Save jpg photo from hard drive and convert to flash Album.

We have a website design in Flash 8. We are using asp.net 2.0 as our bank end. We have been using FTP to select and open a picture for saving in our photo editor. The front end photo editor is in flash. We are saving the file and the way it works is that the flash program scans the image and then asp.net scans the image in order to save it to the server. What we are experiencing however is image quality loss. I have attached an example of a file. In the picture you will notice scan lines as well as the photo quality is poor. I asked the programmer and he said that there is no compression that is happening.