FORM 10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

|(Mark One)                                       |                                                                                         
|------------------------------------------------ | ----------------------------------------------------------------------------------------
|ý                                                | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the Quarterly Period Ended December 31, 2002
|OR                                              
|o                                                | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period from
 to              

Commission File Number 1-6549

American Science and Engineering, Inc.(Exact name of Registrant as specified in its charter)

|Massachusetts(State or other jurisdiction of
incorporation or organization)             |  | 04-2240991(I.R.S. Employer Identification No.)
|--------------------------------------------------------------------------------------- |  | ----------------------------------------------
|829 Middlesex Turnpike
Billerica, Massachusetts(Address of principal executive offices) |  | 01821(Zip Code)                               

(978) 262-8700(Registrant's telephone number, including area code)

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

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

Indicate
the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date

|Class of Common Stock |  | Outstanding at
December 31, 2002
|--------------------- |  | --------------------------------
|$.662/3 par value     |  | 6,857,772                       

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AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARIES        PART IFINANCIAL INFORMATION        CONSOLIDATED BALANCE SHEETS        (Unaudited)

|                                       |                                                                                                                                                     | December 31, 2002 |        | March 31, 2002 |  
|-------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------- | ------ | -------------- | -
|
|Assets                                 |                                                                                                                                                     |                   |        |                |  
|Current assets:                        |                                                                                                                                                     |                   |        |                |  
|                                       | Cash and cash equivalents                                                                                                                           |                   | $      | 12,677         |  
|                                       | Restricted cash                                                                                                                                     |                   |        | 2,021          |  
|                                       | Accounts receivable, net of allowances of $133 at December 31, 2002 and $111 at March 31, 2002                                                      |                   |        | 8,289          |  
|                                       | Unbilled costs and fees, net of allowances of $437 at December 31, 2002 and March 31, 2002                                                          |                   |        | 4,055          |  
|                                       | Inventories                                                                                                                                         |                   |        | 18,350         |  
|                                       | Deferred income taxes                                                                                                                               |                   |        | 685            |  
|                                       | Prepaid expenses and other current assets                                                                                                           |                   |        | 475            |  
|                                       |                                                                                                                                                     |                   |        |                |  
|                                       | Total current assets                                                                                                                                |                   |        | 46,552         |  
|                                       | Non-current assets:                                                                                                                                 |                   |        |                |  
|                                       | Non-current deferred income taxes                                                                                                                   |                   |        | 2,613          |  
|                                       | Other assets                                                                                                                                        |                   |        | 149            |  
|                                       | Patents and other intangibles, net of accumulated amortization of $386 at December 31, 2002 and $351 at March 31, 2002                              |                   |        | 54             |  
|                                       | Property and equipment, net of accumulated depreciation of $16,946 at December 31, 2002 and $15,366 at March 31, 2002                               |                   |        | 3,558          |  
|                                       |                                                                                                                                                     |                   |        |                |  
|                                       |                                                                                                                                                     |                   | $      | 52,926         |  
|                                       |                                                                                                                                                     |                   |        |                |  
|Liabilities & Stockholders' Investment |                                                                                                                                                     |                   |        |                |  
|Current liabilities:                   |                                                                                                                                                     |                   |        |                |  
|                                       | Line of credit                                                                                                                                      |                   | $      |               |  
|                                       | Accounts payable                                                                                                                                    |                   |        | 4,260          |  
|                                       | Accrued salaries and benefits                                                                                                                       |                   |        | 1,552          |  
|                                       | Accrued warranty costs                                                                                                                              |                   |        | 588            |  
|                                       | Deferred revenue                                                                                                                                    |                   |        | 1,238          |  
|                                       | Customer deposits                                                                                                                                   |                   |        | 2,088          |  
|                                       | Other current liabilities                                                                                                                           |                   |        | 2,912          |  
|                                       |                                                                                                                                                     |                   |        |                |  
|                                       | Total current liabilities                                                                                                                           |                   |        | 12,638         |  
|                                       |                                                                                                                                                     |                   |        |                |  
|                                       | Non-current liabilities:                                                                                                                            |                   |        |                |  
|                                       | Warrant liability                                                                                                                                   |                   |        | 1,624          |  
|                                       | Deferred revenue                                                                                                                                    |                   |        | 932            |  
|                                       | Deferred compensation                                                                                                                               |                   |        | 91             |  
|                                       | Deferred rent                                                                                                                                       |                   |        | 155            |  
|                                       |                                                                                                                                                     |                   |        |                |  
|                                       | Total non-current liabilities                                                                                                                       |                   |        | 2,802          |  
|                                       |                                                                                                                                                     |                   |        |                |  
|                                       | Stockholders' investment: Preferred stock, no par value Authorized  100,000 shares Issued  none                                                   |                   |        |               |  
|                                       | Common stock, $0.662/3 par value Authorized  20,000,000 shares Issued 6,857,772 shares at December 31, 2002 and 5,549,478 shares at March 31, 2002 |                   |        | 4,571          |  
|                                       | Capital in excess of par value                                                                                                                      |                   |        | 38,631         |  
|                                       | Accumulated deficit                                                                                                                                 |                   |        | (5,716         | )
|                                       |                                                                                                                                                     |                   |        |                |  
|                                       | Total stockholders' investment                                                                                                                      |                   |        | 37,486         |  
|                                       |                                                                                                                                                     |                   |        |                |  
|                                       |                                                                                                                                                     | $                 | 52,926 |                | $
|                                       |                                                                                                                                                     |                   |        |                |  

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

2

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AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARIES        PART IFINANCIAL INFORMATION        CONSOLIDATED STATEMENTS OF OPERATIONS        (Unaudited)

|                              |                                         | For the Three Months Ended |        | For the Nine Months Ended |  
|----------------------------- | --------------------------------------- | -------------------------- | ------ | ------------------------- | -
|
|
|Revenues: (see Note 1)        |                                         |                            |        |                           |  
|                              | Net product sales and contract revenues |                            | $      | 14,768                    |  
|                              | Net service revenues                    |                            |        | 2,452                     |  
|                              |                                         |                            |        |                           |  
|                              | Total net revenues                      |                            |        | 17,220                    |  
|                              |                                         |                            |        |                           |  
|Cost of sales and contracts:  |                                         |                            |        |                           |  
|                              | Cost of product sales and contracts     |                            |        | 11,320                    |  
|                              | Cost of service revenues                |                            |        | 2,022                     |  
|                              |                                         |                            |        |                           |  
|                              | Total cost of sales and contracts       |                            |        | 13,342                    |  
|                              |                                         |                            |        |                           |  
|Gross profit                  |                                         |                            | 3,878  |                           |  
|                              |                                         |                            |        |                           |  
|Expenses:                     |                                         |                            |        |                           |  
|                              | Selling, general and administrative     |                            |        | 3,055                     |  
|                              | Research and development                |                            |        | 1,342                     |  
|                              |                                         |                            |        |                           |  
|                              | Total expenses                          |                            |        | 4,397                     |  
|                              |                                         |                            |        |                           |  
|Operating loss                |                                         |                            | (519   | )                         |  
|                              |                                         |                            |        |                           |  
|Other income (expense):       |                                         |                            |        |                           |  
|                              | Interest income                         |                            |        | 28                        |  
|                              | Interest expense                        |                            |        |                          |  
|                              | Other, net                              |                            |        | (567                      | )
|                              |                                         |                            |        |                           |  
|                              | Total other income (expense)            |                            |        | (539                      | )
|                              |                                         |                            |        |                           |  
|Loss before income taxes      |                                         |                            | (1,058 | )                         |  
|Benefit from income taxes     |                                         |                            |       |                           |  
|                              |                                         |                            |        |                           |  
|Net loss                      |                                         | $                          | (1,058 | )                         | $
|                              |                                         |                            |        |                           |  
|Loss per shareBasic          |                                         | $                          | (0.15  | )                         | $
|                              |                                         |                            |        |                           |  
|Diluted                      |                                         | $                          | (0.15  | )                         | $
|                              |                                         |                            |        |                           |  
|Weighted average sharesBasic |                                         |                            | 6,838  |                           |  
|                              |                                         |                            |        |                           |  
| Diluted                     |                                         |                            | 6,838  |                           |  
|                              |                                         |                            |        |                           |  

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

3

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AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS        (Unaudited)

|                                                                             |                                                                               | For the Nine Months Ended                      |       
|---------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | ---------------------------------------------- | ------
|
|
|Cash flows from operating activities:                                        |                                                                               |                                                |       
|Net loss                                                                     |                                                                               | $                                              | (2,664
|Adjustments to reconcile net loss to net cash used for operating activities: |                                                                               |                                                |       
|                                                                             | Depreciation and amortization                                                 |                                                |       
|                                                                             | Provisions for contract, inventory, accounts receivable and warranty reserves |                                                |       
|                                                                             | Change in fair value of warrants issued                                       |                                                |       
|                                                                             | Deferred income taxes                                                         |                                                |       
|                                                                             | Changes in assets and liabilities:                                            |                                                |       
|                                                                             |                                                                               | Accounts receivable                            |       
|                                                                             |                                                                               | Unbilled costs and fees                        |       
|                                                                             |                                                                               | Inventories                                    |       
|                                                                             |                                                                               | Prepaid expenses, deposits and other assets    |       
|                                                                             |                                                                               | Accounts payable                               |       
|                                                                             |                                                                               | Customer deposits                              |       
|                                                                             |                                                                               | Deferred revenue                               |       
|                                                                             |                                                                               | Accrued expenses and other current liabilities |       
|                                                                             |                                                                               | Non-current liabilities                        |       
|                                                                             |                                                                               |                                                |       
|                                                                             | Total adjustments                                                             |                                                |       
|                                                                             |                                                                               |                                                |       
|Net cash used for operating activities                                       |                                                                               |                                                | (2,835
|                                                                             |                                                                               |                                                |       
|Cash flows from investing activities:                                        |                                                                               |                                                |       
|                                                                             | Increase in restricted cash                                                   |                                                |       
|                                                                             | Purchase of property and equipment                                            |                                                |       
|                                                                             |                                                                               |                                                |       
|Net cash used for investing activities                                       |                                                                               |                                                | (2,496
|                                                                             |                                                                               |                                                |       
|Cash flows from financing activities:                                        |                                                                               |                                                |       
|                                                                             | Borrowing under (repayment of) line of credit                                 |                                                |       
|                                                                             | Repayments of officer's loan                                                  |                                                |       
|                                                                             | Proceeds from issuance of common stock and warrants, net                      |                                                |       
|                                                                             | Proceeds from exercise of stock options                                       |                                                |       
|                                                                             |                                                                               |                                                |       
|Net cash provided by financing activities                                    |                                                                               |                                                | 10,417
|                                                                             |                                                                               |                                                |       
|Net increase in cash and cash equivalents                                    |                                                                               |                                                | 5,086 
|Cash and cash equivalents at beginning of period                             |                                                                               |                                                | 7,591 
|                                                                             |                                                                               |                                                |       
|Cash and cash equivalents at end of period                                   |                                                                               | $                                              | 12,677
|                                                                             |                                                                               |                                                |       

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

4

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AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARIES
PREPARATION OF UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements included herein have been prepared by American Science and Engineering, Inc. (the Company) pursuant to the rules and
regulations of the Securities and Exchange Commission, and the annual consolidated financial statements are subject to year end audit by independent public accountants. Certain information and
footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The
Company believes, however, that the disclosures are adequate to make the information presented not misleading. It is suggested that these consolidated financial statements be read in conjunction with
the consolidated financial statements and the notes thereto included in the Company's latest annual report on Form 10-K.

The
consolidated financial statements, in the opinion of management, include all adjustments necessary, consisting solely of normal recurring adjustments, to present fairly the Company's
financial position, results of operations and cash flows. These results are not necessarily indicative of the results to be expected for the entire year.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.    Nature of Operations

The Company is engaged in the development and manufacture of sophisticated X-ray inspection systems for critical detection and security screening
solutions for sale primarily to U.S. and foreign government agencies. The Company has only one reporting segment, X-ray screening products.

Significant Accounting Policies

The Company's CargoSearch systems and other cost reimbursable contracts are generally accounted for utilizing the percentage of completion method. Revenues for
the Company's parcel systems (systems capable of scanning small parcels and packages) and its Bodysearch system are recognized in accordance with SAB 101. Service revenues for fiscal 2003 are expected
to exceed 10% of total revenues and as such have been separately presented for the current year.

The
Company's Export and Security Agreement with HSBC Bank USA requires certain cash balances to be restricted as collateral against outstanding standby letters of credit.

The
Company has evaluated the period over which it expects to realize the benefit of deferred tax assets and accordingly has reclassified a portion of these balances to long-term.

The
significant accounting policies followed by the Company and its Subsidiaries in preparing its consolidated financial statements are set forth in Note 1 to the consolidated
financial statements included in its Form 10-K for the year ended March 31, 2002. The Company has made no changes to these policies during this quarter.

Certain
amounts for fiscal 2002 have been reclassified to conform with the fiscal 2003 presentation.

New Accounting Pronouncements

In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others," which elaborates on required disclosures by a guarantor in its financial statements about obligations under certain guarantees that it has issued and clarifies
the need for a guarantor to recognize, at the inception of certain guarantees, a liability for the fair value of the obligation undertaken in issuing the guarantee. The Company is reviewing the
provisions of this Interpretation relating to initial recognition

5

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and measurement of guarantor liabilities, which are effective for qualifying guarantees entered into or modified after December 31, 2002, but does not expect it to have a material impact on
the Company's financial statements. The disclosure requirements of the Interpretation, which are effective for the quarter ended December 31, 2002, are included in Note 6 of this filing.

In
November 2002, the Task Force reached a consensus on Emerging Issues Task Force Issue No. 00-21, "Accounting for Revenue Arrangements with Multiple
Deliverables". This issue addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how arrangement consideration should be
measured and allocated to the separate units of accounting. This guidance is effective for the Company beginning in fiscal 2005 with early application permitted. The Company is currently evaluating
the impact of this guidance on its revenue recognition policies.

In
April 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections" (FAS 145). This statement eliminates the requirement that gains and losses from the extinguishments of debt be
aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. However, an entity would not be prohibited from classifying such gains and losses as
extraordinary items so long as they are both unusual in nature and infrequent in occurrence. This provision of FAS 145 will be effective for the Company as of the beginning of fiscal 2004. This
statement also amends FAS 13, "Accounting for Leases" and certain other authoritative pronouncements to make technical corrections or clarifications. FAS 145 will be effective related to
the amendment of FAS 13 for all transactions occurring after May 15, 2002. All other provisions of FAS 145 will be effective for financial statements issued after May 15,
2002. The Company is currently evaluating the impact of implementing FAS 145.

In
July 2002, the FASB issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" (FAS 146),
which nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." FAS 146 requires a liability for a cost associated with an exit or disposal activity be recognized and measured initially at its fair value in the
period in which the liability is incurred. If fair value cannot be reasonably estimated, the liability shall be recognized initially in the period in which fair value can be reasonably estimated. The
provisions of FAS 146 will be effective for the Company prospectively for exit or disposal activities initiated after December 31, 2002; however, this standard is not expected to have a
significant impact.

In
October 2001, the FASB issued FAS No. 144, "Accounting for the Impairment or Disposal of Long Lived Assets" which supercedes FAS No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of" and provisions of APB Opinion No. 30 "Reporting the Results of Operations-Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for the disposal of segments of a business. The statement creates one
accounting model, based on the framework established in FAS No. 121, to be applied to all long-lived assets including discontinued operations. FAS No. 144 was effective for
the Company on April 1, 2002.

In
December 2002, the FASB issued SFAS No. 148 "Accounting for Stock- Based Compensation-Transition and Disclosure- an amendment of FASB Statement No. 123"
(FAS 148). This statement amends SFAS No. 123 "Accounting for Stock Based Compensation" (FAS 123) to provide alternative methods of voluntarily transitioning to the fair value
based method of accounting for stock-based
employee compensation. FAS 148 also amends the disclosure requirements of FAS 123 to require disclosure of the method used to account for stock-based employee compensation and the effect
of the

6

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method on reported results in both annual and interim financial statements. The Company is in the process of assessing the impact of FAS No. 148 on its fiscal 2003 consolidated financial
statements.

2.    Inventories

Inventories consisted of:

|                                           |  | December 31, 2002 |        | March 31, 2002
|------------------------------------------ |  | ----------------- | ------ | --------------
|
|Raw materials and completed sub-assemblies |  | $                 | 9,916  |               
|Work in process                            |  |                   | 5,103  |               
|Finished goods                             |  |                   | 3,331  |               
|                                           |  |                   |        |               
|Total                                      |  | $                 | 18,350 |               
|                                           |  |                   |        |               

3.    Income per Common and Common Equivalent Share

Basic earnings per common share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted
earnings per share includes the dilutive impact of options and warrants using the average share price of the Company's common stock for the period. For the quarters ended December 31, 2002 and
2001, common stock equivalents of 290,000 and 410,000, respectively, are excluded from diluted earnings per share, as their effect is anti-dilutive. For the nine months ended
December 31, 2002 and 2001, common stock equivalents of
748,000 and 294,000 respectively, are excluded from diluted earnings per share, as their effect is anti-dilutive.

|                                     |  | Three Months Ended |        | Nine Months Ended |  
|------------------------------------ |  | ------------------ | ------ | ----------------- | -
|
|
|Basic                                |  |                    |        |                   |  
|Net loss                             |  | $                  | (1,058 | )                 | $
|                                     |  |                    |        |                   |  
|Weighted average shares              |  |                    | 6,838  |                   |  
|                                     |  |                    |        |                   |  
|Basic loss per share                 |  | $                  | (0.15  | )                 | $
|                                     |  |                    |        |                   |  
|Diluted                              |  |                    |        |                   |  
|Net loss                             |  | $                  | (1,058 | )                 | $
|                                     |  |                    |        |                   |  
|Weighted average shares              |  |                    | 6,838  |                   |  
|Effect of stock options and warrants |  |                    |       |                   |  
|                                     |  |                    |        |                   |  
|Weighted average shares, as adjusted |  |                    | 6,838  |                   |  
|                                     |  |                    |        |                   |  
|Diluted loss per share               |  | $                  | (0.15  | )                 | $
|                                     |  |                    |        |                   |  

4.    Borrowings

On November 30, 2000, the Company signed two credit agreements with HSBC Bank USA ("HSBC"). The first agreement was for a $10 million domestic
revolving credit facility to support the Company's routine working capital and standby letter of credit needs. The second was a $30 million export credit and security agreement, guaranteed by
the Export-Import Bank of the United States ("Ex-Im"), to support the Company's overseas contract, trade finance and working capital needs. The

7

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credit facility bears an interest rate of the HSBC Bank USA prime rate or LIBOR plus 2.0% at the Company's option.

On
February 14, 2002, these credit agreements were amended to increase the domestic revolving credit facility to $20 million and to reduce the export credit and security
agreement to $20 million. The domestic revolving credit facility as amended provides for maximum borrowings in an amount up to the lower of: (a) the sum of 85% of eligible domestic
accounts receivable plus the lower of: (i) 40% of eligible raw materials and work-in-process inventory; or; (ii) $5 million, or;
(b) $20 million. The export credit and security agreement as amended provides for maximum borrowings in an amount up to the lower of: (a) 90% of eligible international billed and
unbilled accounts receivable, or; (b) $20 million. This agreement was due to expire on November 30, 2002. These agreements were further amended on November 28, 2002 to
reduce the domestic revolving credit facility to $5 million, with maximum borrowings set at the lower of: (a) the sum of 85% of eligible domestic accounts receivable plus the lower of:
(i) 40% of eligible raw materials and work-in-process inventory; or; (ii) $2 million, or; (b) $5 million. In addition, the interest rate and certain financial
covenants were amended and the expiration date of the facility was extended to February 28, 2003. The Company currently plans on refinancing either under the same agreement with HSBC or a
similar agreement with a new facility; however, there can be no assurance that HSBC will renew the credit agreements or that alternative financing can be obtained.

At
December 31, 2002, there were no borrowings outstanding against this facility and $4.6 million in letters of credit were in effect against this credit facility. The
Company's credit facility restricts the payment of dividends, except in shares of the Company's stock, without consent of the bank and requires the Company to meet certain financial covenants. As of
December 31, 2002, the Company was not in compliance with the earnings covenant, but has obtained a waiver from the bank for this non-compliance for the third quarter.

5.    Private Placement Offering

On May 28, 2002, the Company closed on a private placement offering of common stock and warrants. A total of 1,115,000 shares were sold to accredited
investors at a price of $17.64 each. In addition, warrants to purchase an additional 295,475 shares of common stock at a price of $23.52 were issued. Proceeds to the Company approximated
$18.4 million, net of approximately $1.3 million of issuance cost. The warrants were immediately vested and have a five-year life expiring in May of 2007. Due to certain
conversion features of these warrants, that provide that the holder may opt for a cash settlement in certain instances, including a merger, a sale of all or substantially all of the Company's assets,
or a tender offer or exchange offer of shares of the Company's stock, a liability equal to the Black-Scholes valuation of the warrants at the deal closing date was recorded on the Company's balance
sheet. The "mark to market" change in the warrants value at December 31, 2002 of $(592,000) and $1,496,000 was recorded as other income (expense) for the three months and nine months ended
December 31, 2002, respectively. The liability of $1,624,000 associated with the warrants is recorded as a non-current liability on the December 31, 2002 balance sheet. The
fair market value of the warrants was determined using the Black Scholes pricing model and an assumed volatility of 72% and interest rate of 5%.

6.    Guarantees

At December 31, 2002, the Company had outstanding $4.6 million of letters of credit outstanding guaranteeing performance on certain large
international cargo projects. These letters of credit are issued through the Company's export credit and security agreement (see Note 4) and have expiration dates through March 2004.

8

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The
Company's parcel product line carries a one-year warranty, the costs of which are accrued for at time of shipment. Accrual rates are based upon historical experience over
the preceding twelve months and the adequacy of the warranty reserve is evaluated monthly. Warranty experience for the three and nine months ended December 31, 2002 is as follows:

|                                                 |  | Three months ended
December 31, 2002 |   | Nine months ended
December 31, 2002 |  
|------------------------------------------------ |  | ------------------------------------ | - | ----------------------------------- | -
|
|Warranty accrual beginning of period             |  | 585                                  |   | 196                                 |  
|Accruals for warranties issued during the period |  | 102                                  |   | 473                                 |  
|Accruals related to pre-existing warranties      |  |                                     |   | 153                                 |  
|Warranty costs incurred during period            |  | (99                                  | ) | (234                                | )
|                                                 |  |                                      |   |                                     |  
|Balance at end of period                         |  | 588                                  |   | 588                                 |  
|                                                 |  |                                      |   |                                     |  

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AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Item 2Results of Operations

Total net revenues in the third quarter increased by $2,972,000 (21%) in comparison to the corresponding period a year ago. This increase in the third quarter
compared to the prior year is due to increased sales ($2.4 million) of the company's cargo products related to two large fixed site projects that started during the period. Service revenues
also increased by $941,000 due to a large fixed price service contract entered into during the year. Parcel revenues declined year on year as the third quarter of fiscal 2002 had increased parcel
demand immediately following the events of September 11th.

Total
net revenues for the nine-month period ended December 31, 2002 increased by $219,000 compared to the corresponding period a year ago. This increase is
attributable to increased service revenues ($2,275,000) due primarily to new service contracts entered into during the year. This increase is offset by decreased cargo product revenues compared to the
prior year due to fewer MobileSearch system sales during the current year. Procurements for these systems domestically have been delayed as budgets for Homeland Defense await resolution.

For
the third quarter, total cost of sales and contracts increased to $13,342,000 from $11,078,000 in the corresponding period a year ago. Cost of sales and contracts represented 77% of
revenues versus 78% for the corresponding period last year. In the prior year, the Company incurred significant service related costs associated with the Mexico service contract, which was in dispute.
The revenue related to these expenditures was recorded in the fourth quarter of fiscal 2002 upon resolution of this dispute. Cost of product sales increased as a percentage of product revenues as
compared to the corresponding period in fiscal 2002 as the third quarter of fiscal 2002 had numerous high margin upgrade projects, which are now completed, or near completion.

Total
cost of sales and contracts for the nine-month period ended December 31, 2002 increased to $38,343,000 from $37,686,000 in the corresponding period a year ago.
Cost of sales and contracts represented 78% of revenues versus 77% for the corresponding period last year. This increase is attributable to the increase in revenues noted above, as well the $290,000
for inventory write downs related to excess cargo inventories during the current fiscal year. These increased costs are offset somewhat by improved margins in the service area as the Mexico dispute
affecting fiscal 2002 margins was resolved in the fourth quarter of fiscal 2002.

Selling,
general and administrative expenses decreased to $3,055,000 for the third quarter of fiscal 2003 from $4,274,000 in the corresponding period a year ago. Selling, general and
administrative expenses represented 18% of revenues in the current quarter compared to 30% for the corresponding period last year. In the third quarter of fiscal 2002, the Company incurred significant
legal expenses (approximately $1.2 million) related to litigation settled during that quarter which accounted for the majority of the decrease year over year.

Selling,
general and administrative expenses of $10,003,000 for the first nine months of fiscal 2003 increased by 2% over the selling, general and administrative expenses of $9,847,000
reported during the first nine months of fiscal 2002. The increased costs were due primarily to increased insurance ($225,000) consulting ($250,000) and trade and road show expenditures (approximately
$150,000) as well as additional personnel in critical areas. This increase was offset by significant legal expenses (approximately $1.3 million) incurred in the prior year.

Company
funded research and development expenses of $1,342,000 for the third quarter decreased by $286,000 (18%) compared to the corresponding period last year and decreased by $315,000
(19%) from the second quarter of fiscal 2003. Current quarter expenditures decreased comparatively as

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engineering resources had increased utilization on cargo and contract engineering programs during the period.

Research
and development expenses for the nine-month period ended December 31, 2002 were $4,865,000 as compared to $4,822,000 for the corresponding period last year.
As a percentage of revenue, research and development expenses were 10% of revenues in each of the nine-month periods completed.

As
part of the private equity placement during the first quarter of 2003, the Company issued 295,475 warrants. Due to certain conversion features of these warrants, that provide that the
holder may opt for a cash settlement in certain instances, including a merger, a sale of all or substantially all of the Company's assets, or a tender offer or exchange offer of shares of the
Company's stock, a liability equal to the Black-Scholes valuation of the warrants at the deal closing date was recorded on the Company's balance sheet. At December 31, 2002, these warrants were
"marked to market" using Black-
Scholes and the change in the valuation of the warrants of $592,000 was recorded as a debit to other expense in the quarter. During the nine months ended December 31, 2002, this calculation
generated a $1,496,000 credit to other income (expense).

The
potential tax benefits on losses incurred in fiscal 2003 have been fully reserved against due to the uncertainty as to whether additional loss carryforwards may ultimately be
realized. In assessing the realizibility of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Although realization is not assured, the Company expects that deferred tax assets of $3.3 million, net of valuation allowance, at December 31, 2002 will be realized through future
earnings. Given the Company's recent losses, the Company continues to monitor the recoverability of deferred tax assets. Should it be determined that it is more likely than not that such assets are
not realizable, recording an additional valuation allowance could have a material adverse impact on earnings. In the quarter and nine months ended December 31, 2001, the Company recognized tax
benefits of $1,099,000 and 1,529,000 respectively.

The
Company incurred a net loss of $1,058,000 during the third quarter of fiscal 2003 as compared to a net loss of $1,792,000 in the third quarter of fiscal 2002. During the first nine
months of fiscal 2003 the Company reported a loss of $2,664,000 as compared to a loss of $2,490,000 for the same period in the prior year. The significant factors contributing to these results are
noted in the above sections.

Liquidity and Capital Resources

On May 28, 2002, the Company closed on a private placement offering of common stock and warrants. A total of 1,115,000 shares were sold to accredited
investors at a price of $17.64 each. In addition, warrants to purchase an additional 295,475 shares of common stock at a price of $23.52 were issued. These warrants have a five-year life
expiring in May of 2007. Proceeds to the Company approximated $18.4 million. The proceeds from this private placement offering have been and are being utilized for general corporate purposes
including debt repayment, capital expenditures, and investments in product development and working capital needs.

Cash
and cash equivalents increased by $5,086,000 to $12,677,000 at December 31, 2002 compared to $7,591,000 at March 31, 2002. This increase in cash and cash equivalents
is primarily due to proceeds received from the private equity placement and stock option exercises offset by the repayment of the line of credit and increases in accounts receivable and decreases in
certain liabilities. Working capital increased by $15,578,000 (85%) since March 31, 2002, increasing from $18,336,000 to $33,914,000 at December 31, 2002 due primarily to the stock and
option proceeds received.

On
November 30, 2000, the Company signed two credit agreements with HSBC Bank USA ("HSBC"). The first agreement was for a $10 million domestic revolving credit facility to
support the

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Company's routine working capital and standby letter of credit needs. The second was a $30 million export credit and security agreement, guaranteed by the Export-Import Bank of the United
States ("Ex-Im"), to support the Company's overseas contract, trade finance and working capital needs. The credit facility bears an interest rate of the HSBC Bank USA prime rate or LIBOR
plus 2.0% at the Company's option. On February 14, 2002, these credit agreements were amended to increase the domestic revolving credit facility to $20 million and to reduce the export
credit facility to $20 million. The domestic revolving credit facility as amended provides for maximum borrowings in an amount up to the lower of: (a) the sum of 85% of eligible domestic
accounts receivable plus the lower of: (i) 40% of eligible raw materials and work-in-process inventory; or; (ii) $5 million, or; (b) $20 million. The export credit
and security agreement as amended provides for maximum borrowings in an amount up to the lower of: (a) the sum of 90% of eligible international billed and unbilled accounts receivable, or;
(b) $20 million. These agreements were further amended on November 28, 2002 to reduce the domestic revolving credit facility to $5 million, with maximum borrowings set at
the lower of: (a) the sum of 85% of eligible domestic accounts receivable plus the lower of: (i) 40% of eligible raw materials and work-in-process inventory; or;
(ii) $2 million, or; (b) $5 million. In addition, the interest rate and certain financial covenants were amended and the expiration date of the facility was extended to
February 28, 2003.

The
Company currently plans on refinancing either under the same agreement with HSBC or a similar agreement with a new facility; however, there can be no assurance that HSBC will renew
the credit agreements or that alternative financing can be obtained. As discussed above, the Company has paid off the amounts outstanding under the domestic credit facilities and management believes
the Company's working capital requirements through March 31, 2003 can be met without the line of credit. In addition, to the extent the Company's credit facility is not renewed, it would
preclude the Company from obtaining financing through its current secured export credit and security agreement which could negatively impact the Company's ability to support international sales.
However, management believes the Company's planned level of sales in 2003 can be achieved without access to export credit.

At
December 31, 2002, there were no borrowings outstanding against this facility and $4.6 million in letters of credit were in effect against these credit facilities. The
Company's credit facility restricts the payment of dividends, except in shares of the Company's stock, without consent of the bank and requires the Company to meet certain financial covenants. As of
December 31, 2002, the Company was not in compliance with its earnings covenant but has received a waiver from the bank on this non-compliance.

The
Company conducts its business worldwide with certain contracts situated in the Middle East. Increased hostilities in this region could potentially result in project delays and/or
increased costs, which could adversely affect the Company's financial results in future periods.

New Accounting Pronouncements:

In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others," which elaborates on required disclosures by a guarantor in its financial statements about obligations under certain guarantees that it has issued and clarifies
the need for a guarantor to recognize, at the
inception of certain guarantees, a liability for the fair value of the obligation undertaken in issuing the guarantee. The Company is reviewing the provisions of this Interpretation relating to
initial recognition and measurement of guarantor liabilities, which are effective for qualifying guarantees entered into or modified after December 31, 2002, but does not expect it to have a
material impact on the Company's financial statements. The disclosure requirements of the Interpretation, which are effective for the quarter ended December 31, 2002, are included in
Note 6 of this filing.

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In
November 2002, the Task Force reached a consensus on Emerging Issues Task Force Issue No. 00-21, "Accounting for Revenue Arrangements with Multiple
Deliverables". This issue addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how arrangement consideration should be
measured and allocated to the separate units of accounting. This guidance is effective for American Science and Engineering, Inc. beginning in Fiscal 2005 with early application permitted. The
Company is currently evaluating the impact of this guidance on its revenue recognition policies.

In
April 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections" (FAS 145). This statement eliminates the requirement that gains and losses from the extinguishments of debt be
aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. However, an entity would not be prohibited from classifying such gains and losses as
extraordinary items so long as they are both unusual in nature and infrequent in occurrence. This provision of FAS 145 will be effective for the Company as of the beginning of fiscal 2004. This
statement also amends FAS 13, "Accounting for Leases" and certain other authoritative pronouncements to make technical corrections or clarifications. FAS 145 will be effective related to
the amendment of FAS 13 for all transactions occurring after May 15, 2002. All other provisions of FAS 145 will be effective for financial statements issued after May 15,
2002. The Company is currently evaluating the impact of implementing FAS 145.

In
July 2002, the FASB issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" (FAS 146),
which nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." FAS 146 requires a liability for a cost associated with an exit or disposal activity be recognized and measured initially at its fair value in the
period in which the liability is incurred. If fair value cannot be reasonably estimated, the liability shall be recognized initially in the period in which fair value can be reasonably estimated. The
provisions of FAS 146 will be effective for the Company prospectively for exit or disposal activities initiated after December 31, 2002; however, this standard is not expected to have a
significant impact.

In
October 2001, the FASB issued FAS No. 144, "Accounting for the Impairment or Disposal of Long Lived Assets" which supercedes FAS No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of" and provisions of APB Opinion No. 30 "Reporting the Results of Operations-Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions", for the disposal of segments of a business. The statement creates one accounting model, based on the framework established in FAS
No. 121, to be applied to all long-lived assets including discontinued operations. FAS No. 144 was effective for the Company on April 1, 2002.

In
December 2002, the FASB issued SFAS No. 148 "Accounting for Stock- Based Compensation-Transition and Disclosure- an amendment of FASB Statement No. 123"
(FAS 148). This statement amends SFAS No. 123 "Accounting for Stock Based Compensation" (FAS 123) to provide alternative methods of voluntarily transitioning to the fair value
based method of accounting for stock-based employee compensation. FAS 148 also amends the disclosure requirements of FAS 123 to require disclosure of the method used to account for
stock-based employee compensation and the effect of the method on reported results in both annual and interim financial statements. The Company is in the process of assessing the impact of FAS
No. 148 on its fiscal 2003 consolidated financial statements.

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Item 4Controls and Procedures

Within the 90-day period prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to
Rule 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded
that our disclosure controls and procedures are effective for gathering, analyzing and disclosing the information we are required to disclose in reports filed under such Act.

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

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Part IIOther Information

Item 1Legal Proceedings

The United States Court of Appeals for the Federal Circuit in Washington, D.C., in a decision issued December 29, 1999, ruled that American
Science & Engineering, may pursue a patent infringement claim against Vivid Technologies which produces X-ray detection devices used in baggage scanning equipment. The Appeals Court
overturned a 1998 decision in Vivid's favor by the Massachusetts Federal District Court. The lawsuit, filed by Vivid Technologies in May 1996, concerns whether Vivid's X-ray
detection devices infringed on the Company's patent. The District Court had ruled that the Company could not assert a claim that Vivid's devices infringed on the Company's patent. The Appeals Court
also reversed the district court's finding on summary judgment that Vivid did not infringe on the Company's patent, as well as the district court's denial of the Company's request for discovery to
oppose Vivid's summary judgment motion. Discovery is now proceeding.

In
September 1998, the Company filed suit against EG&G Astrophysics Research Corp. ("EG&G") in U.S. District Court in Massachusetts alleging that EG&G infringed on at least two
patents owned by the Company and that EG&G has misappropriated certain trade secrets of the Company. In February 1999, the Company filed a related action in the same court against the U.S.
Customs Service ("Customs") alleging that Customs had either misappropriated the Company's trade secrets or facilitated their misappropriation by EG&G and that Customs had improperly entered into a
contract with EG&G for the acquisition of a product functionally equivalent to MobileSearch X-ray inspection system. In May 1999, the Court held a hearing on the
Company's motion for a preliminary injunction against both Customs and EG&G prohibiting further performance of the contested contract and preventing EG&G from utilizing the Company's trade secrets. In
August 1999, the Court issued a ruling denying the request for the preliminary injunction. In December 1999, EG&G filed a motion for summary judgment that EG&G did not misappropriate the
Company's trade secrets and in March 2000 EG&G filed a motion for summary judgment that EG&G did not infringe the Company's patents. In February 2001, the court denied EG&G's and the
Company's motions for summary judgment. The Company is continuing to pursue its claims against EG&G, but the suit against U.S. Customs Service has been dismissed.

In
a related matter, EG&G filed a request with the U.S. Patent and Trademark Office ("USPTO") for re-examination of the two patents that currently are at issue in the patent
infringement action described above. The Company filed oppositions to the re-examination requests and was advised by the USPTO that the Company's MobileSearch X-ray inspection
patent and the Company's patent on its Z® Backscatter X-ray inspection technology were both upheld in all material respects. The Company is also subject to various legal
proceedings and claims that arise in the ordinary course of business. The Company currently believes that it is remote that the ultimate resolution of these matters will have a material adverse impact
on its financial condition or results of operations.

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Item 6Exhibits and Reports on Form 8-K

|10 (c)(xii) |  | Employment agreement between the Company and Paul Theodore Owens dated December 12, 2002                                                         
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|10(d)(v)    |  | Amended Revolving Loan and Security Agreement between American Science and Engineering, Inc. and HSBC bank dated November 28, 2002               
|99.1        |  | 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
|99.2        |  | 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

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

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned
hereunto duly authorized.

|                       |  | AMERICAN SCIENCE AND ENGINEERING, INC.(Registrant)
|---------------------- |  | --------------------------------------------------
|Date February 14, 2003 |  | Paul Theodore Owens
Chief Financial Officer       

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Safe Harbor Statement

The foregoing 10-Q contains statements concerning the Company's financial performance and business operations, which may be
considered "forward-looking" under applicable securities laws.

The Company wishes to caution readers of this Form 10-Q that actual results might differ materially from those projected in any forward-looking
statements.

Factors which might cause actual results to differ materially from those projected in the forward-looking statements contained herein
include the following: Project delays or increased costs associated with prolonged international conflict, especially in light of the current situation in Iraq; significant reductions or delays in
procurements of the Company's systems by the United States Government; disruption in the supply of any sole-source component incorporated into the Company's products (of which there are
several); litigation seeking to restrict the use of intellectual property used by the Company; potential product liability claims against the Company; global political trends and events which affect
public perception of the threat presented by drugs, explosives and other contraband; the ability of governments and private organizations to fund purchases of the Company's products to address such
threats; and the potential insufficiency of Company resources, including human resources, capital, plant and equipment and management systems, to accommodate any future growth. These and certain other
factors which might cause actual results to differ materially from those projected are more fully set forth under the caption "Forward-Looking Information and Factors Affecting Future Performance" in
the Company's Registration Statement on Form 10-K.

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CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

Section 302 Certification

I,
Ralph S. Sheridan, certify that:





|Date: February 14, 2003                                                     |  | 
|--------------------------------------------------------------------------- |  | 
|/s/RALPH S. SHERIDANRalph S. Sheridan
President and Chief Executive Officer |  | 

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CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

Section 302 Certification

I,
Paul Theodore Owens, certify that:





|Date: February 14, 2003                                           |  | 
|----------------------------------------------------------------- |  | 
|/s/PAUL THEODORE OWENSPaul Theodore Owens
Chief Financial Officer |  | 

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EXHIBIT INDEX

|Exhibit No. |  | Description                                                                                                                       
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------
|10(c)(xii)  |  | Employment agreement between the Company and Paul Theodore Owens dated December 12, 2002                                          
|10(d)(v)    |  | Amended Revolving Loan and Security Agreement between American Science and Engineering, Inc. and HSBC bank dated November 28, 2002
|99.1        |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                          
|99.2        |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                          

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