<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934 (FEE REQUIRED)

     FOR THE FISCAL YEAR ENDED MARCH 31, 1999

                                       OR

/X/  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                          Commission file number 1-6549

                     AMERICAN SCIENCE AND ENGINEERING, INC.
             (Exact name of registrant as specified in its charter)

MASSACHUSETTS                              04-2240991
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)

829 MIDDLESEX TURNPIKE, BILLERICA, MASSACHUSETTS                     01821
(Address of principal executive offices)                             (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class                   Name of each exchange on which registered
-------------------                   -----------------------------------------
Common Stock ($.66 2/3 par value)           American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES /X/ NO / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/

The aggregate market value of voting stock held by non-affiliates of the
registrant on June 14, 1999 was $48,239,595

4,890,767 shares of Registrant's Common Stock were outstanding on June 14, 1999.

                     The Exhibit Index is located on page 47


                                       1

<PAGE>

PART I

ITEM 1.   BUSINESS

American Science and Engineering, Inc., a Massachusetts corporation formed in
1958 (together with its subsidiary, the "Company"), develops, produces, markets,
sells, maintains and provides research, engineering and training services with
respect to X-ray inspection systems.

-    X-RAY PRODUCTS

The Company provides a full line of X-ray detection and imaging products used
primarily for the detection of smuggled goods, including illegal drugs, and
terrorist explosives. This equipment is purchased by sophisticated government
and commercial clients who place a premium on the detection of organic material
in complex backgrounds and the ability to see the contents of containers with
precision. The Company utilizes proprietary transmission and backscatter X-ray
detection to provide differentiation of bombs, drugs and contraband in
camouflaged environments. The range of application includes border control and
manifest verification, protection of high risk government offices, mail and
parcel screening, correctional facility security, military security, executive
security, aviation security, and special event security (e.g. Olympics, UN 50th
Anniversary and World Cup Soccer). The Company's market is driven by domestic
and global trends toward increasing use of terrorism for political purposes; the
continued global proliferation of drug smuggling; and the continuing increase in
global trade which creates greater incentives and opportunities to evade duties
or perpetrate trade fraud by misdeclaring cargo shipping manifests.

The Company believes that market demand for cargo and vehicle inspection
equipment is growing in many parts of the world. Originally fueled by the desire
of the U.S. Government to interdict drug traffic, the market has now expanded
into other applications of broader interest to a wider range of countries. The
Company's CargoSearch(TM) family of products, originally developed with the
assistance of the U.S. Department of Defense and the U.S. Customs Service,
provides the Company with a range of products to serve this market. Based on the
original success of the Company's fixed-site CargoSearch(TM) installation at
Otay Mesa, CA for inspecting trucks and containers, the Company has installed
six additional fixed sites for the U.S. Customs Service on the southwestern
border, with two more systems on order. In addition, the Company has installed a
fixed site system in Abu Dhabi and has added IsoSearch(TM) and Marine
CargoSearch alternatives to the product line in order to provide clients with
more flexibility and customized solutions to their inspection needs. The first
IsoSearch(TM) system was installed in South Africa in the spring of 1999 and the
first Marine CargoSearch is expected to be installed in Egypt in the fall of
1999. In general, the U.S. Government is primarily interested in cargo
inspection systems to interdict illicit drug shipments while other governments
are primarily motivated by a desire to increase revenues by verifying cargo
manifests or to deter the transport of terrorist weapons or bombs.

The Company's MobileSearch(TM) system adds flexibility, mobility and the ability
to inspect cars to the basiC CargoSearch concept. MobileSearch also allows
clients to engage in surprise searches. In addition to performing the kinds of
contraband searches performed


                                       2

<PAGE>

by CargoSearch, the Company believes that MobileSearch will have applications in
the force protection area as military personnel are increasingly exposed to
guerilla-style or low intensity conflicts which leave their mobile, advanced
forces exposed to the potential for terrorist attack. MobileSearch systems are
deployed in three countries, with delivery to a fourth expected early in the
summer of 1999.

The Company offers high performance X-ray systems for inspecting parcels at
prices that have generally been higher than those of competing, less capable
systems. However, in recent years, the Company has brought to the marketplace
several new products for inspecting cargo that are priced significantly lower
than competing systems. Across the entire range of its X-ray inspection systems,
the Company has focused on selling products with unique features that create
strong product differentiation and offer distinct performance advantages.

The Company's product line currently includes 12 models. These models can be
broadly categorized into 4 groups including the CargoSearch(TM) family, the
Model 101 series, the Model 66 series, and the BodySearch(TM) Personnel
Inspection System. All of these systems utilize the Company's Z(R) Backscatter
technology (aspects of which are covered by issued and pending U.S. patents),
which detects organic materials, such as illegal drugs, plastic explosives, and
plastic weapons, which often go undetected by competing systems.

The CargoSearch(TM) family of products includes the CargoSearch(TM) system, the
relocatable IsoSearch(TM) system, MarineSearch(TM) , designed specifically for
port applications, the MobileSearch(TM) system, and the PalletSearch(TM) system.
The CargoSearch(TM) system is a non-intrusive inspection technology for the
X-ray scanning of trucks, cars, cargo containers, pallets, and air cargo using
the Company's unique and patented Z(R) Backscatter technology. The fixed
CargoSearch(TM) system sells for a turnkey price generally lower than competing
systems. The U.S. Customs Service presently operates seven CargoSearch(TM)
systems along the southwestern border, with two more on order.

The first MobileSearch(TM) system was delivered under a $1.8 million contract
with the Defense Advanced Research Project Agency (DARPA). This mobile version
of a CargoSearch(TM) system is a self-contained unit inside a conventional truck
that is deployable within minutes and provides the transport mechanism via a
hydraulic drive. The Company is marketing the MobileSearch(TM) system to
agencies of the U.S. Government and to foreign security and customs agencies.
The Company has delivered a total of four systems to the U.S. Government, has
delivered six systems to two foreign governments and has orders for additional
systems from a third government. All of the units after the first include both
Z(R) Backscatter and transmission X-ray capabilities.

PalletSearch(TM) was designed for the inspection of pallets for the detection of
contraband, weapons and explosives for high security facilities where high
confidence inspection is a requirement. The first PalletSearch(TM) system was
delivered during fiscal 1997 to an ultra-secure agency of the U.S. Government,
and additional units have been ordered by a foreign government for customs
inspection applications, one of which is expected to go online during the summer
of 1999.

The Micro-Dose(R) Model 101 Series consists of 6 models. The mobile Model
101VAN(TM) is a sophisticated, vehicle mounted inspection system designed and
built to the rigorous


                                       3

<PAGE>

specifications of the U.S. Customs Service. The Model 101ZZ(R) Trailer is a
field deployable system for extended on site security details. The Models
101Z(R), 101ZZ(R), 101GT(TM), and 101XL(TM) are moveable (but not mobile),
conveyor based systems allowing rapid inspection of high volumes of luggage and
other packages.

The Model 66(R) handles small packages using the patented Z(R) Backscatter
technology. This technology was validated by a study conducted by several U.S.
government agencies involving the Model 66(R) and competitive systems in which
the Model 66(R) was determined to have superior detection capability for
terrorist devices hidden in complex backgrounds. This test resulted in increased
order demand from both government and commercial clients, including a number of
Fortune 100 companies.

The BodySearch(TM) Personnel Inspection System offers a fast, safe, and
non-intrusive way to screen individuals for weapons, drugs, and illegal
contraband concealed under clothing, providing a viable alternative to pat or
strip searches. This system is used for drug detection and head of state
security as well as for correctional facility security. Through the end of
fiscal 1999, the Company has sold 6 BodySearch(TM) units, including three units
to state prisons and other institutions during the year.

The Company has patents in the United States, Germany, Japan, and the United
Kingdom, as well as patents pending in the United States and under the Patent
Cooperation Treaty, none of which have reached the national phase requiring the
identification of specific countries in which patents will be sought. The
Company has sold product in, or has sales activity in most major regions of the
world including Africa, Asia, Europe, the Middle East and South America. Each
U.S. patent issued after May 1995 will have a duration of twenty years from the
date of application. The Company relies on certain proprietary technology and
know-how, as well as certain of these patents, to establish and maintain its
competitive position. The Company believes that its patents, proprietary
technology and know-how provide substantial protection for the Company's
competitive position and the Company has publicly stated its intent to
aggressively protect its intellectual property assets, by litigation or other
means, as appropriate. During fiscal 1999 the Company instituted litigation
against the U.S. Customs and EG&G Astrophysics Research Corp. in order to
protect its intellectual property (See item 3 -"Legal Proceedings").

The Company's X-ray products are marketed to private and governmental
organizations through a sales force that contacts potential customers and
responds to public tenders and other expressions of interest. This sales force
includes Company personnel based in the United States as well as representatives
under contracts to sell in foreign countries who are generally on a commission
basis.

Most Micro-Dose(R) Systems are built for existing orders, and the Company
maintains an inventory of common parts and sub-assemblies for the systems in
order to meet expected customer delivery requirements.

The Company is heavily dependent upon sales to agencies of the U.S. Government,
and reductions or delays in procurements of the Company's systems by these
agencies may have a material adverse effect on the Company. The Company's
strategy includes reducing this dependence by emphasizing sales to foreign
governments, which accounted for slightly more than half of sales in fiscal
1999. Sales to U.S. Government agencies, in


                                       4

<PAGE>

general, are generated by responding to a "Request for Quote" and are subject to
standard and routine U.S. Government pre and post contract award audit as well
as review of the Company's compliance with the Federal Acquisition Regulations.
During fiscal 1999, slightly less than half of sales of X-ray products were
under (i) direct contracts with the U.S. Government, and (ii) subcontracts with
prime contractors working under direct contracts with the U.S. Government. Some
of the Company's contracts with the government are on a cost reimbursement
basis, including provisions preventing final billing until completion of the
contract, and virtually all are cancelable at the government's discretion. The
Company has not experienced any material losses as the result of such
contractual provisions.

The U.S. Customs Service is a major customer (with sales of more than 23 percent
of the Company's consolidated revenues in fiscal 1999). The loss of this
customer would be likely to have a material adverse effect on the Company taken
as a whole. The Company believes that it has a satisfactory relationship with
the U.S. Customs Service but the effect of the litigation, described more fully
in Item 3 below, on that relationship is uncertain.

While the Company's emphasis on international sales has had the desired effect
of reducing the Company's dependence on the U.S. Government, it has increased
the Company's exposure to the very long sales cycles and project financing
requirements often associated with such sales. The Company manages these risks
in a number of ways including actively increasing the number of opportunities it
is pursuing at any one time and by working with international funding sources to
help clients finance these projects.

The Company has many competitors in the X-ray product market, including several
large and well-established manufacturers of security X-ray equipment with
financial and other resources greater than those of the Company. Certain X-ray
security system customers select such systems based largely on price. Other
customers, notably the U.S. Government and users in countries with high levels
of concern over security, tend to select systems based largely on performance
and detection capability. The Company's systems offer premium performance and
have in the past, with the exception of the CargoSearch(TM) family, generally
been priced higher than many competing systems. The Company believes that its
patented and proprietary technology give it a strong competitive position in the
sale of security systems to customers concerned with performance and detection.
The Company also believes that its strategy of concentrating on products with
unique features and/or competitive pricing will give it a strong position to
increase its sales of X-ray systems.

The Company has not experienced during the last year, and does not currently
anticipate, any hardware delivery delays due to raw material shortages. Most
procured material is from U.S. sources. However, the Company is dependent upon
certain overseas sole source providers of important components. No rare or
exotic materials are utilized.

The Company complies with applicable Health and Human Services regulations
outlined under the "Regulations for the Administration and Enforcement of the
Radiation Control for Health and Safety Act of 1968" (21CFR 1020.40), published
by the U.S. Department of Health and Human Services. All X-ray products of the
Company comply with all applicable U.S. Government regulatory standards.


                                       5

<PAGE>

-    RESEARCH AND DEVELOPMENT

The Company conducted approximately $2,664,000 of government sponsored research
primarily focused on technologies for the detection of illicit drugs,
explosives, and other security issues in fiscal 1999. This compares to
$2,785,000 and $2,278,000 of government sponsored research and development in
fiscal 1998 and 1997, respectively. In addition, the Company spent approximately
$6,380,000 of its own funds for research relating to the development of new
products or services during fiscal 1999, compared to $2,856,000 and $1,602,000
in fiscal 1998 and 1997, respectively.

A significant amount of the Company's government sponsored research and
development work is obtained via contracts or subcontracts that typically
provide for reimbursement of allowable costs plus a fixed fee. The Company's
contracts in these areas are obtained by submitting research and development
proposals to various organizations, sometimes in response to requests for such
proposals. The Company's contract research ranges from advances in X-ray systems
and image analysis to integrated system development for niche security
inspection problems.

-    PERSONNEL

As of March 31, 1999 the Company had 301 employees compared to 198 employees at
the end of the prior year. All Company employees sign nondisclosure agreements
as a condition of employment.

-    SALES BACKLOG

The Company's firm sales backlog was $38,723,000 at March 31, 1999 and
$17,299,000 at March 31, 1998.

A majority of the Company's contracts with the U.S. Government contain clauses
permitting the government to terminate the contract for convenience upon certain
terms and conditions, including payment to the Company of an appropriate fee or
profit on work performed. The total of such contracts in the backlog was
$3,563,000 at the end of fiscal year 1999 and $11,053,000 at the end of fiscal
year 1998. It is estimated that approximately 65% of the 1999 backlog will be
filled within the fiscal year ending March 31, 2000.


                                       6

<PAGE>

FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES

All export sales are made in U.S. dollars, and virtually all export sales are
either secured by irrevocable letters of credit or paid in advance. Export sales
are believed by the Company to be at least as profitable as similar domestic
sales. All of the Company's assets and operations are maintained in the United
States. The Company has not encountered, nor does it anticipate encountering,
risks attendant to export sales that are greater than risks attendant to
domestic sales. The following chart provides information about the breakdown
between domestic and export sales for the indicated fiscal years.

Net Sales and Contract Revenues (Dollars in thousands)

<TABLE>
<CAPTION>

                                                      1999            1998             1997
                                                  -----------      ----------      ------------
<S>                                               <C>              <C>             <C>
     Domestic                                     $    26,274      $   26,799      $     23,703
     Export                                       $    31,021      $    5,900      $      4,776
     Percent of Export Revenue by Major Region:
          Middle East & Africa                           54.2 %          59.7 %            22.2 %
          Mexico                                         29.6            --                  --
          Pacific Rim                                    10.5            28.3              60.9
          Europe                                          5.0             8.9               4.4
          All Other                                       0.7             3.1              12.5

</TABLE>

ITEM 2.   PROPERTIES

The Company's executive offices and its research, manufacturing and warehouse
facilities are located in Billerica, Massachusetts and Santa Clara, California.
In Billerica, the Company occupies 118,300 square feet of space in a 160,000
square foot single-story; concrete and brick building owned by an unaffiliated
real estate limited partnership. The remaining space in the building is
currently leased by the owner to an unaffiliated manufacturing company. The
Company occupies the space under a long-term lease with a ten-year initial term
that commenced March 1, 1995, and its one (1) ten-year optional extension term.
In January 1998, the Company leased 12,700 square feet of additional
manufacturing and office space in an office park near the main office. This
lease has a term of five years. The facilities are currently utilized on a
one-shift basis. The Company can add additional capacity by adding second and
third shifts if necessary.

In August 1998, the Company established the High Energy Systems Division.
Located in Santa Clara, California, the Division leases 11,700 square feet of
manufacturing, research and office space. The lease has a term of three years
that commenced on August 18, 1998. The lease has two three-year optional
extension terms. The facilities are currently utilized on a one-shift basis. The
Company can add additional capacity by adding second and third shifts if
necessary.


                                       7

<PAGE>

ITEM 3.   LEGAL PROCEEDINGS

In May 1996, Vivid Technologies, Inc. filed a civil action in the United States
District Court for the District of Massachusetts against the Company, seeking
INTER ALIA a declaratory judgment that Vivid had not infringed upon certain of
the Company's patents relating to backscatter. On May 12, 1997, Vivid filed a
proposed Amended Complaint narrowing its claim and seeking INTER ALIA a
declaratory judgment that Vivid had not infringed on two claims on AS&E United
States Patent number 5,253,283, entitled "Inspection Method and Apparatus with
Single Color Pixel Imaging." On January 28, 1998, the Court granted Vivid's
request for a declaratory judgment. The Company's appeal of that judgment was
heard by the United States Court of Appeals for the Federal Circuit in January,
1999, but the Court has not yet rendered a decision. Due to certain rulings made
by the District Court, the Company was unable to obtain certain discovery the
Company believes is essential to determine whether Vivid is infringing on the
`283 patent. Through the appeal process, the Company is pursuing its request for
discovery, and, if successful, expects to pursue an infringement action against
Vivid to the extent consistent with the evidence discovered.

In September, 1998, the Company filed suit against EG&G Astrophysics Research
Corp. ("EG&G") in U.S. District Court in Boston, Massachusetts alleging that
EG&G is infringing on at least two patents owned by the Company and that EG&G
has misappropriated certain trade secrets of the Company. In February, 1999, the
Company filed a related action in the same court against the U.S. Customs
Service ("Customs") alleging that Customs had either misappropriated the
Company's trade secrets or facilitated their misappropriation by EG&G and that
Customs had improperly entered into a contract with EG&G for the acquisition of
a product functionally equivalent to MobileSearch(TM). In May, 1999 the Court
held a hearing on the Company's motion for a preliminary injunction against both
Customs and EG&G prohibiting the further performance of the contested contract
and preventing EG&G from utilizing the Company's trade secrets. As of the date
of this filing, the Court had not issued a ruling on this motion. All other
proceedings in both of these cases have been delayed pending the outcome of the
preliminary injunction hearing.

In a related matter, EG&G has filed a request with the U.S. Patent and Trademark
Office for reexamination of the two patents that currently are at issue in the
patent infringement action described above. The Company intends to file
oppositions to the reexamination requests and believes that they are without
merit.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of the Company's security holders during the
fourth quarter of the fiscal year covered by this report.


                                       8

<PAGE>

PART II

ITEM 5.   MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
          STOCKHOLDER MATTERS

The Company's Common Stock is listed on the American Stock Exchange (ticker
symbol: ASE). The market price range for the Common Stock for the last two
fiscal years follows:

<TABLE>
<CAPTION>

     FISCAL YEAR         QUARTER ENDED             HIGH             LOW
     -----------         -------------             ----             ---
<S>                      <C>                       <C>              <C>
     1999                March 31, 1999            11 1/16          7 1/8
                         December 31, 1998         12 1/4           9 3/8
                         September 30, 1998        13 1/16          11 5/16
                         June 30, 1998             16 7/16          13 1/2

     1998                March 31, 1998            14 3/4           11 1/4
                         December 31, 1997         14 1/2           10
                         September 30, 1997        13 3/8           9 1/4
                         June 27, 1997             12 1/4           9 5/8

</TABLE>

As of June 14, 1999, there were approximately 1,238 holders of record of the
Company's Common Stock.

No cash dividends have been declared in the two most recent fiscal years and the
Board of Directors does not contemplate paying any dividends in the immediate
future.

The Company's credit facility restricts the payment of dividends (except in
shares of the Company's stock) without consent of the bank.

ITEM 6.   SELECTED FINANCIAL DATA

(Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>

   Fiscal Year                 1999        1998        1997        1996        1995
                             --------    --------    --------    --------    --------
<S>                          <C>         <C>         <C>         <C>         <C>
Net sales and contract
revenues                     $ 57,295    $ 32,699    $ 28,479    $ 17,815    $ 12,997
Net income (loss)               2,045       4,661       1,925         802        (967)
Income (loss) per
share-diluted                     .40         .95         .40         .18        (.23)
Total assets                   30,204      25,993      15,514      14,295      10,734
Obligations under capital
leases                             40          42          60          75         233
Stockholders' investment       19,347      16,084      10,150       7,501       5,592
Book value per share             3.97        3.39        2.21        1.67        1.31

</TABLE>


                                       9

<PAGE>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS

-    1999 COMPARED TO 1998

-    OVERVIEW

Net sales and contract revenues for fiscal 1999 improved by 75% to $57,295,000
versus fiscal 1998 net sales of $32,699,000. The Company had income before taxes
of $3,409,000, an increase of 26% compared to $2,698,000 of income before taxes
in the previous year. Net income for fiscal 1999 was $2,045,000 ($.40 per share,
on a diluted basis) as compared to $4,661,000 ($.95 per share, on a diluted
basis) in fiscal 1998. Backlog at March 31, 1999 was $38,723,000, a 124%
increase over the backlog reported at previous fiscal year end. During fiscal
1998, the Company recorded a net tax benefit associated with net operating loss
carryforwards and other tax items of $1,963,000, or $.40 per share.

CHANGES IN FINANCIAL CONDITION - Cash and cash equivalents at year-end decreased
by $1,924,000 to $366,000, compared to $2,290,000 in 1998. Accounts receivable
increased by $1,232,000 from the prior year due to the increased shipments made
during 1999. Inventories increased by $2,513,000 during 1999 to support the
growth in X-ray equipment shipments and backlog. Prepaid expenses and other
current assets increased $943,000 due to advances for certain long lead
inventory. Deferred income taxes decreased $932,000 as a result of the Company
utilizing a tax benefit associated with its net operating loss carryforwards.

RESULTS OF OPERATIONS - Net sales and contract revenues increased by $24,596,000
or 75% during fiscal year 1999. In 1999, security systems revenues of
$54,631,000 represented an increase of $24,717,000 or 83% over 1998. Contract
research and engineering revenues of $2,664,000 decreased by $121,000 or 4% over
1998.

Cost of sales and contracts in 1999 of $38,356,000 was $18,540,000 higher than
the previous year primarily due to increased equipment sales and performance on
several contracts. Cost of sales and contracts represented 67% of revenues
during 1999, compared to 61% in 1998. This increase in the cost of sales ratio
was due to an expected shift in product mix, investments made in operations
infrastructure, and introduction of new or enhanced products in response to
growing domestic and international demand.

Selling, general and administrative expenses of $9,083,000 were $1,658,000
higher than the previous year and represented 16% of revenues, compared to 23%
in 1998. The increased spending level was primarily due to expanded
international sales and marketing activities and costs associated with
recruiting for the Company's expanded staff requirements. The decreased ratio of
selling, general and administrative expenses to sales is due to the larger
revenue base over which to spread these costs.

Company funded research and development spending increased to $6,380,000 in
1999, a 123% increase compared to the $2,856,000 in spending in 1998. Research
and development spending in fiscal 1999 and fiscal 1998 was 11% and 9% of
revenues, respectively.

In fiscal 1999, the Company recorded a provision for income taxes of 40%, of
which the significant components included federal and state income taxes. In
fiscal 1999, the effective tax rate exceeded the statutory federal income tax
rate primarily due to the impact of state income taxes


                                       10

<PAGE>

and non-deductible expenses. In the fourth quarter of fiscal 1998, the Company
recorded a tax benefit associated with net operating loss carryforwards and
other tax assets as explained in Footnote 5 to the Financial Statements. The
aggregate tax benefit recognized was $2,072,000, which resulted in a net tax
benefit for the year of $1,963,000.

The Company recorded net profits of $2,045,000 for fiscal year 1999, a decrease
of $2,616,000, or 56% below net income of $4,661,000 in the previous year. On a
comparative basis, using fiscal 1999 tax provision rate of 40%, fiscal 1998 net
profits would have been $1,619,000 resulting in an increase in fiscal 1999 net
profits of 26% over fiscal 1998. The Company was profitable in all quarters.

LIQUIDITY AND CAPITAL RESOURCES - Net cash provided by operating activities was
$785,000, compared to $696,000 net cash used for operating activities in 1998.
During 1999, the Company received $815,000 from the exercise of stock options.
Cash and cash equivalents at March 31, 1999 stood at $366,000, a decrease of
$1,924,000 over the prior year-end. Working capital at the end of 1999 decreased
3.6% to $14,046,000. The Company's current ratio decreased to 2.4 as compared to
2.6 at the end of 1998.

Fiscal 1999 capital expenditures totaled $3,358,000. This was an increase of
210%, or $2,276,000, from the prior year capital expenditures of $1,082,000.
Capital expenditures were comprised primarily of investments in information
technology, leasehold improvements, and furniture and fixtures. Capital
expenditures are funded by cash generated by operations or from the lines of
credit available to the Company.

At the end of fiscal 1999, the Company had $23.3 million in approved bank lines
of credit to be used either for short term cash borrowings to support working
capital growth or for standby letters of credit to support the bonding
requirements of foreign contracts. At the end of fiscal 1999, $1.0 million in
borrowings were outstanding and $12.1 million in standby letters of credit were
in effect against this credit facility. The Company's credit facility restricts
the payment of dividends, except in shares of the Company's stock, without
consent of the bank. After the end of the fiscal year, the Company had applied
for a $5 million expansion of the credit line.


-    YEAR 2000

The Company has assessed the potential impact of the year 2000 on the Company's
internal business systems, products and operations. The Company's year 2000
initiatives include (i) testing and upgrading internal business systems and
facilities; (ii) testing and developing necessary upgrades for the Company's
current products and certain discontinued products; (iii) contacting key
suppliers, vendors, and customers to determine their year 2000 compliance
status; and (iv) developing contingency plans.

THE COMPANY'S STATE OF READINESS

The Company has evaluated its critical information technology systems for
year 2000 compliance, including its significant computer systems, software
applications, and related equipment. The Company is currently in the process
of testing its non-compliant systems in order to determine the need for
upgrade or replacement. The Company expects that its critical information
technology systems will be year 2000 compliant before October, 1999. All
identified problems will be remediated. The Company will continue testing of
its critical internal business systems as the upgrades are placed in
production. The Company believes that all of the products that it currently
manufactures and sells are year 2000 compliant.

                                       11

<PAGE>

The Company has identified and contacted suppliers, vendors, and customers that
are believed to be significant to the Company's business operations in order to
assess their year 2000 readiness. As part of this effort, the Company
distributed questionnaires relating to year 2000 compliance to its significant
suppliers and vendors. It is developing a more detailed follow-up to ensure its
most critical suppliers and vendors have adequate year 2000 plans in place.

CONTINGENCY PLANS

The Company is developing a contingency plan that will allow its primary
business operations to continue despite possible disruptions due to year 2000
problems. These plans include emergency power for information technology in case
of a general power failure and redundant data in similar computer systems to
be used in case of a failure of the existing IT system. As the Company continues
to evaluate the year 2000 readiness of its business systems and facilities,
products and significant suppliers, vendors, and customers, it will modify and
adjust its contingency plan as may be required.

COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES

The primary costs of the year 2000 program relate to existing internal
resources. These additional costs will not be material. However, since there
is no uniform definition of year 2000 "compliance" and there is no way to
anticipate all possible situations, there can be no assurance that the
Company will not encounter unexpected costs or delays in achieving year 2000
compliance.

RISKS OF THE COMPANY'S YEAR 2000 ISSUES

The company believes it has an effective program in place to resolve the year
2000 issue. However, since it is not possible to anticipate all possible
future outcomes there could be "worst case scenarios" in which the company
would be unable to conduct its business. While the Company anticipates
completion of testing and upgrades on a timely basis, possible "worst case
scenarios" include delays in upgrading mission critical IT systems and
unexpected costs and delays or disruptions. If any of the Company's material
suppliers, vendors or customers experience business disruptions due to year
2000 issues, the Company might also be adversely affected. There is expected
to be a significant amount of litigation relating to the year 2000 issue and
there can be no assurance that the Company will not incur material costs in
defending or initiating lawsuits. Any unexpected costs or delays arising from
the year 2000 issue could have a significant adverse impact on the Company's
business, operations, and financial condition.

-    ACQUISITION OF BUSINESS

On August 18, 1998, the Company established its High Energy Systems Division by
purchasing certain assets relating to the industrial linear accelerator business
of Schonberg Research Corporation of Santa Clara, California for $1,100,000. The
components of the purchase price consisted of the following:

<TABLE>
<CAPTION>

<S>                                               <C>
          Fixed assets                            $  658
          Raw material inventory                      26
          Patents and other intangible assets        416
                                                  ------
                    Total                         $1,100
                                                  ------
                                                  ------

</TABLE>

This acquisition has been accounted for under the purchase method of accounting,
and its results are included with the Company's results from the date of
acquisition.


                                       12

<PAGE>

-    1998 COMPARED TO 1997

-    OVERVIEW

Net sales and contract revenues for fiscal 1998 improved by 15% to $32,699,000
versus fiscal 1997 net sales of $28,479,000. The Company's income before taxes
of $2,698,000, an increase of 35% compared to a $2,003,000 income before taxes
in the previous year. During fiscal 1998, the Company recorded a net tax benefit
associated with net operating loss carryforwards and other tax items of
$1,963,000. Net income for fiscal 1998 was $4,661,000 ($.95 per share, on a
diluted basis) as compared to $1,925,000 ($.40 per share, on a diluted basis) in
fiscal 1997. Backlog at March 31, 1998 was $17,299,000, an 11% increase over the
backlog reported at previous fiscal year end.

CHANGES IN FINANCIAL CONDITION - Cash and cash equivalents at year-end decreased
by $912,000 to $2,290,000, compared to $3,202,000 in 1997. Accounts receivable
and unbilled costs and fees increased by $2,070,000 and $2,409,000 respectively
from the prior year due to the increased shipments made during 1998 and
performance on several contracts. Inventories increased by $4,151,000 during
1998 to support the growth in X-ray equipment shipments and backlog. Customer
deposits increased $1,151,000 due to the advanced from a certain long-term
contract. Deferred income taxes increased $2,556,000 as a result of the Company
recording a tax benefit associated with its net operating loss carryforwards and
other tax assets.

RESULTS OF OPERATIONS - Net sales and contract revenues increased by $4,220,000
or 15% during fiscal year 1998. In 1998, security systems and field service
revenues of $29,914,000 increased by $3,713,000 or 14%. Contract research and
engineering revenues of $2,785,000 increased by $507,000 or 22%.

Cost of sales and contracts in 1998 of $19,816,000 was $1,393,000 higher than
the previous year primarily due to increased equipment sales and performance on
several contracts. Cost of sales and contracts represented 61% of revenues
during 1998, compared to 65% in 1997. This decline in the cost of sales ratio
was due to a more profitable product mix and a larger revenue base over which to
spread fixed costs in 1998.

Selling, general and administrative expenses of $7,425,000 were $931,000 higher
than the previous year and represented 23% of revenues, unchanged from 1997. The
increased spending level was primarily due to expanded international sales and
marketing activities and costs associated with recruiting for the Company's
expanded staff requirements.

Company funded research and development spending increased to $2,856,000 in
1998, a 78% increase compared to the $1,602,000 in spending in 1997. Research
and development spending in fiscal 1998 and fiscal 1997 was 9% and 6% of
revenues, respectively.

In the fourth quarter of fiscal 1998, the Company recorded a tax benefit
associated with net operating loss carryforwards and other tax assets as
explained in Footnote 5 to the Financial Statements. The aggregate tax benefit
recognized was $2,072,000, which resulted in a net tax benefit for the year of
$1,963,000. In fiscal 1997, the Company recorded a provision for income taxes of
3.9%, of which the significant components included alternative minimum tax
payable to the federal government and amounts for state income taxes.

The Company recorded net profits of $4,661,000 for fiscal year 1998, an
improvement of $2,736,000, or 142%, over net income of $1,925,000 in the
previous year. Using fiscal 1997 tax provision rates, fiscal 1998 net profits
would have been $2,589,000, representing an increase of 34% over fiscal 1997.
The Company was profitable in all quarters.


                                       13

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES - Net cash used for operating activities was
$696,000, compared to $158,000 net cash provided by operating activities in
1997. During 1998, the Company received $884,000 from the exercise of stock
options. Cash and cash equivalents at March 31, 1998 stood at $2,290,000, a
decrease of $912,000 over the prior year-end. Working capital at the end of 1998
increased 48% to $14,565,000. The Company's current ratio decreased to 2.6 as
compared to 3.3 at the end of 1997.

Fiscal 1998 capital expenditures totaled $1,082,000. This was an increase of
48%, or $352,000, from the prior year capital expenditures of $730,000. Capital
expenditures were comprised primarily of investments in information technology,
leasehold improvements, and furniture and fixtures. Capital expenditures are
funded by cash generated by operations or from the lines of credit available to
the Company.

At the end of fiscal 1998, the Company had $8.0 million in approved bank lines
of credit to be used either for short term cash borrowings to support working
capital growth or the standby letters of credit to support the bonding
requirements of foreign contracts. At the end of fiscal 1998, no cash borrowings
were outstanding and $1.2 million in standby letters of credit were in effect
against this credit facility. During April, 1998, the Company renegotiated the
line of credit, from $8.0 million to $12.0 million in anticipation of the
increased standby letter of credit capacity required to support the growth in
international orders. The Company's credit facility restricts the payment of
dividends, except in shares of the Company's stock, without consent of the bank.

MANAGEMENT ACTIONS - During fiscal 1998 AS&E achieved several milestones
associated with receipt of new orders, further progress toward the
commercialization of the Company's CargoSearch(TM) family of products, and
continued expansion of the Company's domestic and international customer base.
Examples include the following:

-    During the third quarter of fiscal year 1998, the Company delivered its
     second MobileSearch(TM) system under a $2.7 million contract. Work began
     under a $3.8 million contract received from the U.S. Department of
     Defense-Counterdrug Technology Development Program for two additional
     enhanced MobileSearch(TM) systems.

-    Throughout the fiscal year the Company improved its position significantly
     in the international market. In March 1998 the Company received an order
     from Portnet, the Port Authority in South Africa, for a new unique version
     of AS&E's CargoSearch(TM) system. The system, called IsoSearch(TM),
     combines features of both fixed-site and mobile systems currently sold by
     the Company and will allow Portnet to relocate the system within or between
     ports.

-    Subsequent to year-end the Company received a MobileSearch(TM) order from a
     Middle Eastern customer for counter terrorism; as well as an $8.8 million
     dollar order from the Abu Dhabi United Arab Emirates Customs Department for
     a fixed-site CargoSearch(TM) for truck inspection on the border with Saudi
     Arabia. The Company also received a $35 million order from the Customs
     Authority of the Arab Republic of Egypt for ten of the Company's
     CargoSearch(TM) family of products, including multiple units of each of the
     fixed-site CargoSearch(TM), MobileSearch(TM) and PalletSearch(TM) systems.


                                       14

<PAGE>

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary financial information listed in the
Index to Consolidated Financial Statements and Schedule on page 28 are filed as
part of this Annual Report on Form 10-K and are incorporated into this Item by
reference.

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

None.

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

-    DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY AS OF MAY 31, 1999.

<TABLE>
<CAPTION>

                                        Positions and Offices            Date Assumed
Name                   Age              of Company Held                  Each Position
----                   ---              ------------                     -------------
<S>                    <C>              <C>                              <C>

DIRECTORS
William E. Odom        66               Director                         September 1996
                                        Chairman                         September 1998
Al Gladen              61               Director                         September 1995
Hamilton W. Helmer     52               Director                         February 1993
Donald J. McCarren     59               Director                         February 1993
Herman Feshbach        82               Director                         September 1975
Carl W. Vogt           63               Director                         June 1997
Ralph S. Sheridan      49               Director                         January 1994
                                        President & CEO                  September 1993

EXECUTIVE OFFICERS (Who are not also Directors)
William L. Adams       66               Vice President, Operations         September 1998
Jeffery A Bernfeld     42               Vice President, General            February 1996
                                        Counsel & Clerk
Joseph Callerame       49               Vice President, Technology         June 1998
                                        Chief Technology Officer
Alan H. Rutan          58               Vice President, Engineering        July 1996
Lee C. Steele          49               Vice President, Finance            September 1994
                                        Treasurer & CFO

</TABLE>

All Directors and Executive Officers hold office until the next annual meeting
of Stockholders and until their successors are duly elected and qualified. No
family relationship exists between any of the listed Directors and Executive
Officers.

Dr. Herman Feshbach is an Institute Professor Emeritus as the Massachusetts
Institute of Technology, a position he has held for more than five years, and
has previously served as Chairman


                                       15

<PAGE>

of the Physics Department at MIT and Director of the MIT Center for Theoretical
Physics. He is a past President of the American Physical Society and the
American Academy of Arts and Sciences and is a Fellow of both those
Organizations and of the American Association for the Advancement of Sciences.
He is on the Board of Governors for Tel Aviv University and the Weizmann
Institute of Science, is on the Board of Editors for Daedalus and Editor of the
Annals of Physics, and has served as Chairman or Member on numerous committees
for the Department of Energy, the National Science Foundation, the National
Academy of Sciences, and the American Physical Society. He was awarded the
National Medal of Science by President Reagan in 1986. Dr. Feshbach received his
Ph.D. from MIT.

Mr. Al Gladen is President of Dabster, Inc., a technology consulting firm
specializing in engineering and technology management assistance, with offices
in Kent, Washington. Mr. Gladen's consulting activities have included strategic
technology planning, new product development, project management and acquisition
review. Mr. Gladen has acted as a technology and engineering consultant to the
Company since 1993, and it is expected that he will continue to provide such
assistance on a part-time basis. Mr. Gladen holds four U.S. patents and is a
director of four other privately held corporations.

Dr. Hamilton W. Helmer has, for the last 15 years, been Managing Partner of
Helmer & Associates, a strategic consulting firm located in Los Altos,
California. Prior to that, Dr. Helmer worked for Bain & Co. Dr. Helmer holds a
Ph.D. in Economics from Yale University.

Dr. Donald J. McCarren is President of an early stage, privately held,
functional genomics research organization, Alpha Gene, Inc. Previously, Dr.
McCarren served as President of the National Center for Genome Resources, a
non-profit corporation located in Santa Fe, New Mexico, which supports genome
projects and related research by providing resources such as expertise in
bioinformatics. Prior to assuming that position in 1997, Dr. McCarren was the
founder of Tacora Corporation, a medical technology company located in Seattle,
Washington. From July 1992 to June 1994, he was President and Chief Operating
Officer of ImmunoGen, Inc., a small molecule cancer research and development
company located in Cambridge, Massachusetts. Prior to that, Dr. McCarren spent
almost 9 years in Erbamont N.V. serving as President (1990 to 1992) of the Adria
Laboratories Division of Erbamont N.V. in Columbus, Ohio, and Corporate Vice
President of Worldwide Marketing and Business Development (1989 to 1990) and
Vice President of Far East and Austral-Asian Operations (1986 to 1989) of
Erbamont, N.V. Dr. McCarren holds a Ph.D. in Developmental Economics.

General William E. Odom is the Director of National Security Studies for the
Hudson Institute in Washington, D.C. and an adjunct Professor in the Department
of Political Science at Yale University. Prior to joining the Hudson Institute
in 1988, General Odom spent 34 years as an officer in the United States Army,
retiring with the rank of Lieutenant General. While on active duty, General Odom
served as Director of the National Security Agency for three years, Assistant
Chief of Staff for Intelligence for the Department of the Army for four years
and Military Assistant to the President's National Security Advisor for four
years. General Odom received his B.S. degree from West Point and Masters and
Ph.D. degrees from Columbia University. General Odom is on the Board of
Directors of Nichols Research Corporation of Huntsville, Alabama, V-ONE
Corporation of Rockville, Maryland, Middlebury College, from which he received
an honorary doctorate, and the Institute for the Study of Diplomacy at
Georgetown University. General Odom is the author of five books and numerous
articles.

Mr. Ralph S. Sheridan was elected President and Chief Executive Officer of the
Company in September 1993, and in January of 1994, he was elected a Director.
Prior to joining the Company, Mr. Sheridan ran his own consulting and investment
firm, Value Management Corporation, in Waltham, Massachusetts. Prior to that,
Mr. Sheridan was President and CEO (1988-1989) and Vice President of Marketing
and Operations (1987-1988) of HEC Energy Corp., in Boston,


                                       16

<PAGE>

Massachusetts. Before joining HEC, Mr. Sheridan held the position of Vice
President of Operations for the Engineered Systems and Controls Group
(1984-1986) and Vice President of Corporate Business Development (1981-1984) at
Combustion Engineering, Inc. in Stamford, Connecticut. Mr. Sheridan holds a B.S.
in Chemistry and an M.B.A., both from Ohio State University.

Mr. Carl W. Vogt was elected to the Board in June, 1997. He is a partner in the
Washington, D.C. office of the national law firm of Fulbright & Jaworski. Mr.
Vogt has been with that firm since 1966, with various periods away from the firm
to perform government service. In 1992, he was appointed by President Bush as
the Chairman of the National Transportation Safety Board, where he served until
1994. Mr. Vogt earned his bachelor's degree from Williams College and his law
degree from the University of Texas Law School.

Mr. Jeffrey A. Bernfeld joined AS&E as Vice President, General Counsel and Clerk
in February 1996. Prior to that time, he was Vice President and General Counsel
of Spire Corporation in Bedford, Massachusetts for three and one-half years; a
founder and Managing Director of Global Solutions, Inc. in Wellesley,
Massachusetts for one year; Vice President and General Counsel of The Mediplex
Group in Wellesley, Massachusetts for two years; and a partner at Goldstein &
Manello, a law firm in Boston, Massachusetts, where he began his career as an
Associate in 1981. Mr. Bernfeld received his B.A. from Brandeis University and
his J.D. from New York University School of Law. Mr. Bernfeld is a director of
Summit Technology, Inc. of Waltham, Massachusetts.

Dr. Joseph Callerame joined American Science & Engineering in June 1998 as Vice
President, Technology, and Chief Technology Officer. Prior to joining AS&E, Dr.
Callerame spent over twenty years at Raytheon Company, most recently as Manager,
Engineering and Technology Development and Consulting Scientist, at Raytheon
Electronic Systems. Prior to that appointment, Dr. Callerame was Deputy General
Manager of Raytheon's Corporate Research Division. Dr. Callerame received his
B.A. in Physics from Columbia College, and his M.A. and Ph.D., also in Physics,
from Harvard University. After receiving his Ph.D. and prior to his employment
at Raytheon, Dr. Callerame served as a Post-Doctoral Fellow in Nuclear Physics
at M.I.T.

Mr. Alan H. Rutan joined the Company in July 1996 as Vice President of
Engineering. Prior to that time, Mr. Rutan spent 11 years at Raytheon Company,
most recently as Manager of the Air Defense Systems Department, where his work
focused on radar systems engineering and signal processing. Prior to his
Raytheon experience, Mr. Rutan spent seven years at GTE Laboratories as a Senior
Member of the Technical Staff. From 1974 to 1978, Mr. Rutan ran his own
consulting firm, Signal Processing Associates, Inc., which specialized in image
processing applications for various government security organizations. Mr. Rutan
received his B.A. in Physics from Harvard University.

Mr. Lee C. Steele joined the Company in September 1994 as Vice President of
Finance and Chief Financial Officer. From 1991 until he joined the Company, Mr.
Steele was a principal of Asset Management Corporation, a Waltham, Massachusetts
consulting firm specializing in the analysis and resolution of complex financial
and operational challenges for small and medium size businesses. Until 1991, Mr.
Steele was a Partner at Deloitte & Touche, specializing in profit planning,
corporate finance and troubled company situations. He holds a M.B.A. from
Harvard Business School and an engineering degree from Case Western Reserve
University.

Dr. William Adams is President of Adtech Consulting, Inc., a technology and
management consulting firm located in Columbus, Ohio. Dr. Adams joined AS&E in
July 1997 as acting Chief Technology Officer. In August 1998 he became the
acting Vice President of Operations. Prior to joining AS&E Dr. Adams spent over
thirty years in engineering and general management in process automation firms
including AccuRay, Combustion Engineering, and ABB. During this period he held
positions as Vice President of Field Service, VP of Engineering, Senior Vice
President of Engineering, Manufacturing, and Marketing, and Vice President of
Quality. In 1987 Dr. Adams established a process automation joint venture in
Russia for Combustion Engineering. Dr. Adams and his wife


                                       17

<PAGE>

moved to Moscow in 1991 where he managed the joint venture for ABB after
Combustion Engineering was acquired by ABB. Dr. Adams retired from ABB in 1994
and established Adtech Consulting, Inc. Dr. Adams holds a BS in Electrical
Engineering from Michigan Technological University, a SM in Electrical
Engineering from MIT, and a Ph.D. from Purdue University.

ITEM 11.  EXECUTIVE COMPENSATION

-    THE FOLLOWING CHART PROVIDES INFORMATION CONCERNING COMPENSATION PAID BY
     THE COMPANY DURING THE YEAR ENDED MARCH 31, 1999 TO THE CHIEF EXECUTIVE
     OFFICER AND EACH OF THE FOUR MOST HIGHLY COMPENSATED EXECUTIVE OFFICERS OF
     THE COMPANY WHOSE AGGREGATE COMPENSATION EXCEEDED $100,000.

                              SUMMARY COMPENSATION
<TABLE>
<CAPTION>

                                                                     Long-Term
                                                 Annual               Compen-
                                               Compensation           sation
                                           ----------------------                   All Other
     Name and Principal        Fiscal                                Option       Compensation
     Position                   Year       Salary ($)   Bonus ($)    Awards (#)       ($)(1)
     --------                  -----       ----------   ---------    ----------   --------------
<S>                            <C>          <C>         <C>            <C>             <C>
     Ralph S. Sheridan         1999         245,495     230,000             --         5,658
     President and CEO         1998         240,000     230,000             --         7,729
                               1997         222,213     270,385(3)     225,000         4,479

     William L. Adams          1999         174,500          --         10,000            --
     Vice President            1998         112,800          --             --            --
     Operations

     Jeffrey A. Bernfeld       1999         166,350          --(4)          --           980
     Vice President, General   1998         130,000      30,000         20,000           408
     Counsel                   1997         120,408      19,000         16,000           408


     Joseph Callerame          1999         160,828          --(4)      50,000         2,212
     Vice President            1998              --          --             --            --
     CTO

     Lee C. Steele             1999         135,664          --(4)      10,000           774
     Vice President and        1998         125,077      29,750         30,000           752
     CFO                       1997         120,560      27,000             --           752

</TABLE>

(1)  All Other Compensation includes imputed income from taxable life insurance
     premiums paid by the Company, and, for Mr. Sheridan, a leased automobile.

(2)  The indicated years were years of partial employment with the Company for
     the named executive.

(3)  Mr. Sheridan's bonus is paid in respect of "contract years" ending
     September 30th in each year and is paid in cash, except in fiscal years
     1996 and 1997 when the bonus also included Company stock and payments made
     to him to alleviate the tax impact of the stock bonus.

(4)  The bonus amount for these officers has not been determined for fiscal year
     1999.


                                       18

<PAGE>

(5)  Mr. Sheridan has an employment contract with the Company that provides for
     his employment as President and Chief Executive Officer, and as a Director,
     through September 1999, at an annual salary of $255,000, subject to annual
     review, plus performance bonuses tied to specific accomplishments. This
     contract replaces Mr. Sheridan's original contract with the Company, which
     expired in September 1996.

Under the contract, Mr. Sheridan is eligible to receive an annual bonus of up to
$230,000 in each contract year, based on his accomplishment of goals established
by the Compensation Committee. Under the previous contract, but not under the
current contract, Mr. Sheridan also received a bonus of up to 10,000 shares of
common stock and an amount calculated to compensate him for the taxes due on the
stock portion of this bonus. In addition, in October 1996 the Company granted
Mr. Sheridan options to purchase 225,000 shares of the Company's Common Stock at
an exercise price of $14.00 per share, the fair market value of the Company's
Common Stock on the date of grant. The options become exercisable at the rate of
75,000 options per year on the first three anniversaries of the grant.

Mr. Sheridan recognized no income upon the issuance of the options. When the
options are exercised, Mr. Sheridan will recognize ordinary income in an amount
equal to the difference between the fair market value of the Common Stock
received upon the exercise of the option and the amount paid for the Common
Stock. At that time, the Company will be allowed a deduction equal to the amount
recognized as ordinary income by Mr. Sheridan. The options provide that to the
extent that exercise of an option would give rise to compensation expense that
the Company reasonably expects will not be deductible for tax purposes in any
given taxable year pursuant to Section 162(m) of the Internal Revenue Code of
1986, as amended, the number of shares as to which the options may be exercised
during that taxable year shall be limited.

Under his initial employment contract, Mr. Sheridan purchased 160,000 treasury
shares of the Company's Common Stock payable by promissory note. The note is due
on the earlier of September 15, 2003 or the termination of Mr. Sheridan's
employment. The Company has agreed to reimburse Mr. Sheridan for the interest
payable under the note in most circumstances.

Mr. Sheridan is entitled to receive the same benefits as other senior
executives of the company, as well as to the use of a car.

In the event that Mr. Sheridan's employment with the Company is terminated
without "Cause", or by him for Good Reason (as defined in the employment
contract), he will receive twelve months' pay and any previously earned bonuses.
In the event that Mr. Sheridan's employment with the Company is terminated for
"Cause", or by him other than for Good Reason (as defined in the employment
contract), or by his death or disability, he will not be entitled to receive any
salary beyond the date of termination, and he will only be entitled to receive
previously earned bonuses if the termination is caused by death or disability.

Dr. Callerame and Mr. Steele have agreements with the Company granting each of
them severance payments equal to one year's salary if he is terminated in
connection with a change of control of the Company as defined in the agreement.
The agreement also provides that if each of them is terminated for any reason
other than "Cause" as defined in the agreement, he will be entitled to receive
an amount equal to at least six months salary.


                                       19

<PAGE>

-    THE FOLLOWING TABLES PROVIDE INFORMATION CONCERNING THE GRANT OF OPTIONS IN
     FISCAL YEAR 1999 TO EXECUTIVE OFFICERS NAMED IN THE SUMMARY COMPENSATION
     TABLE AND OPTIONS EXERCISED BY THOSE OFFICERS.

                      OPTION GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>

                                   Individual Grants                      Potential Realizable Value
                         ----------------------------------------------   at Assumed Annual Rates
                                                                          of Stock Price
                                   % of Total                             Appreciation for Option
                                   Options                                Term ($)
                                   Granted to                            ---------------------------
                         Options          All    Exercise    Expiration
                         Granted    Employees    Price ($)         Date   5%/year         10%/year
                         -------    ---------    ---------   ----------   -------         --------
<S>                       <C>                        <C>      <C>           <C>             <C>
Ralph S. Sheridan              0          N/A          N/A         N/A        N/A              N/A
William L. Adams          10,000          N/A        13.00         N/A          0           54,804
Jeffrey A. Bernfeld            0          N/A          N/A         N/A        N/A              N/A
Joseph Callerame          50,000          N/A        13.50     6/01/08          0          249,021
Lee C. Steele             10,000          N/A        11.50    11/10/08      1,059           69,804

</TABLE>

                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                        AND FISCAL YEAR END OPTION VALUES

<TABLE>
<CAPTION>

                                                      Number of           Value of Unexercised In-
                                                  Unexercised Options       The-Money Options at
                                                  at Fiscal Year End         Fiscal Year End -
                          Shares                  March 31, 1999 (#)         March 31, 1999 ($)
                        Acquired                 ---------------------    ------------------------
                              on       Value
                        Exercise    Realized     Exerc-       Unexerc-    Exerc-        Unexerc-
                             (#)        ($)      isable        isable     isable         isable
                        ---------   ---------    -------      --------    ------        --------

<S>                     <C>         <C>         <C>            <C>        <C>           <C>
Ralph S. Sheridan              0           0    270,000        75,000     480,000              --
William L. Adams               0           0     10,000            --          --              --
Joseph Callerame               0           0     12,500        37,500          --              --
Jeffrey A. Bernfeld            0           0     46,667        13,333          --              --
Lee C. Steele                  0           0     63,300        26,700     271,875              --


</TABLE>


                                       20

<PAGE>

-    COMPENSATION OF DIRECTORS

Directors who are also employees of the Company do not receive additional
compensation as Directors. Non-Employee Directors (other than the Chairman)
receive annual compensation of 2,000 shares of Company Common Stock issuable on
January 10th in each year, and options to purchase 7,000 shares of Common Stock
at the closing price on the date of the Annual Meeting in each year. Dr.
Feshbach receives 2,500 shares of Common Stock on January 10th in each year and
continues to receive deferred compensation under a now discontinued plan
described below. No meeting fees or other fees are payable to any Director. See
Item 13 - Certain Relationships and Related Transactions for additional
information concerning certain Directors.

Dr. Feshbach is covered by a nonfunded deferred compensation plan (adopted in
1976 and amended in 1977, 1980, 1986, 1990 and 1992) that provides for periodic
payments beginning at age 65, based on length of service.
During the year, Dr. Feshbach received $4,752 under the Plan.

-    COMPENSATION COMMITTEE INTERLOCKS, INSIDER PARTICIPATION AND SECTION 16
     REPORTING

During the fiscal year ended March 31, 1999, the Company's Compensation
Committee consisted of Dr. Herman Feshbach, Dr. Hamilton W. Helmer and Dr.
Donald J. McCarren. No reportable relationship existed with respect to any
member of the Compensation Committee.

Section 16(a) of the Securities Exchange Act of 1934 requires certain persons,
including the Company's Directors and Executive Officers, to file initial
reports of beneficial ownership of the Company's securities and reports of
changes in beneficial ownership with the Securities and Exchange Commission. For
fiscal year 1999, the Company believes that all required reports were filed on
time.


-    BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The Compensation Committee of the Board of Directors (consisting of the two
outside Directors whose names appear below this Report) has sole responsibility
for compensation issues relating to the Chief Executive Officer. Compensation
practices and policies for the other executive officers are set by the Chief
Executive Officer with the advice of the Compensation Committee.

The Compensation Committee has formulated an approach to all executive
compensation that emphasizes the establishment of goals and objectives for each
executive and for the Company as a whole and ties a substantial portion of
executive compensation to the performance of the executive and the Company with
respect to these goals and objectives. Base compensation for executive officers
(and many other Company employees) is established on the basis of an analysis of
salaries received by comparable employees of high-tech and manufacturing
companies in the Greater Boston area, company financial results and prospects,
and individual contributions relative to the job description and past
performance of each officer.

In line with this approach, the Company entered into a new employment agreement
with its President and Chief Executive Officer, Mr. Ralph S. Sheridan, in 1996
(effective as of September 1996). This Agreement was based, in part, on an
independent consultant's analysis of compensation arrangements for chief
executives of comparable companies, and was also based on a careful review of
the most important goals and objectives for the Company. The Agreement provided
for initial annual cash compensation of $240,000, subject to annual adjustment
in the Committee's discretion, plus annual incentive bonuses of up to $230,000
tied to specific, agreed upon annual performance criteria. In addition, in order
to provide for long-term incentives, the


                                       21

<PAGE>

Company has issued to Mr. Sheridan nonstatutory stock options to purchase
225,000 shares of Common Stock which vest ratably over three years.

For the contract year ended in September 1998, the Committee awarded Mr.
Sheridan a cash bonus of $230,000, representing 100% of the potential award
under his contract and raised his annual salary to $255,000 a 6.25% increase.
This award represents the Committee's determination that Mr. Sheridan had done
an excellent job over the preceding twelve months and had met all of the goals
and objectives jointly established by the Committee and Mr. Sheridan.

Also in keeping with its performance-based compensation philosophy, in the
spring of 1994, the Company implemented an incentive compensation program for
all executives who report directly to the Office of the President. Under this
new policy, these executives receive a specified portion of their total
compensation (ranging from 10% to 50%) based upon two factors: their completion
of agreed upon goals and objectives, and the performance of the entire Company.

Report Submitted By:  William Odom and Carl Vogt.


                                       22
<PAGE>


-    STOCK PERFORMANCE CHART

The following chart graphs the performance of the cumulative total return to
shareholders (stock price appreciation plus dividends) during the previous five
years in comparison to the returns of the Standard & Poor's 500 Composite Stock
Price Index and the Standard & Poor's 500 High-Tech Composite Stock Price Index.

                       [TOTAL SHAREHOLDER RETURNS CHART]

<TABLE>
<CAPTION>

                                                 INDEXED RETURNS
                                 BASE              YEARS ENDING
                                 PERIOD      ------------------------------------------------------
COMPANY / INDEX                  MAR94       MAR95      MAR96       MAR97       MAR98        MAR99
---------------                  -----       -----      -----       -----       -----        -----
<S>                               <C>       <C>         <C>         <C>          <C>         <C>
AMERICAN SCIENCE ENGINEERING      100       161.29      254.84      312.90       351.61      183.87
S&P 500 COMP-LTD                  100       115.57      152.67      182.93       270.74      320.72
TECHNOLOGY-500                    100       126.54      170.85      230.96       349.06      559.93

</TABLE>

Note:     Assumes $100 invested at the close of trading on the last trading day
          preceding the first day of the fifth preceding fiscal year (and
          reinvestment of dividends) in the Company's Common Stock, Standard &
          Poor's 500 Composite Stock Price Index and the Standard & Poor's 500
          High-Tech Composite Stock Price Index.


                                       23

<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

-    THE FOLLOWING CHART SHOWS THE COMPANY COMMON STOCK BENEFICIALLY OWNED BY
     OFFICERS AND DIRECTORS OF THE COMPANY ON JUNE 30, 1998. BASED ON
     INFORMATION AVAILABLE TO IT, THE COMPANY BELIEVES THAT NO OTHER PERSON OR
     ENTITY OWNED 5 PERCENT OR MORE OF THE COMPANY'S COMMON STOCK ON THAT DATE.

<TABLE>
<CAPTION>

          Name of                       Amount and Nature of        Percent
          Beneficial Owner              Beneficial Ownership(1)     of Class
          ----------------              -----------------------     --------
<S>                                              <C>                  <C>
          Jeffrey A. Bernfeld                      49,258               (2)
          William L. Adams                         20,000               (2)
          Joseph Callerame                         31,600               (2)
          Herman Feshbach                          19,040               (2)
          Al Gladen                                62,055              1.26
          Hamilton W. Helmer                       55,781              1.13
          Donald J. McCarren                       63,581              1.29
          William E. Odom                          23,000               (2)
          Alan H. Rutan                            46,874               1.0
          Ralph S. Sheridan                       476,743              9.23
          Lee C. Steele                            72,396               1.5
          Carl W. Vogt                             26,166               (2)
          Directors and Officers
            as a Group (12 persons)               946,494              17.3

</TABLE>

(1)      Includes shares that may be acquired under stock options and warrants
         exercisable within sixty days after the date of this table, as follows:
         Mr. Bernfeld - 46,667; Dr. Adams - 10,000; Dr. Callerame - 25,000; Dr.
         Feshbach - 2,500; Mr. Gladen - 21,000; Dr. Helmer - 46,000; Dr.
         McCarren - 47,000; Mr. Odom - 14,000; Mr. Rutan -29,334; Mr. Sheridan -
         270,000; Mr. Steele - 63,300; Mr. Vogt - 7,000; and all Directors and
         Officers as a group - 581,801. All ownership reported herein includes
         sole voting and investment power.

(2)       Amount owned constitutes less than one percent.


ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Mr. Gladen provides engineering and management services to the Company on a
regular basis. In fiscal year 1999, the compensation paid to Dabster, Inc., a
corporation of which Mr. Gladen is the President, for such services was
$212,000.


                                       24

<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  The financial statements and schedules listed in the Index to Consolidated
     Financial Statements and Schedule on page 28 are filed as part of this
     report, and such Index is incorporated in this Item by reference.

     The exhibits listed in the Exhibit Index on page 47-48 are filed as part of
     this report, and such Index is incorporated in this Item by reference.

(b)  Reports on Form 8-K. There were no reports on Form 8-K filed during the
     fourth quarter of the fiscal year covered by this report.


                                       25

<PAGE>

             AMERICAN SCIENCE AND ENGINEERING, INC., AND SUBSIDIARY
             INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

(Submitted in answer to Item 8 and Item 14 of Form 10-K, Securities and Exchange
Commission)


<TABLE>
<CAPTION>

CONSOLIDATED FINANCIAL STATEMENTS                                          PAGE
                                                                           ----
<S>                                                                        <C>
Report of Independent Public Accountants                                   27
Consolidated Balance Sheets - March 31, 1999 and March 31, 1998            28-29
Consolidated Statements of Operations                                      30
 For the Years Ended March 31, 1999 March 31, 1998, and March 28, 1997
Consolidated Statements of Stockholders' Investment                        31
 For the Years Ended March 31, 1999,  March 31, 1998,
 and March 28, 1997
Consolidated Statements of Cash Flows                                      32
 For the Years Ended March 31, 1999, March 31, 1998  and March 28, 1997
Notes to Consolidated Financial Statements - March 31, 1999                33-43

CONSOLIDATED SUPPLEMENTARY FINANCIAL INFORMATION

Unaudited quarterly consolidated financial data for
         the years ended March 31, 1999, and March 31, 1998                44

(Separate Financial Statements of the Company have been omitted since
the net assets of its wholly owned subsidiary are not so restricted
with respect to payment of loans, advances and cash dividends to the
Company as to require such disclosure.)

FINANCIAL STATEMENT SCHEDULE

Schedule II - Valuation and Qualifying Accounts and Reserves               45

</TABLE>

Other schedules have been omitted because of the absence of conditions under
which they are required or because the required information is given in the
financial statements or notes thereto.


                                       26

<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To American Science and Engineering, Inc.:

We have audited the accompanying consolidated balance sheets of American Science
and Engineering, Inc. (a Massachusetts corporation) and subsidiary as of March
31, 1999 and March 31, 1998 and the related consolidated statements of
operations, stockholders' investment and cash flows for each of the three years
in the period ended March 31, 1999. These consolidated financial statements and
the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Science and Engineering, Inc. and subsidiary as of March 31, 1999 and
March 31, 1998 and the results of their operations and their cash flows for each
of the three years in the period ended March 31, 1999 in conformity with
generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index to consolidated financial statements and schedule is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.



Boston, Massachusetts
May 15, 1999


                                       27

<PAGE>

              AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                        MARCH 31, 1999 AND MARCH 31, 1998
                              Dollars in thousands

<TABLE>
<CAPTION>

                                                        1999       1998
                                                      -------     -------
<S>                                                   <C>         <C>
            ASSETS
            CURRENT ASSETS:

Cash and cash equivalents (Note 2)                    $   366     $ 2,290

Accounts receivable, net of allowances of
 $259 in 1999 and $116 in 1998 (Note 1)                 7,958       6,955

Unbilled costs and fees, net of allowances of
 $447 in 1999 and $549 in 1998 (Note 1)                 2,374       3,190

Inventories (Note 1)                                   11,083       8,737

Deferred income taxes (Notes 1 and 5)                   1,370       2,351

Prepaid expenses and other current assets               1,224         263
                                                      -------     -------
TOTAL CURRENT ASSETS                                   24,375      23,786
                                                      -------     -------

Non-current deferred income taxes (Notes 1 and 5)         254         205

Deposits                                                   17          24
Other Assets                                              115         126
Patents and other intangibles, net of accumulated
 amortization of $55 in 1999 and $0 in 1998
 (Notes 1 and 3)                                          401        --

Property, equipment and leasehold
 improvements, net of accumulated depreciation of
 $9,677 in 1999 and $9,394 in 1998
 (Notes 1 and 3)                                        5,042       1,852
                                                      -------     -------
                                                      $30,204     $25,993
                                                      -------     -------
                                                      -------     -------

</TABLE>

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


                                       28

<PAGE>

              AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
                     CONSOLIDATED BALANCE SHEETS (CONTINUED)
                        MARCH 31, 1999 AND MARCH 31, 1998
                              Dollars in thousands

<TABLE>
<CAPTION>

                                                        1999          1998
                                                        ----          ----
<S>                                                   <C>          <C>
LIABILITIES & STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Line of Credit                                        $  1,000     $  --
Current maturities of obligations
  under capital leases (Note 3)                             20           20
Accounts payable                                         4,456        4,360
Accrued salaries and benefits                              868          831
Accrued warranty costs (Note 1)                            374          497
Accrued income taxes (Notes 1 and 5)                       350          615
Deferred revenue (Note 1)                                  756        1,240
Customer deposits (Note 1)                               1,281        1,151
Other current liabilities                                1,224          507
                                                      --------     --------
TOTAL CURRENT LIABILITIES                               10,329        9,221
                                                      --------     --------
NON-CURRENT LIABILITIES:
Obligations under capital leases, net
   of current maturities (Note 3)                           20           22
Deferred revenue (Note 1)                                   67          232
Deferred compensation (Note 11)                            149          154
Deferred rent (Note 1)                                     292          280
                                                      --------     --------
TOTAL NON-CURRENT LIABILITIES                              528          688
                                                      --------     --------
COMMITMENTS AND CONTINGENCIES (Notes 3, 4, and 11)

STOCKHOLDERS' INVESTMENT: (Notes 6 and  7)
Preferred stock, no par value
  Authorized - 100,000 shares
  Issued - None
Common stock, $.66-2/3 par value
  Authorized - 20,000,000 shares
  Issued 4,877,767 shares in 1999
  and 4,743,569 shares in 1998                           3,252        3,162
Capital in excess of par value                          17,394       16,278
Accumulated deficit                                       (659)      (2,704)
                                                      --------     --------
                                                        19,987       16,736
Note receivable-Officer (Note 8)                          (640)        (640)
Less: treasury stock 6,678 shares
  in 1998, at cost                                        --            (12)
                                                      --------     --------
TOTAL STOCKHOLDERS' INVESTMENT                          19,347       16,084
                                                      --------     --------
                                                      $ 30,204     $ 25,993
                                                      --------     --------
                                                      --------     --------
</TABLE>

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

                                       29

<PAGE>

              AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
     FOR THE YEARS ENDED MARCH 31, 1999, MARCH 31, 1998, AND MARCH 28, 1997
                 Dollars in thousands, except per share amounts

<TABLE>
<CAPTION>

                                                 1999          1998          1997
                                               --------      --------      --------
<S>                                            <C>           <C>           <C>
NET SALES AND CONTRACT REVENUES
  (Notes 1 and 10)                             $ 57,295      $ 32,699      $ 28,479
Cost of sales and contracts (Note 1)             38,356        19,816        18,423
                                               --------      --------      --------
GROSS PROFIT                                     18,939        12,883        10,056

EXPENSES:
Selling, general and administrative               9,083         7,425         6,494
Research and development (Note 1)                 6,380         2,856         1,602
                                               --------      --------      --------
TOTAL EXPENSES                                   15,463        10,281         8,096
                                               --------      --------      --------
OPERATING INCOME                                  3,476         2,602         1,960
                                               --------      --------      --------
OTHER INCOME/(EXPENSE):
Interest, net                                        83           118           111
Other, net                                         (150)          (22)          (68)
                                               --------      --------      --------
TOTAL OTHER INCOME (EXPENSE)                        (67)           96            43
                                               --------      --------      --------
INCOME BEFORE PROVISION FOR (BENEFIT FROM)
   INCOME TAXES                                   3,409         2,698         2,003
PROVISION FOR (BENEFIT FROM) INCOME TAXES
   (NOTE 5)                                       1,364        (1,963)           78
                                               --------      --------      --------
NET INCOME                                     $  2,045      $  4,661      $  1,925
                                               --------      --------      --------
                                               --------      --------      --------
INCOME PER SHARE         - BASIC               $    .43      $   1.00      $    .43
                                               --------      --------      --------
                                               --------      --------      --------
                         - DILUTED             $    .40      $    .95      $    .40
                                               --------      --------      --------
                                               --------      --------      --------
WEIGHTED AVERAGE SHARES  - BASIC                  4,813         4,646         4,491
                                               --------      --------      --------
                                               --------      --------      --------
                         - DILUTED                5,071         4,917         4,826
                                               --------      --------      --------
                                               --------      --------      --------

</TABLE>


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


                                       30

<PAGE>

              AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
                  FOR THE YEARS ENDED MARCH 31, 1999, MARCH 31,
                            1998, AND MARCH 28, 1997
                   Amounts in thousands, except share amounts

<TABLE>
<CAPTION>


                               COMMON STOCK        CAPITAL IN      ACCU-       NOTE             TREASURY STOCK
                          ----------------------    EXCESS OF     MULATED    RECEIVABLE        ------------------
                           SHARES       AMOUNT      PAR VALUE     DEFICIT      OFFICER         SHARES     AMOUNT       TOTAL
                          ---------    ---------    ---------    ---------    ---------        ------    --------    ---------

<S>                       <C>          <C>          <C>          <C>          <C>              <C>       <C>         <C>
BALANCE,
MARCH 29, 1996            4,500,627    $   3,001    $  14,556    $  (9,290)   $    (640)       67,377    $   (126)   $   7,501

Net income                     --           --           --          1,925         --            --          --          1,925
Exercise of stock
  options (Note 6)           68,723           46          396         --           --           5,464         (69)         373
Issuance of stock
  (Note 7)                   15,859           11          321         --           --         (10,000)         19          351
                          ---------    ---------    ---------    ---------    ---------        ------    --------    ---------
BALANCE,
MARCH 28, 1997            4,585,209        3,058       15,273       (7,365)        (640)       62,841        (176)      10,150

Net income                     --           --           --          4,661         --            --          --          4,661
Exercise of stock
  options (Note 6)          152,735          101          783         --           --            --          --            884
Issuance of stock             5,625            3          222         --           --         (56,163)        164          389
                          ---------    ---------    ---------    ---------    ---------        ------    --------    ---------
BALANCE,
MARCH 31, 1998            4,743,569        3,162       16,278       (2,704)        (640)        6,678         (12)      16,084

Net income                     --           --           --          2,045         --            --          --          2,045
Exercise of stock
  options (Note 6)          108,485           72          743         --           --            --          --            815
Retirement of Treasury
 stock                       (6,178)          (4)          (8)        --           --          (6,678)         12         --
Issuance of stock            31,891           22          381         --           --            --          --            403
                          ---------    ---------    ---------    ---------    ---------        ------    --------    ---------
BALANCE,
MARCH 31, 1999            4,877,767    $   3,252    $  17,394    $    (659)   $    (640)         --      $   --      $  19,347
                          ---------    ---------    ---------    ---------    ---------        ------    --------    ---------
                          ---------    ---------    ---------    ---------    ---------        ------    --------    ---------

</TABLE>

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


                                       31

<PAGE>

                   AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                     FOR THE YEARS ENDED MARCH 31, 1999, MARCH 31, 1998,
                                  AND MARCH 28, 1997
                                 Dollars in thousands
<TABLE>
<CAPTION>

                                                             1999       1998       1997
                                                            -------    -------    -------
<S>                                                         <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                  $ 2,045    $ 4,661    $ 1,925
Adjustments to reconcile net income to net cash
 provided by (used for) operating activities:
  Depreciation and amortization                                 905        534        352
  Provisions for contract, inventory, accounts
   receivable and warranty reserves                           1,135        896        795
  Deferred income tax                                           932     (2,556)      --
  Change in assets and liabilities:
    Accounts receivable                                      (1,232)    (2,070)    (1,322)
    Unbilled costs and fees                                     816     (2,409)        (7)
    Inventories                                              (2,513)    (4,151)      (422)
    Prepaid expenses, other assets,
     and deposits                                              (943)        (7)       273
    Accounts payable                                             96      2,107        232
    Accrued income taxes                                       (265)       525         90
    Customer deposits                                           130      1,151     (2,670)
    Deferred revenue                                           (649)       714        151
    Accrued expenses and other
     current liabilities                                        321        326        111
    Noncurrent liabilities                                        7       (417)       650
                                                            -------    -------    -------
     Total adjustments                                       (1,260)    (5,357)    (1,767)
                                                            -------    -------    -------
     NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES       785       (696)       158
                                                            -------    -------    -------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of property and equipment, net                 (3,358)    (1,082)      (730)
     Acquisition of business assets                          (1,100)      --         --
     Purchase of patents and intangibles                        (40)      --         --
                                                            -------    -------    -------
     Cash used in investing activities                       (4,498)    (1,082)      (730)
                                                            -------    -------    -------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from borrowings (Note 11)                       1,000       --         --
     Proceeds from exercise of stock options                    815        884        412
     Principal payments of capital lease obligations            (26)       (18)       (15)
                                                            -------    -------    -------
     Cash provided by financing activities                    1,789        866        397
                                                            -------    -------    -------

NET DECREASE IN CASH AND CASH EQUIVALENTS                    (1,924)      (912)      (175)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                2,290      3,202      3,377
                                                            -------    -------    -------
CASH AND CASH EQUIVALENTS AT END OF YEAR                    $   366    $ 2,290    $ 3,202
                                                            -------    -------    -------
                                                            -------    -------    -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     Interest paid                                          $    43    $     6    $    10
     Income taxes paid                                          667         40         30

NON-CASH TRANSACTIONS:
     Issuance of stock in lieu of fees                      $   403    $   225    $   332
     Capital lease obligation for equipment                      24       --         --
     Issuance of treasury stock in lieu of fees                --          164       --
     Stock option exercises                                    --         --           30
     Common stock received to treasury for stock
     option exercises                                          --         --          (69)
     Stock bonus issued to Officer from treasury               --         --           19

</TABLE>


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


                                       32

<PAGE>

              AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1999


1.   NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

American Science and Engineering, Inc., is engaged in the development and
manufacture of sophisticated X-ray inspection systems for critical detection and
security screening solutions for sale primarily to U.S. and foreign government
agencies.

USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary. All significant
intercompany balances and transactions have been eliminated in consolidation.
Effective the quarter ended September 30, 1997, the Company elected to change
financial reporting from a fiscal month end to a calendar month end. The year
end reporting period now ends on March 31. This change in year end had no
material effect on the results of operations for the years presented. The
Company's fiscal years ended on March 31, 1999, March 31, 1998, and March 28,
1997.

INVENTORIES Inventories are stated at the lower of cost, computed on a first-in,
first-out basis, or market and generally include material, labor and factory
overhead.

The components of inventories at March 31, 1999 and 1998 were as follows
(dollars in thousands):

<TABLE>
<CAPTION>

                                           1999        1998
                                          -------     -------
<S>                                       <C>         <C>
          Raw materials and completed
             subassemblies                $ 5,570     $ 4,958
          Work-in-process                   5,513       3,654
          Finished goods                     --           125
                                          -------     -------
                                          $11,083     $ 8,737
                                          -------     -------
                                          -------     -------

</TABLE>

PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS The Company provides for
depreciation and amortization of its fixed assets, principally equipment, using
straight-line and accelerated methods over estimated useful lives of 3-10 years.
Expenditures for normal maintenance and repairs are charged to expense as
incurred. Significant additions, renewals or betterments that extend the useful
lives of the assets are capitalized. The cost and accumulated depreciation
applicable to equipment and leasehold improvements sold or otherwise disposed of
are removed from the accounts, and any resulting gain or loss is included in the
consolidated statements of operations.

WARRANTY COSTS The Company provides currently for estimated future warranty and
installation costs on units sold covering the estimated replacement and
installation costs related to parts and labor.

METHODS OF RECORDING PROFITS ON CONTRACTS Revenues and profits are generally
recorded on cost reimbursement and long-term fixed-price contracts as costs are
incurred using the percentage-of-completion method. Percentages-of-completion
are determined by relating the actual cost of work performed to date for each
contract to its estimated final cost.



                                       33

<PAGE>

              AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 1999

Revenues and profits are recorded on other fixed price contracts as shipments
are made. Profit on fixed price contracts is determined by applying the
estimated average profit rate to the contract value of the items shipped. If a
loss is anticipated on a contract, provision is made at that time for the full
amount of the estimated loss without reference to the percentage of completion
or to performance milestones.

The types of milestones contained in contracts vary based on negotiations with
each customer, but may include acceptance of equipment prior to shipment,
shipment of equipment, arrival of equipment in the country, installation of
equipment and final customer acceptance. Individual customer deposits are
reduced by the amount of revenue recognized on the contract until a zero balance
is reached. Additional revenues earned in excess of a customer's deposit are
included in accounts receivable or unbilled costs and fees until paid or billed,
respectively.

Under the terms of most of its cost-reimbursement contracts, the Company is not
permitted to bill customers a specified portion of the contract value until
completion. Such retainages (approximately $424,000 in 1999 and $856,000 in
1998) result from both commercial contract retentions and government contract
withholdings generally for 15% of fees, as well as differences between the
actual and provisional indirect cost billing rates. Retainages are included in
the accompanying consolidated balance sheets as components of unbilled costs and
fees.

Included in accounts receivable and unbilled costs and fees at March 31, 1999
and 1998 are $8,257,000 and $8,098,000, respectively, attributable to both prime
and subcontracts with the U.S. Government.

WARRANTY COSTS AND DEFERRED REVENUE In general, the Company provides a one-year
parts and labor warranty with the purchase of equipment. The anticipated cost
for this one-year warranty is accrued for at time of sale and is captioned as a
balance sheet liability, Accrued Warranty. The Company also offers to its
customers extended warranty and service contracts beyond the initial year of
warranty. The coverage period of these contracts will typically range from one
to five years, with payment in advance recorded as Deferred Revenue.
Substantially all of the deferred revenue included in the accompanying 1999
balance sheet will be recognized within 2 years.

CUSTOMER DEPOSITS For most international orders, the Company generally
includes, as part of its terms and conditions, an advance deposit with order
acceptance. For long-term international contracts, the Company will generally
include milestone payments tied to a specific event and/or passage of time.
These deposit amounts are recorded as a liability under "Customer Deposit"
until reduced by revenue recognized against the specific contract. As of
March 31, 1999 and 1998, total customer deposits amounted to $1,281,000 and
$1,151,000, respectively.

DEFERRED RENT The Company entered into a lease for its office and manufacturing
facilities. This lease has escalation clauses. Generally accepted accounting
principles require normalization of the rental expense over the life of the
lease, resulting in deferred rent being reflected in the accompanying 1999
consolidated balance sheet.

RESEARCH AND DEVELOPMENT Research and development costs are expensed as
incurred.

FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist
primarily of cash and cash equivalents, accounts receivable and accounts
payable. The carrying amounts of the Company's cash and cash equivalents,
accounts receivable and accounts payable approximate fair value due to their
short-term nature.


                                       34

<PAGE>

              AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 1999

INCOME PER COMMON AND COMMON EQUIVALENT SHARES In March 1997, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share" which establishes standards for
computing and presenting earnings per share for entities with publicly held
common stock or potential common stock. The Company adopted SFAS 128 in fiscal
1998 and as required, restated per share amounts for all prior periods presented
to conform to the new requirements. Basic earnings per common share is computed
by dividing net income by the weighted average number of shares of common stock
outstanding during the year. No dilution for any potentially dilutive securities
is included. Diluted earnings per share includes the dilutive impact of options
and warrants using the average share price of the Company's common stock for the
period.

INCOME TAXES The Company accounts for incomes taxes in accordance with SFAS No.
109, "Accounting for Income Taxes." Accordingly, the Company recognizes deferred
income taxes based on the expected future tax consequences of differences
between the financial statement basis and the tax basis of assets and
liabilities, calculated using enacted tax rates in effect for the year in which
the differences are expected to be reflected in the tax return. The Company
records a valuation allowance against any net deferred tax assets if it is more
likely than not that they will not be realized.

NEW ACCOUNTING PRONOUNCEMENTS In April 1998, the AICPA Accounting Standards
Executive Committee issued Statement of Position No. 98-5 (SOP 98-5),
"Reporting on the Costs of Start-Up Activities", which is effective for
fiscal years beginning after December 15, 1998. SOP 98-5 requires that costs
of start-up activities and organization costs be expensed as incurred. The
Company does not anticipate any impact from adopting SOP 98-5 as the Company
currently expenses start-up and organization costs as incurred.

In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts and for hedging
activities) be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS 133 requires that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting.

SFAS 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. In May 1999 the FASB issued a proposed statement entitled
"Accounting for Derivative Instruments and Hedging Activities Deferral of the
Effective date of FASB Statement No. 133", which if adopted would defer the
effective date by one year. SFAS 133 must be applied to (a) derivative
instruments and (b) certain derivative instruments embedded in hybrid contracts
that were issued, acquired, or substantively modified after December 31, 1997.

The Company does not anticipate any impact on its financial statements from the
adoption of SFAS 133.


                                       35

<PAGE>

              AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 1999

PRESENTATION Certain amounts in 1998 and 1997 have been reclassified to conform
to the 1999 financial statement presentation.

2.   CASH AND CASH EQUIVALENTS

The Company considers all investments with original maturities of 90 days or
less to be cash equivalents. Cash and cash equivalents are carried at cost,
which approximates fair market value at year end 1999 and 1998. The Company has
repurchase agreements with a regional bank. The repurchase agreements are
collateralized by investments principally consisting of U.S. Government Agency
securities in the amount of at least 100% of such obligation.

3.   OPERATING AND CAPITAL LEASE AGREEMENTS

In January 1995, the Company entered into a lease agreement for its new office
and manufacturing facilities in Billerica, Massachusetts. This lease has a term
of 10 years which started March 1, 1995, with an option to extend for 10
additional years. During fiscal year 1998 the Company leased additional space in
the current building and amended the lease. Escalation clauses provide for rent
increases after the first and fifth year of the rental term. In January 1998,
the Company leased additional manufacturing and office space at a nearby
location. This lease has a term of five years. During August 1998, the Company
entered into a three-year lease agreement for a facility located in Santa Clara,
CA. The lease has two three-year optional extension terms. The Company incurred
$649,000, $541,000, and $501,000 of rent expense in 1999, 1998, and 1997
respectively. The security deposits on these leases amount to $106,000.

Future minimum rental payments under the Company's operating leases, excluding
real estate taxes, insurance and operating costs paid by the Company required
over the initial terms of the leases are as follows (in thousands):

<TABLE>
<CAPTION>

            YEAR ENDING MARCH 31,
          -------------------------
<S>                        <C>
          2000             $    723
          2001                  821
          2002                  741
          2003                  663
          2004                  605
          Thereafter            554
                           --------
                           $  4,107
                           --------
                           --------

</TABLE>

During fiscal years 1999 and 1995 the Company entered into lease agreements for
the purchase of certain office equipment. These leases are classified as capital
leases under generally accepted accounting principles and are payable in monthly
installments over a period of up to 60 months with interest rates ranging from
7.0% to 11.5%. Future minimum lease payments are as follows (in thousands):

<TABLE>
<CAPTION>

                    YEAR ENDING MARCH 31,
                    ---------------------

<S>                                                <C>
          2000                                     $ 37
          2001                                        5
                                                   ----
          Total minimum lease payments               42
          Less:  Amounts representing interest      (2)
                                                   ----
          Present value of net minimum
             lease payments                        $ 40
                                                   ----
                                                   ----

</TABLE>


                                       36

<PAGE>

              AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 1999

4.   LINE OF CREDIT

In August 1998, the Company expanded its domestic credit facilities with State
Street Bank and Trust Company, BankBoston N.A., and the Export Import Bank of
the United States (ExIm). The expanded line of credit, which is secured by
accounts receivable from ongoing customers as well as inventory, has two
components. The first component includes a $15,000,000 revolving line of credit
to support working capital and the issuance of standby letters of credit; the
second component includes a $8,250,000 ExIm guaranteed export credit agreement
to support foreign export contracts. Monthly interest payments on this line of
credit are at the prime interest rate. There is a quarter percent (.25%)
commitment fee on the unused portion of the line. These two existing credit
facilities replace the Company's $12.0 million credit agreement with State
Street Bank. As of March 31, 1999 and 1998, there was $1,000,000 and $0
borrowings against the line, respectively. After the end of the fiscal year, the
Company had applied for a $5 million expansion of the credit line. As of March
31, 1999 there were $12.1 million of outstanding letters of credit in effect
against the credit facilities. The Company's credit facility restricts the
payment of dividends, except in shares of the Company's stock, without consent
of the bank.

5.   INCOME TAXES

The provision (benefit) for income taxes for the years ended March 31, 1999,
March 31, 1998, and March 28, 1997 consisted of the following (in thousands):

<TABLE>
<CAPTION>

                                    1999         1998         1997
                                  -------      -------      -------
<S>                               <C>          <C>          <C>
Current:
  Federal                         $    83      $    51      $    40
  State                               349          353           38
                                  -------      -------      -------
                                      432          404           78
Deferred:
  Federal                             975        1,244          590
  State                               (43)         (49)         112
                                  -------      -------      -------
                                      932        1,195          702
                                  -------      -------      -------
Change in valuation allowance         --        (3,562)        (702)
                                  -------      -------      -------

Total                             $ 1,364      $(1,963)     $    78
                                  -------      -------      -------
                                  -------      -------      -------

</TABLE>

The difference between the total expected provision (benefit) for income taxes
computed by applying the statutory federal income tax rate to income before
provision (benefit) for income taxes and the recorded provision (benefit) for
income taxes for the three years in the period ended March 31, 1999 follows (in
thousands):

<TABLE>
<CAPTION>

                                                   1999         1998         1997
                                                 -------      -------      -------
<S>                                              <C>          <C>          <C>
Provision for income taxes at statutory rate     $ 1,159      $   917      $   681
State tax provision net of federal benefit           202          233           99
Permanent non-deductible expenses                     30           17           17
Expiration of tax credits                           --            190         --
Change in valuation allowance                       --         (3,562)        (702)
Alternative minimum tax                             --           --             40
Effect of FSC exclusion                              (19)        --           --
Other                                                 (8)         242          (57)
                                                 -------      -------      -------
                                                 $ 1,364      $(1,963)     $    78
                                                 -------      -------      -------
                                                 -------      -------      -------

</TABLE>


                                       37

<PAGE>

              AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 1999

The significant components of the net deferred tax asset at March 31, 1999 and
1998 follow (in thousands):

<TABLE>
<CAPTION>

                                              1999                  1998
                                       -------------------   -------------------
                                       Current  Non-current  Current Non-current
                                       -------  -----------  ------- -----------
<S>                                     <C>       <C>        <C>       <C>
       ASSETS:
     Net operating loss carryforwards   $ --      $ --       $1,117    $ --
       Accounts receivable
          and unbilled costs and fees      275                  259      --
       Inventory                           232                  175      --
       Deferred revenue                    233                  259      --
       Accrued vacation                    195                  136      --
       Accrued warranty costs              146                  194      --
       Tax credits and other               289       254        211       205
                                        ------    ------     ------    ------
                                         1,370       254      2,351       205

       LESS:
       Valuation allowance                --        --         --        --
                                        ------    ------     ------    ------
       Net deferred income tax assets   $1,370    $  254     $2,351    $  205
                                        ------    ------     ------    ------
                                        ------    ------     ------    ------

</TABLE>

The change in the valuation allowance for the years ended March 31, 1999 and
1998 follows (in thousands):

<TABLE>
<CAPTION>


                                                     1999       1998
                                                     ----       ----
<S>                                                  <C>     <C>
     Valuation allowance, beginning of year          $--     $ 3,562
     Decrease due to change in estimate of future
     taxable earnings                                 --      (3,562)
                                                     ----     ------
     Valuation allowance, end of year                $--     $  --
                                                     ----     ------
                                                     ----     ------

</TABLE>

A valuation allowance is provided when it is more likely than not that some
portion of the net deferred tax asset will not be realized. All available
evidence, both positive and negative, is considered by management in forming a
conclusion regarding the need for a valuation allowance. Prior to 1998, the
Company maintained a full valuation allowance for net operating loss
carryforwards and other deferred tax amounts as a result of numerous negative
factors including the Company's history of recurring losses, the Company's
reliance on U.S. government agencies for sales, uncertainties related to the
cost of new business initiatives and ongoing litigation. In the fourth quarter
of 1998, management concluded that positive factors - consistent profitability,
revenue growth, improved competitive position and stable business operations
outweighed negative factors. Based on these positive factors and the Company's
expected taxable income, the valuation allowance was reduced to zero with a
corresponding benefit recorded in the provision for income taxes for 1998.

The Company has available investment tax and other credits of approximately
$67,000 expiring through 2001.


                                       38

<PAGE>

              AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 1999

6.   COMMON STOCK

STOCK OPTION PLANS The Company has various stock option plans for directors,
officers, and employees. The Company has the following stock option plans
outstanding as of March 31, 1999: 1981, 1984, 1985, and 1987 Stock Option
Plans; 1993, 1994-1995 and 1996 Stock Option Plan for Non-employee Directors;
two CEO Employment Agreement Plans; 1995 Combination Plan; 1997 and 1998
Non-Qualified Option Plan; and 1994-95 Stock Option Plan for New Employees.
As of March 31, 1999, 333,292 shares have been reserved and are available for
future grant. Vesting periods on these plans range from immediate vesting to
four years. Options under these plans are granted at fair market value and
generally become exercisable within one to two years of the grant date and
terminate ten years from the date of grant. In addition, the Company has a
common stock installment purchase plan under which the Board of Directors may
grant to key personnel the right to purchase shares of the Company's common
stock at fair market value and to pay the purchase price in twelve equal
monthly installments. As of March 31, 1999, no shares have been reserved or
granted under this plan.

During the year ended March 28, 1997, the Company instituted two new common
stock purchase plans. The Executive Equity Incentive Plan allows an executive
officer of the Company to buy original issue Company common stock in any dollar
amount up to the gross amount of the annual bonus granted to the Officer and to
receive half the number of shares purchased in restricted stock. The Reload
Option Plan allows any eligible employee designated by the Board of Directors to
receive new stock options (at an exercise price equal to the fair market value
of the common stock on the date of sale of the stock) for every share of Company
common stock sold or used to exercise stock options.

PRO FORMA STOCK-BASED COMPENSATION EXPENSE In October 1995, the FASB issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which sets forth a
fair-value based method of recognizing stock-based compensation expense. As
permitted by SFAS No. 123, the Company has elected to continue to apply
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," to account for its stock-based compensation plans. Had compensation
cost for awards in 1999, 1998 and 1997 under the Company's stock-based
compensation plans been determined based on the fair value at the grant dates
consistent with the method set forth under SFAS No. 123, the effect on the
Company's net income and earnings per share would have been as follows:

<TABLE>
<CAPTION>

     In thousands except per share amounts     1999        1998        1997
                                               ----        ----        ----
<S>                                          <C>         <C>         <C>
     Net income:
           As reported                       $  2,045    $  4,661    $  1,925
           Pro forma                               86       3,200         591
     Income per share - Basic:
           As reported                       $    .43    $   1.00    $    .43
           Pro forma                              .02         .69         .13
     Income per share - Diluted:
           As reported                       $    .40    $    .95    $    .40
           Pro forma                              .02         .65         .12

</TABLE>


                                       39

<PAGE>

              AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 1999

Because the method prescribed by SFAS No. 123 has not been applied to options
granted prior to April 1, 1995, the resulting pro forma compensation expense may
not be representative of the amount to be expensed in future years. Pro forma
compensation expense for options granted is reflected over the vesting period;
therefore, future pro forma compensation expense may be greater as additional
options are granted.

The fair value of each option granted was estimated on the grant date using the
Black-Scholes option pricing model with the following weighted average
assumptions: risk-free interest rates of 4.38% to 5.79%, 5.42% to 6.57%, and
5.97% to 6.64% for 1999, 1998, and 1997, respectively, and expected life of 5
years, expected volatility of 47%, 38%, and 30% for 1999, 1998, and 1997,
respectively, and an expected dividend yield of 0% for all three years.


STOCK OPTION ACTIVITY A summary of the Company's stock option activity is as
follows:

<TABLE>
<CAPTION>

                                       1999                     1998                      1997
                              -----------------------  -----------------------    ---------------------
                                            Weighted                 Weighted                  Weighted
                                             Average                  Average                   Average
                              Number of     Exercise   Number of     Exercise   Number of      Exercise
                               Shares         Price     Shares         Price      Shares        Price
                              ---------     ---------  ---------     ---------    -------     ---------
<S>                           <C>           <C>        <C>           <C>          <C>         <C>
     Options outstanding,
     beginning of year        1,116,030     $    9.59  1,001,141     $   10.16    557,404     $    5.72
     Options granted            395,850         12.58    286,608         11.47    537,610         12.56
     Options exercised         (108,485)         7.39   (152,735)         5.79    (68,723)         5.32
     Options expired            (64,597)        10.74    (18,984)        10.99    (25,150)         8.06
                                -------                  -------                 -------
     Options outstanding,
     end of year              1,338,798         10.60  1,116,030          9.59  1,001,141         10.16
                                -------                  -------                 -------
                                -------                  -------                 -------
     Options exercisable        857,283          9.54    652,830          7.90    529,241          6.21
                                -------                  -------                 -------
                                -------                  -------                 -------
Options available
    for grant                   333,292                  580,042                 172,551
                                -------                  -------                 -------
                                -------                  -------                 -------
Weighted average fair
value per share of
options granted
during the year                                  5.86                     4.33                     4.24

</TABLE>


                                       40

<PAGE>

              AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 1999

The following summarizes certain data for options outstanding at March 31, 1999:

<TABLE>
<CAPTION>

                                                                            Weighted
                                                              Weighted       Average
                                                               Average     Remaining
                               Number of          Range of    Exercise   Contractual
                                  Shares   Exercise Prices       Price          Life
                                  ------   ---------------       -----          ----
<S>                              <C>        <C>              <C>                <C>
     Options outstanding,
     end of year:                123,640    $3.25 - $ 5.25   $   4.00           4.70
                                 228,150     5.25 -   8.25       6.24           5.60
                                 412,450     8.25 -  11.38      10.71           8.50
                                 574,558    11.38 -  16.25      13.67           8.30
                               ---------
                               1,338,798                        10.60           7.60
                               ---------
                               ---------
     Options Exercisable:        123,640   $ 3.25 - $ 5.25   $    4.00
                                 228,150     5.25 -   8.25        6.24
                                 204,785     8.25 -  11.38       10.55
                                 300,708    11.38 -  16.25       13.62
                               ---------
                                 857,283                     $    9.54
                               ---------
                               ---------

</TABLE>

On April 15, 1998, the Company announced that its Board of Directors adopted a
Shareholders' Rights Plan (the Plan) and declared a dividend of one preferred
stock purchase right for each outstanding share of common stock. The dividend is
payable to all holders of record of shares of common stock as of the close of
business on April 17, 1998. The rights become exercisable ten days after a
person or group acquires 15% or more of the Company's common stock, and in
certain other situations described in the Plan.


7.   EMPLOYMENT AGREEMENT AND NOTE RECEIVABLE FROM OFFICER

On January 12, 1994, the Company entered into an Employment Agreement with the
Company's President and Chief Executive Officer. On September 29, 1994, the
stockholders approved the issuance of non-qualified stock options for 80,000
shares (at $4.00 per share) to be exercised to varying extents at various times
through its expiration on December 16, 2003. The excess of the quoted market
price of the stock at the date of the award ($5.50) over the price stipulated by
the Agreement ($4.00) has been recognized by the Company as compensation
expense. This total amount has been amortized on a straight line basis over the
length of a vesting period of three years, through September 1997.

In addition, the Company's Chief Executive Officer purchased 160,000 shares of
common stock at a price of $4.00 per share (the fair market value) financed
under a note agreement for $640,000 from the Company. This note accrues interest
at a rate of 6.26% and will be payable on or before September 15, 2003 or 90
days after termination, as defined. As of March 31, 1999 no interest has been
received or paid against this note.


                                       41
<PAGE>

              AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 1999

8.   RELATED PARTY TRANSACTIONS

The Company receives engineering and management consulting services from a
member of the Company's Board of Directors on a regular basis. In fiscal years
1999, 1998, and 1997 the Company paid approximately $212,000, $256,750, and
$218,550, for services rendered, respectively.


9.   BUSINESS SEGMENT INFORMATION

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131) "Disclosures about Segments of
and Enterprise and Related Information". This statement establishes standards
for the way companies report information about operating segments in annual
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. In accordance
with the provisions of SFAS 131, the Company has determined that it has only one
operating segment, the X-ray product segment. This includes X-ray detection and
imaging products used primarily for the detection of illegal drugs, terrorist
explosives, and smuggled goods. The equipment is purchased by sophisticated
government and commercial clients who place a premium on the detection of
organic material in complex backgrounds and the ability to see the contents of
containers with precision.


                                       42

<PAGE>

              AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 1999


GEOGRAPHICAL DATA All of the Company's export sales originate from the U.S. No
assets or operations are maintained in any foreign country. The following table
shows the breakdown of Net Sales and Contract revenues to foreign and domestic
customers and the major region(s) of export activity (dollars in thousands):

<TABLE>
<CAPTION>

                                                           1999      1998       1997
                                                           ----      ----       ----
<S>                                                      <C>       <C>        <C>
    Domestic                                             $26,274   $26,799    $23,703
    Export                                               $31,021   $ 5,900    $ 4,776
    Percent of Export Revenue by Major Region:
     Middle East & Africa                                   54.2%     59.7%      22.2%
     Mexico                                                 29.6        --         --
     Pacific Rim                                            10.5      28.3       60.9
     Europe                                                  5.0       8.9        4.4
     All Other                                               0.7       3.1       12.5

</TABLE>


MAJOR CUSTOMERS Sales to major customers (representing in excess of 10% of
consolidated revenues) consisted of X-ray product sales of the following:

<TABLE>
<S>                   <C>
     FISCAL 1999:     $13,306,000, $9,168,000, $6,853,000 and $6,027,000 to four customers.
     FISCAL 1998:     $11,670,000 to one customer.
     FISCAL 1997:     $11,531,000 and $3,463,000 to two customers.

</TABLE>


10.  COMMITMENTS AND CONTINGENCIES

DEFERRED COMPENSATION The Company has an unfunded deferred compensation plan,
originally adopted in 1976 and amended at various times, for certain current and
former directors. This plan provides for periodic payments beginning at age 65,
the amount of which depends on their length of service. The Company paid $4,752
in 1999, $21,000 in 1998, and $10,000 in 1997 under this deferred compensation
plan.

LITIGATION In June 1997, the Company settled a suit and countersuit against the
Company's former Chief Executive Officer (the former CEO). As a result of the
settlement, the Company's ownership rights in certain technology were affirmed,
the Company gained rights to certain continuing developments made by the former
CEO's current company (Annistech), and the Company agreed to license that
technology back to Annistech.

In May, 1996, Vivid Technologies, Inc., filed a civil action against the
Company, seeking INTER ALIA a declaratory judgment that Vivid had not
infringed upon certain of the Company patents relating to its backscatter
technology. The Company responded to Vivid's claim denying their allegations
and counter-claiming that Vivid infringed upon one or more of the Company's
patents. On May 12, 1997, Vivid filed a proposed Amended Complaint narrowing
its claim and seeking INTER ALIA a declaratory judgment that Vivid had not
infringed on AS&E United States Patent number 5,253,283, entitled "Inspection
Method and Apparatus with Single Color Pixel Imaging" The Company denies
Vivid's assertions, and contends that Vivid's claims are without merit and
that Vivid is not entitled to the relief sought. The Company served Vivid
with discovery requests to which Vivid failed to respond. In September 1997,
Vivid filed a motion seeking a stay of discovery and a motion for a summary
judgement. The Company responded by seeking a denial or stay of Vivid's
motion for summary judgement until discovery could be completed. The Court
denied the Company's motion and declared that Vivid is not infringing on the
patent. The Company is currently appealing the Court's award of summary
judgement and its denial of discovery. The Company does not expect the
outcome of this litigation to have a material impact to its financial
position or results of operations.

                                       43


<PAGE>


              AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
                 UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL DATA
              FOR THE YEARS ENDED MARCH 31, 1999 AND MARCH 31, 1998

Dollars in thousands, except per share amounts

<TABLE>
<CAPTION>

                                          1999 BY QUARTER                       1998 BY QUARTER
                                          ---------------                       ---------------
                                  1ST       2ND       3RD       4TH        1ST     2ND     3RD     4TH
                                  ---       ---       ---       ---        ---     ---     ---     ---
<S>                             <C>       <C>       <C>       <C>         <C>     <C>     <C>     <C>
    Net sales and contract
    revenues                    $11,692   $14,361   $16,214   $15,028     $7,532  $8,705  $7,900  $8,562

    Gross profit                  4,453     4,749     4,967     4,770      2,750   3,521   3,208   3,404

    Operating
    income                          914       922     1,042       598        616     677     756     553

    Net income                  $   526   $   554   $   617   $   348     $  610  $  685  $  751  $2,615(A)

    Net income per share
     - Basic (Note 1)           $   .11     $ .12   $   .13   $   .07     $  .13  $  .15  $  .16  $  .55
     - Diluted (Note 1)             .10       .11       .12       .07        .13     .14     .15     .52

</TABLE>


(A) Includes an adjustment of approximately $2.1 million recorded in the fourth
quarter of 1998 (Note 5) to recognize the tax benefit associated with federal
net operating loss carryforwards, and certain other deferred tax assets.


                                       44

<PAGE>


                                                                 SCHEDULE II

              AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
     FOR THE YEARS ENDED MARCH 31, 1999, MARCH 31, 1998, AND MARCH 28, 1997


                        DESCRIPTION - ACCOUNTS RECEIVABLE

                              DOLLARS IN THOUSANDS

<TABLE>
<CAPTION>

                      Balance at        Charged to     Deductions      Balance
                      Beginning         Costs and        from          at End
                       of Year           Expenses      Reserves        of Year
                       -------           --------      --------        -------
<S>                     <C>               <C>           <C>            <C>
       1999             $116              $228             85           $259
       1998             $148              $  0           $ 32           $116
       1997             $179              $178           $209           $148

</TABLE>

               DESCRIPTION - ALLOWANCES FOR UNBILLED COST AND FEES

                              DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>

                      Balance at        Charged to     Deductions      Balance
                      Beginning         Costs and        from          at End
                       of Year           Expenses      Reserves        of Year
                       -------           --------      --------        -------
<S>                     <C>               <C>           <C>             <C>
       1999             $549               $ --          $102           $447
       1998             $462               $200          $113           $549
       1997             $ 97               $384          $ 19           $462

</TABLE>


                                       45

<PAGE>


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                  AMERICAN SCIENCE AND ENGINEERING, INC.
DATED:   14 June 1999


                                  By/s/ Ralph S. Sheridan
                                    -------------------------------------
                                    Ralph S. Sheridan, President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated:

<TABLE>
<CAPTION>

Signature                                    Title                                        Date
<S>                                           <C>                                          <C>
                                          President
/s/ Ralph S. Sheridan                     and Director (Principal
-------------------                       Executive Officer)                            14 June 1999
Ralph S. Sheridan


                                          Chief Financial Officer,
                                          Treasurer and
/s/ Lee C. Steele                         Vice President, Finance
-------------------                       (Principal Financial Officer)                 14 June 1999
Lee C. Steele


/s/ Joseph N. Moffa                       Vice President, Financial Operations
-------------------                       and Corporate Controller                      14 June 1999
Joseph N. Moffa


/s/ Herman Feshbach
-------------------                       Director                                      14 June 1999
Herman Feshbach


/s/ Al Gladen
-------------------                       Director                                      14 June 1999
Al Gladen


/s/ Hamilton W. Helmer
----------------------                    Director                                      14 June 1999
Hamilton W. Helmer


/s/ Donald J. McCarren
----------------------                    Director                                      14 June 1999
Donald J. McCarren


/s/ William E. Odom                       Chairman of the Board                         14 June 1999
-------------------                       Director
William E. Odom


/s/ Carl W. Vogt
-------------------                       Director                                      14 June 1999
Carl W. Vogt
</TABLE>



                                       46

<PAGE>


                                  EXHIBIT INDEX

<TABLE>
<CAPTION>

Exhibit           Description of Exhibit (and Statement                                                    Page Number
Number            of Incorporation by Reference, If Applicable)                                            (If Filed)
------            ---------------------------------------------                                            ----------
<S>               <C>                                                                                     <C>
(3)(a)            Restated Articles of Organization of the Company (filed as an Exhibit to
                  Company's Annual Report on Form 10-K for the year ended September 30,
                  1967, and incorporated herein by reference)

(3)(b)            Articles of Amendment to Restated Articles of Organization of Company
                  (filed as Exhibit 2(a)(ii)(B) to the Company's Registration Statement on
                  Form S-7,  No. 2-56452, filed May 25, 1976, and incorporated herein by
                  reference)

(3)(c)            Articles of Amendment to Restated Articles of Organization of Company
                  (filed as Exhibit 12 to the Company's Annual Report on Form 10-K for the
                  year ended March 31, 1976, and incorporated herein by reference)

(3)(d)            By-laws of Company, as amended (filed as Exhibit 2(a)(iii) to Company's
                  Registration Statement on Form S-7, No. 2-56452, filed May 25, 1976, and
                  incorporated herein by reference)

(4)               Shareholders Rights Plan (filed as Exhibit  to the Company's filing on Form
                  dated   , 1992 and incorporated herein by references)

(10)(a)(ii)       Deferred Compensation Plan for Herman Feshbach (filed as
                  Exhibit 20 to the Company's Annual Report on Form 10-K for the
                  year ended March 31, 1976, and incorporated herein by
                  reference)

(10)(a)(iv)       Amendment to Deferred Compensation Plans for Ismael Escobar
                  and Herman Feshbach (filed as Exhibit 7 to the Company's
                  Annual Report on Form 10-K for the fiscal year ended March 31,
                  1980, and incorporated herein by reference)

(10)(a)(v)        Deferred Compensation Plan for Marie Spaulding (filed as
                  Exhibit (10)(a)(v) to the Company's Annual Report on Form 10-K
                  for the year ended March 31, 1988, and incorporated herein by
                  reference)

(10)(b)(I)        1981 Incentive Stock Option Plan (filed as Exhibit (10)(b)(I)
                  to the Company's Annual Report on Form 10-K for the year ended
                  March 31, 1988, and incorporated herein by reference)

(10)(b)(iii)      1984 Incentive Stock Option Plan (filed as Exhibit (10)-3 to
                  the Company's Annual Report on Form 10-K for the year ended
                  March 31, 1985, and incorporated herein by reference)

(10)(b)(iv)       Amendment 1 to 1981 Incentive Stock Option Plan (filed as
                  Exhibit (10)(b)(iv) to the Company's Annual Report on Form
                  10-K for the year ended March 31, 1988, and incorporated
                  herein by reference)

(10)(b)(v)        Amendment 1 to 1984 Incentive Stock Option Plan (filed as
                  Exhibit (10)(b)(v) to the Company's Annual Report on Form 10-K
                  for the year ended March 31, 1988, and incorporated herein by
                  reference)

(10)(b)(vi)       1987 General Stock Option Plan (filed as an exhibit to the
                  Company's current report on Form 8-K for the month of October
                  1987, and incorporated herein by reference)

(10)(b)(vii)      Employment Agreement between the Company and Ralph S. Sheridan
                  (filed as Exhibit (10)(b)(vii) to the Company's Annual
                  Report on Form 10-K for the year ended March 31, 1998, and
                  incorporated herein by reference)

</TABLE>

                                       47


<PAGE>

<TABLE>
<CAPTION>

Exhibit           Description of Exhibit (and Statement                                                    Page Number
Number            of Incorporation by Reference, If Applicable)                                            (If Filed)
------            ---------------------------------------------                                            ----------
<S>               <C>                                                                                     <C>
(10)(b)(viii)     Loan and Security Agreement between the Company and Alfred
                  Gladen as Agent (with forms of Promissory Note and Stock
                  Purchase Warrants) (filed) as Exhibit 10(b)(vi) to the
                  Company's Annual Report on Form 10-K for the year ended March
                  31, 1995, and incorporated herein by reference)


(10)(b)(ix)       1996 Stock Plan For Non-Employee Directors (filed as Exhibit 99 to the
                  Company's Registration Statement on Form S-8, File No. 333-09257,
                  filed on July 31, 1996, and incorporated herein by reference)

(10)(b)(x)        Executive Equity Incentive Plan (filed as Exhibit 99 to the Company's
                  Registration Statement on Form S-8, File No. 333-27929, filed on May 28,
                  1997 and incorporated herein by reference)

(10)(b)(xi)       Reload Option Plan (filed as Exhibit (10)(b)(xi) to the
                  Company's Annual Report on Form 10-K for the year ended March
                  28, 1997 and incorporated herein by reference)

(10)(b)(xii)      1997 Non-Qualified Stock Option Plan (filed as Exhibit 99 to the Company's
                  Registration Statement on Form S-8, File No. 333-27927, filed on
                  May 28, 1997 and incorporated herein by reference)

(10)(b)(xiii)     1998 Non-Qualified Stock Option Plan (filed as Exhibit (10)(b)(xiii)
                  to the Company's Annual Report on Form 10-K for the year ended
                  March 31, 1998, and incorporated herein by reference)

(10)(b)(xiv)      Employment Agreement between the Company and Jeffrey A. Bernfeld
                  dated January 31, 1996, (filed as Exhibit (10)(b)(xiv)
                  to the Company's Annual Report on Form 10-K for the year ended
                  March 31, 1998, and incorporated herein by reference)

(10)(b)(xv)       Employment Agreement between the Company and Dr. Joseph Callerame
                  dated May 6, 1998, (filed as Exhibit (10)(b)(xv) to the Company's
                  Annual Report on Form 10-K for the year ended
                  March 31, 1998, and incorporated herein by reference)

(10)(b)(xvi)      Employment Agreement between the Company and Alan H. Rutan
                  dated June 4, 1996, (filed as Exhibit (10)(b)(xvi)
                  to the Company's Annual Report on Form 10-K for the year ended
                  March 31, 1998, and incorporated herein by reference)

(10)(b)(xvii)     Employment Agreement between the Company and Lee C. Steele
                  dated September 29, 1997, (filed as Exhibit (10)(b)(xvii)
                  to the Company's Annual Report on Form 10-K for the year ended
                  March 31, 1998, and incorporated herein by reference)

(10)(c)(i)        Lease of Billerica property (filed as Exhibit 10(c) to the
                  Company's Annual Report on Form 10-K for the year ended
                  March 31, 1995 and incorporated herein by reference)

(10)(c)(ii)       Amendment to Lease of Billerica property (filed as to the
                  Company's Annual Report on Form 10-K for the year ended
                  March 28, 1997 and incorporated herein by reference)

(22)              Identification of Company's subsidiary, AS&E Radiography, Inc.,
                  incorporated in Massachusetts (filed as Exhibit (22) to Company's
                  Annual Report on Form 10-K for the year ended March 31, 1988,
                  and incorporated herein by reference)

(23)              Consent of Independent Public Accountants

</TABLE>


                                       48