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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

ANALYTICAL SURVEYS, INC.

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past (12) months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety (90) days. Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares of common stock outstanding as of February 10, 2003 was 823,965.

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Part I

Item 1. Financial Statements

ANALYTICAL SURVEYS, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)

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ANALYTICAL SURVEYS, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)

See accompanying notes to consolidated financial statements.

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ANALYTICAL SURVEYS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)

See accompanying notes to consolidated financial statements.

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ANALYTICAL SURVEYS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three Months Ended December 31, 2002
(In thousands)
(Unaudited)

See accompanying notes to consolidated financial statements.

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ANALYTICAL SURVEYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)

See accompanying notes to financial statements.

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Notes to Consolidated Financial Statements
(Unaudited)

1. Summary of Significant Accounting Policies

The accompanying unaudited interim consolidated financial statements have been prepared by management in accordance with the accounting policies described in our annual report for the year ended September 30, 2002. The consolidated financial statements include the accounts of ASI and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain information and note disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been omitted. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended September 30, 2002.

The consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary to present fairly the financial position of Analytical Surveys, Inc., and subsidiaries at December 31, 2002 and the results of their operations and cash flows for the three months ended December 31, 2002 and 2001.

All shares and per share amounts have been adjusted to reflect the Company’s one-for-ten reverse stock split effected in October 2002.

2. Earnings Per Share

Basic earnings per share is computed by dividing earnings available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share includes the effects of the potential dilution of outstanding options, warrants, and convertible debt on the Company’s common stock, determined using the treasury stock method.

Potential dilutive common shares under the warrant agreement and stock option plans were not included in the calculation of diluted earnings per share as these shares were antidilutive. In addition, the conversion of 1,128,000 shares under the senior convertible debt agreement were antidilutive for the period they are outstanding. Basic and diluted weighted average outstanding common shares are the same at both December 31, 2002 and 2001. Accordingly, basic and diluted earnings per share are the same.

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3. Comprehensive Income

The following are the components of comprehensive income (loss):

4. 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

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145 related to classification of debt 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 other than the reclassification of debt extinguishment in the period ended December 31, 2001.

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.

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

5. Goodwill Impairment

We elected early adoption of FASB Statement No. 142, Goodwill and Other Intangible Assets. As a result of this election, we tested the carrying value of goodwill for impairment under the provisions of FASB No. 142 as of October 1, 2001. We determined the goodwill recorded at October 1, 2001 was primarily associated with indefinite lived intangible assets resulting from the acquisitions in the Utilities Division. The Company used the quoted market value of its stock on October 1, 2001 at a discounted value to reflect the lack of float in available shares and the going-concern issues at that date to determine the fair value of ASI as a whole. The fair value of the reporting units (i.e. individual offices) in the Utilities Division was determined by allocating the fair value of ASI by each reporting unit’s respective portion of our contract assets (i.e. accounts receivables and revenue in excess of billings). The fair value of each reporting unit was then compared to the net assets of the respective reporting unit (including allocated Corporate net assets) to determine if reporting unit level goodwill was impaired. We determined that impairment had occurred in each of the respective reporting units and that an impairment loss of $3.6 million should be reflected as a Cumulative Effect of a Change in Accounting Principle at October 1, 2001.

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6. Debt

The Company’s debt is summarized as follows (in thousands).

On December 28, 2001, we completed a Waiver Agreement and Amendment No. 12 to Credit Agreement and Other Loan and Lease Documents (the “Agreement”) with our senior lenders providing our line-of-credit, note payable and capital lease obligation. Under the Agreement, these senior lenders accepted a cash payment of $1.25 million and non-convertible redeemable preferred stock with a face value of $3.2 million in payment of the $4.4 million line-of-credit and all but $3.0 million of the note payable. The Agreement provided for the remaining $3.0 million note payable to be reduced to zero with a cash payment of up to $875,000 by March 31, 2002 (later amended to April 2, 2002).

On April 2, 2002, we completed the sale of a $2.0 million senior secured convertible note and warrants to purchase common stock. We used the proceeds to repay $700,000 to senior lenders, pay transaction expenses of approximately $95,000 and fund operations. Senior lenders accepted the $700,000 cash payment and a $175,000 unsecured promissory note in full satisfaction of the $3.0 million note payable outstanding at March 31, 2002.

The $175,000 unsecured promissory note matures on March 31, 2003 and bears annual interest at prime rate plus one percent (5.25% at December 31, 2002). The senior secured convertible note matures April 2, 2005, bears interest at an annual rate of five percent, but interest is not payable until maturity or may be converted to Common Stock as described below.

The senior secured convertible note has a face value of $2.0 million and is convertible at any time into common stock of ASI (Common Stock) 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, 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

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converted. At the time of conversion, any unpaid interest is to be 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 ASI. For illustration only, if the note had been converted on December 31, 2002, the conversion price would have been $0.77 and 2,694,545 shares of common stock would have been issued to the note holder.

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. For illustration only, if the warrant had been exercised on December 31, 2002, the exercise price would have been adjusted to $0.8855 per share for a total exercise price of $442,750 for all shares.

Under the terms of the note and related purchase agreement, we are required to register the shares underlying the note and warrants by February 28, 2003. We have requested an extension of the date from the holder of the note. 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.

As part of the transaction, the Holder effectively 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. The carrying value of the senior secured convertible note is $1.85 million at December 31, 2002 and represents the cash received of $2.0 million less the estimated fair value of the warrants of $200,000 which was recorded in common stock. The carrying value of the senior secured convertible note is being accreted to the face amount by charges to interest expense through the maturity date.

The agreement with senior lenders resulted in a gain on extinguishment of debt in the three months ended December 31, 2001, which is calculated as follows (in thousands):

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Total tax expense for fiscal year 2002 was projected to be zero and accordingly, no income taxes have been recorded related to the results from operations.

7. Redeemable Preferred Stock

Pursuant to the agreement with senior lenders described in Note 5, on December 28, 2001, we issued preferred stock in the form of 1.6 million shares of no par value Series A Preferred Stock, at an original issue price of $2.00 per share. Until December 28, 2003, we are entitled to redeem the shares at $1.20 per share ($1.8 million), and the redemption price increases $.20 per year until the fifth anniversary, or December 28, 2006, at which time the shares must be redeemed at a price of $2.00 per share. The Agreement calls for a mandatory payment toward the redemption price of $800,000 on December 28, 2004. The preferred stock earns a dividend at the annual rate of 5.00% of the then applicable redemption price on a cumulative, non-participating basis and has a liquidation preference equal to the then applicable redemption value of shares outstanding at the time of liquidation.

The carrying value for Preferred Stock is $1 million at December 31, 2002. The carrying value represents the estimated fair market value of the stock on the date of issuance plus issuance costs, adjusted for accretion of the difference between fair market value at the date of issuance and the redemption value at the mandatory redemption dates. The fair market value was based on the present value of required cash flows using a discount rate of 80%. We selected the discount rate based on discussions with third parties that took into account market conditions for similar securities, the current economic climate and our financial condition and performance as major factors. Accretion is effected by a charge to retained earnings, and the rate of accretion approximates the interest method.

8. Segment Information

Management evaluates operations and makes key strategic and resource decisions based on operating results of its individual production centers. In previous years, we made these decisions based on its two different operating segments: the Utilities Division which uses its industry expertise and proprietary GIS systems for data conversion for electric, gas and water

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management utility customers; and the Land Division which creates land base maps using techniques in both general cartography and specialized photogrammetric mapping. We have completed a majority of our contracts in the land division and our primary focus is now on our utilities division operations. Segment data includes revenue, operating income, including allocated costs charged to each of the operating segments, equipment investment and project investment, which includes net accounts receivables and revenue earned in excess of billings. We have presented segment data for fiscal year 2002 for comparative purposes.

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