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U.S. Securities and Exchange Commission

Before the

Release No. 48549 / September 26, 2003

Release No. 1875 / September 26, 2003

File No. 3-11274

In the Matter of




The Securities and Exchange Commission ("Commission") deems it appropriate that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Analytical Surveys, Inc. ("Respondent").


In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over it and the subject matter of these proceedings, Respondent consents to the entry of this Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 21C of the Securities Exchange Act of 1934 ("Order"), as set forth below.


On the basis of this Order and Respondent's Offer, the Commission finds that:


1. Respondent was incorporated in Colorado in 1981. From 1997 to 2002, Respondent had facilities in several states, with its headquarters in Indianapolis, Indiana. Throughout the time period covered in this Order, Respondent's securities were registered with the Commission under Section 12(g) of the Exchange Act, and Respondent filed periodic reports with the Commission.


2. Respondent provides computerized map systems to customers under long-term contracts. When Respondent won the bidding on a contract, its bid would become the contract price. As part of formulating the bid, Respondent would estimate the production costs, or estimated total direct costs, it expected to incur to complete work on the contract.

3. From 1998 to 2000, Respondent recognized revenue on the contracts using the percentage of completion method on a cost-to-cost basis. Under the method, which is appropriate under Generally Accepted Accounting Principles ("GAAP") and described in American Institute of Certified Public Accountants ("AICPA") Statement of Position 81-1, revenue should be recognized as work on a contract progresses. Specifically, a company may recognize revenue by calculating the direct costs incurred to date as a percentage of the estimated total direct costs, and multiplying this figure by the contract price. This method may be expressed as the following formula:

(Direct costs incurred to date ÷ Estimated total direct costs) x Contract price = Recognizable revenue

The estimated total costs of the contract must be based on current information and analyzed periodically to ensure that the estimate is accurate.

4. On or about October 1, 1998 through on or about December 31, 1999, Respondent recognized excessive revenue on long-term contracts through several improper methods. In some instances, when Respondent incurred direct costs on a contract equal to the total estimated costs to complete the contract, and when additional work was still needed to finish it, Respondent improperly charged future direct costs associated with that contract either to an overhead account or to a second contract. By allocating future direct costs to overhead or to a second contract, Respondent was able to improperly recognize all of the revenue associated with the first contract, even though work still remained. Additionally, by allocating future direct costs to a second contract, Respondent improperly recognized additional revenue on the second contract when the work performed related to the first contract and did not reflect progress on the second contract. In other instances, Respondent artificially lowered the total estimated cost to complete a contract after work had begun, which allowed Respondent to recognize revenue earlier on that contract than would properly be allowed. As a result of these improper methods, Respondent's revenue and earnings were inflated. The inflated figures were included in the fiscal 1999 Forms 10-Q that Respondent filed with the Commission in February, May, and August 1999.

5. In November 1999, Respondent issued a press release claiming revenue of $117.1 million and net earnings of $11.4 million for the fiscal year ended September 30, 1999. In late December 1999, Respondent's management decided to reduce these figures. Respondent then filed a Form 10-K (annual report) for fiscal 1999. Although the annual report reduced the revenue (from $117.1 million to $113.5 million) and net earnings (from $11.4 million to $9.3 million) that Respondent had announced in the November press release, the new figures were still inflated.

6. In January 2000, the audit committee of Respondent's board initiated a comprehensive review of contracts to determine whether Respondent needed to restate the figures in the annual report. In March 2000, Respondent filed an amended annual report with annual revenue of $103.2 million, down from the $113.5 million reported in December and the $117.1 million claimed in November. The amended annual report also reduced net earnings to $2.8 million, down from $9.3 million reported in December and $11.4 million claimed in November. These reductions affected all four quarters of fiscal 1999. Overall, between November 1999 and March 2000, Respondent reduced its reported revenue by roughly 12%, and its net earnings by roughly 75%.

7. During the time of the events described above, individual employees of Respondent frequently changed estimates of total direct costs with no review by others and no written record of the reason for the change. Also, each of Respondent's facilities was supposed to review its direct cost estimates monthly, but one facility essentially stopped conducting reviews in or about 1998. Respondent's accounting staff did not regularly review charges to overhead or fluctuations in cost estimates for propriety and accuracy. Respondent had no internal audit function.

8. As a result of the conduct described above, Respondent violated Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder, which require reporting companies to file accurate and complete periodic reports with the Commission, to make and keep books, records, and accounts that in reasonable detail accurately and fairly reflect the transactions of the company, and to devise and maintain a system of internal accounting controls which provides reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in conformity with GAAP.

Respondent's Remedial Efforts

In determining to accept the Offer, the Commission considered remedial acts promptly undertaken by Respondent and cooperation afforded the Commission staff.


In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondent's Offer.

Accordingly, it is hereby ORDERED:

Pursuant to Section 21C of the Exchange Act, that Respondent cease and desist from committing any violations and any future violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.

By the Commission.

Jonathan G. Katz



Modified: 09/26/2003