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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, 2000
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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
941 N. Meridian Street, Indianapolis, IN 46204
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(Address or principal executive offices) (Zip Code)
Registrant's telephone number, including area code (317) 634-1000
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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
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(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 .
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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 $6,977,794, based on the closing price of
the Common Stock on January 10, 2001.
The number of shares outstanding of the registrant's Common Stock, as of January
10, 2001, was 6,977,794.
DOCUMENTS INCORPORATED BY REFERENCE: None
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TABLE OF CONTENTS
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Page
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PART I.
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Item 1. Business 1
Item 2. Property 10
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Shareholders 11
PART II.
Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters 11
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 12
Item 7a. Quantitative and Qualitative Disclosure about Market Risks 20
Item 8. Financial Statements and Supplementary Data 20
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 38
PART III.
Item 10. Directors and Executive Officers of the Registrant 38
Item 11. Executive Compensation 38
Item 12. Security Ownership of Other Beneficial Owners and Management 38
Item 13. Certain Relationships and Related Transactions 38
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 38
Signatures 41
Exhibits 42
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PART I.
ITEM 1. BUSINESS.
OVERVIEW
Analytical Surveys, Inc. ("ASI" or the "Company") is a leading provider
of customized data conversion, digital mapping services, 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. ASI helps 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. The Company has historically
targeted services to utilities and state and local governments, and is
implementing strategies to expand the number of markets targeted and the range
of GIS-related spatial data management and technical services offered. Its
current customers include but are not limited to the American Electric Power,
Cinergy, ESRI, Northern Indiana Public Service Company, New York City Department
of Transportation, Florida Power Corp, Michigan Consolidated Gas, US West,
Southern New England Telephone and the United States Geological Survey.
The Company believes that the market for geographic information systems
is experiencing growth due to numerous factors, including: 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. In addition, the Company
believes that GIS users are increasingly outsourcing their data conversion and
other GIS service projects to third-party providers such as ASI. The Company
provides its customers with a single source for all data conversion services
necessary to achieve economic value from their investments in geographic
information systems.
STRATEGY
The Company's objective is to maintain and enhance its leadership
position in the data conversion and digital mapping industry. This objective is
reflected in the following summary of the Company's strategy:
Turnaround Efforts and Assessment of Strategic Alternatives. The
Company's short-term strategy is to return the Company to profitability
and positive cash flow. Efforts are underway to restore customer
confidence, reduce operational and overhead costs, more accurately
manage cash flows, standardize project management and cost estimation
processes, consolidate accounting systems, and retain key operational
and management personnel. The turnaround efforts are designed to
restore the Company to financial health so that the Company is in a
position to redirect its efforts toward the completion of the remainder
of its overall business strategy, discussed below. In conjunction with
its turnaround efforts, the Company is assessing its strategic
alternatives. The Company is considering a number of opportunities,
which may include the possible sale of substantial Company assets.
Expand Business in New Markets. The Company believes that there is
significant potential in new markets outside of its existing core
markets of utilities and state and local governments. These new markets
include transportation, wireless telecommunications, insurance and
others. The Company intends to capitalize on these new markets by
expanding its portfolio of services to include more GIS design,
implementation and system operation services. The Company believes it
can be successful in these new markets by making GIS more accessible to
those potential customers who may be less familiar with benefits of
GIS. See "Risk Factors - Risks Associated with Entry into New Markets."
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Expand Business in Existing Markets. The Company believes that there is
significant potential within its existing customer base for expanded
services and products and intends to add to the breadth of services it
offers to such customers. The Company also intends to capitalize on the
increasing number of GIS users in its core markets of utilities and
state and local governments by marketing to new customers in these
markets and increasing capacity in order to meet the demands of an
expanded customer base.
Continue to Maintain and Develop Technological and Operational
Leadership. The Company believes that its past success has been largely
due to its technological expertise and operating procedures. The
Company has developed and acquired proprietary software and procedures
that automate portions of otherwise labor-intensive data conversion
processes, enabling the Company to provide cost-effective and
high-quality services on a timely basis. The Company intends to
continue its efforts to develop new technology and to improve its
existing technology and procedures, thereby enhancing its ability to
expand into additional markets and further improve its production
capacity and productivity. See "Research and Development."
ASI SERVICES
The Company offers a full range of services to create the digital base
maps and 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 digital land base maps from paper maps,
aerial photographs, land surveys and legal descriptions. The base maps are
created using one of three technologies, depending on the needs of the customer:
photogrammetric mapping; digital orthophotography; or, cadastral mapping.
Photogrammetric Mapping. Photogrammetric mapping produces a digital
land base map using data that is extracted from aerial photographs. The process
uses analytical stereoplotters (a three- dimensional viewing and data recording
device), digital photogrammetric workstations, specialized computer equipment
and proprietary software and operating procedures to draw, with lines, a highly
precise map of visible ground features. Photogrammetric mapping may include
contour and elevation information.
Digital Orthophotography. Digital orthophotography is used to create
richly detailed digital maps that have the appearance of, and are based on,
aerial photographs. Aerial photographs are scanned into a computer, and the
resulting image is corrected (orthorectified) to delete distortions in order to
produce a highly precise map. Vector lines can be superimposed onto the map to
enable users to determine the precise location of any particular feature or to
measure distances from one feature to another. Digital orthophotographs also can
be used as base maps for the layering of additional geo-referenced data.
Cadastral Mapping. Cadastral maps illustrate property lines and are
prepared by digitizing existing paper maps or 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. The
Company provides an experienced field inventory staff to collect and verify
information and uses 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.
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ACQUISITIONS AND DISPOSITIONS
In 1995, ASI embarked on a growth strategy, which included
consolidation of the fragmented GIS services industry. The Company completed
four strategic acquisitions that expanded the Company's geographical scope,
capacity, customer base, product offerings, proprietary technology and
operational expertise. The Company acquired Intelligraphics, Inc.
("Intelligraphics") located in Wisconsin in December 1995; Westinghouse Landmark
GIS, Inc. ("ASI Landmark") located in North Carolina in July 1996, MSE
Corporation ("MSE") located in Indiana in July 1997, and Cartotech, Inc.
("Cartotech") located in Texas in June 1998.
Initially the Company retained the core management teams (except for
former owners) and most employees at its acquisitions in order to capitalize on
their understanding of their respective markets and to provide continuity with
existing customer relationships. Since 1999, the Company has increased its
efforts to promote use of the "best practices" of the acquired businesses
throughout the Company in such areas as bid preparation, production processes
and utilization of proprietary software.
In 1999, the Company acquired the assets of Measurement Sciences, Inc.
("MSI") for 21,850 shares of restricted common stock valued at $514,000. MSI
provided land surveying, airborne GPS and high accuracy data gathering and
measurement services. MSI's revenues for its most recent fiscal year preceding
the purchase were $1.6 million, which included $731,000 of services purchased by
ASI.
As part of its efforts to further streamline its operations, the
Company sold its Phillips Design Group and Mid-States Engineering subsidiaries
(both acquired as parts of MSE Corporation) during 1999, as these units were not
core business competencies. The Company also sold its Cartographic Sciences
Group located in Mumbai, India, to InfoTech Enterprises, Ltd. in order to
simplify management of its overseas production and to expand its available
capacity in India.
CUSTOMERS
The Company derives its revenues primarily from two core markets,
utilities and state and local governments, and also serves federal agencies and
commercial businesses. From time to time, the revenues earned on a specific
contract may exceed 10% of total Company revenues earned in a fiscal year. No
customer accounted for more than 10% of the Company's revenues in fiscal 1999 or
2000. See "Risk Factors - Dependence on Certain Customer Markets."
SALES AND MARKETING
The Company markets its products and services in its domestic and
international markets primarily through an internal sales force. The Company
augments its direct sales efforts by maintaining memberships in professional and
trade associations and by actively participating in industry conferences. The
Company also augments its direct sales efforts by maintaining relationships with
regional businesses offering complementary services. A portion of the Company's
sales is also derived from referrals, either directly or indirectly, from
consultants in the GIS industry.
The Company plans to improve and expand its sales and marketing efforts
beyond the Company's existing core markets in fiscal 2001. These efforts include
offering expanded services and developing marketing communications aimed at new
markets such as transportation and wireless telecommunications and will require
the Company to hire additional qualified sales personnel for these new markets.
The Company believes that alliances with local businesses or
individuals may be important to successful entry into certain international
markets and intends to continue to seek out such relationships and to market
directly to international customers. The Company's sales cycle is generally
lengthy, as customers normally take several months to go through the
bidding/planning and award phases of a GIS
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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
The Company uses subcontractors when necessary to expand capacity, meet
deadlines, reduce production costs and manage workload. ASI entered into a
five-year agreement with InfoTech, an India-based company, to assure the
Company's continued exclusive access to InfoTech's production capacity for data
conversion and other related services. Under the agreement, the Company also
licensed certain of its proprietary production technology to InfoTech and
provided certain assurances of production volume to InfoTech. As a means of
reducing its production costs and developing new services, the Company intends
to continue to utilize offshore subcontractors for a large percentage of its
production work in fiscal 2001. ASI also employs certain selected foreign and
domestic subcontractors for tasks outside its expertise, such as aerial
photography. See "Risk Factors--Dependence on Subcontractors," "--Dependence on
Offshore Operations" and "--Personnel."
RESEARCH AND DEVELOPMENT
The Company believes that its past success has been largely due to its
technological expertise and operating procedures. The Company has developed and
acquired proprietary software and procedures that automate portions of otherwise
labor-intensive data conversion processes, enabling the Company to provide
cost-effective and high-quality services on a timely basis. The Company intends
to continue its efforts to develop new technology and to improve its existing
technology and procedures, thereby enhancing its ability to expand into
additional markets and further improve its production capacity and productivity.
The Company engages in several research and development activities. The
majority of these activities occur as the Company develops software or designs a
product for a particular contract, so that the costs of such efforts are
included as an integral part of the Company's services. Such custom designed
software can often be applied to projects for other customers. These amounts
expended by the Company are not included in research and development expenses,
although the Company retains ownership of such proprietary software or products.
Approximately 20 employees are substantially engaged in research and development
efforts, including three in the Company's Advanced Technology Division. The
Company expended approximately $300,000 in the Advanced Technology Division in
each of the three fiscal years ended September 30, 1998, 1999 and 2000. See
"Risk Factors--Reliance on Technology; Limited Protection of Proprietary
Rights."
COMPETITION
The GIS services business is highly competitive and highly fragmented.
The Company's 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. Additionally, as
the GIS services industry evolves, additional competitors with greater resources
than the Company may enter the industry. Two large companies with substantial
financial resources have launched satellites with imagery technology that
provides much more detailed photographs than have been available with such
technology in the past. Although current commercially available satellite
imagery does not provide the degree of resolution required by most of the
Company's customers, if such technology becomes commercially available,
satellite companies may attempt to enter our segments of the GIS services
business or could form strategic alliances with the Company's competitors, and
thereby could pose a substantial competitive threat to the Company. In addition,
other improvements in technology could provide competitors or customers with
readily available tools to perform the services provided by the Company and
lower the cost of entry into the GIS services industry.
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ASI seeks to compete on the basis of the quality of its products, the
breadth of its services, the accuracy, responsiveness and efficiency with which
it can provide services to customers, and its capacity to perform large complex
projects. The Company uses its internally developed proprietary production
software as well as commercially available software to automate much of the
otherwise labor-intensive GIS production process. The Company believes that its
automated approach enables it to achieve more consistent quality and greater
efficiencies than it could if it used more manually intensive methods.
In recent years, the Company has experienced increasing price
competition, particularly in the utilities market. This competition came
primarily from new entrants to the markets, which perform their work utilizing
mostly offshore locations. In order to meet this competition and to improve
overall cost efficiencies, the Company will continue to utilize offshore
subcontractors for a large percentage of its production work in fiscal 2001. See
"Subcontractors."
PERSONNEL
At September 30, 2000, ASI had approximately 672 employees compared to
1,225 at September 30, 1999. The Company has reduced its workforce primarily as
a result of its transition to having a greater percentage of work performed by
its offshore subcontractors, its continuing efforts to improve operational
efficiencies, and its adjusting expenses to match lower revenue volumes and
backlog. Virtually all of the Company's employees work on a full-time basis. ASI
does not have a collective bargaining agreement with any of its employees and
generally considers relations with its employees to be good. See "Risk Factors -
Dependence on Key Personnel."
The Company experienced substantial turnover in the ranks of its
executive officers in fiscal 2000. The most notable changes to personnel include
Sidney V. Corder, the Company's longtime Chairman and Chief Executive Officer,
retired in January 2000. Vince Otto, who was hired as Chief Financial Officer in
October 1999, resigned in February 2000. Sol C. Miller, a member of the Board
and ASI's largest shareholder, succeeded Corder as interim CEO, and John A.
Thorpe, ASI's founder and a member of the Board, served as assistant CEO.
Michael A. Renninger was hired as CFO in February. David O. Hicks was promoted
to Chief Operating Officer in February 2000, after serving as the Company's
Chief Technical Officer since August 1998. In July 2000, the Company hired J.
Norman Rokosh as its CEO and President. Mr. Rokosh has substantial experience in
dealing with turnaround situations and has experience in the GIS industry.
The Company believes that the retention of highly qualified managers
and executive officers is critical to its ability to compete in the GIS data
conversion industry. 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 SUCCESSFUL IMPLEMENTATION OF TURNAROUND EFFORTS
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.
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DEPENDENCE ON BANK DEBT
The Company obtained term debt to complete acquisitions in prior years
and capital leases to fund capital equipment, and the Company continues to
require a line-of-credit to fund operations. The Company and senior lenders have
modified credit terms to defer certain principal payments, increase the cost of
borrowing, and impose additional restrictions on the Company. Projected internal
cash flows may not be adequate to fund required principal payments. The Company
is currently assessing other strategies, including the sale of certain assets,
to reduce overall debt levels and has employed an investment banker to assist in
this endeavor. There can be no assurance that the Company will be able to
successfully implement these other strategies or, if necessary, to negotiate
additional modifications to credit terms to complete the Company's turnaround
program. See Item 7 - "Liquidity and Capital Resources."
RISKS ASSOCIATED WITH CERTAIN SHAREHOLDERS' LITIGATION
The Company and certain of its directors and former officers have been
named as defendants in thirteen putative securities class action complaints that
were filed in the United States District Court for the Southern District of
Indiana (the "Court") beginning on February 2, 2000. On May 12, 2000, the Court
consolidated the thirteen actions under the caption re: Analytical Surveys, Inc.
Securities Litigation, Case No. IP00-201 M/S. On July 26, 2000, plaintiffs filed
a Consolidated Amended Class Action Complaint on behalf of themselves and a
putative class consisting of all persons, other than defendants and their
affiliates, who purchased the Company's common stock on the open market during
the period from January 25, 1999, through and including March 7, 2000. The
plaintiffs allege that the Company and the individual defendants violated the
federal securities laws, which prohibit fraud in connection with the purchase or
sale of securities, by knowingly or recklessly issuing financial statements that
failed to comply with generally accepted accounting principles. The plaintiffs
seek an award of compensatory damages, including interest thereon, and
attorneys' fees and other costs.
On September 11, 2000, the Company and the individual defendants filed
motions to dismiss the plaintiffs' Consolidated Amended Class Action. On October
24, 2000, the plaintiffs filed a memorandum in Opposition to Defendants' Motions
to Dismiss the Consolidated Amended Class Action Complaint. The Court has not
yet ruled on these motions.
While the Company cannot reasonably estimate the damages, if any, that
may result from this action, it is possible that the outcome of this litigation
may have a material adverse impact on the financial condition or results of
operations of the Company in one or more future periods. The Company, however,
intends to defend itself vigorously in this matter.
RISK ASSOCIATED WITH PURSUIT OF STRATEGIC ALTERNATIVES
The Company engaged the investment banking firm of Brean Murray & Co.,
Inc. in June 2000 to assist it with the investigation of strategic alternatives.
The firm has been engaged to consider sources of additional equity, the
formation of strategic partnerships or the sale of all or part of the Company.
There is no assurance that the Company will be able to give effect to any of
these strategic alternatives in a manner that will enhance shareholder value.
RISKS ASSOCIATED WITH PRIOR ACQUISITIONS
Acquisitions involve a number of special risks, including, but not
limited to, potential adverse short-term effects on the Company's operating
results, diversion of management's attention, the loss of key personnel, risks
associated with the assimilation of the operations and personnel of the acquired
companies, unanticipated business problems or legal liabilities and amortization
of acquired intangible assets. In addition, when the Company acquired another
business, it assumed the obligation to complete the acquired company's contracts
that were in process. The Company's results of operations following
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any acquisition depend, in part, on the ability of the Company to profitably
complete such contracts, which could be adversely affected by the acquired
company's underestimation of the cost or amount of work required to complete the
project as well as additional costs necessary to correct problems associated
with the acquired company's prior performance. The Company experienced
difficulties in these areas as it assimilated the businesses that it acquired
from 1995 through 1999. While management believes that the businesses that the
Company acquired during this period now have been assimilated in most respects,
the Company could experience additional costs and operational difficulties in
operating the various acquired businesses on a fully integrated basis.
ABILITY TO MANAGE GROWTH
Assuming that the Company's turnaround efforts are successful, the
Company's long-term strategy is to grow through increased sales to new and
existing clients. To the extent that the Company is able to grow, its ability to
manage any such growth will be critical to its success. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Growth may require the enhancement of operational, financial and
information systems and the attraction and retention of additional management
and trained personnel. There can be no assurance that the Company will be able
to manage expanded operations effectively, and its failure to do so would have a
material adverse effect on the Company.
COMPETITION
The GIS services business is highly competitive and highly fragmented.
The Company's competitors include small regional companies, independent firms,
and large companies with GIS services divisions, customer in-house operations
and international low-cost providers of data conversion services. Additionally,
as the GIS services industry evolves, additional competitors with greater
resources than the Company 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. In 2000, the Company experienced increased price
competition, particularly in the utilities market. This competition came
primarily from relatively new entrants to the market, which perform their work
utilizing mostly offshore labor. In order to meet this competition, the Company
has utilized offshore subcontractors for a higher percentage of its production
in fiscal 2000. A number of the Company's competitors or potential competitors
may have capabilities and resources greater than those of the Company.
RISKS ASSOCIATED WITH 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 one to four years. The Company's ability to
estimate its costs accurately when negotiating the overall price of a project is
critical to ensuring the profitability of such project. The Company must also
control the costs of performance under such fixed-price contracts. Schedule
delays resulting from a customer's lack of available funding or schedule
compressions required by customers may place additional strains on management to
hire and train the personnel required for project completion. The Company's
contracts with its customers are generally terminable by the customer on
relatively short notice, and customers may request that the Company slow down or
scale back the scope of a project in order to satisfy the customer's budget or
cash flow requirements. In addition, the Company could experience material
contract terminations or slowdowns. Long-term, fixed-price contracts for larger
projects generally may increase the Company's risk due to inflation. Contracts
are generally signed with a broad outline of the scope of the work, which is
reflected in the detailed specifications that are sometimes prepared after a
contract is signed. In preparing the detailed specifications, customers often
negotiate to include items in the original contract scope that ASI may not have
included when it prepared its bid. To the extent the
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Company is not successful in negotiating change orders to include additional
work as outside the scope of the contract, the Company's profit margin on such
contracts is adversely affected.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company has experienced and expects to continue to experience
quarterly variations in sales 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 subcontractors to obtain
satisfactory aerial photography. 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, seasonal limitations on
obtaining aerial photography and seasonal slow downs associated with the
year-end holidays.
VOLATILITY OF STOCK PRICE
The Company's common stock has experienced, and is likely to continue
to experience, significant price and trading volume fluctuations. The trading
price 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 and other factors, such as: 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 securities analysts' estimates of the future
performance of the Company, its competitors or the industry generally; or
general market conditions. The trading price of the common stock may vary
without regard to the operating performance of the Company. General market price
declines or market volatility in the future, or future declines or volatility in
the prices of stock for companies in the GIS industry, also could affect the
market price of the Common Stock.
RELIANCE ON TECHNOLOGY; LIMITED PROTECTION OF 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, it will be necessary for the Company to 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. Although
the Company believes that its operating procedures and proprietary software have
been important factors in its success, competitors could develop similar
applications. The Company does not have any patent protection for its products
or technology. Although the Company relies to a great extent on trade secret
protection for much of its technology and has obtained confidentiality
agreements from most of its employees, 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.
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DEPENDENCE ON CERTAIN CUSTOMER MARKETS
The Company derives its revenues primarily from two core markets,
utilities and state and local governments, and also serves federal agencies and
commercial businesses. The ongoing consolidation of the utilities industry could
increase competition for the GIS services projects of the utilities that remain.
Also, to the extent that utilities remain regulated, legal, financial and
political considerations may constrain the ability of utilities to fund
geographic information systems. Many state and municipal entities are subject to
legal constraints on spending, and a multi-year contract with any such entity
may be subject to termination in any subsequent year if the entity does not
choose to appropriate funds for such contracts in that year. Moreover,
fundamental changes in the business practices or capital spending policies of
any of these customers, whether due to budgetary, regulatory, technological or
other developments or changes in the general economic conditions in the
industries in which they operate, could cause a material reduction in demand by
such customers for the services offered by the Company. Any such reduction in
demand could have a material adverse effect on the Company.
RISK ASSOCIATED WITH ENTRY INTO NEW MARKETS
Assuming that the Company's turnaround efforts are successful, ASI's
strategy is to enter into new markets for GIS and related services, such as
wireless telecommunications, and provide additional services. The Company
anticipates that these marketing efforts will require the Company to retain its
existing personnel and make additional expenditures for experienced personnel,
training and capital investments. To the extent the Company is unable to attract
and retain a sufficient sales force to carry out these new marketing
initiatives, the Company's sales could be adversely affected. To the extent that
additional sales generated from these new markets do not offset the additional
expenses, the Company's profitability could be adversely affected. The Company
cannot predict whether current or future customers will purchase these
additional services or whether the Company will be successful in penetrating
these new markets. If the Company is unable to successfully penetrate these new
markets, its revenues will not increase as anticipated. In addition, the focus
on new markets may direct the Company's attention away from its core markets,
which could cause the Company's revenues in its established markets to decline.
DEPENDENCE ON INTERNAL LABOR FORCE
The Company's business is labor-intensive and requires trained
employees. In order to support additional growth, if any, the Company must
increase production capacity by the addition of more 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 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
in order to expand capacity, meet deadlines, reduce production costs, manage
work load and encourage businesses owned by women and minorities. The inability
to obtain the services of such qualified subcontractors when needed could have a
material adverse effect on the Company.
9
<PAGE> 12
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. Furthermore, the Company's efforts to expand into new
markets may adversely affect its current and future relationships with these
participants. 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.
DEPENDENCE ON KEY PERSONNEL
The success of the Company depends upon the continued service of its
executive officers and other key employees. The Company has taken steps to
minimize attrition and to recruit key personnel, such as issuing stock options,
to provide a financial incentive for these individuals to remain with or join
the Company. 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 fiscal 2000 and employees' concerns over the
future prospects of the Company 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.
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. While the amounts paid for the performance of
services overseas have not, to date, been material, 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.
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 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.
ITEM 2. PROPERTY.
The Company operates two divisions in five locations in the United
States. The Utility Division leases facilities in Indianapolis, Indiana; San
Antonio, Texas and Waukesha, Wisconsin. The Land Division leases facilities in
Colorado Springs, Colorado and Cary, North Carolina.
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<PAGE> 13
ITEM 3. LEGAL PROCEEDINGS.
The Company and certain of its directors and former officers have been
named as defendants in thirteen putative securities class action complaints that
were filed in the United States District Court for the Southern District of
Indiana (the "Court") beginning on February 2, 2000. On May 12, 2000, the Court
consolidated the thirteen actions under the caption in re Analytical Surveys,
Inc. Securities Litigation, Case No. IP00-201 M/S. On July 26, 2000, plaintiffs
filed a Consolidated Amended Class Action Complaint on behalf of themselves and
a putative class consisting of all persons, other than defendants and their
affiliates, who purchased the Company's common stock on the open market during
the period from January 25, 1999, through and including March 7, 2000. The
plaintiff's allege that the Company and the individual defendants violated the
federal securities laws, which prohibit fraud in connection with the purchase or
sale of securities, by knowingly or recklessly issuing financial statements that
failed to comply with generally accepted accounting principles. The plaintiffs
seek an award of compensatory damages, including interest thereon, and
attorneys' fees and other costs.
On September 11, 2000, the Company and the individual defendants filed
motions to dismiss the plaintiffs' Consolidated Amended Class Action. On October
24, 2000, the plaintiffs filed a Memorandum in Opposition to Defendants' Motions
to Dismiss the Consolidated Amended Class Action Complaint. The Court has not
yet ruled on these motions.
While the Company cannot reasonably estimate the damages, if any, that
may result from this action, it is possible that the outcome of this litigation
may have a material adverse impact on the financial condition or results of
operations of the Company in one or more future periods. The Company, however,
intends to defend itself vigorously in this matter.
The Company and certain directors have been named as defendants in an
action that was filed on September 20, 2000 in the District Court of El Paso
County, Colorado by Sidney V. Corder, the former President, Chief Executive
Officer and Director of the Company. Mr. Corder claims that the Company, by
failing to pay wages and compensation, has violated the Colorado Wage Claim Act
and has breached contractual obligations to Mr. Corder. Mr. Corder also claims
that the Company has breached an obligation to indemnify him in connection with
pending securities litigation against the Company and certain of its directors
and former officers, including Mr. Corder. No trial date has yet been set. The
Company intends to contest Mr. Corder's claims vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS.
None.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS.
None.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial data as of and for the
years ended September 30, 1996, 1997, 1998, 1999 and 2000 are derived from
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, 1999 and 2000 and for the years ended September
30, 1998, 1999 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.
11
<PAGE> 14
<TABLE>
<CAPTION>
1996(1)(2) 1997(3) 1998(4) 1999 2000
---------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues ................................................... $22,669 40,799 88,155 103,254 60,085
Cost and expenses:
Salaries, wages and related benefits .................... 10,501 19,792 42,953 57,571 44,027
Subcontractor costs ..................................... 3,898 5,899 11,961 15,628 14,476
Other general and administrative ........................ 3,681 7,115 14,964 18,112 19,031
Depreciation and amortization ........................... 1,184 1,780 3,860 5,661 5,107
Impairment of Goodwill .................................. -- -- -- -- 16,513
------- ------ ------ ------- -------
19,264 34,586 73,738 96,972 99,154
------- ------ ------ ------- -------
Earnings (loss) from operations ............................ 3,405 6,213 14,417 6,282 (39,069)
Other expenses, net ........................................ 339 770 2,292 1,439 2,595
------- ------ ------ ------- -------
Earnings (loss) before income taxes and extraordinary
Item .................................................... 3,066 5,443 12,125 4,843 (41,664)
Income taxes (benefit) ..................................... 1,153 2,112 4,894 2,053 (3,294)
------- ------ ------ ------- -------
Earnings before extraordinary item ......................... 1,913 3,331 7,231 2,790 (38,370)
Extraordinary loss ......................................... -- -- -- -- 209
------- ------ ------ ------- -------
Net earnings (loss) ........................................ $ 1,913 3,331 7,231 2,790 (38,579)
======= ====== ====== ======= =======
Diluted earnings (loss) per share .......................... $ 0.38 0.60 1.06 0.39 (5.54)
======= ====== ====== ======= =======
Weighted average common shares outstanding-diluted ......... 5,033 5,562 6,819 7,177 7,049
CONSOLIDATED BALANCE SHEET DATA:
Working capital ............................................ $ 9,986 21,085 40,986 40,029 7,073
Total assets ............................................... $21,988 50,146 94,540 89,242 50,262
Long-term debt, less current maturities .................... $ 4,528 14,145 29,920 20,339 5,952
Total stockholders' equity ................................. $10,926 23,831 44,463 50,663 12,070
</TABLE>
----------
(1) In December 1995, the Company acquired Intelligraphics for $3.5 million in
cash and 345,000 shares of restricted Common Stock valued at $891,000.
(2) In July 1996, the Company acquired ASI Landmark for $2.0 million in cash.
(3) In July 1997, the Company acquired MSE for $12.5 million in cash and
925,000 shares of restricted Common Stock valued at $7.3 million.
(4) In June 1998, the Company acquired Cartotech for $8.1 million in cash and
354,167 shares of restricted Common Stock valued at $8.3 million.
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,
12
<PAGE> 15
without limitation, the statements in " Business -- 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 putative class action litigation,
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, a provider of data conversion and digital mapping services
to users of customized geographic information systems, was founded in 1981. From
1981 to 1990, the Company experienced steady growth in revenues with periodic
fluctuations in financial results. In 1990, the Company implemented a growth
strategy, including improving and standardizing operating controls and
procedures, investing in infrastructure, upgrading the Company's proprietary
software, and establishing capital sources.
In 1995, ASI embarked on an acquisition strategy that included
consolidation of the fragmented GIS services industry. The Company completed
four strategic acquisitions that expanded the Company's geographical scope,
capacity, customer base, product offerings, proprietary technology and
operational expertise.
In conjunction with these acquisitions, the Company recorded goodwill,
which represents the excess of the purchase price over the fair value of the net
assets acquired in utility business acquisitions. The Company assigned a useful
life of 15 years to the goodwill acquired in these business acquisitions,
representing the expected period of benefit from the acquisitions. As of
September 30, 1999, goodwill, net of accumulated amortization, was $22.1
million. A combination of significant operating losses for fiscal year 2000,
potential dispositions of certain operating assets, and a significant decrease
in cash flows anticipated from future operations prompted the Company to
reevaluate the carrying amount of goodwill. The result of this evaluation was to
record a non-cash impairment of goodwill of $16.5 million during the quarter
ended September 30, 2000, that reduced the goodwill balance to $3.9 million. The
Company believes the remaining amortization period is appropriate based on the
forecasted operating results of the Company and the Utility Division.
Changes in market conditions were encountered in fiscal 1999 and
throughout fiscal 2000 that resulted in a reduction of timely order flow to the
company and reduced the customer order backlog from$79.8 million at September
30, 1999 to $53.2 million at September 30, 2000. Management believes these
adverse market conditions were primarily caused by consolidation in the utility
industry, adverse financial results for fiscal year 2000 and increased
competition from companies with offshore operations.
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. 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.
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<PAGE> 16
The Company experiences yearly and quarterly fluctuations in production
costs, in salaries, wages and related benefits and in subcontractor costs. These
costs may vary as a percentage of sales from period to period. The Company
utilized InfoTech Enterprises Ltd., an India-based company, for a significant
percentage of its production services in fiscal 2000 and expects to continue the
use of their services in fiscal 2001.
The Company recognizes losses on contracts in the period such loss is
determined. From the beginning of fiscal 1998 through the end of fiscal 2000,
the Company has recognized aggregate losses on contracts of $4.4 million. Over
the same period, the Company recognized sales of $251.5 million. Sales and
marketing expenses associated with obtaining contracts are expensed as incurred.
Backlog increases when new contracts are signed and decreases as
revenues are recognized. As of September 30, 2000 and 1999, backlog was $53.2
million and $79.8 million, respectively.
A number of the projects awarded to the Company are greater than $2
million, 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."
The Company engages in research and development activities. The
majority of these activities occur as the Company develops software or designs a
product for a particular contract. These efforts are typically included as an
integral part of the Company's services for the particular project and,
accordingly, the associated costs are charged to that project. Such
custom-designed software can often be applied to projects for other customers.
These amounts expended by the Company are not included in research and
development expenses, although the Company retains ownership of such proprietary
software or products. The Company, through its Advanced Technology Division,
also engages in research and development activities independently of the
Company's work on particular customer projects.
RESULTS OF OPERATIONS
The following table sets forth, for the fiscal years ended September
30, selected consolidated statement of operations data expressed as a percentage
of sales:
<TABLE>
<CAPTION>
PERCENTAGE OF SALES: 1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Costs and expenses:
Salaries, wages and related benefits 48.7 55.8 73.2
Subcontractor costs 13.6 15.1 24.1
Other general and administrative 16.9 17.5 23.7
Bad debts -- -- 3.8
Depreciation and amortization 4.4 5.5 8.5
Severance and related costs -- -- 4.2
Impairment of goodwill -- -- 27.5
----- ----- -----
Earnings (loss) from operations 16.4 6.1 (65.0)
Other expense, net 2.6 1.4 4.3
----- ----- -----
Earnings (loss) before income taxes and extraordinary item 13.8 4.7 (69.3)
Income taxes (benefit) 5.6 2.0 5.5
----- ----- -----
Net earnings (loss) before extraordinary loss 8.2 2.7 (63.8)
Extraordinary loss -- -- 0.4
----- ----- -----
Net earnings (loss) 8.2% 2.7% (64.2)%
===== ===== =====
</TABLE>
14
<PAGE> 17
FISCAL YEARS ENDED SEPTEMBER 30, 2000 AND 1999
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 41.8% or $43.2
million to $60.1 million for fiscal 2000 from $103.3 million for fiscal 1999.
This decrease was partially due to a decline in the number and size of customer
contracts. The decrease is further explained by significant downward adjustments
in the anticipated profitability of existing contracts. Throughout fiscal 2000,
the Company began an effort to standardize the processes and methodologies used
in estimating costs to complete. As required by percentage-of-completion
accounting guidelines, the revenue impact of these changes in accounting
estimates is recorded in the current period. The Company recorded significant
reductions in estimated gross margins on many contracts in fiscal 2000 as a
result of these refinements of the estimating process and recognition of
changing conditions and new developments. The impact of these changes was more
significant due to the relative maturity of the Company's existing contracts.
Management believes the Company's revenue in fiscal 2000 is not fully reflective
of the level of production in fiscal 2000 due to these downward adjustments in
gross margins.
SALARIES, WAGES AND RELATED BENEFITS. Salaries, wages and related benefits
includes employee compensation for production, marketing, selling,
administrative and executive employees. Salaries, wages and related benefits
decreased 23.5% to $44.0 million for fiscal 2000 from $57.6 million for fiscal
1999. This decrease was primarily due to staff reductions resulting from lower
than expected sales and emphasis on lower cost offshore labor for competitive
purposes. The staff reductions occurred across all locations and disciplines
within the Company. As a percentage of revenues, salaries, wages and related
benefits increased to 73.2% for fiscal 2000 from 55.8% for fiscal 1999. The
increase was primarily attributed to a reduction in revenue volume as described
above.
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 7.4% to $14.5 million
for fiscal 2000 from $15.6 million for fiscal 1999. The percentage decrease was
significantly less than the year-to-year revenues and salaries, wages and
related benefits declines, reflecting increased emphasis on offshore labor.
Subcontractor costs increased as a percentage of revenues to 24.1% for fiscal
2000 from 15.1% for fiscal 1999. The increase was primarily attributed to a
reduction in revenue volume and increased emphasis on offshore labor.
OTHER GENERAL AND ADMINISTRATIVE COSTS. Other general and administrative costs
includes, rent, maintenance, travel, supplies, utilities, insurance and
professional services. Such costs decreased 21.4% to $14.2 million for fiscal
2000 from $18.1 million for fiscal 1999. The decrease was primarily attributable
to travel, supplies and certain professional services, which varied with the
general decrease of activity and employment at the Company in fiscal 2000. As a
percentage of revenues, other general and administrative costs increased to
23.7% for fiscal 2000 from 17.5% for fiscal 1999.
BAD DEBTS. The Company records losses, or the anticipation of losses, arising
from its investment in accounts receivable and revenues in excess of billing in
the period in which the possibility of loss is identified. The $2.3 million in
bad debts recorded in fiscal 2000 is comprised of $2.0 million of unrealized
losses on accounts receivable and revenues in excess of billing. The remaining
$0.3 million relates to realized losses.
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 2000, depreciation and
amortization decreased 9.8% to $5.1 million from $5.7 million for fiscal 1999.
This decrease was primarily attributable to reductions in depreciation resulting
from an increasing percentage of equipment becoming fully
15
<PAGE> 18
depreciated. As a percentage of revenues, depreciation and amortization
increased to 8.5% for fiscal 2000 from 5.5% for fiscal 1999.
SEVERANCE AND RELATED COSTS. The Company incurred one-time officer severance,
legal, accounting and consulting expenses of $2.5 million associated with
officer resignations and the in-depth review of contract cost-of-completion
assumptions and accounting systems. These costs represented 4.2% of revenues in
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. Impairment of goodwill
represented 27.5% of revenues.
OTHER EXPENSE, NET. Other expense, net is comprised of net interest expense and
the net gain on sale of assets. Interest expense decreased 11.4% to $2.4 million
for fiscal 2000 from $2.7 million in fiscal year 1999. This decrease was
primarily due to reduced average debt outstanding, partially offset by higher
interest rates in fiscal 2000. The gain on sale of assets of $1.1 million in
fiscal 1999 primarily resulted from the sale of the Cartographic Sciences unit
in that year.
INCOME TAX EXPENSE (BENEFIT). The Company recognized an income tax benefit of
$3.3 million for fiscal 2000 compared to expense of $2.1 million for fiscal
1999. 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 are expected to
generate sufficient taxable income to realize deferred tax assets. Due to the
uncertainty surrounding the Company's future profitability, the Company
recognized a valuation allowance in 2000 of over $8 million. The Company's
effective income tax rate for fiscal 2000 was (7.9%) net of the valuation
allowance, compared to 42.4% for fiscal 1999.
EXTRAORDINARY LOSS ON EXTINGUISHMENT OF DEBT, NET OF TAX. The extraordinary item
of $209,000 relates to the expensing as current period costs unamortized bank
fees incurred in establishing the Company's line-of-credit and term debt
facilities in 1998 and cash payments made to amend related covenants in March,
2000. Such amounts are reported net of income taxes.
FISCAL YEARS ENDED SEPTEMBER 30, 1999 AND 1998
REVENUES. The Company's revenues are recognized as services are performed.
Revenues increased 17.1% or $15.1 million to $103.3 million for fiscal 1999 from
$88.2 million for fiscal 1998. This increase was due to an increase in the
number and size of customer contracts with the Company (including Cartotech) as
well as the impact of the acquisition of Cartotech in June 1998. Prior to its
acquisition by the Company, Cartotech's revenues for fiscal 1998 were
approximately $14.6 million.
SALARIES, WAGES AND RELATED BENEFITS. Salaries, wages and related benefits
includes employee compensation for production, marketing, selling,
administrative and executive employees. Salaries, wages and related benefits
increased 34.0% to $57.6 million for fiscal 1999 from $43.0 million for fiscal
1998. This increase was primarily due to the addition of over 270 employees as a
result of the Cartotech acquisition in June 1998, as well as the hiring of
additional employees to support the Company's anticipated increase in business.
As a percentage of revenues, salaries, wages and related benefits increased to
55.8% for fiscal 1999 from 48.7% for fiscal 1998. This increase was primarily
attributable to a reduction in the volume of revenues.
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 increased 30.7% to $15.6
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<PAGE> 19
million for fiscal 1999 from $12.0 million for fiscal 1998, and increased as a
percentage of revenues to 15.1% for fiscal 1999 from 13.6% for fiscal 1998.
OTHER GENERAL AND ADMINISTRATIVE COSTS. Other general and administrative costs
includes rent, maintenance, travel, supplies, utilities, insurance and
professional services. Such costs increased 21.0% to $18.1 million for fiscal
1999 from $15.0 million for fiscal 1998, primarily due to the acquisition of
Cartotech. As a percentage of revenues, other general and administrative costs
increased to 17.5% for fiscal 1999 from 17.0% for fiscal 1998.
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. For fiscal 1999, depreciation and amortization increased 46.7% to $5.7
million from $3.9 million for fiscal 1998. This increase was primarily
attributable to the increased goodwill recorded as a result of the Cartotech
acquisition. As a percentage of revenues, depreciation and amortization
increased to 5.5% for fiscal 1999 from 4.4% for fiscal 1998.
OTHER EXPENSE, NET. Other expense, net is comprised of net interest expense and
the net gain on sale of assets. Interest expense increased 25.1% to $2.7 million
for fiscal 1999 from $2.2 million in fiscal year 1998. This increase was
primarily due to the full year interest expense on debt incurred in connection
with the acquisition of Cartotech in June 1998. The gain on sale of assets was
$1.1 million in fiscal 1999, up from $15,000 in fiscal 1998, primarily due to
the gain on sale of the Cartographic Sciences unit in 1999.
INCOME TAX EXPENSE. Income tax expense was $2.1 million for fiscal 1999 compared
to $4.9 million for fiscal 1998. The Company's effective income tax rate for
fiscal 1999 was 42.4%, an increase from 40.4% for fiscal 1998.
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. As of
September 30, 2000, the Company had $5.9 million in borrowings outstanding on
its working capital line-of-credit and $15.9 million on its term debt.
The Company was in violation of certain financial covenants at times in
fiscal 2000. The Company and its senior lenders renegotiated the terms and
conditions of the debt facility through a series of waivers and amendments to
the debt facility. The debt facility contains restrictive covenants that
require, among other things, the maintenance of certain financial ratios and
include limitations on capital expenditures, asset sales, incremental debt and
dividend payments. The debt facility is secured by substantially all assets of
the Company.
The line-of-credit provided for borrowings of $7,500,000 and
$21,000,000 at September 30, 2000 and 1999, respectively. The interest rate was
prime rate plus 2.00% (11.50%) at September 30, 2000 and was LIBOR plus margins
ranging from 1.25% to 1.75% (6.63%) at September 30, 1999. The availability of
the borrowings at September 30, 2000 is based on eligible accounts receivable.
The line-of-credit agreement expires September 1, 2001.
The term debt requires quarterly installments with interest based on
prime rate plus 2.00% (11.50%) at September 30, 2000 and LIBOR plus margins
ranging from 1.25% to 1.75% (6.63%) at September 30, 1999. The terms of the debt
facility were further amended on December 28, 2000, when senior lenders extended
principal payments totaling $5,225,000 until March 1, 2001 (or under certain
circumstances to April 1, 2001). The interest rate increases an additional 1.50%
per annum beginning January 1, 2001 on the total line-of-credit and term debt
balance until the principal payment is made. The term debt is due October 1,
2001, unless further waivers are negotiated.
17
<PAGE> 20
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 fiscal 2000, the Company
experienced significant operating losses with corresponding reductions in
working capital and net worth and a substantial portion of its bank debt is
included in current liabilities as of September 30, 2000 because it is due
within one year. Management has determined that its internal cash flows must be
augmented to fund required debt payments in 2001. The Company's revenues and
backlog has also decreased substantially during 1999 and 2000 due in part to a
deterioration in customer confidence caused by concerns over the Company's
financial condition. Also, as discussed in note 10, the Company is a defendant
in a shareholder class action that could adversely impact its financial
position. These factors among others raise substantial doubt about the Company's
ability to continue as a going concern.
Since joining the Company in July 2000, the new Chief Executive Officer
and the Company's new management team have been developing operational and
financial restructuring plans designed to improve operating efficiencies,
eliminate cash losses and position the Company for profitable operations. Under
this new leadership, the Company implemented plans to reduce non-core spending
activities, reduce overhead, outsource certain components of projects and
renegotiate its bank agreements. The Company is also actively pursuing
additional financing alternatives that include new strategic investors, or
potentially selling substantial Company assets. As discussed in note 4, the
Company obtained a waiver from the bank to postpone principal payments. Although
management has developed strategies to meet the revised principal payments there
is no certainty that such strategies will be successful in the planned
timeframe. The bank's willingness to further postpone principal payments cannot
be assured.
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 restructuring plans can significantly improve
operations and generate sufficient cash to meet its obligations in a timely
manner.
The Company's cash flow is significantly affected by customer contract
terms and progress achieved on projects. Fluctuations in cash flow from
operations 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, an "account 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.
The Company's operating activities resulted in a cash flow breakeven in
fiscal 2000, compared with $9.4 million provided by operating activities for
fiscal year 1999 and $4.4 million of net cash used in 1998. Contract-related
accounts described in the previous paragraph declined $15.0 million and $9.7
million in fiscal 2000 and 1999, respectively. A significant portion of this
decline in both years resulted from contract cost-to-complete adjustments, which
reduced Revenues in Excess of Billing without providing cash flow. Accounts
payable and accrued expenses increased $1.8 million in fiscal 2000 and decreased
$4.8 million in fiscal 1999. The change reflects the Company's implementation of
improved cash management procedures in fiscal 2000.
Cash used by investing activities principally consisted of purchases of
equipment and leasehold improvements and payments for net assets acquired in
business combinations, offset by the receipt of cash from sales of assets. In
fiscal year 2000, the Company purchased $1.7 million in net equipment and
leasehold improvements. Fixed asset acquisitions were below 1999 and 1998, years
in which net fixed asset additions were $3.3 million and $3.9 million,
respectively. Cash flow was enhanced by $3.6 million in fiscal year 1999 from
proceeds from sales of assets associated with the Mid-States Engineering and
18
<PAGE> 21
Cartographic Sciences units. In 1998, the Company used $8.4 million in cash in
the acquisition of Cartotech.
Cash used by financing activities for fiscal years 2000 and 1999 was
$2.1 million and $5.3 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.
QUARTERLY FINANCIAL INFORMATION
Selected quarterly financial data for the years ended September 30,
2000 and 1999 are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
2000
Revenues $ 16,843 $ 17,955 $ 11,708 $ 13,579 $ 60,085
Earnings (loss) before income taxes (4,152) (5,483) (9,494) (22,535) (41,664)
Net loss (2,677) (3,550) (9,494) (22,858) (38,579)
Earnings (loss) per share
Basic (0.39) (0.51) (1.36) (3.28) (5.54)
Diluted (0.39) (0.51) (1.36) (3.28) (5.54)
1999
Revenues $ 26,851 $ 27,203 $ 29,528 $ 19,672 $ 103,254
Earnings (loss) before income taxes 2,508 2,333 3,371 (3,369) 4,843
Net earnings (loss) 1,419 1,363 2,002 (1,994) 2,790
Earnings (loss) per share
Basic 0.21 0.20 0.29 (0.29) 0.41
Diluted 0.20 0.19 0.28 (0.28) 0.39
</TABLE>
ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and for Hedging Activities,"
with the effective date amended by Statement No. 137 to fiscal years beginning
after June 15, 2000. The Statement will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
then depending on the nature of the hedge, changes in the fair value will either
be offset through earnings, against the change in fair value of hedged assets,
liabilities or firm commitments or recognized in other comprehensive income
until the hedged item is recognized in income. The ineffective portion of a
hedge's change in fair value will be immediately recognized in income. The
adoption of this statement will not have a material impact on the Company's
financial statements.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition." This staff accounting bulletin summarizes certain of the
staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. The staff provided this guidance due, in
part, to the large number of revenue recognition issues that registrants
encounter. The effective date of this bulletin for registrants with fiscal years
ending on September 30 is the quarter beginning July 1, 2001. The adoption of
this bulletin will not have a material impact on the Company's financial
statements.
19
<PAGE> 22
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 can
impact the Company's interest expense on its variable interest rate debt.
Variable interest rate debt of $20.6 million was outstanding as of September 30,
2000. Assuming September 30, 2000 debt levels, an increase or decrease in
interest rates of one percentage point would impact the Company's annual
interest expense by $206,000.
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, 2000 and 1999, 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, 2000. 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, 2000 and 1999, and the results of
their operations and their cash flows for each of the years in the three-year
period ended September 30, 2000, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 12 to
the consolidated financial statements, the Company has suffered a significant
loss in 2000 and has determined that internal cash flows must be augmented to
fund required debt payments in 2001, which raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in note 12. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
KPMG LLP
Indianapolis, Indiana
January 12, 2001
20
<PAGE> 23
ANALYTICAL SURVEYS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1999 and 2000
(In thousands)
<TABLE>
<CAPTION>
ASSETS 1999 2000
-------- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,659 2,825
Accounts receivable, net of allowance for doubtful
accounts of $138 and $434 (notes 3 and 9) 15,074 12,840
Revenue earned in excess of billings (note 3) 30,898 18,018
Deferred income taxes (note 6) 402 1,968
Income taxes refundable 4,085 3,145
Prepaid expenses and other 1,066 517
-------- --------
Total current assets 58,184 39,313
-------- --------
Equipment and leasehold improvements:
Equipment 13,916 15,363
Furniture and fixtures 1,581 1,720
Leasehold improvements 1,076 1,104
-------- --------
16,573 18,187
Less accumulated depreciation and amortization (8,740) (11,872)
-------- --------
Net equipment and leasehold improvements 7,833 6,315
-------- --------
Deferred income taxes 590 432
Goodwill, net of accumulated amortization of $3,174 and $4,911 (note 2) 22,098 3,862
Investment securities 537 340
-------- --------
Total assets $ 89,242 $ 50,262
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line-of-credit (note 4) $ -- 5,890
Current portion of long-term debt (note 4) 7,265 13,555
Billings in excess of revenue earned (note 3) 2,008 1,850
Accounts payable and other accrued liabilities 5,148 7,833
Accrued payroll and related benefits 3,819 3,112
-------- --------
Total current liabilities 18,240 32,240
Long-term debt, less current portion (note 4) 20,339 5,952
Total liabilities 38,579 38,192
-------- --------
Stockholders' equity (note 7):
Common stock, no par value. Authorized 100,000 shares;
issued and outstanding 6,948 and 6,974 shares 32,080 32,185
Accumulated other comprehensive income -- (119)
Retained earnings (accumulated deficit) 18,583 (19,996)
-------- --------
Total stockholders' equity 50,663 12,070
-------- --------
Commitments and contingencies (notes 10 and 12)
Total liabilities and stockholders' equity $ 89,242 50,262
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 24
ANALYTICAL SURVEYS, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended September 30, 1998, 1999 and 2000
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1999 2000
-------- ------- ------
<S> <C> <C> <C>
Revenues $ 88,155 103,254 60,085
-------- ------- ------
Costs and expenses:
Salaries, wages and benefits 42,953 57,571 44,027
Subcontractor costs 11,961 15,628 14,476
Other general and administrative 14,964 18,112 14,231
Bad debts -- -- 2,268
Depreciation and amortization 3,860 5,661 5,107
Impairment of goodwill (note 1) -- -- 16,513
Severance and related costs -- -- 2,532
-------- ------- ------
73,738 96,972 99,154
-------- ------- ------
Earnings (loss) from operations 14,417 6,282 (39,069)
-------- ------- ------
Other income (expense):
Interest expense, net (2,156) (2,698) (2,391)
Gain on sale of subsidiaries (note 2) -- 1,084 --
Other, net (136) 175 (204)
-------- ------- ------
(2,292) (1,439) (2,595)
-------- ------- ------
Earnings (loss) before income taxes and
extraordinary item 12,125 4,843 (41,664)
Income tax expense (benefit) (note 6) 4,894 2,053 (3,294)
-------- ------- ------
Earnings (loss) before extraordinary item 7,231 2,790 (38,370)
Extraordinary loss on extinguishment of debt, net of tax -- -- 209
-------- ------- ------
Net earnings (loss) $ 7,231 2,790 (38,579)
======== ======= =======
Basic earnings (loss) per common share:
Earnings (loss) before extraordinary item $ 1.14 0.41 (5.51)
Extraordinary item $ -- -- .03
Net earnings (loss) $ 1.14 0.41 (5.54)
Diluted earnings (loss) per common share:
Earnings (loss) before extraordinary item $ 1.06 0.39 (5.51)
Extraordinary item $ -- -- .03
Net earnings (loss) $ 1.06 0.39 (5.54)
Weighted average common shares:
Basic 6,349 6,833 6,963
Diluted 6,819 7,177 7,049
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 25
ANALYTICAL SURVEYS, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)
Years ended September 30, 1998, 1999 and 2000
(In thousands)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER
----------------------- RETAINED COMPREHENSIVE
SHARES AMOUNT EARNINGS INCOME (LOSS) TOTAL
------ -------- -------- ------------- ------
<S> <C> <C> <C> <C> <C>
Balances at October 1, 1997 6,114 $15,269 8,562 -- 23,831
Net earnings -- -- 7,231 -- 7,231
Common stock issued in connection
with business combination (note 2) 354 8,269 -- -- 8,269
Exercise of stock options 264 2,017 -- -- 2,017
Tax benefit relating to exercise of stock
options -- 3,115 -- -- 3,115
------ ------- ------- ------
Balances at September 30, 1998 6,732 28,670 15,793 -- 44,463
Net earnings -- -- 2,790 -- 2,790
Common stock issued in connection
with business combination (note 2) 22 514 -- -- 514
Exercise of stock options 194 1,595 -- -- 1,595
Tax benefit relating to exercise of stock
options -- 1,301 -- -- 1,301
------ ------- ------- ---- ------
Balances at September 30, 1999 6,948 32,080 18,583 -- 50,663
Net loss -- (38,579) (38,579)
Net unrealized change in investment
securities, net of tax -- -- -- (119) (119)
------ ------- ------- ---- ------
Comprehensive income (loss) (38,698)
Exercise of stock options 26 68 -- -- 68
Tax benefit relating to exercise of stock
options -- 37 -- -- 37
------ ------- ------- ---- ------
Balances at September 30, 2000 6,974 $32,185 (19,996) (119) 12,070
====== ======= ======= ==== ======
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 26
ANALYTICAL SURVEYS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended September 30, 1998, 1999 and 2000
(In thousands)
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings (loss) $ 7,231 2,790 (38,579)
Adjustments to reconcile net earnings (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization 3,860 5,661 5,107
Extraordinary loss on extinguishment of debt -- -- 209
Gain on sale of subsidiaries (15) (1,084) --
Deferred income taxes (350) (470) (1,408)
Tax benefit relating to exercise of stock options 3,115 1,301 37
Impairment of goodwill -- -- 16,513
Changes in operating assets and liabilities:
Accounts receivable, net (6,907) 1,138 2,234
Revenue earned in excess of billings (16,213) 7,718 12,880
Income taxes refundable or payable (675) (3,369) 940
Prepaid expenses and other 15 (336) 418
Billings in excess of revenue earned 121 866 (158)
Accounts payable and other accrued liabilities 3,434 (2,835) 2,770
Accrued payroll and related benefits 1,963 (1,956) (961)
-------- ----- -----
Net cash provided (used) by operating activities (4,421) 9,424 2
-------- ----- -----
Cash flows from investing activities:
Purchase of equipment and leasehold improvements (3,888) (3,295) (1,697)
Cash proceeds from sales of subsidiaries 15 3,578 --
Payments for net assets acquired in business combinations,
net of cash acquired (8,337) -- --
-------- ----- -----
Net cash provided (used) by investing activities (12,210) 283 (1,697)
-------- ----- -----
Cash flows from financing activities:
Net borrowings (payments) under lines-of-credit 4,277 (5,750) 5,890
Proceeds from issuance of long-term debt 29,072 4,003 --
Principal payments on long-term debt (18,051) (5,139) (8,097)
Proceeds from exercise of stock options 2,017 1,595 68
-------- ----- -----
Net cash provided (used) by financing activities 17,315 (5,291) (2,139)
-------- ----- -----
Net increase (decrease) in cash 684 4,416 (3,834)
Cash and cash equivalents at beginning of year 1,559 2,243 6,659
-------- ----- -----
Cash and cash equivalents at end of year $ 2,243 6,659 2,825
======== ===== =====
Supplemental disclosures of cash flow information:
Cash paid for interest $ 2,113 2,567 2,391
======== ===== =====
Cash paid for income taxes, net of refunds $ 2,463 4,295 (2,845)
======== ===== =====
Common stock issued in connection with
business combinations $ 8,269 514 --
======== ===== =====
Equity securities received in sale of subsidiary $ -- 535 --
======== ===== =====
</TABLE>
See accompanying notes to consolidated financial statements
24
<PAGE> 27
ANALYTICAL SURVEYS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998, 1999 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
Company and its majority owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(b) EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are recorded at cost and are
depreciated and amortized using the straight-line method over
estimated useful lives of three to ten years.
(c) REVENUE AND COST RECOGNITION
Contract revenues are recognized using the percentage of
completion method based on the cost-to-cost method, whereby the
percentage complete is based on costs incurred in relation to
total estimated costs to be incurred. Costs associated with
obtaining contracts are expensed as incurred. The Company does not
combine contracts for purposes of recognizing revenue and,
generally, does not segment contracts.
Customers are billed based on the terms included in the contracts,
which are generally upon delivery of certain products or
information, or achievement of certain milestones defined in the
contracts. When billed, such amounts are recorded as accounts
receivable. Revenue earned in excess of billings represents
revenue related to services completed but not billed, and billings
in excess of revenue earned represent billings in advance of
services performed.
Contract costs include all direct material and labor costs and
those indirect costs related to contract performance, such as
indirect labor, supplies, tools and depreciation costs. Losses on
contracts are recognized in the period such losses are determined.
The Company does not believe warranty obligations on completed
contracts are significant. Changes in job performance, job
conditions, and estimated profitability, including those arising
from contract penalty provisions, and final contract settlements
may result in revisions to costs and income and are recognized in
the period in which the revisions are determined.
(d) GOODWILL
Goodwill represents the excess of the purchase price over the net
assets acquired in utility business combinations and is being
amortized over a fifteen-year period using the straight-line
method. The recoverability of goodwill is evaluated at the Utility
Division and enterprise-level at least annually and whenever
significant events or changes occur, such as
25
<PAGE> 28
ANALYTICAL SURVEYS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998, 1999 and 2000
significant decreases in anticipated cash flow, which might impair
recovery of recorded costs. An impairment loss is recognized when
estimated undiscounted future cash flows from operations and
potential dispositions before interest costs, expected to be
generated through the remaining amortization period is less than
the net book value of long-lived assets. Measurement of an
impairment loss is based on the fair value of the long-lived
assets, using discounted cash flows over the remaining
amortization period or estimated market values. Based on this
measurement at the Utility Division level, the Company recorded an
impairment loss of $16.5 million for the year ended September 30,
2000.
(e) INVESTMENT SECURITIES
Investment securities consist of marketable equity securities that
are classified as available-for-sale. Available-for-sale
securities are recorded at fair value. Unrealized holding gains
and losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and are reported as a
separate component of stockholders' equity until realized.
(f) INCOME TAXES
Income taxes are reflected under the liability method, which
establishes deferred tax assets and liabilities to be recognized
for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date.
(g) IMPAIRMENT OF LONG-LIVED ASSETS OTHER THAN GOODWILL
Long-lived assets other than goodwill held and used by the Company
are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not
be recoverable. An impairment loss is recognized when estimated
undiscounted future cash flows expected to be generated by an
asset are less than its carrying value. Measurement of the
impairment loss is based on the fair value of the asset, which is
determined using generally accepted valuation techniques such as
discounted present value of expected future cash flows.
(h) STOCK-BASED COMPENSATION
Stock-based employee compensation plans are recorded using the
intrinsic value method. Pro forma disclosures of net earnings and
earnings per share are provided as if the fair value based method
of accounting was used.
(i) 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 on the Company's common stock, determined
using the treasury stock method.
26
<PAGE> 29
ANALYTICAL SURVEYS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998, 1999 and 2000
(j) FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments are estimated to
approximate estimated fair values. The fair value of a financial
instrument is the amount at which the instrument could be
exchanged in a current transaction between willing parties. The
carrying amounts of cash, receivables, accounts payable and
accrued liabilities approximate fair value due to the short
maturity of these instruments. The carrying amounts of debt
approximate fair value due to the variable nature of the interest
rates of these instruments.
(2) BUSINESS COMBINATIONS AND SALE OF SUBSIDIARIES.
In September 1999, the Company sold the net assets of its Mid States
Engineering, LLC subsidiary for $2,900,000 in cash. The Company recorded
a gain on the sale of $192,000.
In September 1999, the Company sold the net assets of its Cartographic
Sciences Private Limited subsidiary for $1,000,000 in cash and 52,000
shares of common stock of the seller valued at $535,000. The Company
recorded a gain on the sale of $892,000.
In December 1998, the Company acquired the assets of Measurement Science,
Inc. for 21,850 shares of restricted common stock valued at $514,000.
In June 1998, the Company acquired all of the issued and outstanding
common stock of Cartotech, Inc. for $8,092,000 in cash and 354,167 shares
of restricted common stock valued at approximately $8,269,000.
The acquisitions were accounted for using the purchase method and,
accordingly, the accompanying consolidated financial statements include
the results of operations of the acquired businesses since the date of
acquisition. The aggregate costs of businesses acquired were allocated
based on fair values as follows (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1998 1999
----------- ------
<S> <C> <C>
Current assets $ 3,732 --
Equipment 1,950 514
Other assets, including goodwill 14,048 --
Current liabilities (2,930) --
(2,930) --
----------- ------
$ 16,800 514
=========== ======
</TABLE>
27
<PAGE> 30
ANALYTICAL SURVEYS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998, 1999 and 2000
(3) ACCOUNTS RECEIVABLE, REVENUE EARNED IN EXCESS OF BILLINGS AND BILLINGS
IN EXCESS OF REVENUE EARNED
At September 30, 2000, the estimated period to complete contracts in
process ranges from one month to thirty-six months, and the Company
expects to collect substantially all related accounts receivable and
revenue earned in excess of billings within one year. The Company
established reserves on revenues earned in excess of billings of
$1,627,000 for the year ended September 30, 2000, which are netted with
revenues earned in excess of billings. There were no reversals of
provisions to reserves in fiscal 2000.
The following summarizes contracts in process at September 30 (in
thousands):
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Costs incurred on uncompleted contracts $ 134,563 88,071
Estimated earnings 56,040 31,446
------------- --------
190,603 119,517
Less billings to date (161,713) (103,349)
------------- --------
$ 28,890 16,168
============= ========
Included in the accompanying consolidated
Balance Sheets as follows:
Revenue earned in excess of billings $ 30,898 18,018
Billings in excess of revenue earned (2,008) (1,850)
------------- --------
$ 28,890 16,168
============= ========
</TABLE>
(4) DEBT
The line-of-credit, note payable and capital lease obligation represent
the three components of a debt facility with the Company's senior
lenders and are summarized as follows (in thousands).
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
SHORT-TERM DEBT
Line-of-credit $ -- 5,890
============= ========
LONG-TERM DEBT
Note payable $ 21,900 15,927
Capital lease obligation 5,240 3,260
Other 464 320
------------- --------
27,604 19,507
Less current portion (7,265) (13,555)
------------- --------
$ 20,339 5,952
============= ========
</TABLE>
28
<PAGE> 31
ANALYTICAL SURVEYS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998, 1999 and 2000
The Company was in violation of certain financial covenants at times in
fiscal 2000, and the Company and its senior lenders renegotiated the
terms and conditions of the debt facility through a series of waivers
and amendments. The amended debt facility contains restrictive
covenants that require, among other things, the maintenance of certain
financial ratios and include limitations on capital expenditures, asset
sales, incremental debt and dividend payments. The debt facility is
secured by substantially all assets of the Company. The terms and
conditions of each component of the debt facility are as follows:
The line-of-credit provides for borrowings of $7,500,000 and
$21,000,000 at September 30, 2000 and 1999, respectively. The interest
rate was at the lenders' prime rate plus 2.00% (11.50%) at September
30, 2000 and was LIBOR plus margins ranging from 1.25% to 1.75% (6.63%)
at September 30, 1999. The availability of the borrowings at September
30, 2000 is based on eligible accounts receivable. The line-of-credit
agreement expires September 1, 2001.
The note payable requires quarterly installments with interest at the
prime rate plus 2.00% (11.50%) at September 30, 2000 and LIBOR plus
margins ranging from 1.25% to 1.75% (6.63%) at September 30, 1999. The
terms of the debt facility were further amended on December 28, 2000,
when senior lenders extended principal payments totaling $5,225,000
until March 1, 2001 (or under certain circumstances to April 1, 2001).
The interest rate increases an additional 1.50% per annum beginning
January 1, 2001 on the total line-of-credit and note payable balance
until the principal payment is made. The note payable is due October 1,
2001, unless further waivers are negotiated.
The capital lease obligation is under a leasing facility which bears
interest at effective rates ranging from 7.37% to 9.00%, payable in
monthly installments through September 2002.
Required principal payments on long-term debt are $13,555,000 for the
year ending September 30, 2001; $5,749,000 in 2002; $89,000 in 2003;
$66,000 in 2004 and $48,000 in 2005.
(5) OPERATING LEASES
The Company leases its facilities and certain equipment under operating
leases. Amounts due under non-cancelable operating leases with terms of
one year or more at September 30, 2000 are as follows (in thousands):
Years ending September 30:
2001 $ 2,312
2002 1,736
2003 536
2004 278
2005 1
----------
Total minimum operating lease payments $ 4,863
==========
29
<PAGE> 32
ANALYTICAL SURVEYS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998, 1999 and 2000
Rent expense totaled $2,300,113, $2,780,104 and $2,650,926 for the
years ended September 30, 1998, 1999 and 2000, respectively.
(6) INCOME TAXES
Income tax expense (benefit) for the years ended September 30 is as
follows (in thousands):
1998 1999 2000
------- ----- ------
Current:
Federal $ 4,244 2,177 (1,644)
State and local 1,000 346 (242)
------- ----- ------
5,244 2,523 (1,886)
------- ----- ------
Deferred:
Federal (270) (400) (1,227)
State and local (80) (70) (181)
------- ----- ------
(350) (470) (1,408)
------- ----- ------
$ 4,894 2,053 (3,294)
======= ===== ======
The exercise of non-qualified stock options results in state and
federal income tax deductions to the Company equal to the difference
between the market price at the date of exercise and the option
exercise price. The benefit of such deductions is recorded as an
increase to stockholders' equity and totaled approximately $3,115,000,
$1,301,000 and $37,000 in fiscal 1998, 1999 and 2000, respectively.
Actual income tax expense (benefit) differs from the amount computed
using the federal statutory rate of 34% for the years ended September
30 as follows (in thousands):
<TABLE>
<CAPTION>
1998 1998 2000
--------- ----- ------
<S> <C> <C> <C>
Computed "expected" income tax expense $ 4,123 1,647 (14,166)
State income taxes, net of federal tax effect 607 182 (279)
Amortization of non-deductible goodwill 84 315 318
Impairment of non-deductible goodwill -- -- 2,693
Deferred tax valuation allowance -- -- 8,051
Other, net 80 (91) 89
--------- ----- ------
Actual income tax expense (benefit) $ 4,894 2,053 (3,294)
========= ===== ======
</TABLE>
30
<PAGE> 33
ANALYTICAL SURVEYS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998, 1999 and 2000
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at September 30 are as
follows (in thousands):
<TABLE>
<CAPTION>
1999 2000
------ -----
<S> <C> <C>
Current deferred tax assets and liabilities:
Accrued liabilities, primarily due to accrued compensated
absences for financial statement purposes $ 469 411
Severance reserves -- 523
Bad debt and revenue earned in excess of billing
allowances -- 804
Other, net (67) 230
------ -----
Total net current deferred tax asset $ 402 1,968
====== =====
Non-current deferred tax assets (liabilities):
Equipment and leasehold improvements, primarily due to
differences in depreciation $ 167 (403)
Goodwill amortization 416 --
NOL carryforward -- 5,460
Impairment of deductible goodwill -- 3,351
Unrealized loss on investment securities -- 75
Valuation allowance -- (8,051)
Other, net 7 --
------ -----
Total non-current deferred tax asset $ 590 432
====== =====
</TABLE>
At September 30, 2000, the Company had net operating loss carryforwards
of approximately $14 million that will expire in 2020. The Company
recognized a valuation allowance in 2000 of $8 million for deferred tax
assets that are not anticipated to be realized. Management believes
that it is more likely than not that future operations will generate
sufficient taxable income to realize the deferred tax assets net of the
valuation allowance.
(7) STOCKHOLDERS' EQUITY AND STOCK OPTIONS
The Company may issue up to 2.5 million shares of preferred stock, no
par value, with dividend requirements, voting rights, redemption
prices, liquidation preferences and premiums, conversion rights and
other terms without a vote of the shareholders.
31
<PAGE> 34
ANALYTICAL SURVEYS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998, 1999 and 2000
The Company currently has six nonqualified stock option plans with
547,725 shares available for grant as of September 30, 2000. The
exercise price of the options is established by the Board of Directors
on the date of grant. Options vest either 100% on date of grant or 25%
six months from date of grant and 25% on the anniversary dates of the
grant thereafter, as determined by the Board of Directors. The options
are exercisable in whole or in part for a period of up to ten years
from date of grant. The options may vest earlier under certain
circumstances, such as a change in control.
Because the Company grants its options with exercise prices at or above
market value at date of grant, no compensation cost is recognized under
the plans. Had compensation cost for the Company's stock-based
compensation plans been determined based upon the fair value of options
on the grant dates, the Company's pro forma net earnings and diluted
earnings per share would have been as follows (in thousands, except per
share amounts):
YEAR ENDED SEPTEMBER 30,
---------------------------
1998 1999 2000
----- ---- --------
Net earnings (loss) 4,743 (4) (41,096)
Diluted earnings per share .70 .00 (5.90)
The weighted average fair value of options granted during 1998, 1999
and 2000 was $17.93, $11.70 and $1.99, per share, respectively. The
fair value of each option granted was estimated at the date of grant
using the Black-Scholes option-pricing model with the following
assumptions: no expected dividends, expected life of the options of
three years, 107% volatility and a risk-free interest rate ranging from
5% to 6%.
The above pro forma disclosures are not necessarily representative of
the effect on the historical net earnings for future periods because
options vest over several years, and additional awards are made each
year. In addition, compensation cost for options granted prior to
October 1, 1995, which vest after that date has not been considered.
32
<PAGE> 35
ANALYTICAL SURVEYS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998, 1999 and 2000
Stock option activity for the plans for the years ended September 30
are summarized as follows (shares in thousands):
Weighted
Average
Number of Exercise price
Options Per share
--------- --------------
Balance, October 1, 1997 1,288 $ 9.23
Granted 753 38.67
Exercised (264) 7.65
Canceled (4) 23.58
----- ---------
Balance, September 30, 1998 1,773 21.94
Granted 257 24.03
Exercised (194) 8.24
Canceled (5) 21.90
----- ---------
Balance, September 30, 1999 1,831 20.80
Granted 749 4.38
Exercised (44) 3.78
Canceled (825) 21.97
----- ---------
Balance, September 30, 2000 1,711 $ 13.53
===== =========
A summary of the range of exercise prices and the weighted-average
contractual life of outstanding stock options at September 30, 2000 is
as follows (shares in thousands):
<TABLE>
<CAPTION>
NUMBER WEIGHTED NUMBER
OUTSTANDING WEIGHTED AVERAGE EXERCISABLE WEIGHTED
RANGE OF AT AVERAGE REMAINING AT AVERAGE
EXERCISE SEPTEMBER 30, EXERCISE CONTRACTUAL SEPTEMBER 30, EXERCISE
PRICE 2000 PRICE LIFE (YEARS) 2000 PRICE
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1.13 - 10.00 823 $ 3.26 8 184 $ 3.01
10.01 - 20.00 346 12.39 6 331 12.27
20.01 - 40.00 497 28.59 8 332 29.14
40.01 - 44.00 45 44.00 8 34 44.00
--------------- ----- ----------- --- --- ---------
$ 1.13 - 44.00 1,711 $ 13.53 8 881 $ 17.91
=============== ===== =========== === === =========
</TABLE>
(8) EMPLOYEE BENEFIT PLAN
The Company sponsors a qualified tax deferred savings plan in
accordance with the provisions of section 401(k) of the Internal
Revenue Code. Employees may defer up to 15% of their
33
<PAGE> 36
ANALYTICAL SURVEYS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998, 1999 and 2000
compensation, subject to certain limitations. The Company matches 50%
of employee contributions up to 4% of their compensation. The Company
contributed $370,814, $660,740 and $520,510 to the plan in fiscal 1998,
1999 and 2000, respectively.
(9) CONCENTRATIONS OF CREDIT RISK
The Company's accounts receivable consists of amounts primarily due
from city, county and federal governmental units, and engineering and
utility companies. The Company provides for uncollectible amounts upon
recognition of revenue and when specific credit and collection issues
arise. Management believes that all significant credit and collection
risks have been identified and adequately provided.
(10) LITIGATION
The Company and certain of its directors and former officers have been
named as defendants in thirteen putative securities class action
complaints that were filed in the United States District Court for the
Southern District of Indiana (the "Court") beginning on February 2,
2000. On May 12, 2000, the Court consolidated the thirteen actions. On
July 26, 2000, plaintiffs filed a Consolidated Amended Class Action
Complaint on behalf of themselves and a putative class consisting of
all persons, other than defendants and their affiliates, who purchased
the Company's common stock on the open market during the period from
January 25, 1999, through and including March 7, 2000. The plaintiff's
allege that the Company and the individual defendants violated the
federal securities laws, which prohibit fraud in connection with the
purchase or sale of securities, by knowingly or recklessly issuing
financial statements that failed to comply with generally accepted
accounting principles. The plaintiffs seek an award of compensatory
damages, including interest thereon, and attorneys' fees and other
costs.
On September 11, 2000, the Company and the named individual defendants
filed motions to dismiss the plaintiffs' Consolidated Amended Class
Action. On October 24, 2000, the plaintiffs filed a Memorandum in
Opposition to Defendants' Motions to Dismiss the Consolidated Amended
Class Action Complaint. The Court has not yet ruled on these motions.
While the Company cannot reasonably estimate the damages, if any, that
may result from this action, it is possible that the outcome of this
litigation may have a material adverse impact on the financial
condition or results of operations of the Company in one or more future
periods. The Company, however, intends to defend itself vigorously in
this matter.
34
<PAGE> 37
ANALYTICAL SURVEYS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998, 1999 and 2000
The Company and its directors have been named as defendants in an
action that was filed by the former President, Chief Executive Officer
and Director of the Company. The suit claims that the Company violated
the Colorado Wage Claim Act and breached contractual obligations. It
also claims that the Company has breached an obligation to indemnify
the former President in connection with pending securities litigation
against the Company and certain of its directors and former officers.
No trial date has yet been set. The Company intends to defend itself
vigorously in this matter.
(11) SEGMENT INFORMATION
Management evaluates operations and makes key strategic and resource
decisions based on two different operating segments: the Utilities
Division which uses its industry expertise and proprietary GIS systems
for data conversion for electric, gas and water management utility
customers; and the Land Division which creates land base maps using
techniques in both general cartography and specialized photogrammetric
mapping. 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. Segment data for
1999 and 1998 has been presented for comparative purposes.
Interest expense and other non-segment specific expenses are not
allocated to individual segments in determining the Company's
performance measure. Non-segment assets to reconcile to total assets
consists of corporate assets including cash, prepaid expenses and
deferred taxes.
UTILITIES LAND NON-SEGMENT TOTAL
--------- ------- ----------- --------
2000
Operations
Revenues $ 45,658 14,427 -- 60,085
Loss from Operations (28,204) (10,865) -- (39,069)
Interest expense, net -- -- (2,391) (2,391)
Other -- -- (204) (204)
Income tax benefit -- -- 3,294 3,294
Extraordinary loss on
Extinguishment -- -- (209) (209)
-------
Net income (loss) -- -- -- (38,579)
-------
Assets
Segment assets $ 29,038 11,997 -- 41,035
Non-segment assets -- -- 9,227 9,227
-------
Consolidated Assets 50,262
=======
35
<PAGE> 38
ANALYTICAL SURVEYS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998, 1999 and 2000
<TABLE>
<CAPTION>
UTILITIES LAND NON-SEGMENT TOTAL
--------- ------ ----------- -------
<S> <C> <C> <C> <C>
1999
Operations
Revenues $ 69,753 33,501 -- 103,254
Earnings (loss) from Operations (431) 6,713 -- 6,282
Interest expense, net -- -- (2,698) (2,698)
Gain on sale of subsidiary -- -- 1,084 1,084
Other -- -- 175 175
Income tax expense -- -- (2,053) (2,053)
-------
Net income -- -- -- 2,790
=======
Assets
Segment assets $ 57,327 18,576 -- 75,903
Non-segment assets -- -- 13,339 13,339
-------
Consolidated Assets 89,242
=======
1998
Operations
Revenues $ 58,027 30,128 -- 88,155
Earnings from Operations 5,840 8,577 -- 14,417
Interest expense, net -- -- (2,156) (2,156)
Costs related to terminate -- -- (300) (300)
stock offering
Other -- -- 164 164
Income tax expense -- -- (4,894) (4,894)
-------
Net income 7,231
=======
</TABLE>
(12) LIQUIDITY
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
fiscal 2000, the Company experienced significant operating losses with
corresponding reductions in working capital and net worth and a
substantial portion of its bank debt is included in current liabilities
as of September 30, 2000 because it is due within one year. Management
has determined that its internal cash flows must be augmented to fund
required debt payments in 2001. The Company's revenues and backlog has
also decreased substantially during 1999 and 2000. As discussed in note
10, the Company is a defendant in a
36
<PAGE> 39
ANALYTICAL SURVEYS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998, 1999 and 2000
shareholder class action that could adversely impact its financial
position. These factors among others raise substantial doubt about the
Company's ability to continue as a going concern.
Since joining the Company in July 2000, the new chief executive officer
and the Company's new management team have been developing operational
and financial restructuring plans designed to improve operating
efficiencies, eliminate cash losses and position the Company for
profitable operations. Under this new leadership, the Company
implemented plans to reduce non-core spending activities, reduce
overhead, outsource certain components of projects and renegotiate its
bank agreements. The Company is also actively pursuing additional
financing alternatives that include new strategic investors, or
potentially selling substantial Company assets. As discussed in note 4,
the Company obtained a waiver from its lending banks to postpone
principal payments. Although management has developed strategies to
meet the revised principal payments, there is no assurance that such
strategies will be successful in the planned timeframe. The bank's
willingness to further postpone principal payments cannot be assured.
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 restructuring plans can
significantly improve operations and generate sufficient cash to meet
its obligations in a timely manner.
37
<PAGE> 40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III.
The information required by Part III (Items 10, 11, 12 and 13) has been
incorporated herein by reference to the Company's definitive Proxy Statement to
be used in connection with the 2001 Annual Meeting of Shareholders in accordance
with General Instruction G (3) of Form 10-K.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K .
(a) (1) Financial Statements
Included in Part II of this Report:
Independent Auditors' Report
Consolidated Balance Sheets, September 30, 1999 and 2000
Consolidated Statements of Operations, Years Ended September
30, 1998, 1999 and 2000
Consolidated Statements of Stockholders' Equity, Years Ended
September 30, 1998, 1999 and 2000
Consolidated Statements of Cash Flows, Years Ended September
30, 1998, 1999 and 2000
Notes to Consolidated Financial Statements, September 30,
1998, 1999 and 2000
(2) Financial statement schedules
Included in Part IV of this report:
Financial statement schedules required to be filed have been
omitted because they are not applicable, or the required
information is set forth in the applicable financial
statements or notes thereto.
38
<PAGE> 41
(3) Exhibits
The following exhibits are filed herewith or incorporated by
reference herein (according to the number assigned to them in
Item 601 of Regulation S-K), as noted:
3. Articles of Incorporation and By-Laws
3.1 Articles of Incorporation, as amended (incorporated by
reference to ASI's Registration Statement on Form S-18,
(Registration No. 2-93108-D).)
3.3 By-Laws (incorporated by reference to ASI's Registration
Statement on Form S-18 (Registration No. 2-93108-D).
3.3 Amendment to By-laws (incorporated by reference to ASI's
Annual Report on Form 10-K for the year ended September 30,
1998).
4. Instruments defining the rights of Security Holders including
Indentures
Form of Stock Certificate (incorporated by reference to ASI's
Registration Statement on Form S-18 (Registration No.
2-93108-D).)
10. Material Contracts
10.1 Employment Agreement dated June 27, 1994 between ASI and
Sidney V. Corder, Chief Executive Officer and President,
(incorporated by reference to ASI's Quarterly Report on Form
10-QSB for the quarter ended June 30, 1994.)
10.2 Stock Option Plan dated December 17, 1987 as amended on August
31, 1992 (incorporated by reference to ASI's Annual Report on
Form 10-K for the fiscal year ended September 30, 1992.)
10.3 1993 Non-Qualified Stock Option Plan dated December 11, 1992
(incorporated by reference to ASI's Proxy Statement dated
January 11, 1993.)
10.4 Analytical Surveys, Inc. Incentive Bonus Plan (incorporated by
reference to ASI's Annual Report on Form 10-K for fiscal year
ended September 30, 1992.)
10.5 1995 Non-Qualified Stock Option Plan dated August 22, 1995
(incorporated by reference to ASI's Annual Report on Form
10-KSB for the fiscal year ended September 30, 1995.)
10.6 Real Estate Lease between MSE Realty, LLC and MSE Corporation,
dated July 2, 1997 (incorporated by reference to ASI's Annual
Report on Form 10-K for the fiscal year ended September 30,
1998.)
10.7 Analytical Surveys, Inc. 1997 Incentive Stock Option Plan, as
amended and restated (incorporated by reference to Amendment
No. 1 to ASI's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1998.)
39
<PAGE> 42
10.8 Credit Agreement between ASI and Bank One, Colorado, N.A.
dated June 3, 1998 (including Exhibits A-1, A-2, A-3, C D and
E thereto) (incorporated by reference to ASI's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998.)
10.9 Amendment No. 1 to Credit Agreement between ASI and BankOne,
Colorado, N.A. dated as of July 10, 1998 (incorporated by
reference to ASI's Annual Report on Form 10-K for the year
ended September 30, 1998).
10.10 Amendment No. 2. To Credit Agreement between ASI and BankOne,
Colorado, N.A. dated as of October 20, 1998 (incorporated by
reference to ASI's Annual Report on Form 10-K for the year
ended September 30, 1998).
10.11 Amendment No. 3 to Credit Agreement between ASI and BankOne,
Colorado, N.A. dated as of November 24, 1998 (incorporated by
reference to ASI's Annual Report on Form 10-K for the year
ended September 30, 1998).
10.12 Registration Rights Agreement dated July 2, 1997, between ASI
and Sol C. Miller (incorporated by reference to ASI's Current
Report on Form 8-K dated July 16, 1997, as amended on
September 9, 1997).
10.13 Employment Agreement dated July 10, 2000, between ASI and
J. Norman Rokosh.
10.14 Employment Agreement dated February 9, 2000, between ASI and
Michael A. Renninger.
10.15 Employment Agreement dated January 31, 2000 between ASI and
David O. Hicks.
10.16 Analytical Surveys, Inc. Officer and Employee Recruitment
Stock Incentive Plan and form of stock option agreement.
10.17 Analytical Surveys, Inc. Year 2000 Stock Incentive Plan and
form of agreement.
23. Consent of Experts and Counsel:
Consent of KPMG LLP.
27. Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended September 30, 2000.
8-K filed August 15, 2000 - Press Release issued August 15, 2000
8-K filed September 12, 2000 - Press Release issued September 12, 2000
40
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Analytical Surveys, Inc.
By: /s/ Joseph N. Rokosh Date: January 16, 2001
--------------------------------------
Joseph N. Rokosh,
President and Chief Executive Officer
By: /s/ Michael A. Renninger Date: January 16, 2001
--------------------------------------
Michael A. Renninger
Chief Financial Officer
41
