**FORM 10-Q**

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**ý****QUARTERLY REPORT PURSUANTTO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

**For thequarterly period ended December 31, 2003**

 

**OR**

 

**o****TRANSITION REPORT PURSUANTTO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

**For thetransition periodfrom     to     **

**CommissionFile Number 1-6549**

 

**American Science and Engineering,Inc.**

(Exactname of Registrant as specified in its charter)

 

| **Massachusetts**                                                |   | **04-2240991**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
|                                                             |   |                                  |
| **829  Middlesex Turnpike  Billerica, Massachusetts**            |   | **01821**                             |
| (Address of principal  executive offices)                        |   | (Zip Code)                            |
|                                                             |   |                                  |
| **(978)  262-8700**                                              |
| (Registrant’s telephone  number, including area code)       |

 

(Former name, formeraddress and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past90 days. Yes ý  No o

 

Indicate by checkmark whether the Registrant is an accelerated filer (as defined in Rule 12b-2of the Securities Exchange Act of 1934). Yes ý  No o

 

Indicate the number of shares outstanding of each of the issuer’sclasses of common stock, as of the latest practicable date

 

| **Class of  Common Stock** |   | **Outstanding at  February 10, 2004** |
|----------------------------|--------|---------------------------------------|
| $.66 2/3 par value         |   | 7,345,682                             |

 

 

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**PART I –FINANCIAL INFORMATION**

**Item 1 – Financial Statements**

 

**American Science and Engineering, Inc. and Subsidiary**

**Condensed Consolidated Balance Sheets**

 

Dollars in thousands

** **
|                                                                                                                    |   | **December  31,  2003** |   | **March 31,  2003** |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|---------------------|--------|
|                                                                                                                    |   | **(Unaudited)**         |   |                |   |
| **Assets**                                                                                                              |   |                    |   |                |   |
| Current assets:                                                                                                         |   |                    |   |                |   |
| Cash and cash  equivalents                                                                                              |   | $                       | 12,129 |                | $      | 5,585 |   |
| Restricted cash                                                                                                         |   | 585                     |   | 1,895               |   |
| Short-term  investments                                                                                                 |   | 3,246                   |   | 4,538               |   |
| Accounts  receivable, net of allowances of $235 and $246 at December 31, 2003 and March  31, 2003                       |   | 13,994                  |   | 10,499              |   |
| Unbilled costs  and fees, net of allowances of $437 at December 31, 2003 and March 31, 2003                             |   | 4,281                   |   | 4,343               |   |
| Inventories                                                                                                             |   | 14,824                  |   | 15,748              |   |
| Prepaid expenses  and other current assets                                                                              |   | 1,242                   |   | 822                 |   |
| **Total  current assets**                                                                                               |   | 50,301                  |   | 43,430              |   |
| Property and  equipment, net of accumulated depreciation of $11,761 at December 31, 2003  and $10,549 at March 31, 2003 |   | 2,940                   |   | 3,714               |   |
| Other assets                                                                                                            |   | 170                     |   | 172                 |   |
| **Total  assets**                                                                                                       |   | $                       | 53,411 |                | $      | 47,316 |   |

 

The accompanying notes are an integral part of these condensedconsolidated financial statements.

 

2

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**American Science and Engineering, Inc. and Subsidiary**

**Condensed Consolidated Balance Sheets**

**(Continued)**

 

Dollars in thousands except per share amounts

 
|                                                                                                                                                         |   | **December  31,  2003** |   | **March 31,  2003** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|---------------------|--------|
|                                                                                                                                                         |   | **(Unaudited)**         |   |                |   |
| **Liabilities  and Stockholders’ Equity**                                                                                                               |   |                    |   |                |   |
| Current  liabilities:                                                                                                                                        |   |                    |   |                |   |
| Accounts payable                                                                                                                                             |   | $                       | 3,774  |                | $      | 5,327 |   |
| Accrued salaries  and benefits                                                                                                                               |   | 1,689                   |   | 1,476               |   |
| Accrued warranty  costs                                                                                                                                      |   | 463                     |   | 535                 |   |
| Deferred revenue                                                                                                                                             |   | 1,786                   |   | 1,928               |   |
| Customer  deposits                                                                                                                                           |   | 6,624                   |   | 2,747               |   |
| Other current  liabilities                                                                                                                                   |   | 1,541                   |   | 1,221               |   |
| **Total  current liabilities**                                                                                                                               |   | 15,877                  |   | 13,234              |   |
| Non-current  liabilities:                                                                                                                                    |   |                    |   |                |   |
| Warrant  liability                                                                                                                                           |   | 1,338                   |   | 820                 |   |
| Deferred revenue                                                                                                                                             |   | 293                     |   | 751                 |   |
| Other  non-current liabilities                                                                                                                               |   | 86                      |   | 153                 |   |
| **Total  non-current liabilities**                                                                                                                           |   | 1,717                   |   | 1,724               |   |
|                                                                                                                                                         |   |                    |   |                |   |
| Stockholders’  equity:                                                                                                                                  |   |                    |   |                |   |
| Preferred stock,  no par value Authorized - 100,000 shares; Issued - none                                                                                    |   | —                  |   | —              |   |
| Common stock,  $0.66 2/3 par value Authorized – 20,000,000 shares; Issued 7,326,182 shares  at December 31, 2003 and 6,871,729 shares at March 31, 2003 |   | 4,884                   |   | 4,581               |   |
| Additional paid  in capital                                                                                                                                  |   | 41,817                  |   | 38,780              |   |
| Cumulative  translation adjustment                                                                                                                           |   | 8                       |   | —              |   |
| Accumulated  deficit                                                                                                                                         |   | (10,892                 | )      | (11,003             | )      |
| **Total  stockholders’ equity**                                                                                                                         |   | 35,817                  |   | 32,358              |   |
| **Total  liabilities and stockholders’ equity**                                                                                                         |   | $                       | 53,411 |                | $      | 47,316 |   |

 

The accompanying notes are an integral part of these condensedconsolidated financial statements.

 

3

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**American Science and Engineering, Inc. and Subsidiary**

**Condensed Consolidated Statements of Operations**

**(Unaudited)**

 

##### **Dollars and shares in thousands, except per share amounts**

 
|                                          |           | **Three Months  Ended** |   | **Nine  months ended** |   |
|-----------------------------------------------|----------------|-------------------------|--------|------------------------|--------|
|                                          |           | **Dec. 31,  2003**      |   | **Dec. 31,  2002**     |   | **Dec. 31,  2003** |   | **Dec. 31,  2002** |   |
| Revenues:                                     |           |                    |   |                   |   |   |   |   |   |
| Net product  sales and contract revenues      |           | $                       | 12,605 |                   | $      | 14,768 |   | $ | 41,693 |   | $ | 42,572 |   |
| Net service  revenues                         |           | 3,661                   |   | 2,452                  |   | 10,140 |   | 6,501 |   |
| Total net  revenues                           |           | 16,266                  |   | 17,220                 |   | 51,833 |   | 49,073 |   |
|                                          |           |                    |   |                   |   |   |   |   |   |
| Cost of sales  and contracts:                 |           |                    |   |                   |   |   |   |   |   |
| Cost of product  sales and contracts          |           | 10,090                  |   | 11,320                 |   | 32,185 |   | 32,426 |   |
| Cost of service  revenues                     |           | 2,212                   |   | 2,022                  |   | 6,315 |   | 5,917 |   |
| Total cost of  sales and contracts            |           | 12,302                  |   | 13,342                 |   | 38,500 |   | 38,343 |   |
| Gross profit                                  |           | 3,964                   |   | 3,878                  |   | 13,333 |   | 10,730 |   |
|                                          |           |                    |   |                   |   |   |   |   |   |
| Expenses:                                     |           |                    |   |                   |   |   |   |   |   |
| Selling, general  and administrative expenses |           | 2,753                   |   | 3,055                  |   | 8,661 |   | 10,003 |   |
| Research and  development                     |           | 1,741                   |   | 1,342                  |   | 4,385 |   | 4,865 |   |
| Total expenses                                |           | 4,494                   |   | 4,397                  |   | 13,046 |   | 14,868 |   |
|                                          |           |                    |   |                   |   |   |   |   |   |
| Operating income  (loss)                      |           | (530                    | )      | (519                   | )      | 287 |   | (4,138 | ) |
|                                          |           |                    |   |                   |   |   |   |   |   |
| Other income  (expense):                      |           |                    |   |                   |   |   |   |   |   |
| Interest income                               |           | 25                      |   | 28                     |   | 73 |   | 81 |   |
| Interest expense                              |           | —                  |   | —                 |   | — |   | (86 | ) |
| Other, net                                    |           | (13                     | )      | (567                   | )      | (345 | ) | 1,479 |   |
| Total other  income (expense)                 |           | 12                      |   | (539                   | )      | (272 | ) | 1,474 |   |
|                                          |           |                    |   |                   |   |   |   |   |   |
| Income (loss)  before income taxes            |           | (518                    | )      | (1,058                 | )      | 15 |   | (2,664 | ) |
| Provision for  (benefit from) income taxes    |           | (96                     | )      | —                 |   | (96 | ) | — |   |
|                                          |           |                    |   |                   |   |   |   |   |   |
| Net income  (loss)                            |           | $                       | (422   | )                      | $      | (1,058 | ) | $ | 111 |   | $ | (2,664 | ) |
|                                          |           |                    |   |                   |   |   |   |   |   |
| Income (loss)  per share                      | – Basic   |                    | $      | (0.06                  | )      | $ | (0.15 | ) | $ | 0.02 |   | $ | (0.41 | ) |
|                                          |           |                    |   |                   |   |   |   |   |   |   |
|                                          | – Diluted |                    | $      | (0.06                  | )      | $ | (0.15 | ) | $ | 0.02 |   | $ | (0.41 | ) |
|                                          |           |                    |   |                   |   |   |   |   |   |   |
| Weighted average  shares                      | – Basic   |                    | 7,297  |                   | 6,838  |   | 7,212 |   | 6,544 |   |
|                                          | – Diluted |                    | 7,297  |                   | 6,838  |   | 7,395 |   | 6,544 |   |

 

The accompanying notesare an integral part of these condensed consolidated financial statements.

 

4

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**American Science and Engineering, Inc. and Subsidiary**

**Condensed Consolidated Statements of Cash Flows**

**(Unaudited**)

Dollars in thousands

 
|                                                                                                  |   | **For the  Nine months ended** |   |
|-------------------------------------------------------------------------------------------------------|--------|--------------------------------|--------|
|                                                                                                  |   | **December  31,  2003**        |   | **December  31,  2002** |   |
| Cash flows from  operating activities:                                                                |   |                           |   |   |   |
| Net income  (loss)                                                                                    |   | $                              | 111    |   | $ | (2,664 | ) |
| Adjustments to  reconcile net income (loss) to net cash provided by (used for) operating  activities: |   |                           |   |   |   |
| Depreciation and  amortization                                                                        |   | 1,256                          |   | 1,641 |   |
| Provisions for  contract, inventory, accounts receivable and warranty reserves                        |   | 362                            |   | 1,008 |   |
| Mark to market  adjustment for short-term investments                                                 |   | (45                            | )      | — |   |
| Change in fair  value of warrants outstanding                                                         |   | 518                            |   | (1,494 | ) |
| Changes in  assets and liabilities:                                                                   |   |                           |   |   |   |
| Accounts  receivable                                                                                  |   | (3,507                         | )      | (1,098 | ) |
| Unbilled costs  and fees                                                                              |   | 62                             |   | 1,401 |   |
| Inventories                                                                                           |   | 834                            |   | 2,306 |   |
| Prepaid  expenses, deposits and other assets                                                          |   | (451                           | )      | 265 |   |
| Accounts payable                                                                                      |   | (1,553                         | )      | (2,297 | ) |
| Customer  deposits                                                                                    |   | 3,877                          |   | (2,787 | ) |
| Deferred revenue                                                                                      |   | (600                           | )      | 449 |   |
| Accrued expenses  and other current liabilities                                                       |   | 667                            |   | 510 |   |
| Non-current  liabilities                                                                              |   | (67                            | )      | (75 | ) |
| Total  adjustments                                                                                    |   | 1,353                          |   | (171 | ) |
| Net cash  provided by (used for) operating activities                                                 |   | 1,464                          |   | (2,835 | ) |
|                                                                                                  |   |                           |   |   |   |
| Cash flows from  investing activities:                                                                |   |                           |   |   |   |
| Purchases of  short-term investments                                                                  |   | (2,319                         | )      | — |   |
| Maturity of  short-term investments                                                                   |   | 3,656                          |   | — |   |
| Purchases of  property and equipment                                                                  |   | (449                           | )      | (475 | ) |
| Net cash  provided by (used for) investing activities                                                 |   | 888                            |   | (475 | ) |
|                                                                                                  |   |                           |   |   |   |
| Cash flows from  financing activities:                                                                |   |                           |   |   |   |
| Decrease  (increase) in restricted cash                                                               |   | 1,310                          |   | (2,021 | ) |
| Repayment of  line of credit                                                                          |   | —                         |   | (9,319 | ) |
| Proceeds from  issuance of common stock and warrants, net                                             |   | —                         |   | 18,415 |   |
| Proceeds from  exercise of stock options                                                              |   | 2,874                          |   | 1,321 |   |
| Net cash  provided by financing activities                                                            |   | 4,184                          |   | 8,396 |   |
| Effect of  exchange rate changes on cash                                                              |   | 8                              |   | — |   |
| Net increase in  cash and cash equivalents                                                            |   | 6,544                          |   | 5,086 |   |
| Cash and cash  equivalents at beginning of period                                                     |   | 5,585                          |   | 7,591 |   |
| Cash and cash  equivalents at end of period                                                           |   | $                              | 12,129 |   | $ | 12,677 |   |

 

The accompanying notes are an integral part of these condensedconsolidated financial statements.

 

5

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**American Science and Engineering, Inc. and Subsidiary**

**Notes to Unaudited Condensed Consolidated FinancialStatements**

 

1.     General

The condensed consolidated financial statementsinclude the accounts of the Company and its wholly owned subsidiary. Allsignificant intercompany transactions and balances have been eliminated.

 

The unaudited condensed consolidated financialstatements have been prepared in accordance with the requirements of Form 10-Qand consequently do not include all disclosures required by Form 10-K. Thesecondensed consolidated financial statements should be read in conjunction withthe consolidated financial statements and the notes thereto included in theCompany’s Annual Report on Form 10-K for the year ended March 31, 2003.

 

The consolidated financial statements, in the opinion of management,include all adjustments necessary, consisting solely of normal recurringadjustments, to present fairly the Company’s financial position, results ofoperations and cash flows.  Theseresults are not necessarily indicative of the results to be expected for theentire year.

 

Nature of Operations 

The Company is engaged in the development andmanufacture of sophisticated X-ray inspection systems for critical detectionand security screening solutions for sale primarily to U.S. and foreigngovernment agencies.  The Company hasonly one reporting segment, X-ray screening products.

 

Significant AccountingPolicies

Revenues on cost reimbursable and long-term fixedprice contracts are generally recorded as costs are incurred using thepercentage of completion method.  TheCompany recognizes sales for its systems that are produced in a standardmanufacturing operation and have shorter order to delivery cycles at the timeof shipment of the system to the customer and when other revenue recognitioncriteria is met.

 

Certain cash balances have been restricted ascollateral against outstanding standby letters of credit and are separatelypresented as restricted cash. (see Note 4)

 

The significant accounting policies followed by theCompany and its subsidiary in preparing its consolidated financial statementsare set forth in Note 1 to the consolidated financial statements included inits Form 10-K for the year ended March 31, 2003.  The Company has made no changes to these policies during thisfiscal year.

 

Pro Forma Stock-BasedCompensation Expense

As permitted by SFAS No. 123, “Accounting forStock-Based Compensation”, the Company has elected to continue to applyAccounting Principles Board Opinion No. 25, “Accounting for Stock Issuedto Employees,” to account for its stock-based compensation plans. Hadcompensation cost for awards under the Company’s stock-based compensation plansbeen determined based on the fair value at the grant dates consistent with themethod set forth under SFAS No. 123, the effect on the Company’s netincome (loss) and income (loss) per share would have been as follows:

 

6

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|                                                                   |   | **Three  months ended** |   | **Nine  months ended** |   |
|------------------------------------------------------------------------|--------|-------------------------|--------|------------------------|--------|
| **(In thousands except per share  amounts)**                           |   | **Dec. 31,  2003**      |   | **Dec. 31,  2002**     |   | **Dec. 31,  2003** |   | **Dec. 31,  2002** |   |
| Net income (loss)                                                      |   |                    |   |                   |   |   |   |   |   |
| As reported                                                            |   | $                       | (422   | )                      | $      | (1,058 | ) | $ | 111 |   | $ | (2,664 | ) |
| Less: Stock  based compensation using fair value method for all awards |   | (1,047                  | )      | (902                   | )      | (2,865 | ) | (2,387 | ) |
| Pro forma net  loss                                                    |   | $                       | (1,469 | )                      | $      | (1,960 | ) | $ | (2,754 | ) | $ | (5,051 | ) |
| Income (loss)  per share — Basic:                                 |   |                    |   |                   |   |   |   |   |   |
| As reported                                                            |   | $                       | (0.06  | )                      | $      | (0.15 | ) | $ | 0.02 |   | $ | (0.41 | ) |
| Pro forma                                                              |   | $                       | (0.20  | )                      | $      | (0.29 | ) | $ | (0.38 | ) | $ | (0.77 | ) |
| Income (loss)  per share — Diluted:                               |   |                    |   |                   |   |   |   |   |   |
| As reported                                                            |   | $                       | (0.06  | )                      | $      | (0.15 | ) | $ | 0.02 |   | $ | (0.41 | ) |
| Pro forma                                                              |   | $                       | (0.20  | )                      | $      | (0.29 | ) | $ | (0.38 | ) | $ | (0.77 | ) |

 

The fair value of each option granted was estimated onthe grant date using the Black-Scholes option pricing model with the followingweighted average assumptions: risk-free interest rates of 5.0%, expectedvolatility of 73%, an expected dividend yield of 0% and an expected life of 5years.

 

New AccountingPronouncements

In February 2003, the FASB issued Emerging Issues TaskForce Issue 00-21, Accounting for Revenue Arrangements with MultipleDeliverables (EITF 00-21). EITF 00-21 provides guidance for the accounting by avendor for arrangements involving multiple revenue-generating activities. TheCompany adopted EITF 00-21 on July 1, 2003 and such adoption did not have asignificant effect on the consolidated financial statements.

 

In January 2003, the FASBissued Interpretation No. 46 (FIN 46), “Consolidation of Variable InterestEntities,” which addresses consolidation by business enterprises of variableinterest entities (VIEs) that either: (1) do not have sufficient equityinvestment at risk to permit the entity to finance its activities withoutadditional subordinated financial support, or (2) the equity investors lack anessential characteristic of a controlling financial interest.  Throughout 2003, the FASB released numerousproposed and final FSPs regarding FIN 46, which both clarified and modified FIN46’s provisions. On December 24, 2003, the FASB issued revised InterpretationNo. 46 (FIN 46-R) which will replace FIN 46 upon its effective date.  The application of FIN 46 to VIEs createdafter February 1, 2003, did not result in any entities requiring consolidationthat would not already have required consolidation under the voting equityinterest model. The Company will defer adoption of FIN 46-R until March 31, 2004but does not believe the adoption of this pronouncement will have a materialeffect on the consolidated financial statements.

** **

In May 2003, the FASB issuedStatement of Financial Accounting Standards No. 150, “Accounting for CertainFinancial Instruments with Characteristics of Both Liabilities and Equity”,(“FAS 150”).  This statement establishes standards for how an issuerclassifies and measures in its statement of financial position certainfinancial instruments with characteristics of both liabilities and equity. The provisions of SFAS No. 150 are effective for (1) instrumentsentered into or modified after May 31, 2003, and (2) pre-existing instrumentsas of July 1, 2003. On October 29, 2003, the FASB voted to indefinitely deferthe effective date of SFAS No. 150 for mandatorily redeemable instruments asthey relate to minority interests in consolidated finite-lived entities throughthe issuance of FASB Staff Position (FSP) 150-3. The adoption of SFAS No. 150,as modified by FSP 150-3, did not have a material effect on the ConsolidatedFinancial Statements.

 

In December 2003, the Staff of the Securities andExchange Commission (SEC or the Staff) issued Staff Accounting Bulletin No. 104(SAB 104), *Revenue Recognition*,which supercedes SAB 101, *RevenueRecognition in Financial Statements.* SAB 104’s primary purpose is to rescind accounting guidancecontained in SAB 101 related to multiple element revenue arrangements,superceded as a result of the issuance of EITF 00-21, “Accounting for RevenueArrangements with Multiple Deliverables.” Additionally, SAB 104 rescinds the SEC’s *Revenue Recognition in Financial Statements Frequently Asked*

 

7

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*Questionsand Answers* (the FAQ) issued with SAB 101 that had beencodified in SEC Topic 13, *RevenueRecognition*.  Selectedportions of the FAQ have been incorporated into SAB 104.  The Company’s current accounting policiesconform with the requirements of this Staff Accounting Bulletin.

 

2.     Inventories

 
| **(Dollars in thousands)**                  |   | **Dec. 31, 2003** |   | **March 31, 2003** |   |
|---------------------------------------------|--------|-------------------|--------|--------------------|--------|
| Inventories  consisted of:                  |   |              |   |               |   |
| Raw materials  and completed sub-assemblies |   | $                 | 6,110  |               | $      | 8,119 |   |
| Work-in-process                             |   | 8,362             |   | 3,783              |   |
| Finished goods                              |   | 352               |   | 3,846              |   |
| Total                                       |   | $                 | 14,824 |               | $      | 15,748 |   |

 

3.               Income (Loss)per Common and Common Equivalent Share

Basic earnings (loss) per common share is computed bydividing net income (loss) by the weighted average number of shares of commonstock outstanding during the period. Diluted earnings (loss) per share include the dilutive impact of optionsand warrants using the average share price of the Company’s common stock forthe period. For the quarter ended December 31, 2003 and December 31, 2002,common stock equivalents of 717,000 and 1,033,000, respectively, are excludedfrom diluted earnings per share, as their effect is anti-dilutive.  For the nine months ended December 31, 2003and December 31, 2002, common stock equivalents of 885,000 and 936,000,respectively, are excluded from diluted earnings per share, as their effect isanti-dilutive.  

 
|                                                                                      |   | **Three  months ended** |   | **Nine  months ended** |   |
|-------------------------------------------------------------------------------------------|--------|-------------------------|--------|------------------------|--------|
| **(In thousands except per share  amounts)**                                              |   | **Dec. 31,  2003**      |   | **Dec. 31,  2002**     |   | **Dec. 31,  2003** |   | **Dec. 31,  2002** |   |
| **Earnings  (Loss) Per Share Basic:**                                                     |   |                    |   |                   |   |   |   |   |   |
| Net income  (loss)                                                                        |   | $                       | (422   | )                      | $      | (1,058 | ) | $ | 111 |   | $ | (2,664 | ) |
| Weighted average  number of common shares outstanding – basic                        |   | 7,297                   |   | 6,838                  |   | 7,212 |   | 6,544 |   |
| Net income  (loss) per share – basic                                                 |   | $                       | (0.06  | )                      | $      | (0.15 | ) | $ | 0.02 |   | $ | (0.41 | ) |
| **Diluted:**                                                                              |   |                    |   |                   |   |   |   |   |   |
| Net income  (loss)                                                                        |   | $                       | (422   | )                      | $      | (1,058 | ) | $ | 111 |   | $ | (2,664 | ) |
| Weighted average  number of common shares outstanding                                     |   | 7,297                   |   | 6,838                  |   | 7,212 |   | 6,544 |   |
| Assumed exercise  of stock options, using the treasury stock method                       |   | —                  |   | —                 |   | 183 |   | — |   |
| Weighted average  number of common and potential common shares outstanding – diluted |   | 7,297                   |   | 6,838                  |   | 7,395 |   | 6,544 |   |
| Net income  (loss) per share - diluted                                                    |   | $                       | (0.06  | )                      | $      | (0.15 | ) | $ | 0.02 |   | $ | (0.41 | ) |

 

4.     Borrowings

On August 11, 2003, the Company entered into two newcredit agreements with Silicon Valley Bank East replacing its HSBC Bank USAcredit agreements that expired on July 31, 2003.  The first agreement is a $5.0 million domestic loan andsecurity agreement to support the Company’s routine working capital needs.  Maximum borrowings for this line are set atthe lower of  (a) the sum of 80% ofeligible domestic accounts receivable plus 10% of finished goods inventory upto $750,000, or; (b) $5

 

8

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million.  Thesecond is a $20.0 million export loan and security agreement, guaranteedby the Export-Import Bank of the United States to support the Company’soverseas contract, trade finance and working capital needs.

 

The credit facilities bear an interest rate of thegreater of 4.25% or the Silicon Valley Bank prime rate (4.0% at December 31,2003) and have an expiration date of November 30, 2004.** **The credit agreements are collateralized by certain assets ofthe Company and contain certain restrictions including limitations on theamount of distributions that can be made to stockholders, the disposition orencumbrances of assets, and require the maintenance of certain financialcovenants.  As of December 31, 2003, theCompany was in compliance with these covenants.

 

At December 31, 2003, there were no borrowingsoutstanding against these credit facilities. The Company had outstanding$560,000 in standby letters of credit guaranteeing performance on certain largeinternational cargo projects, which have been collateralized with cash.  No amounts have been drawn against theseletters of credit.

 

5.               PrivatePlacement Offering

On May 28, 2002, the Company closed on a privateplacement offering of common stock and warrants.  A total of 1,115,000 shares were sold to accredited investors ata price of $17.64 each. In addition, warrants to purchase an additional 295,475shares of common stock at a price of $23.52 were issued.  Proceeds to the Company approximated $18.4million, net of approximately $1.3 million of issuance cost.  The warrants were immediately vested andhave a five-year life expiring in May of 2007. Due to certain conversion features of these warrants that provide thatthe holder may opt for a cash settlement in certain instances, including amerger, a sale of all or substantially all of the Company’s assets, or a tenderoffer or exchange offer of shares of the Company’s stock, a liability equal tothe Black-Scholes valuation of the warrants at the deal closing date wasrecorded on the Company’s balance sheet. The “mark to market” change in the warrants value of $(52,000), $(519,000),$(592,000) and $1,496,000, was recorded as other income (expense) for the threeand nine months ended December 31, 2003 and December 31, 2002,respectively.  The liability of$1,338,000 and $820,000 associated with the warrants is recorded as a non-currentliability on the December 31, 2003 and March 31, 2003 balance sheets,respectively.  The fair market value ofthe warrants was determined using the Black Scholes pricing model and anassumed volatility of 73% and interest rate of 5%.

 

6.               Guarantees

At December 31, 2003, the Company had $560,000 ofletters of credit outstanding guaranteeing performance on certain largeinternational cargo projects.  Theseletters of credit were issued through the Company’s current and former exportloan and security agreements (see Note 4) and have expiration dates throughMarch of 2005.

 

The Company’s parcel product line carries a one-yearwarranty, the costs of which are accrued for at time of shipment.  Accrual rates are based upon historicalexperience over the preceding twelve months and the adequacy of the warrantyreserve is evaluated monthly.  Warrantyexperience for the three and nine months ended December 31, 2003 and December31, 2002 is as follows:

 
|                                              |   | **Three  months ended** |   | **Nine  months ended** |   |
|---------------------------------------------------|--------|-------------------------|--------|------------------------|--------|
| **(In thousands)**                                |   | **Dec. 31,  2003**      |   | **Dec. 31,  2002**     |   | **Dec. 31,  2003** |   | **Dec. 31,  2002** |   |
|                                              |   |                    |   |                   |   |   |   |   |   |
| Warranty accrual  beginning of period             |   | $                       | 549    |                   | $      | 585 |   | $ | 535 |   | $ | 196 |   |
| Accruals for  warranties issued during the period |   | 73                      |   | 102                    |   | 259 |   | 473 |   |
| Accruals related  to pre-existing warranties      |   | —                  |   | —                 |   | — |   | 153 |   |
| Warranty costs  incurred during period            |   | (159                    | )      | (99                    | )      | (331 | ) | (234 | ) |
| Balance at end  of period                         |   | $                       | 463    |                   | $      | 588 |   | $ | 463 |   | $ | 588 |   |

 

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7.               Commitments andContingencies

A provision of $1,359,000,of which $624,000 was recorded in the third quarter, has been made for incurredand anticipated losses on a CargoSearch contract that is recognized on thepercentage of completion method. Management believes that the current estimates of total contract costsexceed contract revenues for this contract and as such has provided for theanticipated losses in the periods in which such losses became evident.

 

**Item 2 – Management’s Discussion and Analysis of FinancialCondition and Results of Operations**

 

Results of Operations 

Total net revenues for the quarter ended December 31, 2003 decreased by$954,000 to $16,266,000 compared to the corresponding period last year.  This decrease is attributable primarily to adecrease of $2.6 million in CargoSearchTM systems revenues as the Company hadthree fewer systems in production in the third quarter of fiscal 2004 ascompared to the third quarter of fiscal 2003. In addition, a MobileSearch system originally scheduled for delivery inthe third quarter of fiscal 2004 was delayed at the port of entry at quarterend resulting in this revenue being deferred to the fourth quarter. Thesedecreases were offset by an increase of $600,000 to $1.6 million in revenuesfrom the Company’s High Energy Systems division due to expanded contracts withits largest customer.  Service revenuesincreased by $1.2 million compared to the third quarter of fiscal 2003 as theCompany has entered into service contracts for equipment that had been underwarranty in the prior year.

 

Net revenues for the nine months endedDecember 31, 2003 increased by $2,760,000 to $51,833,000 compared to the corresponding period last year.  This increase is attributable primarily toan increase of $3.8 million in CargoSearch systems revenues as the Companydelivered five more MobileSearch trucks in the first nine months of fiscal 2004as compared to the first nine months of fiscal 2003.  This was offset by fewer fixed site CargoSearch systems inproduction in the first nine months of fiscal 2004 as compared to the firstnine months of fiscal 2003.  Inaddition, revenues from the Company’s High Energy Systems division increased by$2.1 million to $5.0 million in the first nine months of fiscal 2004 due toexpanded contracts with its largest customer. Service revenues increased by $3.6 million compared to the first ninemonths of fiscal 2003 as the Company has entered into service contracts forequipment that had been under warranty in the prior year. These increases were offset by a $ 6.5 million decrease in ParcelSearchsystem revenues as compared to the prior year.

 

Total cost of sales and contracts for the third quarter of fiscal 2004decreased by $1,040,000 to $12,302,000 compared to the corresponding period ayear ago. Cost of sales and contracts represented 76% of revenues versus 77%for the corresponding period last year. The margin improvement is due in part to margin improvements from theCompany’s High Energy Systems division attributable to increased manufacturingutilization, and improved service margins as the Company entered into numerousnew service contracts in the past year as warranties expired and replacedcertain unprofitable service contracts and time and material servicearrangements.  These margin improvementswere negatively impacted by a $624,000 provision made in the third quarter offiscal 2004 for losses incurred and projected on a CargoSearch programrecognized on a percentage of completion basis.  This contract required certain new product applications, whichhad higher than planned development and material costs resulting in theselosses.

 

Total cost of sales and contracts for the first nine months of fiscal2004 increased by $157,000 to $38,500,000 compared to the corresponding perioda year ago. Cost of sales and contracts represented 74% of revenues compared to78% for the corresponding period last year. This margin improvement is due in part to increased sales of highermargin MobileSearch trucks in fiscal 2004, reduced manufacturing and serviceoverhead costs, improved manufacturing utilization, and improved servicemargins as the Company entered into numerous new service contracts during thepast year as warranties expired and replaced certain unprofitable servicecontracts and time and material service arrangements.  These margin improvements were negatively impacted by a  $1.4 million provision made for lossesincurred and projected on one CargoSearch program recognized on a percentage ofcompletion basis.  As noted above, thiscontract required certain new product applications, which had higher thanplanned development and material costs, resulting in these losses.

 

Selling, general and administrative expenses for the third quarter offiscal 2004 decreased by $302,000 to $2,753,000 compared to the correspondingperiod a year ago.  Selling, general andadministrative expenses represented 17% of revenues

 

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in the current quarter compared to 18% for the corresponding periodlast year.  This decrease was dueprimarily to reductions in consulting and legal expenses from the prior year.

 

Selling, general and administrative expenses for the first nine monthsof fiscal 2004 decreased by $1,342,000 to $8,661,000 compared to thecorresponding period a year ago. Selling, general and administrative expenses represented 17% of revenuesin the current period compared to 20% for the corresponding period a yearago.  This decrease was due primarily toreduced consulting ($828,000), trade and road show  ($245,000), insurance and financing ($153,000), legal and publiccompany ($208,000) and other expenditures. This was offset in part byapproximately $400,000 in severance and other costs related to the terminationof the Company’s Chief Executive Officer, which the Company incurred in thefirst quarter of fiscal 2004.

 

Company funded research and development expenses for the third quarterof fiscal 2004 increased by $399,000 to $1,741,000 compared to thecorresponding period a year ago. Research and development expenses represented11% of revenues in the current quarter compared to 8% for the correspondingperiod last year. Current quarter expenditures increased comparatively as theCompany increased activity on product development initiatives in the currentquarter.

 

Company funded research and development expenses for the first ninemonths of fiscal 2004 decreased by $480,000 to $4,385,000 compared to thecorresponding period last year. Research and development expenses represented8% of revenues in the first nine months of fiscal 2004 compared to 10% for thecorresponding period last year. Research and development expenditures decreasedyear over year as the Company reduced the number of initiatives beingdeveloped.

 

Other income (expense) was $12,000 in income for the third quarter offiscal 2004 as compared to $539,000 in expense for the corresponding period ayear ago.  As part of the private equityplacement during the first quarter of 2003, the Company issued 295,475warrants.  Due to certain conversionfeatures of these warrants that provide that the holder may opt for a cashsettlement in certain instances, including a merger, a sale of all orsubstantially all of the Company’s assets, or a tender offer or exchange offerof shares of the Company’s stock, a liability equal to the Black-Scholesvaluation of the warrants at the deal closing date was recorded on theCompany’s balance sheet.  At December31, 2003, these warrants were “marked to market” using Black-Scholes and thechange in the valuation of the warrants of $52,000 was recorded as otherexpense in the quarter. During the three months ended December 31, 2002, thismark to market adjustment resulted in $592,000 in other expense.

 

Other income (expense) was $272,000 in expense for the first ninemonths of fiscal 2004 as compared to $1,474,000 in income for the correspondingperiod a year ago due primarily to the mark to market of outstanding warrantsas noted above.

 

The potential tax benefits on losses incurred in fiscal 2003 were fullyreserved due to the uncertainty as to whether the additional loss carryforwardswould ultimately be realized. In assessing the realizability of deferred taxassets, management considers whether it is more likely than not that someportion or all of the deferred tax assets will not be realized. The Company hasnot made a provision for taxes in the quarter or nine months ended December 31,2003 as the Company will not have to pay taxes for the income earned in theseperiods due to its net operating loss carryforwards.  In the quarter and nine months ended December 31, 2003, theCompany recorded an income tax benefit of $96,000 for state tax refundsreceived during the period that had not previously been recognized.

 

The Company incurred a net loss of $422,000 during the third quarter offiscal 2004 as compared to a net loss of $1,058,000 in the third quarter offiscal 2003.  The Company reported netincome of $111,000 in the first nine months of fiscal 2004 as compared to a netloss of $2,664,000 in the first nine months of fiscal 2003.  The significant factors contributing tothese results are noted in the above sections**.**

 

Liquidity and Capital Resources****

 

On May 28, 2002, the Company closed on a private placementoffering of common stock and warrants. A total of 1,115,000 shares were sold toaccredited investors at a price of $17.64 each. In addition, warrants topurchase an additional 295,475 shares of common stock at a price of $23.52 wereissued. These warrants have a five-year life expiring in May of 2007.  Proceeds to the Company approximated$18.4 million. The proceeds from this private placement offering have beenand are

 

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being utilized for general corporate purposes including debt repayment,capital expenditures, and investments in product development and workingcapital needs**.**

 

Cash and cash equivalents increased by $6,544,000 to $12,129,000 atDecember 31, 2003 compared to $5,585,000 at March 31, 2003. This increase incash and cash equivalents is primarily due to cash generated from operations asMobileSearch trucks in inventory at March 31, 2003 were delivered to customersin the current year and from $2.9 million in cash proceeds from the exercise ofstock options during the year. Working capital increased by $4,228,000 (14%)since March 31, 2003, increasing from $30,196,000 to $34,424,000 at December31, 2003.

 

On August 11, 2003, the Company entered into two newcredit agreements with Silicon Valley Bank East replacing its HSBC Bank USAcredit agreements that expired on July 31, 2003.  The first agreement is a $5.0 million domestic loan andsecurity agreement to support the Company’s routine working capital needs.  Maximum borrowings for this line are set atthe lower of  (a) the sum of 80% ofeligible domestic accounts receivable plus 10% of finished goods inventory upto $750,000, or; (b) $5 million.  Thesecond is a $20.0 million export loan and security agreement, guaranteedby the Export-Import Bank of the United States to support the Company’s overseascontract, trade finance and working capital needs.

 

The credit facilities bear an interest rate of thegreater of 4.25% or the Silicon Valley Bank prime rate (4.0% at December 31,2003) and have an expiration date of November 30, 2004.  The credit agreements are collateralized bycertain assets of the Company and contain certain restrictions includinglimitations on the amount of distributions that can be made to stockholders,the disposition or encumbrances of assets, and require the maintenance ofcertain financial covenants.  As ofDecember 31, 2003, the Company was in compliance with these covenants.

 

At December 31, 2003, there were no borrowingsoutstanding against these credit facilities. The Company had outstanding$560,000 in standby letters of credit guaranteeing performance on certain largeinternational cargo projects, which have been collateralized with cash.  No amounts have been drawn against theseletters of credit.  The creditagreements are collateralized by certain assets of the Company and containcertain restrictions, including limitations on the amount of distributions thatcan be made to stockholders, and the disposition or encumbrances of assets, andrequire the maintenance of certain financial covenants. As of December 31,2003, the Company was in compliance with these covenants.

 

At December 31, 2003, there were no borrowingsoutstanding and $187,000 in standby letters of credit were in effect againstthis credit facility guaranteeing performance on certain large internationalcargo projects.  In addition, theCompany had outstanding $373,000 in standby letters of credit with HSBC BankUSA, which have been collateralized with cash. No amounts have been drawn against these letters of credit.

 

The Company believes that its existing cash andinvestments plus cash generated from operations and amounts available under itscredit facilities are adequate to finance its operating and capitalrequirements for fiscal 2004.

 

** New Accounting Pronouncements:**

In February 2003, the FASB issued Emerging Issues TaskForce Issue 00-21, Accounting for Revenue Arrangements with MultipleDeliverables (EITF 00-21). EITF 00-21 provides guidance for the accounting by avendor for arrangements involving multiple revenue-generating activities. TheCompany adopted EITF 00-21 on July 1, 2003 and such adoption did not have asignificant effect on the consolidated financial statements.

 

In January 2003, the FASBissued Interpretation No. 46 (FIN 46), “Consolidation of Variable InterestEntities,” which addresses consolidation by business enterprises of variableinterest entities (VIEs) that either: (1) do not have sufficient equityinvestment at risk to permit the entity to finance its activities withoutadditional subordinated financial support, or (2) the equity investors lack anessential characteristic of a controlling financial interest.  Throughout 2003, the FASB released numerousproposed and final FSPs regarding FIN 46, which both clarified and modified FIN46’s provisions. On December 24, 2003, the FASB issued revised InterpretationNo. 46 (FIN 46-R) which will replace FIN 46 upon its effective date.  The application of FIN 46 to VIEs createdafter February 1, 2003, did not result in any entities requiring consolidationthat would not already have required consolidation under the voting equityinterest model. The Company will defer adoption of FIN 46-R

 

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until March 31, 2004 butdoes not believe the adoption of this pronouncement will have a material effecton the consolidated financial statements.

 

In May 2003, the FASB issuedStatement of Financial Accounting Standards No. 150, “Accounting for CertainFinancial Instruments with Characteristics of Both Liabilities and Equity”,(“FAS 150”).  This statement establishes standards for how an issuerclassifies and measures in its statement of financial position certainfinancial instruments with characteristics of both liabilities and equity. The provisions of SFAS No. 150 are effective for (1) instrumentsentered into or modified after May 31, 2003, and (2) pre-existing instrumentsas of July 1, 2003. On October 29, 2003, the FASB voted to indefinitely deferthe effective date of SFAS No. 150 for mandatorily redeemable instruments asthey relate to minority interests in consolidated finite-lived entities throughthe issuance of FASB Staff Position (FSP) 150-3. The adoption of SFAS No. 150,as modified by FSP 150-3, did not have a material effect on the ConsolidatedFinancial Statements

 

In December 2003, the Staff of the Securities andExchange Commission (SEC or the Staff) issued Staff Accounting Bulletin No. 104(SAB 104), *Revenue Recognition*,which supercedes SAB 101, *RevenueRecognition in Financial Statements.* SAB 104’s primary purpose is to rescind accounting guidancecontained in SAB 101 related to multiple element revenue arrangements,superceded as a result of the issuance of EITF 00-21, “Accounting for RevenueArrangements with Multiple Deliverables.” Additionally, SAB 104 rescinds the SEC’s *Revenue Recognition in Financial Statements Frequently Asked Questionsand Answers* (the FAQ) issued with SAB 101 that had been codified inSEC Topic 13, *Revenue Recognition*.  Selected portions of the FAQ have beenincorporated into SAB 104.  TheCompany’s current accounting policies conform with the requirements of thisStaff Accounting Bulletin.

 

**Item 3 - Quantitative and Qualitative Disclosures AboutMarket Risk**

 

The Company is subject to interest rate risk on itscredit facilities that have variable interest rates tied to the PrimeRate.  As of December 31, 2003, theCompany had no variable interest rate debt outstanding.

 

The cash accounts for the Company’s operations inSingapore, Hong Kong, England, and Abu Dhabi are maintained in Singaporedollars, Hong Kong dollars, pounds sterling and dirhams, respectively.  Foreign currency accounts were marked tomarket at current rates that resulted in immaterial translation adjustments tostockholders’ equity.  The gains andlosses from foreign currency transactions are included in the statement ofoperations for the period and were also immaterial.  A hypothetical 10% change in foreign currency rates would nothave a material impact on the Company’s results of operations or financialposition.

 

As of December 31, 2003, the Company holds short-terminvestments consisting of money market funds and U.S. government and governmentagency bonds.  The Company’s primaryobjective with its investment portfolio is to invest available cash whilepreserving principal and meeting liquidity needs. These investments have anaverage interest rate of  1.1% and aresubject to interest rate risk. As a result of the average maturity andconservative nature of the investment portfolio, a sudden change in interestrates would not have a material effect on the value of these investments.

 

In fiscal 2003, the Company issued 295,475 warrants inconnection with a private placement offering of common stock.  These warrants can be exchanged for cashunder certain circumstances including a merger, sale or tender offer of theCompany and as such a liability equal to Black-Scholes value of the warrants isrecorded on the balance sheet.  Changesin the fair value of the warrants are recorded as other income (expense).  The Black-Scholes value of these warrantscan fluctuate significantly based on the current fair market value of theCompany’s common stock.  A 10% change inthe fair market value of the Company’s common stock, holding other assumptionsconstant, would have approximately a $225,000 effect on earnings.

 

**Item 4 - Controls and Procedures**

 

As of the end of the period covered by this report, wecarried out an evaluation, under the supervision and with the participation ofour management, including our Chief Executive Officer and Chief FinancialOfficer, of the effectiveness of the design and operation of our disclosurecontrols and procedures pursuant to Rule 13a-14(c) and 15d-14(c) of theSecurities

 

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Exchange Act of 1934. In designing and evaluating thedisclosure controls and procedures, management recognizes that any controls andprocedures, no matter how well designed and executed, can provide onlyreasonable assurance of achieving the desired control objectives. Based uponthat evaluation, our Chief Executive Officer and our Chief Financial Officerconcluded that our disclosure controls and procedures are effective forgathering, analyzing and disclosing the information we are required to disclosein reports filed under such Act.

 

There have been no significant changes in our internalcontrols or in other factors, which could significantly affect internalcontrols subsequent to the date that the Company carried out its evaluation.

 

**PART II – OTHER INFORMATION**

 

# **Item 1 – Legal Proceedings**

* *

*In adecision issued December 29, 1999, the United States Court of Appeals for theFederal Circuit in Washington, D.C. ruled that the Company may pursue a patentinfringement claim against Vivid Technologies (“Vivid”), which produces X-raydetection devices used in baggage scanning equipment. The Appeals Court overturneda 1998 decision in Vivid’s favor by the Massachusetts Federal District Court.The lawsuit, filed by Vivid in May 1996, concerned whether Vivid’s X-raydetection devices infringed on AS&E’s patent. The District Court had ruledthat AS&E could not assert a claim that Vivid’s devices infringed onAS&E’s patent. The Appeals Court reversed the District Court’s finding onsummary judgment that Vivid did not infringe on AS&E’s patent, as well asthe District Court’s denial of AS&E’s request for discovery to opposeVivid’s summary judgment motion.  Vividwas acquired by PerkinElmer in 2000.*

* *

*InSeptember 1998, the Company filed suit against EG&G AstrophysicsResearch Corp. (“EG&G”) in U.S. District Court in Boston, Massachusettsalleging that EG&G infringed upon at least two patents owned by the Companyand that EG&G had misappropriated certain trade secrets of the Company. InDecember 1999, EG&G filed a Motion for Summary Judgment that EG&Gdid not misappropriate the Company’s trade secrets and in March 2000EG&G filed a Motion for Summary Judgment that EG&G did not infringe theCompany’s patents. In February 2001 the Court denied EG&G’s and theCompany’s motions for Summary Judgment.*

* *

*In arelated matter, EG&G filed a request with the U.S. Patent and TrademarkOffice (“USPTO”) for reexamination of the two patents that were at issue in thepatent infringement action described above. The Company filed oppositions tothe re-examination requests and the Company was advised by the USPTO that bothits MobileSearch X-ray inspection and its Z® Backscatter X-ray inspectiontechnology patents were upheld in all material respects on January 30,2001.*

* *

*InMarch 2003, the Company entered into a Partial Settlement Agreement and Releasewith PerkinElmer, the parent of EG&G, with respect to the above-referencedlitigation.  The Partial SettlementAgreement and Release covers claims and counter-claims in the EG&G andVivid actions up to June 14, 2002, the date of closing on the sale of EG&Gby PerkinElmer to L-3 Communications. Certain aspects of the EG&G litigation remain pending in theDistrict Court at this time.*

* *

*TheCompany is also subject to various legal proceedings and claims that arise inthe ordinary course of business. The Company currently believes that resolvingthese matters will not have a material adverse impact on its financialcondition or results of operations.*

 

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

 
| (a)    |   | Exhibits |
|--------|--------|----------|
|   |   |     |
| 3.2    |   |     | Amended and Restated By-laws of American Science and  Engineering, Inc. |
|   |   |     |   |
| 31.1   |   |     | Certification by Principal Executive Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |

 

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|   |   |                |                                                                                                                                                |
|--------|--------|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.2   |   |                | Certification by Principal Financial Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                             |
|   |   |                |                                                                                                                                                |
| 32.1   |   |                | Certification of Chief Executive Officer pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |
|   |   |                |                                                                                                                                                |
| 32.2   |   |                | Certification of Chief Financial Officer pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |
|   |   |                |
| (b)    |   | Reports on Form 8-K |

 

On October 22, 2003, wefurnished a Current Report on Form 8-K pursuant to Item 12 containing the pressrelease relating to our preliminary financial results for the quarter endedSeptember 30, 2003.

 

On November 26, 2003, wefurnished a Current Report on Form 8-K pursuant to Item 12 containing the pressrelease relating to our financial results for the quarter ended June 30, 2003.

 

The information required by Exhibit Item 11 (Statementre: Computation of Income per Common and Common Equivalent Share) may be foundin Footnote No. 3 on Page 8.

 

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**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 theundersigned hereunto duly authorized.

 

 
|                          | AMERICAN SCIENCE AND ENGINEERING, INC.                           |
|-------------------------------|------------------------------------------------------------------|
| (Registrant)                  |                                                             |   |   |
|                          |                                                             |   |
| Date   February 23, 2004 |  /s/ Paul  Theodore Owens                                   |   |
|                          | Paul Theodore Owens                                              |   |
|                          | Executive Vice President, Treasurer and Chief  Financial Officer |
|                               |                                                                  |  |  |

 

*Safe Harbor Statement*

*The foregoing 10-Qcontains statements concerning the Company’s financial performance and businessoperations, which may be considered “forward-looking” under applicablesecurities laws.*

 

*TheCompany wishes to caution readers of this Form 10-Q that actual results mightdiffer materially from those projected in any forward-looking statements.*

 

*Factorswhich might cause actual results to differ materially from those projected inthe forward-looking statements contained herein include the following:significant reductions or delays in procurements of the Company’s systems bythe United States and other governments; disruption in the supply of any sourcecomponent incorporated into AS&E’s products and other factors which maycause delays in production and delivery schedules; litigation seeking torestrict the use of intellectual property used by the Company; potentialproduct liability claims against the Company; failure of any of our products tomeet performance requirements or to continue to operate reliably because ofunexpected design flaws or manufacturing defects; global political trends andevents which affect public perception of the threat presented by drugs,explosives and other contraband; global economic developments and the abilityof governments and private organizations to fund purchases of the Company’sproducts to address such threats; and the potential insufficiency of Company resources,including human resources, capital, plant and equipment and management system,to accommodate any future growth, and future delays in federal funding. Theseand certain other factors which might cause actual results to differ materiallyfrom those projected are more fully set forth under the caption“Forward-Looking Information and Factors Affecting Future Performance” in theCompany’s Registration Statement on Form 10-K.*

 

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