**FORM 10-Q**

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**ý****QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

**For the quarterly period ended September 30,2003**

 

**OR**

 

**o****TRANSITION REPORT PURSUANTTO SECTION 13 OR 15(d)**

**OFTHE SECURITIES EXCHANGE ACT OF 1934**

** **

**For the transition periodfrom       to       **

 

**Commission File Number 1-6549**

 

**AmericanScience and Engineering, Inc.**

(Exact name of Registrant as specified in itscharter)

 

| **Massachusetts**                                                                   |   | **04-2240991**                        |
|-------------------------------------------------------------------------------------|--------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization)                     |   | (I.R.S. Employer  Identification No.) |
|                                                                                |   |                                  |
| **829 Middlesex Turnpike  Billerica, Massachusetts**                                |   | **01821**                             |
| (Address of principal executive offices)                                            |   | (Zip Code)                            |
|                                                                                |   |                                  |
| **(978) 262-8700**                                                                  |
| (Registrant’s telephone number, including  area code)                          |
|                                                                                |
|                                                                                |
| (Former name, former address and former  fiscal year, if changed since last report) |

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. Yes ý   No o

 

Indicate by check mark whether the Registrant is an accelerated filer(as defined in Rule 12b-2 of the Securities Exchange Act of1934). Yes ý  No o

 

Indicate the number of shares outstanding of each of the issuer’sclasses of common stock, as of the latest practicable date

 

| **Class of  Common Stock** |   | **Outstanding  at  November 6, 2003** |
|----------------------------|--------|---------------------------------------|
| $.66 2/3 par value         |   | 7,288,049                             |

 

 

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**PART I – FINANCIALINFORMATION**

**Item1 – Financial Statements**

 

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

**CondensedConsolidated Balance Sheets**

 

Dollars in thousands

 
|                                                                                                                    |   | **September  30,  2003** |   | **March 31,  2003** |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|--------|---------------------|--------|
|                                                                                                                    |   | **(Unaudited)**          |   |                |   |
| **Assets**                                                                                                              |   |                     |   |                |   |
| Current assets:                                                                                                         |   |                     |   |                |   |
| Cash and cash equivalents                                                                                               |   | $                        | 11,116 |                | $      | 5,585 |   |
| Restricted cash                                                                                                         |   | 1,733                    |   | 1,895               |   |
| Short-term investments                                                                                                  |   | 4,606                    |   | 4,538               |   |
| Accounts receivable, net of allowances of  $226 and $246 at September 30, 2003 and March 31, 2003                       |   | 12,872                   |   | 10,499              |   |
| Unbilled costs and fees, net of allowances  of $437 at September 30, 2003 and March 31, 2003                            |   | 5,196                    |   | 4,343               |   |
| Inventories                                                                                                             |   | 13,878                   |   | 15,748              |   |
| Prepaid expenses and other current assets                                                                               |   | 1,241                    |   | 822                 |   |
| **Total current  assets**                                                                                               |   | 50,642                   |   | 43,430              |   |
| Property and equipment, net of accumulated  depreciation of $11,382 at September 30, 2003 and $10,549 at March 31, 2003 |   | 3,216                    |   | 3,714               |   |
| Other assets                                                                                                            |   | 135                      |   | 172                 |   |
| **Total assets**                                                                                                        |   | **$**                    | 53,993 |                | $      | 47,316 |   |

 

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

 

2

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

**CondensedConsolidated Balance Sheets (continued)**

 

**Dollarsin thousands except per share amounts**

 
|                                                                                                                                                          |   | **September  30,  2003** |   | **March 31,  2003** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|--------|---------------------|--------|
|                                                                                                                                                          |   | **(Unaudited)**          |   |                |   |
| **Liabilities and  Stockholders’ Equity**                                                                                                                |   |                     |   |                |   |
| Current  liabilities:                                                                                                                                         |   |                     |   |                |   |
| Accounts payable                                                                                                                                              |   | $                        | 4,774  |                | $      | 5,327 |   |
| Accrued salaries and benefits                                                                                                                                 |   | 1,940                    |   | 1,476               |   |
| Accrued warranty costs                                                                                                                                        |   | 549                      |   | 535                 |   |
| Deferred revenue                                                                                                                                              |   | 1,825                    |   | 1,928               |   |
| Customer deposits                                                                                                                                             |   | 5,673                    |   | 2,747               |   |
| Other current liabilities                                                                                                                                     |   | 1,913                    |   | 1,221               |   |
| **Total current  liabilities**                                                                                                                                |   | 16,674                   |   | 13,234              |   |
|                                                                                                                                                          |   |                     |   |                |   |
| Non-current liabilities:                                                                                                                                      |   |                     |   |                |   |
| Warrant liability                                                                                                                                             |   | 1,286                    |   | 820                 |   |
| Deferred revenue                                                                                                                                              |   | 346                      |   | 751                 |   |
| Other non-current liabilities                                                                                                                                 |   | 112                      |   | 153                 |   |
| **Total non-current liabilities**                                                                                                                             |   | 1,744                    |   | 1,724               |   |
|                                                                                                                                                          |   |                     |   |                |   |
| Stockholders’ equity:                                                                                                                                    |   |                     |   |                |   |
| Preferred stock, no par value  Authorized - 100,000 shares; Issued - none                                                                                     |   | —                   |   | —              |   |
| Common stock, $0.66 2/3 par value  Authorized – 20,000,000 shares; Issued 7,254,013 shares at September 30, 2003  and 6,871,729 shares at March 31, 2003 |   | 4,835                    |   | 4,581               |   |
| Additional  paid in capital                                                                                                                                   |   | 41,201                   |   | 38,780              |   |
| Cumulative translation adjustment                                                                                                                             |   | 9                        |   | —              |   |
| Accumulated deficit                                                                                                                                           |   | (10,470                  | )      | (11,003             | )      |
| **Total stockholders’  equity**                                                                                                                          |   | 35,575                   |   | 32,358              |   |
| **Total liabilities  and stockholders’ equity**                                                                                                          |   | $                        | 53,993 |                | $      | 47,316 |   |

 

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

 

3

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

**CondensedConsolidated Statements of Operations**

**(Unaudited)**

 

##### **Dollars and shares in thousands, except per share amounts**

 
|                                          |           | **Three  Months Ended** |   | **Six Months  Ended** |   |
|-----------------------------------------------|----------------|-------------------------|--------|-----------------------|--------|
|                                          |           | **Sept. 30,  2003**     |   | **Sept. 30,  2002**   |   | **Sept. 30,  2003** |   | **Sept. 30,  2002** |   |
| Revenues:                                     |           |                    |   |                  |   |   |   |   |   |
| Net product sales and contract revenues       |           | $                       | 15,010 |                  | $      | 14,859 |   | $ | 29,088 |   | $ | 27,804 |   |
| Net service revenues                          |           | 3,169                   |   | 2,076                 |   | 6,479 |   | 4,049 |   |
| Total net revenues                            |           | 18,179                  |   | 16,935                |   | 35,567 |   | 31,853 |   |
|                                          |           |                    |   |                  |   |   |   |   |   |
| Cost of sales and contracts:                  |           |                    |   |                  |   |   |   |   |   |
| Cost of product sales and contracts           |           | 10,833                  |   | 11,757                |   | 21,475 |   | 21,106 |   |
| Cost of service revenues                      |           | 2,118                   |   | 1,816                 |   | 3,878 |   | 3,895 |   |
| Total cost of sales and contracts             |           | 12,951                  |   | 13,573                |   | 25,353 |   | 25,001 |   |
| Gross profit                                  |           | 5,228                   |   | 3,362                 |   | 10,214 |   | 6,852 |   |
|                                          |           |                    |   |                  |   |   |   |   |   |
| Expenses:                                     |           |                    |   |                  |   |   |   |   |   |
| Selling,  general and administrative expenses |           | 3,370                   |   | 3,776                 |   | 6,933 |   | 6,948 |   |
| Research and development                      |           | 1,276                   |   | 1,657                 |   | 2,464 |   | 3,523 |   |
| Total expenses                                |           | 4,646                   |   | 5,433                 |   | 9,397 |   | 10,471 |   |
|                                          |           |                    |   |                  |   |   |   |   |   |
| Operating income (loss)                       |           | 582                     |   | (2,071                | )      | 817 |   | (3,619 | ) |
|                                          |           |                    |   |                  |   |   |   |   |   |
| Other income (expense):                       |           |                    |   |                  |   |   |   |   |   |
| Interest income                               |           | 20                      |   | 29                    |   | 48 |   | 53 |   |
| Interest  expense                             |           | —                  |   | —                |   | — |   | (86 | ) |
| Other, net                                    |           | (189                    | )      | 1,345                 |   | (332 | ) | 2,046 |   |
| Total other income (expense)                  |           | (169                    | )      | 1,374                 |   | (284 | ) | 2,013 |   |
|                                          |           |                    |   |                  |   |   |   |   |   |
| Income (loss) before income taxes             |           | 413                     |   | (697                  | )      | 533 |   | (1,606 | ) |
| Provision for (benefit from) income taxes     |           | —                  |   | —                |   | — |   | — |   |
|                                          |           |                    |   |                  |   |   |   |   |   |
| Net income (loss)                             |           | $                       | 413    |                  | $      | (697 | ) | $ | 533 |   | $ | (1,606 | ) |
|                                          |           |                    |   |                  |   |   |   |   |   |
| Income (loss) per share                       | – Basic   |                    | $      | 0.06                  |   | $ | (0.10 | ) | $ | 0.08 |   | $ | (0.25 | ) |
|                                          |           |                    |   |                  |   |   |   |   |   |   |
|                                          | – Diluted |                    | $      | 0.06                  |   | $ | (0.10 | ) | $ | 0.07 |   | $ | (0.25 | ) |
|                                          |           |                    |   |                  |   |   |   |   |   |
| Weighted  average shares                      | – Basic   |                    | 7,073  |                  | 6,818  |   | 6,978 |   | 6,395 |   |
|                                          | – Diluted |                    | 7,226  |                  | 6,818  |   | 7,119 |   | 6,395 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements.

 

4

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

**CondensedConsolidated Statements of Cash Flows**

**(Unaudited**)

 

Dollarsin thousands

 
|                                                                                                  |   | **For the  Six Months Ended** |   |
|-------------------------------------------------------------------------------------------------------|--------|-------------------------------|--------|
|                                                                                                  |   | **September  30,  2003**      |   | **September  30,  2002** |   |
| Cash flows from  operating activities:                                                                |   |                          |   |   |   |
| Net income (loss)                                                                                     |   | $                             | 533    |   | $ | (1,606 | ) |
| Adjustments to reconcile net income (loss)  to net cash provided by (used for)  operating activities: |   |                          |   |   |   |
| Depreciation and amortization                                                                         |   | 878                           |   | 1,098 |   |
| Provisions for contract, inventory,  accounts receivable and warranty reserves                        |   | 189                           |   | 896 |   |
| Mark to market  adjustment for short-term investments                                                 |   | (34                           | )      | — |   |
| Change in fair  value of warrants outstanding                                                         |   | 466                           |   | (2,087 | ) |
| Changes in  assets and liabilities:                                                                   |   |                          |   |   |   |
| Accounts  receivable                                                                                  |   | (2,376                        | )      | (3,143 | ) |
| Unbilled costs  and fees                                                                              |   | (853                          | )      | 718 |   |
| Inventories                                                                                           |   | 1,870                         |   | 609 |   |
| Prepaid expenses, deposits and other assets                                                           |   | (414                          | )      | 235 |   |
| Accounts payable                                                                                      |   | (553                          | )      | (2,406 | ) |
| Customer deposits                                                                                     |   | 2,926                         |   | 1,519 |   |
| Deferred revenue                                                                                      |   | (508                          | )      | 213 |   |
| Accrued expenses and other current  liabilities                                                       |   | 1,355                         |   | (291 | ) |
| Non-current liabilities                                                                               |   | (41                           | )      | (49 | ) |
| Total adjustments                                                                                     |   | 2,905                         |   | (2,688 | ) |
| Net cash provided by (used for) operating  activities                                                 |   | 3,438                         |   | (4,294 | ) |
|                                                                                                  |   |                          |   |   |   |
| Cash flows from investing activities:                                                                 |   |                          |   |   |   |
| Purchases of short-term investments                                                                   |   | (2,319                        | )      | — |   |
| Maturity of short-term investments                                                                    |   | 2,285                         |   | — |   |
| Purchase of property and equipment                                                                    |   | (348                          | )      | (246 | ) |
| Net cash used for investing activities                                                                |   | (382                          | )      | (246 | ) |
|                                                                                                  |   |                          |   |   |   |
| Cash flows  from financing activities:                                                                |   |                          |   |   |   |
| Increase in restricted cash                                                                           |   | 162                           |   | — |   |
| Repayment of line of credit                                                                           |   | —                        |   | (9,319 | ) |
| Proceeds from issuance of common stock and  warrants, net                                             |   | —                        |   | 18,423 |   |
| Proceeds from exercise of stock options                                                               |   | 2,304                         |   | 1,230 |   |
| Net cash provided by financing activities                                                             |   | 2,466                         |   | 10,334 |   |
| Effect of exchange rate changes on cash                                                               |   | 9                             |   | — |   |
| Net increase  in cash and cash equivalents                                                            |   | 5,531                         |   | 5,794 |   |
| Cash and cash equivalents at beginning of  period                                                     |   | 5,585                         |   | 7,591 |   |
| Cash and cash equivalents at end of period                                                            |   | $                             | 11,116 |   | $ | 13,385 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements.

 

5

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

**Notesto Unaudited Condensed Consolidated Financial Statements**

 

1.               General

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

 

The unaudited condensed consolidated financial statements have beenprepared in accordance with the requirements of Form 10-Q and consequently donot include all disclosures required by Form 10-K. These condensed consolidatedfinancial statements should be read in conjunction with the consolidatedfinancial statements and the notes thereto included in the Company’s AnnualReport on Form 10-K for the year ended March 31, 2003.

 

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

 

Nature of Operations 

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

 

Significant Accounting Policies

Revenues on cost reimbursable and long-term fixed price contracts aregenerally recorded as costs are incurred using the percentage of completionmethod.  The Company recognizes salesfor its systems that are produced in a standard manufacturing operation andhave shorter order to delivery cycles at the time of shipment of the system tothe customer and when other revenue recognition criteria is met.

 

Certain cash balances have been restricted as collateral againstoutstanding standby letters of credit and are separately presented asrestricted cash. (see Note 4)

 

The significant accounting policies followed by the Company and itssubsidiary in preparing its consolidated financial statements are set forth inNote 1 to the consolidated financial statements included in its Form 10-K forthe year ended March 31, 2003.  TheCompany has made no changes to these policies during this fiscal year.

 

Pro Forma Stock-Based Compensation Expense

As permitted by SFAS No. 123, “Accounting for Stock-BasedCompensation”, the Company has elected to continue to apply AccountingPrinciples Board Opinion No. 25, “Accounting for Stock Issued toEmployees,” to account for its stock-based compensation plans. Had compensationcost for awards under the Company’s stock-based compensation plans beendetermined based on the fair value at the grant dates consistent with themethod set forth under SFAS No. 123, the effect on the Company’s netincome (loss) and income (loss) per share would have been as follows:

 

6

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|                                                                   |   | **Three months ended** |   | **Six months ended** |   |
|------------------------------------------------------------------------|--------|------------------------|--------|----------------------|--------|
| **(In thousands except per share amounts)**                            |   | **Sept. 30,  2003**    |   | **Sept. 30,  2002**  |   | **Sept. 30,  2003** |   | **Sept. 30,  2002** |   |
| Net income (loss)                                                      |   |                   |   |                 |   |   |   |   |   |
| As reported                                                            |   | $                      | 413    |                 | $      | (697 | ) | $ | 533 |   | $ | (1,606 | ) |
| Less: Stock based compensation using fair  value method for all awards |   | (896                   | )      | (763                 | )      | (1,818 | ) | (1,485 | ) |
| Pro forma net loss                                                     |   | $                      | (483   | )                    | (1,460 | ) | $ | (1,285 | ) | $ | (3,091 | ) |
| Income (loss) per share – Basic:                                  |   |                   |   |                 |   |   |   |   |   |
| As reported                                                            |   | $                      | 0.06   |                 | $      | (0.10 | ) | $ | 0.08 |   | $ | (0.25 | ) |
| Pro forma                                                              |   | $                      | (0.07  | )                    | $      | (0.21 | ) | $ | (0.18 | ) | $ | (0.48 | ) |
| Income (loss) per share – Diluted:                                |   |                   |   |                 |   |   |   |   |   |
| As reported                                                            |   | $                      | 0.06   |                 | $      | (0.10 | ) | $ | 0.07 |   | $ | (0.25 | ) |
| Pro forma                                                              |   | $                      | (0.07  | )                    | $      | (0.21 | ) | $ | (0.18 | ) | $ | (0.48 | ) |

 

The fair value of each option granted was estimated on the grant dateusing the Black-Scholes option pricing model with the following weightedaverage assumptions: risk-free interest rates of 5.0%, expected volatility of73%, an expected dividend yield of 0% and an expected life of 5 years.

 

New Accounting Pronouncements

In February 2003, the FASB issued EmergingIssues Task Force Issue 00-21, Accounting for Revenue Arrangements withMultiple Deliverables (EITF 00-21). EITF 00-21 provides guidance for theaccounting by a vendor for arrangements involving multiple revenue-generatingactivities. The Company adopted EITF 00-21 on July 1, 2003 and such adoptionwill not have a significant effect on the consolidated financial statements.

 

In January 2003, the FASB issued FASBInterpretation No. 46, Consolidation of Variable Interest Entities andInterpretation of ARB 51 (FIN 46), which requires the consolidation of certainentities considered to be variable interest entities (“VIEs”).  An entity is considered to be a VIE when ithas equity investors which lack the characteristics of a controlling financialinterest, or its capital is insufficient to permit it to finance its activitieswithout additional subordinated financial support.  Consolidation of a VIE by an investor is required when it isdetermined that the investor will absorb a majority of the VIE’s expectedlosses or residual returns if they occur. The consolidation requirements of FIN 46 apply immediately to VIEscreated after January 31, 2003. The consolidation requirements apply to olderentities in the first fiscal year or interim period beginning after June 15,2003.  On October 9, 2003, the FASBdeferred the implementation of FIN 46 until December 31, 2003.  Certain disclosure requirements apply to allfinancial statements issued after January 31, 2003.  The Company does not believe the adoption of this pronouncementwill have a material effect on the consolidated financial statements.

 

InApril 2003, the FASB issued Statement of Financial Accounting Standard No. 149,“Amendment of Statement 133 on Derivative Instruments and Hedging Activities,”(“FAS 149”) which amends and clarifies financial accounting and reporting forderivative instruments, including certain derivative instruments embedded inother contracts and for hedging activities under FAS 133. FAS 149 iseffective for contracts entered into or modified after June 30, 2003 except forthe provisions that were cleared by the FASB in prior pronouncements. The Companydoes not expect the provision of this statement to have a significant impact onthe statement of financial position.

 

InMay 2003, the FASB issued Statement of Financial Accounting Standards No. 150,“Accounting for Certain Financial Instruments with Characteristics of BothLiabilities and Equity”, (“FAS 150”).  This statement establishesstandards for how an issuer classifies and measures in its statement offinancial position certain financial instruments with characteristics of bothliabilities and equity.  In accordance with the standard, financialinstruments that embody obligations for the issuer are required to beclassified as liabilities. This Statement shall be effective for financialinstruments entered into or modified after May 31, 2003, and otherwise shall beeffective at the beginning of the first interim period beginning after June 15,2003.  On November 5, 2003, the FASB deferred the implementation ofcertain provision of FAS 150 until and indefinite period.  The

 

7

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Companydoes not expect the provision of this statement to have a significant impact onthe statement of financial position.

 

2.               Inventories

 
| **(Dollars in thousands)**                 |   | **Sept. 30, 2003** |   | **March 31, 2003** |   |
|--------------------------------------------|--------|--------------------|--------|--------------------|--------|
| Inventories consisted of:                  |   |               |   |               |   |
| Raw materials and completed sub-assemblies |   | $                  | 9,369  |               | $      | 8,119 |   |
| Work-in-process                            |   | 2,936              |   | 3,783              |   |
| Finished goods                             |   | 1,573              |   | 3,846              |   |
| Total                                      |   | $                  | 13,878 |               | $      | 15,748 |   |

 

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

Basic earnings (loss) per common share is computed by dividing netincome (loss) by the weighted average number of shares of common stockoutstanding during the period.  Dilutedearnings (loss) per share include the dilutive impact of options and warrantsusing the average share price of the Company’s common stock for the period. Forthe quarters and six months ended September 30, 2003 and September 30, 2002,common stock equivalents of 1,130,000, 1,445,000, 525,000 and 746,000,respectively, are excluded from diluted earnings per share, as their effect isanti-dilutive.  

 

 
|                                                                                      |   | **Three Months Ended** |   | **Six Months Ended** |   |
|-------------------------------------------------------------------------------------------|--------|------------------------|--------|----------------------|--------|
| **(in thousands except per share amounts)**                                               |   | **Sept. 30,  2003**    |   | **Sept. 30,  2002**  |   | **Sept. 30,  2003** |   | **Sept. 30,  2002** |   |
| **Earnings (Loss) Per  Share**                                                            |   |                   |   |                 |   |   |   |   |   |
| **Basic:**                                                                                |   |                   |   |                 |   |   |   |   |   |
| Net income (loss)                                                                         |   | $                      | 413    |                 | $      | (697 | ) | $ | 533 |   | $ | (1,606 | ) |
| Weighted average number of common shares  outstanding – basic                        |   | 7,073                  |   | 6,818                |   | 6,978 |   | 6,395 |   |
| Net income (loss) per share – basic                                                  |   | $                      | 0.06   |                 | $      | (0.10 | ) | $ | 0.08 |   | $ | (0.25 | ) |
| **Diluted:**                                                                              |   |                   |   |                 |   |   |   |   |   |
| Net income (loss)                                                                         |   | $                      | 413    |                 | $      | (697 | ) | $ | 533 |   | $ | (1,606 | ) |
| Weighted average number of common shares  outstanding                                     |   | 7,073                  |   | 6,818                |   | 6,978 |   | 6,395 |   |
| Assumed exercise of stock options, using  the treasury stock method                       |   | 153                    |   | —               |   | 141 |   | — |   |
| Weighted average number of common and  potential common shares outstanding – diluted |   | 7,226                  |   | 6,818                |   | 7,119 |   | 6,395 |   |
| Net income (loss) per share – diluted                                                |   | $                      | 0.06   |                 | $      | (0.10 | ) | $ | 0.07 |   | $ | (0.25 | ) |

 

4.               Borrowings

On August 11, 2003, the Company entered into two new credit agreementswith Silicon Valley Bank East replacing its HSBC Bank USA credit agreementsthat expired on July 31, 2003.  Thefirst agreement is a $5.0 million domestic loan and security agreement tosupport the Company’s routine working capital needs.  Maximum borrowings for this line are set at the lower of (a) thesum of 80% of eligible domestic accounts receivable plus 10% of finished goodsinventory up to $750,000, or; (b) $5 million. The second is a $20.0 million export loan and security agreement,guaranteed by the Export-Import Bank of the United States to support theCompany’s overseas contract, trade finance and working capital needs.

 

The credit facilities bear an interest rate of the greater of 4.25% orthe Silicon Valley Bank prime rate (4.25% at September 30, 2003) and have anexpiration date of November 30, 2004.** **Thecredit agreements are collateralized by certain assets of the

 

8

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Company and contain certain restrictions, including limitations on theamount of distributions that can be made to stockholders, and the dispositionor encumbrances of assets, and require the maintenance of certain financialcovenants.  As of September 30, 2003,the Company was in compliance with these covenants.

 

At September 30, 2003, there were no borrowings outstanding and$187,000 in standby letters of credit were in effect against this creditfacility, guaranteeing performance on certain large international cargoprojects.  In addition, the Company hadoutstanding $1.5 million in standby letters of credit with HSBC Bank USA, whichhave been collateralized with cash.  Noamounts have been drawn against these letters of credit.

 

5.               Private Placement Offering

On May 28, 2002, the Company closed on a private placement offering ofcommon stock and warrants.  A total of1,115,000 shares were sold to accredited investors at a price of $17.64 each.In addition, warrants to purchase an additional 295,475 shares of common 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.  Thewarrants were immediately vested and have a five-year life expiring in May of2007.  Due to certain conversionfeatures of these warrants that provide that the holder may opt for a cashsettlement in certain instances, including a merger, a sale of all orsubstantially all of the Company’s assets, or a tender offer or exchange offerof shares of the Company’s stock, a liability equal to the Black-Scholesvaluation of the warrants at the deal closing date was recorded on theCompany’s balance sheet.  The “mark tomarket” change in the warrants value of $(192,000), $(466,000), $1,364,000 and$2,088,000, was recorded as other income (expense) for the three and six monthsended September 30, 2003 and September 30, 2002, respectively.  The liability of $1,286,000 and $820,000associated with the warrants is recorded as a non-current liability on theSeptember 30, 2003 and March 31, 2003 balance sheets, respectively.  The fair market value of the warrants was determinedusing the Black Scholes pricing model and an assumed volatility of 73% andinterest rate of 5%.

 

6.               Guarantees

At September 30, 2003, the Company had $1.7 million of letters ofcredit outstanding guaranteeing performance on certain large internationalcargo projects.  These letters of creditwere issued through the Company’s current and former export loan and securityagreements (see Note 4) and have expiration dates through March of 2005.

 

The Company’s parcel product line carries a one-year warranty, thecosts of which are accrued for at time of shipment.  Accrual rates are based upon historical experience over thepreceding twelve months and the adequacy of the warranty reserve is evaluatedmonthly.  Warranty experience for thethree and six months ended September 30, 2003 and September 30, 2002 is asfollows:

 
|                                              |   | **Three months ended** |   | **Six months ended** |   |
|---------------------------------------------------|--------|------------------------|--------|----------------------|--------|
| **(In  thousands)**                               |   | **Sept. 30, 2003**     |   | **Sept. 30, 2002**   |   | **Sept. 30, 2003** |   | **Sept. 30, 2002** |   |
|                                              |   |                   |   |                 |   |   |   |   |   |
| Warranty accrual beginning of period              |   | $                      | 535    |                 | $      | 350 |   | $ | 535 |   | $ | 196 |   |
| Accruals for warranties issued during the  period |   | 104                    |   | 151                  |   | 186 |   | 371 |   |
| Accruals related to pre-existing warranties       |   | —                 |   | 123                  |   | — |   | 153 |   |
| Warranty costs incurred during period             |   | (90                    | )      | (39                  | )      | (172 | ) | (135 | ) |
| Balance at end of period                          |   | $                      | 549    |                 | $      | 585 |   | $ | 549 |   | $ | 585 |   |

 

7.               Commitments and Contingencies

A provision of $735,000, of which $635,000 was recorded in the secondquarter, has been made for anticipated losses on a CargoSearch contract that isrecognized on the percentage of completion method.  Management believes that the current estimates of total contractcosts exceed contract revenues for this contract and as such has provided forthe anticipated losses in the periods in which such losses became evident.

 

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

 

Results of Operations 

Total net revenues for the quarter ended September 30, 2003 increasedby $1,244,000 to $18,179,000 compared to the corresponding period a yearago.  This increase is attributableprimarily to an increase of $1.8 million in CargoSearch systems revenues as theCompany has four CargoSearch programs ongoing in the second quarter of fiscal2004 as compared to one in the second quarter of fiscal 2003.  In addition, revenues from the Company’sHigh Energy Systems division increased by $1.3 million to $2.3 million in thesecond quarter of fiscal 2004 due to expanded contracts with its largestcustomer. These increases were partially offset by a $ 2.7 million decrease inParcelSearch system and after-market parts revenues as compared to the prioryear.  The second quarter of fiscal 2003had significant ParcelSearch deliveries under orders received immediately postSeptember 11th.  Bookings forthese systems have now normalized to levels slightly above the pre-September 11thdemand.  Service revenues increased by$1.1 million compared to the second quarter of fiscal 2003 as the Company hasentered into service contracts for equipment that had been under warranty inthe second quarter of fiscal 2003.

 

Net revenues for the six monthsended September 30, 2003 increased by $3,714,000 to $35,567,000 compared to thecorresponding period a year ago.  Thisincrease is attributable primarily to an increase of $8.0 million inCargoSearch and MobileSearch systems revenues as the Company delivered sixMobileSearch trucks and had four CargoSearch programs ongoing in the first sixmonths of fiscal 2004 as compared to two truck deliveries and one CargoSearchprogram ongoing in the first six months of fiscal 2003.  In addition, revenues from the Company’sHigh Energy Systems division increased by $1.5 million to $3.4 million in thefirst six months of fiscal 2004 due to expanded contracts with its largestcustomer.  Service revenues increased by$2.4 million compared to the second quarter of fiscal 2003 as the Company hasentered into service contracts for equipment that had been under warranty inthe second quarter of fiscal 2003. These increases were offset by a $8.0million decrease in ParcelSearch system and after-market parts revenues ascompared to the prior year.

 

Total cost of sales and contracts for the second quarter of fiscal 2004decreased by $622,000 to $12,951,000 compared to the corresponding period ayear ago. Cost of sales and contracts represented 71% of revenues versus 80%for the corresponding period last year. This margin improvement is due in part to reduced manufacturing andservice overhead costs, improved manufacturing utilization, and improvedservice margins as the Company entered into several large service contractsduring the last six months of fiscal 2003 as warranties expired and replacedcertain unprofitable service contracts and time and material servicearrangements.  These margin improvementswere offset somewhat by a $635,000 accrual made in the second quarter of fiscal2004 for losses projected on one CargoSearch program recognized on a percentageof completion basis.

 

Total cost of sales and contracts for the first six months of fiscal2004 increased by $352,000 to $25,353,000 compared to the corresponding perioda year ago. Cost of sales and contracts represented 71% of revenues versus 78%for the corresponding period last year. This margin improvement is due in part to increased sales of highermargin MobileSearch trucks in fiscal 2004, reduced manufacturing and serviceoverhead costs, improved manufacturing utilization, and improved servicemargins as the Company entered into several large service contracts during thelast six months of fiscal 2003 as warranties expired and replaced certainunprofitable service contracts and time and material service arrangements.  These margin improvements were offsetsomewhat by the accruals made for losses projected on one CargoSearch programrecognized on a percentage of completion basis

 

Selling, general and administrative expenses for the second quarter offiscal 2004 decreased by $406,000 to $3,370,000 compared to the correspondingperiod a year ago.  Selling, general andadministrative expenses represented 19% of revenues in the current quartercompared to 22% for the corresponding period last year.  The cost reductions from the prior yearrelate to lower consulting costs and reduced road show expenditures.  In the summer of 2002, the Company had anexpanded road show with a MobileSearch truck that was not repeated in thecurrent year.

 

Selling, general and administrative expenses for the first six monthsof fiscal 2004 decreased by $15,000 to $6,933,000 compared to the correspondingperiod a year ago.  Selling, general andadministrative expenses represented 19% of revenues in the current quartercompared to 22% for the corresponding period last year.  During the first quarter of fiscal 2004, the

 

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Company incurred approximately $400,000 in severance and other costsrelated to the termination of the Company’s Chief Executive Officer.  The other cost reductions from the prioryear relate to lower consulting costs and reduced road show expenditures.  In the summer of 2002, the Company had anexpanded road show with a MobileSearch truck that was not repeated in thecurrent year.

 

Company funded research and development expenses for the second quarterof fiscal 2004 decreased by $381,000 to $1,276,000 compared to thecorresponding period a year ago. Research and development expenses represented7% of revenues in the current quarter compared to 10% for the correspondingperiod last year. Current quarter expenditures decreased comparatively as theCompany limited research and development initiatives in order to control costsand focused engineering efforts on revenue producing programs during thequarter.

 

Company funded research and development expenses for the first sixmonths of fiscal 2004 decreased by $1,059,000 to $2,464,000 compared to thecorresponding period last year. Research and development expenses represented7% of revenues in the current quarter compared to 11% for the correspondingperiod last year.

 

Other income (expense) was $169,000 in expense for the second quarterof fiscal 2004 as compared to $1,374,000 in other income for the correspondingperiod a year ago.  As part of theprivate equity placement during the first quarter of 2003, the Company issued295,475 warrants.  Due to certainconversion features of these warrants that provide that the holder may opt fora cash settlement in certain instances, including a merger, a sale of all orsubstantially all of the Company’s assets, or a tender offer or exchange offerof shares of the Company’s stock, a liability equal to the Black-Scholesvaluation of the warrants at the deal closing date was recorded on theCompany’s balance sheet.  At September30, 2003, these warrants were “marked to market” using Black-Scholes and thechange in the valuation of the warrants of $192,000 was recorded as otherexpense in the quarter. During the three months ended September 30, 2002, thismark to market adjustment resulted in $1,364,000 in other income.

 

Other income (expense) was $284,000 in expense for the first six monthsof fiscal 2004 as compared to $2,013,000 in other income for the correspondingperiod a year ago due primarily to the mark to market of outstanding warrantsas noted above.

 

The potential tax benefits on losses incurred in fiscal 2003 were fullyreserved due to the uncertainty as to whether the additional loss carryforwardswould ultimately be realized. In assessing the realizability of deferred taxassets, management considers whether it is more likely than not that someportion or all of the deferred tax assets will not be realized. The Company hasnot made a provision for taxes in the quarter or six months ended September 30,2003 as the Company will not have to pay taxes for the income earned in theseperiods due to its net operating loss carryforwards.

 

The Company earned net income of $413,000 during the second quarter offiscal 2004 as compared to a net loss of $697,000 in the second quarter offiscal 2003.  The Company earned netincome of $533,000 in the first six months of fiscal 2004 as compared to a netloss of $1,606,000 in the first six months of fiscal 2003.  The significant factors contributing tothese results are noted in the above sections.

 

Liquidity and Capital Resources 

 

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

 

Cash and cash equivalents increased by $5,531,000 to $11,116,000 atSeptember 30, 2003 compared to $5,585,000 at March 31, 2003. This increasein cash and cash equivalents is primarily due to cash generated from operationsas MobileSearch trucks in inventory at March 31, 2003were delivered to customers in the current year and from $2.3 million incash proceeds

 

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from the exercise of stock options during the year. Working capitalincreased by $3,772,000 (12%) since March 31, 2003, increasing from $30,196,000to $33,968,000 at September 30, 2003.

 

On August 11, 2003, the Company entered into two new credit agreementswith Silicon Valley Bank East replacing its HSBC Bank USA credit agreementsthat expired on July 31, 2003.  Thefirst agreement is a $5.0 million domestic loan and security agreement tosupport the Company’s routine working capital needs.  Maximum borrowings for this line are set at the lower of (a) thesum of 80% of eligible domestic accounts receivable plus 10% of finished goodsinventory up to $750,000, or; (b) $5 million. The second is a $20.0 million export loan and security agreement,guaranteed by the Export-Import Bank of the United States to support theCompany’s overseas contract, trade finance and working capital needs.

 

The credit facilities bear an interest rate of the greater of 4.25% orthe Silicon Valley Bank prime rate (4.25% at September 30, 2003) and havean expiration date of November 30, 2004.** **Thecredit agreements are collateralized by certain assets of the Company andcontain certain restrictions, including limitations on the amount ofdistributions that can be made to stockholders, and the disposition orencumbrances of assets, and require the maintenance of certain financialcovenants. As of September 30, 2003, the Company was in compliance with thesecovenants.

 

At September 30, 2003, there were no borrowings outstanding and$187,000 in standby letters of credit were in effect against this creditfacility guaranteeing performance on certain large international cargoprojects.  In addition, the Company hadoutstanding $1.5 million in standby letters of credit with HSBC Bank USA, whichhave been collateralized with cash.  Noamounts have been drawn against these letters of credit.

 

The Company believes that its existing cash and investments plus cashgenerated from operations and amounts available under its credit facilities areadequate to finance its operating and capital requirements for fiscal 2004.

 

New Accounting Pronouncements:

In February 2003, the FASB issued Emerging Issues Task Force Issue00-21, Accounting for Revenue Arrangements with Multiple Deliverables (EITF 00-21).EITF 00-21 provides guidance for the accounting by a vendor for arrangementsinvolving multiple revenue-generating activities. The Company adopted EITF00-21 on July 1, 2003 and such adoption will not have a significant effect onthe consolidated financial statements.

 

In January 2003, the FASB issued FASB Interpretation No. 46,Consolidation of Variable Interest Entities and Interpretation of ARB 51 (FIN46), which requires the consolidation of certain entities considered to bevariable interest entities (“VIEs”).  Anentity is considered to be a VIE when it has equity investors which lack thecharacteristics of a controlling financial interest, or its capital is insufficientto permit it to finance its activities without additional subordinated financialsupport.  Consolidation of a VIE by aninvestor is required when it is determined that the investor will absorb amajority of the VIE’s expected losses or residual returns if they occur.  The consolidation requirements of FIN 46apply immediately to VIEs created after January 31, 2003. The consolidationrequirements apply to older entities in the first fiscal year or interim periodbeginning after June 15, 2003.  OnOctober 9, 2003, the FASB deferred the implementation of FIN 46 until December31, 2003.  Certain disclosurerequirements apply to all financial statements issued after January 31,2003.  The Company does not believe theadoption of this pronouncement will have a material effect on the consolidatedfinancial statements.

 

InApril 2003, the FASB issued Statement of Financial Accounting Standard No. 149,“Amendment of Statement 133 on Derivative Instruments and Hedging Activities,”(“FAS 149”) which amends and clarifies financial accounting and reporting forderivative instruments, including certain derivative instruments embedded inother contracts and for hedging activities under FAS 133.  FAS 149 iseffective for contracts entered into or modified after June 30, 2003 except forthe provisions that were cleared by the FASB in prior pronouncements. TheCompany does not expect the provision of this statement to have a significantimpact on the statement of financial position.

 

InMay 2003, the FASB issued Statement of Financial Accounting Standards No. 150,“Accounting for Certain Financial Instruments with Characteristics of BothLiabilities and Equity”, (“FAS 150”).  This statement establishesstandards for how an issuer classifies and measures in its statement offinancial position certain financial instruments with characteristics of both

 

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liabilitiesand equity.  In accordance with the standard, financial instruments thatembody obligations for the issuer are required to be classified as liabilities.This Statement shall be effective for financial instruments entered into ormodified after May 31, 2003, and otherwise shall be effective at the beginningof the first interim period beginning after June 15, 2003.  On November 5,2003, the FASB deferred the implementation of certain provision of FAS 150until and indefinite period.  TheCompany does not expect the provision of this statement to have a significantimpact on the statement of financial position.

 

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

 

The Company is subject to interest rate risk on its credit facilitiesthat have variable interest rates tied to the Prime Rate.  As of September 30, 2003, the Company had novariable interest rate debt outstanding.

 

The cash accounts for the Company’s operations in Singapore, Hong Kong,England, and Abu Dhabi are maintained in Singapore dollars, Hong Kong dollars,pounds sterling and dirhams, respectively. Foreign currency accounts are marked to market at current rates thatresulted in immaterial translation adjustments to stockholders equity.  The gains and losses from foreign currencytransactions are included in the statement of operations for the period andwere also immaterial.  A hypothetical10% change in foreign currency rates would not have a material impact on theCompany’s results of operations or financial position.

 

As of September 30, 2003, the Company holds short-term investmentsconsisting of money market funds and U.S. government and government agencybonds.  The Company’s primary objectivewith its investment portfolio is to invest available cash while preservingprincipal and meeting liquidity needs. These investments have an averageinterest rate of 1.4% and are subject to interest rate risk. As a result of theaverage maturity and conservative nature of the investment portfolio, a suddenchange in interest rates would not have a material effect on the value of theseinvestments.

 

In fiscal 2003, the Company issued 295,475 warrants in connection witha private placement offering of common stock. These warrants can be exchanged for cash under certain circumstancesincluding a merger, sale or tender offer of the Company and as such a liabilityequal to Black-Scholes value of the warrants is recorded on the balancesheet.  Changes in the fair value of thewarrants are recorded as other income (expense).  The Black-Scholes value of these warrants can fluctuatesignificantly based on the current fair market value of the Company’s commonstock.  A 10% change in the fair marketvalue of the Company’s common stock, holding other assumptions constant, wouldhave approximately a $200,000 effect on earnings.

 

**Item 4 - Controls andProcedures**

 

As of the end of the period covered by this report, we carried out anevaluation, under the supervision and with the participation of our management,including our Chief Executive Officer and Chief Financial Officer, of theeffectiveness of the design and operation of our disclosure controls andprocedures pursuant to Rule 13a-14(c) and 15d-14(c) of the Securities ExchangeAct of 1934. Based upon that evaluation, our Chief Executive Officer and ourChief Financial Officer concluded that our disclosure controls and proceduresare effective for gathering, analyzing and disclosing the information we arerequired to disclose in reports filed under such Act.

 

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

 

**PART II – OTHERINFORMATION**

 

**Item 1 – LegalProceedings**

 

In a decision issued December29, 1999, the United States Court of Appeals for the Federal Circuit inWashington, D.C. ruled that the Company may pursue a patent infringement claimagainst Vivid Technologies (“Vivid”), which produces X-ray

 

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detection devices used inbaggage scanning equipment. The Appeals Court overturned a 1998 decision inVivid’s favor by the Massachusetts Federal District Court. The lawsuit, filedby Vivid in May 1996, concerned whether Vivid’s X-ray detection devicesinfringed on AS&E’s patent. The District Court had ruled that AS&Ecould not assert a claim that Vivid’s devices infringed on AS&E’s patent.The Appeals Court reversed the District Court’s finding on summary judgmentthat Vivid did not infringe on AS&E’s patent, as well as the DistrictCourt’s denial of AS&E’s request for discovery to oppose Vivid’s summaryjudgment motion.  Vivid was acquired byPerkinElmer in 2000.

 

In September 1998, theCompany filed suit against EG&G Astrophysics Research Corp. (“EG&G”) inU.S. District Court in Boston, Massachusetts alleging that EG&G infringedupon at least two patents owned by the Company and that EG&G hadmisappropriated certain trade secrets of the Company. In December 1999,EG&G filed a Motion for Summary Judgment that EG&G did notmisappropriate the Company’s trade secrets and in March 2000 EG&Gfiled a Motion for Summary Judgment that EG&G did not infringe theCompany’s patents. In February 2001 the Court denied EG&G’s and theCompany’s motions for Summary Judgment.

 

In a related matter, EG&Gfiled a request with the U.S. Patent and Trademark Office (“USPTO”) forreexamination of the two patents that were at issue in the patent infringementaction described above. The Company filed oppositions to the re-examinationrequests and the Company was advised by the USPTO that both its MobileSearchX-ray inspection and its Z® Backscatter X-ray inspection technologypatents were upheld in all material respects on January 30, 2001.

 

In March 2003, the Companyentered into a Partial Settlement Agreement and Release with PerkinElmer, theparent of EG&G, with respect to the above-referenced litigation.  The Partial Settlement Agreement and Releasecovers claims and counter-claims in the EG&G and Vivid actions up to June14, 2002, the date of closing on the sale of EG&G by PerkinElmer to L-3Communications.  Certain aspects of theEG&G litigation remain pending in the District Court at this time.

 

The Company is also subject tovarious legal proceedings and claims that arise in the ordinary course ofbusiness. The Company currently believes that resolving these matters will nothave a material adverse impact on its financial condition or results ofoperations.

 

**Item4 - Submission of Matters to a Vote of Security Holders**

 

At the specialmeeting in lieu of the annual meeting of Stockholders of the Company held onSeptember 25, 2003, the stockholders of the Company (1) elected William E.Odom, Roger P. Heinisch, Hamilton W. Helmer, Donald J. McCarren, Ernest J.Moniz and Carl W. Vogt as directors of the Company to hold office for aone-year term and no other nominations were made; (2) approved an amendment toincrease the shares available for grant under the Company’s 2002 CombinationStock Option Plan by 400,000 shares; (3) approved the adoption of the Company’s2003 Non-Employee Director Stock Plan; (4) approved an amendment to the By-Lawsto extend the ability to amend the By-Laws to a majority vote of the Board ofDirectors and (5) ratified the appointment of PricewaterhouseCoopers LLP as ourindependent auditors for the fiscal year ending March 31, 2004.  The votes were as follows:

 
|   |   | **Votes For**                                                                    |   | **Votes  Withheld or  Opposed** |   | **Abstentions** |   |
|--------|--------|----------------------------------------------------------------------------------|--------|---------------------------------|--------|-----------------|--------|
|   |   |                                                                             |   |                            |   |            |   |
| (1)    |   | Election  of Directors:                                                          |   |                            |   |            |   |   |   |
|   |   | William E. Odom                                                                  |   | 5,988,712                       |   | 407,849         |   |   |   |
|   |   | Roger P. Heinisch                                                                |   | 5,793,832                       |   | 602,729         |   |   |   |
|   |   | Hamilton W. Helmer                                                               |   | 6,223,512                       |   | 173,049         |   |   |   |
|   |   | Donald J. McCarren                                                               |   | 6,223,566                       |   | 172,995         |   |   |   |
|   |   | Ernest  J. Moniz                                                                 |   | 6,223,566                       |   | 172,995         |   |   |   |
|   |   | Carl W. Vogt                                                                     |   | 6,223,566                       |   | 172,995         |   |   |   |
|   |   |                                                                             |   |                            |   |            |   |   |   |
| 2)     |   | Approval of the increase  in shares under the 2002 Combination Stock Option Plan |   | 2,162,862                       |   | 1,029,532       |   | 25,669 |   |
|   |   |                                                                             |   |                            |   |            |   |   |   |
| 3)     |   | Approval of the adoption  of the 2003 Non-Employee Director Stock Plan           |   | 1,983,579                       |   | 1,187,787       |   | 46,697 |   |
|   |   |                                                                             |   |                            |   |            |   |   |   |
| 4)     |   | Approval of amendment to  the By-Laws                                            |   | 2,382,529                       |   | 740,405         |   | 95,129 |   |
|   |   |                                                                             |   |                            |   |            |   |   |   |
| 5)     |   | Ratification of  PricewaterhouseCoopers LLP as independent auditors.             |   | 6,360,095                       |   | 28,984          |   | 7,482 |   |

 

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

 

(a)                                  Exhibits

 
| 10(c)(xv)  | Employment  Offer Letter between the Company and Anthony R. Fabiano dated August 21, 2003                                                           |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                                |
| 10(d)(xi)  | Loan and  Security Agreement between American Science and Engineering, Inc. and Silicon  Valley Bank East dated August 11, 2003                     |
|       |                                                                                                                                                |
| 10(d)(xii) | Export  Import Bank Loan and Security Agreement between American Science and  Engineering, Inc. and Silicon Valley Bank East dated August 11, 2003  |
|       |                                                                                                                                                |
| 31.1       | Certification  by Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002                                            |
|       |                                                                                                                                                |
| 31.2       | Certification  by Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002                                            |
|       |                                                                                                                                                |
| 32.1       | Certification  of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|       |                                                                                                                                                |
| 32.2       | Certification  of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |

 

(b)                                 Reportson Form 8-K

 

 

Form 8-K                                               DatedSeptember 15, 2003 announcing the naming of Anthony R. Fabiano as President andChief Executive Officer.

 

The information required by Exhibit Item 11 (Statement re: Computationof Income per Common and Common Equivalent Share) may be found in Footnote No.3 on Page 8.

 

**SIGNATURES**

 

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

 

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|         |              | AMERICAN SCIENCE AND ENGINEERING, INC.                           |
|--------------|-------------------|------------------------------------------------------------------|
| (Registrant) |              |                                                             |
|         |              |                                                             |
| Date         | November 13, 2003 |                                                             | /s/ Paul Theodore Owens |   |
|         |              | Paul Theodore Owens                                              |
|         |              | Executive Vice President, Treasurer and  Chief Financial Officer |
|              |                   |                                                                  |  |  |

 

*Safe Harbor Statement*

*The foregoing 10-Q contains statementsconcerning the Company’s financial performance and business operations, whichmay be considered “forward-looking” under applicable securities laws.*

 

*The Company wishesto caution readers of this Form 10-Q that actual results might differmaterially from those projected in any forward-looking statements.*

 

*Factors which mightcause actual results to differ materially from those projected in theforward-looking statements contained herein include the following: significantreductions or delays in procurements of the Company’s systems by the UnitedStates and other governments; disruption in the supply of any source componentincorporated into AS&E’s products; litigation seeking to restrict the use ofintellectual property used by the Company; potential product liability claimsagainst the Company; global political trends and events which affect publicperception of the threat presented by drugs, explosives and other contraband;global economic developments and the ability of governments and privateorganizations to fund purchases of the Company’s products to address suchthreats; and the potential insufficiency of Company resources, including humanresources, capital, plant and equipment and management system, to accommodateany future growth, and future delays in federal funding. These and certainother factors which might cause actual results to differ materially from thoseprojected are more fully set forth under the caption “Forward-Looking Informationand Factors Affecting Future Performance” in the Company’s RegistrationStatement on Form 10-K.*

 

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