**FORM 10-Q/A**

**(Amendment No. 1)**

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**ý****QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d)**

**OFTHE SECURITIES EXCHANGE ACT OF 1934**

 

###### **Forthe quarterly period ended June 30, 2004**

 

**OR**

 

**o****TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d)**

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

 

**(978) 262-8700**

(Registrant’s telephone number, including area code)

 

 

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

 

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

 

Indicateby check mark whether the Registrant is an accelerated filer (as defined inRule 12b-2 of the Securities Exchange Act of 1934). Yes ý  No o

 

Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practicable date

 
| **Class of Common Stock** | ** ** | **Outstanding at  July, 30, 2004** | ** ** |
|---------------------------|------------|------------------------------------|------------|
| $.66 2/3 par  value       |       | 7,822,312                          |       |

 

 

----

 

**Explanatory Note: **This Amendment No.1 on Form 10-Q/A amends ourQuarterly Report on Form 10-Q filed with the Securities and Exchange Commissionon August 9, 2004 (the “Original Form 10-Q”) solely in order to amend andcorrect Item 4. As a result of the amendment of Item 4, the Section 302 andSection 906 certifications filed as Exhibits in Item 6 have been re-executed asof the date of this Amendment No.1 on Form 10-Q/A. Except for theaforementioned amendments, this Amendment No.1 speaks as of the original filingdate of the Original Form 10-Q and does not modify or update disclosures in theOriginal Form 10-Q, including the nature and character of such disclosures, toreflect events occuring, or items discovered, after the original filing date ofthe Original Form 10-Q.  Accordingly,this Amendment No. 1 should be read in conjunction with the Company’s filingsmade with the Securities and Exchange Commission subsequent to the originalfiling date of the Original Form 10-Q, including any amendments to thosefilings.

 

**PART I – FINANCIAL INFORMATION**

**Item 1 – Financial Statements**

 

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

**Condensed Consolidated Balance Sheets**

 

**(Unaudited)**

Dollarsin thousands

 
| ** **                                                                                                                                                                   | ** ** | **June 30, 2004** | ** ** | **March 31,  2004** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|---------------------|------------|
| **Assets**                                                                                                                                                                   |       |              |       |                |       |
| Current assets:                                                                                                                                                              |       |              |       |                |       |
| Cash and cash equivalents                                                                                                                                                    |       | $                 | 24,264     |                | $          | 18,232 |   |
| Restricted cash                                                                                                                                                              |       | 629               |       | 585                 |       |
| Short-term investments                                                                                                                                                       |       | 921               |       | 1,845               |       |
| Accounts receivable, net of allowances of  $275 and $250 at June 30, 2004 and March 31,2004, respectively                                                          |       | 12,121            |       | 14,771              |       |
| Unbilled costs and fees, net of allowances  of $352 and $394 at June 30, 2004 and March 31, 2004, respectively                                                     |       | 4,366             |       | 4,468               |       |
| Inventories                                                                                                                                                                  |       | 12,611            |       | 11,390              |       |
| Prepaid expenses and other current assets                                                                                                                                    |       | 1,925             |       | 1,890               |       |
|                                                                                                                                                                         |       |              |       |                |       |
| **Total current assets**                                                                                                                                                     |       | 56,837            |       | 53,181              |       |
| Equipment and Leasehold Improvements, net                                                                                                                                    |       | 2,926             |       | 2,585               |       |
| Other assets, net                                                                                                                                                            |       | 36                |       | 37                  |       |
|                                                                                                                                                                         |       |              |       |                |       |
| **Total assets**                                                                                                                                                             |       | $                 | 59,799     |                | $          | 55,803 |   |
| ** **                                                                                                                                                                   |       |              |       |                |       |
| **Liabilities and Stockholders’ Equity**                                                                                                                                |       |              |       |                |       |
| Current liabilities:                                                                                                                                                         |       |              |       |                |       |
| Accounts payable                                                                                                                                                             |       | $                 | 4,218      |                | $          | 3,690 |   |
| Accrued salaries and benefits                                                                                                                                                |       | 2,222             |       | 1,954               |       |
| Accrued warranty costs                                                                                                                                                       |       | 900               |       | 699                 |       |
| Deferred revenue                                                                                                                                                             |       | 1,597             |       | 2,020               |       |
| Customer deposits                                                                                                                                                            |       | 3,892             |       | 4,419               |       |
| Other current liabilities                                                                                                                                                    |       | 1,291             |       | 1,875               |       |
|                                                                                                                                                                         |       |              |       |                |       |
| **Total current liabilities**                                                                                                                                                |       | 14,120            |       | 14,657              |       |
| Warrant liability                                                                                                                                                            |       | 3,013             |       | 2,093               |       |
| Other long-term liabilities                                                                                                                                                  |       | 643               |       | 620                 |       |
|                                                                                                                                                                         |       |              |       |                |       |
| **Total liabilities**                                                                                                                                                        |       | 17,776            |       | 17,370              |       |
|                                                                                                                                                                         |       |              |       |                |       |
| Stockholders’ equity:                                                                                                                                                   |       |              |       |                |       |
| Preferred stock, no par value Authorized -  100,000 shares; Issued - none                                                                                                    |       | —            |       | —              |       |
| Common stock, $0.66 2/3 par value  Authorized - 20,000,000 shares Issued and Outstanding 7,822,312 shares at  June 30, 2004 and 7,415,660 shares at March 31, 2004 |       | 5,214             |       | 4,943               |       |
| Capital in excess of par value                                                                                                                                               |       | 46,515            |       | 42,683              |       |
| Cumulative translation adjustment                                                                                                                                            |       | 4                 |       | 14                  |       |
| Unearned compensation                                                                                                                                                        |       | (77               | )          | (115                | )          |
| Accumulated deficit                                                                                                                                                          |       | (9,633            | )          | (9,092              | )          |
|                                                                                                                                                                         |       |              |       |                |       |
| **Total stockholders’ equity**                                                                                                                                          |       | 42,023            |       | 38,433              |       |
|                                                                                                                                                                         |       |              |       |                |       |
| **Total liabilities and stockholders’ equity**                                                                                                                          |       | $                 | 59,799     |                | $          | 55,803 |   |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.

 

2

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

**Condensed Consolidated Statements of Operations**

**(Unaudited)**

 

Dollarsand shares in thousands, except per share amounts

 
| ** **                                       | ** **      | **For the Three Months Ended** | ** ** |
|--------------------------------------------------|-----------------|--------------------------------|------------|
| ** **                                       | ** **      | **June 30,  2004**             | ** ** | **June 30,  2003** | ** ** |
|                                             |            |                           |       |   |   |
| **Net sales and contract revenues:**             |            |                           |       |   |   |
| Net product sales and contract revenues          |            | $                              | 12,822     |   | $ | 14,078 |   |
| Net service revenues                             |            | 3,990                          |       | 3,310 |   |
| Total net revenues and contract revenues         |            | 16,812                         |       | 17,388 |   |
|                                             |            |                           |       |   |   |
| **Cost of sales and contracts:**                 |            |                           |       |   |   |
| Cost of product sales and contracts              |            | 9,522                          |       | 10,944 |   |
| Cost of service revenues                         |            | 2,152                          |       | 1,872 |   |
| Total cost of sales and contracts                |            | 11,674                         |       | 12,816 |   |
| **Gross profit**                                 |            | 5,138                          |       | 4,572 |   |
|                                             |            |                           |       |   |   |
| **Expenses:**                                    |            |                           |       |   |   |
| Selling, general and administrative              |            | 3,274                          |       | 3,052 |   |
| Research and development                         |            | 1,455                          |       | 1,285 |   |
| Total expenses                                   |            | 4,729                          |       | 4,337 |   |
|                                             |            |                           |       |   |   |
| Operating income                                 |            | 409                            |       | 235 |   |
|                                             |            |                           |       |   |   |
| Other income (expense):                          |            |                           |       |   |   |
| Interest income                                  |            | 41                             |       | 28 |   |
| Other, net                                       |            | (991                           | )          | (143 | ) |
| Total other expense                              |            | (950                           | )          | (115 | ) |
|                                             |            |                           |       |   |   |
| Income (loss) before provision for income  taxes |            | (541                           | )          | 120 |   |
| Provision for (benefit from) income taxes        |            | —                         |       | — |   |
|                                             |            |                           |       |   |   |
| Net income (loss)                                |            | $                              | (541       | ) | $ | 120 |   |
|                                             |            |                           |       |   |   |
| Income (loss) per share                          | •  Basic   |                           | $          | (0.07 | ) | $ | 0.02 |   |
|                                             | •  Diluted |                           | $          | (0.07 | ) | $ | 0.02 |   |
|                                             |            |                           |       |   |   |
| Weighted average shares                          | •  Basic   |                           | 7,558      |   | 6,883 |   |
|                                             | •  Diluted |                           | 7,558      |   | 7,011 |   |
|                                                  |                 |                                |            |  |  |  |  |  |  |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.

 

3

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

**Condensed Consolidated Statements of Cash Flows**

**(Unaudited**)

 

Dollarsin thousands

 
| ** **                                                                                           | ** ** | **For the Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                           | ** ** | **June 30, 2004**              | ** ** | **June 30, 2003** | ** ** |
| **Cash flows from operating activities:**                                                            |       |                           |       |   |   |
| Net income (loss)                                                                                    |       | $                              | (541       | ) | $ | 120 |   |
| Adjustments to reconcile net income (loss)  to net cash provided by (used for) operating activities: |       |                           |       |   |   |
| Depreciation and amortization                                                                        |       | 338                            |       | 481 |   |
| Provisions for inventory, accounts  receivable and warranty reserves                                 |       | 546                            |       | 82 |   |
| Realized gain on short-term investments                                                              |       | (2                             | )          | (21 | ) |
| Change in value of warrants issued                                                                   |       | 920                            |       | 274 |   |
| Changes in assets and liabilities:                                                                   |       |                           |       |   |   |
| Accounts receivable                                                                                  |       | 2,625                          |       | (957 | ) |
| Unbilled costs and fees                                                                              |       | 60                             |       | 1,069 |   |
| Inventories                                                                                          |       | (1,294                         | )          | 2,314 |   |
| Prepaid expenses, deposits and other assets                                                          |       | (35                            | )          | (339 | ) |
| Accounts payable                                                                                     |       | 528                            |       | (1,932 | ) |
| Customer deposits                                                                                    |       | (527                           | )          | 1,599 |   |
| Deferred revenue                                                                                     |       | (394                           | )          | (409 | ) |
| Accrued expenses and other current  liabilities                                                      |       | (424                           | )          | 462 |   |
| Non-current liabilities                                                                              |       | 32                             |       | (20 | ) |
| Total adjustments                                                                                    |       | 2,373                          |       | 2,603 |   |
| Net cash provided by (used for) operating  activities                                                |       | 1,832                          |       | 2,723 |   |
|                                                                                                 |       |                           |       |   |   |
| **Cash flows from investing activities:**                                                            |       |                           |       |   |   |
| Decrease (increase) restricted cash                                                                  |       | (44                            | )          | (244 | ) |
| Purchases of short-term investments                                                                  |       | —                         |       | (1,406 | ) |
| Maturities of short-term investments                                                                 |       | 926                            |       | 1,371 |   |
| Purchase of property and equipment                                                                   |       | (678                           | )          | (157 | ) |
| Net cash used for investing activities                                                               |       | 204                            |       | (436 | ) |
|                                                                                                 |       |                           |       |   |   |
| **Cash flows from financing activities:**                                                            |       |                           |       |   |   |
| Proceeds from exercise of stock options                                                              |       | 4,006                          |       | 64 |   |
| Net cash provided by financing activities                                                            |       | 4,006                          |       | 64 |   |
|                                                                                                 |       |                           |       |   |   |
| Foreign currency translation effect on cash                                                          |       | (10                            | )          | 2 |   |
|                                                                                                 |       |                           |       |   |   |
| Net increase in cash and cash equivalents                                                            |       | 6,032                          |       | 2,353 |   |
| Cash and cash equivalents at beginning of  period                                                    |       | 18,232                         |       | 5,585 |   |
| Cash and cash equivalents at end of period                                                           |       | $                              | 24,264     |   | $ | 7,938 |   |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.

 

4

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

**Notes to Unaudited Condensed Consolidated FinancialStatements**

 

1.             General

 

Thecondensed consolidated financial statements include the accounts of the Companyand its wholly owned Subsidiary. All significant intercompany transactions andbalances have been eliminated.

 

Theunaudited condensed consolidated financial statements have been prepared inaccordance with the requirements of Form 10Q/A and consequently do not includeall disclosures required by Form 10-K. These condensed consolidated financialstatements should be read in conjunction with the consolidated financialstatements and the notes thereto included in the Company’s Annual Report onForm 10-K for the year ended March 31, 2004.

 

Theconsolidated 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 results are not necessarily indicative of the results to beexpected for the entire year.

 

Natureof Operations

 

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

 

SignificantAccounting Policies

 

Revenueson cost reimbursable and long-term fixed price contracts are generally recordedas costs are incurred using the percentage of completion method.  TheCompany recognizes sales for its systems that are produced in a standardmanufacturing operation and have shorter order to deliver cycles at the time ofshipment of the system to the customer and when other revenue recognitioncriteria is met.

 

Inventoriesconsist of material, labor and manufacturing overhead and are recorded at thelower of cost or net realizable value.  Excessive overhead manufacturingcosts attributable to idle facilities or abnormal production volumes areexcluded from inventory and recorded as an expense in the period incurred.

 

TheCompany’s Export and Security Agreement with Silicon Valley Bank East requirescertain cash balances to be restricted as collateral against outstandingstandby letters of credit. (see Note 4)

 

Thesignificant 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 year endedMarch 31, 2004.  The Company has made no changes to these policiesduring this quarter.

 

ProForma Stock-Based Compensation Expense

 

Aspermitted by SFAS No. 123, “Accounting for Stock-Based Compensation”, theCompany has elected to continue to apply Accounting Principles Board OpinionNo. 25, “Accounting for Stock Issued to Employees,” to account for itsstock-based compensation plans. Had compensation cost for awards under theCompany’s stock-based compensation plans been determined based on the fair valueat the grant dates consistent with the method set forth under SFASNo. 123, the effect on the Company’s net income (loss) and income (loss)per share would have been as follows:

 
| ** **                                                                   | ** ** | **Three months ended** | ** ** |
|------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                   | ** ** | **June 30, 2004**      | ** ** | **June 30, 2003** | ** ** |
| Net income (loss):                                                           |       |                   |       |   |   |
| As reported                                                                  |       | $                      | (541       | ) | $ | 120 |   |
| Less:  Stock based compensation using  fair value method for all awards |       | (112                   | )          | (919 | ) |
| Pro forma net loss                                                           |       | $                      | (653       | ) | $ | (799 | ) |
| Income (loss) per share—Basic:                                          |       |                   |       |   |   |
| As reported                                                                  |       | $                      | (0.07      | ) | $ | 0.02 |   |
| Pro forma                                                                    |       | $                      | (0.09      | ) | $ | (0.12 | ) |
| Income (loss) per share—Diluted:                                        |       |                   |       |   |   |
| As reported                                                                  |       | $                      | (0.07      | ) | $ | 0.02 |   |
| Pro forma                                                                    |       | $                      | (0.09      | ) | $ | (0.12 | ) |

 

5

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Thefair value of each option granted was estimated on the grant date using the Black-Scholesoption pricing model with the following weighted average assumptions: risk-freeinterest rate of 5.0% was used for fiscal 2005, 2004 and 2003,respectively, expected volatility of 73%, was used for fiscal 2005, 2004 and2003, respectively, an expected dividend yield of 0% and an expected life of 7years for all periods.

 

2.             Inventories

 
| **Inventories consisted of:  (Dollars in thousands)** | ** ** | **June 30, 2004** | ** ** | **March 31, 2004** | ** ** |
|-------------------------------------------------------|------------|-------------------|------------|--------------------|------------|
|                                                  |       |              |       |               |       |
| Raw materials and completed sub-assemblies            |       | $                 | 7,434      |               | $          | 7,089 |   |
| Work-in-process                                       |       | 4,650             |       | 4,168              |       |
| Finished goods                                        |       | 527               |       | 133                |       |
| Total                                                 |       | $                 | 12,611     |               | $          | 11,390 |   |

 

3.             Income per Common and CommonEquivalent Share

 

Basicearnings per common share is computed by dividing net income by the weightedaverage number of shares of common stock outstanding during the period. Diluted earnings per share includes the dilutive impact of options and warrantsusing the average share price of the Company’s common stock for the period. Forthe quarters ended June 30, 2004 and June 30, 2003, common stockequivalents of 792,633 and 1,448,072, respectively, are excluded from dilutedearnings per share, as their effect is anti-dilutive.

 
| **Earnings Per Share**                                                                    | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------------------------------------------|------------|------------------------|------------|
| **(in thousands except per share  amounts)**                                              | ** ** | **June 30, 2004**      | ** ** | **June 30, 2003** | ** ** |
|                                                                                      |       |                   |       |   |   |
| **Basic**                                                                                 |       |                   |       |   |   |
| Net income (loss)                                                                         |       | $                      | (541       | ) | $ | 120 |   |
| Weighted average number of common shares  outstanding – basic                        |       | 7,558                  |       | 6,883 |   |
| Net income (loss) per share – basic                                                  |       | $                      | (0.07      | ) | $ | 0.02 |   |
| **Diluted**                                                                               |       |                   |       |   |   |
| Net income (loss)                                                                         |       | $                      | (541       | ) | $ | 120 |   |
| Weighted average number of common shares  outstanding                                     |       | 7,558                  |       | 6,883 |   |
| Effect of stock options                                                                   |       | —                 |       | 128 |   |
| Weighted average number of common and  potential common shares outstanding – diluted |       | 7,558                  |       | 7,011 |   |
| Net income (loss) per share – diluted                                                |       | $                      | (0.07      | ) | $ | 0.02 |   |

 

4.             Borrowings

 

OnAugust 11, 2003, the Company entered into two new credit agreements withSilicon Valley Bank East replacing its HSBC Bank USA credit agreements thatexpired on July 31, 2003. The first agreement is a $5.0 milliondomestic loan and security agreement to support the Company’s routine workingcapital needs. Maximum borrowings for this line are set at the lower of(a) the sum of 80% of eligible domestic accounts receivable plus 10% offinished goods inventory up to $750,000, or; (b) $5 million. Thesecond is a $20.0 million export loan and security agreement, guaranteedby the Export-Import Bank of the United States to support the Company’soverseas contract, trade finance and working capital needs. On June 30,2004, the Company, along with Silicon Valley Bank, amended the quarterlycovenants contained in these agreements.  The Company was in compliancewith the Bank covenants prior to and after the amendments.

 

Thecredit facilities bear an interest rate of the greater of 4.25% or the SiliconValley Bank prime rate (4.0% at June 30, 2004) and have an expiration dateof November 30, 2004. The credit agreements are collateralized by certainassets of the Company and contain certain restrictions, including limitationson the amount of distributions that can be made to stockholders, and thedisposition or encumbrances of assets, and require the maintenance of certainfinancial covenants. As of June 30, 2004, the Company was in compliancewith these covenants. The Company has begun the process of renewing thesecredit facilities with Silicon Valley Bank East.

 

AtJune 30, 2004, there were no borrowings outstanding against these creditfacilities. The Company had outstanding $569,000 in stand by letters of creditguaranteeing performance on certain international projects, which have beencollateralized by cash. No amounts have been drawn on these stand by letters ofcredit.

 

5.             Private Placement Offering

 

OnMay 28, 2002, the Company closed on a private placement offering of commonstock and warrants.  A total of 1,115,000 shares were sold to accreditedinvestors at a price of $17.64 each. In addition, warrants to purchase anadditional 295,475 shares of common 

 

6

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stockat 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 Mayof 2007.  Due to certain conversion

featuresof these warrants, that provide that the holder may opt for a cash settlementin certain instances, including a merger, a sale of all or substantially all ofthe Company’s assets, or a tender offer or exchange offer of shares of theCompany’s stock, a liability equal to the Black-Scholes valuation of thewarrants at the deal closing date was recorded on the Company’s balancesheet.  The “mark to market” change in the warrants value of $920,000 and$274,000 was recorded as other expense for the three months ended June 30,2004 and June 30, 2003, respectively.  The liability of $3,013,000and $2,093,000 associated with the warrants is recorded as a non-currentliability on the June 30, 2004 and March 31, 2004 balance sheets,respectively.  The fair market value of the warrants was determined usingthe Black-Scholes pricing model and an assumed volatility of 75% and interestrate of 5%.

 

6.             Guarantees

 

AtJune 30, 2004 the Company had $569,000 of letters of credit outstandingguaranteeing performance on certain large international cargo projects. These letters of credit are issued through the Company’s export credit andsecurity agreement (see Note 4) and have expiration dates throughNovember of 2004.

 

TheCompany’s parcel product line carries a one-year warranty, the costs of which areaccrued for at time of shipment.  Accrual rates are based upon historicalexperience over the preceding twelve months and the adequacy of the warrantyreserve is evaluated monthly.  Warranty experience for the three monthsended June 30, 2004 and June 30, 2003 is as follows:

 
| **(in thousands)**                    | ** ** | **Three months  ended June 30,  2004** | ** ** | **Three months  ended June 30,  2003** | ** ** |
|---------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| Warranty accrual beginning of period  |       | $                                      | 699        |                                   | $          | 535 |   |
| Accruals for warranties               |       | 406                                    |       | 82                                     |       |
| Warranty costs incurred during period |       | (205                                   | )          | (82                                    | )          |
| Balance at end of period              |       | $                                      | 900        |                                   | $          | 535 |   |

 

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

 

Resultsof Operations

 

Totalnet revenues for the first quarter of fiscal 2005 decreased by $576,000 to$16,812,000 compared to the corresponding period a year ago.  Thisdecrease is attributable primarily to a decrease in MobileSearch and otherCargoSearch systems as compared to the previous year.  This decrease isoffset by increased ZBV revenue ($3,695,000), increased ParcelSearch systemrevenue ($1,313,000), and increased field service revenue of ($1,500,000), ascompared to the prior year.  Service revenues increased by $680,000compared to the first quarter of fiscal 2004 as the Company has entered intoservice contracts for equipment that had previously been under warranty.

 

Totalcost of sales and contracts for the first quarter of fiscal 2004 decreased by$1,142,000 to $11,674,000 compared to the corresponding period a year ago. Costof sales and contracts represented 69% of revenues versus 74% for thecorresponding period last year.  This margin improvement is attributableto reductions in manufacturing and service overhead costs and improved marginson service contracts.

 

Selling,general and administrative expenses for the first quarter of fiscal 2005 of$3,274,000 were $222,000 higher than the corresponding period a year ago. Selling, general and administrative expenses represented 19% of revenues in thecurrent period as compared to 18% for the corresponding period last year. The increase is attributable to an increase in facility expense due to therelocation of the HES Division as well as an increase in sales and marketingpersonnel, partially offset by a decrease in severance accruals.

 

Companyfunded research and development expenses of $1,455,000 for the first quarter offiscal 2005 increased by $170,000 compared to the corresponding period lastyear. Research and development expenses represented 9% of revenues in thecurrent period compared to 7% for the corresponding period last year**.  ** Company expendituresincreased primarily due to a major Cargosearch design project.

 

Otherexpense was $991,000 for the first quarter of fiscal 2005 as compared to$143,000 for the corresponding period a year ago.   As part of theprivate equity placement during the first quarter of 2003, the Company issued295,475 warrants.  Due to certain conversion features of these warrantsthat provide that the holder may opt for a cash settlement in certaininstances, including a merger, a sale of all or substantially all of theCompany’s assets, or a tender offer or exchange offer of shares of the Company’sstock, a liability equal to the Black-Scholes valuation of the warrants at thedeal closing date was recorded on the Company’s balance sheet.  AtJune 30, 2004, these warrants were “marked to market” using Black-Scholesand the change in the valuation of the warrants of $920,000 was recorded asother expense in the quarter. During the three months ended June 30, 2003,this calculation generated $274,000 in other expense.

 

7

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Thepotential tax benefits on losses incurred during the first quarter of fiscal2005 were fully reserved against due to the uncertainty as to whether theadditional loss carryforwards would ultimately be realized. In assessing therealizability of deferred tax assets, management considers whether it is morelikely than not that some portion or all of the deferred tax assets will not berealized.

 

TheCompany had a net loss of $541,000 during the first quarter of fiscal 2005 ascompared to net income of $120,000 in the first quarter of fiscal 2004. The significant factors contributing to these results are noted in the abovesections.

 

Liquidityand Capital Resources

 

Cashand cash equivalents increased by $6,032,000 to $24,264,000 at June 30,2004 compared to $18,232,000 at March 31, 2004. This increase in cash andcash equivalents is primarily due to $4,006,000 of cash generated from theexercise of employee stock options and the collection of some large accountreceivable balances that were outstanding at the end of fiscal year 2004.

 

OnAugust 11, 2003, the Company entered into two new credit agreements withSilicon Valley Bank East replacing its HSBC Bank USA credit agreements thatexpired on July 31, 2003. The first agreement is a $5.0 milliondomestic loan and security agreement to support the Company’s routine workingcapital needs. Maximum borrowings for this line are set at the lower of(a) the sum of 80% of eligible domestic accounts receivable plus 10% offinished goods inventory up to $750,000, or (b) $5 million. Thesecond is a $20.0 million export loan and security agreement, guaranteedby the Export-Import Bank of the United States to support the Company’soverseas contract, trade finance and working capital needs.

 

Thecredit facilities bear an interest rate of the greater of 4.25% or the SiliconValley Bank prime rate (4.0% at June 30, 2004) and have an expiration dateof November 30, 2004. The credit agreements are collateralized by certainassets of the Company and contain certain restrictions, including limitationson the amount of distributions that can be made to stockholders, and thedisposition or encumbrances of assets, and require the maintenance of certainfinancial covenants. As of June 30, 2004, the Company was in compliancewith these covenants. The Company has begun the process of renewing thesecredit facilities with Silicon Valley Bank East.

 

AtJune 30, 2004, there were no borrowings outstanding against these creditfacilities. The Company had outstanding $569,000 in stand by letters of creditguaranteeing performance on certain international projects, which have beencollateralized by cash. No amounts have been drawn on these stand by letters ofcredit.

 

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

 

TheCompany is subject to interest rate risk on its credit facilities which havevariable interest rates tied to the Prime Rate or LIBOR.  As ofJune 30, 2004, the Company had no variable interest rate debt outstanding.

 

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

 

Asof June 30, 2004, the Company holds short-term investments consisting ofmoney market funds and U.S. government and government agency bonds.  TheCompany’s primary objective with its investment portfolio is to investavailable cash while preserving principal and meeting liquidity needs. Theseinvestments have an average interest rate of approximately .9% and are subjectto interest rate risk. As a result of the average maturity and conservativenature of the investment portfolio, a sudden change in interest rates would nothave a material effect on the value of these investments.

 

Infiscal 2003, the Company issued 295,475 warrants in connection with a privateplacement offering of common stock.  These warrants can be exchanged forcash under certain circumstances including a merger, sale or tender offer ofthe Company and as such a liability equal to Black-Scholes value of thewarrants is recorded on the balance sheet.  Changes in the fair value ofthe warrants are recorded as other income (expense).  The Black-Scholesvalue of these warrants can fluctuate significantly based on the current fairmarket value of the Company’s common stock.  A 10% change in the fairmarket value of the Company’s common stock, holding other assumptions constant,would have approximately a $450,000 impact on earnings.

 

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**Item 4 - Controls and Procedures**

 

a)      Evaluation of disclosure controls andprocedures. 

 

Asof the end of the period covered by this report, under the supervision and withthe participation of our management, including our Chief Executive Officer andChief Financial Officer, the Company reviewed and evaluated the effectivenessof the Company’s disclosure controls and procedures pursuant to Rule 13a-15(e)and 15d-15e) of the Securities Exchange Act of 1934 as amended (the “ExchangeAct”). Based upon their evaluation, our Chief Executive Officer and our ChiefFinancial Officer concluded that our disclosure controls and procedures wereeffective to provide reasonable assurance that information required to bedisclosed by the Company in the reports filed and submitted by it under theExchange Act is recorded, processed, summarized and reported within the timeperiod specified in the Securities and Exchange Commission’s rules and forms,and to provide reasonable assurance that information required to be disclosedby the Company in such reports is accumulated and communicated to the Company’smanagement, including its Chief Executive Officer and Chief Financial Officer,as appropriate to allow timely decisions regarding required disclosure. 

 

b)     Changes in internal controls 

 

Therehave been no changes in our internal controls over financial reporting asdefined in Rule 13a -15(f) and 15d -15(f) of the Securities and Exchange Act of1934 during the period covered by this report that have materially affected, orare reasonably likely to materially affect, the Company’s internal controlsover financial reporting. 

 

**PART II – OTHER INFORMATION**

 

**Item 1 – Legal Proceedings**

 

 InSeptember 1998, the Company filed suit against EG&G AstrophysicsResearch Corp. (“EG&G”) in the U.S. District Court for the District ofMassachusetts in Boston, alleging that EG&G infringed upon at least twopatents owned by the Company and that EG&G had misappropriated certaintrade secrets of the Company. EG&G denied these allegations and filed counterclaimsalleging that the patents-in-suit were not infringed and/or were invalid. InMay 2003, the Company and PerkinElmer, Inc. (the former parent ofEG&G) completed a settlement agreement which resolved all of the Company’sclaims against EG&G through June 14, 2002, the date that PerkinElmersold EG&G to its new corporate parent, L-3 Communications, Inc, (“L-3”).Counterclaims as to any liability through the same date also were released.After completing this settlement, the litigation continued against EG&G’ssuccessor-in-interest, L-3, concerning any liability accrued after that date.Upon a determination that L-3 was not continuing the accused infringement, theCompany moved to dismiss the case. In February 2004, the District Courtentered an order dismissing the Company’s claims with prejudice and L-3’scounterclaims without prejudice. The Company covenanted not to sue L-3 forinfringement by any current products of the two above-referenced patents.

 

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

 

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

 

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

 

(a)        Exhibits

 
| 31.1   |   | Certification  by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002                                                            |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                 |
| 31.2   |   | Certification  by Acting 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 Acting Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |

 

(b)           Reports on Form 8-K

 
| Form  8-K |   | Dated  June 29, 2004 announcing the resignation of the Company’s Chief  Financial Officer                   |
|-----------|--------|-----------------------------------------------------------------------------------------------------------------------|
| Form  8-K |   | Dated  June 4, 2004 in connection with the announcement of the fourth quarter  and fiscal 2004 financial results |

 

Theinformation required by Exhibit Item 11 (Statement re: Computation of Incomeper Common and Common Equivalent Share) may be found in Footnote No. 3 on Page8.

 

**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this Report to be signed on its behalf by the undersigned hereuntoduly authorized.

 
|         | AMERICAN  SCIENCE AND ENGINEERING, INC. |
|--------------|-----------------------------------------|
| (Registrant) |                                    |

 
| Date  February 15, 2005 | /s/  Kenneth J. Galaznik               |   |
|------------------------------|----------------------------------------|--------|
|                         | Kenneth  J. Galaznik                   |
|                         | Chief  Financial Officer and Treasurer |

 

*Safe Harbor Statement*

 

*The foregoing 10-Q/A contains statements concerning theCompany’s financial performance and business operations, which may beconsidered “forward-looking” under applicable securities laws.*

 

*The Company wishes to caution readers of this Form 10-Q/Athat actual results might differ materially from those projected in anyforward-looking statements.*

 

*Factors which might cause actual results to differmaterially from those projected in the forward-looking statements containedherein include the following: significant reductions or delays in procurementsof the Company’s systems by the United States and other governments; disruptionin the supply of any source component incorporated into AS&E’s products;litigation seeking to restrict the use of intellectual property used by theCompany; potential product liability claims against the Company; globalpolitical trends and events which affect public perception of the threatpresented by drugs, explosives and other contraband; global economicdevelopments and the ability of governments and private organizations to fundpurchases of the Company’s products to address such threats; and the potentialinsufficiency of Company resources, including human resources, capital, plantand equipment and management systems, to accommodate any future growth and anyfuture delays in federal funding. These and certain other factors which mightcause actual results to differ materially from those projected are more fullyset forth under the caption “Forward-Looking Information and Factors AffectingFuture Performance” in the Company’s Registration Statement on Form 10-K.*

 

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