ANALYTICAL SURVEYS INC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

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

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2002

OR

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

FOR THE TRANSITION PERIOD FROM ________________ TO ________________

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 (I.R.S. Employer
incorporation or organization Identification No.)

11595 N. Meridian St., Carmel, IN 46032
- --------------------------------------------------------------------------------
(Address or principal executive offices) (Zip Code)

Registrant's telephone number, including area code (317) 571-9700
-----------------------------

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered

Securities registered pursuant to section 12(g) of the Act:
Common Stock
-----------------------------------------------------------
(Title of class)

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 SK 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]

The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant is $789,397, based on the closing price of the
Common Stock on December 13, 2002.

The number of shares outstanding of the registrant's Common Stock, as of
December 13, 2002, was 823,720.

DOCUMENTS INCORPORATED BY REFERENCE: None

TABLE OF CONTENTS

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. A geographic information
system ("GIS") is an "intelligent map" that allows users to input, update,
query, analyze and display detailed information about a geographic area. We help
customers by transforming raw, often confusing information from multiple sources
(maps, blueprints, databases, aerial photography, satellite imagery, etc.) into
a high-resolution, large-scale, richly detailed digital and visual
representation that organizations can rely on to make better decisions with
speed and confidence. We have historically targeted services to utilities and
state and local governments, and are implementing strategies to expand the
number of markets targeted and the range of GIS-related spatial data management
and technical services offered.

We believe that the market for geographic information systems and services has
historically grown due to:

- Growing awareness of the benefits of GIS technology;
- Significant reductions in computer hardware prices;
- Increased capability and reliability of hardware and software;
- Deregulation and consolidation in the utility industry; and
- Increased demand for geographic information systems in growing
communities.

We also believe that GIS users are increasingly outsourcing their data
conversion and other GIS service projects to third-party providers such as ASI.
We provide customers with a single source for all data conversion services
necessary to achieve economic value from their investments in geographic
information systems.

Current global economic conditions have slowed the rate of growth in the GIS
market. We expect delays in growth consistent with other technology-related
companies until our customers resume spending on information technology products
and services. The technologies utilized by the 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.

STRATEGY

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

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

- Reduced corporate borrowing;
- Settled a class action lawsuit;
- Standardized project management and cost estimation processes;
- Consolidated accounting systems;
- Streamlined operations by reducing from five main production centers
in the beginning of fiscal 2001 to two centers at the end of fiscal
2002;
- Strengthened operational management and reduced corporate and overhead
expenses; and

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- Focused on the government and utility conversion and data management
sectors of the market.

Expand Business in Existing Markets. We plan to provide expanded products
and services to our existing customer base. 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, enabling
us to provide cost-effective and high-quality services on a timely basis.
We will continue to develop new technology and to 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 the databases of related
geo-referenced information used in geographic information systems.

Digital Land Base Maps. ASI uses specialized computers and internally developed
proprietary software to create land surveys and legal descriptions. The base
maps are created using photogrammetric and cadastral mapping technologies.
Cadastral maps illustrate property lines and are prepared by digitizing existing
paper maps and converting the legal property descriptions into map coordinates.

Other Geo-Referenced Information. 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. 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.

ACQUISITIONS AND DISPOSITIONS

In 1995, ASI embarked on a growth strategy, which included consolidation of the
fragmented GIS services industry. The Company completed five strategic
acquisitions that expanded its geographical scope, capacity, customer base,
product offerings, proprietary technology and operational expertise. The Company
acquired:

- Intelligraphics, Inc. located in Wisconsin in December 1995;
- Westinghouse Landmark GIS, Inc. located in North Carolina in July
1996;
- MSE Corporation ("MSE") located in Indiana in July 1997;
- Cartotech, Inc. located in Texas in June 1998; and
- The assets of Measurement Sciences, Inc. located in Colorado in
December 1998.

In 1999, the Company sold the Phillips Design Group and Mid-States Engineering
subsidiaries (both acquired as parts of MSE Corporation), as these units were
not core business competencies. We also sold the Cartographic Sciences Group
located in Mumbai, India, to InfoTech Enterprises, Ltd. in 1999.

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In April 2001, we sold substantially all of the 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 ASI 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 ASI production facility. The sale allowed the Company
to reduce debt and to refocus attention on utility and cadastral mapping
services.

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

In June 2002, we consolidated and relocated the 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 the Texas and Wisconsin facilities.

Effective January 1, 2003, we plan to move our corporate headquarters to the San
Antonio, Texas facility to give the executive team closer proximity to
production staff.

CUSTOMERS

We derive revenues primarily from two core markets, utilities and state and
local governments, and we also serve commercial businesses. Current customers
include American Electric Power Service Corporation, ESRI, KeySpan Corporate
Services, LLC, Logica, Inc., Michigan Consolidated Gas Company, SBC Services,
Inc., SchlumbergerSema, and Worldwide Services, Inc. (a division of Intergraph),
among others. Three of these customers each accounted for more than 10% of our
consolidated revenues in fiscal 2002. The same three customers accounted for 72%
of total accounts receivable and revenue in excess of billings at September 30,
2002. The loss of any of these three customers would have a material adverse
effect on the Company. See "Risk Factors - Dependence on Certain Customer
Markets" and "- Terms of Customer Contracts," and note 10 - "Concentrations of
Credit Risk."

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:

- Maintaining relationships and forming alliances with regional
businesses offering complementary services;
- Obtaining referrals, either directly or indirectly, from consultants
in the GIS industry;
- Maintaining memberships in professional and trade associations; and
- Actively participating in industry conferences.

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 contracts take from 6 to 48 months to complete. See "Risk
Factors--Dependence on Business Alliances."

SUBCONTRACTORS

We use subcontractors when necessary to expand capacity, meet deadlines, reduce
production costs and manage workload. We are in the third year of a five-year
agreement with InfoTech Enterprises, Ltd., an India-based company. The agreement
provides us with exclusive access to InfoTech's production capacity for data
conversion and other related services. Under the agreement, we licensed certain

3

proprietary production technology and provided certain assurances of production
volume to InfoTech. We intend to continue to utilize offshore subcontractors for
a large percentage of our production work in fiscal 2003 to reduce production
costs and develop new services. We also employ certain select foreign and
domestic subcontractors for tasks outside its expertise, or to augment in-house
capacity (such as field data surveying). See "Risk Factors--Dependence on
Subcontractors," "--Dependence on Offshore Operations" and "--Personnel."

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. We engage in several research
and development activities. Most of these activities occur as we develop
software or design a product or process for a particular contract. The costs of
such efforts are generally included in project expenses, and are not charged to
research and development expenses. We retain ownership of such proprietary
software and products and often apply them to projects for other customers.
Approximately seven employees are substantially engaged in research and
development efforts. See "Risk Factors--Reliance on Technology; Limited
Protection of Proprietary Rights."

COMPETITION

The GIS services business is highly competitive and highly fragmented.
Competitors include small regional firms, independent firms, large companies
with GIS services divisions, customer in-house operations and international
low-cost providers of data conversion services.

We seek to compete on the basis of:

- The quality of our products and the breadth of our services;
- The accuracy, responsiveness and efficiency with which we provide
services to customers; and
- Our capacity to perform large complex projects.

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 it to achieve
more consistent quality and greater efficiencies than more manually intensive
methods.

To compete against low-cost providers, the Company minimizes costs by using
offshore subcontractors for a large percentage of its production work. See "Risk
Factors--Dependence on Subcontractors."

PERSONNEL

At September 30, 2002, we had approximately 200 employees compared to 346 at
September 30, 2001. We reduced the workforce and executive ranks as we:

- Transitioned a greater percentage of work to less expensive offshore
subcontractors;
- Continued efforts to improve operational efficiencies;
- Adjusted expenses to match forecasted revenues; and
- Flattened our organizational structure to shorten the internal
communications hierarchy.

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

4

relations with our employees to be good. See "Risk Factors--Competition" and
"--Dependence on Key Personnel."

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 the Company's
outlook and future.

DEPENDENCE ON CASH RESOURCES FOR LIQUIDITY

The Company currently does not have a line of credit with any lender. The terms
of the senior secured convertible note restricts our ability to secure
additional debt and also contain certain immediate call provisions that are
outside of the Company's control, which if triggered and exercised, would make
it difficult for the Company to meet the debt payments. 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. During the fiscal years of 2000 through 2002, the
Company experienced significant operating losses with corresponding reductions
in working capital and net worth, excluding the impact of debt forgiveness. The
Company's revenues and backlog have also decreased substantially during the same
period. These factors among others raise substantial doubt about the Company's
ability to continue as a going concern. We rely solely on cash flow from
operations to fund future operations and expenditures. We attempt to negotiate
new contracts to minimize negative cash flow and frequently monitor and forecast
our cash availability. There is no assurance that the cash flow from operations
will be sufficient to meet our capital requirements. See "Risk Factors--Terms of
Customer Contracts" and Item 7 - "Liquidity and Capital Resources."

DEPENDENCE ON SUCCESSFUL IMPLEMENTATION OF TURNAROUND EFFORTS

The successful implementation of the Company's 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 the Company to profitability and positive cash
flow can be implemented to the extent and in the timeframe planned. Delays and
difficulties in achieving sales targets, realizing cost savings, maintaining
funding, retaining employees and other turnaround efforts could have a material
adverse effect on the Company.

COMPETITION

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 provided by the
Company and lower the cost of entry into the GIS services industry. The Company
is 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 the Company's competitors or potential
competitors may have capabilities and resources greater than those of the
Company.

TERMS OF CUSTOMER CONTRACTS

Most of the Company's revenue is earned under long-term, fixed-price contracts.
The Company's contractual obligations typically include large projects that will
extend over six months to four years. These long-term contracts entail
significant risks, including:

5

- The Company's ability to estimate its costs accurately is critical to
ensuring the profitability of projects.
- The Company must control costs under such fixed-price contracts once
in production.
- Contracts may be signed with a broad outline of the scope of the work,
with detailed specifications prepared after a contract is signed. In
preparing the detailed specifications, customers often negotiate
specifications that reduce ASI's planned project profitability.
- Customers may increase the scope of contracts and ASI must negotiate
change orders to maintain planned project profit margins and cash
flows.
- Customers may request the Company slow down or scale back the scope of
a project to satisfy their budget or cash constraints. Schedule delays
and scope reductions may interrupt work flow, create inefficiencies,
and increase cost.
- Customers may require a compressed schedule that may place additional
strains on cash availability and management's ability to hire and
train personnel required to meet deadlines.
- Contracts are generally terminable by the customer on relatively short
notice, and the terms of some contracts may make it difficult for the
Company to recoup its investment in a project terminated prior to
completion.
- Large, long-term, fixed-price contracts generally increase the
Company's exposure to the effects of inflation and currency exchange
rate fluctuation.

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

The Company has experienced and expects to continue to experience quarterly
variations in revenues and operating income as a result of many factors,
including the timing of customers' budget processes, slowdowns or acceleration
of work by customers, the number of operating days in each quarter and the
impact of weather conditions on the ability of the Company or subcontractors to
obtain satisfactory aerial photography or field data. In addition, the Company
has in the past experienced lower sales in its first fiscal quarter (ended
December 31) due to certain customers' year-end funding constraints, and
seasonal slow downs associated with the year-end holidays. General weak economic
conditions may result in customer deferral of projects or cancellation in
planned expenditures.

RELIANCE ON TECHNOLOGY; LIMITED PROTECTION OF ITS PROPRIETARY RIGHTS

The Company has devoted significant resources to developing and acquiring
specialized data collection and conversion hardware and software. In order to
remain competitive, the Company must continue to select, invest in, acquire and
develop new and enhanced technology on a timely basis. There can be no assurance
that the Company will be successful in these efforts or in anticipating
developments in data conversion technology. In addition, competitors could
develop similar applications. The Company does not have any patent protection
for its products or technology. Third parties could independently develop
similar technology, obtain unauthorized access to the Company's proprietary
technology or misappropriate technology to which the Company has granted access.

DEPENDENCE ON CERTAIN CUSTOMER MARKETS

The Company derives its 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 services 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

6

which they operate, could cause a material reduction in demand by such customers
for the services offered by the Company. Any such reduction in demand could have
a material adverse effect on the Company.

DEPENDENCE ON MAINTAINING A SKILLED LABOR FORCE

The Company's business is labor-intensive and requires trained employees. There
can be no assurance that the Company will be able to continue to hire, train and
retain sufficient numbers of qualified employees. A significant portion of the
Company's costs consists of wages to hourly workers. An increase in hourly
wages, costs of employee benefits or employment taxes could have a material
adverse effect on the Company. Turnover could increase for any of several
reasons, including increased competition for labor. Higher turnover among the
Company's employees would increase the Company's recruiting and training costs,
could affect the Company's ability to perform services and earn revenues on a
timely basis and could decrease operating efficiencies and productivity.

DEPENDENCE ON KEY PERSONNEL

The success of the Company depends upon the continued service of its key
employees. The Company's ability to retain its management team is an important
factor in its turnaround program and its ability to pursue its overall business
plan.

While the Company has employment agreements with certain of its key personnel,
there is no assurance that the Company will be able to retain the services of
such key personnel. The Company does not maintain any key person life insurance
policies. Layoffs in recent years may impair the Company's ability to retain and
recruit key personnel. The loss of additional key personnel or the inability to
obtain additional key personnel could have a material adverse effect on the
Company. The Company's Chief Financial Officer resigned effective January 4,
2003. The Company is in the process of recruiting a replacement.

DEPENDENCE ON SUBCONTRACTORS

The Company employs certain selected subcontractors for tasks outside its
expertise, such as for the acquisition of aerial photography. The Company also
uses subcontractors for work similar to that performed by its own employees such
as field data acquisition. These arrangements allow the Company to expand
capacity, meet deadlines, reduce production costs, and manage work load. The
inability to obtain the services of such qualified subcontractors when needed
could have a material adverse effect on the Company.

DEPENDENCE ON OFFSHORE OPERATIONS

The Company utilizes 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. The ability of the Company to perform services
under some existing contracts on a profitable basis is dependent upon the
continued availability of its overseas subcontractors. 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
the Company's subcontractors could have a material adverse effect on the
Company. The Company is in the third year of a five-year exclusive agreement
with InfoTech Enterprises, Ltd., an India-based company, to provide production
capacity for data conversion and other related services. Under the agreement,
the Company had provided certain assurances of production volume to InfoTech.
ASI is not meeting these production volume commitments due to the weakened
demand for services from its customer base.

7

DEPENDENCE ON BUSINESS ALLIANCES

A portion of the Company's sales is the result of referrals derived, either
directly or indirectly, from engineers, software developers and consultants in
the GIS industry. The Company believes that its continued success in the GIS
services market is dependent, in part, on its 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 the Company's
competitors. There can be no assurance that relationships with GIS consultants
will continue to be a source of business for the Company. The inability of the
Company to maintain such relationships or to form new relationships could have a
material adverse effect on the Company.

EFFECT OF PREFERRED STOCK PROVISIONS

The Company's 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. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of the 1.6 million
shares of preferred stock that the Company has previously issued and any
preferred stock that may be issued by the Company in the future. Any such
issuance could be used to discourage an unsolicited acquisition proposal by a
third party. See Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."

VOLATILITY OF STOCK PRICE

The trading price and volume of the common stock has been and may continue to be
subject to significant fluctuations in response to:

- Actual or anticipated variations in the Company's quarterly operating
results;
- The introduction of new services or technologies by the Company or its
competitors;
- Changes in other conditions in the GIS industry or in the industries
of any of the Company's customers;
- Changes in governmental regulation, government spending levels or
budgetary procedures;
- Changes in the industry generally; or seasonal, general market or
economic conditions.

The trading price of the common stock may vary without regard to the operating
performance of the Company.

RISK OF LOSS OF NASDAQ LISTING

Our common stock is traded on the Nasdaq SmallCap Market. Under Nasdaq rules, if
the aggregate market value of our publicly-held common stock falls below
$1,000,000 for a period of 30 consecutive business days, Nasdaq may give notice
to the Company of such deficiency. During the 90-day period following the
Company's receipt of such notice, the aggregate market value of the Company's
common stock must exceed $1,000,000 for a period of 10 consecutive business days
during the 90-day compliance period in order for the Company's common stock to
continue to be listed on the Nasdaq SmallCap Market. As of December 13, 2002,
the aggregate market value of our publicly-held common stock has been below
$1,000,000 for a period of 24 consecutive business days. If the Company were
unable to meet the requirements described above, the Company's stock would be
de-listed and would trade on the Over-The-Counter Bulletin Board. Any such
de-listing could adversely affect the liquidity and price of our common stock.
In addition, the Company is obligated to continue the listing of its common
stock on the Nasdaq SmallCap Market pursuant to the Note and Warrant Purchase
Agreement entered into with Tonga Partners, L.P., its controlling beneficial
shareholder, and any breach of this obligation might result in the acceleration
of the Company's obligations under the senior secured convertible note payable
to Tonga Partners, L.P.

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ITEM 2. PROPERTY.

The Company operates three offices in the United States. The Company leases
facilities in Carmel, Indiana, San Antonio, Texas and Waukesha, Wisconsin.

ITEM 3. LITIGATION.

The Company was named as a defendant in a consolidated putative securities class
action alleging a misstatement or omission of material facts concerning the
Company's operations and financial results. On September 21, 2001 the United
States District Court of the Southern District of Indiana (the "Court") issued
an Order and Final Judgment ratifying the settlement terms of this lawsuit
against the Company and certain of its directors and former officers. The
settlement, which was agreed to in principle on April 4, 2001, provided for the
dismissal of the lawsuit in its entirety against all defendants and the
establishment of a settlement fund of $4 million, of which the Company
contributed $100,000 of cash, and 125,600 shares of the Company's common stock
for the class. The class consisted of open market purchasers of the Company's
shares between January 25, 1999 and March 7, 2000, inclusive. The remaining $3.9
million of cash was contributed by the Company's insurance company. The
Company's cost of this settlement, excluding legal fees, was $748,000 based on
the cash contribution and the value of the common shares on the date of the
agreement in principle. This cost was included in the financial results of the
Company in the fiscal quarter ended March 31, 2001. The settlement proceeds were
distributed in fiscal 2002. Pursuant to the settlement, the litigation has been
dismissed.

The Company and certain former directors had been named as defendants in an
action that was filed on September 20, 2000 by Sidney V. Corder, the former
President, Chief Executive Officer and Director of the Company. The suit claimed
that the Company violated the Colorado Wage Claim Act and breached contractual
obligations. The suit also claimed that the Company has breached an obligation
to indemnify Mr. Corder in connection with the securities lawsuit described in
the preceding paragraph. On July 23, 2002, the Company entered into a Settlement
Agreement and Mutual General Release to settle the lawsuit. The settlement
provided for, among other things, the payment of approximately $200,000 to Mr.
Corder by the Company and its insurance carrier, the mutual release of present
or future actions, suits or claims, and a waiver by Mr. Corder to seek
indemnification for any present or future actions, suits or claims arising out
of his employment. Pursuant to the settlement, the litigation has been
dismissed.

Two shareholders of the Company, the Epner Family Limited Partnership and the
Braverman Family Limited Partnership, filed suit in Indiana state court
(Hamilton County Superior Court, State of Indiana) against four former officers
of the Company on May 8, 2001. The former officers are: Sidney Corder, Chief
Executive Officer; Scott Benger, Senior Vice President of Finance; Randy Sage,
Chief Operations Officer; and John Dillon, Chief Administrative Officer. The
plaintiffs claimed that the former officers violated Texas and Indiana
securities laws and other provisions of Texas law in connection with the
Company's acquisition of Cartotech, Inc., in June 1998. The four defendants have
sent the Company written demands for indemnification. The Company has no further
obligation to indemnify Mr. Corder as specified in the Settlement Agreement
described above. The Company has put its insurance carrier on notice of these
claims and has requested coverage. In response, the insurance carrier has
reserved its rights to deny or limit coverage. On or about May 8, 2002, the
Court issued an Order granting motions filed by Messrs. Corder and Sage to
dismiss the Complaint for failure to state a claim and/or failure to join a
necessary party as required by trial rules and case law. Plaintiffs filed an
amended complaint and a motion for reconsideration of the Court's order of May
8, 2002, on or about May 31, 2002. Defendants have moved for dismissal of the
amended complaint. The Court has these motions under consideration.

On June 26, 2002, The Epner Family Limited Partnership and the Braverman Limited
Partnership ("Claimants") initiated arbitration proceedings against the Company.
As set forth in the preceding

9

paragraph, the Claimants are the plaintiffs in related Indiana state court
litigation against former officers of the Company. In the Statement of Claim
they filed with the American Arbitration Association, Claimants allege that
certain representations and warranties made by the Company in the Cartotech
merger agreement were false because the financial condition of the Company
allegedly was worse than depicted in its financial statements for 1997 and the
unaudited reports for the first two quarters of fiscal 1998. They allege that
the restatement of the Company's financial statements for fiscal year 1999
should have included the financial statements referenced in the merger
agreement. Claimants assert that the Company violated the Texas Securities Act
and the Indiana Securities Act. They also allege that the Company breached
warranties in the merger agreement. The Claimants seek "recission or damages" in
the "principal amount" of "approximately $5,546,533," which allegedly is the net
loss in value of the Company stock they received in the merger, and attorneys'
fees. The Company has filed a response to the Claimants' Statement of Claim
denying its material allegations and intends to vigorously assert defenses. The
arbitration hearing is presently scheduled to occur in September, 2003.

Another former Cartotech shareholder, Albert Naumann, III (a former officer of
ASI) has threatened to bring claims against the Company. The Company intends to
vigorously defend any such claims.

Robert Montgomery, a former officer of ASI, filed suit on July 19, 2002 in
Marion County Superior Court, State of Indiana, seeking recovery of unpaid
commissions pursuant to the Indiana Wage Payment statute. The Company did not
receive a copy of the complaint until October 24, 2002. Mr. Montgomery seeks
recovery of $67,611 in unpaid commissions, treble damages, costs, interest and
attorneys' fees. The Company has responded to the lawsuit and denies all claims
in the action. The parties have not yet begun discovery. Therefore, at this time
we are unable to form a conclusion that an unfavorable outcome in this matter is
either probable or remote.

On January 23, 2002, the Company announced that the Securities and Exchange
Commission has commenced a formal investigation of the Company, certain of its
former officers, directors and others in connection with the Company's
accounting policies, procedures, disclosures and system of internal controls
relating to the period from October 1998 through March 2000. On March 7, 2000,
the Company restated earnings for the fiscal year ended September 30, 1999. The
Company continues to cooperate fully with the SEC in this investigation. The
Company may have a responsibility to indemnify certain individuals and groups
for defense and other costs in connection with this investigation.

The Company is 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 the Company's financial
condition or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS.

None.

10

PART II.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS.

Since June 6, 2002 our common stock has traded on the NASDAQ SmallCap Market
under the symbol "ANLT." Prior to that date, our common stock traded on the
NASDAQ National Market under the same symbol. As of December 10, 2002, we had
1,753 holders of record. The following table sets forth the high and low bid
prices for our common stock as reported on NASDAQ for the period we were quoted
on the NASDAQ SmallCap Market and the high and low sale prices for the period we
were quoted on the NASDAQ National Market System. 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.

On April 2, 2002, we issued a senior secured convertible promissory note to
Tonga Partners, L.P. in the original principal amount of $2,000,000. As part of
the same transaction, we issued to Tonga warrants 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 Partners, L.P. established to our
satisfaction that it is an accredited investor.

ITEM 6. SELECTED FINANCIAL DATA.

The following selected consolidated financial data as of and for the years ended
September 30, 2002, 2001, 2000, 1999 and 1998 are derived from the consolidated
financial statements of the Company which have been audited by KPMG LLP,
independent auditors. The Company's historical consolidated financial statements
as of September 30, 2002 and 2001 and for the years ended September 30, 2002,
2001 and 2000 are contained elsewhere in this Report. The following selected
consolidated financial data should be read in conjunction with the Company's
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 Report. (Amounts in thousands, except for
per share data.)

11

- ----------
(1) In June 1998, the Company acquired Cartotech for $8.1 million in cash and
35,417 shares of restricted Common Stock valued at $8.3 million.

(2) In April 2001, the Company sold substantially all of the assets of the
Colorado Springs, Colorado-based mapping office for an aggregate sales
price of $10.1 million, including cash proceeds of $8.6 million and the
assumption by the buyer of $1.5 million of certain liabilities.

(3) Information for all five years reflects the one-for-ten reverse stock split
effective October 2, 2002.

12

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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-K. This Form 10-K contains forward-looking statements that involve risk and
uncertainties. The statements contained in this Form 10-K 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-K, or in the documents incorporated by reference into this Form 10-K, 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 in "
Business - Overview and - Risk Factors" and statements relating to competition,
management of growth, the Company's strategy, future sales, future expenses and
future liquidity and capital resources. All forward-looking statements in this
Form 10-K are based upon information available to the Company on the date of
this Form 10-K, 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-K. Factors that could cause or contribute
to such differences include, but are not limited to, the resolution or outcome
of the lawsuits described in "Litigation" above, the effect of changes in
management in the Company and the ability to retain qualified individuals to
serve in key management positions, and those discussed below, in " Business--
Risk Factors," and elsewhere in this Form 10-K.

OVERVIEW

The Company, founded in 1981, is a provider of data conversion and digital
mapping services to users of customized geographic information systems.

The Company experiences yearly and quarterly fluctuations in production costs,
salaries, wages and related benefits and subcontractor costs. These costs may
vary as a percentage of sales from period to period. The Company utilizes
InfoTech Enterprises Ltd., an India-based company, for a significant percentage
of its offshore production services.

Backlog increases when new contracts are signed and decreases as revenues are
recognized. Changes in macroeconomic and industry market conditions were first
encountered in fiscal 2000 and have continued through fiscal 2002. These changes
have resulted in a reduction of timely order flow to the Company. At September
30, 2002, backlog was $19.5 million as compared with $22.5 million at September
30, 2001. Management believes these adverse market conditions were and continue
to be primarily caused by the recessionary economic climate, consolidation in
the utility industry, the Company's adverse financial results for fiscal years
2000 and 2001 and increased competition from companies with offshore operations.

A number of the projects awarded to the Company are greater than $2 million or
longer than two years in duration, which can increase the Company's risk due to
inflation, as well as changes in customer expectations and funding availability.
The Company's contracts are generally terminable on short notice, and while in
the Company's experience such termination is rare, there is no assurance that
the Company will receive all of the revenue anticipated under signed contracts.
See Item 1. "Business -- Risk Factors" and "- Risks Associated with Terms of
Customer Contracts."

13

CRITICAL ACCOUNTING POLICIES

REVENUE RECOGNITION. The Company recognizes 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. The cost estimation process requires substantial
judgements. The duration of the contracts and the technical challenges included
in certain contracts affect the Company's ability to estimate costs precisely.
Production costs consist of internal costs, primarily salaries and wages, and
external costs, primarily subcontractor costs. Internal and external production
costs may vary considerably among projects and during the course of completion
of each project. At each accounting period, the percentage of completion is
based on production costs incurred to date as a percentage of total estimated
production costs for each of the Company's contracts. This percentage is then
multiplied by the contract's total value to calculate the sales revenue to be
recognized. The percentage of completion is affected by any factors which
influence either the estimate of future productivity or the production cost per
hour used to determine future costs. The Company recognizes losses on contracts
in the period such loss is determined. Sales and marketing expenses associated
with obtaining contracts are expensed as incurred.

VALUATION OF ACCOUNTS RECEIVABLE. The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability of its customers to
make required payments. Management routinely assesses the financial condition of
the Company's customers and the markets in which these customers participate. If
the financial condition of the Company's customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances might be required.

LITIGATION. The Company is 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 its
legal counsel. When estimates of the Company's exposure for claims or pending or
threatened litigation matters meet the criteria of SFAS 5, amounts are recorded
as charges to net earnings. The ultimate resolution of any exposure to the
Company may change as further facts and circumstances become known.

INCOME TAXES. The year 2002 was the first year out of the last three in which we
have reported net income (and taxable income). These prior year losses generated
a sizeable federal tax net operating loss, or NOL, carryforward of approximately
$16.7 million as of September 30, 2002.

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 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) for current income.

It is possible, however, that we could be profitable in the future at levels
which 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 40% 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.

14

IMPAIRMENT OF GOODWILL. Long-lived assets, goodwill and other intangibles are
evaluated for impairment when events and circumstances indicate that the assets
may be impaired and the undiscounted cash flows to be generated by those assets
are less than their carrying value. If the undiscounted cash flows are less than
the carrying value of the assets, the assets are written down to their fair
value. The determination of undiscounted cash flows is based on the businesses'
strategic plans and long-range planning forecasts. The Company has written off
all remaining goodwill in 2002.

RESULTS OF OPERATIONS

The following table sets forth, for the fiscal years ended September 30, 2002,
2001 and 2000, selected consolidated statement of operations data expressed as a
percentage of sales:

FISCAL YEARS ENDED SEPTEMBER 30, 2002 AND 2001

REVENUES. The Company's revenues are recognized as services are performed.
Revenues recorded in a period are reported net of adjustments to reflect changes
in estimated profitability of each project. Revenues decreased 53.4% or $21.9
million to $19.1 million for fiscal 2002 from $40.9 million for fiscal 2001.
This decrease was primarily due to a decline in the number and size of customer
contracts and the sale of the Colorado office and by downward adjustments in the
anticipated profitability of existing contracts. As required by
percentage-of-completion accounting guidelines, the revenue impact of these
changes in accounting estimates is recorded in the current period.

SALARIES, WAGES AND BENEFITS. Salaries, wages and benefits includes employee
compensation for production, marketing, selling, administrative and executive
employees. Salaries, wages and benefits decreased 47.7% to $13.1 million for
fiscal 2002 from $25.0 million for fiscal 2001. This decrease was primarily due
to across-the-board staff reductions and the sale of the Colorado office. As a
percentage of revenues, salaries, wages and benefits increased to 68.6% for
fiscal 2002 from 61.1% for fiscal 2001.

SUBCONTRACTOR COSTS. Subcontractor costs includes production costs incurred
through the use of third parties for production tasks such as data conversion
services to meet contract requirements, aerial photography and ground and
airborne survey services. Subcontractor costs decreased 56.4% to $3.6

15

million for fiscal 2002 from $8.3 million for fiscal 2001. This decrease was due
to a decreased number of contracts, completing backlog that utilized
subcontractor labor and the sale of the Colorado office. Subcontractor costs
decreased as a percentage of revenues to 19.0% for fiscal 2002 from 20.2% for
fiscal 2001.

OTHER GENERAL AND ADMINISTRATIVE COSTS. Other general and administrative costs
includes rent, maintenance, travel, supplies, utilities, insurance and
professional services. Such costs decreased 47.9% to $5.5 million for fiscal
2002 from $10.6 million for fiscal 2001. The decrease was primarily attributable
to decreases in travel, supplies and certain professional services expenses,
which varied with the general decrease in personnel at the Company in fiscal
2002. As a percentage of revenues, other general and administrative costs
increased to 28.9% for fiscal 2002 from 25.8% for fiscal 2001.

BAD DEBTS. The Company records losses, or the anticipation of losses, arising
from its investment in accounts receivable and revenues in excess of billings in
the period in which the possibility of loss is identified. Bad debts were
$68,000 in fiscal 2002 versus $1.7 million in fiscal 2001. Bad debt expense in
fiscal 2001 related primarily to the write-down of a receivable on a terminated
contract.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization in 2001 consists
primarily of amortization of goodwill incurred in connection with the Company's
acquisitions, as well as depreciation of certain of the Company's operating
assets. For fiscal 2002, goodwill amortization was discontinued due to the
change in accounting principle to apply the provisions of SFAS 142. (See
discussion on the cumulative effect of a change in accounting principle below.)
For fiscal 2002, depreciation decreased $1.6 million to $915,000 from $2.5
million for 2001 due to equipment becoming fully depreciated, the sale of the
Colorado office, and the consolidation from four production centers to two. As a
percentage of revenues, depreciation and amortization was 4.8% for fiscal 2002
and 7.0% for fiscal 2001.

SEVERANCE AND RELATED COSTS. The Company incurred severance expense of $97,000
in fiscal 2002 and $230,000 in fiscal 2001. These costs represented 0.5% of
revenues in both fiscal 2002 and fiscal 2001.

GAIN ON SALE OF ASSETS. On April 27, 2001, the Company completed the sale of
substantially all of the assets of its Colorado Springs, Colorado-based land
mapping office for an aggregate sales price of approximately $10.1 million,
including cash proceeds of $8.6 million and the assumption of $1.5 million of
certain liabilities by the buyer. The Company transferred approximately $2.9
million of net working capital and $2.2 million of net book value of equipment
and leasehold improvements to the buyer and recorded a gain on sale of
approximately $3.5 million after transaction and other expenses. The Company
used the proceeds of the transaction to reduce its line-of-credit, lease and
term debt by a total of $6.0 million, pay Colorado-related liabilities of
approximately $1.2 million, pay transaction expenses of approximately $700,000
and fund other operating expenses.

OTHER EXPENSE, NET. Other expense, net is primarily comprised of net interest.
Interest expense decreased to $277,000 for fiscal 2002 from $1.9 million in
fiscal year 2001. This decrease was primarily due to reduced debt outstanding
and lower interest rates in fiscal 2002. Most of the interest expense in fiscal
2002 is non-cash in nature as it relates to accretion of discount or payment is
deferred.

INCOME TAX BENEFIT. The Company has recorded income tax benefit of $1.2 million
in fiscal 2002 as a result of a recent change in federal tax regulations. New
regulations allowed the Company to claim a refund of taxes paid in prior years
by increasing the carryback period of its federal net operating loss generated
in fiscal year 2001 from two years to five years. The Company continues to
project zero tax expense for fiscal 2002, excluding the benefit from this change
in tax law. Also, as a result of the uncertainty that sufficient future taxable
income can be recognized to realize additional deferred tax assets, no
additional income tax benefit has been recognized for fiscal 2002. In fiscal
2001, tax expense

16

of $2.8 million was recognized to reflect the uncertainty that sufficient
taxable income could be recognized to realize the deferred tax asset.

EXTRAORDINARY GAIN (LOSS) ON EXTINGUISHMENT OF DEBT, NET OF TAX. The Company
recognized an extraordinary gain of $11.7 million in fiscal 2002. Such gain is a
result of the debt forgiveness related to a $1.95 million cash payment, the
issuance of a $175,000 unsecured promissory note and the issuance of
non-convertible preferred stock with an original fair value of $300,000 to fully
retire debt of $14.1 million. This gain reflects net tax of $0 due to the
Company's estimated effective tax rate for the year. The extraordinary gain of
$300,000 in fiscal 2001 represents the debt forgiveness related to a $100,000
debt payment under the Company's debt agreement in effect at September 30, 2001.

CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE. The Company elected early
adoption of FASB Statement No. 142, Accounting for Goodwill and Other Intangible
Assets, as of October 1, 2001. The Company has determined that goodwill has been
impaired under the provisions of FASB 142 and has recognized a loss of $3.6
million as the cumulative effect of this change in accounting principle during
fiscal 2002.

NET EARNINGS (LOSS). Net earnings of $5.1 million in fiscal 2002 is a $14.8
million improvement over the $9.7 million net loss in fiscal 2001. As discussed
above, non-operational items accounted for the variance.

FISCAL YEARS ENDED SEPTEMBER 30, 2001 AND 2000

REVENUES. The Company's revenues are recognized as services are performed.
Revenues recorded in a period are reported net of adjustments to reflect changes
in estimated profitability of each project. Revenues decreased 31.9% or $19.1
million to $40.9 million for fiscal 2001 from $60.1 million for fiscal 2000.
This decrease was primarily due to a decline in the number and size of customer
contracts and the sale of the Colorado office and by downward adjustments in the
anticipated profitability of existing contracts. As required by
percentage-of-completion accounting guidelines, the revenue impact of these
changes in accounting estimates is recorded in the current period.

SALARIES, WAGES AND BENEFITS. Salaries, wages and benefits includes employee
compensation for production, marketing, selling, administrative and executive
employees. Salaries, wages and benefits decreased 43.2% to $25.0 million for
fiscal 2001 from $44.0 million for fiscal 2000. This decrease was primarily due
to across the board staff reductions, use of lower cost offshore subcontractor's
labor, and the sale of the Colorado office. As a percentage of revenues,
salaries, wages and benefits decreased to 61.1% for fiscal 2001 from 73.2% for
fiscal 2000.

SUBCONTRACTOR COSTS. Subcontractor costs includes production costs incurred
through the use of third parties for production tasks such as data conversion
services to meet contract requirements, aerial photography and ground and
airborne survey services. Subcontractor costs decreased 42.7% to $8.3 million
for fiscal 2001 from $14.5 million for fiscal 2000. This decrease was due to a
decreased number of contracts, completing backlog that utilized subcontractor
labor and the sale of the Colorado office. Subcontractor costs decreased as a
percentage of revenues to 20.2% for fiscal 2001 from 24.1% for fiscal 2000.

OTHER GENERAL AND ADMINISTRATIVE COSTS. Other general and administrative costs
includes rent, maintenance, travel, supplies, utilities, insurance and
professional services. Such costs decreased 25.8% to $10.6 million for fiscal
2001 from $14.2 million for fiscal 2000. The decrease was primarily attributable
to decreases in travel, supplies and certain professional services expenses,
which varied with the general decrease in personnel at the Company in fiscal
2001. As a percentage of revenues, other general and administrative costs
increased to 25.8% for fiscal 2001 from 23.7% for fiscal 2000.

17

BAD DEBTS. The Company records losses, or the anticipation of losses, arising
from its investment in accounts receivable and revenues in excess of billings in
the period in which the possibility of loss is identified. Bad debts decreased
23.3% to $1.7 million in fiscal 2001 from $2.3 million in fiscal 2000.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization consists primarily
of amortization of goodwill incurred in connection with the Company's
acquisitions, as well as depreciation of certain of the Company's operating
assets. The Company's operating assets are comprised primarily of computer
hardware and software and office equipment. For fiscal 2001, depreciation and
amortization decreased 44.2% to $2.8 million from $5.1 million for fiscal 2000.
This decrease was primarily attributable to reductions in depreciation resulting
from an increasing percentage of equipment becoming fully depreciated and the
sale of the Colorado office. Additionally, amortization of goodwill declined
substantially in 2001 due to the $16.5 million impairment charge recorded in
fiscal 2000, as described below. As a percentage of revenues, depreciation and
amortization decreased to 7.0% for fiscal 2001 from 8.5% for fiscal 2000.

IMPAIRMENT OF GOODWILL. Goodwill represents the excess of the purchase price
over the net assets acquired in business combinations and is amortized over a
fifteen-year period using the straight-line method. The Company assessed the
recoverability of unamortized goodwill and determined that goodwill had been
significantly impaired as of September 30, 2000 based on anticipated future cash
flows from operations and potential asset dispositions. The impairment of
goodwill charge of $16.5 million represented 27.5% of revenues in fiscal 2000.
There was no comparable charge in fiscal 2001.

SEVERANCE AND RELATED COSTS. The Company incurred severance expense of $230,000
in fiscal 2001 and other severance, legal, accounting and consulting expenses of
$2.5 million associated with officer resignations and business improvement
initiatives in fiscal 2000. These costs represented 0.5% and 4.2% of revenues in
fiscal 2001 and fiscal 2000, respectively.

GAIN ON SALE OF ASSETS. On April 27, 2001, the Company completed the sale of
substantially all of the assets of its Colorado Springs, Colorado-based land
mapping office for an aggregate sales price of approximately $10.1 million,
including cash proceeds of $8.6 million and the assumption of $1.5 million of
certain liabilities by the buyer. The Company transferred approximately $2.9
million of net working capital and $2.2 million of net book value of equipment
and leasehold improvements to the buyer and recorded a gain on sale of
approximately $3.5 million after transaction and other expenses. The Company
used the proceeds of the transaction to reduce its line-of-credit, lease and
term debt by a total of $6.0 million, pay Colorado-related liabilities of
approximately $1.2 million, pay transaction expenses of approximately $700,000
and fund other operating expenses.

OTHER EXPENSE, NET. Other expense, net is primarily comprised of net interest.
Interest expense decreased 20.8% to $1.9 million for fiscal 2001 from $2.4
million in fiscal year 2000. This decrease was primarily due to reduced average
debt outstanding and lower interest rates in fiscal 2001.

INCOME TAX EXPENSE (BENEFIT). As a result of the uncertainty that sufficient
taxable income can be recognized to realize the deferred tax assets, tax expense
of $2.8 million is recognized for fiscal 2001 as a result of an increase in the
tax valuation allowance as compared to an income tax benefit of $3.3 million for
fiscal 2000. The income tax benefit, which resulted from the Company's loss in
fiscal 2000, was recognized to the extent that net operating losses could be
used to recover previously paid taxes and that future operations were expected
to generate sufficient taxable income to realize deferred tax assets.

EXTRAORDINARY GAIN (LOSS) ON EXTINGUISHMENT OF DEBT, NET OF TAX. The
extraordinary gain of $300,000 in fiscal 2001 represents the debt forgiveness
related to a $100,000 debt payment under the Company's debt agreement in effect
at September 30, 2001. The extraordinary loss of $209,000 in fiscal 2000 relates
to the write-off of unamortized bank fees and cash payments made to amend the
Company's lending agreement in March, 2000.

18

NET EARNINGS (LOSS). Net loss of $9.7 million in fiscal 2001 is a $28.9 million
improvement over the $38.6 million net loss in fiscal 2000. As discussed above,
significant non-recurring events and improved operational results contributed to
the variance.

LIQUIDITY AND CAPITAL RESOURCES

Historically, the Company's principal source of liquidity has consisted of cash
flow from operations supplemented by secured lines-of-credit and other
borrowings. Though the Company did not have a working capital line-of-credit as
of September 30, 2002, other borrowings consisted of a $1.8 million senior
secured convertible note and a $175,000 unsecured promissory note.

The $175,000 unsecured promissory note matures on March 31, 2003 and bears
interest at prime rate plus one percent (5.75% at September 30, 2002). The $1.8
million senior secured convertible note, which has a face value of $2.0 million
maturing April 2, 2005, bears interest at an annual rate of five percent, but
interest is not payable until maturity. The senior secured convertible note may
be converted to Common Stock as described below.

The senior secured convertible note is convertible at any time into common stock
of the Company at a 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 of April 2, 2002
(calculated to be $4.69), and (iii) 90% of the average closing bid prices for
the 3 trading days having the lowest closing bid price during the 20 trading
days immediately prior to the conversion date, but under any event, the number
of shares issuable upon full conversion of the note must constitute at least 38%
of the issued and outstanding shares, on a fully diluted basis, as of the date
of full conversion. Assuming a conversion price of $4.00 per share, ASI would
issue 500,000 shares of Common Stock if the note were fully converted. At the
time of conversion, any unpaid interest is paid in shares of Common Stock. The
note is subject to mandatory conversion in three years and is secured by all of
the assets of the Company. All amounts and prices have been adjusted to reflect
the one-for-ten reverse split of common stock that became effective October 2,
2002.

The holder of the senior secured convertible note (Holder) also received
warrants to purchase an additional 500,000 shares of Common Stock (subject to
adjustment). One whole warrant entitles the Holder to acquire an additional
share of Common Stock at an exercise price equal to 115% of the conversion price
of the note. Assuming an exercise price of $4.60 per share (115% of $4.00), the
aggregate exercise price for the warrants would be $2.3 million for the issuance
of 500,000 shares of Common Stock, but the shares issuable upon conversion of
the note and exercise of warrants are to be no less than 55% of the outstanding
Common Stock (unless the Holder exercises the warrants in a cashless exercise
where the Holder uses the value of some of the warrants to pay the exercise
price for other warrants).

If at the time of conversion of the note, the price of the Common Stock has
dropped below $4.00 per share, the number of shares of Common Stock issuable
upon conversion of the note and upon exercise of the warrants would increase.
Similarly, if ASI issues shares of Common Stock at a price of less than $4.00
per share, the conversion price and the exercise price decrease to that lower
price, and the number of shares issuable under the note and the warrants would
therefore increase.

ASI is required to register the shares underlying the note and warrants. Also,
ASI is generally restricted from issuing additional equity securities without
the Holder's consent, and the Holder has a right of first refusal as to certain
subsequent financings. In addition, the Company is obligated to continue the
listing of its common stock on the Nasdaq SmallCap Market pursuant to the Note
and Warrant Purchase Agreement entered into with Tonga Partners, L.P., its
controlling beneficial shareholder, and any breach of this obligation might
result in the acceleration of the Company's obligations under the senior secured
convertible note payable to Tonga Partners, L.P.

19

As part of the transaction, the Holder was granted the opportunity to appoint a
majority of ASI's board of directors and, as a result, controls ASI. In
addition, upon exercise of the warrants and conversion of the note, the Holder
will own a majority of the Common Stock, thereby giving the Holder additional
control over ASI.

On December 28, 2001, the Company issued 1.6 million shares of no par value
Series A Preferred Stock, at an original issue price of $2.00 per share. The
Company is entitled to redeem the shares within one year of issuance at $1.00
per share ($1.6 million), and the redemption price increases $.20 per year until
the fifth anniversary, at which time the shares must be redeemed at a price of
$2.00 per share. As of the date of this Report, we have not redeemed the shares.
The agreement calls for a mandatory payment of $800,000 by the third
anniversary. The preferred stock earns a dividend at the annual rate of 5.00% of
the then redemption price on a cumulative, non-participating basis and has a
liquidation preference equal to the then redemption value of shares outstanding
at the time of such liquidation.

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. During the fiscal years of 2000
through 2002, the Company experienced significant operating losses with
corresponding reductions in working capital and net worth, excluding the impact
of debt forgiveness, and does not currently have any external financing in place
to support operating cash flow requirements. The Company's revenues and backlog
have also decreased substantially during the same period. The Company's senior
secured convertible note also has certain immediate call provisions that are
outside the Company's control, which if triggered and exercised, would make it
difficult for the Company to meet these debt payments. These factors among
others raise substantial doubt about the Company's ability to continue as a
going concern.

To address the potential going concern issue, management implemented financial
and operational restructuring plans designed to improve operating efficiencies,
reduce and eliminate cash losses and position the Company for profitable
operations. Financial steps included restructuring the Company's bank debt
through the issuance of preferred stock and convertible debt, subsequent
collection of the federal income tax refund and sale of non-core assets.
Operational steps included the consolidation of production services to two
solution centers, reduction of corporate and non-core spending activities,
outsourcing certain components of projects and deploying a new sales and
marketing team.

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

In the absence of a line of credit and limitations on securing additional debt,
the Company depends on internal cash flow to sustain operations. Internal cash
flow is significantly affected by customer contract terms and progress achieved
on projects. Fluctuations in internal cash flow are reflected in three
contract-related accounts: accounts receivable; revenues in excess of billings;
and billings in excess of revenues. Under the percentage of completion method of
accounting:

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

These accounts, which represent a significant investment by ASI in its business,
affect the Company's cash flow as projects are signed, performed, billed and
collected. At September 30, 2002, the Company

20

had multiple contracts with three customers that represented 72% (43%, 17% and
12%, respectively) of the total balance of net accounts receivable and revenue
in excess of billings. At September 30, 2001, these customers represented 44%
(18%, 14% and 12%, respectively) of the total balance of net accounts receivable
and revenue in excess of billings. Billing terms are negotiated in a competitive
environment and, as stated above, are based on reaching project milestones. The
Company anticipates that sufficient billing milestones will be achieved during
fiscal 2003 such that revenue in excess of billings for these customer contracts
will begin to decline.

The Company's operating activities provided positive cash flow of $2.3 million
in fiscal 2002, $0.3 million in fiscal 2001 and breakeven in fiscal 2000.
Contract-related accounts described in the previous paragraph declined $6.0
million, $8.7 million and $15.0 million in fiscal 2002, 2001 and 2000,
respectively. A significant portion of this decline in 2000 resulted from
contract cost-to-complete adjustments, which reduced revenues in excess of
billing without providing cash flow. Accounts payable and accrued expenses
decreased $2.0 million in fiscal 2002, $3.5 million in fiscal 2001 and increased
$1.8 million in fiscal 2000. The decrease in fiscal 2001 reflects the Company's
reduced size of operations, in part due to the sale of its Colorado Springs,
Colorado office.

Cash provided by investing activities principally consisted of proceeds from
sales of assets, offset by the purchases of equipment and leasehold
improvements. In fiscal year 2001, the Company enhanced cash flow by $8.6
million from the sale of assets, primarily from the sale of Colorado assets. The
Company purchased equipment and leasehold improvements totaling $0.4 million,
$0.4 million and $1.7 million in 2002, 2001 and 2000, respectively.

Cash used by financing activities for fiscal years 2002, 2001 and 2000 was $0.5
million, $10.1 million and $2.1 million, respectively. Financing activities
consisted primarily of net borrowings and payments under lines of credit for
working capital purposes and net borrowings and payments of long-term debt used
in operations and the purchase of equipment and leasehold improvements. The
Company reduced debt by $6.0 million with proceeds from the sale of its Colorado
Springs, Colorado office in fiscal 2001.

QUARTERLY FINANCIAL INFORMATION

Selected quarterly financial data for the years ended September 30, 2002 and
2001 are as follows (in thousands, except per share amounts):

21

IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS 141,
"Business Combinations". SFAS 141 is effective for all business combinations
completed after June 30, 2001. The Company does not believe the adoption of this
standard will have a material impact on its financial statements.

In July 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations". This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement applies to all entities. It
applies to legal obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development and (or) the normal
operation of a long-lived asset, except for certain obligations of lessees. This
Statement is effective for financial statements issued for fiscal years
beginning after June 15, 2002. The Company does not believe the adoption of this
standard will have a material impact on its financial statements.

In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of. The provisions of the statement are
effective for financial statements issued for fiscal years beginning after
December 15, 2001. The Company does not believe the adoption of this standard
will have a material impact on its financial statements.

In April 2002, the FASB issued SFAS 145, "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". SFAS
145 rescinds the provisions of SFAS No. 4 that requires companies to classify
certain gains and losses from debt extinguishments as extraordinary items,
eliminates the provisions of SFAS No. 44 regarding transition to the Motor
Carrier Act of 1980 and amends the provisions of SFAS No. 13 to require that
certain lease modifications be treated as sale leaseback transactions. The
provisions of SFAS 145 related to classification of debt

22

extinguishments are effective for fiscal years beginning after May 15, 2002. The
provisions of SFAS 145 related to lease modifications is effective for
transactions occurring after May 15, 2002. Earlier application is encouraged.
The Company does not believe the adoption of this standard will have a material
impact on its financial statements.

In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." The provisions of this
Statement are effective for exit or disposal activities initiated after December
31, 2002. The Company does not believe the adoption of this standard will have a
material impact on its financial statements.

ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company may from time to time employ risk management techniques such as
interest rate swaps and foreign currency hedging transactions. None of these
techniques is used for speculative or trading purposes and the amounts involved
are not considered material. Short-term interest rate changes would have little
impact on the Company's interest expense due to its lack of any material
variable interest rate debt.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Analytical Surveys, Inc.:

We have audited the accompanying consolidated balance sheets of Analytical
Surveys, Inc. and subsidiaries as of September 30, 2002 and 2001, and the
related consolidated statements of operations, stockholders' equity and
comprehensive income (loss), and cash flows for each of the years in the
three-year period ended September 30, 2002. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Analytical Surveys,
Inc. and subsidiaries as of September 30, 2002 and 2001, and the results of its
operations and its cash flows for each of the years in the three-year period
ended September 30, 2002, in conformity with accounting principles generally
accepted in the United States of America.

23

As discussed in note 1(d) to the consolidated financial statements, the Company
changed its method of accounting for goodwill in 2002.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 14 to
the consolidated financial statements, the Company has suffered significant
operating losses in 2002 and 2001 and does not currently have any external
financing in place to fund working capital and debt requirements, which raises
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to this matter are also described in note 14. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

KPMG LLP
Indianapolis, Indiana
December 6, 2002

24

ANALYTICAL SURVEYS, INC.
AND SUBSIDIARIES

Consolidated Balance Sheets

September 30, 2002 and 2001
(In thousands)

See accompanying notes to consolidated financial statements.

25

ANALYTICAL SURVEYS, INC.
AND SUBSIDIARIES

Consolidated Statements of Operations

Years ended September 30, 2002, 2001 and 2000
(In thousands, except per share amounts)

26

ANALYTICAL SURVEYS, INC.
AND SUBSIDIARIES

Consolidated Statements of Operations (cont.)

Years ended September 30, 2002, 2001, and 2000
(In thousands, except for per share amounts)

See accompanying notes to consolidated financial statements.

27

ANALYTICAL SURVEYS, INC.
AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)

Years ended September 30, 2002, 2001 and 2000
(In thousands)

See accompanying notes to consolidated financial statements.

28

ANALYTICAL SURVEYS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended September 30, 2002, 2001, and 2000
(In thousands)

See accompanying notes to consolidated financial statements.

29

ANALYTICAL SURVEYS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2002, 2001, and 2000

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) BUSINESS AND BASIS OF FINANCIAL STATEMENT PRESENTATION
The Company's primary business is the production of precision
computerized maps and information files used in Geographic Information
Systems (GIS). State and local governments and utility companies use
GIS to manage information relating to utilities, natural resources,
streets, land use and property taxation.

The consolidated financial statements include the accounts of the