, reduce production costs and manage workload. We engage domestic subcontractors on a project-by-project basis. In September 2004, our five-year exclusive supply agreement with InfoTech Enterprises, Ltd., an India-based company, to provide production capacity for data conversion and other related services expired. We utilized InfoTech to provide more than 90% of our offshore subcontractor services. We will continue to utilize InfoTech for offshore conversion capacity but will also engage alternate sources of labor in India. This may increase our cost of offshore services in the short term as we train a new supplier. We intend to continue to utilize offshore subcontractors for a large percentage of certain data entry production work (which work constitutes less than 10% of our total production costs) in fiscal 2005 to reduce production costs and develop new services. We also employ certain select foreign and domestic subcontractors for tasks outside our expertise, or to augment in-house capacity (such as field data surveying). See “Risk Factors — The unavailability or unsatisfactory performance of our subcontractors may affect our ability to deliver quality services to our customers,” and “ — The unsatisfactory performance or unavailability of overseas subcontractors may impact our ability to profitably perform services under existing contracts”.

Research and Development

We continue to develop new technology and to improve existing technology and procedures to enhance our ability to expand into additional markets and further improve our production capacity and productivity. Most of these activities occur as we develop software or design a product or process for a particular contract. These efforts are typically included as an integral part of our services for the particular project and, accordingly, the associated costs are charged to that project. Such custom-designed software can often

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be applied to projects for other customers. Approximately three employees are substantially engaged in research and development efforts. The amount that we have spent on research and development over the last three fiscal years is immaterial. See “Risk Factors — We may be unable to protect our proprietary rights, permitting competitors to duplicate our products and services,” and “ — We may need to invest in research and development to remain competitive and to obtain new business”.

Competition

The GIS services business is highly competitive and highly fragmented. Competitors include small regional firms, independent firms, and large companies with GIS services divisions, customer in-house operations and international low-cost providers of data conversion services. Two of our nationally recognized competitors for conversion services are Avineon and Rolta. We also compete with numerous regional firms for conversion services and field data collection services. Because our competitors are all privately owned companies, it is difficult to determine the relative ranking in the market between our competitors and us.

We seek to compete on the basis of:

We use internally developed proprietary production software and commercially available software to automate much of the otherwise labor-intensive GIS production process. We believe this automated approach enables us to achieve more consistent quality and greater efficiencies than more manually intensive methods.

To compete against low-cost providers, we minimize costs by using offshore subcontractors for a large percentage of certain data entry production work, which work constitutes less than 10% of our total production costs. See “Risk Factors— The unavailability or unsatisfactory performance of our subcontractors may affect our ability to deliver quality services to our customers”.

Personnel

At September 30, 2004, we had approximately 109 employees compared to 135 at September 30, 2003. We reduced the workforce to align our headcount with our production and administration requirements.

We believe that retention of highly qualified managers and executive officers is critical to our ability to compete in the GIS data conversion industry. Almost all of our employees work on a full-time basis. We do not have a collective bargaining agreement with any of our employees and generally consider relations with our employees to be good. See “Risk Factors — The market for our services is highly competitive and such competition within our industry can lead to lower profit margins and reduced volume of new work,” and “ — If we are unable to retain the members of our senior management team our business operations may be adversely impacted.”

RISK FACTORS

In addition to the other information set forth in this Form 10-K the issues and risks described below should be considered carefully in evaluating our outlook and future.

Our cash flow may be insufficient to meet our operating and capital requirements.

We currently do not have a line of credit with any lender and rely solely on cash flow from operations to fund future operations and expenditures. There is no assurance that the cash flow from operations will be sufficient to meet our capital requirements. We must convert accounts receivable and amounts earned not billed to cash in excess of our operating expenses in order to meet our debt payments. On or before December 27, 2004, we must make a cash payment totaling approximately $129,500 to redeem a portion of our Series A Preferred Stock.

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Our current and former independent auditors have expressed that there is substantial doubt about our ability to continue as a going concern.

During fiscal years 2000 through 2004, we experienced significant operating losses with corresponding reductions in working capital and net worth, excluding the impact of debt forgiveness. Our revenues and backlog have also decreased substantially during the same period. Our independent auditors issued a going concern qualification on our financial statements for fiscal 2004, based on the significant operating losses reported in fiscal 2004 and prior years and a lack of external financing. Our former independent auditors issued a going concern qualification on our financial statements for fiscal 2000, 2001, 2002, and 2003. The going-concern qualification, which expressed substantial doubt about our ability to continue as a going concern, was based on the significant operating losses reported in fiscal 2003 and 2002 and a lack of external financing to fund working capital and debt requirements. As of September 30, 2004, the amount of our accumulated deficit is approximately $30 million.

Successful implementation of our turnaround efforts is required to return the Company to profitability.

The successful implementation of our turnaround efforts requires the cooperation of customers, subcontractors, vendors, lenders, outside professionals and employees. There can be no assurance that the specific strategies designed to return our operations to profitability and positive cash flow can be implemented to the extent and in the timeframe planned. We have implemented financial and operational restructuring plans designed to improve operating efficiencies, reduce and eliminate cash losses and position ourselves for profitable operations. Delays and difficulties in achieving sales targets, realizing cost savings, retaining employees and other turnaround efforts could result in continued operating losses and a decrease or loss in the value of our common stock.

The market for our services is highly competitive and such competition within our industry can lead to lower profit margins and reduced volume of new work.

As the GIS services industry evolves, additional competitors may enter the industry. In addition, other improvements in technology could provide competitors or customers with tools to perform the services we provide and lower the cost of entry into the GIS services industry. We are facing increased price competition, particularly in the utilities market, from relatively new entrants to the market, which perform their work utilizing mostly offshore labor. A number of our competitors or potential competitors may have capabilities and resources greater than ours.

Our customer contracts may be adversely modified, changed or terminated prior to the expiration of the contract terms.

Most of our revenue is earned under long-term, fixed-price contracts. Our contractual obligations typically include large projects that will extend over six months to two years. These long-term contracts entail significant risks, including:

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We experience quarterly variations in our operating results due to external influences beyond our control, such variations could result in a decreased stock value.

Our quarterly operating results vary significantly from quarter to quarter, depending upon factors such as the following:

For these reasons, period-to-period comparisons of our results of operations are not and will not be necessarily a reliable indication of future performance. The fluctuations of our operating results could result in a decreased value of our stock. We also could experience inconsistent quarterly revenues as a result of general weak economic conditions as customers defer projects or cancel planned expenditures.

We may need to invest in research and development to remain competitive and obtain new business.

We have devoted various resources to developing and acquiring specialized data collection and conversion hardware and software. In order to remain competitive, we must continue to select, invest in, acquire and develop new and enhanced technology on a timely basis. If competitors introduce new products and services embodying new technologies, or if we fail to adopt or develop new technologies or to adapt our products and services to emerging industry standards, we may be unable to obtain new business or maintain existing business. There can be no assurance that we will be successful in these efforts or in anticipating developments in data conversion technology.

We may be unable to protect our proprietary rights, permitting competitors to duplicate our products and services.

We do not have any patent protection for our products or technology. Third parties could independently develop technology similar to ours, obtain unauthorized access to our proprietary technology or misappropriate technology to which we have granted access. Because our means of protecting our intellectual property rights may not be adequate, it may be possible for a third party to copy, reverse engineer or otherwise obtain and use our technology without authorization. Unauthorized copying, use or reverse engineering of our products could result in the loss of current or future customers.

Our business comes from two core markets and adverse changes in those markets could cause a reduction in the demand for our services.

We derive our revenues primarily from two core markets, utilities and state and local governments. The ongoing consolidation and reduced technology budgets of the utilities industry has and may continue to increase competition and reduce profitability for the GIS projects of current and potential customers. Also, to the extent that utilities remain regulated, legal, financial and political considerations may constrain the ability of utilities to fund geographic information systems. Many state and municipal entities are subject to legal constraints on spending, and a multi-year contract with any such entity may be subject to termination in any subsequent year if the entity does not choose to appropriate funds for such contracts in that year. Moreover, fundamental changes in the business practices or capital spending policies of any of these customers, whether due to budgetary, regulatory, technological or other developments or changes in the general economic conditions in the industries in which they operate, could cause a material reduction in demand by such customers for the services we offer. Any such reduction in demand could have a significant adverse impact on our net revenue levels.

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The unavailability of a skilled labor force may hinder our ability to produce accurate, cost-effective solutions to meet the terms of our contracts.

Our business is labor-intensive and requires trained employees. We compete for qualified personnel against numerous companies, including more established companies with significantly greater financial resources than ours. Our business, financial condition and results of operations could be materially adversely affected if we are unable to hire qualified personnel or if we are unable to retain qualified personnel in the future. High turnover among our employees could increase our recruiting and training costs, could affect our ability to perform services and earn revenues on a timely basis and could decrease operating efficiencies and productivity. In addition, a significant portion of our costs consists of wages to hourly workers. An increase in hourly wages, costs of employee benefits or employment taxes could increase our other general and administrative costs and thereby reduce our net income.

If we are unable to retain the members of our senior management team our business operations may be adversely impacted.

Our success depends upon the continued service of our key employees: Wayne Fuquay, Chief Executive Officer, Lori Jones, Chief Financial Officer, and Hamid Akhavan, Senior Vice President – Operations. Our ability to retain our management team is an important factor in our turnaround program and our ability to pursue our overall business plan. While we have employment agreements with Mr. Fuquay and Ms. Jones, there is no assurance that we will be able to retain the services of such key personnel. We do not maintain any key personal life insurance policies. Layoffs in recent years may impair our ability to retain and recruit other key personnel. The loss or interruption of the services of Mr. Fuquay, Ms. Jones, or Mr. Akhavan could have a material adverse effect on our business, financial condition and results of operations. Our future financial results will also depend upon our ability to attract and retain highly skilled technical, managerial and marketing personnel.

The unavailability or unsatisfactory performance of our subcontractors may affect our ability to deliver quality services to our customers.

Certain of our services require us to perform tasks that are outside our expertise such as the acquisition of aerial photography. We are dependent upon the continued availability of third party subcontractors for such production tasks. We also use subcontractors for work similar to that performed by our own employees such as field data acquisition. The insufficient availability of, or unsatisfactory performance by, these unaffiliated third-party subcontractors could have a material adverse effect on our business, financial condition and results of operations due to delays in project schedules, product quality and increased costs of production.

The unsatisfactory performance or unavailability of overseas subcontractors may impact our ability to profitably perform services under existing contracts.

We utilize subcontractors in India and may from time to time use subcontractors in other overseas locations to perform certain tasks such as data conversion and photogrammetric interpretation at lower costs than could be achieved in the United States. Our ability to perform services under some existing contracts on a profitable basis is dependent upon the continued availability of our overseas subcontractors and the quality of their work. For example, India has in the past experienced significant inflation, civil unrest and regional conflicts. Events or governmental actions that would impede or prohibit the operations of our subcontractors could have a material adverse effect on us. In September 2004, we concluded a five-year exclusive agreement with InfoTech Enterprises, Ltd., an India-based company, which provided production capacity for data conversion and other related services. During the term of the agreement, InfoTech provided more than 90% of our offshore subcontractor services (which services constituted less than 10% of our total production costs). We will continue to utilize InfoTech’s services and additionally, we will obtain alternate sources of labor in India. This may increase our cost of offshore services in the short term as we train a new supplier.

We receive some business from referrals and any reduction in those referrals could affect our business.

A portion of our sales is the result of referrals derived, either directly or indirectly, from engineers, software developers and consultants in the GIS industry. We believe that our continued success in the GIS services market is dependent, in part, on our ability to maintain current relationships and to cultivate additional relationships with other industry participants. Such participants could acquire a GIS data collection or data conversion business or businesses or form other relationships with our competitors. There can be no assurance that relationships with GIS consultants will continue to be a source of business for us. Our inability to maintain such relationships or to form new relationships could reduce our ability to obtain new business and maintain existing business, thereby reducing our revenue.

We have outstanding preferred stock and “blank check” preferred stock that could be issued resulting in the dilution of share ownership.

Our Articles of Incorporation allow the Board of Directors to issue up to 2,500,000 shares of preferred stock and to fix the rights, privileges and preferences of those shares without any further vote or action by the shareholders. Our outstanding preferred

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stock holds dividend priority and liquidation preferences over shares of our common stock (“Common Stock”). However, because the outstanding preferred stock is not convertible to Common Stock, it has no potential dilutive effect on our outstanding shares of Common Stock. Nonetheless, the Common Stock will be subject to dilution if our Board of Directors utilizes its right to issue additional shares of preferred stock that is convertible into Common Stock. The rights of the holders of Common Stock are and will be subject to, and may be adversely affected by, the rights of the holders of the 258,900 shares of preferred stock that we have previously issued and any preferred stock that we may issue in the future. Any such issuance could be used to discourage an unsolicited acquisition proposal by a third party.

Our stock price is highly volatile and the purchase or sale of relatively few shares can disproportionately influence the share price.

The trading price and volume of our Common Stock has been and may continue to be subject to significant fluctuations in response to:

The trading price of our Common Stock may vary without regard to our operating performance. Historically, we have been a thinly traded stock, therefore relatively few shares traded can disproportionately influence share price.

Item 2. Property

We operate two offices in the United States. We lease approximately 17,000 square feet in San Antonio, Texas, and approximately 8,100 square feet in Waukesha, Wisconsin.

Item 3. Litigation

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

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

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 4. Submission Of Matters To A Vote Of Shareholders

On September 23, 2004, at the annual meeting of shareholders, our shareholders reelected four directors to the Board of Directors and ratified the appointment of Pannell Kerr Forster of Texas, P.C. as our independent registered public accounting firm for the fiscal year ended September 30, 2004.

The following table provides the number of votes cast on each matter:

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PART II.

Item 5. Market For The Registrant’s Common Stock And Related Shareholder Matters

Since June 6, 2002 our common stock (“Common Stock”) has traded on the NASDAQ SmallCap Market under the symbol “ANLT.” As of October 1, 2004, we had approximately 4,800 holders of record. The following table sets forth the high and low closing bid prices for our Common Stock as reported on NASDAQ. Prices have been adjusted to reflect the one-for-ten reverse split effective October 2, 2002.

The high and low bid prices reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

Our April 2, 2002, we issued a senior secured convertible promissory note (“Old Note”) to Tonga Partners, L.P. (“Tonga”) in the original principal amount of $2.0 million and a warrant (“Warrant”) to purchase 500,000 shares of our Common Stock. The sale and issuance of such securities were deemed to be exempt from registration under Section 4(2) of the Securities Act of 1933. In connection with the transaction, Tonga established to our satisfaction that it is an accredited investor.

On October 29, 2003, Tonga converted $300,000 principal of the Old Note. We issued 261,458 shares of our Common Stock pursuant to the partial conversion and interest due thereon at a conversion price of $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. The $2 million note was exchanged for the shares and a $1.7 million note (“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 June 30, 2004, we restructured the Second Note to cure an event of default that was triggered when the our Registration Statement on Form S-3 filed with the SEC on December 30, 2003, was not declared effective by the SEC as required by the terms of the Second Note. See Note 3 to the consolidated financial statements. The maturity date of the restructured $1.7 million senior secured convertible promissory note (the “Restructured Note”) and bears interest at a rate of 5% per annum with such interest accruing beginning on November 4, 2003. (The Old Note, Second Note, and Restructured Note are sometimes collectively referred to as the “Note.”) 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 retained the ability to convert the Restructured Note for shares of our Common Stock at any time, waived approximately $134,000 of accrued interest on the Second Note, waived its rights to assess liquidated damages pursuant to the Second Note, relinquished its rights under the Warrant and canceled the Warrant.

On November 10, 2004, Tonga converted the Restructured Note and accrued interest into shares of our Common Stock. As provided by the terms of the Restructured Note, the conversion price was equal to 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, we issued 1,701,349 shares at the conversion price of $1.05 per share. The newly issued shares increased our total common shares outstanding from 1,104,173 to 2,805,522. Tonga owned 67% of our outstanding shares immediately after the conversion. As of November 15, 2004, Tonga had liquidated all of its holdings of our Common Stock. See Note 15 to the consolidated financial statements.

Dividends

Under the terms of our Restructured Note, we were prohibited from paying dividends on our Common Stock without consent from Tonga. As a result of Tonga’s conversion of the Restructured Note, Tonga’s consent is no longer required to pay dividends. Since

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becoming a public company, we have not declared or paid cash dividends on our Common Stock and do not anticipate paying cash dividends in the foreseeable future. We presently expect that we will retain all future earnings, if any, for use in our operations and the expansion of our business.

Equity Compensation Plan Information

The following table gives information about equity awards under our equity compensation plans. The table includes inducement options that were issued in fiscal 2004.

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Item 6. Selected Financial Data

The following selected consolidated financial data as of and for the years ended September 30, 2004, 2003, 2002, 2001, and 2000 are derived from our audited consolidated financial statements. Our historical consolidated financial statements as of September 30, 2004 and 2003 and for the years ended September 30, 2004, 2003, and 2002 are contained elsewhere in this Form 10-K. The following selected consolidated financial data should be read in conjunction with our consolidated financial statements and the related notes thereto and with Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K. (Amounts in thousands, except for per share data.)