**FORM 10-Q/A**

**(AmendmentNo. 1)**

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**ý****QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)**

**OF THE SECURITIES EXCHANGE ACT OF1934**

 

**Forthe quarterly period ended September 30, 2004**

 

**OR**

 

**o****TRANSITION REPORT PURSUANT TO SECTION 13 OR15(d)**

**OF THE SECURITIES EXCHANGE ACT OF1934**

 

###### **For thetransition periodfrom           to           **

 

**CommissionFile Number 1-6549**

 

**American Science and Engineering,Inc.**

(Exact name of Registrant asspecified 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, former address and former fiscal year, if changed since last report) |

 

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

 

Indicate by check mark whether the Registrant is an accelerated filer(as defined in Rule 12b-2 of 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  October 22, 2004** |
|---------------------------|------------|-------------------------------------------|
| $.66 2/3 par  value       |       | 7,968,043                                 |

 

 

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**Explanatory Note: **This Amendment No. 1on Form 10-Q/A amends our Quarterly Report on Form 10-Q filed with the Securitiesand Exchange Commission on November 8, 2004 (the “Original Form 10-Q”) solelyin order to amend and correct Item 4. As a result of the amendment of Item 4,the Section 302 and Section 906 certifications filed as Exhibits inItem 6 have been re-executed as of the date of this Amendment No. 1 on Form10-Q/A. Except for the aforementioned amendments, this Amendment No. 1 speaksas of the original filing date of the Original Form 10-Q and does not modify orupdate disclosures in the Original Form 10-Q, including the nature andcharacter of such disclosures, to reflect events occurring, or itemsdiscovered, after the original filing date of the Original Form 10-Q.  Accordingly, this Amendment No. 1 should beread in conjunction with the Company’s filings made with the Securities andExchange Commission subsequent to the original filing date of the Original Form10-Q, including any amendments to those filings.

 

**PART I – FINANCIALINFORMATION**

**Item 1 – FinancialStatements**

 

**AmericanScience and Engineering, Inc. and Subsidiary**

**CondensedConsolidated Balance Sheets**

 

Dollars in thousands

 
| ** **                                                                                                      | ** ** | **September 30,  2004** | ** ** | **March 31,  2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|--------------------------|------------|
| ** **                                                                                                      | ** ** | **(Unaudited)**              | ** ** | ** **               | ** ** |
| ** **                                                                                                      | ** ** | ** **                   | ** ** | ** **               | ** ** |
| **Assets**                                                                                                      | ** ** | ** **                   | ** ** | ** **               | ** ** |
| Current  assets:                                                                                                |       |                         |       |                     |       |
| Cash and  cash equivalents                                                                                      |       | $                            | 6,583      |                     | $          | 18,232 |   |
| Restricted  cash                                                                                                |       | 630                          |       | 585                      |       |
| Short-term  investments                                                                                         |       | 17,733                       |       | 1,845                    |       |
| Accounts  receivable, net of allowances of $318 and $250 at September 30, 2004 and  March 31, 2004    |       | 16,228                       |       | 14,771                   |       |
| Unbilled  costs and fees, net of allowances of $56 and $394 at September 30, 2004  and March 31, 2004 |       | 4,218                        |       | 4,468                    |       |
| Inventories                                                                                                     |       | 15,637                       |       | 11,390                   |       |
| Prepaid  expenses and other current assets                                                                      |       | 1,542                        |       | 1,890                    |       |
| **Total  current assets**                                                                                       |       | 62,571                       |       | 53,181                   |       |
| Equipment  and leasehold improvements, net                                                                      |       | 3,199                        |       | 2,585                    |       |
| Other  assets, net                                                                                              |       | 36                           |       | 37                       |       |
| **Total  assets**                                                                                               |       | $                            | 65,806     |                     | $          | 55,803 |   |

 

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

 

2

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Dollars in thousands except per share amounts

 
| ** **                                                                                                                                                              | ** ** | **September 30,  2004** | ** ** | **March 31,  2004** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|--------------------------|------------|
| ** **                                                                                                                                                              | ** ** | **(Unaudited)**              | ** ** | ** **               | ** ** |
|                                                                                                                                                                    |       |                         |       |                     |       |
| **Liabilities and Stockholders’ Equity**                                                                                                                           |       |                         |       |                     |       |
| Current liabilities:                                                                                                                                                    |       |                         |       |                     |       |
| Accounts payable                                                                                                                                                        |       | $                            | 5,299      |                     | $          | 3,690 |   |
| Accrued salaries and benefits                                                                                                                                           |       | 2,063                        |       | 1,954                    |       |
| Accrued warranty costs                                                                                                                                                  |       | 1,243                        |       | 699                      |       |
| Deferred revenue                                                                                                                                                        |       | 1,137                        |       | 2,020                    |       |
| Customer deposits                                                                                                                                                       |       | 3,903                        |       | 4,419                    |       |
| Other current liabilities                                                                                                                                               |       | 1,532                        |       | 1,875                    |       |
| **Total current liabilities**                                                                                                                                           |       | 15,177                       |       | 14,657                   |       |
|                                                                                                                                                                    |       |                         |       |                     |       |
| Non-current liabilities:                                                                                                                                                |       |                         |       |                     |       |
| Warrant liability                                                                                                                                                       |       | 4,940                        |       | 2,093                    |       |
| Other non-current liabilities                                                                                                                                           |       | 939                          |       | 620                      |       |
| **Total liabilities**                                                                                                                                                   |       | 21,056                       |       | 17,370                   |       |
|                                                                                                                                                                    |       |                         |       |                     |       |
| 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 7,963,474 shares at September 30,  2004 and 7,415,660 shares at March 31, 2004 |       | 5,308                        |       | 4,943                    |       |
| Additional paid in capital                                                                                                                                              |       | 48,730                       |       | 42,683                   |       |
| Cumulative translation adjustment                                                                                                                                       |       | 2                            |       | 14                       |       |
| Unearned compensation                                                                                                                                                   |       | (50                          | )          | (115                     | )          |
| Unrealized loss on available for sales  securities                                                                                                                      |       | (7                           | )          | —                   |       |
| Accumulated deficit                                                                                                                                                     |       | (9,233                       | )          | (9,092                   | )          |
| **Total stockholders’ equity**                                                                                                                                     |       | 44,750                       |       | 38,433                   |       |
| **Total liabilities and stockholders’ equity**                                                                                                                     |       | $                            | 65,806     |                     | $          | 55,803 |   |

 

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

 

3

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**AmericanScience and Engineering, Inc. and Subsidiary**

**CondensedConsolidated Statements of Operations**

**(Unaudited)**

 

Dollars and shares in thousands, except per share amounts

 
| ** **                                    | ** **    | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------|---------------|------------------------|------------|----------------------|------------|
| ** **                                    | ** **    | **Sept. 30,  2004**    | ** ** | **Sept. 30,  2003**  | ** ** | **Sept. 30,  2004** | ** ** | **Sept. 30,  2003** | ** ** |
|                                          |          |                   |       |                 |       |   |   |   |   |
| Revenues:                                     |          |                   |       |                 |       |   |   |   |   |
| Net product sales and contract revenues       |          | $                      | 16,498     |                 | $          | 15,010 |   | $ | 29,320 |   | $ | 29,088 |   |
| Net service revenues                          |          | 4,556                  |       | 3,169                |       | 8,546 |   | 6,479 |   |
| Total net revenues                            |          | 21,054                 |       | 18,179               |       | 37,866 |   | 35,567 |   |
|                                          |          |                   |       |                 |       |   |   |   |   |
| Cost of sales and contracts:                  |          |                   |       |                 |       |   |   |   |   |
| Cost of product sales and contracts           |          | 11,362                 |       | 11,151               |       | 20,884 |   | 22,095 |   |
| Cost of service revenues                      |          | 2,695                  |       | 2,231                |       | 4,847 |   | 4,103 |   |
| Total cost of sales and contracts             |          | 14,057                 |       | 13,382               |       | 25,731 |   | 26,198 |   |
| Gross profit                                  |          | 6,997                  |       | 4,797                |       | 12,135 |   | 9,369 |   |
|                                          |          |                   |       |                 |       |   |   |   |   |
| Expenses:                                     |          |                   |       |                 |       |   |   |   |   |
| Selling, general and administrative  expenses |          | 3,448                  |       | 2,856                |       | 6,721 |   | 5,908 |   |
| Research and development                      |          | 1,012                  |       | 1,359                |       | 2,467 |   | 2,644 |   |
| Total expenses                                |          | 4,460                  |       | 4,215                |       | 9,188 |   | 8,552 |   |
|                                          |          |                   |       |                 |       |   |   |   |   |
| Operating income                              |          | 2,537                  |       | 582                  |       | 2,947 |   | 817 |   |
|                                          |          |                   |       |                 |       |   |   |   |   |
| Other income (expense):                       |          |                   |       |                 |       |   |   |   |   |
| Interest income                               |          | 73                     |       | 20                   |       | 114 |   | 48 |   |
| Other, net                                    |          | (2,146                 | )          | (189                 | )          | (3,137 | ) | (332 | ) |
| Total other income (expense)                  |          | (2,073                 | )          | (169                 | )          | (3,023 | ) | (284 | ) |
|                                          |          |                   |       |                 |       |   |   |   |   |
| Income (loss) before income taxes             |          | 464                    |       | 413                  |       | (76 | ) | 533 |   |
| Provision for income taxes                    |          | 65                     |       | —               |       | 65 |   | — |   |
|                                          |          |                   |       |                 |       |   |   |   |   |
| Net income (loss)                             |          | $                      | 399        |                 | $          | 413 |   | $ | (141 | ) | $ | 533 |   |
|                                          |          |                   |       |                 |       |   |   |   |   |
| Income (loss) per share                       | •Basic   |                   | $          | 0.05                 |       | $ | 0.06 |   | $ | (0.02 | ) | $ | 0.08 |   |
|                                          |          |                   |       |                 |       |   |   |   |   |   |
|                                          | •Diluted |                   | $          | 0.05                 |       | $ | 0.06 |   | $ | (0.02 | ) | $ | 0.07 |   |
|                                          |          |                   |       |                 |       |   |   |   |   |   |
| Weighted average shares                       | •Basic   |                   | 7,860      |                 | 7,073      |   | 7,709 |   | 6,978 |   |
|                                          | •Diluted |                   | 8,383      |                 | 7,226      |   | 7,709 |   | 7,119 |   |

 

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

 

4

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**AmericanScience and Engineering, Inc. and Subsidiary**

**CondensedConsolidated Statements of Cash Flows**

**(Unaudited**)

 

Dollars in thousands

 
| ** **                                                                                           | ** ** | **For the Six Months Ended** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                                           | ** ** | **September 30,  2004** | ** ** | **September 30,  2003** | ** ** |
| Cash flows from operating activities:                                                                |       |                         |       |   |   |
| Net income (loss)                                                                                    |       | $                            | (141       | ) | $ | 533 |   |
| Adjustments to reconcile net (loss) income  to net cash (used for) provided by operating activities: |       |                         |       |   |   |
| Depreciation and amortization                                                                        |       | 684                          |       | 878 |   |
| Provisions for contract, inventory,  accounts receivable and warranty reserves                       |       | 1,723                        |       | 189 |   |
| Unrealized gains or losses on short-term  investments                                                |       | 1                            |       | (25 | ) |
| Stock compensation in lieu of fees                                                                   |       | 87                           |       | 100 |   |
| Change in fair value of warrants  outstanding                                                        |       | 3,186                        |       | 466 |   |
| Changes in assets and liabilities:                                                                   |       |                         |       |   |   |
| Accounts receivable                                                                                  |       | (1,525                       | )          | (2,376 | ) |
| Unbilled costs and fees                                                                              |       | 250                          |       | (853 | ) |
| Inventories                                                                                          |       | (4,854                       | )          | 1,870 |   |
| Prepaid expenses, deposits and other assets                                                          |       | 348                          |       | (414 | ) |
| Accounts payable                                                                                     |       | 1,609                        |       | (553 | ) |
| Customer deposits                                                                                    |       | (516                         | )          | 2,926 |   |
| Deferred revenue                                                                                     |       | (603                         | )          | (508 | ) |
| Accrued expenses and other current  liabilities                                                      |       | (537                         | )          | 1,355 |   |
| Non-current liabilities                                                                              |       | 39                           |       | (141 | ) |
| Total adjustments                                                                                    |       | (108                         | )          | 2,914 |   |
| Net cash (used for) provided by operating  activities                                                |       | (249                         | )          | 3,447 |   |
|                                                                                                 |       |                         |       |   |   |
| Cash flows from investing activities:                                                                |       |                         |       |   |   |
| Purchases of short-term investments                                                                  |       | (15,889                      | )          | (2,325 | ) |
| Maturity of short-term investments                                                                   |       | —                       |       | 2,285 |   |
| Purchases of property and equipment                                                                  |       | (1,297                       | )          | (348 | ) |
| Net cash used for investing activities                                                               |       | (17,186                      | )          | (388 | ) |
|                                                                                                 |       |                         |       |   |   |
| Cash flows from financing activities:                                                                |       |                         |       |   |   |
| Increase in restricted cash                                                                          |       | (45                          | )          | 162 |   |
| Proceeds from exercise of stock options and  warrants                                                |       | 5,849                        |       | 2,304 |   |
| Net cash provided by financing activities                                                            |       | 5,804                        |       | 2,466 |   |
| Foreign currency effect on cash                                                                      |       | (18                          | )          | 9 |   |
| Net (decrease) increase in cash and cash  equivalents                                                |       | (11,649                      | )          | 5,531 |   |
| Cash and cash equivalents at beginning of  period                                                    |       | 18,232                       |       | 5,585 |   |
| Cash and cash equivalents at end of period                                                           |       | $                            | 6,583      |   | $ | 11,116 |   |

 

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

 

5

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**AmericanScience and Engineering, Inc. and Subsidiary**

**Notesto Unaudited Condensed Consolidated Financial Statements**

 

1.                                       General

 

The condensed consolidated financial statements include the accounts ofthe Company and its wholly owned subsidiary. All significant intercompanytransactions and balances have been eliminated.

 

The unaudited condensed consolidated financial statements have beenprepared in accordance with the requirements of Form 10-Q/A and consequently donot include all disclosures required by Form 10-K. These condensed consolidatedfinancial statements should be read in conjunction with the consolidatedfinancial statements and the notes included in the Company’s Annual Report onForm 10-K for the year ended March 31, 2004.

 

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.  These results are not necessarily indicativeof the results to be expected for the entire year.

 

Nature of Operations

 

The Company is engaged in the development and manufacture ofsophisticated X-ray inspection systems for critical detection and securityscreening solutions for sale primarily to U.S. and foreign governmentagencies.  The Company has only one reporting segment, X-ray screeningproducts.

 

Significant Accounting Policies

 

Revenues on cost reimbursable and long-term fixed price contracts aregenerally recorded as costs are incurred using the percentage of completionmethod.  For systems that are produced in a standard manufacturingoperation and have shorter order to delivery cycles, the Company recognizessales at the time of shipment of the system to the customer and when otherrevenue recognition criteria are met.

 

Inventories consist of material, labor and manufacturing overhead andare recorded at the lower of cost or net realizable value.  Excessivemanufacturing overhead costs attributable to idle facilities or abnormalproduction volumes are excluded from inventory and recorded as an expense inthe period incurred.

 

The Company’s Export and Security Agreement with Silicon Valley BankEast requires certain cash balances to be restricted as collateral againstoutstanding standby letters of credit; these are separately presented asrestricted cash. (see Note 4)

 

The significant accounting policies followed by the Company and itssubsidiary in preparing its consolidated financial statements are set forth inNote 1 to the consolidated financial statements included in its Form 10-K forthe year ended March 31, 2004.  The Company has made no changes tothese policies during this quarter.

 

Short-term investments consist of investments in money market funds,commercial paper and U.S government and government agency bonds. Theseinvestments are classified as available-for-sale securities and are recorded attheir fair market values. The unrealized holding gains or losses on thesesecurities were immaterial for the six months ended September 30, 2004 andSeptember 30, 2003.

 

Comprehensive income encompasses all changes in stockholder’s equity(except those arising from transactions with owners) and includes net income,net unrealized gains or losses on available for sale securities and foreigncurrency translation adjustments. For the quarter and six months ended September 30,2004 comprehensive income includes net income, unrealized loss of $7,000 andthe cumulative translation adjustment of $2,000. For the quarter ended and thesix months ended September 30, 2003, the Company’s comprehensive netincome (loss) is equal to the Company’s net income (loss).

 

Pro Forma Stock-Based Compensation Expense

 

As permitted by SFAS No. 123, “Accounting for Stock-BasedCompensation”, the Company has elected to continue to apply AccountingPrinciples Board Opinion No. 25, “Accounting for Stock Issued toEmployees,” to account for its stock-based compensation plans. Had compensationcost for awards under the Company’s stock-based compensation plans beendetermined 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** | ** ** | **Six months ended** | ** ** |
|------------------------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| **(In thousands except per share  amounts)**                           | ** ** | **Sept. 30,  2004**    | ** ** | **Sept. 30,  2003**  | ** ** | **Sept. 30,  2004** | ** ** | **Sept. 30,  2003** | ** ** |
|                                                                   |       |                   |       |                 |       |   |   |   |   |
| Net income (loss)                                                      | ** ** | ** **             | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** |
| As reported                                                            |       | $                      | 399        |                 | $          | 413 |   | $ | (141 | ) | $ | 533 |   |
| Less: Stock  based compensation using fair value method for all awards |       | (1,309                 | )          | (896                 | )          | (1,421 | ) | (1,818 | ) |
| Pro forma  net loss                                                    |       | $                      | (910       | )                    | (483       | ) | $ | (1,562 | ) | $ | (1,285 | ) |
| Income  (loss) per share –Basic:                                  |       |                   |       |                 |       |   |   |   |   |
| As reported                                                            |       | $                      | 0.05       |                 | $          | 0.06 |   | $ | (0.02 | ) | $ | 0.08 |   |
| Pro forma                                                              |       | $                      | (0.12      | )                    | $          | (0.07 | ) | $ | (0.20 | ) | $ | (0.18 | ) |
| Income  (loss) per share –Diluted:                                |       |                   |       |                 |       |   |   |   |   |
| As reported                                                            |       | $                      | 0.05       |                 | $          | 0.06 |   | $ | (0.02 | ) | $ | 0.07 |   |
| Pro forma                                                              |       | $                      | (0.12      | )                    | $          | (0.07 | ) | $ | (0.20 | ) | $ | (0.18 | ) |

 

 Thefair value of each option granted was estimated on the grant date using theBlack-Scholes option pricing model with the following weighted averageassumptions: risk-free interest rate of 5.0%, expected volatility of 73%,an expected dividend yield of 0% and an expected life of 7 years for allperiods.

 

2.                                       Inventories

 
| **(Dollars in thousands)**                  | ** ** | **Sept. 30,  2004** | ** ** | **March 31,  2004** | ** ** |
|---------------------------------------------|------------|---------------------|------------|--------------------------|------------|
| Inventories  consisted of:                  |       |                |       |                     |       |
| Raw  materials and completed sub-assemblies |       | $                   | 7,409      |                     | $          | 7,089 |   |
| Work-in-process                             |       | 7,293               |       | 4,168                    |       |
| Finished  goods                             |       | 935                 |       | 133                      |       |
| Total                                       |       | $                   | 15,637     |                     | $          | 11,390 |   |

 

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

 

Basicearnings (loss) per common share is computed by dividing net income (loss) bythe weighted average number of shares of common stock outstanding during theperiod.  Diluted earnings (loss) per share include the dilutive impact ofoptions and warrants using the average share price of the Company’s commonstock for the period. For the quarters and six months ended September 30,2004 and September 30, 2003, common stock equivalents of 304,000, 806,000,835,000 and 1,150,000, respectively, are excluded from diluted earnings pershare, as their effect is anti-dilutive.

 
| ** **                                                                               | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| **(In thousands except per share  amounts)**                                             | ** ** | **Sept. 30,  2004**    | ** ** | **Sept. 30,  2003**  | ** ** | **Sept. 30,  2004** | ** ** | **Sept. 30,  2003** | ** ** |
| **Earnings  (Loss) Per Share**                                                           |       |                   |       |                 |       |   |   |   |   |
| **Basic:**                                                                               |       |                   |       |                 |       |   |   |   |   |
| Net income  (loss)                                                                       |       | $                      | 399        |                 | $          | 413 |   | $ | (141 | ) | $ | 533 |   |
| Weighted  average number of common shares outstanding –basic                        |       | 7,860                  |       | 7,073                |       | 7,709 |   | 6,978 |   |
| Net income  (loss) per share –basic                                                 |       | $                      | 0.05       |                 | $          | 0.06 |   | $ | (0.02 | ) | $ | 0.08 |   |
| **Diluted:**                                                                             |       |                   |       |                 |       |   |   |   |   |
| Net income  (loss)                                                                       |       | $                      | 399        |                 | $          | 413 |   | $ | (141 | ) | $ | 533 |   |
| Weighted  average number of common shares outstanding                                    |       | 7,860                  |       | 7,073                |       | 7,709 |   | 6,978 |   |
| Assumed  exercise of stock options and warrants, using the treasury stock method         |       | 523                    |       | 153                  |       | — |   | 141 |   |
| Weighted  average number of common and potential common shares outstanding –diluted |       | 8,383                  |       | 7,226                |       | 7,709 |   | 7,119 |   |
| Net income  (loss) per share –diluted                                               |       | $                      | 0.05       |                 | $          | 0.06 |   | $ | (0.02 | ) | $ | 0.07 |   |

 

4.             Borrowings

 

On August 11,2003, the Company entered into two new credit agreements with Silicon ValleyBank East replacing its HSBC Bank USA credit 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.

 

7

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Maximum borrowings for this line are set at the lower of (a) the sum of80% of eligible domestic accounts receivable plus 10% of finished goodsinventory up to $750,000, or; (b) $5 million.  The second is a$20.0 million export loan and security agreement, guaranteed by theExport-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 the greater of 4.25% orthe Silicon Valley Bank prime rate (4.75% at September 30, 2004) and havean expiration date of November 30, 2004.** **The credit agreements are collateralized by certain assets of the Company andcontain certain restrictions, including limitations on the amount ofdistributions that can be made to stockholders, the disposition or encumbrancesof assets, and require the maintenance of certain financial covenants.  Asof September 30, 2004, the Company was in compliance with thesecovenants.  The Company is in the process of renewing both the domesticand export loan and security agreement facilities with Silicon Valley Bank foran additional two years.  The new credit facility, which will reduce theexport loan and security agreement from $20.0 million to $10.0 million, isexpected to be in place on December 1, 2004.

 

At September 30, 2004, there were no borrowings outstanding and$156,000 in standby letters of credit were in effect against this creditfacility, guaranteeing performance on certain large international cargoprojects.  In addition, the Company had outstanding $365,000 in standbyletters of credit with HSBC Bank USA, which have been collateralized withrestricted cash.  No amounts have been drawn against these letters ofcredit.

 

5.             Private PlacementOffering

 

On May 28, 2002, the Company closed on a private placement offering ofcommon 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.  Proceeds to the Company approximated $18.4 million, net ofapproximately $1.3 million of issuance cost.   The warrants wereimmediately vested and have a five-year life expiring in May of 2007.  Dueto certain conversion features of these warrants that provide that the holdermay opt for a cash settlement in certain instances, including a merger, a saleof all, or substantially all, of the Company’s assets, or a tender offer orexchange offer of shares of the Company’s stock, a liability equal to theBlack-Scholes valuation of the warrants at the deal closing date was recordedon the Company’s balance sheet.  The “mark to market” change in thewarrants value of $(2,266,000), $(3,187,000), $(192,000) and $(466,000), wasrecorded as other income (expense) for the three and six months ended September 30,2004 and September 30, 2003, respectively.  The liability of$4,940,000 and $2,093,000 associated with the warrants is recorded as anon-current liability on the September 30, 2004 and March 31, 2004balance sheets, respectively.  The fair market value of the warrants wasdetermined using the Black- Scholes pricing model and an assumed volatility of73% and interest rate of 5%. During the quarter ended September 30, 2004,36,000 of the above warrants were exercised.  Total proceeds from thisexercise amounted to $847,000.

 

6.             Guarantees

 

At September 30, 2004, the Company had $521,000 of letters ofcredit outstanding guaranteeing performance on certain large internationalcargo projects.  These letters of credit were issued through the Company’scurrent and former export loan and security agreements (see Note 4) and haveexpiration dates through June of 2005.

 

Certain of the Company’s product lines carry a one-year warranty, thecosts of which are accrued for at time of shipment.  Accrual rates arebased upon historical experience over the preceding twelve months and theadequacy of the warranty reserve is evaluated monthly.  Warrantyexperience for the three and six months ended September 30, 2004 and September 30,2003 is as follows:

 
| ** **                                        | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|---------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| **(In thousands)**                                | ** ** | **Sept. 30, 2004**     | ** ** | **Sept. 30, 2003**   | ** ** | **Sept. 30, 2004** | ** ** | **Sept. 30, 2003** | ** ** |
|                                              |       |                   |       |                 |       |   |   |   |   |
| Warranty accrual beginning of period              |       | $                      | 900        |                 | $          | 535 |   | $ | 699 |   | $ | 535 |   |
| Accruals for warranties issued during the  period |       | 642                    |       | 104                  |       | 1,048 |   | 186 |   |
| Warranty costs incurred during period             |       | (299                   | )          | (90                  | )          | (504 | ) | (172 | ) |
| Balance at end of period                          |       | $                      | 1,243      |                 | $          | 549 |   | $ | 1,243 |   | $ | 549 |   |

 

7.             Commitments andContingencies

 

In the second quarter ended September 30, 2003, an accrual of$535,000 was recorded for the anticipated losses on a CargoSearch contract thatwas recognized on the percentage of completion method.

 

8

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**Item 2 –Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

Results of operations

 

Total net revenues for the quarter ended September 30, 2004increased by $2,875,000 to $21,054,000 compared to the corresponding period ayear ago.  This increase is attributable primarily to ZBV product linerevenues increasing by $8.2 million as the Company delivered thirteen unitsduring the quarter and increased after-market parts revenue of $2.4million.  These increases were partially offset by a decrease in theCargoSearch product line revenues of $3.6 million as the Company had fourprograms ongoing in the second quarter of fiscal 2004 as compared to two in thesecond quarter of fiscal 2005 and a $3.5 million decrease in MobileSearchrevenues as the Company had no shipments during the quarter compared to twoshipments in the second quarter of fiscal 2004.

 

Net revenues for the six months ended September 30, 2004 increasedby $2,299,000 to $37,866,000 compared to the corresponding period a yearago.  This increase is attributable primarily to an increase of $12.0million in ZBV revenue as the company delivered twenty-one ZBV’s in the firstsix months of fiscal 2005.  In addition, after-market parts revenueincreased by $2.7 million and service revenues increased by $2.1 million as theCompany has entered into service contracts for equipment that had previouslybeen covered under warranty.   These increases were offset by anoverall decline in MobileSearch revenues of $10 million as the Company had noshipments during the first six months of fiscal 2005 compared to the shipmentof six trucks during the first six months of fiscal 2004 and a decline inCargoSearch revenues of $4.1 million due to the completion of three majorprojects.

 

Total cost of sales and contracts for the second quarter of fiscal 2005increased by $675,000 to $14,057,000 compared to the corresponding period ayear ago. Cost of sales and contracts represented 67% of revenues versus 74%for the corresponding period

 last year.  This margin improvement is due in part toimproved service margins as the Company entered into several large servicecontracts during fiscal 2005 as warranties expired and due to the low claimexperience rate associated with CargoSearch and MobileSearch warranty. This margin improvement is also attributable to a $535,000 accrual made in thefirst six months of fiscal 2003, for losses projected on one CargoSearchprogram recognized on a percentage of completion basis.

 

Total cost of sales and contracts for the first six months of fiscal2005 decreased by $467,000 to $25,731,000 compared to the corresponding perioda year ago. Cost of sales and contracts represented 68% of revenues versus 74%for the corresponding period last year.  This margin improvement is due inpart to improved service margins as the Company entered into several largeservice contracts during fiscal 2004 as warranties expired and due to the lowclaim experience rate associated with CargoSearch and MobileSearchwarranties.  This margin improvement is also attributable to a $635,000accrual made in the first six months of fiscal 2003, for losses projected onone CargoSearch program recognized on a percentage of completion basis.

 

Selling, general and administrative expenses for the second quarter offiscal 2005 increased by $592,000 to $3,448,000 compared to the correspondingperiod a year ago.  Selling, general and administrative expensesrepresented 16% of revenues in the current period and for the correspondingperiod last year.  The cost increases from the prior year relate to anincrease in facility relocation expense for the HES division, increased auditfees related to Sarbanes-Oxley Section 404 compliance, fees associatedwith the transfer to the NASDAQ stock exchange, and increased incentivecompensation costs.

 

Selling, general and administrative expenses for the first six monthsof fiscal 2005 increased by $813,000 to $6,721,000 compared to thecorresponding period a year ago.  Selling, general and administrativeexpenses represented 18% of revenues in the current period compared to 17% forthe corresponding period last year. The increase in selling, general andadministrative was a result of the increase in facility expenses due to therelocation of the HES division, increase in audit fees due to Sarbanes-Oxley Section 404compliance, fees associated with the transfer to the NASDAQ stock exchange, andincreased incentive compensation costs, offset somewhat by decreases inseverance accruals.

 

Company funded research and development expenses for the second quarterof fiscal 2005 decreased by $347,000 to $1,012,000 compared to thecorresponding period a year ago. Research and development expenses represented5% of revenues in the current quarter compared to 7% for the correspondingperiod last year. Current quarter expenditures decreased comparatively as theCompany focused engineering efforts on revenue producing programs during thequarter.

 

Company funded research and development expenses for the first sixmonths of fiscal 2005 decreased by $177,000 to $2,467,000 compared to thecorresponding period last year. Research and development expenses represented 7%of revenues in the current period compared to 7% for the corresponding periodlast year.  Year to date expenditures continued to decrease compared tothe same period in the prior year as the Company maintained cost controlinitiatives and focused engineering efforts on revenue producing programs.

 

Other expense was $2,073,000 for the second quarter of fiscal 2005 ascompared to $169,000 in expense for the corresponding period a yearago.   As part of the private equity placement during the firstquarter of fiscal 2003, the Company issued 295,475 warrants.  Due tocertain conversion features of these warrants that provide that the holder mayopt for a cash settlement in certain instances, including a merger, a sale ofall or substantially all of the Company’s assets, or a tender offer or exchangeoffer of shares of the Company’s stock, a liability equal to the Black-Scholesvaluation of the warrants at the deal closing date was recorded on the Company’sbalance sheet.  At September 30, 2004, these warrants were “marked-to-market”using Black-Scholes and the change in the valuation of the warrants of$2,266,000 was recorded as other expense in the quarter. During the threemonths ended September 30, 2003, this “mark-to-market” adjustment resultedin $192,000 in expense.

 

9

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Other expense was increased to $3,023,000 for the first six months offiscal 2005 as compared to $284,000 in expense for the corresponding period ayear ago. Of these amounts $3,187,000 and $466,000, respectively, of expenserelated to the “mark-to-market” of outstanding warrants noted above.

 

The potential tax benefits on losses incurred in fiscal 2004 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 be realized. The Company,however, has made a provision for the alternative minimum tax and state taxesdue on the current quarter and year to date 2005 earnings.

 

The Company earned net income of $399,000 during the second quarter offiscal 2005 as compared to net income of $413,000 in the second quarter offiscal 2004.   The Company recognized a net loss of $76,000 in thefirst six months of fiscal 2005 as compared to net income of $533,000 in thefirst six months of fiscal 2004.  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 privateplacement offering have been and are being utilized for general corporatepurposes including debt repayment, capital expenditures, and investments inproduct development and working capital needs.  During the quarter ended September 30,2004, 36,000 of the above warrants were exercised.  Total proceeds fromthis exercise amounted to $847,000.

 

Cash, cash equivalents and short term investments increased by$4,284,000 to $24,946,000 at September 30, 2004 compared to $20,662,000 atMarch 31, 2004. This increase is primarily due to proceeds received fromthe exercise of employee stock options and warrants, somewhat offset by theinvestment of a new ERP system. Working capital increased by $8,870,000 (23%)since March 31, 2004, increasing from $38,524,000 to $47,394,000 at September 30,2004. This increase is primarily due to the increase in cash from the exerciseof options and warrants over the last six months, the increase in accountsreceivable due to a large milestone billing, and the increase in inventoryrequired to meet future orders.

 

On August 11, 2003, the Company entered into two new creditagreements with Silicon Valley Bank East replacing its HSBC Bank USA creditagreements that expired on July 31, 2003.  The first agreement is a$5.0 million domestic loan and security agreement to support the Company’sroutine working capital needs.   Maximum borrowings for this line areset at the lower of (a) the sum of 80% of eligible domestic accounts receivableplus 10% of finished goods inventory up to $750,000, or; (b) $5 million. The second is a $20.0 million export loan and security agreement,guaranteed by the Export-Import Bank of the United States to support theCompany’s overseas contract, trade finance and working capital needs. At September 30,2004, the Company had available a $5.0 million domestic line of credit, as wellas $20.0 million export line of credit.

 

The credit facilities bear an interest rate of the greater of 4.25% orthe Silicon Valley Bank prime rate (4.75 % at September 30, 2004) and havean expiration date of November 30, 2004.** **The credit agreements are collateralized by certain assets of the Company andcontain certain restrictions, including limitations on the amount ofdistributions that can be made to stockholders, and the disposition orencumbrances of assets, and require the maintenance of certain financialcovenants. As of September 30, 2004, the Company was in compliance withthese covenants. The Company is in the process of renewing both the domesticand export and security agreement facilities with Silicon Valley Bank for anadditional two years.  The new credit facility, which will reduce theexport loan and security agreement from $20.0 million to $10.0 million, isexpected to be in place on December 1, 2004.

 

At September 30, 2004, there were no borrowings outstanding and$156,000 in standby letters of credit were in effect against this creditfacility guaranteeing performance on certain large international cargoprojects.   In addition, the Company had outstanding $365,000 instandby letters of credit with HSBC Bank USA, which have been collateralizedwith cash.  No amounts have been drawn against these letters of credit.

 

The Company believes that its existing cash and short-term investmentscombined with cash generated from operations and amounts available under itscredit facilities are adequate to finance its operating and capitalrequirements for fiscal 2005.

 

New Accounting Pronouncements:

 

On March 31, 2004, the FASB issued an exposure draft No. 1102-100,Proposed Statement of Financial Accounting Standards-Share-Based Payment,effective for fiscal 2006. This exposure draft outlines a methodology for theaccounting treatment of stock options and certain other share-based payments.It requires these payments to be recorded as an operating expense. The exposuredraft is proposed to supercede SFAS 123, which allowed for footnote disclosureof this expense. Currently, the Company uses the Black-Scholes model for optionexpense calculation for footnote disclosure. The Company’s proforma expensecalculated for this disclosure was $1,309,000 and $1,421,000 for the periodended September 30, 2004, and 2003, respectively. The Company is currentlyevaluating the impact of this proposed pronouncement on its consolidatedfinancial statements.

 

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In March 2004, the Emerging Issues Task Force (EITF) reached aconsensus on EITF Issue No. 03-6, Participating Securities and the Two-ClassMethod under FASB Statement No. 128, Earnings per Share.  EITF Issue No.03-6 clarifies what constitutes a participating security and provides furtherguidance in applying the two-class method of calculating earnings per share.The consensuses reached by the Task Force on EITF Issue No. 03-6 were ratifiedby the FASB on March 31, 2004, and are effective for reporting periodsbeginning after March 31, 2004. The Company has reviewed the issue andconcluded that it has no participating securities as defined by EITF Issue No.03-6.

 

In March 2004, the Emerging Issues TaskForce (EITF) reached a consensus on the remaining portions of EITF 03-01, TheMeaning of Other-Than-Temporary Impairment and Its Application to CertainInvestments with an effective date of June 15, 2004. EITF 03-01 providesnew disclosure requirements for other-than-temporary impairments on debt andequity investments. Investors are required to disclose quantitative informationabout: (i) the aggregate amount of unrealized losses, and (ii) the aggregaterelated fair values of investments with unrealized losses, segregated into timeperiods during which the investment has been in an unrealized loss position ofless than 12 months and greater than 12 months. In addition, investors arerequired to disclose the qualitative information that supports their conclusionthat the impairments noted in the qualitative disclosure are not other-thantemporary. The adoption of this statement did not have an impact on the Company’sconsolidated financial statements.

 

**Item 3 - Quantitativeand Qualitative Disclosures About Market Risk**

 

The Company is subject to interest rate risk on its credit facilitiesthat have variable interest rates tied to the Prime Rate.  As of September 30,2004, the Company had no variable interest rate debt outstanding.

 

The cash accounts for the Company’s operations in Singapore, Hong Kong,England, and Abu Dhabi are maintained in Singapore dollars, Hong Kong dollars,pounds sterling and dirhams, respectively.  Foreign currency accounts aremarked to market at current rates that resulted in immaterial translation adjustmentsto stockholders’ equity.  The gains and losses from foreign currencytransactions are included in the statement of operations for the period andwere also immaterial.  A hypothetical 10% change in foreign currency rateswould not have a material impact on the Company’s results of operations,financial position or cash flows.

 

As of September 30, 2004, the Company held short-term investmentsconsisting of money market funds, commercial paper and U.S. Government andgovernment agency bonds.  The Company’s primary objective with itsinvestment portfolio is to invest available cash while preserving principal andmeeting liquidity needs. These investments have an average interest rate of1.6% and are subject to interest rate risk. As a result of the average maturityand conservative nature of the investment portfolio, a sudden decline ininterest rates would not have a material effect on the value of theseinvestments.

 

In fiscal 2003, the Company issued 295,475 warrants in connection witha private placement offering of common stock.  These warrants can beexchanged for cash under certain circumstances including a merger, sale ortender offer of the Company and as such a liability equal to Black-Scholesvalue of the warrants is recorded on the balance sheet.  During the periodended September 30, 2004, 36,000 of these warrants were exercised. Total remaining warrants left to be exercised as of September 30, 2004 are259,475. Changes in the fair value of the warrants are recorded as other income(expense).  The Black-Scholes value of these warrants can fluctuatesignificantly based on the current fair market value of the Company’s commonstock.  A 10% change in the fair market value of the Company’s commonstock, holding other assumptions constant, would have approximately a $718,000effect on earnings.

 

**Item 4 - Controls andProcedures**

 

a)              Evaluation ofdisclosure controls and procedures.

 

As of the end of the period covered by this report, under thesupervision and with the participation of our management, including our ChiefExecutive Officer and Chief Financial Officer, the Company reviewed andevaluated the effectiveness of the Company’s disclosure controls and procedurespursuant to Rule 13a-15(e) and 15d-15e) of the Securities Exchange Act of 1934as amended (the “Exchange Act”. Based upon their evaluation, our ChiefExecutive Officer and our Chief Financial Officer concluded that our disclosurecontrols and procedures were effective to provide reasonable assurance thatinformation required to be disclosed by the Company in the reports filed andsubmitted by it under the Exchange Act is recorded, processed, summarized andreported within the time period specified in the Securities and ExchangeCommission’s rules and forms, and to provide reasonable assurance thatinformation required to be disclosed by the Company in such reports isaccumulated and communicated to the Company’s management, including its ChiefExecutive Officer and Chief Financial Officer, as appropriate to allow timelydecisions regarding required disclosure.

 

b)             Changes in internalcontrols

 

There have been no changes in our internal controls over financialreporting as defined in Rule 13a-15(f) and 15d-15(f) of the Securities ExchangeAct of 1934 during the period covered by this report that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrols over financial reporting.

 

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**PART II – OTHERINFORMATION**

 

**Item 1 – LegalProceedings**

 

In September 1998, the Company filed suit against EG&GAstrophysics Research Corp. (“EG&G”) in the U.S. District Court for theDistrict of Massachusetts in Boston, alleging that EG&G infringed upon atleast two patents owned by the Company and that EG&G had misappropriatedcertain trade secrets of the Company. EG&G denied these allegations andfiled counterclaims alleging that the patents-in-suit were not infringed and/orwere invalid. In May 2003, the Company and PerkinElmer, Inc. (theformer parent of EG&G) completed a settlement agreement which resolved allof the Company’s claims against EG&G through June 14, 2002, the datethat PerkinElmer sold EG&G to its new corporate parent, L-3 Communications,Inc, (“L-3”). Counterclaims as to any liability through the same date also werereleased. After completing this settlement, the litigation continued againstEG&G’s successor-in-interest, L-3, concerning any liability accrued afterthat date. Upon a determination that L-3 was not continuing the accusedinfringement, the Company moved to dismiss the case. In February 2004, theDistrict Court entered an order dismissing the Company’s claims with prejudiceand L-3’s counterclaims without prejudice. The Company covenanted not to sueL-3 for infringement by any current products of the two above-referencedpatents.

 

On or about February 19, 2004, L-3 filed a lawsuit against theCompany in the United States District Court for the District of Massachusetts,in Boston, seeking declaratory judgments of non-infringement and/or invalidityof two of the Company’s patents—United States Pat. No. 6,292,533 andNo. 5,903,623. The Company filed a motion to dismiss the litigation forlack of subject matter jurisdiction, but was denied. The Company has answeredL-3’s underlying complaint, vigorously opposing the plaintiff’snon-infringement and invalidity claims, and has begun relevant discovery.

 

The Company is also subject to various legal proceedings and claimsthat arise in the ordinary course of business. The Company currently believesthat resolving these matters will not have a material adverse impact on itsfinancial condition or results of operations.

 

**Item 4 - Submissionof Matters to a Vote of Security Holders**

 

At the special meeting in lieu of the annual meeting of Stockholders ofthe Company held on September 16, 2004, the stockholders of the Company(1) elected William E. Odom, Denis R. Brown, Roger P. Heinisch, Hamilton W.Helmer, Donald J. McCarren, Ernest J. Moniz, Carl W. Vogt  and Anthony R.Fabiano as directors of the Company to hold office for a one-year term and noother nominations were made; (2) ratified the appointment of PricewaterhouseCoopers LLP as our independentauditors for the fiscal year ending March 31, 2005.  The voteswere as follows:

 
| ** **                                                              | ** ** | **Votes For** | ** ** | **Votes  Withheld or  Opposed** | ** ** | **Abstentions** | ** ** |
|-------------------------------------------------------------------------|------------|---------------|------------|---------------------------------|------------|-----------------|------------|
|                                                                    |       |          |       |                            |       |            |       |
| (1) Election of Directors:                                              |       |          |       |                            |       |            |       |
| William E. Odom                                                         |       | 7,358,947     |       | 77,049                          |       |            |       |
| Denis R. Brown                                                          |       | 7,421,239     |       | 14,757                          |       |            |       |
| Roger P. Heinisch                                                       |       | 6,810,370     |       | 625,626                         |       |            |       |
| Hamilton W. Helmer                                                      |       | 7,402,916     |       | 33,080                          |       |            |       |
| Donald J. McCarren                                                      |       | 7,159,187     |       | 276,809                         |       |            |       |
| Ernest J. Moniz                                                         |       | 7,407,439     |       | 28,557                          |       |            |       |
| Carl W. Vogt                                                            |       | 7,379,511     |       | 56,485                          |       |            |       |
| Anthony R. Fabiano                                                      |       | 7,417,790     |       | 18,206                          |       |            |       |
|                                                                    |       |          |       |                            |       |            |       |
| 5) Ratification of PricewaterhouseCoopers  LLP as independent auditors. |       | 7,410,176     |       | 12,858                          |       | 12,962          |       |

 

**Item 6 - Exhibits andReports on Form 8-K**

 

(a)                                   Exhibits

 

 
| 31.1   |   | Certification by Principal Executive  Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|--------|--------|--------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                         |
| 31.2   |   | Certification by Principal Financial  Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |

 

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| 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)                                    Reportson Form 8-K

 
| Form 8-K |   | Dated September 29, 2004 announcing  that the Company had initiated action to transfer the listing of its  securities from the American Stock Exchange to the NASDAQ Stock Exchange. |
|----------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                                                                                                      |
| Form 8-K |   | Dated September 21, 2004 regarding the  entrance into a material definitive agreement.                                                                                               |
|     |   |                                                                                                                                                                                      |
| Form 8-K |   | Dated September 17, 2004 regarding the  entrance into a material definitive agreement.                                                                                               |
|     |   |                                                                                                                                                                                      |
| Form 8-K |   | Dated September 1, 2004 regarding the  entrance into a material definitive agreement.                                                                                                |
|     |   |                                                                                                                                                                                      |
| Form 8-K |   | Dated September 1, 2004 regarding the  entrance into a material definitive agreement.                                                                                                |
|     |   |                                                                                                                                                                                      |
| Form 8-K |   | Dated August 2, 2004 in connection  with the announcement of the first quarter financial results.                                                                                    |

 

The information required by Exhibit Item 11 (Statement re: Computationof Income per Common and Common Equivalent Share) may be found in Footnote No.3 on Page 7.

 

**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 15, 2005 |    /s/ Kenneth J. Galaznik |   |
|                          |                                      | Kenneth J. Galaznik |
|                          |                                      | Chief Financial Officer and Treasurer |

 

*Safe Harbor Statement*

 

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

 

*The Company wishes to caution readers of thisForm 10-Q/A that actual results might differ materially from those projected inany forward-looking statements.*

 

*Factors which might cause actual results todiffer materially from those projected in the forward-looking statementscontained herein include the following: significant reductions or delays inprocurements of the Company’s systems by the United States and othergovernments; disruption in the supply of any source component incorporated intoAS&E’s products; litigation seeking to restrict the use of intellectualproperty used by the Company; potential product liability claims against theCompany; global political trends and events which affect public perception ofthe threat presented by drugs, explosives and other contraband; global economicdevelopments and the ability of governments and private organizations to fundpurchases of the Company’s products to address such threats; and the potentialinsufficiency of Company resources, including human resources, capital, plantand equipment and management system, to accommodate any future growth, andfuture delays in federal funding. These and certain other factors which mightcause actual results to differ materially from those projected are more fullyset forth under the caption “Forward-Looking Information and Factors AffectingFuture Performance” in the Company’s Annual Report on Form 10-Kfor the yearended March 31, 2004.*

 

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