##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

|  |  |                                                  
|- |  | -------------------------------------------------
|x |  | Quarterly Report Pursuant to Section 13 or 15(d) 
|  |  | of the Securities Exchange Act of 1934           
|  |  |                                                  
|  |  | For the quarterly period ended                   
|  |  | December 31, 2002                                
|  |  | or                                               
|o |  | Transition Report Pursuant to Section 13 or 15(d)
|  |  | of the Securities Exchange Act of 1934           
|  |  | Commission File Number 0-13111                   

ANALYTICAL SURVEYS, INC.

(Exact name of registrant as specified in its charter)


|                                                                                   |  |                                                
|---------------------------------------------------------------------------------- |  | -----------------------------------------------
|Colorado
(State of Incorporation)                                                  |  | 84-0846389
(IRS Employer Identification Number)
|                                                                                   |  |                                                
|11900 Crownpoint Drive
San Antonio, Texas
(Address of Principal Executive
Offices) |  | 78233
(Zip Code)                               

|                                                                   
|-------------------------------------------------------------------
|(210) 657-1500
(Registrants Telephone Number, Including Area Code)

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

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

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





---

TABLE OF CONTENTS



|                                     |                                                                         |                                                 |  |  |  |  |  | 
|------------------------------------ | ----------------------------------------------------------------------- | ----------------------------------------------- |  |  |  |  |  | 
|Part I                              
|                                     | Item 1. Financial Statements                                           
|                                     |                                                                         | CONSOLIDATED BALANCE SHEETS                    
|                                     |                                                                         | CONSOLIDATED STATEMENTS OF OPERATIONS          
|                                     |                                                                         | CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|                                     |                                                                         | CONSOLIDATED STATEMENTS OF CASH FLOWS          
|                                     |                                                                         | Notes to Consolidated Financial Statements     
|                                     | Item 2. Managements Discussion and Analysis and Results of Operations.
|                                     | Item 3. Quantitative and Qualitative Disclosures About Market Risk.    
|                                     | Item 4. Controls and Procedures.                                       
|Part II                             
|                                     | Item 1. Legal Proceedings.                                             
|                                     | Item 6. Exhibits and Reports on Form 8-K.                              
|SIGNATURES                          
|CERTIFICATIONS                      
|Employment Agreement - Lori A. Jones



---



##### Table of Contents






Part I




Item 1. Financial Statements

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

|                                               |                                                                              |                                          |       |              |        |               |       |        |        | 
|---------------------------------------------- | ---------------------------------------------------------------------------- | ---------------------------------------- | ----- | ------------ | ------ | ------------- | ----- | ------ | ------ | 
|                                               |                                                                              |                                          |       | December 31, |        | September 30,
|                                               |                                                                              |                                          |       | 2002         |        | 2002         
|                                               |                                                                              |                                          |       | (Unaudited)  |        |               |       |       
|Assets                                         |                                                                              |                                          |       |              |        |               |       |       
|Current assets:                                |                                                                              |                                          |       |              |        |               |       |       
|                                               | Cash                                                                         |                                          | $     | 2,846        |        |               |       | 3,114  |       
|                                               | Accounts receivable, net of allowance for doubtful
accounts of $100 and $479 |                                          |       | 3,120        |        |               |       | 2,444  |       
|                                               | Revenue in excess of billings                                                |                                          |       | 7,184        |        |               |       | 8,915  |       
|                                               | Prepaid expenses and other                                                   |                                          |       | 260          |        |               |       | 184    |       
|                                               |                                                                              |                                          |       |              |        |               |       |       
|                                               |                                                                              | Total current assets                     |       |              | 13,410 |               |       |        | 14,657 | 
|                                               |                                                                              |                                          |       |              |        |               |       |       
|Equipment and leasehold improvements, at cost: |                                                                              |                                          |       |              |        |               |       |       
|                                               | Equipment                                                                    |                                          |       | 6,405        |        |               |       | 6,296  |       
|                                               | Furniture and fixtures                                                       |                                          |       | 484          |        |               |       | 484    |       
|                                               | Leasehold improvements                                                       |                                          |       | 267          |        |               |       | 267    |       
|                                               |                                                                              |                                          |       |              |        |               |       |       
|                                               |                                                                              |                                          | 7,156 |              |        |               | 7,047 |       
|                                               | Less accumulated depreciation and amortization                               |                                          |       | (6,347       | )      |               |       | (6,201 | )     
|                                               |                                                                              |                                          |       |              |        |               |       |       
|                                               |                                                                              | Net equipment and leasehold improvements |       |              | 809    |               |       |        | 846    | 
|                                               |                                                                              |                                          |       |              |        |               |       |       
|                                               |                                                                              | Total assets                             |       | $            | 14,219 |               |       |        | 15,503 | 
|                                               |                                                                              |                                          |       |              |        |               |       |       

2



---



##### Table of Contents






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

|                                                                                                                                                                                              |                                                                                                                         |                                            |       |              |        |               |       |         |        | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----- | ------------ | ------ | ------------- | ----- | ------- | ------ | 
|                                                                                                                                                                                              |                                                                                                                         |                                            |       | December 31, |        | September 30,
|                                                                                                                                                                                              |                                                                                                                         |                                            |       | 2002         |        | 2002         
|                                                                                                                                                                                              |                                                                                                                         |                                            |       | (Unaudited)  |        |               |       |        
|Liabilities and Stockholders Equity                                                                                                                                                          |                                                                                                                         |                                            |       |              |        |               |       |        
|Current liabilities:                                                                                                                                                                          |                                                                                                                         |                                            |       |              |        |               |       |        
|                                                                                                                                                                                              | Current portion of long-term debt                                                                                       |                                            | $     | 245          |        |               |       | 270     |       
|                                                                                                                                                                                              | Billings in excess of revenue                                                                                           |                                            |       | 961          |        |               |       | 887     |       
|                                                                                                                                                                                              | Accounts payable and other accrued liabilities                                                                          |                                            |       | 1,698        |        |               |       | 2,214   |       
|                                                                                                                                                                                              | Accrued payroll and related benefits                                                                                    |                                            |       | 1,377        |        |               |       | 1,576   |       
|                                                                                                                                                                                              |                                                                                                                         |                                            |       |              |        |               |       |        
|                                                                                                                                                                                              |                                                                                                                         | Total current liabilities                  |       |              | 4,281  |               |       |         | 4,947  | 
|Long-term debt, less current portion                                                                                                                                                          |                                                                                                                         |                                            | 1,959 |              |        |               | 1,960 |        
|                                                                                                                                                                                              |                                                                                                                         |                                            |       |              |        |               |       |        
|                                                                                                                                                                                              |                                                                                                                         | Total liabilities                          |       |              | 6,240  |               |       |         | 6,907  | 
|                                                                                                                                                                                              |                                                                                                                         |                                            |       |              |        |               |       |        
|Redeemable preferred stock; no par value. Authorized
2,500 shares; and 1,600 shares issued and outstanding
at December 31 and September 30 (liquidation value
$1,920 and $1,600 respectively) |                                                                                                                         |                                            | 1,000 |              |        |               | 800   |        
|                                                                                                                                                                                              |                                                                                                                         |                                            |       |              |        |               |       |        
|Stockholders equity:                                                                                                                                                                         |                                                                                                                         |                                            |       |              |        |               |       |        
|                                                                                                                                                                                              | Common stock; no par value. Authorized 10,000
shares; 824 shares issued and outstanding
at December 31 and September 30 |                                            |       | 33,039       |        |               |       | 33,039  |       
|                                                                                                                                                                                              | Accumulated deficit                                                                                                     |                                            |       | (26,060      | )      |               |       | (25,243 | )     
|                                                                                                                                                                                              |                                                                                                                         |                                            |       |              |        |               |       |        
|                                                                                                                                                                                              |                                                                                                                         | Total stockholders equity                 |       |              | 6,979  |               |       |         | 7,796  | 
|                                                                                                                                                                                              |                                                                                                                         |                                            |       |              |        |               |       |        
|                                                                                                                                                                                              |                                                                                                                         | Total liabilities and stockholders equity |       | $            | 14,219 |               |       |         | 15,503 | 
|                                                                                                                                                                                              |                                                                                                                         |                                            |       |              |        |               |       |        

See accompanying notes to consolidated financial statements.

3



---



##### Table of Contents






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

|                                                                             |                                                      |                                   |       |                    |      |      |        |       |        |  
|---------------------------------------------------------------------------- | ---------------------------------------------------- | --------------------------------- | ----- | ------------------ | ---- | ---- | ------ | ----- | ------ | -
|                                                                             |                                                      |                                   |       | Three Months Ended
|                                                                             |                                                      |                                   |       | December 31,      
|                                                                             |                                                      |                                   |       | 2002               |      | 2001
|                                                                             |                                                      |                                   |       |                    |      |     
|Revenues                                                                     |                                                      | $                                 | 4,285 |                    |      |      | 5,635  |      
|Costs and expenses:                                                          |                                                      |                                   |       |                    |      |      |        |      
|                                                                             | Salaries, wages and related benefits                 |                                   |       | 2,596              |      |      |        | 4,106 |       
|                                                                             | Subcontractor costs                                  |                                   |       | 621                |      |      |        | 1,080 |       
|                                                                             | Other general and administrative                     |                                   |       | 1,257              |      |      |        | 1,985 |       
|                                                                             | Depreciation                                         |                                   |       | 145                |      |      |        | 293   |       
|                                                                             | Severance and related costs                          |                                   |       | 253                |      |      |        |      |       
|                                                                             |                                                      |                                   |       |                    |      |      |        |      
|                                                                             |                                                      |                                   | 4,872 |                    |      |      | 7,464  |      
|                                                                             |                                                      |                                   |       |                    |      |      |        |      
|                                                                             |                                                      | Loss from operations              |       |                    | (587 | )    |        |       | (1,829 | )
|                                                                             |                                                      |                                   |       |                    |      |      |        |      
|Other income (expense)                                                       |                                                      |                                   |       |                    |      |      |        |      
|                                                                             | Interest expense, net                                |                                   |       | (50                | )    |      |        | (174  | )     
|                                                                             | Other                                                |                                   |       | 40                 |      |      |        | 24    |       
|                                                                             | Gain on extinguishment of debt                       |                                   |       |                   |      |      |        | 9,583 |       
|                                                                             |                                                      |                                   |       |                    |      |      |        |      
|                                                                             |                                                      |                                   | (10   | )                  |      |      | 9,433  |      
|                                                                             |                                                      |                                   |       |                    |      |      |        |      
|                                                                             |                                                      | Income (loss) before income taxes |       |                    | (597 | )    |        |       | 7,604  |  
|Income taxes                                                                 |                                                      |                                   |      |                    |      |      |       |      
|                                                                             |                                                      |                                   |       |                    |      |      |        |      
|Earnings (loss) before cumulative effect of a change in accounting principle |                                                      |                                   | (597  | )                  |      |      | 7,604  |      
|Cumulative effect of a change in accounting principle                        |                                                      |                                   |      |                    |      |      | (3,557 | )    
|                                                                             |                                                      |                                   |       |                    |      |      |        |      
|                                                                             | Net earnings (loss)                                  |                                   |       | (597               | )    |      |        | 4,047 |       
|Accretion of discount and dividends on preferred shares                      |                                                      |                                   | (220  | )                  |      |      |       |      
|                                                                             |                                                      |                                   |       |                    |      |      |        |      
|                                                                             | Net earnings (loss) available to common shareholders |                                   | $     | (817               | )    |      |        | 4,047 |       
|                                                                             |                                                      |                                   |       |                    |      |      |        |      
|Basic and diluted earnings (loss) per common share:                          |                                                      |                                   |       |                    |      |      |        |      
|Income (loss) before cumulative effect
of a change in accounting principle   |                                                      | $                                 | (.99  | )                  |      |      | 10.90  |      
|Cumulative effect of a change in accounting principle                        |                                                      | $                                 |      |                    |      |      | (5.10  | )    
|                                                                             |                                                      |                                   |       |                    |      |      |        |      
|Net earnings (loss)                                                          |                                                      | $                                 | (.99  | )                  |      |      | 5.80   |      
|                                                                             |                                                      |                                   |       |                    |      |      |        |      
|Weighted average outstanding common shares:                                  |                                                      |                                   |       |                    |      |      |        |      
|                                                                             | Basic                                                |                                   |       | 824                |      |      |        | 698   |       
|                                                                             | Diluted                                              |                                   |       | 824                |      |      |        | 698   |       

See accompanying notes to consolidated financial statements.

4



---



##### Table of Contents






ANALYTICAL SURVEYS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

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

|                               |                                                         |  |              |   |             |   |         |   |       |  |         |      |   |  |       |      |  
|------------------------------ | ------------------------------------------------------- |  | ------------ | - | ----------- | - | ------- | - | ----- |  | ------- | ---- | - |  | ----- | ---- | -
|                               |                                                         |  | Common Stock |   | Accumulated |   |         |   |      
|                               |                                                         |  | Shares       |   | Amount      |   | Deficit |   | Total
|                               |                                                         |  |              |   |             |   |         |   |      
|Balances at September 30, 2002 |                                                         |  | 824          |   |             | $ | 33,039  |   |       |  | (25,243 | )    |   |  | 7,796 |     
|                               | Net loss                                                |  |              |  |             |   |         |  |       |  |         | (597 | ) |  |       | (597 | )
|                               | Accretion of discount and
dividends on preferred shares |  |              |  |             |   |         |  |       |  |         | (220 | ) |  |       | (220 | )
|                               |                                                         |  |              |   |             |   |         |   |       |  |         |      |   |  |       |     
|Balances at December 31, 2002  |                                                         |  | 824          |   |             | $ | 33,039  |   |       |  | (26,060 | )    |   |  | 6,979 |     
|                               |                                                         |  |              |   |             |   |         |   |       |  |         |      |   |  |       |     

See accompanying notes to consolidated financial statements.

5



---



##### Table of Contents






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

|                                                  |                                                                                                    |                                                     |                                                |                                                     |     |                    |       |        |        |       |       | 
|------------------------------------------------- | -------------------------------------------------------------------------------------------------- | --------------------------------------------------- | ---------------------------------------------- | --------------------------------------------------- | --- | ------------------ | ----- | ------ | ------ | ----- | ----- | 
|                                                  |                                                                                                    |                                                     |                                                |                                                     |     | Three Months Ended
|                                                  |                                                                                                    |                                                     |                                                |                                                     |     | December 31,      
|                                                  |                                                                                                    |                                                     |                                                |                                                     |     | 2002               |       | 2001  
|                                                  |                                                                                                    |                                                     |                                                |                                                     |     |                    |       |       
|Cash flow from operating activities:              |                                                                                                    |                                                     |                                                |                                                     |     |                    |       |       
|                                                  | Net earnings (loss)                                                                                |                                                     | $                                              | (597                                                | )   |                    |       | 4,047  |       
|                                                  | Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities: |                                                     |                                                |                                                     |     |                    |       |        |       
|                                                  |                                                                                                    | Gain on extinguishment of debt                      |                                                |                                                     |    |                    |       |        | (9,583 | )    
|                                                  |                                                                                                    | Cumulative effect of change in accounting principle |                                                |                                                     |    |                    |       |        | 3,557  |      
|                                                  |                                                                                                    | Depreciation                                        |                                                |                                                     | 145 |                    |       |        | 293    |      
|                                                  |                                                                                                    | Changes in operating assets and liabilities:        |                                                |                                                     |     |                    |       |        |        |      
|                                                  |                                                                                                    |                                                     | Accounts receivable, net                       |                                                     |     | (676               | )     |        |        | 2,931 |      
|                                                  |                                                                                                    |                                                     | Revenue in excess of billings                  |                                                     |     | 1,731              |       |        |        | 250   |      
|                                                  |                                                                                                    |                                                     | Income taxes                                   |                                                     |     |                   |       |        |        | 20    |      
|                                                  |                                                                                                    |                                                     | Prepaid expenses and other                     |                                                     |     | (76                | )     |        |        | 267   |      
|                                                  |                                                                                                    |                                                     | Billings in excess of revenue                  |                                                     |     | 74                 |       |        |        | 73    |      
|                                                  |                                                                                                    |                                                     | Accounts payable and other accrued liabilities |                                                     |     | (536               | )     |        |        | (545  | )    
|                                                  |                                                                                                    |                                                     | Accrued payroll and related benefits           |                                                     |     | (199               | )     |        |        | (85   | )    
|                                                  |                                                                                                    |                                                     |                                                |                                                     |     |                    |       |       
|                                                  |                                                                                                    |                                                     |                                                | Net cash provided by (used in) operating
activities |     |                    | (134  | )      |        |       | 1,225 | 
|                                                  |                                                                                                    |                                                     |                                                |                                                     |     |                    |       |       
|Cash flows from investing activities:             |                                                                                                    |                                                     |                                                |                                                     |     |                    |       |       
|                                                  | Purchase of equipment and leasehold improvements                                                   |                                                     |                                                | (108                                                | )   |                    |       | (28    | )     
|                                                  |                                                                                                    |                                                     |                                                |                                                     |     |                    |       |       
|Cash flows from financing activities:             |                                                                                                    |                                                     |                                                |                                                     |     |                    |       |       
|                                                  | Principal payments on long-term debt                                                               |                                                     |                                                | (26                                                 | )   |                    |       | (1,499 | )     
|                                                  |                                                                                                    |                                                     |                                                |                                                     |     |                    |       |       
|Net decrease in cash                              |                                                                                                    |                                                     | (268                                           | )                                                   |     |                    | (302  | )     
|Cash at beginning of period                       |                                                                                                    |                                                     | 3,114                                          |                                                     |     |                    | 1,351 |       
|                                                  |                                                                                                    |                                                     |                                                |                                                     |     |                    |       |       
|Cash at end of period                             |                                                                                                    | $                                                   | 2,846                                          |                                                     |     |                    | 1,049 |       
|                                                  |                                                                                                    |                                                     |                                                |                                                     |     |                    |       |       
|Supplemental disclosure of cash flow information: |                                                                                                    |                                                     |                                                |                                                     |     |                    |       |       
|Cash paid for interest                            |                                                                                                    | $                                                   | 21                                             |                                                     |     |                    | 185   |       
|                                                  |                                                                                                    |                                                     |                                                |                                                     |     |                    |       |       
|Cash paid for (refunds of) income taxes           |                                                                                                    | $                                                   | 24                                             |                                                     |     |                    | (20   | )     
|                                                  |                                                                                                    |                                                     |                                                |                                                     |     |                    |       |       
|Issuance of preferred stock to retire debt        |                                                                                                    | $                                                   |                                               |                                                     |     |                    | 300   |       
|                                                  |                                                                                                    |                                                     |                                                |                                                     |     |                    |       |       

See accompanying notes to financial statements.

6



---



##### Table of Contents






Notes to Consolidated Financial Statements
(Unaudited)

1. Summary of Significant Accounting Policies

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

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

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

2. Earnings Per Share

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

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

7



---



##### Table of Contents



3. Comprehensive Income

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

|                                         |  |                    |      |              |  |   |       | 
|---------------------------------------- |  | ------------------ | ---- | ------------ |  | - | ----- | 
|                                         |  | Three Months Ended
|                                         |  | December 31,       |      | December 31,
|                                         |  | 2002               |      | 2001        
|                                         |  |                    |      |             
|Net earnings (loss)                      |  | $                  | (597 | )            |  | $ | 4,047 | 
|Unrealized change in investment security |  |                    |     |              |  |   | 306   | 
|                                         |  |                    |      |              |  |   |       | 
|                                         |  | $                  | (597 | )            |  | $ | 4,353 | 
|                                         |  |                    |      |              |  |   |       | 

4. Impact of Recently Issued Accounting Pronouncements

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

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

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

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

8



---



##### Table of Contents



145 related to classification of debt extinguishments are effective for fiscal
years beginning after May 15, 2002. The provisions of SFAS 145 related to lease
modifications is effective for transactions occurring after May 15, 2002.
Earlier application is encouraged. The Company does not believe the adoption of
this standard will have a material impact on its financial statements other
than the reclassification of debt extinguishment in the period ended December
31, 2001.

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

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

5. Goodwill Impairment

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

9



---



##### Table of Contents



6. Debt

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

|                                |  |              |       |               |  |   |       |  
|------------------------------- |  | ------------ | ----- | ------------- |  | - | ----- | -
|                                |  | December 31, |       | September 30,
|                                |  | 2002         |       | 2002         
|                                |  |              |       |              
|Long-Term Debt                  |  |              |       |               |  |   |       |  
|Note payable                    |  | $            | 175   |               |  | $ | 175   |  
|Senior secured convertible note |  |              | 1,850 |               |  |   | 1,833 |  
|Capital lease obligation        |  |              |      |               |  |   | 27    |  
|Other                           |  |              | 179   |               |  |   | 195   |  
|                                |  |              |       |               |  |   |       |  
|                                |  |              | 2,204 |               |  |   | 2,230 |  
|Less current portion            |  |              | (245  | )             |  |   | (270  | )
|                                |  |              |       |               |  |   |       |  
|                                |  | $            | 1,959 |               |  | $ | 1,960 |  
|                                |  |              |       |               |  |   |       |  

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

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

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

The senior secured convertible note has a face value of $2.0 million and is
convertible at any time into common stock of ASI (Common Stock) at a price
equal to the least of (i) $4.00, (ii) 90% of the average closing bid prices of
the Common Stock for the 90 trading days ending the trading date immediately
preceding the closing date, and (iii) 90% of the average closing bid prices for
the 3 trading days having the lowest closing bid price during the 20 trading
days immediately prior to the conversion date, but under any event, the number
of shares issuable upon full conversion of the note must constitute at least
38% of the issued and outstanding shares, on a fully diluted basis, as of the
date of full conversion. Assuming a conversion price of $4.00 per share, ASI
would issue 500,000 shares of Common Stock if the note were fully

10



---



##### Table of Contents



converted. At the time of conversion, any unpaid interest is to be paid in
shares of Common Stock. The note is subject to mandatory conversion in three
years and is secured by all of the assets of ASI. For illustration only, if
the note had been converted on December 31, 2002, the conversion price would
have been $0.77 and 2,694,545 shares of common stock would have been issued to
the note holder.

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

If, at the time of conversion of the note, the price of the Common Stock has
dropped below $4.00 per share, the number of shares of Common Stock issuable
upon conversion of the note and upon exercise of the warrants would increase.
Similarly, if ASI issues shares of Common Stock at a price of less than $4.00
per share, the conversion price and the exercise price decrease to that lower
price, and the number of shares issuable under the note and the warrants would
therefore increase. For illustration only, if the warrant had been exercised
on December 31, 2002, the exercise price would have been adjusted to $0.8855
per share for a total exercise price of $442,750 for all shares.

Under the terms of the note and related purchase agreement, we are required to
register the shares underlying the note and warrants by February 28, 2003. We
have requested an extension of the date from the holder of the note. Also, ASI
is generally restricted from issuing additional equity securities without the
Holders consent, and the Holder has a right of first refusal as to certain
subsequent financings.

As part of the transaction, the Holder effectively was granted the opportunity
to appoint a majority of ASIs board of directors and, as a result, controls
ASI. In addition, upon exercise of the warrants and conversion of the note,
the Holder will own a majority of the Common Stock, thereby giving the Holder
additional control over ASI.
The carrying value of the senior secured convertible note is $1.85 million at
December 31, 2002 and represents the cash received of $2.0 million less the
estimated fair value of the warrants of $200,000 which was recorded in common
stock. The carrying value of the senior secured convertible note is being
accreted to the face amount by charges to interest expense through the maturity
date.

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

11



---



##### Table of Contents



|                               |                                         |       |       |        |        | 
|------------------------------ | --------------------------------------- | ----- | ----- | ------ | ------ | 
|Outstanding debt:              |                                         |       |       |       
|                               | Line-of-credit                          |       | $     | 4,400  |       
|                               | Note payable                            |       |       | 9,733  |       
|                               |                                         |       |       |       
|                               |                                         | Total |       |        | 14,133 | 
|                               |                                         |       |       |       
|Less:                          |                                         |       |       |       
|                               | Cash paid                               |       |       | (1,250 | )     
|                               | Fair value preferred stock (See Note 4) |       |       | (300   | )     
|                               | Remaining note payable                  |       |       | (3,000 | )     
|                               |                                         |       |       |       
|Gain on extinguishment of debt |                                         | $     | 9,583 |       

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

7. Redeemable Preferred Stock

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

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

8. Segment Information

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

12



---



##### Table of Contents



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

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

|                            |  |           |       |           |  |           |       |           |  |      |     |         |  |       |        |   |  |  |      |   |  |  |     |   |  |  |        |  
|--------------------------- |  | --------- | ----- | --------- |  | --------- | ----- | --------- |  | ---- | --- | ------- |  | ----- | ------ | - |  |  | ---- | - |  |  | --- | - |  |  | ------ | -
|                            |  | Utilities |       | Utilities |  | Utilities |       | Total     |  |      |     |         |  | Non-  |        |   |  | 
|                            |  | Location  |       | Location  |  | Location  |       | Utilities |  | Land |     | Segment |  | Total
|                            |  |           |       |           |  |           |       |           |  |      |     |         |  |      
|                            |  | A         |       | B         |  | C         |       |           |  |      |     |         |  |       |        |   |  |  |      |   |  | 
|Three months ended          |  |           |       |           |  |           |       |           |  |      |     |         |  |       |        |   |  |  |      |   |  |  |     |   |  |  |        |  
|December 31, 2002           |  |           |       |           |  |           |       |           |  |      |     |         |  |       |        |   |  |  |      |   |  |  |     |   |  |  |        |  
|Operations                  |  |           |       |           |  |           |       |           |  |      |     |         |  |       |        |   |  |  |      |   |  |  |     |   |  |  |        |  
|Revenues                    |  | $         | 2,367 |           |  |           | 1,874 |           |  |      | 104 |         |  |       | 4,285  |   |  |  |     |   |  |  |    |   |  |  | 4,285  |  
|Loss from operations        |  |           | (516  | )         |  |           | 197   |           |  |      | (15 | )       |  |       | (334   | ) |  |  | (253 | ) |  |  |    |   |  |  | (587   | )
|Interest expense, net       |  |           |      |           |  |           |      |           |  |      |    |         |  |       |       |   |  |  |     |   |  |  | (50 | ) |  |  | (50    | )
|Other                       |  |           |      |           |  |           |      |           |  |      |    |         |  |       |       |   |  |  |     |   |  |  | 40  |   |  |  | 40     |  
|                            |  |           |       |           |  |           |       |           |  |      |     |         |  |       |        |   |  |  |      |   |  |  |     |   |  |  |        |  
|Net loss                    |  |           |       |           |  |           |       |           |  |      |     |         |  |       |        |   |  |  |      |   |  |  |     |   |  |  | (597   | )
|                            |  |           |       |           |  |           |       |           |  |      |     |         |  |       |        |   |  |  |      |   |  |  |     |   |  |  |        |  
|Assets at
December 31, 2002 |  |           |       |           |  |           |       |           |  |      |     |         |  |       |        |   |  |  |      |   |  |  |     |   |  |  |        |  
|Segment assets              |  | $         | 9,379 |           |  |           | 1,613 |           |  |      | 87  |         |  |       | 11,079 |   |  |  |     |   |  |  |    |   |  |  | 11,079 |  
|Non-segment assets          |  |           |      |           |  |           |      |           |  |      |    |         |  |       |       |   |  |  |     |   |  |  |    |   |  |  | 3,140  |  
|                            |  |           |       |           |  |           |       |           |  |      |     |         |  |       |        |   |  |  |      |   |  |  |     |   |  |  |        |  
|Consolidated assets         |  |           |       |           |  |           |       |           |  |      |     |         |  |       |        |   |  |  |      |   |  |  |     |   |  |  | 14,219 |  
|                            |  |           |       |           |  |           |       |           |  |      |     |         |  |       |        |   |  |  |      |   |  |  |     |   |  |  |        |  

13



---



##### Table of Contents



|                                                      |  |           |       |           |  |           |       |           |  |      |      |         |  |       |        |   |  |  |      |   |  |  |        |   |  |  |        |  
|----------------------------------------------------- |  | --------- | ----- | --------- |  | --------- | ----- | --------- |  | ---- | ---- | ------- |  | ----- | ------ | - |  |  | ---- | - |  |  | ------ | - |  |  | ------ | -
|                                                      |  | Utilities |       | Utilities |  | Utilities |       | Total     |  |      |      |         |  | Non-  |        |   |  | 
|                                                      |  | Location  |       | Location  |  | Location  |       | Utilities |  | Land |      | Segment |  | Total
|                                                      |  |           |       |           |  |           |       |           |  |      |      |         |  |      
|                                                      |  | A         |       | B         |  | C         |       |           |  |      |      |         |  |       |        |   |  |  |      |   |  | 
|Three months ended
December 31, 2001                  |  |           |       |           |  |           |       |           |  |      |      |         |  |       |        |   |  |  |      |   |  |  |        |   |  |  |        |  
|Operations                                            |  |           |       |           |  |           |       |           |  |      |      |         |  |       |        |   |  |  |      |   |  |  |        |   |  |  |        |  
|Revenues                                              |  | $         | 2,607 |           |  |           | 2,108 |           |  |      | 550  |         |  |       | 5,265  |   |  |  | 370  |   |  |  |       |   |  |  | 5,635  |  
|Loss from operations                                  |  |           | (500  | )         |  |           | 17    |           |  |      | (630 | )       |  |       | (1,113 | ) |  |  | (716 | ) |  |  |       |   |  |  | (1,829 | )
|Interest expense, net                                 |  |           |      |           |  |           |      |           |  |      |     |         |  |       |       |   |  |  |     |   |  |  | (174   | ) |  |  | (174   | )
|Other                                                 |  |           |      |           |  |           |      |           |  |      |     |         |  |       |       |   |  |  |     |   |  |  | 9,604  |   |  |  | 9,604  |  
|Cumulative effect of
a change in accounting principle |  |           |      |           |  |           |      |           |  |      |     |         |  |       |       |   |  |  |     |   |  |  | (3,557 | ) |  |  | (3,557 | )
|                                                      |  |           |       |           |  |           |       |           |  |      |      |         |  |       |        |   |  |  |      |   |  |  |        |   |  |  |        |  
|Net earnings                                          |  |           |       |           |  |           |       |           |  |      |      |         |  |       |        |   |  |  |      |   |  |  |        |   |  |  | 4,047  |  
|                                                      |  |           |       |           |  |           |       |           |  |      |      |         |  |       |        |   |  |  |      |   |  |  |        |   |  |  |        |  
|Assets at
September 30, 2002                          |  |           |       |           |  |           |       |           |  |      |      |         |  |       |        |   |  |  |      |   |  |  |        |   |  |  |        |  
|Segment assets                                        |  | $         | 9,185 |           |  |           | 2,858 |           |  |      | 118  |         |  |       | 12,161 |   |  |  |     |   |  |  |       |   |  |  | 12,161 |  
|Non-segment assets                                    |  |           |      |           |  |           |      |           |  |      |     |         |  |       |       |   |  |  |     |   |  |  | 3,342  |   |  |  | 3,342  |  
|                                                      |  |           |       |           |  |           |       |           |  |      |      |         |  |       |        |   |  |  |      |   |  |  |        |   |  |  |        |  
|Consolidated assets                                   |  |           |       |           |  |           |       |           |  |      |      |         |  |       |        |   |  |  |      |   |  |  |        |   |  |  | 15,503 |  
|                                                      |  |           |       |           |  |           |       |           |  |      |      |         |  |       |        |   |  |  |      |   |  |  |        |   |  |  |        |  

9. Litigation and Other Contingencies

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

Two shareholders of ASI, the Epner Family Limited Partnership and the Braverman
Family Limited Partnership, filed suit in Indiana state court (Hamilton County
Superior Court, State of Indiana) against four former officers of the Company
on May 8, 2001. The former officers are: Sidney Corder, Chief Executive
Officer; Scott Benger, Senior Vice President of Finance; Randy

14



---



##### Table of Contents



Sage, Chief Operations Officer; and John Dillon, Chief Administrative Officer.
The plaintiffs claimed that the former officers violated Texas and Indiana
securities laws and other provisions of Texas law in connection with our
acquisition of Cartotech, Inc., in June 1998. The four defendants have sent to
us written demands for indemnification. We have no further obligation to
indemnify Mr. Corder as specified in the Settlement Agreement described above.
We have notified our insurance carrier of these claims and have requested
coverage. In response, the insurance carrier has reserved its rights to deny
or limit coverage. Recently the court denied defendants motions to dismiss.
We expect some or all of the defendants intend to seek a stay of this
litigation pending an outcome in the arbitration between ASI and the plaintiffs
described in the following paragraph.

On June 26, 2002, The Epner Family Limited Partnership and the Braverman
Limited Partnership (Claimants) initiated arbitration proceedings against
ASI. As set forth in the preceding paragraph, the Claimants are the plaintiffs
in related Indiana state court litigation against former officers of ASI. In
the Statement of Claim they filed with the American Arbitration Association,
Claimants allege that certain representations and warranties made by ASI in the
Cartotech merger agreement were false because our financial condition allegedly
was worse than depicted in our financial statements for 1997 and the unaudited
reports for the first two quarters of fiscal 1998. They allege that the
restatement of our financial statements for fiscal year 1999 should have
included the financial statements referenced in the merger agreement.
Claimants assert that we violated the Texas Securities Act and the Indiana
Securities Act. They also allege that we breached warranties in the merger
agreement. The Claimants seek recission or damages in the principal amount
of approximately $5,546,533, which allegedly is the net loss in value of the
Company stock they received in the merger, and attorneys fees. We have filed
a response to the Claimants Statement of Claim denying its material
allegations and intend to vigorously assert defenses. The arbitration hearing
is presently scheduled to occur in September, 2003.

Robert Montgomery, a former officer of ASI, filed suit in Hamilton County
Superior Court, State of Indiana, on July 19, 2002, seeking recovery of unpaid
commissions pursuant to the Indiana Wage Payment statute. Mr. Montgomery
seeks recovery of $67,611 in unpaid commissions, treble damages, costs,
interest and attorneys fees. We have responded to the lawsuit and deny all
claims in the action. The parties have not yet begun discovery. We intend to
vigorously defend this lawsuit.

On January 23, 2002, we announced that the Securities and Exchange Commission
has commenced a formal investigation of ASI, certain of our former officers,
directors and others in connection with our accounting policies, procedures,
disclosures and system of internal controls relating to the period from October
1998 through March 2000. On March 7, 2000, we restated earnings for the fiscal
year ended September 30, 1999. We continue to cooperate fully with the SEC in
this investigation.

We are also subject to various other routine litigation incidental to our
business. Management does not believe that any of these routine legal
proceedings would have a material adverse effect on our financial condition or
results of operations.

15



---



##### Table of Contents



10. Concentration of Credit Risk

At December 31, 2002, we had multiple contracts with three customers that
represented 70% (49%, 11% and 10%, respectively) of the total balance of net
accounts receivable and revenue in excess of billings. Revenues from these
three customers for the fiscal quarter ended December 31, 2002 were 37% (16%,
6% and 15%, respectively) of total revenue. Additionally, for the quarter
ended December 31, 2002, two other customers comprised another 26% of total
revenues. At September 30, 2002, these customers represented 72% (43%, 17% and
12%, respectively) of the total balance of net accounts receivable and revenue
in excess of billings. Billing terms are negotiated in a competitive
environment and are based on reaching project milestones. We anticipate that
sufficient billing milestones will be achieved during fiscal 2003 such that
revenue in excess of billings for these customer contracts will begin to
decline.

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

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

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

16



---



##### Table of Contents



12. Nasdaq Delisting

On December 27, 2002, we were notified by Nasdaq that our common stock has
not maintained a minimum market value of publicly held shares of $1,000,000 as
required for continued inclusion on the Nasdaq SmallCap Market by Marketplace
Rule 4310(c)(7). We have been provided until March 27, 2003, to regain
compliance. If, at any time before March 27, 2003, the market value of our
publicly held shares is $1,000,000 or more for a minimum of 10 consecutive
trading days, we will regain compliance. If compliance cannot be demonstrated
by March 27, 2003, our securities will be delisted. At that time, we may
appeal Nasdaqs determination to a Listing Qualifications Panel. However,
there can be no assurance the Panel would grant our request for continued
listing.

Additionally on February 3, 2002 we were notified by Nasdaq that our stock
price has fallen below Nasdaqs minimum bid price of $1.00. We have 180 days
or until August 4, 2003 to regain compliance. If, at anytime before August 4,
2003, the bid price of the Companys common stock closes at $1.00 per share or
more for a minimum of 10 consecutive trading days we will regain compliance
with the minimum bid price requirements. If compliance cannot be demonstrated
by March 27, 2003, our securities will be delisted. At that time, we may
appeal Nasdaqs determination to a Listing Qualifications Panel. However,
there can be no assurance the Panel would grant our request for continued
listing.

On January 17, 2003, Tonga partners, L.P., the Companys controlling beneficial
shareholder, has waived its right to accelerate ASIs obligations under the
senior secured convertible note payable to Tonga in the event that ASIs Nasdaq
listing is not maintained. (See Note 6)




Item 2. Managements Discussion and Analysis 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-Q. THIS FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE STATEMENTS CONTAINED IN THIS FORM 10-Q 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-Q, OR IN THE DOCUMENTS INCORPORATED BY REFERENCE INTO THIS FORM 10-Q, THE
WORDS ANTICIPATE, BELIEVE, ESTIMATE, INTEND AND EXPECT AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. SUCH
FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION, THE STATEMENTS
REGARDING THE COMPANYS STRATEGY, FUTURE SALES, FUTURE EXPENSES AND FUTURE
LIQUIDITY AND CAPITAL RESOURCES. ALL FORWARD-LOOKING STATEMENTS IN THIS FORM
10-Q ARE BASED UPON INFORMATION AVAILABLE TO THE COMPANY ON THE DATE OF

17



---



##### Table of Contents



THIS FORM 10-Q, 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-Q. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES (CAUTIONARY STATEMENTS) INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED IN ITEM 1. BUSINESSRISK FACTORS AND ELSEWHERE
IN THE COMPANYS ANNUAL REPORT ON FORM 10-K, WHICH ARE INCORPORATED BY
REFERENCE HEREIN AND IN THIS REPORT. ALL SUBSEQUENT WRITTEN AND ORAL
FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO US, OR PERSONS ACTING ON OUR BEHALF,
ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.

OVERVIEW

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

We recognize 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 our 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. We recognize losses on contracts in the period such
loss is determined. Sales and marketing expenses associated with obtaining
contracts are expensed as incurred.

We experience annual and quarterly fluctuations in production costs, salaries,
wages and related benefits and subcontractor costs. These costs may vary as a
percentage of sales from period to period. We utilize InfoTech Enterprises
Ltd., an India-based company, for a significant percentage of our production
services.

Backlog increases when new contracts are signed and decreases as revenues are
recognized. Changes in macroeconomic and industry market conditions first
encountered in fiscal 2000 and have continued through fiscal 2002 and into
2003, and have resulted in a reduction of timely order flow. As of December
31, 2002, our backlog was $17.4 million as compared with $19.5 million at
September 30, 2002. We believe these adverse market conditions were and
continue to be primarily caused by the recessionary economic climate,
consolidation in the utility industry, our adverse financial results for fiscal
years 2001 and 2002 and increased competition from companies with offshore
operations.

18



---



##### Table of Contents



We have been awarded several projects that are greater than $2 million or
longer than two years in duration, which can increase our risk due to
inflation, as well as changes in customer expectations and funding
availability. Our contracts are generally terminable on short notice, and while
in our experience such termination is rare, there is no assurance that we will
receive all of the revenue anticipated under signed contracts.

We engage in research and development activities. The majority of these
activities occur as we develop software or design a product for a particular
contract. These efforts are typically included as an integral part of our
services for the particular project and, accordingly, the associated costs are
charged to that project. Such custom-designed software can often be applied to
projects for other customers. These amounts are not included in research and
development expenses but are expensed as incurred as part of contract costs. We
retain ownership of such proprietary software or products.

We continued to streamline our operations throughout fiscal year 2002. We
reduced our four main production centers to two centers. In the quarter
ending March 31, 2002, we completed the consolidation of our Cary, North
Carolina, facility into our Texas and Wisconsin solution centers. The
principal activity of the North Carolina facility had been cadastral and
photogrammetric mapping. In the quarter ending September 30, 2002, we
completed the consolidation and relocation of our Indiana staff to smaller,
lower cost facilities. Finally, on January 2, 2003, we relocated our
headquarters to our facility in San Antonio, Texas. We currently employ
approximately 200 full-time employees.

19



---



##### Table of Contents



Results of Operations

The following table sets forth, for the periods indicated, selected
consolidated statements of operations data expressed as a percentage of sales:

|                                                               |                                      |  |                    |      |      |  |       |      | 
|-------------------------------------------------------------- | ------------------------------------ |  | ------------------ | ---- | ---- |  | ----- | ---- | 
|                                                               |                                      |  | Three Months Ended
|                                                               |                                      |  | December 31       
|                                                               |                                      |  | 2002               |      | 2001
|                                                               |                                      |  |                    |      |     
|PERCENTAGE OF REVENUES:                                        |                                      |  |                    |      |      |  |       |     
|Revenues                                                       |                                      |  | 100.0              | %    |      |  | 100.0 | %   
|Costs and expenses                                             |                                      |  |                    |      |      |  |       |     
|                                                               | Salaries, wages and related benefits |  |                    | 60.6 |      |  |       | 72.9 | 
|                                                               | Subcontractor costs                  |  |                    | 14.5 |      |  |       | 19.1 | 
|                                                               | Other general and administrative     |  |                    | 29.3 |      |  |       | 35.2 | 
|                                                               | Depreciation and amortization        |  |                    | 3.4  |      |  |       | 5.2  | 
|                                                               | Severance and related costs          |  |                    | 5.9  |      |  |       |     | 
|                                                               |                                      |  |                    |      |      |  |       |     
|Loss from operations                                           |                                      |  | (13.7              | )    |      |  | (32.4 | )   
|Other expense, net                                             |                                      |  | (0.2               | )    |      |  | (2.7  | )   
|Gain on extinguishment of debt                                 |                                      |  |                   |      |      |  | 170.0 |     
|                                                               |                                      |  |                    |      |      |  |       |     
|Loss before income taxes                                       |                                      |  | (13.9              | )    |      |  | 134.4 |     
|Income tax benefit                                             |                                      |  |                   |      |      |  |      |     
|                                                               |                                      |  |                    |      |      |  |       |     
|Income (loss) before cumulative change in
accounting principle |                                      |  | (13.9              | )    |      |  | 134.9 |     
|Cumulative effect of change in accounting
principle            |                                      |  |                   |      |      |  | (63.1 | )   
|                                                               |                                      |  |                    |      |      |  |       |     
|Net earnings (loss)                                            |                                      |  | (13.9              | )    |      |  | 71.8  |     
|Accretion of discount and dividends on preferred
shares        |                                      |  | (5.2               | )    |      |  |      |     
|                                                               |                                      |  |                    |      |      |  |       |     
|Net earnings (loss) available to common
shareholders           |                                      |  | (19.1              | )%   |      |  | 71.8  | %   
|                                                               |                                      |  |                    |      |      |  |       |     

THREE MONTHS ENDED DECEMBER 31, 2002 AND 2001

REVENUES. We recognize revenues as services are performed. Revenues decreased
$1.3 million to $4.3 million for the first three months of fiscal 2003 from
$5.6 million for the first three months of fiscal 2002 as a result of a lower
level of new contract signings during fiscal 2002. We believe this decrease in
contract signings is attributable to lower demand for and reduced spending
levels in information technology products and services both in general and
specific to the GIS industry.

20



---



##### Table of Contents



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 36.8% to $2.6 million for the first three months of fiscal 2003 from
$4.1 million for the first three months of fiscal 2002, as a result of
reductions in our workforce. The reductions in the workforce were a result of
reduced anticipated revenue volume and our decision to subcontract a portion of
our production work to offshore subcontractors. As a percentage of revenues,
salaries, wages and related benefits decreased to 60.6% for the first three
months of fiscal 2003 from 72.9% for the first three months of fiscal 2002. We
anticipate we will be able to realize additional efficiencies in labor costs
with the relocation of our corporate headquarters to San Antonio.

SUBCONTRACTOR COSTS. Subcontractor costs includes production costs incurred
through the use of third parties for production tasks, such as data conversion
services to meet contract requirements, aerial photography and ground and
airborne survey services. Subcontractor costs decreased 42.5% to $621,000 for
the first three months of fiscal 2003 from $1.1 million for the first three
months of fiscal 2002. This decrease was due to a decline in the number and
size of customer contracts and completing backlog that utilized subcontractor
labor. Subcontractor costs decreased as a percentage of revenues to 14.5% for
the first three months of fiscal 2003 from 19.1% for the first three months of
fiscal 2002.

OTHER GENERAL AND ADMINISTRATIVE COSTS. Other general and administrative costs
includes rent, maintenance, travel, supplies, utilities, insurance and
professional services. Such costs decreased 36.7% to $1.3 million for the first
three months of fiscal 2003 from $2.0 million for the first three months of
fiscal 2002, as a result of reductions in workforce and general cost cutting
measures. As a percentage of revenues, other general and administrative costs
decreased to 29.3% for the first three months of fiscal 2003 from 35.2% for the
first three months of fiscal 2002. We anticipate we will be able to achieve
additional reductions in general and administrative costs as a result of the
relocation of our corporate headquarters to San Antonio.

DEPRECIATION.Depreciation decreased $148,000 to $145,000 from $293,000 for
the first three months of fiscal 2002 due to older equipment becoming fully
depreciated. As a percentage of revenues, depreciation decreased to 3.4% for
the first three months of fiscal 2003 from 5.2% in the first three months of
fiscal 2002.

SEVERANCE AND RELATED COSTS.We incurred severance expense of $253,000 in the
three month period ended December 31, 2002, the majority of which we paid in
cash in 2003. There was no comparable charge in the same period of fiscal
2001. We anticipate we will incur severance expense approximating $100,000 in
fiscal 2003 in relation to one specific non-executive officers contract.

OTHER EXPENSE, NET. Other expense, net, is comprised primarily of net interest
expense. Net interest expense decreased 71.3% to $50,000 for the first three
months of fiscal 2003 from

21



---



##### Table of Contents



$174,000 for the first three months of fiscal 2002, as a result of decreased
borrowings outstanding and lower interest rates.

INCOME TAXES. Total tax expense for fiscal year 2003 is projected to be zero
and based on this an effective tax rate of 0% was recorded for the three months
ended December 31, 2002. Also, as a result of the uncertainty that sufficient
future taxable income can be recognized to realize additional deferred tax
assets, no income tax benefit has been recognized for the three months ended
December 31, 2002 and for the same period ending December 31, 2001.

GAIN ON EXTINGUISHMENT OF DEBT. The gain of $9.6 million in the first three
months of fiscal 2002 represents the debt forgiveness related to a $1.25
million cash payment and the issuance of a non-convertible preferred stock with
a fair value of $300,000 to fully retire debt of $11.1 million under our debt
agreement in place as of December 28, 2001.

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

NET EARNINGS (LOSS).Net loss of $597,000 in the first three months of fiscal
2003 is a decrease of $4.6 million compared to the $4.0 million net earnings
from the same period of fiscal 2002. As discussed above, non-operational items
including the $9.6 million extraordinary gain in the first three months of
fiscal 2002 accounted for a substantial portion of the variance.

LIQUIDITY AND CAPITAL RESOURCES

Historically, the principal source of our liquidity has consisted of cash flow
from operations supplemented by secured lines-of-credit and other borrowings.
Though we did not have a working capital line-of-credit as of December 31,
2002, other borrowings consisted of a $1.85 million senior secured convertible
note and $175,000 unsecured promissory note.

The $175,000 unsecured promissory note matures on March 31, 2003 and bears
interest at prime rate plus one percent (5.25% at December 31, 2002). The
$1.85 million senior secured convertible note, which has a face value of $2.0
million maturing April 2, 2005, bears interest at an annual rate of five
percent, but interest is not payable until maturity or may be converted to
Common Stock as described below.

The senior secured convertible note is convertible at any time into common
stock of ASI (Common Stock) at a price equal to the least of (i) $4.00, (ii)
90% of the average closing bid prices of the Common Stock for the 90 trading
days ending the trading date immediately preceding the closing date, and (iii)
90% of the average closing bid prices for the 3 trading days having the lowest
closing bid price during the 20 trading days immediately prior to the

22



---



##### Table of Contents



conversion date, but under any event, the number of shares issuable upon full
conversion of the note must constitute at least 38% of the issued and
outstanding shares, on a fully diluted basis, as of the date of full
conversion. Assuming a conversion price of $4.00 per share, ASI would issue
500,000 shares of Common Stock if the note were fully converted. At the time
of conversion, any unpaid interest is to be paid in shares of Common Stock.
The note is subject to mandatory conversion in three years and is secured by
all of the assets of ASI. For illustration only, if the note had been
converted on December 31, 2002, the conversion price would have been $0.77 and
2,694,545 shares of common stock would have been issued to the note holder.

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

If at the time of conversion of the note, the price of the Common Stock has
dropped below $4.00 per share, the number of shares of Common Stock issuable
upon conversion of the note and upon exercise of the warrants would increase.
Similarly, if ASI issues shares of Common Stock at a price of less than $4.00
per share, the conversion price and the exercise price decrease to that lower
price, and the number of shares issuable under the note and the warrants would
therefore increase. For illustration only, if the warrant had been exercised on
December 31, 2002, the exercise price would have been adjusted to $0.8855 per
share for a total redemption price of $442,750 for all shares.

Under the terms of the note and related purchase agreement, we are required to
register the shares underlying the note and warrants by February 28, 2003. We
are in discussions with the note holder to extend or waive this requirement.
Also, we are generally restricted from issuing additional equity securities
without the Holders consent, and the Holder has a right of first refusal as to
certain subsequent financings.

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

On December 28, 2001, we issued 1.6 million shares of no par value Series A
Preferred Stock, at an original issue price of $2.00 per share. We are
entitled to redeem the shares within one year of issuance at $1.00 per share
($1.6 million), and the redemption price increases $.20 per year until the
fifth anniversary, at which time the shares must be redeemed at a price of
$2.00 per share. The agreement calls for a mandatory payment of $800,000 by
the third anniversary. The

23



---



##### Table of Contents



preferred stock earns a dividend at the annual rate of 5.00% of the then
redemption price on a cumulative, non-participating basis and has a liquidation
preference equal to the then redemption value of shares outstanding at the time
of such liquidation.

The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. Since fiscal 2000, we have
experienced significant operating losses with corresponding reductions in
working capital. Our revenues and backlog decreased significantly during that
time. These factors among others have resulted in our independent auditors
issuing an audit opinion in the September 30, 2002, financial statements which
emphasized substantial doubt about our ability to continue as a going concern.

To address the going concern issue, management has implemented financial and
operational restructuring plans designed to improve operating efficiencies,
reduce and eliminate cash losses and position the Company for profitable
operations. In 2002, we restructured our bank debt through the issuance of
preferred stock and convertible debt, collected a federal income tax refund and
sold the Colorado based facility. We consolidated our production operations
to two solution centers, reduced corporate and non-core spending activities,
and outsourced certain components of projects. We deployed a new sales and
marketing team and relocated the corporate headquarters to our San Antonio,
Texas, facility.

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

Our 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 we perform under a contract even though a billing event has not
been triggered. Billings in excess of revenues occur when we receive an
advance or deposit against work yet to be performed. These accounts, which
represent a significant investment by ASI in its business, affect our cash flow
as projects are signed, performed, billed and collected. At December 31, 2002,
we had multiple contracts with three customers that represented 70% (49%, 11%
and 10%, respectively) of the total balance of net accounts receivable and
revenue in excess of billings. At September 30, 2002, these customers
represented 72% (43%, 17% and 12%, respectively) of the total balance of net
accounts receivable and revenue in excess of billings. Billing terms are
negotiated in a competitive environment and, as stated above, are based on
reaching project milestones. We anticipate that sufficient billing milestones
will be achieved during fiscal 2003 such that revenue in excess of billings for
these customer contracts will begin to decline.

24



---



##### Table of Contents



Net cash used by our operating activities was $134,000 for the first three
months of fiscal 2003, compared to net cash of $1.2 million provided in the
same period in fiscal 2002. We collected a significant amount of cash related
to accounts receivable in the fiscal 2002 quarter.

Cash used by investing activities for the first three months of fiscal year
2003 was $108,000 and $28,000 in the same period in fiscal 2002. Such
investing activities principally consisted of payments for purchases of
equipment and leasehold improvements.

Cash used by financing activities for the first three months of fiscal year
2003 was $26,000 as compared to $1.5 million used by financing activities for
the first three months of fiscal 2002. 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 for
business combinations and the purchase of equipment and leasehold improvements.

CRITICAL ACCOUNTING POLICIES

REVENUE RECOGNITION.We recognize revenue using the percentage of completion
method of accounting on a cost-to-cost basis. For each contract, an estimate of
total production costs is determined and these estimates are reevaluated
monthly. The estimation process requires significant subjective judgments on
the costs over the life of the contract, which are in advertently uncertain.
The duration of the contracts and the technical challenges included in certain
contracts affect our ability to estimate costs precisely. Production costs
consist of internal costs, primarily salaries and wages, and external costs,
primarily subcontractor costs. Internal and external production costs may vary
considerably among projects and during the course of completion of each
project. At each accounting period, the percentage of completion is based on
production costs incurred to date as a percentage of total estimated production
costs for each of the our 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 many factors which influence either the
estimate of future productivity or the production cost per hour used to
determine future costs. The Company recognizes losses on contracts in the
period such loss is determined. Sales and marketing expenses associated with
obtaining contracts are expensed as incurred. If we underestimate the total
cost to complete a project we would recognize a disproportionately high amount
of revenue in the earlier stages of the contract, which would result in a
disproportionately high profit margins in the same period. This could also
result in the recognition of losses in the final stages of the contract.
Conversely, if we overestimate the cost to complete a project, a
disproportionately low amount of revenue would be recognized in the early
stages of a contract.

VALUATION OF ACCOUNTS RECEIVABLE.We maintain allowances for doubtful
accounts for estimated losses resulting from the inability of our customers to
make required payments. We routinely assess the financial condition of our
customers and the markets in which these customers participate. If the
financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances might be
required. This could negatively affect our operating results.

25



---



##### Table of Contents



LITIGATION.We are subject to various claims, lawsuits and administrative
proceedings. Liabilities and costs associated with these matters require
estimates and judgment based on professional knowledge and experience of
management and our legal counsel. When the estimates of our exposure for
claims or pending or threatened litigation matters meet the criteria of SFAS 5,
amounts are recorded as charges to net earnings. The ultimate resolution of
exposure to ASI may change as further facts and circumstances become known.

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

Generally accepted accounting principles require that we record a valuation
allowance against the deferred tax asset associated with this NOL if it is
more likely than not that we will not be able to utilize it to offset future
taxes. Due to the size of the NOL carryforward in relation to our recent
history of unprofitable operations and to the continuing uncertainties
surrounding our future operations as discussed above, we have not recognized
any of this net deferred tax asset. We currently provide for income taxes only
to the extent that we expect to pay cash taxes (primarily state taxes and the
federal alternative minimum tax) for current income.

It is possible, however, that we could be profitable in the future at levels
which might cause management to conclude that it is more likely than not that
we will realize all or a portion of the NOL carryforward. Upon reaching such a
conclusion, we would immediately record the estimated net realizable value of
the deferred tax asset at that time and would then provide for income taxes at
a rate equal to our combined federal and state effective rates, which would
approximate 40% under current tax rates. Subsequent revisions to the estimated
net realizable value of the deferred tax asset could cause our provision for
income taxes to vary significantly from period to period, although our cash tax
payments would remain unaffected until the benefit of the NOL is utilized.

26



---



##### Table of Contents



TABLE OF CONTRACTUAL OBLIGATIONS

Below is a schedule (by period due) of the future payments that we are
obligated to make based on agreements in place as of December 31, 2002, (in
thousands):

|                           |  |              |     |                                  |  |      |     |      |  |      |       |       |  |  |   |  |  |  |       |  |  |   |       | 
|-------------------------- |  | ------------ | --- | -------------------------------- |  | ---- | --- | ---- |  | ---- | ----- | ----- |  |  | - |  |  |  | ----- |  |  | - | ----- | 
|                           |  | Nine months  |     |                                  |  |      |     |      |  |      |       |       |  |  |   |  |  | 
|                           |  | Ending       |     |                                  |  |      |     |      |  |      |       |       |  |  |   |  |  | 
|                           |  | September 30 |     | Fiscal year ending September, 30
|                           |  | 2003         |     | 2004                             |  | 2005 |     | 2006 |  | 2007 |       | Total
|                           |  |              |     |                                  |  |      |     |      |  |      |       |      
|Operating Leases           |  | $            | 279 |                                  |  | $    | 28  |      |  | $    | 1     |       |  |  |  |  |  |  |      |  |  | $ | 308   | 
|Debt                       |  |              | 225 |                                  |  |      | 74  |      |  |      | 2,053 |       |  |  |  |  |  |  |      |  |  |   | 2,352 | 
|Preferred Stock
Redemption |  |              |    |                                  |  |      |    |      |  |      | 800   |       |  |  |  |  |  |  | 1,851 |  |  |   | 2,651 | 
|                           |  |              |     |                                  |  |      |     |      |  |      |       |       |  |  |   |  |  |  |       |  |  |   |       | 
|Total                      |  | $            | 504 |                                  |  | $    | 102 |      |  | $    | 2,854 |       |  |  |  |  |  |  | 1,851 |  |  | $ | 5,311 | 
|                           |  |              |     |                                  |  |      |     |      |  |      |       |       |  |  |   |  |  |  |       |  |  |   |       | 

LITIGATION

We are a party to various litigation matters which are described in detail in
Note 8 to our Financial Statement included herein and in Part II, Item 1 of
this quarterly report on Form 10-Q. We have incurred significant expenses and
expect to incur additional expenses related to these matters. We have recorded
expenses we have incurred to date in the accompanying financial statements.
The outcome of these matters cannot currently be determined nor can we forecast
an estimate of the financial impact of any outcome. Further, we may be
entitled to recover a portion of our expenses, as well as a portion of any
damages or judgments that may ultimately be imposed against us, from our
insurance carriers, although we cannot assure that such coverage will be
provided.




Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We may from time to time employ risk management techniques such as interest
rate swaps and foreign currency hedging transactions. None of these techniques
are used for speculative or trading purposes and the amounts involved are not
considered material. We did not utilize any such techniques during the current
reporting period, but may employ such techniques in future periods.




Item 4. Controls and Procedures.

Within the 90 days prior to the date of this report, our Chief Executive
Officer and Chief Financial Officer carried out an evaluation of the
effectiveness of ASIs disclosure controls and procedures (as defined in the
Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c))

27



---



##### Table of Contents



and have concluded that the disclosure controls and procedures were adequate
and designed to ensure that material information relating to ASI which is
required to be included in our periodic Securities and Exchange Commission
filings would be made known to them by others within those entities. There
were no significant changes in our internal controls or in other factors that
could significantly affect our disclosure controls and procedures subsequent to
the date of this evaluation, nor any significant deficiencies or material
weaknesses in such disclosure controls and procedures requiring corrective
actions.




Part II




Item 1. Legal Proceedings.

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

Two shareholders of ASI, the Epner Family Limited Partnership and the Braverman
Family Limited Partnership, filed suit in Indiana state court (Hamilton County
Superior Court, State of Indiana) against four former officers of the Company
on May 8, 2001. The former officers are: Sidney Corder, Chief Executive
Officer; Scott Benger, Senior Vice President of Finance; Randy Sage, Chief
Operations Officer; and John Dillon, Chief Administrative Officer. The
plaintiffs claimed that the former officers violated Texas and Indiana
securities laws and other provisions of Texas law in connection with our
acquisition of Cartotech, Inc., in June 1998. The four defendants have sent to
us written demands for indemnification. We have no further obligation to
indemnify Mr. Corder as specified in the Settlement Agreement described above.
We have notified our insurance carrier of these claims and have requested
coverage. In response, the insurance carrier has reserved its rights to deny
or limit coverage. Recently the court denied defendants motions to dismiss.
We expect some or all of the defendants intend to seek a stay of this
litigation pending an outcome in the arbitration between ASI and the plaintiffs
descended in the following paragraph.

On June 26, 2002, The Epner Family Limited Partnership and the Braverman
Limited Partnership (Claimants) initiated arbitration proceedings against
ASI. As set forth in the preceding paragraph, the Claimants are the plaintiffs
in related Indiana state court litigation

28



---



##### Table of Contents



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

Robert Montgomery, a former officer of ASI, filed suit in Hamilton County
Superior Court, State of Indiana, on July 19, 2002 seeking recovery of unpaid
commissions pursuant to the Indiana Wage Payment statute. Mr. Montgomery
seeks recovery of $67,611 in unpaid commissions, treble damages, costs,
interest and attorneys fees. We have responded to the lawsuit and deny all
claims in the action. The parties have not yet begun discovery. We intend to
vigorously defend this lawsuit.

On January 23, 2002, we announced that the Securities and Exchange Commission
has commenced a formal investigation of ASI, certain of our former officers,
directors and others in connection with our accounting policies, procedures,
disclosures and system of internal controls relating to the period from October
1998 through March 2000. On March 7, 2000, we restated earnings for the fiscal
year ended September 30, 1999. We continue to cooperate fully with the SEC in
this investigation.

We are also subject to various other routine litigation incidental to our
business. Management does not believe that any of these routine legal
proceedings would have a material adverse effect on our financial condition or
results of operations.

29



---



##### Table of Contents






Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits:

|    |  |                                                                                                     
|--- |  | ----------------------------------------------------------------------------------------------------
|10. |  | Employment Agreement dated January 20, 2003, by
and between Analytical Surveys, Inc. and Lori Jones.

(b) Reports on Forms 8-K:

|                                                                                                                                                                                     
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Current Report on Form 8-K filed on November 25, 2002 announcing
the Companys relocation of its corporate headquarters                                                              
|                                                                                                                                                                                     
|Current Report on Form 8-K filed on December 19, 2002 furnishing
the certification required under 18.U.S.C.1350 from the
Companys Chief Executive Office and Chief Financial Officer
|                                                                                                                                                                                     
|Current Report on Form 8-K filed on December 20, 2002 announcing
the Companys Fourth Quarter and Year End Results                                                                   
|                                                                                                                                                                                     
|Current Report on Form 8-K filed on December 31, 2002 announcing
the Companys receipt of notice of potential delisting from
Nasdaq.                                                 

30



---



##### Table of Contents






SIGNATURES

Pursuant to the requirements 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.
(Registrant)
|      |  |                   |  |                                      
|Date: |  | February 14, 2003 |  | /s/ J. Norman Rokosh                 
|      |  |                   |  |                                      
|      |  |                   |  | J. Norman Rokosh                     
|      |  |                   |  | President and Chief Executive Officer
|      |  |                   |  |                                      
|Date: |  | February 14, 2003 |  | /s/ Lori A. Jones                    
|      |  |                   |  |                                      
|      |  |                   |  | Lori A. Jones                        
|      |  |                   |  | Chief Financial Officer              

31



---



##### Table of Contents






CERTIFICATIONS

I, Lori A. Jones, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Analytical
Surveys, Inc.;

2.     Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and the registrants
have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee the registrants board of directors (or persons performing the
equivalent functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

32



---



##### Table of Contents



b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                                                        
|--------------------------------------------------------
|Date: February 14, 2003                                 
|                                                        
|/s/ Lori A. Jones

Lori A. Jones
Chief Financial Officer

33



---



##### Table of Contents



CERTIFICATIONS

I, J. Norman Rokosh, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Analytical
Surveys, Inc.;

2.     Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and the registrants
have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the
equivalent functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

34



---



##### Table of Contents



b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                                                        
|--------------------------------------------------------
|Date: February 14, 2003                                 
|                                                        
|                                                        
|/s/ J. Norman Rokosh

J. Norman Rokosh
President and CEO

35



---



##### Table of Contents



Exhibit Index

|        |  |                                                                                                      |  |  |  | 
|------- |  | ---------------------------------------------------------------------------------------------------- |  |  |  | 
|Exhibit |  |                                                                                                      |  |  |  | 
|No.     |  | Description                                                                                          |  |  |  | 
|        |  |                                                                                                      |  |  |  | 
|10.     |  | Employment Agreement dated January 20, 2003, by and between Analytical Surveys, Inc. and Lori Jones.

36