Table of Contents

 

 

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 
| **(****Mark One)**                                          |
|-------------------------------------------------------------|
|                                                        |
| **x**                                                       | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                        |   |   |
| **For the quarterly period ended  September 30, 2009** |
|                                                        |   |   |
| **OR**                                                      |
|                                                        |   |   |
| **o**                                                       | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**Forthe transition period from      to      **

 

**Commission File Number 1-6549**

 

**American Science and Engineering, Inc.**

(Exact name ofRegistrant 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 areacode)

 

 

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

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days.  Yes x No o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)during the preceding 12 months (or for such shorter period that the registrantwas required to submit and post such files). Yes o No o

 

Indicate by check mark whetherthe registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

| Large accelerated filero                       |   | Accelerated filer x          |
|------------------------------------------------|--------|------------------------------|
|                                           |   |                         |
| Non-accelerated  filero                        |   | Smaller  reporting company o |
| (Do not check if  a smaller reporting company) |   |                         |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theSecurities Exchange Act of 1934).  Yes o No x

 

The number of shares ofthe registrant’s common stock, $0.66 2/3 par value, outstanding as of November 2,2009 was 8,890,909.

 

 

 

----

Table of Contents

 

**TABLEOF CONTENTS**

 
| **Part I —  Financial Information**                                                                                                           |   |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| Item 1 —  Financial Statements                                                                                                                     |   | 3      |
| Unaudited  Condensed Consolidated Balance Sheets—September 30, 2009 and  March 31, 2009                                                  |   | 3      |
| Unaudited Condensed Consolidated  Statements of Operations—For the Three and Six Months Ended  September 30, 2009 and September 30, 2008 |   | 4      |
| Unaudited Condensed  Consolidated Statements of Cash Flows—For the Six Months Ended  September 30, 2009 and September 30, 2008           |   | 5      |
| Notes to Unaudited Condensed Consolidated Financial  Statements                                                                                         |   | 6      |
| Item 2 — Management’s Discussion and Analysis of  Financial Condition and Results of Operations                                               |   | 13     |
| Item 3 — Quantitative and Qualitative Disclosure About  Market Risk                                                                                |   | 16     |
| Item 4 — Controls and Procedures                                                                                                                   |   | 16     |
| **Part II  — Other Information**                                                                                                              |   |   |
| Item  1— Legal Proceedings                                                                                                                         |   | 17     |
| Item  1A—Risk Factors                                                                                                                              |   | 17     |
| Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds                                                                               |   | 17     |
| Item 4 — Submission of Matters to a Vote of Security  Holders                                                                                      |   | 17     |
| Item 6 —  Exhibits                                                                                                                                 |   | 17     |
| **Signatures**                                                                                                                                          |   | 18     |

 

2

----

Table of Contents

 

**PART I— FINANCIAL INFORMATION**

**ITEM1 — FINANCIAL STATEMENTS**

 

**AMERICANSCIENCE AND ENGINEERING, INC. AND SUBSIDIARY**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

 
| **(In thousands, except share and  per share amounts)**                                                                                                                                    | ** ** | **September 30,  2009** | ** ** | **March 31,********2009** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|--------------------------------|------------|
| **Assets**                                                                                                                                                                                 | ** ** | ** **                   | ** ** | ** **                     | ** ** |
| Current  assets:                                                                                                                                                                           |       |                         |       |                           |       |
| Cash  and cash equivalents                                                                                                                                                                 |       | $                            | 55,220     |                           | $          | 105,419 |   |
| Restricted  cash and investments                                                                                                                                                           |       | 1,009                        |       | 35                             |       |
| Short-term  investments, at fair value                                                                                                                                                     |       | 92,101                       |       | 36,384                         |       |
| Accounts  receivable, net of allowances of $296 and $286 at September 30, 2009 and  March 31, 2009, respectively                                                                 |       | 31,479                       |       | 36,956                         |       |
| Unbilled  costs and fees                                                                                                                                                                   |       | 1,814                        |       | 6,316                          |       |
| Inventories                                                                                                                                                                                |       | 43,020                       |       | 47,975                         |       |
| Prepaid  expenses and other current assets                                                                                                                                                 |       | 7,494                        |       | 7,224                          |       |
| Deferred  income taxes                                                                                                                                                                     |       | 1,321                        |       | 1,807                          |       |
| **Total current assets**                                                                                                                                                                   |       | 233,458                      |       | 242,116                        |       |
| Restricted  cash and investments                                                                                                                                                           |       | 858                          |       | —                         |       |
| Building,  equipment and leasehold improvements, net                                                                                                                                       |       | 18,627                       |       | 19,488                         |       |
| Deferred  income taxes                                                                                                                                                                     |       | 5,463                        |       | 5,290                          |       |
| Other  assets, net                                                                                                                                                                         |       | 1,307                        |       | 1,393                          |       |
| **Total assets**                                                                                                                                                                           |       | $                            | 259,713    |                           | $          | 268,287 |   |
|                                                                                                                                                                                       |       |                         |       |                           |       |
| **Liabilities and Stockholders’ Equity**                                                                                                                                              | ** ** | ** **                   | ** ** | ** **                     | ** ** |
| Current  liabilities:                                                                                                                                                                      |       |                         |       |                           |       |
| Accounts  payable                                                                                                                                                                          |       | $                            | 9,119      |                           | $          | 10,639 |   |
| Accrued  salaries and benefits                                                                                                                                                             |       | 6,201                        |       | 10,387                         |       |
| Accrued  warranty costs                                                                                                                                                                    |       | 891                          |       | 1,130                          |       |
| Accrued  income taxes                                                                                                                                                                      |       | 1,683                        |       | 63                             |       |
| Deferred  revenue                                                                                                                                                                          |       | 11,832                       |       | 28,003                         |       |
| Customer  deposits                                                                                                                                                                         |       | 17,921                       |       | 14,818                         |       |
| Current  portion of lease financing liability                                                                                                                                              |       | 1,238                        |       | 1,163                          |       |
| Other  current liabilities                                                                                                                                                                 |       | 2,765                        |       | 6,893                          |       |
| **Total current liabilities**                                                                                                                                                              |       | 51,650                       |       | 73,096                         |       |
| Lease  financing liability, net of current portion                                                                                                                                         |       | 7,728                        |       | 8,377                          |       |
| Other  long term liabilities                                                                                                                                                               |       | 2,956                        |       | 4,748                          |       |
| **Total liabilities**                                                                                                                                                                      |       | 62,334                       |       | 86,221                         |       |
|                                                                                                                                                                                       |       |                         |       |                           |       |
| **Stockholders’ equity:**                                                                                                                                                             | ** ** | ** **                   | ** ** | ** **                     | ** ** |
| Preferred  stock, no par value, 100,000 shares authorized; no shares issued                                                                                                                |       | —                       |       | —                         |       |
| Common  stock, $0.66 2/3 par value, 20,000,000 shares authorized; 8,858,091 and  8,810,760 shares issued and outstanding at September 30, 2009 and  March 31, 2009, respectively |       | 5,905                        |       | 5,873                          |       |
| Capital  in excess of par value                                                                                                                                                            |       | 87,255                       |       | 86,477                         |       |
| Accumulated  other comprehensive income (loss) net                                                                                                                                         |       | (36                          | )          | (47                            | )          |
| Retained  earnings                                                                                                                                                                         |       | 104,255                      |       | 89,763                         |       |
| **Total stockholders’ equity**                                                                                                                                                        |       | 197,379                      |       | 182,066                        |       |
| **Total liabilities and stockholders’ equity**                                                                                                                                        |       | $                            | 259,713    |                           | $          | 268,287 |   |

 

The accompanying notes are an integral part of thesecondensed consolidated financial statements.

 

3

----

Table of Contents

 

**AMERICANSCIENCE AND ENGINEERING, INC. AND SUBSIDIARY**

**CONDENSED CONSOLIDATED STATEMENTS OFOPERATIONS**

**(Unaudited)**

** **
| ** **                                    | ** ** | **Three Months Ended**       | ** **   | **Six Months Ended**         | ** ** |
|-----------------------------------------------|------------|------------------------------|--------------|------------------------------|------------|
| **(In thousands, except per share amounts)**  | ** ** | **September 30,  2009** | ** **   | **September 30,  2008** | ** ** | **September 30,  2009** | ** ** | **September 30,  2008** | ** ** |
| **Net sales and contract revenues:**          | ** ** | ** **                   | ** **   | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net  product sales and contract revenues      |       | $                            |  42,189 |                         | $          |  38,362 |   | $ |  76,973 |   | $ |  61,304 |   |
| Net  service revenues                         |       | 19,059                       |         | 17,931                       |       | 38,967 |   | 34,483 |   |
| Total  net sales and contract revenues        |       | 61,248                       |         | 56,293                       |       | 115,940 |   | 95,787 |   |
| ** **                                    |       |                         |         |                         |       |   |   | ** ** |   |
| **Cost of sales and contracts:**              |       |                         |         |                         |       |   |   | ** ** |   |
| Cost  of product sales and contracts          |       | 21,790                       |         | 22,082                       |       | 40,734 |   | 37,868 |   |
| Cost  of service revenues                     |       | 10,004                       |         | 11,684                       |       | 20,132 |   | 20,863 |   |
| Total  cost of sales and contracts            |       | 31,794                       |         | 33,766                       |       | 60,866 |   | 58,731 |   |
| **Gross profit**                              |       | 29,454                       |         | 22,527                       |       | 55,074 |   | 37,056 |   |
| ** **                                    |       |                         |         |                         |       |   |   | ** ** |   |
| **Expenses:**                                 |       |                         |         |                         |       |   |   | ** ** |   |
| Selling,  general and administrative expenses |       | 8,009                        |         | 7,394                        |       | 16,711 |   | 15,093 |   |
| Research  and development costs               |       | 4,951                        |         | 4,176                        |       | 10,757 |   | 7,739 |   |
| Total  operating expenses                     |       | 12,960                       |         | 11,570                       |       | 27,468 |   | 22,832 |   |
| **Operating income**                          |       | 16,494                       |         | 10,957                       |       | 27,606 |   | 14,224 |   |
| ** **                                    |       |                         |         |                         |       |   |   | ** ** |   |
| **Other income (expense):**                   |       |                         |         |                         |       |   |   | ** ** |   |
| Interest  and investment income               |       | 138                          |         | 685                          |       | 303 |   | 1,636 |   |
| Interest  expense                             |       | (33                          | )            | (37                          | )          | (66 | ) | (74 | ) |
| Other,  net                                   |       | (18                          | )            | (104                         | )          | 112 |   | (83 | ) |
| Total  other income (expense)                 |       | 87                           |         | 544                          |       | 349 |   | 1,479 |   |
| ** **                                    |       |                         |         |                         |       |   |   |   |   |
| **Income before provision for income taxes**  |       | 16,581                       |         | 11,501                       |       | 27,955 |   | 15,703 |   |
| Provision  for income taxes                   |       | 5,886                        |         | 4,140                        |       | 9,924 |   | 5,653 |   |
| **Net income**                                |       | $                            |  10,695 |                         | $          |  7,361 |   | $ |  18,031 |   | $ |  10,050 |   |
| ** **                                    |       |                         |         |                         |       |   |   |   |   |   |   |   |   |
| **Income per share - Basic**                  |       | $                            |  1.21   |                         | $          |  0.85 |   | $ |  2.04 |   | $ |  1.16 |   |
| **Income per share - Diluted**                |       | $                            |  1.18   |                         | $          |  0.83 |   | $ |  2.00 |   | $ |  1.13 |   |
| **Weighted average shares — Basic**      |       | 8,857                        |         | 8,650                        |       | 8,836 |   | 8,682 |   |
| **Weighted average shares — Diluted**    |       | 9,064                        |         | 8,893                        |       | 9,037 |   | 8,901 |   |
| **Dividends declared per share**              |       | $                            |  0.20   |                         | $          |  0.20 |   | $ |  0.40 |   | $ |  0.40 |   |

 

The accompanying notes are an integral part of thesecondensed consolidated financial statements.

 

4

----

Table of Contents

 

**AMERICANSCIENCE AND ENGINEERING, INC. AND SUBSIDIARY**

**CONDENSED CONSOLIDATED STATEMENTS OFCASH FLOWS**

**(Unaudited)**

 
| ** **                                                                                 | ** ** | **For the Six Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| **(In thousands)**                                                                         | ** ** | **September 30,  2009**           | ** ** | **September 30,********2008** | ** ** |
| **Cash flows from operating activities:**                                                  | ** ** | ** **                             | ** ** | ** ** | ** ** |
| Net  income                                                                                |       | $                                      | 18,031     |   | $ | 10,050 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities:         |       |                                   |       |   |   |
| Depreciation  and amortization                                                             |       | 2,251                                  |       | 2,142 |   |
| Provisions  for contracts, inventory and accounts receivable reserves                      |       | 948                                    |       | 935 |   |
| Amortization  of bond (discount) premium                                                   |       | 207                                    |       | (336 | ) |
| Deferred  income taxes                                                                     |       | 313                                    |       | (1,173 | ) |
| Stock  compensation expense                                                                |       | 2,658                                  |       | 2,238 |   |
| Changes  in assets and liabilities:                                                        |       |                                   |       |   |   |
| Accounts  receivable                                                                       |       | 5,455                                  |       | (11,332 | ) |
| Unbilled  costs and fees                                                                   |       | 4,502                                  |       | 3,865 |   |
| Inventories                                                                                |       | 4,029                                  |       | (2,605 | ) |
| Prepaid  expenses and other assets                                                         |       | (184                                   | )          | (4,810 | ) |
| Accounts  payable                                                                          |       | (1,520                                 | )          | (1,790 | ) |
| Accrued  income taxes                                                                      |       | 1,620                                  |       | 2,823 |   |
| Customer  deposits                                                                         |       | 3,103                                  |       | 10,288 |   |
| Deferred  revenue                                                                          |       | (17,945                                | )          | (1,943 | ) |
| Accrued  expenses and other liabilities                                                    |       | (8,099                                 | )          | (92 | ) |
| Sale  of leased asset                                                                      |       | —                                 |       | 116 |   |
| Net  cash provided by operating activities                                                 |       | 15,369                                 |       | 8,376 |   |
|                                                                                       |       |                                   |       |   |   |
| **Cash flows from investing activities:**                                                  | ** ** | ** **                             | ** ** | ** ** | ** ** |
| Purchases  of short-term investments                                                       |       | (102,178                               | )          | (38,943 | ) |
| Proceeds  from maturities of short-term investments                                        |       | 46,265                                 |       | 61,250 |   |
| Purchases  of property and equipment                                                       |       | (1,390                                 | )          | (793 | ) |
| Net  cash (used for) provided by investing activities                                      |       | (57,303                                | )          | 21,514 |   |
|                                                                                       |       |                                   |       |   |   |
| **Cash flows from financing activities:**                                                  | ** ** | ** **                             | ** ** | ** ** | ** ** |
| Increase  in restricted cash and investments                                               |       | (1,832                                 | )          | (16,088 | ) |
| Proceeds  from exercise of stock options                                                   |       | 545                                    |       | 1,967 |   |
| Repurchase  of shares of common stock                                                      |       | (2,922                                 | )          | (11,398 | ) |
| Repayment  of leasehold financing                                                          |       | (574                                   | )          | (565 | ) |
| Payment  of common stock dividend                                                          |       | (3,539                                 | )          | (3,509 | ) |
| Reduction  of income taxes paid due to the tax benefit from employee stock option  expense |       | 57                                     |       | 331 |   |
| Net  cash used for financing activities                                                    |       | (8,265                                 | )          | (29,262 | ) |
|                                                                                       |       |                                   |       |   |   |
| Net  (decrease) increase in cash and cash equivalents                                      |       | (50,199                                | )          | 628 |   |
| Cash  and cash equivalents at beginning of period                                          |       | 105,419                                |       | 52,418 |   |
| Cash  and cash equivalents at end of period                                                |       | $                                      | 55,220     |   | $ | 53,046 |   |

 

The accompanying notes are an integral part of thesecondensed consolidated financial statements.

 

5

----

Tableof Contents

 

**AMERICANSCIENCE AND ENGINEERING, INC. AND SUBSIDIARY**

**NOTES TO UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

 

**1.   GENERAL**

 

The condensedconsolidated financial statements include the accounts of the Company and itswholly owned subsidiary. All significant intercompany transactions and balanceshave been eliminated.

 

The unauditedcondensed consolidated financial statements have been prepared in accordance withthe requirements of Form 10-Q and consequently do not include alldisclosures required by Form 10-K. These condensed consolidated financialstatements should be read in conjunction with the consolidated financialstatements and the notes included in the Company’s Annual Report on Form 10-Kfor the fiscal year ended March 31, 2009.

 

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

 

**Nature of Operations**

 

The Company isengaged in the development and manufacture of sophisticated X-ray inspectionsystems for critical detection and security screening solutions for saleprimarily to U.S. and foreign government agencies.  The Company has onlyone reporting segment, X-ray screening products.

 

**Significant Accounting Policies**

 

For systems thatare produced in a standard manufacturing operation and have shorter order todelivery cycles, the Company recognizes sales at the time of shipment of thesystem to the customer and when other revenue recognition criteria (such astransfer of risk) are met.  Revenues oncost reimbursable and long-term fixed price contracts are generally recorded ascosts are incurred using the percentage of completion method.

 

The othersignificant accounting policies followed by the Company and its subsidiary inpreparing its consolidated financial statements are set forth in Note 1 to theconsolidated financial statements included in its Form 10-K for the yearended March 31, 2009.  The Company has made no changes to these policiesduring the current year.

 

**Comprehensive Income**

 

Comprehensiveincome is comprised of the following:

 
| ** **                  | ** ** | **Three  Months Ended**            | ** ** | **Six Months Ended**     | ** ** |
|-----------------------------|------------|------------------------------------|------------|------------------------------------|------------|
| **(In thousands)**     | ** ** | **September 30,********2009** | ** ** | **September 30,********2008** | ** ** | **September 30,********2009** | ** ** | **September 30,********2008** | ** ** |
| Net  income                 |       | $                                  | 10,695     |                               | $          | 7,361 |   | $ | 18,031 |   | $ | 10,050 |   |
| Other  comprehensive income |       | 11                                 |       | (195                               | )          | 11 |   | (330 | ) |
| Comprehensive  income       |       | $                                  | 10,706     |                               | $          | 7,166 |   | $ | 18,042 |   | $ | 9,720 |   |

 

**StockRepurchase Program**

 

The Board of Directors approved a Stock RepurchaseProgram which authorized the Company to repurchase up to $35.0 million ofshares of its common stock from time to time on the open market.   During the three months ended September 30,2009, the Company did not purchase any shares under this Stock RepurchaseProgram.  During the quarter ended June 30,2009, a total of 51,299 shares were repurchased at an average price of $56.97per share.  As of September 30,2009, the maximum dollar value of shares that may still be purchased under theprogram is $23,807,000.

 

**Dividends**

 
| ** **              | ** ** | **Three Months Ended**   | ** ** | **Six Months Ended**     | ** ** |
|-------------------------|------------|------------------------------------|------------|------------------------------------|------------|
| **(In thousands)** | ** ** | **September 30,********2009** | ** ** | **September 30,********2008** | ** ** | **September 30,********2009** | ** ** | **September 30,********2008** | ** ** |
| Dividends  declared     |       | $                                  | 0.20       |                               | $          | 0.20 |   | $ | 0.40 |   | $ | 0.40 |   |
| Dividends  paid         |       | $                                  | 0.20       |                               | $          | 0.20 |   | $ | 0.40 |   | $ | 0.40 |   |

 

6

----

Tableof Contents

 

On November 4, 2009, the Company’s Board ofDirectors declared a cash dividend of $0.20 per share. The dividend will bepaid on December 3, 2009 to all shareholders of record at the close ofbusiness on November 23, 2009. Future dividends will be declared at the discretion of the Board ofDirectors and will depend upon such factors as the Board of Directors deemsrelevant.

 

**Concentrationsof Credit Risk**

 

Financial instruments,which potentially subject the Company to concentrations of credit risk, consistprimarily of cash and cash equivalents, investments and accounts and unbilledreceivables.  At times, the Companymaintains cash balances in excess of insured limits. The Company maintains itscash and cash equivalents with major financial institutions.  The Company’s credit risk is managed byinvesting its cash in high quality U.S. treasury bills, high quality moneymarket funds, commercial paper, investment grade corporate debentures / bondsand certificates of deposit.

 

**RecentAccounting Changes**

 

InJune 2009, the Financial Accounting Standards Board (“FASB”) issued FASBAccounting Standards Codification (“FASB ASC”) 105,  *Generally Accepted AccountingPrinciples*, which establishes the FASB Accounting StandardsCodification as the sole source of authoritative generally accepted accountingprinciples. Pursuant to the provisions of FASB ASC 105, the Company has updatedreferences to generally accepted accounting principles (“GAAP”) in itsfinancial statements issued for the period ended September 30, 2009. Theadoption of FASB ASC 105 did not impact the Company’s financial position orresults of operations.

 

In September 2006,the FASB issued FASB ASC 820-10, *Fair Value Measurements and Disclosures*.  FASBASC 820-10 establishes a common definition for fair value to be applied,establishes a framework for measuring fair value in accordance with generallyaccepted accounting principles, and expands disclosure about such fair valuemeasurements. The Company adopted the required provisions of FASB ASC 820-10 that became effectivein our first quarter of fiscal 2009. The adoption of these provisions did nothave a material impact on our Consolidated Financial Statements. For furtherinformation about the adoption of the required provisions of FASB ASC 820-10 see Note 6.

 

In February 2008,the FASB issued FASB ASC 820-10-65-1,*Fair Value Measurements andDisclosures*.  FASB ASC 820-10-65-1 delayed theeffective date of FASB ASC 820-10 fornonfinancial assets and nonfinancial liabilities, except for certain items thatare recognized or disclosed at fair value in the financial statements on arecurring basis (at least annually) until fiscal years beginning after November 15,2008, and interim periods within those fiscal years. The Company adopted theprovisions of FASB ASC 820-10 fornonfinancial assets and nonfinancial liabilities effective April 1,2009.  The adoption of these provisionsdid not have a material impact on our Consolidated Financial Statements.

 

In June 2008,the FASB issued FASB ASC 260-10-55-76C,*Earnings per Share — Implementation Guidance*,effective for fiscal years beginning after December 15, 2008.  FASB ASC 260-10-55-55-76C clarifiesthat unvested share-based awards that contain nonforfeitable rights todividends or dividend equivalents (whether paid or unpaid) are participatingsecurities and must be included in the computation of EPS pursuant to thetwo-class method. The Company adopted the provisions of FASB ASC 260-10-55-55-76C effective April 1, 2009 andcalculated the impact of this adoption on prior periods.  The adoption of FASB ASC 260-10-55-55-76C did not have a material impact onreported earnings per share.

 

In June 2008,the FASB issued FASB ASC 815-40-15*Derivatives and Hedging*. FASB ASC 815-40-15 addresses the determination of whetherprovisions that introduce adjustment features (including contingent adjustmentfeatures) would prevent treating a derivative contract or an embeddedderivative on a company’s own stock as indexed solely to the company’s stock. FASB ASC 815-40-15 is effective forfiscal years beginning after December 15, 2008. The Company adopted theprovisions of FASB ASC 815-40-15effective April 1, 2009.  Theadoption of these provisions did not have a material impact on our ConsolidatedFinancial Statements.

 

**2.  ACCOUNTING FOR STOCK-BASED COMPENSATION**

 

The Companyaccounts for stock based awards made to employees and its Board of Directors inaccordance with FASB ASC 718, *Compensation—Stock Compensation*, which requires themeasurement and recognition of all compensation costs for stock based awardsmade to employees and the Board of Directors based upon fair value over therequisite service period for awards expected to vest.

 

The Companyrecognized $1,438,000 and $1,273,000 of share-based compensation costs in theconsolidated statements of income for the three months ended September 30,2009 and September 30, 2008, respectively. The Company recognized $2,658,000and $2,238,000 of share-based compensation costs in the consolidated statementsof income for the six months ended September 30, 2009 and September 30,2008, respectively. The income tax benefit recognized related to thiscompensation for the three months ended September 30, 2009 and September 30,2008 was approximately $510,000 and $451,000, respectively. The income taxbenefit related to this compensation for the six months ended September 30,2009 and September 30, 2008 was approximately $940,000 and $788,000,respectively.

 

7

----

Table of Contents

 

The followingtable summarizes share-based compensation costs included in the Company’sconsolidated statement of income:

 
| ** **                                         | ** ** | **Three  Months Ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------------|------------|-------------------------|------------|--------------------------------|------------|
| ** **                                         | ** ** | **September 30,**  | ** ** | **September 30,**         | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| **(In thousands)**                            | ** ** | **2009**                |       | **2008**                       |       | **2009** |   | **2008** |   |
| Cost  of revenues                                  |       | $                       | 199        |                           | $          | 195 |   | $ | 408 |   | $ | 250 |   |
| Selling,  general and administrative               |       | 1,239                   |       | 1,078                          |       | 2,250 |   | 1,988 |   |
| Total  share-based compensation expense before tax |       | $                       | 1,438      |                           | $          | 1,273 |   | $ | 2,658 |   | $ | 2,238 |   |

 

The Company usesthe Black-Scholes option pricing model as the most appropriate method fordetermining the estimated fair value for the stock awards. The Black-Scholesmethod of valuation requires several assumptions: (1) the expected term ofthe stock award, (2) the expected future stock volatility over theexpected term and (3) a risk-free interest rate. The expected term representsthe expected period of time the Company believes the options will beoutstanding based on historical information. Estimates of expected future stockprice volatility are based on the historic volatility of the Company’s commonstock and the risk free interest rate is based on the U.S. Zero-Bond rate.

 

There were 63,993 and 57,407 options granted in the six month periodended September 30, 2009 and September 30, 2008, respectively.  The fair value of the options at date ofgrant was estimated with the following assumptions for grants made during theperiod presented:

 
| ** **               | ** ** | **Six  Months Ended**        | ** ** |
|--------------------------|------------|------------------------------|------------|
| ** **               | ** ** | **September 30,  2009** | ** ** | **September 30,  2008** | ** ** |
| **Assumptions:**         | ** ** | ** **                   | ** ** | ** ** | ** ** |
| Option  life             |       | 5 years                      |       | 5 years |   |
| Risk-free  interest rate |       | 2.4                          | %          | 2.9 | % |
| Stock  volatility        |       | 46                           | %          | 49 | % |
| Dividend  yield          |       | 1.24                         | %          | 1.18 | % |

 

**Stock Option and Other Compensation Plans**

 

The Company hasvarious stock option and other compensation plans for non-employee directors,officers, and employees. The Company had the following stock option plansoutstanding as of September 30, 2009: the 1995 Combination Plan, the 1997Non-Qualified Option Plan, the 1998 Non-Qualified Option Plan, the 1999Combination Plan, the 2000 Combination Plan, the 2002 Combination Plan, the2003 Stock Plan for Non-Employee Directors and the 2005 Equity and IncentivePlan. There are 3,980,000 shares authorized under these plans. As of September 30,2009, 372,640 shares remain available for future issuance under theseplans.  Vesting periods are at thediscretion of the Compensation Committee of the Board of Directors, or theirdesignee, and typically range between one and three years. Options under theseplans are granted at fair market value and have a term of five or ten yearsfrom the date of grant.

 

**Stock Options**

 

The followingtables summarize stock option activity for the six months ended September 30,2009.

 
| ** **                                         | ** ** | **Number of********Shares** | ** ** | **Weighted********Average********Exercise********Price** | ** ** | **Weighted********Average********Contractual********Life (years)** | ** ** | **Aggregate  Intrinsic********Value** | ** ** |
|----------------------------------------------------|------------|-----------------------------|------------|----------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|---------------------------------------|------------|
|                                               |       |                        |       |                                                     |       |                                                                    |       |                                  |       |
| **Options outstanding at March 31, 2009**     |       | 709,254                     | ** ** | $                                                        | 44.47      |                                                                    | 5.69       | ** **                            | ** ** |   |
| Grants                                             |       | 63,993                      |       | 64.28                                                    |       |                                                                    |       | $                                     | 240,000    |   |
| Exercises                                          |       | (15,840                     | )          | 34.37                                                    |       |                                                                    |       |                                  |       |
| Cancellations                                      |       | (350                        | )          | 53.55                                                    |       |                                                                    |       |                                  |       |
| **Options outstanding at September 30, 2009** |       | 757,057                     | ** ** | $                                                        | 46.35      |                                                                    | 5.34       |                                  |       |   |
| **Options exercisable at September 30, 2009** |       | 666,248                     | ** ** | $                                                        | 44.17      |                                                                    |       |                                  | $          | 15,901,000 |   |

 

Informationrelated to the stock options outstanding as of September 30, 2009 is asfollows:

 

8

----

Table of Contents

 
| **Range of Exercise Prices** | ** ** | **Number of********Shares** | ** ** | **Weighted-  Average********Remaining********Contractual********Life (years)** | ** ** | **Weighted-  Average******** Exercise Price** | ** ** | **Exercisable********Number of********Shares** | ** ** | **Exercisable********Weighted-  Average********Exercise Price** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|-------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|-----------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| $  6.50 - $20.00                  |       | 120,555                          |       | 3.53                                                                                |       | $                                                       | 12.44      |                                                | 120,555    |                                                                 | $          | 12.44 |   |
| $ 20.01  - $30.00                      |       | 70,384                           |       | 4.75                                                                                |       | 28.15                                                   |       | 70,384                                              |       | 28.15                                                                |       |
| $ 30.01  - $40.00                      |       | 54,606                           |       | 5.18                                                                                |       | 39.07                                                   |       | 54,606                                              |       | 39.07                                                                |       |
| $ 40.01  - $50.00                      |       | 95,333                           |       | 5.72                                                                                |       | 45.46                                                   |       | 95,333                                              |       | 45.46                                                                |       |
| $ 50.01  - $60.00                      |       | 157,198                          |       | 5.67                                                                                |       | 53.53                                                   |       | 145,613                                             |       | 53.68                                                                |       |
| $ 60.01  - $67.98                      |       | 258,981                          |       | 6.05                                                                                |       | 64.59                                                   |       | 179,757                                             |       | 64.89                                                                |       |
| $  6.50 - $67.98                  |       | 757,057                          |       | 5.34                                                                                |       | $                                                       | 46.35      |                                                | 666,248    |                                                                 | $          | 44.17 |   |

 

As of September 30,2009, there was approximately $1,733,000 of unrecognized compensation costsrelated to options granted. The unrecognized compensation will be primarilyrecognized over a period of a weighted average of 1.2 years.   Non-vested common stock options aresubject to the risk of forfeiture until the fulfillment of specifiedconditions.

 

**Restricted Stock and Restricted Stock Units**

 

The Company hasinstituted long term incentive plans for certain key employees. These planscall for the issuance of restricted stock which vests upon the achievement ofcertain performance based goals as well as service time incurred.  Restricted stock and restricted stock unitsmay also be granted to other employees with vesting periods that range from oneto three years.  In addition, annually onJanuary 10th each non-employee member of the Board ofDirectors is granted restricted stock. These restricted stock awards vest inequal monthly installments for each month of service performed.  The fair value of these restricted stockawards is equal to the market price per share of the Company’s common stock onthe date of grant.

 

Non-vestedrestricted stock and stock unit awards are subject to the risk of forfeitureuntil the fulfillment of specified conditions. As of September 30, 2009there was $6,084,000 of total unrecognized compensation cost related tonon-vested restricted stock and stock unit awards granted under the Company’sstock plans. This cost is expected to be recognized over a weighted average of1.5 years.

 

The followingtable summarizes the status of the Company’s non-vested restricted stock awardsfor the six months ended September 30, 2009:

 
| ** **                                 | ** ** | **Number of********Shares** | ** ** | **Weighted Average********Grant Date********Fair Value** | ** ** |
|--------------------------------------------|------------|----------------------------------|------------|-------------------------------------------------------------------------|------------|
| **Outstanding at March 31, 2009**     |       | 137,687                          | ** ** | $                                                                       | 56.74      |   |
| Granted                                    |       | 75,070                           |       | 61.45                                                                   |       |
| Vested                                     |       | (50,020                          | )          | 57.01                                                                   |       |
| Forfeited                                  |       | (200                             | )          | 55.60                                                                   |       |
| **Outstanding at September 30, 2009** |       | 162,537                          |       | $                                                                       | 58.83      | ** ** |

 

**3.****       ****INVENTORIES**

 

Inventoriesconsist of material, labor and manufacturing overhead and are recorded at thelower of cost, using the weighted average cost method, or net realizable value.Excessive manufacturing overhead costs attributable to idle facility expenses,freight, handling costs and wasted material (spoilage) attributable toabnormally low production volumes (levels that materially differ from budgetedproduction plans due primarily to changes in customer demand) are excluded frominventory and recorded as an expense in the period incurred.

 

The components ofinventories at September 30, 2009 and March 31, 2009 were as follows:

** **
| **(In thousands)**                                   | ** ** | **September 30,  2009** | ** ** | **March 31,********2009** | ** ** |
|-----------------------------------------------------------|------------|------------------------------|------------|--------------------------------|------------|
| Raw  materials, completed sub-assemblies, and spare parts |       | $                            | 21,467     |                           | $          | 20,527 |   |
| Work-in-process                                           |       | 13,632                       |       | 13,911                         |       |
| Finished  goods                                           |       | 7,921                        |       | 13,537                         |       |
| Total                                                     |       | $                            | 43,020     |                           | $          | 47,975 |   |

 

9

----

Tableof Contents

 

**4.   INCOME PER COMMON ANDCOMMON EQUIVALENT SHARE**

 

Basic earnings percommon share is computed by dividing net income available to commonstockholders by the weighted average number of shares of common stockoutstanding during the period.  Diluted earnings per share include thedilutive impact of options, restricted stock and restricted stock units usingthe average share price of the Company’s common stock for the period. For thethree months ended September 30, 2009 and September 30, 2008, commonstock equivalents of 94,000 and 269,000, respectively, are excluded fromdiluted earnings per share, as their effect is anti-dilutive.  For the six months ended September 30,2009 and September 30, 2008, common stock equivalents of 146,000 and339,000, respectively, are excluded from diluted earnings per share, as theireffect is anti-dilutive.

 
| ** **                                                                                      | ** ** | **Three  Months Ended**            | ** ** | **Six Months Ended**     | ** ** |
|-------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|------------------------------------|------------|
| **(In thousands except per share amounts)**                            | ** ** | **September 30,********2009** | ** ** | **September 30,********2008** | ** ** | **September 30,********2009** | ** ** | **September 30,********2008** | ** ** |
| **Income Per Share**                                                                            | ** ** | ** **                         | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                      | ** ** | ** **                         | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Basic:**                                                                                      | ** ** | ** **                         | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net  income                                                                                     |       | $                                  | 10,695     |                               | $          | 7,361 |   | $ | 18,031 |   | $ | 10,050 |   |
| Weighted  average number of common shares outstanding —basic                               |       | 8,857                              |       | 8,650                              |       | 8,836 |   | 8,682 |   |
| Net  income per share —basic                                                               |       | $                                  | 1.21       |                               | $          | 0.85 |   | $ | 2.04 |   | $ | 1.16 |   |
| ** **                                                                                      | ** ** | ** **                         | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Diluted:**                                                                                    | ** ** | ** **                         | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net  income                                                                                     |       | $                                  | 10,695     |                               | $          | 7,361 |   | $ | 18,031 |   | $ | 10,050 |   |
| Weighted  average number of common shares outstanding                                           |       | 8,857                              |       | 8,650                              |       | 8,836 |   | 8,682 |   |
| Assumed  exercise of stock options and restricted stock units, using the treasury  stock method |       | 207                                |       | 243                                |       | 201 |   | 219 |   |
| Weighted  average number of common and potential common shares outstanding—diluted         |       | 9,064                              |       | 8,893                              |       | 9,037 |   | 8,901 |   |
| Net  income per share —diluted                                                             |       | $                                  | 1.18       |                               | $          | 0.83 |   | $ | 2.00 |   | $ | 1.13 |   |

 

Note:  Earnings per share for the year may not equalthe sum of quarterly earnings per share due to changes in weighted sharecalculations.

 

 

**5.   LINE OF CREDIT**

 

On November 14,2008, the Company modified its Loan and Security Agreement with Silicon ValleyBank to extend the facility through November 13, 2009 and to increase thefacility from $20.0 million to $40.0 million to support the Company’sroutine letters of credit and working capital needs.  If the Company maintains a cash andinvestments balance of $60.0 million or greater, then the maximum amountavailable for borrowing under the facility is $40.0 million minus the amount ofall outstanding letters of credit less certain reserves, and minus theoutstanding principal balance of any advances. If the Company’s cash and investment balance falls below $60.0 millionfor a period of 30 consecutive days, then the maximum amount available forborrowings under the facility is the lesser of (i) $40.0 million, or (ii) 80%of eligible domestic accounts receivable minus the amount of outstandingletters of credits adjusted for certain reserves and minus the principalbalance of any advances.

 

The creditfacility bears an interest rate of the greater of 4.0% or the Silicon ValleyBank prime rate (4.0% at September 30, 2009). The credit agreement iscollateralized by certain assets of the Company and contains certainrestrictions, including limitations on the amount of distributions that can bemade to stockholders, and the disposition or encumbrances of assets, andrequires the maintenance of certain financial covenants.  As of September 30, 2009, the Companywas in compliance with these covenants.

 

The Company iscurrently in negotiations for a new facility expected to be finalized in November 2009prior to the expiration of the current line.

 

In the normalcourse of business, the Company may provide certain customers and potentialcustomers with performance guarantees, which are generally backed by standbyletters of credit. In general, the Company would only be liable for the amountof these guarantees in the event of default in the performance of our obligations;the probability of which management believes is low.   As of September 30, 2009, the Companyhad outstanding $39,385,000 in standby letters of credit against the Loan andSecurity Agreement with $615,000 remaining availability.  The outstanding letters of credit areprimarily for guaranteeing performance on certain international projects.   No amounts have been drawn against theseletters of credit. In addition at September 30, 2009, the Company had arestricted cash balance of $1,867,000 related to certain bank required depositsfor outstanding letters of credit issued in excess of amounts available underits loan facility and other bank related fees.

 

10

----

Table of Contents

 

**6.  FAIR VALUE MEASUREMENTS**

 

The Company hascategorized our financial assets, based on the priority of the inputs to thevaluation technique, into a three-level fair value hierarchy as set forthbelow. If the inputs used to measure the financial instruments fall withindifferent levels of the hierarchy, the categorization is based on the lowestlevel input that is significant to the fair value measurement of theinstrument.

 

Financial assetsrecorded on the Condensed Consolidated Balance Sheets are categorized based onthe inputs to the valuation techniques as follows:

 

**Level 1** - Financial assets whose values arebased on unadjusted quoted prices for identical assets or liabilities in anactive market that the Company has the ability to access at the measurementdate (examples include active exchange-traded equity securities, listedderivatives, and most U.S. Government and agency securities).

 

**Level 2** - Financial assets whose values arebased on quoted prices in markets where trading occurs infrequently or whosevalues are based on quoted prices of instruments with similar attributes inactive markets.  Level 2 inputs includethe following:

 

·             Quoted prices for identical or similar assets orliabilities in non-active markets (examples include corporate and municipalbonds which trade infrequently);

 

·             Inputs other than quoted prices that are observablefor substantially the full term of the asset or liability (examples includeinterest rate and currency swaps); and

 

·             Inputs that are derived principally from orcorroborated by observable market data for substantially the full term of theasset or liability (examples include certain securities and derivatives).

 

**Level 3** - Financial assets whose values are basedon prices or valuation techniques that require inputs that are bothunobservable and significant to the overall fair value measurement. Theseinputs reflect management’s own assumptions about the assumptions a marketparticipant would use in pricing the asset or liability. The Company currentlydoes not have any Level 3 financial assets or liabilities.

 

The followingtable presents the financial assets and liabilities we measure at fair value ona recurring basis, based on the fair value hierarchy as of September 30,2009:

 
| **(In thousands)**                            | ** ** | **September 30,  2009** | ** ** |
|----------------------------------------------------|------------|------------------------------|------------|
| **Level 1 — Financial Assets**                |       |                         |       |
| U.S.  Treasury bills                               |       | $                            | 34,940     |   |
| **Level 2 — Financial Assets**                |       |                         |       |
| Certificates  of deposit                           |       | 12,001                       |       |
| Commercial  paper                                  |       | 23,985                       |       |
| Money  market funds                                |       | 32,335                       |       |
| Corporate  debentures/bonds                        |       | 21,175                       |       |
| Total  Level 2 Financial Assets                    |       | 89,496                       |       |
| Total  cash equivalents and short-term investments |       | $                            | 124,436    |   |

 

These investmentsare classified as available-for-sale and are recorded at their fair marketvalue using the specific identification method. Realized gains and losses onthe sale of securities available-for-sale are determined using the specificidentification method and are reported as a separate component of other incomein the Statements of Income. Unrealized gains and losses are included as aseparate item in computing comprehensive income.

 
| **(In thousands)**          | ** ** | **Amortized  Cost** | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair Value** | ** ** |
|-----------------------------|------------|---------------------|------------|------------------------------|------------|-------------------------------|------------|----------------|------------|
| Money  market funds         |       | $                   | 32,335     |                         | $          | —                        |       | $              | —     |   | $ | 32,335 |   |
| Certificates  of deposit    |       | 12,001              |       | —                       |       | —                        |       | 12,001         |       |
| Commercial  paper           |       | 23,985              |       | —                       |       | —                        |       | 23,985         |       |
| Corporate  debentures/bonds |       | 21,168              |       | 24                           |       | (17                           | )          | 21,175         |       |
| U.S.  Treasury bills        |       | 34,924              |       | 17                           |       | (1                            | )          | 34,940         |       |
| Total                       |       | $                   | 124,413    |                         | $          | 41                            |       | $              | (18        | ) | $ | 124,436 |   |
| ** **                  |       |                |       |                         |       |                          |       |           |       |
| Classified  as:             |       |                |       |                         |       |                          |       |           |       |
| Cash  equivalents           |       |                |       |                         |       |                          |       | $              | 32,335     |   |
| Short  term investments     |       |                |       |                         |       |                          |       | 92,101         |       |
| Total                       |       |                |       |                         |       |                          |       | $              | 124,436    |   |

 

11

----

Tableof Contents

 

**7.   INCOME TAXES**

 

The Companyaccounts for income taxes in accordance with FASB ASC 740,*Income Taxes* and recognizes deferredincome taxes based on the expected future tax consequences of differencesbetween the financial statement basis and the tax basis of assets andliabilities, calculated using enacted tax rates in effect for the year in whichthe differences are expected to be reflected in the tax return. The Companyevaluates the need for a valuation allowance against its net deferred taxassets at year end based upon its three year cumulative income and itsprojections of future income, and records a valuation allowance against any netdeferred tax assets if it is more likely than not that they will not berealized.

 

The Company is currentlyopen to audit under the statute of limitations by the Internal Revenue Serviceand by state taxing authorities for the fiscal years ending March 31, 2006through 2009.  The Company has recently completed an audit by the InternalRevenue Service for tax years 2006 and 2007. The results of this examination didnot have a material impact on the Company’s financial position or results ofoperations.   The Company iscurrently under audit by the Massachusetts state taxing authorities for taxyears 2007 and 2008.  Management does notbelieve that the ultimate outcome of this examination will have a materialimpact on the Company’s financial position or results of operations.  TheCompany believes that there are no uncertain tax positions that required areserve as of September 30, 2009.

 

**8.     GUARANTEES**

 

Certain of theCompany’s products carry a one-year warranty, the costs of which are accruedfor at time of shipment or delivery.  Accrual rates are based uponhistorical experience over the preceding twelve months and management’sjudgment of future exposure.  Warranty experience for the three and sixmonths ended September 30, 2008 and 2009 is as follows:

 
| ** **                                        | ** ** | **Three  Months Ended**      | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------|------------|------------------------------|------------|--------------------------------|------------|
| **(In thousands)**                           | ** ** | **September 30,  2009** | ** ** | **September 30,  2008**   | ** ** | **September 30,  2009** | ** ** | **September 30,  2008** | ** ** |
| Warranty  accrual - beginning of period           |       | $                            | 808        |                           | $          | 1,711 |   | $ | 1,130 |   | $ | 1,671 |   |
| Accruals  for warranties issued during the period |       | 470                          |       | 1,155                          |       | 778 |   | 1,664 |   |
| Adjustment  of preexisting accrual estimates      |       | (239                         | )          | (455                           | )          | (694 | ) | (657 | ) |
| Warranty  costs incurred during the period        |       | (148                         | )          | (195                           | )          | (323 | ) | (462 | ) |
| Warranty  accrual — end of period            |       | $                            | 891        |                           | $          | 2,216 |   | $ | 891 |   | $ | 2,216 |   |

 

**9.   LEASE COMMITMENTS**

 

In March 2005,the Company renewed its lease agreement for its corporate headquarters andmanufacturing facilities in Billerica, Massachusetts.  As part of thelease agreement, the Company’s landlord agreed to certain renovations to theBillerica facility including the construction of additional high baymanufacturing space.  The Company was responsible for a portion of theconstruction costs and was deemed to be the owner of the building during theconstruction period under FASB ASC 840,*Leases.* In January 2007,the Company amended this lease agreement to expand its lease to include theremaining available space in the building.  A total of $7,182,000 wascapitalized to record the facility on its books with an offsetting credit tothe lease financing liability.  In addition, amounts paid for constructionwere capitalized to fixed assets and the landlord construction allowances of$6,009,000 were recorded as additional lease financing liability.

 

At the completionof the construction of the initial renovations in February 2006, the leasewas reviewed for potential sale-leaseback treatment in accordance with FASB ASC840-40,*Leases — Sale-Leaseback Transactions*. Based on this review, it was determined that the lease did not qualify forsale-leaseback treatment in accordance with FASB ASC 840-40.  As a result,building and tenant improvement and associated lease financing liabilitiesremain on the Company’s books.  The lease financing liability is beingamortized over the lease term based on the payments designated in the agreementand the building and tenant improvement assets are being depreciated on astraight line basis over the lessor of their useful lives or the lease term.

 

**10.   COMMITMENTS AND CONTINGENCIES**

 

**Lease Liability**

 

In conjunctionwith the sale of certain assets and contracts of the Company’s High EnergySystems Division in January of 2005, the lease for the Californiaoperations of the High Energy Systems Division was assigned toAccuray, Incorporated.  The Company remains secondarily liable forthe remaining lease payments in the event of default byAccuray, Incorporated during the lease term

 

12

----

Table of Contents

 

which expires in February 2011.Total remaining lease payments at September 30, 2009 totaled$564,000.  No accrual for this contingent liability has been recorded at September 30,2009 as management believes the probability of payment of this liability islow.

 

**DeferredRevenue**

 

The Company offersto its customers extended warranty and service contracts. These contractstypically have a coverage period of one to five years, and include advancepayments that are recorded as deferred revenue. Revenue is recognized asservice is performed over the life of the contract, which represents the periodover which these revenues are earned. Costs associated with these extendedwarranty and service contracts are expensed to cost of goods sold as incurred.

 

A significantnumber of the Company’s contracts with the U.S. Government contain clausespermitting the government to terminate the contract for convenience upon certainterms and conditions, including partial payment to the Company for workperformed. Included in deferred revenue at September 30, 2009 and March 31,2009 was $5,181,000 and $4,341,000, respectfully, related to contracts with U.SGovernment agencies and subcontractors which may include these termination forconvenience clauses.

 

**ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

 

This QuarterlyReport on Form 10-Q contains forward-looking statements that involve risksand uncertainties. The statements contained in this report that are not purelyhistorical are forward-looking statements within the meaning of Section 27Aof the Securities Act of 1933 and Section 21E of the Securities ExchangeAct of 1934. Without limiting the foregoing, the words “may,” “will,” “should,”“could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,”“predicts,” “potential” and similar expressions are intended to identifyforward-looking statements. All forward-looking statements included in thisQuarterly Report on Form 10-Q are based on information available to us upto, and including, the date of this report, and we assume no obligation toupdate any such forward-looking statements. Our actual results could differmaterially from those anticipated in these forward-looking statements as aresult of certain factors, including the following: significant reductions or delays in procurements of our systems by theUnited States and other governments; disruption in the supply of any sourcecomponent incorporated into our products; litigation seeking to restrict theuse of intellectual property we use; potential product liability claims againstus; global political trends and events which affect public perception of the threatpresented by drugs, explosives and other contraband; global economicdevelopments and the ability of governments and private organizations to fundpurchases of our products to address such threats; the potential insufficiencyof our resources, including human resources, capital, plant and equipment andmanagement systems, to accommodate any future growth and any future delays infederal funding; and other factors discussed in “Item 1A **—**Risk Factors” and elsewhere in this Form 10-Q.You should carefully review those factors and also carefully review the risksoutlined in other documents that we file from time to time with the Securitiesand Exchange Commission or the SEC.

 

**Overview**

 

American Scienceand Engineering, Inc., which is referred to in this report as “we” or “theCompany”, develops and manufactures state-of-the-art X-ray inspection systemsfor homeland security, force protection, and other critical defenseapplications.   We provide maintenance,warranty, research, engineering, and training services related to thesesolutions.

 

Our primarytechnologies are: (1) Z BackscatterTM technology which is used to detect plasticexplosives, illegal drugs, and other contraband even when artfully concealed incomplex backgrounds; and (2) Shaped Energy® X-ray inspection technology which combine thematerial discrimination features of the Z BackscatterTM technology withthe penetration capability of high-energy X-rays for dense cargos.

 

Net sales andcontract revenues for the second quarter of fiscal 2010 increased by 9% to$61,248,000 compared to the second quarter of fiscal 2009 revenues of$56,293,000. We reported net income before taxes of $16,581,000 for the secondquarter of fiscal 2010 compared to net income before taxes of $11,501,000 forthe second quarter of fiscal 2009.  Netincome for the second quarter of fiscal 2010 was $10,695,000 ($1.18 per share,on a diluted basis) as compared to net income of $7,361,000 ($0.83 per share,on a diluted basis) for the second quarter of fiscal 2009.

 

For the six monthsended September 30, 2009, net sales and contract revenues increased by 21%to $115,940,000 compared to the six months ended September 30, 2008revenues of $95,787,000. We reported net income before taxes of $27,955,000 forthe six months ended September 30, 2009 compared to a net income beforetaxes of $15,703,000 for the six months ended September 30, 2008.  Net income for the six months ended September 30,2009 was $18,031,000 ($2.00 per share, on a diluted basis) as compared to netincome of $10,050,000 ($1.13 per share, on a diluted basis) for the six monthsended September 30, 2008.

 

13

----

Table of Contents

 

**CriticalAccounting Policies**

 

We believe thatseveral accounting policies are important to understanding our historical andfuture performance. We refer to these policies as “critical” because thesespecific areas generally require us to make judgments and estimates aboutmatters that are uncertain at the time we make the estimate, and differentestimates—which also would have been reasonable—could have been used, whichwould have resulted in different financial results.

 

The critical accounting policies we identified in ourmost recent Annual Report on Form 10-K for the fiscal year ended March 31,2009 are policies related to revenue recognition, inventories and relatedallowances for obsolete and excess inventory, and income taxes. It is importantthat the discussion of our operating results that follows be read inconjunction with the critical accounting policies disclosed in our AnnualReport on Form 10-K, as filed with the SEC on June 15, 2009. Therehave been no changes to our critical accounting policies during the six monthsended September 30, 2009.

 

**Results of Operations**

 

Net revenues forthe second quarter ended September 30, 2009 increased by $4,955,000 to$61,248,000 compared to the corresponding period a year ago.  Thisincrease is attributable primarily to an increase of $3,827,000 in productsales which was driven by a $6,688,000 increase in shipments of Z BackscatterTMsystems.   This increase was offset by a decrease of $1,348,000 inParcelSearchTM system revenues due to a decrease in the volume of shipments inthe period and a decrease of $1,194,000 in contract research and developmentrevenues as compared to the corresponding prior year period attributable to thetermination for convenience of one research and development contract whichcontributed $1,600,000 in revenues in the prior period.  CargoSearchTM system revenues remained flat ascompared to the prior year.  Servicerevenues increased by $1,128,000 to $19,059,000 compared to the second quarterof fiscal 2009 due primarily to an increase in the volume of service contractsover the corresponding prior year period related to the increase in installbase over the prior year.

 

Net revenues forthe six months ended September 30, 2009 increased by $20,153,000 to$115,940,000 compared to the corresponding period a year ago.  Thisincrease is attributable primarily to an increase of $15,669,000 in productsales, of which $16,288,000 relates to increased shipments of Z BackscatterTMsystems.   In addition, there was an increase of $7,738,000 inCargoSearchTM system revenues due to the acceptance in the first quarter of anumber of systems recognized on a completed contract basis.  These increases were offset by a decrease of$4,250,000 in ParcelSearchTM system revenues due to a decrease in the volume ofshipments in the period and a decrease of $3,688,000 in contract research anddevelopment revenues as compared to the prior period attributable to thetermination for convenience of one research and development contract whichcontributed $3,932,000 in revenues in the prior period.  Service revenues increased by $4,484,000 to$38,967,000 compared to the six months ended September 30, 2008 dueprimarily to an increase in the volume of service contracts over the prior yearrelated to the increase in install base over the prior year.

 

Total cost ofsales and contracts for the second quarter of fiscal 2010 increased by$1,972,000 to $31,794,000 as compared to the corresponding period a year ago.Cost of sales and contracts related to product revenues decreased by $292,000to $21,790,000 as compared to the corresponding period a year ago.  Costof product sales and contract revenues represented 52% of revenues versus 58%of revenues for the corresponding period last year.  The resultantincrease in gross margin percentage from the prior year is due primarily to themix of products sold in the quarter and to our successfully controlling unitproduction costs on new builds. In the three months ended September 30,2009, 92% of product revenues were derived from our higher margin cargo and ZBackscatter Systems products as compared to 84% for the three months ended September 30,2008.  These product lines experiencedhigher margins due to manufacturing and installation efficiencies associatedwith the higher volume throughput and cost reductions efforts expended in theprior fiscal year.   The cost of servicerevenues for the second quarter ended September 30, 2009 decreased by$1,680,000 to $10,004,000 as compared to the corresponding period a yearago.  Cost of service revenues represented 53% of revenues versus 65% forthe corresponding period last year.  Thisincrease in gross margin percentage from the prior year is due primarily to areduction in material costs required to service systems under contract from theprior year as well as a decrease in freight costs as the Company had incurredsignificant freight costs in the prior fiscal period while establishing certaininternational spare parts depots.

 

Total cost ofsales and contracts for the six months ended September 30, 2009 increasedby $2,135,000 to $60,866,000 as compared to the corresponding period a yearago. Cost of sales and contracts related to product revenues increased by$2,866,000 to $40,734,000 as compared to the corresponding period a yearago.  Cost of product sales and contract revenues represented 53% ofrevenues versus 62% of revenues for the corresponding period last year. The resultant increase in gross margin percentage from the prior year is dueprimarily to the mix of products sold in the period and to our successfullycontrolling unit production costs on new builds. In the six months ended September 30,2009, 92% of product revenues were derived from our higher margin cargo and ZBackscatter Systems products as compared to 77% for the six months ended September 30,2008.  These product lines experiencedhigher margins due to manufacturing and installation efficiencies associatedwith the higher volume throughput and cost reductions efforts expended in thispast fiscal year.     The cost of servicerevenues for the six months ended September 30, 2009 decreased by $731,000to $20,132,000 as compared to the corresponding period a year ago.  Costof service revenues represented 52% of revenues versus 61% for thecorresponding period last year.  Thisincrease in gross margin percentage from the prior year is due primarily to a reductionin material costs required to service systems under contract from the prioryear as well as a decrease in freight costs as the Company had incurredsignificant freight costs in the prior fiscal period while establishing certaininternational spare parts depots..

 

Selling, generaland administrative expenses for the second quarter of fiscal 2010 increased by$615,000 to $8,009,000 as

 

14

----

Table of Contents

 

compared to thecorresponding period a year ago.  Selling, general and administrativeexpenses remained constant at 13% of revenue for the two periods.  Theincrease in selling, general and administrative expenses costs over the priorperiod was primarily the result of an increase in incentive and stockcompensation expense ($515,000), an increase in sales and marketing relatedexpenses ($229,000), an increase in salaries and benefits associated primarilywith increased headcount ($137,000) and an increase in consulting fees($137,000).  These expenses werepartially offset by a decrease in legal fees ($432,000) associated with thepatent litigation described under “Item 1 – Legal Proceedings” in Part IIof this quarterly report, which was settled during the first quarter of thisfiscal year.

 

Selling, generaland administrative expenses for the six months ended September 30, 2009increased by $1,618,000 to $16,711,000 as compared to the corresponding perioda year ago.  Selling, general and administrative expenses represented 14%of revenues in the current period compared to 16% for the corresponding periodlast year.   The increase in selling,general and administrative expenses costs over the prior period was primarilythe result of an increase in incentive and stock compensation expense($732,000), an increase in sales and marketing related expenses ($237,000), anincrease in salaries and benefits associated primarily with increased headcount($254,000) and an increase in legal fees ($295,000) associated with the patentlitigation described under “Item 1 – Legal Proceedings” in Part II of thisquarterly report, which was settled during the first quarter of this fiscalyear.

 

Company fundedresearch and development expenses for the second quarter of fiscal 2010increased by $775,000 to $4,951,000 as compared to the corresponding periodlast year.  Research and development expenses represented 8% of revenuesin the current quarter compared to 7% for the corresponding period lastyear.  This increase was attributable to a planned expenditure in researchand development activity as we continue to focus on new product development andproduct enhancements as a primary strategic goal.

 

Company fundedresearch and development expenses for the six months ended September 30,2009 increased by $3,018,000 to $10,757,000 as compared to the correspondingperiod last year.  Research and development expenses represented 9% ofrevenues in the six months ended September 30, 2009 compared to 8% for thecorresponding period last year.  This year to date increase wasattributable to a planned expenditure in research and development activity aswe continue to focus on new product development and product enhancements as aprimary strategic goal.

 

Other income was$87,000 for the second quarter of fiscal 2010 as compared to $544,000 for thecorresponding period a year ago.  This decrease in other income isattributable primarily to a decrease in interest and investment incomeattributable to lower interest rates and returns on investments as compared tothe prior period.

 

Other income was$349,000 for the second quarter of fiscal 2010 as compared to $1,479,000 forthe corresponding period a year ago.  This decrease in other incomeis attributable primarily to a decrease in interest and investment incomeattributable to lower interest rates and returns on investments as compared tothe prior period.

 

We reportedpre-tax income of $16,581,000 in the three months ended September 30, 2009as compared to pre-tax income of $11,501,000 in the corresponding period a yearago and pre-tax income of $27,955,000 in the six months ended September 30,2009 as compared to pre-tax income of $15,703,000 in the corresponding period ayear ago due to the factors described above.

 

Our projectedeffective tax rate for the three and six months ended September 30, 2009decreased to 35.5% from 36.0% for the corresponding periods a year ago. This decrease in effective tax rate is due primarily to an increase in themanufacturing deduction for fiscal year 2010 that is partially offset by anincreased disallowance of executive compensation.

 

We had net incomeof $10,695,000 for the second quarter of fiscal 2010 as compared to net incomeof $7,361,000 in the second quarter of fiscal 2009.   For the six months ended September 30, 2009,we had net income of $18,031,000 as compared to net income of $10,050,000 forthe corresponding period last year. The significant factors contributing tothese results are noted in the above sections.

 

**Liquidityand Capital Resources**

 

Cash and cash equivalentsdecreased by $50,199,000 to $55,220,000 at September 30, 2009 compared to$105,419,000 at March 31, 2009. This decrease is attributable primarily toa net increase of $55,913,000 in short-term investments as we transferredmaturing cash equivalents into short-term investments during the year.  We also expended $2,922,000 to repurchaseoutstanding shares of its common stock as part of its Stock Repurchase Programand paid $3,539,000 in dividends to shareholders as part of our quarterlydividend program.  Offsetting this was$15,369,000 in net cash provided by operating activities due mainly to the netincome earned in the period offset by certain non-cash items, decreases inaccounts receivable and unbilled costs and fees of $9,957,000 due to the timingof certain milestone invoices and payments, decreases in inventory of$4,029,000 due to the increased shipments in the period, and increases incustomer deposits of $3,103,000.  Theseoperating cash inflows were offset by decreases in deferred revenue of$17,945,000 attributable primarily to revenue earned on prepaid system ordersand other prepaid service contracts in the period and decreases in accruedexpenses of $8,081,000 attributable primarily to the payment of incentivecompensation and the payment of certain project related costs both of which hadbeen accrued for at year end.

 

On November 14,2008, we modified our Loan and Security Agreement with Silicon Valley Bank toextend the facility through November 13, 2009 and to increase the facilityfrom $20.0 million to $40.0 million to support our routine letters ofcredit and working

 

15

----

Table of Contents

 

capital needs.  If we maintain a cash and investments balanceof $60.0 million or greater, then the maximum amount available for borrowingunder the facility is $40.0 million minus the amount of all outstanding lettersof credit less certain reserves, and minus the outstanding principal balance ofany advances.  If our cash and investmentbalance falls below $60.0 million for a period of 30 consecutive days, then themaximum amount available for borrowings under the facility is the lesser of (i) $40.0million, or (ii) 80% of eligible domestic accounts receivable minus theamount of outstanding letters of credits adjusted for certain reserves andminus the principal balance of any advances.

 

The creditfacility bears an interest rate of the greater of 4.0% or the Silicon Valley Bankprime rate (4.0% at September 30, 2009). The credit agreement iscollateralized by certain of our assets and contains certain restrictions,including limitations on the amount of distributions that can be made tostockholders, and the disposition or encumbrances of assets, and requires themaintenance of certain financial covenants. As of September 30, 2009, we were in compliance with thesecovenants.

 

We are currentlyin negotiations for a new facility expected to be finalized in November 2009prior to the expiration of the current line.

 

In the normalcourse of business, we may provide certain customers and potential customerswith performance guarantees, which are generally backed by standby letters ofcredit. In general, we would only be liable for the amount of these guaranteesin the event of default in the performance of our obligations; the probabilityof which management believes is low.   Asof September 30, 2009, we had outstanding $39,385,000 in standby lettersof credit against the Loan and Security Agreement with $615,000 remainingavailability.  The outstanding letters ofcredit are primarily for guaranteeing performance on certain internationalprojects.   No amounts have been drawnagainst these letters of credit. In addition at September 30, 2009, we hada restricted cash balance of $1,867,000 related to certain bank requireddeposits for outstanding letters of credit issued in excess of amountsavailable under its loan facility and other bank related fees.

 

**ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK**

 

The cash accountsfor the Company’s operations in Hong Kong, England, the Netherlands, and AbuDhabi are maintained in Hong Kong dollars, pounds sterling, Euros and dirham,respectively. The gains and losses from foreign currency transactions areincluded in the statements of operations for the period and were immaterial. Ahypothetical 10% change in foreign currency rates would not have a materialimpact on the Company’s results of operations or financial position.

 

As of September 30,2009, the Company held short-term investments consisting of U.S. treasurybills, money market funds, commercial paper, corporate debentures/bonds andcertificates of deposit. The Company’s primary objective with its investmentportfolio is to invest available cash while preserving principal and meetingliquidity needs. These investments have an average interest rate ofapproximately 0.379% and are subject to interest rate risk. As a result of theaverage maturity and conservative nature of the investment portfolio, a suddenchange in interest rates would not have a material adverse effect on the valueof these investments.  To minimize thisrisk, we maintain a significant portion of our cash balances in money marketfunds. In general, money market funds are not subject to interest rate riskbecause the interest paid on such funds fluctuates with the prevailing interestrate.

 

**ITEM 4 – CONTROLS AND PROCEDURES**

 

a)  Evaluation of disclosure controls and procedures

 

As of the end ofthe period covered by this report, under the supervision and with theparticipation of our management, including our Chief Executive Officer andChief Financial Officer, the Company reviewed and evaluated the effectivenessof the Company’s disclosure controls and procedures pursuant to Rule 13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934 as amended (the “ExchangeAct”). Based upon their evaluation, our Chief Executive Officer and our ChiefFinancial Officer concluded that, as of the end of the period covered by thisreport, our disclosure controls and procedures were effective to providereasonable assurance that information required to be disclosed by the Companyin the reports filed and submitted by it under the Exchange Act is recorded,processed, summarized and reported within the time periods specified in theSecurities and Exchange Commission’s rules and forms, and to providereasonable assurance that information required to be disclosed by the Companyin such reports is accumulated and communicated to the Company’s management,including its Chief Executive Officer and Chief Financial Officer, asappropriate to allow timely decisions regarding required disclosure.

 

b)  Changes in internal control over financial reporting

 

There have been nochanges in our internal control over financial reporting as such term isdefined in Rule 13a-15(f) and 15d-15(f) of the Exchange Actduring the period covered by this report that have materially affected, or arereasonably likely to materially affect, the Company’s internal control overfinancial reporting.

 

16

----

Tableof Contents

 

**PART II — OTHER INFORMATION**

 

**ITEM 1 — LEGAL PROCEEDINGS**

 

On October 3,2007, the Company commenced litigation in the United States District Court forthe Eastern District of Virginia against AutoClear, LLC, and its affiliatesControl Screening, LLC, and Scan-Tech Security, LP, for infringement of theCompany’s United States Patent No. 5,313,511, seeking relief, including aninjunction.  This case was settled in June of2009 with the court holding that the defendants had infringed on the Company’sUnited States Patent No. 5,313,511. Under the terms of the settlement agreement, the Company has granted thedefendants a limited license under the patent. Other terms of the settlement agreement are confidential.

 

The Company isalso subject to various legal proceedings and claims that arise in the ordinarycourse of business.  At the present time, it is not possible to predictthe outcome of these matters; however, the Company currently believes thatresolving these matters will not have a material adverse impact on itsfinancial condition, results of operations or cash flows.

 

**ITEM1A — RISK FACTORS**

 

You shouldcarefully review and consider the information regarding certain factors whichcould materially affect our business, financial condition or future results setforth under Item 1A. “Risk Factors” in our Form 10-K for the yearended March 31, 2009. There have been no material changes from the factorsdisclosed in our Form 10-K for the year ended March 31, 2009,although we may disclose changes to such factors or disclose additional factorsfrom time to time in our future filings with the Securities and ExchangeCommission.

 

**ITEM 2 –UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

 

The****Board of Directorsapproved a Stock Repurchase Program which authorizes the Company to repurchaseup to $35 million of shares of its common stock from time to time on the openmarket.  As of September 30, 2009,the maximum dollar value of shares that may yet be purchased under this programis $23,807,000.

 

During the quarter ended September 30, 2009, the Company did notpurchase any securities under this Stock Repurchase Program.

 

**ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

At the annual meeting ofstockholders of the Company held on September 10, 2009, the stockholdersof the Company (1) elected Denis R. Brown, John A. Gordon, Hamilton W.Helmer, Ernest J. Moniz, Mark Thompson, Carl W. Vogt and Anthony R. Fabiano asdirectors of the Company to hold office for a one-year term; (2) voted toincrease by 250,000 shares, the number of shares authorized to be issued underthe 2005 Equity and Incentive Plan and (3) ratified the appointment ofCaturano and Company, P.C., independent registered public accountants, as ourindependent auditors for the fiscal year ending March 31, 2010. The voteswere as follows:

 
| ** **                                                                                          | ** ** | **Votes For** | ** ** | **Votes Against** | ** ** | **Abstentions** | ** ** | **Broker  Non-  Votes** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|--------------------|------------|------------------------|------------|-----------------|------------|-------------------------|------------|
|                                                                                                |       |               |       |                   |       |            |       |                    |       |
| (1) Election  of Directors:                                                                    |       |               |       |                   |       |            |       |                    |       |
| Denis  R. Brown                                                                                     |       | 7,724,383          |       | —                 |       | 454,982         |       | —                  |       |
| John  A. Gordon                                                                                     |       | 7,973,067          |       | —                 |       | 206,298         |       | —                  |       |
| Hamilton  W. Helmer                                                                                 |       | 7,831,192          |       | —                 |       | 348,173         |       | —                  |       |
| Ernest  J. Moniz                                                                                    |       | 7,947,763          |       | —                 |       | 231,602         |       | —                  |       |
| Mark  Thompson                                                                                      |       | 7,843,068          |       | —                 |       | 336,297         |       | —                  |       |
| Carl  W. Vogt                                                                                       |       | 7,602,357          |       | —                 |       | 577,008         |       | —                  |       |
| Anthony  R. Fabiano                                                                                 |       | 7,836,876          |       | —                 |       | 347,489         |       | —                  |       |
| (2) Increase in number of shares authorized to  be issued under 2005 Equity and Incentive Plan |       | 3,401,481          |       | 2,860,089              |       | 54,714          |       | 1,862,081               |       |
| (3) Ratification of Caturano and Company, P.C.,  as independent auditors                       |       | 8,114,938          |       | 42,211                 |       | 22,204          |       | 12                      |       |

 

**ITEM 6 — EXHIBITS**

 

See the exhibit indexfollowing the signature page to this quarterly report.

 

The information requiredby Exhibit Item 11 (Statement re: Computation of Income per Common andCommon Equivalent Share) may be found in Note 4 to the Unaudited CondensedConsolidated Financial Statements in this quarterly report.

 

17

----

Table of Contents

 

**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this Report to be signed on its behalf by the undersigned hereunto dulyauthorized.

 
|                         | AMERICAN SCIENCE AND  ENGINEERING, INC.                       |
|------------------------------|---------------------------------------------------------------|
|                         |                                                          |
| Date: November 5,  2009 | /s/ Kenneth J. Galaznik                                       |
|                         | Kenneth J. Galaznik                                           |
|                         | Senior Vice President,  Chief Financial Officer and Treasurer |

 

18

----

Table of Contents

** **

**EXHIBIT INDEX**

 
| **Exhibit********Number** | ** ** | **Description  of Exhibits**                                                                                                                                                                                                                                                   |
|---------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                      |       |                                                                                                                                                                                                                                                                           |
| 10.1                      |       | American  Science & Engineering, Inc. 2005 Equity and Incentive Plan  (filed as Exhibit 99.1 to the Company’s Registration Statement on  Form S-8 (File No. 333-162291) filed on October 2, 2009 and  incorporated herein by reference) |
|                      |       |                                                                                                                                                                                                                                                                           |
| 10.2                      |       | Form of Short Term Incentive Bonus Plan Document                                                                                                                                                                                                                          |
|                      |       |                                                                                                                                                                                                                                                                           |
| 31.1                      |       | Certification by Chief  Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002                                                                                                                                                                      |
|                      |       |                                                                                                                                                                                                                                                                           |
| 31.2                      |       | Certification by Chief  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                                                                                                                  |

 

19

----