**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-Q**

| **x**                                                  | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|--------------------------------------------------------|----------------------------------------------------------------------------------------------------|
| ** **                                             | ** **                                                                                         |
| **For the  quarterly period ended June 30, 2007** |
| ** **                                             |
| **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          |   | (I.R.S. Employer     |
|  incorporation or organization)      |   | 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 bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file 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 is a large accelerated filer, an accelerated filer, or anon-accelerated filer.  See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
| Large accelerated filer  o |   | Accelerated filer  x |   | Non-accelerated filer  o |
|--------------------------------------|--------|--------------------------------|--------|------------------------------------|

 

 Indicateby check mark whether the Registrant is a shell company (as defined in Rule12b-2 of the Securities Exchange Act of 1934)   Yes   o     No   x

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date
| Class of Common Stock | ** ** | **Outstanding at  August 3, 2007** |
|----------------------------|------------|----------------------------------------------|
| $66 2/3 par  value         |       | 9,207,300                                    |

 

 

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

**Index**
| **Part 1 — Financial Information**                                                                                          | 3      |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|
| Item 1  **—**Financial  Statements                                                                                               | 3      |
| Unaudited  Condensed Consolidated Balance Sheets—June 30, 2007 and March 31, 2007                                                | 3      |
| Unaudited  Condensed Consolidated Statements of Operations—for the Three Months Ended  June 30, 2007 and June 30, 2006 | 4      |
|                                                                                                                                  |   |
| Unaudited Condensed  Consolidated Statements of Cash Flows—For the Three Months Ended June 30,  2007 and June 30, 2006      | 5      |
| Notes to  Unaudited Condensed Consolidated Financial Statements                                                                       | 6      |
| Item 2  **—** Management’s Discussion and Analysis of Financial  Condition and Results of Operations                   | 11     |
| Item 3  **—** Quantitative and Qualitative Disclosure About  Market Risk                                                    | 12     |
| Item 4  **—** Controls and Procedures                                                                                       | 12     |
| **Part II  — Other  Information**                                                                                      | 13     |
| Item 1   **—** Exhibits                                                                                                     | 13     |
| **Signatures**                                                                                                                        | 14     |

 

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**PART I— FINANCIAL INFORMATION**

**  Item1 — Financial Statements**

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

**Condensed Consolidated Balance Sheets(Unaudited)**

**Dollarsin thousands**
| ** **                                                                                                                                                            | ** ** | **June 30,   2007** | ** ** | **March 31,    2007** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|--------------------------------------|------------|
| **Assets**                                                                                                                                                            | ** ** | ** **                    | ** ** | ** **                           | ** ** |
| Current assets:                                                                                                                                                       |       |                          |       |                                 |       |
| Cash and cash  equivalents                                                                                                                                            |       | $                             | 40,457     |                                 | $          | 69,650 |   |
| Restricted cash and  investments                                                                                                                                      |       | 319                           |       | 202                                  |       |
| Short-term investments                                                                                                                                                |       | 85,094                        |       | 66,086                               |       |
| Accounts receivable,  net of allowances of $271 and $224 at June 30, 2007 and March 31, 2007,  respectively                                                           |       | 34,932                        |       | 23,366                               |       |
| Unbilled costs and fees                                                                                                                                               |       | 6,728                         |       | 5,841                                |       |
| Inventories                                                                                                                                                           |       | 25,404                        |       | 20,140                               |       |
| Prepaid expenses and  other current assets                                                                                                                            |       | 6,651                         |       | 6,730                                |       |
| Deferred income taxes                                                                                                                                                 |       | 3,910                         |       | 3,087                                |       |
| **Total current assets**                                                                                                                                              |       | 203,495                       |       | 195,102                              |       |
| Building, equipment and  leasehold improvements, net                                                                                                                  |       | 22,953                        |       | 23,054                               |       |
| Restricted cash and  investments                                                                                                                                      |       | 2,204                         |       | 2,599                                |       |
| Deferred income taxes                                                                                                                                                 |       | 585                           |       | 970                                  |       |
| Other assets, net                                                                                                                                                     |       | 4                             |       | —                               |       |
| **Total assets**                                                                                                                                                      |       | $                             | 229,241    |                                 | $          | 221,725 |   |
|                                                                                                                                                                  |       |                          |       |                                 |       |
| **Liabilities and Stockholders’  Equity**                                                                                                                        | ** ** | ** **                    | ** ** | ** **                           | ** ** |
| Current liabilities:                                                                                                                                                  |       |                          |       |                                 |       |
| Accounts payable                                                                                                                                                      |       | $                             | 10,854     |                                 | $          | 8,117 |   |
| Accrued salaries and  benefits                                                                                                                                        |       | 2,232                         |       | 7,241                                |       |
| Accrued warranty costs                                                                                                                                                |       | 1,948                         |       | 1,997                                |       |
| Accrued income taxes                                                                                                                                                  |       | 3,030                         |       | —                               |       |
| Deferred revenue                                                                                                                                                      |       | 3,513                         |       | 4,321                                |       |
| Customer deposits                                                                                                                                                     |       | 12,154                        |       | 11,554                               |       |
| Current portion of  lease financing liability                                                                                                                         |       | 1,028                         |       | 1,263                                |       |
| Warrant liability                                                                                                                                                     |       | —                        |       | 634                                  |       |
| Other current  liabilities                                                                                                                                            |       | 4,093                         |       | 4,290                                |       |
| **Total current liabilities**                                                                                                                                         |       | 38,852                        |       | 39,417                               |       |
| Lease financing  liability, net of current portion                                                                                                                    |       | 10,119                        |       | 10,379                               |       |
| Other long term  liabilities                                                                                                                                          |       | 4,205                         |       | 4,231                                |       |
| **Total liabilities**                                                                                                                                                 |       | 53,176                        |       | 54,027                               |       |
|                                                                                                                                                                  |       |                          |       |                                 |       |
| **Stockholders’ equity:**                                                                                                                                        | ** ** | ** **                    | ** ** | ** **                           | ** ** |
| Preferred stock, no par  value Authorized—100,000 shares; Issued—none                                                                                       |       |                          |       |                                 |       |
| Common stock, $0.66 2/3  par value Authorized—20,000,000 shares Issued and Outstanding 9,227,435  shares at June 30, 2007 and 9,186,975 shares at March 31, 2007 |       | 6,151                         |       | 6,125                                |       |
| Capital in excess of  par value                                                                                                                                       |       | 107,225                       |       | 105,036                              |       |
| Accumulated other  comprehensive income                                                                                                                               |       | 28                            |       | 48                                   |       |
| Retained earnings                                                                                                                                                     |       | 62,661                        |       | 56,489                               |       |
| **Total stockholders’ equity**                                                                                                                                   |       | 176,065                       |       | 167,698                              |       |
| **Total liabilities and stockholders’ equity**                                                                                                                   |       | $                             | 229,241    |                                 | $          | 221,725 |   |

 

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

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

**Condensed Consolidated Statements ofOperations (Unaudited)**

**Dollarsand shares in thousands, except per share amounts**
| ** **                                    | ** **    | **For the Three Months Ended** | ** ** |
|-----------------------------------------------|---------------|----------------------------------------------------|------------|
| ** **                                    | ** **    | **June 30, 2007**                        | ** ** | **June 30, 2006** | ** ** |
|                                          |          |                                               |       |   |   |
| **Net  sales and contract revenues:**         | ** **    | ** **                                         | ** ** | ** ** | ** ** |
| Net product  sales and contract revenues      |          | $                                                  | 28,907     |   | $ | 19,113 |   |
| Net service  revenues                         |          | 15,564                                             |       | 10,769 |   |
| Total net  revenues and contract revenues     |          | 44,471                                             |       | 29,882 |   |
|                                          |          |                                               |       |   |   |
| **Cost of  sales and contracts:**             | ** **    | ** **                                         | ** ** | ** ** | ** ** |
| Cost of product  sales and contracts          |          | 18,765                                             |       | 10,741 |   |
| Cost of service  revenues                     |          | 8,305                                              |       | 5,644 |   |
| Total cost of  sales and contracts            |          | 27,070                                             |       | 16,385 |   |
| **Gross  profit**                             |          | 17,401                                             |       | 13,497 |   |
|                                          |          |                                               |       |   |   |
| **Expenses:**                                 | ** **    | ** **                                         | ** ** | ** ** | ** ** |
| Selling, general  and administrative expenses |          | 6,483                                              |       | 5,695 |   |
| Research and  development costs               |          | 2,757                                              |       | 2,249 |   |
| Total expenses                                |          | 9,240                                              |       | 7,944 |   |
|                                          |          |                                               |       |   |   |
| Operating income                              |          | 8,161                                              |       | 5,553 |   |
|                                          |          |                                               |       |   |   |
| **Other  income (expense):**                  | ** **    | ** **                                         | ** ** | ** ** | ** ** |
| Interest and  investment income               |          | 2,016                                              |       | 1,116 |   |
| Interest expense                              |          | (40                                                | )          | (99 | ) |
| Other, net                                    |          | (113                                               | )          | 13 |   |
| Change in  warrant valuation                  |          | 11                                                 |       | 2,132 |   |
| Total other  income                           |          | 1,874                                              |       | 3,162 |   |
|                                          |          |                                               |       |   |   |
| Income before  provision for income taxes     |          | 10,035                                             |       | 8,715 |   |
| Provision for  income taxes                   |          | 3,863                                              |       | 2,720 |   |
|                                          |          |                                               |       |   |   |
| Net income                                    |          | $                                                  | 6,172      |   | $ | 5,995 |   |
|                                          |          |                                               |       |   |   |
| Income per share                              | —Basic   |                                               | $          | 0.67 |   | $ | 0.66 |   |
|                                          | —Diluted |                                               | $          | 0.66 |   | $ | 0.41 |   |
|                                          |          |                                               |       |   |   |   |
| Weighted average  shares                      | —Basic   |                                               | 9,171      |   | 9,073 |   |
|                                          | —Diluted |                                               | 9,397      |   | 9,372 |   |

 

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

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

**Condensed Consolidated Statements ofCash Flows (Unaudited)**

**Dollarsin thousands**
| ** **                                                                                    | ** ** | **For the Three Months Ended** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                                    | ** ** | **June 30, 2007**                        | ** ** | **June 30, 2006** | ** ** |
| **Cash  flows from operating activities:**                                                    | ** ** | ** **                                         | ** ** | ** ** | ** ** |
| Net income                                                                                    |       | $                                                  | 6,172      |   | $ | 5,995 |   |
| Adjustments to  reconcile net income to net cash provided by (used for) operating activities: |       |                                               |       |   |   |
| Depreciation and  amortization                                                                |       | 986                                                |       | 524 |   |
| Provisions for  contracts, inventory and accounts receivable reserves                         |       | 186                                                |       | 36 |   |
| Amortization of  bond discount                                                                |       | (463                                               | )          | (246 | ) |
| Deferred income  taxes                                                                        |       | (438                                               | )          | (1,332 | ) |
| Change in value  of warrants                                                                  |       | (11                                                | )          | (2,132 | ) |
| Stock  compensation expense                                                                   |       | 1,258                                              |       | 2,200 |   |
| Changes in  assets and liabilities:                                                           |       |                                               |       |   |   |
| Accounts receivable                                                                           |       | (11,613                                            | )          | (4,963 | ) |
| Unbilled costs and fees                                                                       |       | (887                                               | )          | 778 |   |
| Inventories                                                                                   |       | (5,403                                             | )          | (602 | ) |
| Prepaid expenses and other assets                                                             |       | 329                                                |       | 3,974 |   |
| Accounts payable                                                                              |       | 2,737                                              |       | (2,942 | ) |
| Accrued income taxes                                                                          |       | 3,030                                              |       | 1,375 |   |
| Customer deposits                                                                             |       | 600                                                |       | 8,260 |   |
| Deferred revenue                                                                              |       | (834                                               | )          | 3,262 |   |
| Accrued expenses and other current liabilities                                                |       | (5,105                                             | )          | (4,165 | ) |
| Non-current liabilities                                                                       |       | —                                             |       | (4 | ) |
| Net cash  provided by (used for) operating activities                                         |       | (9,456                                             | )          | 10,018 |   |
|                                                                                          |       |                                               |       |   |   |
| **Cash  flows from investing activities:**                                                    | ** ** | ** **                                         | ** ** | ** ** | ** ** |
| Purchases of  short-term investments                                                          |       | (46,888                                            | )          | (17,186 | ) |
| Proceeds from  maturities of short-term investments                                           |       | 28,325                                             |       | 19,650 |   |
| Issuance of note  receivable                                                                  |       | (250                                               | )          | — |   |
| Purchases of  property and equipment                                                          |       | (889                                               | )          | (1,642 | ) |
| Net cash  provided by (used for) investing activities                                         |       | (19,702                                            | )          | 822 |   |
|                                                                                          |       |                                               |       |   |   |
| **Cash  flows from financing activities:**                                                    | ** ** | ** **                                         | ** ** | ** ** | ** ** |
| Decrease  (increase) in restricted cash and investments                                       |       | 278                                                |       | (12,833 | ) |
| Proceeds from  exercise of warrants                                                           |       | 509                                                |       | 834 |   |
| Proceeds from  exercise of stock options                                                      |       | 632                                                |       | 77 |   |
| Repurchase of  shares of common stock                                                         |       | (1,337                                             | )          | — |   |
| Proceeds from  financing of leasehold improvements                                            |       | —                                             |       | 2,095 |   |
| Repayment of  leasehold financing                                                             |       | (495                                               | )          | (187 | ) |
| Reduction of  income taxes paid due to the tax benefit from employee stock option expense     |       | 380                                                |       | 15 |   |
| Net cash used  for financing activities                                                       |       | (33                                                | )          | (9,999 | ) |
|                                                                                          |       |                                               |       |   |   |
| Foreign currency  translation effect on cash                                                  |       | (2                                                 | )          | 20 |   |
|                                                                                          |       |                                               |       |   |   |
| Net increase  (decrease) in cash and cash equivalents                                         |       | (29,193                                            | )          | 861 |   |
| Cash and cash  equivalents at beginning of period                                             |       | 69,650                                             |       | 50,655 |   |
| Cash and cash  equivalents at end of period                                                   |       | $                                                  | 40,457     |   | $ | 51,516 |   |

 

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

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**American Science andEngineering, 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 accordancewith the 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 onForm 10-K for the fiscal year ended March 31, 2007.

The unaudited condensedconsolidated financial statements, in the opinion of management, include alladjustments necessary, consisting solely of normal recurring adjustments, topresent fairly the Company’s financial position, results of operations and cashflows.  These quarterly results are not necessarily indicative of theresults to be expected for the entire year.

Natureof 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.

SignificantAccounting Policies

Revenues on costreimbursable and long-term fixed price contracts are generally recorded ascosts are incurred using the percentage of completion method.  For systemsthat are produced in a standard manufacturing operation and have shorter orderto delivery 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.

The Company’sExport and Security Agreement with Silicon Valley Bank East requires certaincash balances to be restricted as collateral against outstanding standbyletters of credit; these are separately presented as restricted cash. (See Note5)

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, 2007.  As discussed in Note 7, the Company adoptedInterpretation No. 48 (“FIN 48”) issued by the Financial Accounting StandardBoard (“FASB”) effective April 1, 2007. The Company has made no other changes to its accounting policies duringthe current year.

ComprehensiveIncome

Comprehensiveincome is comprised of the following:
|                                                                     | ** ** | **Three months ended** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------|------------|
| **(in thousands)**                                             | ** ** | **June 30, 2007**      | ** ** | **June 30, 2006** | ** ** |
| Net income                                                          |       | $                                | 6,172      |   | $ | 5,995 |   |
| Foreign currency  translation adjustments, net of tax               |       | 2                                |       | 20 |   |
| Unrealized gains  and losses from marketable securities, net of tax |       | (22                              | )          | 17 |   |
| Comprehensive income                                                |       | $                                | 6,152      |   | $ | 6,032 |   |

 

**2.   Accounting for Stock-Based Compensation**

On April 1, 2006,the Company adopted Statement of Financial Accounting Standards No. 123(R)(SFAS 123(R)) “Accounting for Stock-Based Compensation”, which requires themeasurement and recognition of all compensation costs for all stock based awardsmade to employees and the Board of Directors based upon fair value over therequisite service period for awards expected to vest. Prior to adoption, theCompany accounted for stock options under the intrinsic value method set inaccordance with Accounting Principles Board Opinion No. 25, “Accounting forStock Issued to Employees,” and related interpretations, and provided therequired pro forma disclosures prescribed by SFAS No. 123, “Accounting forShare-based Compensation”, as amended.

SFAS 123(R) requiresthe Company to estimate the fair value of share-based awards on the date ofgrant using an option pricing model. The Company adopted SFAS 123(R) using themodified prospective transition method which requires the application of theaccounting standard starting April 1, 2006, the first day of the Company’sfiscal year 2007. Prior period information was not restated to reflect the fairvalue method of expensing share-based awards.

Stock-basedcompensation costs recognized for the three month period ended June 30, 2007and June 30, 2006, included 

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compensation costsfor awards granted prior to, but not yet vested as of April 1, 2006 (adoptiondate), as well as any new grants issued after April 1, 2006. The Companyrecognized $1,258,000 and $1,624,000 of share-based compensation costs in theconsolidated statements of income for the quarter ended June 30, 2007 and June20, 2006, respectively. The income tax benefit related to such compensation forthe three months ended June 30, 2007 and June 30, 2006 was approximately$225,000 and $306,000, respectively.

The followingtable summarizes share-based compensation costs included in the Company’sconsolidated statement of income:
|                                                    | ** ** | **Three months ended** | ** ** |
|----------------------------------------------------|------------|----------------------------------|------------|
| **(in thousands)**                            | ** ** | **June 30, 2007**      | ** ** | **June 30, 2006** | ** ** |
| Cost of revenues                                   |       | $                                | 427        |   | $ | 665 |   |
| Selling, general  and administrative               |       | 831                              |       | 959 |   |
| Total share-based  compensation expense before tax |       | $                                | 1,258      |   | $ | 1,624 |   |

 

Upon adoption of SFAS123(R), in accordance with Staff Accounting Bulletin No. 107, the Companyselected the Black-Scholes option pricing model as the most appropriate methodfor determining the estimated fair value for the stock awards. TheBlack-Scholes method of valuation requires several assumptions: (1) theexpected term of the stock award, (2) the expected future stock volatility overthe expected term and (3) a risk-free interest rate. The expected termrepresents the 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 no options granted in the three monthperiod ended June 30, 2007.

**Stock Option and Other Compensation Plans:**

The Company hasvarious stock option and other compensation plans for directors, officers, andemployees. The Company had the following stock option plans outstanding as ofJune 30, 2007: the 1995 Combination Plan, the 1996 Plan for Non-EmployeeDirectors, the 1997 Non-Qualified Option Plan, the 1998 Non-Qualified OptionPlan, the 1999 Combination Plan, the 2000 Combination Plan, the 2002Combination Plan, the 2003 Stock Plan for Non-Employee Directors and the 2005Equity and Incentive Plan. There are 3,780,000 shares authorized under theseplans. Vesting periods are at the discretion of the Board of Directors andtypically range between one and three years. Options under these plans aregranted at fair market value and have a term of five or ten years from the dateof grant.

**Stock Options**

The followingtables summarize stock option activity during the first three months of fiscalyear 2008:
| ** **                         | ** ** | **Options Outstanding** | ** ** |
|------------------------------------|------------|------------------------------|------------|
| ** **                         | ** ** | **Number of  Shares**   | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Contractual  Life  (years)** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
| **Outstanding  at March 31, 2007** |       | 887,573                      |       | $ | 37.43 |   | 7.50 |   |   |   |
| Grants                             |       | —                       |       |   |   |   |   |   |   |
| Exercises                          |       | (39,989                      | )          |   |   |   |   |   |   |
| Cancellations                      |       | (8,345                       | )          |   |   |   |   |   |   |
| **Outstanding  at June 30, 2007**  |       | 839,239                      |       | $ | 38.24 |   | 7.37 |   |   |   |
| **Exercisable at June 30, 2007**   |       | 637,146                      |       | $ | 34.86 |   |   |   | $ | 14,562,000 |   |
|                                    |            |                              |            |  |  |  |  |  |  |  |  |

 

Informationrelated to the stock options outstanding as of June 30, 2007 is as follows:
| **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                              |       | 216,693                    |       | 5.72                                                            |       | $                                         | 11.82      |                                    | 216,693    |                                                   | $          | 11.82 |   |
| $20.01 - $30.00                             |       | 103,738                    |       | 7.19                                                            |       | 27.51                                     |       | 102,688                                 |       | 27.56                                                  |       |
| $30.01 - $40.00                             |       | 69,041                     |       | 7.33                                                            |       | 38.94                                     |       | 37,208                                  |       | 38.84                                                  |       |
| $40.01 - $50.00                             |       | 137,199                    |       | 8.28                                                            |       | 45.82                                     |       | 49,732                                  |       | 44.80                                                  |       |
| $50.01 - $60.00                             |       | 220,830                    |       | 8.11                                                            |       | 53.64                                     |       | 166,153                                 |       | 53.70                                                  |       |
| $60.01 - $83.02                             |       | 91,738                     |       | 8.35                                                            |       | 63.85                                     |       | 64,672                                  |       | 65.25                                                  |       |
| $6.50 - $83.02                              |       | 839,239                    |       | 7.37                                                            |       | $                                         | 38.24      |                                    | 637,146    |                                                   | $          | 34.86 |   |

 

As of June 30,2007, there was approximately $2,156,000 of unrecognized compensation costsrelated to options granted. The 

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unrecognizedcompensation will be primarily recognized over a period of approximately 2years.   Non-vested common stockoptions are subject to the risk of forfeiture until the fulfillment ofspecified conditions.

**RestrictedStock and Restricted Stock Units**

During fiscal2006, the Company instituted an annual long term incentive plan for certain keyemployees. The plan calls for the issuance of restricted stock and optionswhich vest upon the achievement of certain performance based goals as well asservice time incurred.  In addition,restricted stock and restricted stock units may be granted to other employeeswith vesting periods that range from one to three years.  Annually on January 10th, the Board of Directors isgranted restricted stock. The stock vests pro-rata based on service timeincurred in the upcoming calendar year. The fair values of these restricted stock awards are equal to the marketprice per share of the Company’s common stock on the date of grant.

Non-vestedrestricted stock and stock unit awards are subject to the risk of forfeitureuntil the fulfillment of specified conditions. As of June 30, 2007, there was$1,848,000 of total unrecognized compensation cost related to non-vestedrestricted stock and stock unit awards granted under the Company’s stock plans.This cost is expected to be recognized over a 3 year period.

The followingtable summarizes the status of the Company’s non-vested restricted stock awardsduring the first three months of fiscal 2008:
| ** **                         | ** ** | **Non-vested Restricted Stock Awards** | ** ** |
|------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                         | ** ** | **Number of  Shares**                            | ** ** | **Weighted Average  Grant Date  Fair Value** | ** ** |
| **Outstanding  at March 31, 2007** |       | 49,538                                                |       | $ | 54.52 |   |
| Granted                            |       | 400                                                   |       | 55.60 |   |
| Vested                             |       | (2,982                                                | )          | 56.76 |   |
| Forfeited                          |       | —                                                |       | — |   |
| **Outstanding at June 30, 2007**   |       | 46,956                                                |       | $ | 54.39 |   |

 

**3.  Inventories**
| **(Dollars in thousands)**                      | ** ** | **June 30, 2007** | ** ** | **March 31, 2007** | ** ** |
|-----------------------------------------------------------|------------|-----------------------------|------------|------------------------------|------------|
| Inventories  consisted of:                                |       |                        |       |                         |       |
| Raw materials,  completed sub-assemblies, and spare parts |       | $                           | 14,354     |                         | $          | 11,260 |   |
| Work-in-process                                           |       | 9,349                       |       | 6,681                        |       |
| Finished goods                                            |       | 1,701                       |       | 2,199                        |       |
| Total                                                     |       | $                           | 25,404     |                         | $          | 20,140 |   |

 

**StockRepurchase Program**

During the firstquarter of fiscal 2008, the Board of Directors approved a Stock RepurchaseProgram which authorized the Company to repurchase up to $35 million of sharesof its common stock from time to time on the open market. During the quarterended June 30, 2007, a total of 24,000 shares were repurchased at an averageprice of $55.69 per share.

**4.  Income per Common and Common 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 the dilutiveimpact of options and warrants using the average share price of the Company’scommon stock for the period. For the quarters ended June 30, 2007 and June 30,2006, common stock equivalents of 356,000 and 600, respectively, are excludedfrom diluted earnings per share, as their effect is anti-dilutive.

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| ** **                                                                                | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| **(in thousands except per share amounts)**                      | ** ** | **June 30, 2007**      | ** ** | **June 30, 2006** | ** ** |
|                                                                                      |       |                             |       |   |   |
| **Earnings  Per Share Basic:**                                                            | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net income                                                                                |       | $                                | 6,172      |   | $ | 5,995 |   |
| Weighted average  number of common shares outstanding — basic                        |       | 9,171                            |       | 9,073 |   |
| Net income per  share — basic                                                        |       | $                                | 0.67       |   | $ | 0.66 |   |
| **Diluted:**                                                                              | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net income                                                                                |       | $                                | 6,172      |   | $ | 5,995 |   |
| Adjustment to  net income for change in warrant valuation                                 |       | (11                              | )          | (2,132 | ) |
| Adjusted net  income                                                                      |       | 6,161                            |       | 3,863 |   |
| Weighted average  number of common shares outstanding                                     |       | 9,171                            |       | 9,073 |   |
| Assumed exercise  of stock options and warrants, using the treasury stock method          |       | 226                              |       | 299 |   |
| Weighted average  number of common and potential common shares outstanding — diluted |       | 9,397                            |       | 9,372 |   |
| Net income per share —  diluted                                                      |       | $                                | 0.66       |   | $ | 0.41 |   |

 

**5.   Line of Credit**

OnNovember 16, 2006, the Company modified its domestic loan and securityagreement with Silicon Valley Bank East which was scheduled to expire onNovember 29, 2006.  The Company increased its domestic facility from $5.0million to $20.0 million to support the Company’s routine working capitalneeds. The maximum amount available for borrowings under the domestic facilityis (a) if the Company’s unrestricted cash is greater than or equal to $30.0million, $20.0 million minus the amount of all outstanding letters of creditless certain reserves, and minus the outstanding principal balance of anyadvances or (b) if the Company’s unrestricted cash is less than $30.0 millionfor a period of 30 consecutive days, the lesser of (i) $20.0 million, or (ii)85% of eligible domestic accounts receivable minus the amount of outstandingletters of credits adjusted for certain reserves and minus the principlebalance of any advances.  Themodification of the domestic loan and security agreement extended this creditfacility through November 14, 2008.

The creditfacility bears an interest rate of the greater of 4.0% or the Silicon ValleyBank prime rate (8.25% at June 30, 2007). 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 June 30, 2007, the Company was incompliance with these covenants.

In the normal courseof business, the Company may provide certain customers and potential customerswith performance guarantees, which are generally backed by standby letters ofcredit.  In general, the Company wouldonly be liable for the amount of these guarantees in the event of default inthe performance of our obligations, the probability of which is remote inmanagement’s opinion.  The Company hadoutstanding $16,783,000 in stand-by letters of credit against the domesticfacility with $3,217,000 remaining available. Of the outstanding letters of credit, $300,000 relates to the Company’sbuilding lease and the remainder is guaranteeing performance on certaininternational projects.  No amounts have been drawn against these lettersof credit. In addition, at June 30, 2007, the Company had a restricted cashbalance of $2,523,000 related to certain bank required deposits for outstandingletters of credits, bid bonds, and other bank-related fees.

**6.   Warrant Liability**

On May 28,2002, the Company closed on a private placement offering of common stock andwarrants. A total of 1,115,000 shares were sold to accredited investors at aprice of $17.64 per share. In addition, warrants to purchase an additional295,475 shares of common stock at an exercise price of $23.52 per share wereissued.  The warrants were immediately vested and had a five-year lifeexpiring in May of 2007.

Due to certainconversion features of these warrants that provide that the holder could optfor a cash settlement in certain instances, including a merger, a sale of allor substantially all of the Company’s assets, or a tender offer or exchangeoffer of shares of the Company’s stock, a liability equal to the fair value ofthe warrants at the deal closing date was recorded on the Company’s balancesheet. This liability was remeasured each quarter and marked to market. The “mark to market” change in the warrants valuation of $11,000 and $2,132,000was recorded as other income for the three months ended June 30, 2007 and June30, 2006, respectively. At June 30, 2007 all warrants have been exercisedand no liability for these warrants remains.

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**7.   Income Taxes**

The Companyaccounts for income taxes in accordance with SFAS No. 109, “Accounting forIncome Taxes.” Accordingly, the Company recognizes deferred income taxes basedon the expected future tax consequences of differences between the financialstatement basis and the tax basis of assets and liabilities, calculated usingenacted tax rates in effect for the year in which the differences are expectedto be reflected in the tax return. The Company evaluates the need for avaluation allowance against its net deferred tax assets at year end based uponits three year cumulative income and its projections of future income, andrecords a valuation allowance against any net deferred tax assets if it is morelikely than not that they will not be realized.

On November 10,2005, the Financial Accounting Standards Board (“FASB”) issued FASB StaffPosition No. FAS 123(R), “Transition Election Related to Accounting for TaxEffects of Share-Based Payment Awards” that allows for a simplified orLong-Haul Method to establish the beginning balance of the additionalpaid-in-capital pool (“APIC pool”) related to the tax effects of employeestock-based compensation, and to determine the subsequent impact on the APICpool and Consolidated Statements of Cash Flows of the tax effects of employeestock-based compensation awards that are outstanding upon adoption of SFAS123(R). The Company has elected to use the Long-Haul Method of calculating theAPIC pool.

In July 2006, the FASB issued InterpretationNo. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation ofFASB Statement No. 109”. FIN 48 clarifies the accounting for uncertaintyin income taxes recognized in an entity’s financial statements in accordancewith FASB Statement No. 109, “Accounting for Income Taxes” and prescribesa recognition threshold and measurement attributes for financial statementdisclosure of tax positions taken or expected to be taken on a tax return.Under FIN 48, the impact of an uncertain income tax position on the income taxreturn must be recognized at the largest amount that is more likely than not tobe sustained upon audit by the relevant taxing authority. An uncertain incometax position will not be recognized if it has less than a 50% likelihood ofbeing sustained. Additionally, FIN 48 provides guidance on de-recognition,classification, interest and penalties, accounting in interim periods,disclosure and transition. The Company adopted FIN 48 effective April 1, 2007.There were no adjustments required to the reported tax benefits at adoption.Further, the Company does not expect that the amounts of unrecognized taxbenefits will change significantly in the next twelve months. As of April 1,2007, the Company has accrued no interest or penalties related to uncertain taxpositions.

The Company is currently subject to audit by theInternal Revenue Service and certain state income tax authorities for thefiscal years ended 2004 through 2006.

**8.   Guarantees**

Certain of theCompany’s parcel and cargo products carry a one-year warranty, the costs ofwhich are accrued for at time of shipment or delivery.  Accrual rates arebased upon historical experience over the preceding twelve months andmanagement’s judgment of future exposure.  Warranty experience for thethree months ended June 30, 2007 and June 30, 2006 is as follows:
| **(in thousands)**                           | ** ** | **Three months    ended June 30,  2007** | ** ** | **Three months  ended June 30,  2006** | ** ** |
|---------------------------------------------------|------------|-------------------------------------------------------------------|------------|-------------------------------------------------------|------------|
| Warranty accrual  at beginning of period          |       | $                                                                 | 1,997      |                                                  | $          | 3,606 |   |
| Accruals for  warranties issued during the period |       | 110                                                               |       | 59                                                    |       |
| Warranty costs  incurred during period            |       | (159                                                              | )          | (455                                                  | )          |
| Warranty accrual at end  of period                |       | $                                                                 | 1,948      |                                                  | $          | 3,210 |   |

 

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, Inc.  The Company remains secondarily liable for theremaining lease payments in the event of default by Accuray, Inc. duringthe lease term which expires in February 2011. Total remaining leasepayments at June 30, 2007 totaled $1,401,000.  No accrual for this contingentliability has been recorded at June 30, 2007 as payment of this liability isconsidered remote.

**9.   Lease Commitments**

InMarch 2005, the Company renewed its lease agreement for its corporateheadquarters and manufacturing facilities in Billerica, Massachusetts.  Aspart of the lease agreement, the Company’s landlord agreed to certainrenovations to the Billerica facility including the construction of additionalhigh bay manufacturing space.  The Company was responsible for a portionof the construction costs and was deemed to be the owner of the building duringthe construction period under EITF 97-10 “The Effect of Lessee Involvement inAsset Construction”.  In January 2007, the Company amended this leaseagreement to expand its lease to include the remaining available space in thebuilding.  A total of $7,182,000 was capitalized to record the facility onits books with an offsetting credit to the Lease Financing Liability.  Inaddition, amounts paid for construction were recorded as construction in progressand the landlord construction allowances of $5,642,000 (of which $50,000 was areceivable at June 30, 2007) were recorded as additional lease financingliability.

At thecompletion of the construction of the initial renovations in February 2006, thelease was reviewed for potential sale-leaseback treatment in accordance withSFAS No. 98.  Based on this review, it was determined that the leasedid not qualify for sale-leaseback treatment in accordance with SFASNo. 98.  As a result, building and tenant improvement and associatedlease financing liabilities remain on the Company’s books.  The LeaseFinancing Liability is being amortized over the lease term based on thepayments designated in the agreement and the building and tenant improvementassets are being depreciated on a straight line basis over the lessor of theiruseful lives or the lease term.

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** **

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

Resultsof Operations

Net revenues forthe first quarter of fiscal 2008 increased by $14,589,000 to $44,471,000compared to the corresponding period a year ago.  This increase isattributable primarily to an increase of $9,794,000 in product sales, of which$2,648,000 relates to increased shipments of Z Backscatter systems.  In addition, there was an increase of $5,832,000 in CargoSearch system revenuesdue primarily to the increased volume of CargoSearch projects which wereongoing during the first quarter of fiscal 2008, and an increase of $2,137,000in contract research and development revenues as compared to the prior periodattributable primarily to one large research and development contract.  Service revenues increased by $4,795,000 to$15,564,000 compared to the first quarter of fiscal 2007 due primarily to theincreased volume of service contracts related to increased system deliveriesover the past 12-18 months.

Total cost ofsales and contracts for the first quarter of fiscal 2008 increased by$10,685,000 to $27,070,000 as compared to the corresponding period a year ago.Cost of sales and contracts related to product revenues increased by $8,024,000to $18,765,000 as compared to the corresponding period a year ago.  Costof product sales and contract revenues represented 65% of revenues versus 56%of revenue, for the corresponding period last year.  This decline in grossmargin is due primarily to the mix of products sold in the period with agreater percentage of revenues derived from cargo and contract research anddevelopment related projects, and a decline in margins on certain projectsaccounted for on a percentage of completion basis in the current quarter.  The cost of service revenues for the firstquarter ended June 30, 2007 increased by $2,661,000 to $8,305,000 as comparedto the corresponding period a year ago.  Cost of service revenuesrepresented 53% of revenues versus 52% for the corresponding period last year.

Selling, generaland administrative expenses for the first quarter of fiscal 2008 of $6,483,000were $788,000 higher than the corresponding period a year ago.  Selling,general and administrative expenses represented 15% of revenues in the currentperiod as compared to 19% for the corresponding period last year.  Theincrease in costs was primarily the result of an increase in salaries andbenefits associated with the increased headcount, and costs associated with theERP implementation.

Company fundedresearch and development expenses of $2,757,000 for the first quarter of fiscal2008 increased by $508,000 compared to the corresponding period lastyear.  Research and development expenses represented 6% of revenues in thecurrent quarter compared to 8% for the corresponding period last year. The Company’s research and development efforts in the quarter were focused ondesign modifications to its existing products and the development of productalternatives to continue to bring innovative products to its customers.

Other income was$1,874,000 in income for the first quarter of fiscal 2008 as compared to$3,162,000 in income for the corresponding period a year ago.  Otherincome for the quarter ended June 30, 2007 and June 30, 2006 include $11,000and $2,132,000, respectively of warrant income due to the reductions of thewarrant liability as a result of changes to the outstanding warrants’ fairvalue.  In addition, in the quarter ended June 30, 2007, the Companyearned $2,016,000 in income on investments held as compared to $1,116,000 inthe quarter ended June 30, 2006 due primarily to increases in the Company’scash and investments balances.

The Companyreported pre-tax income of $10,035,000 in the quarter ended June 30, 2007 ascompared to pre-tax income of $8,715,000 in the corresponding period a year agodue to the factors described above.

The Company’sprojected effective tax rate, excluding the income effect of the warrants whichis a permanent item, for the quarter ended June 30, 2007 decreased to 38% from41% for the corresponding period a year ago.  This decrease is due tochanges in permanent tax items, primarily related to incentive stockcompensation, increases in certain allowable deductions in the current taxyear, and an increase in the percentage of international sales revenue ascompared to the prior period.

The Company hadnet income of $6,172,000 during the first quarter of fiscal 2008 as compared tonet income of $5,995,000 in the first quarter of fiscal 2007.  Thesignificant factors contributing to these results are noted in the abovesections.

Liquidity andCapital Resources

Cash and cashequivalents decreased by $29,193,000 to $40,457,000 at June 30, 2007 comparedto $69,650,000 at March 31, 2007. This decrease is attributable primarilyto $18,563,000 in net purchases of short-term investments during theperiod.  In addition, the Company had$9,456,000 in net cash used for operating activities due mainly to increases inaccounts receivable of $11,613,000, increases in inventory of $5,403,000attributable to planned inventory builds, and decreases in accrued expenses andother current liabilities of $5,105,000 partially offset by net income of$6,172,000.

OnNovember 16, 2006, the Company modified its domestic loan and securityagreement with Silicon Valley Bank East which was scheduled to expire onNovember 29, 2006.  The Company increased its domestic facility from $5.0million to $20.0 million to support the Company’s routine working capitalneeds.  The maximum amount available forborrowings under the domestic facility is (a) if the Company’s unrestrictedcash is greater than or equal to $30.0 million, $20.0 million minus the amountof all outstanding letters of credit less certain reserves, and minus theoutstanding principal balance of any advances or (b) if

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the Company’sunrestricted cash is less than $30.0 million for a period of 30 consecutivedays, the lesser of (i) $20.0 million, or (ii) 85% of eligible domesticaccounts receivable minus the amount of outstanding letters of credits adjustedfor certain reserves and minus the principle balance of any advances.  The modification of the domestic loan andsecurity agreement extended this credit facility through November 14, 2008.

The credit facilitybears an interest rate of the greater of 4.0% or the Silicon Valley Bank primerate (8.25% at June 30, 2007). The credit agreement is collateralized bycertain assets of the Company and contains certain restrictions, includinglimitations on the amount of distributions that can be made to stockholders,and the disposition or encumbrances of assets, and requires the maintenance ofcertain financial covenants.  As of June30, 2007 the Company was in compliance with these covenants.

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, theCompany would only be liable for the amount of these guarantees in the event ofdefault in the performance of our obligations, the probability of which isremote in management’s opinion.  TheCompany had outstanding $16,783,000 in stand-by letters of credit against thedomestic facility with $3,217,000 remaining available.  Of the outstanding letters of credit,$300,000 relates to the Company’s building lease and the remainder isguaranteeing performance on certain international projects.  No amountshave been drawn against these letters of credit. In addition, at June 30, 2007,the Company had a restricted cash balance of $2,523,000 related to certain bankrequired deposits for outstanding letters of credits, bid bonds, and otherbank-related fees.

**New Accounting Pronouncements:**

In July 2006, the FASB issued InterpretationNo. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation ofFASB Statement No. 109”. FIN 48 clarifies the accounting for uncertaintyin income taxes recognized in an entity’s financial statements in accordancewith FASB Statement No. 109, “Accounting for Income Taxes” and prescribesa recognition threshold and measurement attributes for financial statementdisclosure of tax positions taken or expected to be taken on a tax return.Under FIN 48, the impact of an uncertain income tax position on the income taxreturn must be recognized at the largest amount that is more likely than not tobe sustained upon audit by the relevant taxing authority. An uncertain incometax position will not be recognized if it has less than a 50% likelihood ofbeing sustained. Additionally, FIN 48 provides guidance on de-recognition,classification, interest and penalties, accounting in interim periods,disclosure and transition. The Company adopted FIN 48 effective April 1,2007.  The adoption of FIN 48 did nothave a material impact on our condensed consolidated financial statements.

InFebruary 2007, the FASB issued FASB Statement No. 159 (SFAS No. 159),“The Fair Value Option for Financial Assets and Financial Liabilities.” SFASNo. 159 gives entities the option, at specified election dates, to measurecertain financial assets and liabilities at fair value. The election may beapplied to financial assets and liabilities on an instrument by instrumentbasis, is irrevocable, and may only be applied to entire instruments. Unrealizedgains and losses on instruments for which the fair value option has beenelected will be reported in earnings at each subsequent reporting date. SFASNo. 159 will be effective for the Company beginning April 1, 2008.Adoption of SFAS No. 159 is currently not expected to have a materialimpact on the Company’s consolidated financial position or results ofoperations

InSeptember 2006, the FASB issued Statement of Financial Accounting Standards No.157 “Fair Value Measurements”, (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for measuringfair value, and expands disclosure requirements regarding fair valuemeasurement.  SFAS No. 157 will beeffective for the Company beginning April 1, 2008. The Company iscurrently reviewing SFAS No. 157 to determine the impact and materiality of itsadoption to the Company.

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

The cash accountsfor the Company’s operations in Singapore, Hong Kong, England, and Abu Dhabiare maintained in Singapore dollars, Hong Kong dollars, pounds sterling anddirham, respectively. Foreign currency accounts are marked to market at currentrates that resulted in immaterial translation adjustments to stockholders’equity. The gains and losses from foreign currency transactions are included inthe statements of operations for the period and were also 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 June 30,2007, the Company held short-term investments consisting of money market fundsand U.S. government and government agency bonds. The Company’s primaryobjective with its investment portfolio is to invest available cash whilepreserving principal and meeting liquidity needs. These investments had anaverage interest rate of approximately 4.87% and are subject to interest raterisk. As a result of the average maturity and conservative nature of theinvestment portfolio, a sudden change in interest rates would not have amaterial adverse effect on the value of these investments.

**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

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Chief ExecutiveOfficer and Chief Financial Officer, the Company reviewed and evaluated theeffectiveness of the Company’s disclosure controls and procedures pursuant toRule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of1934 as amended (the “Exchange Act”). Based upon their evaluation, our ChiefExecutive Officer and our Chief Financial Officer concluded that our disclosurecontrols and procedures were effective to provide reasonable assurance thatinformation required to be disclosed by the Company in the reports filed andsubmitted by it under the Exchange Act is recorded, processed, summarized andreported within the time period specified in the Securities and ExchangeCommission’s rules and forms, and to provide reasonable assurance thatinformation required to be disclosed by the Company in such reports isaccumulated and communicated to the Company’s management, including its ChiefExecutive Officer and Chief Financial Officer, as appropriate to allow timelydecisions regarding required disclosure.

b)  Changes in internal controls

There have been nochanges in our internal controls over financial reporting as such term isdefined in Rule 13a-15(f) and 15d-15(f) of the Securities ExchangeAct of 1934 during the period covered by this report that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrols over financial reporting.

**PART II — OTHER INFORMATION**

**Item 1 - Exhibits**
| **(a)** | ** ** | **Exhibits**                                                                                                                                                  |
|---------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |       |                                                                                                                                                          |
| 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 |

 

The informationrequired by Exhibit Item 11 (Statement re: Computation of Income perCommon and Common Equivalent Share) may be found in Footnote No. 3.

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**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  August 9, 2007 |   | /s/ Kenneth J. Galaznik                |
|                      |   | Kenneth J. Galaznik                    |
|                      |   | Chief Financial Officer  and Treasurer |

 

*Safe Harbor Statement*

*Theforegoing 10-Q contains statements concerning the Company’s financialperformance and business operations, which may be considered “forward-looking”under applicable securities laws.*

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

*Factorswhich might cause actual results to differ materially from those projected inthe forward-looking statements contained herein include the following:significant reductions or delays in procurements of the Company’s systems bythe United States and other governments; disruption in the supply of any sourcecomponent incorporated into AS&E’s products; litigation seeking to restrictthe use of intellectual property used by the Company; potential productliability claims against the Company; global political trends and events whichaffect public perception of the threat presented by drugs, explosives and othercontraband; global economic developments and the ability of governments andprivate organizations to fund purchases of the Company’s products to addresssuch threats; and the potential insufficiency of Company resources, includinghuman resources, capital, plant and equipment and management systems, toaccommodate any future growth and any future delays in federal funding. Theseand certain other factors which might cause actual results to differ materiallyfrom those projected are more fully set forth in the Company’s Annual Report onForm 10-K for the fiscal year ended March 31, 2007 under Item 1A “Risk Factors.” Please also refer to our other filings with the Securities and ExchangeCommission.*

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