**FORM10-Q**

 

**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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

**For thequarterly period ended December 31, 2004**

 

**OR**

 

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

**For thetransition period from     to     **

 

**CommissionFile Number 1-6549**

 

**AmericanScience and Engineering, Inc.**

(Exact name of Registrantas 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 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 past90 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  January 28, 2005** |
|----------------------------|------------|--------------------------------------|
| $.66 2/3 par  value        |       | 8,178,614                            |

 

 

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**PART I –FINANCIAL INFORMATION**

**Item 1 –Financial Statements**

 

**AmericanScience and Engineering, Inc. and SubsidiaryCondensed Consolidated Balance Sheets**

 

Dollars in thousands

 
| ** **                                                                                           | ** ** | **December 31,  2004** | ** ** | **March 31,  2004** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|------------------------|------------|---------------------|------------|
| ** **                                                                                           | ** ** | **(Unaudited)**        | ** ** | ** **          | ** ** |
| **Assets**                                                                                           |       |                   |       |                |       |
| Current assets:                                                                                      |       |                   |       |                |       |
| Cash and cash  equivalents                                                                           |       | $                      | 7,108      |                | $          | 6,467 |   |
| Restricted cash                                                                                      |       | 380                    |       | 585                 |       |
| Short-term investments                                                                               |       | 27,804                 |       | 13,610              |       |
| Accounts receivable,  net of allowances of $405 and $250 at December 31, 2004 and March 31, 2004     |       | 18,131                 |       | 14,771              |       |
| Unbilled costs and  fees, net of allowances of $76 and $394 at December 31, 2004 and March 31,  2004 |       | 2,165                  |       | 4,468               |       |
| Inventories                                                                                          |       | 20,683                 |       | 11,390              |       |
| Prepaid expenses and  other current assets                                                           |       | 2,393                  |       | 1,890               |       |
| **Total  current assets**                                                                            |       | 78,664                 |       | 53,181              |       |
| Equipment and leasehold  improvements, net                                                           |       | 3,764                  |       | 2,585               |       |
| Other assets                                                                                         |       | 35                     |       | 37                  |       |
| **Total  assets**                                                                                    |       | $                      | 82,463     |                | $          | 55,803 |   |

 

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

 

2

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Dollars in thousands except per share amounts

 
| ** **                                                                                                                                                   | ** ** | **December 31,  2004** | ** ** | **March 31,  2004** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|---------------------|------------|
| ** **                                                                                                                                                   | ** ** | **(Unaudited)**        | ** ** | ** **          | ** ** |
| **Liabilities  and Stockholders’ Equity**                                                                                                               |       |                   |       |                |       |
| Current liabilities:                                                                                                                                         |       |                   |       |                |       |
| Accounts payable                                                                                                                                             |       | $                      | 6,023      |                | $          | 3,690 |   |
| Accrued salaries and  benefits                                                                                                                               |       | 2,756                  |       | 1,954               |       |
| Accrued warranty costs                                                                                                                                       |       | 1,940                  |       | 699                 |       |
| Deferred revenue                                                                                                                                             |       | 1,332                  |       | 2,020               |       |
| Customer deposits                                                                                                                                            |       | 11,822                 |       | 4,419               |       |
| Other current  liabilities                                                                                                                                   |       | 2,064                  |       | 1,875               |       |
| **Total  current liabilities**                                                                                                                               |       | 25,937                 |       | 14,657              |       |
|                                                                                                                                                         |       |                   |       |                |       |
| Non-current  liabilities:                                                                                                                                    |       |                   |       |                |       |
| Warrant liability                                                                                                                                            |       | 5,971                  |       | 2,093               |       |
| Other non-current  liabilities                                                                                                                               |       | 872                    |       | 620                 |       |
| **Total  liabilities**                                                                                                                                       |       | 32,780                 |       | 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 8,156,184 shares at December  31, 2004 and 7,415,660 shares at March 31, 2004 |       | 5,437                  |       | 4,943               |       |
| Additional paid in  capital                                                                                                                                  |       | 51,459                 |       | 42,683              |       |
| Cumulative translation  adjustment                                                                                                                           |       | 14                     |       | 14                  |       |
| Unearned compensation                                                                                                                                        |       | —                 |       | (115                | )          |
| Unrealized loss on  available for sales securities                                                                                                           |       | (17                    | )          | —              |       |
| Accumulated deficit                                                                                                                                          |       | (7,210                 | )          | (9,092              | )          |
| **Total  stockholders’ equity**                                                                                                                         |       | 49,683                 |       | 38,433              |       |
| **Total  liabilities and stockholders’ equity**                                                                                                         |       | $                      | 82,463     |                | $          | 55,803 |   |

 

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

 

3

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**AmericanScience and Engineering, Inc. and SubsidiaryCondensed Consolidated Statements of Operations(Unaudited)**

 

Dollars and shares in thousands, except per share amounts

 
| ** **                                 | ** **      | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------------|-----------------|------------------------|------------|-----------------------|------------|
| ** **                                 | ** **      | **Dec. 31,  2004**     | ** ** | **Dec. 31,  2003**    | ** ** | **Dec. 31,  2004** | ** ** | **Dec. 31,  2003** | ** ** |
| Revenues:                                  |            |                   |       |                  |       |   |   |   |   |
| Net product sales and  contract revenues   |            | $                      | 18,320     |                  | $          | 12,605 |   | $ | 47,640 |   | $ | 41,693 |   |
| Net service revenues                       |            | 5,160                  |       | 3,661                 |       | 13,706 |   | 10,140 |   |
| Total net revenues                         |            | 23,480                 |       | 16,266                |       | 61,346 |   | 51,833 |   |
|                                       |            |                   |       |                  |       |   |   |   |   |
| Cost of sales and contracts:               |            |                   |       |                  |       |   |   |   |   |
| Cost of product sales  and contracts       |            | 12,090                 |       | 10,090                |       | 32,974 |   | 32,185 |   |
| Cost of service  revenues                  |            | 2,881                  |       | 2,212                 |       | 7,728 |   | 6,315 |   |
| Total cost of sales and  contracts         |            | 14,971                 |       | 12,302                |       | 40,702 |   | 38,500 |   |
| Gross profit                               |            | 8,509                  |       | 3,964                 |       | 20,644 |   | 13,333 |   |
|                                       |            |                   |       |                  |       |   |   |   |   |
| Expenses:                                  |            |                   |       |                  |       |   |   |   |   |
| Selling, general and  administrative       |            | 3,829                  |       | 2,753                 |       | 10,550 |   | 8,661 |   |
| Research and  development                  |            | 1,312                  |       | 1,741                 |       | 3,779 |   | 4,385 |   |
| Total expenses                             |            | 5,141                  |       | 4,494                 |       | 14,329 |   | 13,046 |   |
|                                       |            |                   |       |                  |       |   |   |   |   |
| Operating income (loss)                    |            | 3,368                  |       | (530                  | )          | 6,315 |   | 287 |   |
|                                       |            |                   |       |                  |       |   |   |   |   |
| Other income (expense):                    |            |                   |       |                  |       |   |   |   |   |
| Interest income                            |            | 121                    |       | 25                    |       | 289 |   | 73 |   |
| Other, net                                 |            | (1,466                 | )          | (13                   | )          | (4,657 | ) | (345 | ) |
| Total other income  (expense)              |            | (1,345                 | )          | 12                    |       | (4,368 | ) | (272 | ) |
|                                       |            |                   |       |                  |       |   |   |   |   |
| Income (loss) before  income taxes         |            | 2,023                  |       | (518                  | )          | 1,947 |   | 15 |   |
| Provision for (benefit  from) income taxes |            | —                 |       | (96                   | )          | 65 |   | (96 | ) |
|                                       |            |                   |       |                  |       |   |   |   |   |
| Net income (loss)                          |            | $                      | 2,023      |                  | $          | (422 | ) | $ | 1,882 |   | $ | 111 |   |
|                                       |            |                   |       |                  |       |   |   |   |   |
| Income (loss) per share                    | **—Basic** |                   | $          | 0.25                  |       | $ | (0.06 | ) | $ | 0.24 |   | $ | 0.02 |   |
|                                       |            |                   |       |                  |       |   |   |   |   |
|                                       | —Diluted   |                   | $          | 0.23                  |       | $ | (0.06 | ) | $ | 0.22 |   | $ | 0.02 |   |
|                                       |            |                   |       |                  |       |   |   |   |   |
| Weighted average shares                    | —Basic     |                   | 8,082      |                  | 7,297      |   | 7,835 |   | 7,212 |   |
|                                       |            |                   |       |                  |       |   |   |   |   |   |
|                                       | —Diluted   |                   | 8,805      |                  | 7,297      |   | 8,409 |   | 7,395 |   |

 

The accompanying notesare an integral part of these condensed consolidated financial statements.

 

4

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**AmericanScience and Engineering, Inc. and SubsidiaryCondensed Consolidated Statements of Cash Flows(Unaudited**)

 

Dollars in thousands

 
| ** **                                                                         | ** ** | **For the Nine Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                                         | ** ** | **December 31,  2004**        | ** ** | **December 31,  2003** | ** ** |
| Cash flows from  operating activities:                                             |       |                          |       |   |   |
| Net income                                                                         |       | $                             | 1,882      |   | $ | 111 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                          |       |   |   |
| Depreciation and  amortization                                                     |       | 1,090                         |       | 1,256 |   |
| Provisions for  contract, inventory, accounts receivable                           |       | 1,165                         |       | 102 |   |
| Mark to market  adjustment for short-term investments                              |       | (216                          | )          | (20 | ) |
| Unrealized gains  or losses on short term investments                              |       | (17                           | )          | (25 | ) |
| Change in fair  value of warrants outstanding                                      |       | 4,580                         |       | 518 |   |
| Stock  compensation                                                                |       | 137                           |       | 141 |   |
| Changes in  assets and liabilities:                                                |       |                          |       |   |   |
| Accounts  receivable                                                               |       | (3,515                        | )          | (3,507 | ) |
| Unbilled costs  and fees                                                           |       | 2,303                         |       | 62 |   |
| Inventories                                                                        |       | (10,303                       | )          | 834 |   |
| Prepaid expenses  and other assets                                                 |       | (501                          | )          | (492 | ) |
| Accounts payable                                                                   |       | 2,333                         |       | (1,553 | ) |
| Customer  deposits                                                                 |       | 7,403                         |       | 3,877 |   |
| Deferred revenue                                                                   |       | (420                          | )          | (600 | ) |
| Accrued expenses  and other current liabilities                                    |       | 2,552                         |       | 827 |   |
| Non-current  liabilities                                                           |       | (17                           | )          | (67 | ) |
| Total adjustments                                                                  |       | 6,574                         |       | 1,353 |   |
| Net cash  provided by operating activities                                         |       | 8,456                         |       | 1,464 |   |
|                                                                               |       |                          |       |   |   |
| Cash flows from  investing activities:                                             |       |                          |       |   |   |
| Purchases of  short-term investments                                               |       | (44,994                       | )          | (12,705 | ) |
| Maturity of  short-term investments                                                |       | 31,016                        |       | 5,703 |   |
| Purchases of  property and equipment                                               |       | (2,269                        | )          | (449 | ) |
| Net cash  provided by (used for) investing activities                              |       | (16,247                       | )          | (7,451 | ) |
|                                                                               |       |                          |       |   |   |
| Cash flows from  financing activities:                                             |       |                          |       |   |   |
| Decrease in  restricted cash                                                       |       | 205                           |       | 1,310 |   |
| Proceeds from  exercise of warrants                                                |       | 1,349                         |       | — |   |
| Proceeds from  exercise of stock options                                           |       | 6,878                         |       | 2,874 |   |
| Net cash  provided by financing activities                                         |       | 8,432                         |       | 4,184 |   |
| Effect of  exchange rate changes on cash                                           |       | —                        |       | 8 |   |
| Net increase in  cash and cash equivalents                                         |       | 641                           |       | (1,795 | ) |
| Cash and cash  equivalents at beginning of period                                  |       | 6,467                         |       | 5,585 |   |
| Cash and cash  equivalents at end of period                                        |       | $                             | 7,108      |   | $ | 3,790 |   |

 

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

 

5

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**AmericanScience and Engineering, Inc. and SubsidiaryNotes to Unaudited Condensed Consolidated Financial Statements**

 

1.          General

The condensed consolidated financial statementsinclude the accounts of the Company and its wholly owned subsidiary. Allsignificant intercompany transactions and balances have been eliminated.

 

The unaudited condensed consolidated financialstatements have been prepared in accordance with the requirements of Form 10-Qand consequently do not include all disclosures required by Form 10-K. Thesecondensed consolidated financial statements should be read in conjunction withthe consolidated financial statements and the notes included in the Company’sAnnual Report on Form 10-K for the year ended March 31, 2004.

 

The consolidated financial statements, in the opinionof management, include all adjustments necessary, consisting solely of normalrecurring adjustments, to present fairly the Company’s financial position,results of operations and cash flows. These results are not necessarily indicative of the results to beexpected for the entire year.

 

Nature of Operations 

The Company is engaged in the development andmanufacture of sophisticated X-ray inspection systems for critical detectionand security screening solutions for sale primarily to U.S. and foreigngovernment agencies.  The Company hasonly one reporting segment, X-ray screening products.

 

Significant AccountingPolicies

Revenues on cost reimbursable and long-term fixedprice contracts are generally recorded as costs are incurred using thepercentage of completion method.  Forsystems that are produced in a standard manufacturing operation and haveshorter order to delivery cycles, the Company recognizes sales at the time of shipmentof the system to the customer and when other revenue recognition criteria aremet.

 

Inventories consist of material, labor andmanufacturing overhead and are recorded at the lower of cost or net realizablevalue.  Excessive manufacturing overheadcosts for idle facility expenses, freight, handling costs, and wasted material(spoilage) attributable to abnormally low production levels, which are levelsthat materially differ from budgeted production plans due primarily to changesin customer demand.

 

The Company’s Export and Security Agreement withSilicon Valley Bank East requires certain cash balances to be restricted ascollateral against outstanding standby letters of credit; these are separatelypresented as restricted cash. (see Note 4)

 

The significant accounting policies followed by theCompany and its subsidiary in preparing its consolidated financial statementsare set forth in Note 1 to the consolidated financial statements included inits Form 10-K for the year ended March 31, 2004.  The Company has made no changes to thesepolicies during this quarter.

 

Certain amounts in the prior period financialstatements have been reclassified to conform to the current periodpresentation.

 

Short-term investments consist of investments in moneymarket funds, commercial paper and U.S government and government agency bonds.These investments are classified as available-for-sale securities and arerecorded at their fair market values. The unrealized holding gains or losses onthese securities were immaterial at the nine months December 31, 2004 and March31, 2004.

 

Comprehensive incomeencompasses all changes in stockholders’ equity (except those arising fromtransactions with owners) and includes net income, net unrealized gains orlosses on available for sale securities and foreign currency translationadjustments. For the quarter and nine months ended December 31, 2004 comprehensiveincome includes net income and unrealized loss of $17,000. For the quarter and ninemonths ended December 31, 2003, the Company’s comprehensive net income (loss)is equal to the Company’s net income (loss) and the cumulative translationadjustment of $8,000.

 

Pro Forma Stock-BasedCompensation Expense

As permitted by SFAS No. 123, “Accounting forStock-Based Compensation”, 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** | ** ** | **Nine months ended** | ** ** |
|--------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| **(In thousands except per share amounts)**                                          | ** ** | **Dec. 31,  2004**     | ** ** | **Dec. 31,  2003**    | ** ** | **Dec. 31,  2004** | ** ** | **Dec. 31,  2003** | ** ** |
| Net income  (loss)                                                                   |       |                   |       |                  |       |   |   |   |   |
| As reported                                                                          |       | $                      | 2,023      |                  | $          | (422 | ) | $ | 1,882 |   | $ | 111 |   |
| Add: Stock based  compensation using intrinsic value for all awards                  |       | 50                     |       | 41                    |       | 137 |   | 141 |   |
| Less: Stock  based compensation using intrinsic and fair value method for all awards |       | (1,368                 | )          | (1,088                | )          | (2,877 | ) | (3,006 | ) |
| Pro forma net  income (loss)                                                         |       | $                      | 705        |                  | $          | (1,469 | ) | $ | (858 | ) | $ | (2,754 | ) |
| Income (loss)  per share — Basic:                                               |       |                   |       |                  |       |   |   |   |   |
| As reported                                                                          |       | $                      | 0.25       |                  | $          | (0.06 | ) | $ | 0.24 |   | $ | 0.02 |   |
| Pro forma                                                                            |       | $                      | 0.09       |                  | $          | (0.20 | ) | $ | (0.11 | ) | $ | (0.38 | ) |
| Income (loss)  per share — Diluted:                                             |       |                   |       |                  |       |   |   |   |   |
| As reported                                                                          |       | $                      | 0.23       |                  | $          | (0.06 | ) | $ | 0.22 |   | $ | 0.02 |   |
| Pro forma                                                                            |       | $                      | 0.08       |                  | $          | (0.20 | ) | $ | (0.11 | ) | $ | (0.37 | ) |

 

 The fair value of each option granted was estimated on the grantdate using the Black-Scholes option pricing model with the following weightedaverage assumptions: risk-free interest rates of 3.25% and 5% for December 31,2004 and 2003 respectively, expected volatility of 73%, an expected dividendyield of 0% and an expected life of 5 years.

 

2.     Inventories

 
| **(Dollars in thousands)**                  | ** ** | **Dec. 31, 2004** | ** ** | **March 31, 2004** | ** ** |
|---------------------------------------------|------------|-------------------|------------|--------------------|------------|
| Inventories  consisted of:                  | ** ** | ** **        | ** ** | ** **         | ** ** |
| Raw materials  and completed sub-assemblies |       | $                 | 10,041     |               | $          | 7,089 |   |
| Work-in-process                             |       | 7,937             |       | 4,168              |       |
| Finished goods                              |       | 2,705             |       | 133                |       |
| Total                                       |       | $                 | 20,683     |               | $          | 11,390 |   |

 

3.     Income (Loss) per Common and CommonEquivalent Share

Basic earnings (loss) per common share is computed by dividing net income(loss) by the weighted average number of shares of common stock outstandingduring the period.  Diluted earnings (loss) per share include the dilutiveimpact of options and warrants using the average share price of the Company’scommon stock for the period. For the quarter ended December 31, 2004 andDecember 31, 2003, common stock equivalents of 31,000 and 717,000,respectively, are excluded from diluted earnings per share, as their effect isanti-dilutive.  For the nine months ended December 31, 2004 and December31, 2003, common stock equivalents of 106,000 and 885,000, respectively, areexcluded from diluted earnings per share, as their effect is anti-dilutive.

 
| ** **                                                                                | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|-------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| **(In thousands except per share amounts)**                                               | ** ** | **Dec. 31,  2004**     | ** ** | **Dec. 31,  2003**    | ** ** | **Dec. 31,  2004** | ** ** | **Dec. 31,  2003** | ** ** |
| **Earnings  (Loss) Per Share Basic:**                                                     |       |                   |       |                  |       |   |   |   |   |
| Net income  (loss)                                                                        |       | $                      | 2,023      |                  | $          | (422 | ) | $ | 1,882 |   | $ | 111 |   |
| Weighted average  number of common shares outstanding – basic                        |       | 8,082                  |       | 7,297                 |       | 7,835 |   | 7,212 |   |
| Net income  (loss) per share – basic                                                 |       | $                      | 0.25       |                  | $          | (0.06 | ) | $ | 0.24 |   | $ | 0.02 |   |
| **Diluted:**                                                                              |       |                   |       |                  |       |   |   |   |   |
| Net income  (loss)                                                                        |       | $                      | 2,023      |                  | $          | (422 | ) | $ | 1,882 |   | $ | 111 |   |
| Weighted average  number of common shares outstanding                                     |       | 8,082                  |       | 7,297                 |       | 7,835 |   | 7,212 |   |
| Assumed exercise  of stock options and warrants, using the treasury stock method          |       | 723                    |       | —                |       | 574 |   | 183 |   |
| Weighted average  number of common and potential common shares outstanding – diluted |       | 8,805                  |       | 7,297                 |       | 8,409 |   | 7,395 |   |
| Net income  (loss) per share - diluted                                                    |       | $                      | 0.23       |                  | $          | (0.06 | ) | $ | 0.22 |   | $ | 0.02 |   |
|                                                                                           |            |                        |            |                       |            |  |  |  |  |  |  |  |  |  |  |  |

 

7

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4.     Borrowings

On November 30, 2004, the Company modified its two credit agreementswith Silicon Valley Bank East.  Thesemodifications replace the original credit agreements that expired on November30, 2004. The modifications extend the credit facilities through November 29,2006 and reduces the Export-Import Bank facility from $20.0 million to $10.0million. The first agreement is a $5.0 million domestic loan and security agreementto support the Company’s routine working capital needs.  Maximumborrowings for this line are set at the lower of (a) the sum of 85% ofeligible domestic accounts receivable plus 10% of finished goods inventory upto $750,000, or (b) $5.0 million.  The second is a $10.0 millionexport loan and security agreement, guaranteed by the Export-Import Bank of theUnited States to support the Company’s overseas contract, trade finance andworking capital needs.

 

The credit facilities bear an interest rate of the greater of 4.0% orthe Silicon Valley Bank prime rate (5.25% at December 31, 2004) and have anexpiration date of November 29, 2006.** **The credit agreements are collateralized by certain assets of the Company andcontain certain restrictions including limitations on the amount ofdistributions that can be made to stockholders, the disposition or encumbrancesof assets, and require the maintenance of certain financial covenants.  Asof December 31, 2004, the Company was in compliance with these covenants.

 

At December 31, 2004, there were no borrowings outstanding againstthese credit facilities. The Company had outstanding $320,000 in standbyletters of credit guaranteeing performance on certain large internationalprojects, which have been collateralized with cash.  No amounts have beendrawn 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 of 1,115,000 shares were sold to accreditedinvestors at a price of $17.64 per share. In addition, warrants to purchase anadditional 295,475 shares of common stock at a per share price of $23.52 wereissued.  Proceeds to the Company approximated $18.4 million, net ofapproximately $1.3 million of issuance cost.  The warrants wereimmediately vested and have a five-year life expiring in May of 2007.  Dueto certain conversion features of these warrants that provide that the holdermay opt for a cash settlement in certain instances, including a merger, a saleof all or substantially all of the Company’s assets, or a tender offer orexchange offer of shares of the Company’s stock, a liability equal to theBlack-Scholes valuation of the warrants at the deal closing date was recordedon the Company’s balance sheet.  The “mark to market” change in thewarrants value of $(1,393,000), $(4,580,000), $(52,000) and $(518,000), wasrecorded as other expense for the three and nine months ended December 31, 2004and December 31, 2003, respectively.  The liability of $5,971,000 and $2,093,000associated with the warrants is recorded as a non-current liability on theDecember 31, 2004 and March 31, 2004 balance sheets, respectively.  Thefair market value of the warrants was determined using the Black Scholes pricingmodel and an assumed volatility of 73% and interest rate of 3.7% and 5.0%, forDecember 31, 2004 and 2003, respectively. During the nine months ended December31, 2004, 57,375 of the above warrants were exercised. The proceeds from theseexercises amounted to $1,349,000.

 

6.     Guarantees

At December 31, 2004, the Company had $320,000 of letters of creditoutstanding guaranteeing performance on certain large internationalprojects.  These letters of credit were issued through the Company’scurrent and former export loan and security agreements (see Note 4) and haveexpiration dates through June of 2005. These letters of credit have beencollaterized with cash.

 

Certain of the Company’s product lines carry a one-year warranty, thecosts of which are accrued for at time of shipment.  Accrual rates arebased upon historical experience over the preceding twelve months and theadequacy of the warranty reserve is evaluated monthly.  Warrantyexperience for the three and nine months ended December 31, 2004 and December31, 2003 is as follows:

 
| ** **                             | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|----------------------------------------|------------|------------------------|------------|-----------------------|------------|
| **(In thousands)**                     | ** ** | **Dec. 31, 2004**      | ** ** | **Dec. 31, 2003**     | ** ** | **Dec. 31, 2004** | ** ** | **Dec. 31, 2003** | ** ** |
|                                   |       |                   |       |                  |       |   |   |   |   |
| Warranty accrual  beginning of period  |       | $                      | 1,243      |                  | $          | 549 |   | $ | 699 |   | $ | 535 |   |
| Accruals for  warranties issued        |       | 1,214                  |       | 73                    |       | 2,262 |   | 259 |   |
| Warranty costs  incurred during period |       | (517                   | )          | (159                  | )          | (1,021 | ) | (331 | ) |
| Balance at end  of period              |       | $                      | 1,940      |                  | $          | 463 |   | $ | 1,940 |   | $ | 463 |   |

 

7.     Commitments and Contingencies

 In the third quarter endedDecember 31, 2003, an accrual of $624,000 was recorded for anticipated losseson a CargoSearch contract that was recognized on the percentage of completionmethod.

 

8.     Subsequent Event

During the quarter ended December 31, 2004, the Company entered intonegotiations for the sale of certain of the assets of the Company’s High EnergySystems Division (HES), located in Mountain View, CA. to Accuray Incorporated,for cash and a note in the aggregate amount of $8,300,000.  On January 10, 2005, the sale of these assetswas completed.  The Company willrecognize a gain during the quarter ended March 31, 2005 on the sale of theabove assets.  Revenues relating to thecontracts purchased by Accuray as part of this asset sale amounted to$4,058,000 for the nine months ended December 31, 2004. The gain on sale, whichwill be recorded upon completion of the purchase price allocation in the fourthquarter of fiscal 2005, is expected to be material.

 

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**Item 2 –Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

 

Results of Operations

 

Total net revenues for the quarter ended December 31, 2004 increased by$7,214,000 to $23,480,000 compared to the corresponding period last year. This increase is attributable to Z Backscatter System revenue of $9,100,000which was introduced and first shipped in the fourth quarter of fiscal 2004,increased after-market parts revenue of $1,300,000 attributable to a largespares order booked in the first quarter of fiscal 2005, and increased Servicerevenues of $1,499,000 compared to the third quarter of fiscal 2004 as theCompany has entered into service contracts for equipment shipped throughout theyear and as warranties expired.  Theseincreases were partially offset by a decrease in the CargoSearch revenues of$1,600,000 as the Company had a major program ongoing in the third quarter offiscal 2004 that has since been completed and a $3,600,000 decrease inMobileSearch revenues as the Company had no shipments during the quartercompared to two shipments in the third quarter of fiscal 2004.

 

Total cost of product sales and contracts for the third quarter offiscal 2005 increased by $2,000,000 to $12,090,000 compared to thecorresponding period a year ago. Cost of product sales and contractsrepresented 66% of revenues versus 80% for the corresponding period lastyear. This product margin improvement is due in part to the increase inrevenue associated with after-market parts attributable to the large contractmentioned above, and increased margins as product sales shifted to the highermargin Z Backscatter System. These increases were offset by a $624,000 accrualmade in the third quarter of fiscal 2004 for losses projected on a first timebuild of a new product recognized on a percentage of completion basis.  Total cost of service revenues for the thirdquarter of fiscal 2005 increased by $669,000 to $2,881,000 compared to thecorresponding period a year ago.  Cost ofservice revenues represented 56% of revenues versus 60% for the correspondingperiod last year.  This service marginimprovement was due to low claim experience rate associated with CargoSearchand MobileSearch extended warranties and service contracts.

 

Selling, general and administrative expenses for the third quarter offiscal 2005 increased by $1,076,000 to $3,829,000 compared to the correspondingperiod a year ago.  Selling, general and administrative expensesrepresented 16% of revenues in the current quarter compared to 17% for thecorresponding period last year.  The cost increases from the prior yearrelate to increased incentive compensation costs, increased professional feesdue to Sarbanes 404 compliance, and increased commissions due to the increasein sales volume.

 

Company funded research and development expenses for the third quarterof fiscal 2005 decreased by $429,000 to $1,312,000 compared to thecorresponding period a year ago. Research and development expenses represented6% of revenues in the current quarter compared to 11% for the correspondingperiod last year. Current quarter expenditures decreased comparatively as theCompany limited research and development initiatives in order to focusengineering efforts on revenue producing programs during the quarter.

 

Other income (expense) was $(1,345,000) in expense for the thirdquarter of fiscal 2005 as compared to $12,000 in income for the correspondingperiod a year ago.  As part of theprivate equity placement during the first quarter of 2003, the Company issued295,475 warrants, of which 238,100 remain outstanding at December 31, 2004.  Due to certain conversion features of thesewarrants that 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.  At December 31, 2004, these outstanding warrantswere “marked to market” using Black-Scholes and the change in the valuation ofthe warrants of $(1,393,000) was recorded as other expense in the quarter.During the three months ended December 31, 2003, this mark to market adjustmentresulted in $(52,000) in expense.

 

The Company earned net income of $2,023,000 during the third quarter offiscal 2005 as compared to the net loss of $(422,000) incurred in the thirdquarter of fiscal 2004. The significant factors contributing to these resultsare noted in the above sections**.**

 

Net revenues for the nine months ended December 31, 2004 increased by$9,513,000 to $61,346,000 compared to the corresponding period last year. This increase is attributable to increased Z Backscatter System revenue of$21,100,000 which was introduced and first shipped in the fourth quarter offiscal 2004, increased after-market parts revenue of $4,100,000 attributable toa large spares order booked in the first quarter of fiscal 2005, and increasedService revenues of $3,566,000 as the Company has entered into service contractsin place of expired warranties.  Theseincreases were partially offset by a decrease in CargoSearch revenues of$5,500,000 due to the completion of two major projects last fiscal year, and a$14,000,000 decrease in MobileSearch revenues as the Company had no shipmentsduring the nine months of fiscal 2005 compared to eight shipments during thefirst nine months of fiscal 2004.

 

Total cost of product sales and contracts for the first nine months offiscal 2005 increased by $789,000 to $32,974,000 compared to the correspondingperiod a year ago. Cost of product sales and contracts represented 69% ofrevenues compared to 77% for the corresponding period last year.  This productmargin improvement is due in part to the increase in revenue associated withafter-market parts attributable to the large spares contract mentioned above,and increased margins as product sales shifted to the higher margin Z BackscatterSystem  These increases were partiallyoffset by a $1,359,000 accrual made in fiscal 2004 for losses projected on afirst time build of a new product recognized on a percentage of completionbasis. Total cost of service revenues for the first nine 

 

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months of fiscal 2005 increased by $1,413,000 to $7,728,000 compared tothe corresponding period a year ago. Cost of service revenues represented 56% of revenues versus 62% for thecorresponding period last year. This service margin improvement was due to lowclaim experience rate associated with CargoSearch and MobileSearch extended warrantiesand service contracts.

 

Selling, general and administrative expenses for the first nine monthsof fiscal 2005 increased by $1,889,000 to $10,550,000 compared to the correspondingperiod a year ago.  Selling, general and administrative expensesrepresented 17% of revenues in both periods.  The increase inselling, general and administrative expenses is a result of increased incentivecompensation costs, increased professional fees due to Sarbanes 404 compliance,increased fees associated with the transfer to the NASDAQ stock exchange, and increasedfacility expenses due to the relocation of the HES division.

 

Company funded research and development expenses for the first nine monthsof fiscal 2005 decreased by $606,000 to $3,779,000 compared to thecorresponding period last year. Research and development expenses represented6% of revenues in the first nine months of fiscal 2005 compared to 8% for thecorresponding period last year. Year to date expenditures continued to decreasecompared to the same period in the prior year as the Company continued to focusengineering efforts on revenue producing programs.

 

Other income (expense) was $(4,368,000) in expense for the first nine monthsof fiscal 2005 as compared to $(272,000) in expense for the correspondingperiod a year ago. The mark to market of outstanding warrants as noted aboveaccounted for $(4,580,000) in expense in fiscal 2005 compared to $(518,000) infiscal 2004.

 

The potential tax benefits on losses incurred in fiscal 2004 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,however, has made a provision for the alternative minimum tax due on the yearto date earnings of fiscal year 2005.

 

The Company reported net income of $1,882,000 in the first nine monthsof fiscal 2005 as compared to net income of $111,000 in the first nine monthsof fiscal 2004.  The significant factors contributing to these results arenoted in the above sections**.**

 

Liquidity and Capital Resources

 

On May 28, 2002, the Company closed on a private placement offering ofcommon 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.  Proceeds to the Company approximated $18.4 million. The proceedsfrom this private placement offering have been and are being utilized forgeneral corporate purposes including debt repayment, capital expenditures,investments in product development, and working capital needs**.**During the nine months ended December 31,2004, 57,375 of the above warrants were exercised. The proceeds from theseexercises amounted to $1,349,000.

 

Cash and cash equivalents increased by $641,000 to $7,108,000 atDecember 31, 2004 compared to $6,467,000 at March 31, 2004. This increase incash and cash equivalents is primarily due to proceeds received from theexercise of employee stock options and exercise of investor warrants, as wellas the collection of a letter of credit on a large CargoSearch project. Workingcapital increased by $14,203,000 or 37% since March 31, 2004, increasing from$38,524,000 to $52,727,000 at December 31, 2004. This increase is primarilyattributable to the increase in operating results, increase in accountsreceivables due to increased product shipments in December 2004, as well as theincrease in inventory to fulfill the current backlog, partially offset by theincrease in customer deposits.

 

The Company is currently investing a significant portion of its cashbalance in short term investments, which consist of money market funds,commercial paper and U.S. government and government agency bonds.

 

On November 30, 2004, the Company modified its two credit agreementswith Silicon Valley Bank East.  Thesemodifications replaced the original credit agreements that expired on November30, 2004. The modification extends the credit facilities through November 29,2006 and reduces the Export-Import Bank facility from $20.0 million to $10.0million. The first agreement is a $5.0 million domestic loan and securityagreement to support the Company’s routine working capital needs.  Maximumborrowings for this line are set at the lower of (a) the sum of 85% ofeligible domestic accounts receivable plus 10% of finished goods inventory upto $750,000, or; (b) $5.0 million.  The second is a $10.0 millionexport loan and security agreement, guaranteed by the Export-Import Bank of theUnited States to support the Company’s overseas contract, trade finance andworking capital needs.

 

The credit facilities bear an interest rate of the greater of 4.0% orthe Silicon Valley Bank prime rate (5.25% at December 31, 2004) and have anexpiration date of November 29, 2006.** **The credit agreements are collateralized by certain assets of the Company andcontain certain restrictions including limitations on the amount ofdistributions that can be made to stockholders, the disposition or encumbrancesof assets, and require the maintenance of certain financial covenants.  Asof December 31, 2004, the Company was in compliance with these covenants.

 

At December 31, 2004, there were no borrowings outstanding againstthese credit facilities. The Company had outstanding $320,000 in standby lettersof credit guaranteeing performance on certain large international projects,which have been collateralized with cash.  No amounts have been drawnagainst these letters of credit.

 

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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 2005.

 

Related Party Transactions

 

During the third quarter of fiscal 2005, a modification was made to theNon-employee Directors compensation plan. The modification to the equitycompensation component of the plan does not materially increase the number ofshares or options granted under the plan, but rather this change resulted in adecreased number of shares granted to Non-Employee Directors in fiscal 2005. Theamended plan allows for an annual retainer, as well as additional cash fees forattending board and various committee meetings. During the three months andnine months ended December 31, 2004, the Company incurred $45,500 of expenseassociated with the above fees.

 

** New AccountingPronouncements:**

 

On March 31, 2004, the FASB issued an exposure draft No. 1102-100,Proposed Statement of Financial Accounting Standards-Share-Based Payment,effective for fiscal 2006. This exposure draft outlines a methodology for theaccounting treatment of stock options and certain other share-based payments.It requires these payments to be recorded as an operating expense. The exposuredraft is proposed to supercede SFAS 123, which allowed for footnote disclosureof this expense. Currently, the Company uses the Black-Scholes model for optionexpense calculation for footnote disclosure. The Company’s proforma expensecalculated for this disclosure was $1,318,000 and $2,740,000 for the threemonths and nine months ended December 31, 2004, respectively. The Company iscurrently evaluating the impact of this proposed pronouncement on itsconsolidated financial statements.

 

In March 2004, the Emerging Issues Task Force (EITF) reached aconsensus on EITF Issue No. 03-6, Participating Securities and the Two-ClassMethod under FASB Statement No. 128, Earnings per Share.  EITF Issue No. 03-6 clarifies whatconstitutes a participating security and provides further guidance in applyingthe two-class method of calculating earnings per share. The consensuses reachedby the Task Force on EITF Issue No. 03-6 were ratified by the FASB on March 31,2004, and are effective for reporting periods beginning after March 31, 2004.The Company has reviewed the issue and concluded that it has no participatingsecurities as defined by EITF Issue No. 03-6.

 

In March 2004, the Emerging Issues Task Force (EITF) reached aconsensus on the remaining portions of EITF 03-01, The Meaning ofOther-Than-Temporary Impairment and Its Application to Certain Investments withan effective date of June 15, 2004. EITF 03-01 provides new disclosurerequirements for other-than-temporary impairments on debt and equity investments.Investors are required to disclose quantitative information about: (i) theaggregate amount of unrealized losses, and (ii) the aggregate related fairvalues of investments with unrealized losses, segregated into time periodsduring which the investment has been in an unrealized loss position of lessthan 12 months and greater than 12 months. In addition, investors are requiredto disclose the qualitative information that supports their conclusion that theimpairments noted in the qualitative disclosure are not other-than temporary.The adoption of this statement did not have an impact on the Company’sconsolidated financial statements.

 

In November 2004, the FASB issued a Statement of Financial AccountingStandards No. 151 Inventory Cost, effective for inventory costs incurred duringfiscal years beginning after June 15, 2005. This statement amends the guidancein ARB No. 43 to clarify that the accounting of abnormal amounts of idlefacility expense, freight, handling costs, and wasted material (spoilage)should be recognized as current period charges. In addition this statementrequires that allocation of fixed production costs of conversion be based onthe normal capacity of the production facility.  The adoption of this statement will not havean impact on the Company’s consolidated financial statements.

 

In December 2004, the FASB issued a FASB Staff Position (FSP) 109-1Application of FASB 109 to the Tax Deduction on Qualified Production Activitiesprovided by the American Jobs Creation Act of 2004. The new act provides for aspecial tax deduction on qualified production activities income thateffectively reduces the Company’s tax rate. The FASB has decided that theseamounts should be recorded as a special deduction, and recorded in the yearearned. The adoption of this FSP statement will not have an impact on theCompany’s consolidated financial statements.

 

**Item 3 -Quantitative and 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 December31, 2004, the Company had no variable 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 weremarked to market at current rates that resulted in immaterial translationadjustments to stockholders’ equity.  The gains and losses from foreigncurrency transactions are included in the statement of operations for theperiod and were also immaterial.  A hypothetical 10% change in foreigncurrency rates would not have a material impact on the Company’s results ofoperations or financial position.

 

As of December 31, 2004, the Company holds short-term investmentsconsisting of money market funds, commercial paper and U.S. 

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government and government agency bonds.  The Company’s primaryobjective with its investment portfolio is to invest available cash whilepreserving principal and meeting liquidity needs. These investments have anaverage interest rate of 2.1% and are subject to interest rate risk. As aresult of the average maturity and conservative nature of the investmentportfolio, a sudden change in interest rates would not have a material effecton the value of these investments.

 

In fiscal 2003, the Company issued 295,475 warrants in connection witha private placement offering of common stock.  These warrants can beexchanged for cash under certain circumstances including a merger, sale ortender offer of the Company and as such a liability equal to Black-Scholesvalue of the warrants is recorded on the balance sheet.  Changes in thefair value of the warrants are recorded as other income (expense).  TheBlack-Scholes value of these warrants can fluctuate significantly based on thecurrent fair market value of the Company’s common stock.  A 10% change inthe fair market value of the Company’s common stock, holding other assumptionsconstant, would have approximately a $687,000 effect on earnings.

 

**Item 4 -Controls and Procedures**

 

*Evaluation of Disclosure Controls and Procedures*

 

As of the end of the period covered by this report, under the supervisionand with the participation of our management, including our Chief ExecutiveOfficer and Acting Chief Financial Officer, the Company reviewed and evaluatedthe effectiveness of the Company’s disclosures and procedures pursuant to Rule13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 as amended (the“Exchange Act”). Based upon their evaluation, our Chief Executive Officer andour Acting Chief Financial Officer concluded that our disclosure controls andprocedures were effective to provide reasonable assurance that informationrequired to be disclosed by the Company in the reports filed or submitted by itunder the Exchange Act is recorded, processed, summarized and reported withinthe time periods specified in the Security and Exchange Commission’s rules andforms, and to provide reasonable assurance that information required to bedisclosed by the Company in such reports is accumulated and communicated to theCompany’s management, including its Chief Executive Officer and Acting Chief FinancialOfficer, as appropriate to allow timely decisions regarding requireddisclosure.

 

*Changes in Internal Control*

 

There have been no significant changes in the Company’s internalcontrols over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) ofthe Securities Exchange Act of 1934 during the period being reported on, whichcould materially affect, or are reasonably likely to materially affect, theCompany’s internal control over financial reporting.

 

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**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 filedcounterclaims alleging that the patents-in-suit were not infringed and/or were invalid.In May 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.

 

On or about February 19, 2004, L-3filed a lawsuit against the Company in the United States District Court for theDistrict of Massachusetts, in Boston, seeking declaratory judgments ofnon-infringement and/or invalidity of two of the Company’s patents—UnitedStates Pat. No. 6,292,533 and No. 5,903,623. The Company filed amotion to dismiss the litigation for lack of subject matter jurisdiction, butwas denied. The Company has answered L-3’s underlying complaint, vigorouslyopposing the plaintiff’s non-infringement and invalidity claims, and has begunrelevant discovery.  In December2004, the Company also filed a motion for summary judgment with respect to oneof the principal claims alleged by the plaintiff.

 

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**

 
| 10(c)(xvii) |   | Second Amendment of Lease of 829 Middlesex Turnpike,  Billerica, Massachusetts                                                                      |
|-------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                |
| 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 |

 

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 7.

 

 

**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.

 

 
|                        | AMERICAN SCIENCE AND ENGINEERING, INC.       |
|-----------------------------|----------------------------------------------|
| (Registrant)                |                                         |
|                        |                                         |
| Date  February 3, 2005 | /s/ Kenneth J. Galaznik                      |   |
|                        | Kenneth J. Galaznik                          |
|                        | Treasurer and Acting Chief Financial Officer |

 

 

*Safe Harbor Statement*

*The foregoing 10-Q containsstatements concerning the Company’s financial performance and businessoperations, which may be considered “forward-looking” under applicablesecurities laws.*

 

*The Company wishes to cautionreaders of this Form 10-Q that actual results might differ materially fromthose projected in any forward-looking statements.*

 

*Factors which might cause actualresults to differ materially from those projected in the forward-lookingstatements contained herein include the following: significant reductions ordelays in procurements of the Company’s systems by the United States and othergovernments; disruption in the supply of any source component incorporated intoAS&E’s products and other factors which may cause delays in production anddelivery schedules; litigation seeking to restrict the use of intellectualproperty used by the Company; potential product liability claims against theCompany; failure of any of our products to meet performance requirements or tocontinue to operate reliably because of unexpected design flaws ormanufacturing defects; 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-LookingInformation and Factors Affecting Future Performance” in the Company’s AnnualReport on Form 10-K.*

 

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