<Page>
FORM 10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to
Commission File Number 1-6549
American Science and Engineering, Inc.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Massachusetts 04-2240991
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
829 Middlesex Turnpike
Billerica, Massachusetts 01821
- --------------------------- ----------
(Address of principal executive offices) (Zip Code)
(978) 262-8700
---------------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date
Outstanding at
Class of Common Stock September 30, 2002
--------------------- ------------------
$.66 2/3 par value 6,827,425
Page 1 of 29 Pages
The Exhibit Index is Located on Page 20
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AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
Dollars in thousands
<Table>
<Caption>
SEPTEMBER 30,
2002 MARCH 31, 2002
------------- --------------
ASSETS Current assets:
Cash and cash equivalents $ 13,385 $ 7,591
Accounts receivable, net of allowances of $108 at
September 30, 2002 and $111 at March 31, 2002 10,359 7,216
Unbilled costs and fees, net of allowances
of $437 at September 30, 2002 and March 31, 2002 4,738 5,456
Inventories 20,114 21,013
Deferred income taxes 2,475 2,475
Prepaid expenses and other current assets 500 685
------------- --------------
Total current assets 51,571 44,436
Non-current assets:
Non-current deferred income taxes 823 823
Other assets 154 204
Patents and other intangibles, net of accumulated
amortization of $392 at September 30, 2002 and
$351 at March 31, 2002 74 115
Property and equipment, net of accumulated
depreciation of $16,425 at September 30, 2002
and $15,366 at March 31, 2002 3,852 4,663
------------- --------------
$ 56,474 $ 50,241
============= ==============
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
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AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(CONTINUED)
Dollars in thousands
<Table>
<Caption>
SEPTEMBER 30,
2002 MARCH 31, 2002
------------- --------------
LIABILITIES & Current liabilities:
STOCKHOLDERS' Line of credit $ - $ 9,319
INVESTMENT Accounts payable 4,151 6,557
Accrued salaries and benefits 1,556 1,577
Accrued warranty costs 585 196
Deferred revenue 934 1,030
Customer deposits 6,394 4,875
Accrued income taxes 768 763
Other current liabilities 1,511 1,783
------------- --------------
Total current liabilities 15,899 26,100
------------- --------------
Non-current liabilities:
Warrant liability 1,031 -
Deferred revenue 1,000 691
Deferred compensation 98 109
Deferred rent 174 212
------------- --------------
Total non-current liabilities 2,303 1,012
------------- --------------
Stockholders' investment:
Preferred stock, no par value
Authorized - 100,000 shares
Issued - none - -
Common stock, $.66-2/3 par value
Authorized - 20,000,000 shares
Issued 6,827,425 shares at September 30, 2002
and 5,549,478 shares at March 31, 2002 4,551 3,699
Capital in excess of par value 38,379 22,482
Accumulated deficit (4,658) (3,052)
------------- --------------
Total stockholders' investment 38,272 23,129
------------- --------------
$ 56,474 $ 50,241
============= ==============
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
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AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Dollars and shares in thousands, except per share amounts
<Table>
<Caption>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
------------------------------- -------------------------------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Net sales and contract revenues $ 16,935 $ 15,434 $ 31,853 $ 34,461
Cost of sales and contracts 13,573 12,050 25,001 26,463
------------- ------------- ------------- -------------
Gross profit 3,362 3,384 6,852 7,998
Expenses:
Selling, general and administrative expenses 3,776 2,905 6,948 5,573
Research and development 1,657 1,597 3,523 3,194
------------- ------------- ------------- -------------
Total expenses 5,433 4,502 10,471 8,767
------------- ------------- ------------- -------------
Operating loss (2,071) (1,118) (3,619) (769)
------------- ------------- ------------- -------------
Other income (expense):
Interest expense - (121) (86) (243)
Other, net 1,374 (46) 2,099 (116)
------------- ------------- ------------- -------------
Total other income (expense) 1,374 (167) 2,013 (359)
------------- ------------- ------------- -------------
Loss before income taxes (697) (1,285) (1,606) (1,128)
Benefit from income taxes - (488) - (430)
------------- ------------- ------------- -------------
Net loss $ (697) $ (797) $ (1,606) $ (698)
============= ============= ============= =============
Loss per share - Basic $ (0.10) $ (0.16) $ (0.25) $ (0.14)
============= ============= ============= =============
- Diluted $ (0.10) $ (0.16) $ (0.25) $ (0.14)
============= ============= ============= =============
Weighted average shares - Basic 6,818 5,030 6,395 5,026
============= ============= ============= =============
- Diluted 6,818 5,030 6,395 5,026
============= ============= ============= =============
</Table>
The accompanying notes are an integral part of these consolidated
financial statements.
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AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<Table>
<Caption>
Dollars in thousands FOR THE SIX MONTHS ENDED
-------------------------------
SEPTEMBER 30, SEPTEMBER 30,
2002 2001
------------- -------------
Cash flows from operating activities:
Net loss $ (1,606) $ (698)
Adjustments to reconcile net loss to net cash provided by
(used for) operating activities:
Depreciation and amortization 1,098 1,188
Provisions for contract, inventory, accounts receivable
and warranty reserves 896 106
Change in fair value of warrants issued (2,087) -
Changes in assets and liabilities:
Accounts receivable (3,143) 1,245
Unbilled costs and fees 718 4,776
Inventories 609 452
Prepaid expenses, deposits and other assets 235 271
Accounts payable (2,406) (2,460)
Accrued income taxes 5 (422)
Customer deposits 1,519 289
Deferred revenue 213 (31)
Accrued expenses and other current liabilities (296) (1,439)
Non-current liabilities (49) (38)
------------- -------------
Total adjustments (2,688) 3,937
------------- -------------
Net cash provided by (used for) operating activities (4,294) 3,239
------------- -------------
Cash flows from investing activities:
Purchase of property and equipment (246) (378)
------------- -------------
Net cash used for investing activities (246) (378)
------------- -------------
Cash flows from financing activities:
Borrowing under line of credit - 1,500
Repayments of line of credit (9,319) -
Proceeds from issuance of common stock and warrants 18,423 -
Proceeds from exercise of stock options 1,230 3
------------- -------------
Net cash provided by financing activities 10,334 1,503
------------- -------------
Net increase in cash and cash equivalents 5,794 4,364
Cash and cash equivalents at beginning of period 7,591 1,206
------------- -------------
Cash and cash equivalents at end of period $ 13,385 $ 5,570
============= =============
Supplemental disclosures of cash flow information:
Interest paid $ 124 $ 220
Income taxes paid $ - $ 15
Non-cash transactions:
Issuance of stock and warrants in lieu of fees $ 382 $ 191
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
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AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARIES
PREPARATION OF UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared by
American Science and Engineering, Inc. (the Company) pursuant to the rules
and regulations of the Securities and Exchange Commission, and the annual
consolidated financial statements are subject to year end audit by
independent public accountants. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to such
rules and regulations. The Company believes, however, that the disclosures
are adequate to make the information presented not misleading. It is
suggested that these consolidated financial statements be read in conjunction
with the consolidated financial statements and the notes thereto included in
the Company's latest annual report on Form 10-K.
The consolidated financial statements, in the opinion of management, include
all adjustments necessary, consisting solely of normal recurring adjustments,
to present fairly the Company's financial position, results of operations and
cash flows. These results are not necessarily indicative of the results to be
expected for the entire year.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
The Company 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. The
Company has only one reporting segment, X-ray screening products.
The significant accounting policies followed by the Company and its
Subsidiaries in preparing its consolidated financial statements are set
forth in Note 1 to the consolidated financial statements included in its
Form 10-K for the year ended March 31, 2002. The Company has made no
changes to these policies during this quarter.
NEW ACCOUNTING PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections" (FAS 145). This statement eliminates the requirement
that gains and losses from the extinguishments of debt be aggregated and,
if material, classified as an extraordinary item, net of the related income
tax effect. However, an entity would not be prohibited from classifying
such gains and losses as extraordinary items so long as they are both
unusual in nature and infrequent in occurrence. This provision of FAS 145
will be effective for the Company as of the beginning of fiscal year 2004.
This statement also amends FAS 13, "Accounting for Leases" and certain
other authoritative pronouncements to make technical corrections or
clarifications. FAS 145 will be effective related to the amendment of FAS
13 for all transactions occurring after May 15, 2002. All other provisions
of FAS 145 will be effective for financial statements issued after May 15,
2002. The Company is currently evaluating the impact of implementing FAS
145.
In July 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
(FAS 146), which nullifies Emerging Issues Task Force (EITF) Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." FAS 146 requires a liability for a cost associated with an
exit or disposal activity be recognized and measured initially at its fair
value in the period in which the liability is incurred. If fair value
cannot be reasonably estimated, the liability shall be recognized initially
in the period in which fair value can be reasonably estimated. The
provisions of FAS 146 will be effective for the Company prospectively for
exit or disposal activities initiated after December 31, 2002; however,
this standard is not expected to have a significant impact.
-6-
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In October 2001, the FASB issued FAS No. 144, "Accounting for the
Impairment or Disposal of Long Lived Assets" which supercedes FAS No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of" and provisions of APB Opinion No. 30 "Reporting
the Results of Operations-Reporting the Effects of Disposal of a Segment of
a Business, and Extraordinary, Unusual and Infrequently Occurring Events
and Transactions", for the disposal of segments of a business. The
statement creates one accounting model, based on the framework established
in FAS No. 121, to be applied to all long-lived assets including
discontinued operations. FAS No. 144 was effective for the Company on April
1, 2002 and will be applied prospectively.
2. INVENTORIES
<Table>
<Caption>
Inventories consisted of: (Dollars in September 30,
thousands) 2002 March 31, 2002
------------- --------------
Raw materials and completed sub-assemblies $ 10,304 $ 10,483
Work in process 6,535 7,981
Finished goods 3,275 2,549
------------- --------------
Total $ 20,114 $ 21,013
============= ==============
</Table>
3. INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Basic earnings per common share is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the
period. 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. For the quarter and six months ended September 30, 2002 and
2001, common stock equivalents of 230,100 and 450,906 and 100,000 and
67,000, respectively, are excluded from diluted earnings per share, as
their effect is anti-dilutive.
<Table>
<Caption>
Earnings Per Share Three Months Ended Six Months Ended
------------------ -------------------------------- ---------------------------------
(in thousands except per share Sept. 30, 2002 Sept. 30, 2001 Sept. 30, 2002 Sept. 30, 2001
amounts) -------------- -------------- -------------- --------------
BASIC
Net loss $ (697) $ (797) $ (1,606) $ (698)
------------- ------------- ------------- --------------
Weighted average shares 6,818 5,030 6,395 5,026
------------- ------------- ------------- --------------
Basic loss per share $ (0.10) $ (0.16) $ (0.25) $ (0.14)
------------- ------------- ------------- --------------
DILUTED
Net loss $ (697) $ (797) $ (1,606) $ (698)
------------- ------------- ------------- --------------
Weighted average shares 6,818 5,030 6,395 5,026
------------- ------------- ------------- --------------
Effect of stock options and
warrants - - - -
------------- ------------- ------------- --------------
Weighted average shares, as
adjusted 6,818 5,030 6,395 5,026
------------- ------------- ------------- --------------
Diluted loss per share $ (0.10) $ (0.16) $ (0.25) $ (0.14)
============= ============= ============= ==============
</Table>
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<Page>
4. BORROWINGS
On November 30, 2000, the Company signed two credit agreements with HSBC
Bank USA ("HSBC"). The first agreement was for a $10 million domestic
revolving credit facility to support the Company's routine working capital
and standby letter of credit needs. The second was a $30 million export
credit and security agreement, guaranteed by the Export-Import Bank of the
United States ("Ex-Im"), to support the Company's overseas contract, trade
finance and working capital needs. The credit facility bears an interest
rate of the HSBC Bank USA prime rate or LIBOR plus 2.0% at the Company's
option.
On February 14, 2002, these credit agreements were amended to increase the
domestic revolving credit facility to $20 million and to reduce the export
credit and security agreement to $20 million. The domestic revolving credit
facility as amended provides for maximum borrowings in an amount up to the
lower of: (a) the sum of 85% of eligible domestic accounts receivable plus
the lower of: (i) 40% of eligible raw materials and work-in-process
inventory; or; (ii) $5 million, or; (b) $20 million. The export credit and
security agreement as amended provides for maximum borrowings in an amount
up to the lower of: (a) 90% of eligible international billed and unbilled
accounts receivable, or; (b) $20 million. The agreements expire on November
30, 2002.
At September 30, 2002, there were no borrowings outstanding against this
facility and $4.5 million in 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 and requires the Company to meet certain financial covenants. As of
September 30, 2002, the Company was not in compliance with one of these
financial covenants, but has obtained a waiver from the bank for this
non-compliance for the second quarter.
5. PRIVATE PLACEMENT OFFERING
On May 28, 2002, the Company closed on a private placement offering of
common stock and warrants. A total of 1,115,000 shares were sold to
accredited investors at a price of $17.64 each. In addition, warrants to
purchase an additional 295,475 shares of common stock at a price of $23.52
were issued. Proceeds to the Company approximated $18.4 million, net of
approximately $1.3 million of issuance cost. The warrants were immediately
vested and have a five-year life expiring in May of 2007. Due to certain
conversion features of these warrants which provide for cash settlement
under limited circumstances, in accordance with EITF 00-19, the potential
cash liability, representing the fair value of the warrants, was recorded
as a liability on the balance sheet at May 28, 2002 and the "mark to
market" change in the warrants value at September 30, 2002 of $1,364,000
was recorded as other income for the period. The liability of $1,031,000
associated with the warrants is recorded as a non-current liability on the
September 30, 2002 balance sheet. The fair market value of the warrants was
determined using the Black Scholes pricing model and an assumed volatility
of 72% and interest rate of 5%.
-8-
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AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ITEM 2 - RESULTS OF OPERATIONS
Net sales and contract revenues in the second quarter increased by
$1,501,000 (10%) in comparison to the corresponding period a year ago and
increased by $2,017,000 (14%) compared to the first quarter of fiscal 2003.
The increase in revenues from the prior quarter is due to increased sales
of the Company's cargo products and field service revenues partially offset
by lower sales of the Company's parcel products. The reduced level of
revenues from parcel products is partially attributable to the record
parcel product revenues recorded in the prior quarter.
Net sales and contract revenues for the six month period ended September
30, 2002 decreased by $2,608,000 (8%) compared to the corresponding period
a year ago. This decrease in revenues from the prior year is due to reduced
volumes in cargo products and field services revenues offset somewhat by a
significant increase in the Company's parcel products revenues.
For the second quarter, cost of sales and contracts increased to
$13,573,000 from $12,050,000 in the corresponding period a year ago. Cost
of sales and contracts represented 80% of revenues versus 78% for the
corresponding period last year and 77% for the first quarter of fiscal year
2003. The cost of sales as a percentage of revenue in the current quarter
increased from the corresponding period last year due to the lower margins
on certain cargo projects recorded on a percentage of completion basis in
addition to charges to cost of sales in the current quarter related to the
establishment of reserves for excess cargo inventories.
Cost of sales and contracts for the six month period ended September 30,
2002 decreased by $1,462,000 (6%) compared to the first six months of the
prior year. This decrease is attributable to the decrease in revenues noted
above offset somewhat by the lower margins on certain cargo projects and
the establishment of reserves for excess cargo inventories in the second
quarter of the current fiscal year.
Selling, general and administrative expenses of $3,776,000 for the second
quarter were higher by 30% compared to the corresponding period last year
and higher by 19% compared to the first quarter of fiscal 2003. As a
percent of sales, selling, general and administrative expenses were 22% of
revenues in the current quarter compared to 19% of revenues for the
corresponding period a year ago and 21% for the first quarter of fiscal
year 2003. The increased costs in the quarter were due primarily to higher
insurance and trade show expenses offset in part by lower legal expenses in
the quarter.
Selling, general and administrative expenses of $6,948,000 for the first
six months of fiscal year 2003 increased by 25% from the selling, general
and administrative expenses of $5,573,000 reported during the first six
months of fiscal year 2002. The increased costs were due primarily to
higher insurance, trade shows, bid and proposal support and additional
personnel in critical areas.
Company funded research and development expenses of $1,657,000 for the
second quarter increased by $60,000 (4%) compared to the corresponding
period last year and decreased by $209,000 or 11% from the first quarter of
fiscal year 2003. The current quarter expenditures continue to be
significant as the Company continues to focus on new product initiatives
and improvements to address the demands of increased national security
needs.
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Research and development expenses for the six month period ended
September 30, 2002 were $3,523,000, or 10% above the $3,194,000 incurred in
the same period in the prior year. The additional expense is due to the
Company's continued commitment to find and develop new product initiatives
to address the demands of increased national security needs offset somewhat
by the reallocation of engineering resources to meet the requirements of
increased bidding and proposal activities.
As part of the private equity placement during the first quarter of 2003,
the Company issued 295,475 warrants. Due to certain conversion features of
these warrants, that provide cash settlement in certain instances, a
liability equal to the Black-Scholes valuation of the warrants at the deal
close was recorded on the Company's balance sheet. At September 30, 2002,
these warrants were "marked to market" using Black-Scholes and the change
in the valuation of the warrants of $1,364,000 was recorded as a credit to
other income (expense) in the quarter. During the first quarter of this
fiscal year, this calculation generated a $723,000 credit to other income
(expense).
The potential tax benefits on losses incurred in the first and second
quarter of fiscal year 2003 have been fully reserved against due to the
uncertainty as to whether additional loss carryforwards may ultimately be
realized. In assessing the realizibility of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Although realization is not
assured, the Company expects that deferred tax assets of $3.3 million, net
of valuation allowance, at September 30, 2002 will be realized through
future earnings. Accordingly, the Company believes that no valuation
allowance is required for the remaining deferred tax assets. In fiscal year
2002, the Company recorded a tax benefit of $488,000 after having
recognized a $58,000 tax provision in the first quarter.
The Company incurred a net loss of $697,000 during the second quarter of
fiscal year 2003 as compared to a net loss of $797,000 in the second
quarter of fiscal year 2002. During the first six months of fiscal year
2003 the Company reported a loss of $1,606,000 as compared to a loss of
$698,000 for the same period in the prior year. The significant factors
contributing to these results are noted in the above sections.
LIQUIDITY AND CAPITAL RESOURCES
On May 28, 2002, the Company closed on a private placement offering of
common stock and warrants. A total of 1,115,000 shares were sold to
accredited investors at a price of $17.64 each. In addition, warrants to
purchase an additional 295,475 shares of common stock at a price of $23.52
were issued. These warrants have a five-year life expiring in May of 2007.
Proceeds to the Company approximated $18.4 million. The proceeds from this
private placement offering have been and are being utilized for general
corporate purposes including debt repayment, capital expenditures, and
investments in product development and working capital needs.
Cash and cash equivalents increased by $5,794,000 to $13,385,000 at
September 30, 2002 compared to $7,591,000 at March 31, 2002. This increase
in cash and cash equivalents was primarily due to proceeds received from
the private equity placement and stock option exercises offset by the
repayment of the line of credit and increases in accounts receivable and
decreases in certain liabilities. Working capital increased by $17,336,000
(95%) since March 31, 2002, increasing from $18,336,000 to $35,672,000 at
the end of the first quarter due primarily to the stock and option proceeds
received.
On November 30, 2000, the Company signed two credit agreements with HSBC
Bank USA ("HSBC"). The first agreement was for a $10 million domestic
revolving credit facility to support the Company's routine
-10-
<Page>
working capital and standby letter of credit needs. The second was a $30
million export credit and security agreement, guaranteed by the
Export-Import Bank of the United States ("Ex-Im"), to support the Company's
overseas contract, trade finance and working capital needs. The credit
facility bears an interest rate of the HSBC Bank USA prime rate or LIBOR
plus 2.0% at the Company's option.
On February 14, 2002, these credit agreements were amended to increase the
domestic revolving credit facility to $20 million and to reduce the export
credit facility to $20 million. The domestic revolving credit facility as
amended provides for maximum borrowings in an amount up to the lower of:
(a) the sum of 85% of eligible domestic accounts receivable plus the lower
of: (i) 40% of eligible raw materials and work-in-process inventory; or;
(ii) $5 million, or; (b) $20 million. The export credit and security
agreement as amended provides for maximum borrowings in an amount up to the
lower of: (a) the sum of 90% of eligible international billed and unbilled
accounts receivable, or; (b) $20 million. The agreements expire on
November 30, 2002.
The Company currently plans on refinancing either under the same agreement
with HSBC or a similar agreement with a new facility; however, there can be
no assurance that HSBC will renew the credit agreements or that alternative
financing can be obtained. As discussed above, the Company has paid off the
amounts outstanding under the domestic credit facilities and management
believes the Company's working capital requirements through March 31, 2003
can be met without the line of credit. In addition, to the extent the
Company's credit facility is not renewed, it would preclude the Company
from obtaining financing through its current secured export credit and
security agreement which could negatively impact the Company's ability to
support international sales. However, management believes the Company's
planned level of sales in 2003 can be achieved without access to export
credit.
At September 30, 2002, there were no borrowings outstanding against this
facility and $4.5 million in letters of credit were in effect against these
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 and requires the Company to meet certain financial covenants. As of
September 30, 2002, the Company was not in compliance with one of these
financial covenants, but has obtained a waiver from the bank for this
non-compliance.
NEW ACCOUNTING PRONOUNCEMENTS:
In April 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections" (FAS 145). This statement eliminates the requirement
that gains and losses from the extinguishments of debt be aggregated and,
if material, classified as an extraordinary item, net of the related income
tax effect. However, an entity would not be prohibited from classifying
such gains and losses as extraordinary items so long as they are both
unusual in nature and infrequent in occurrence. This provision of FAS 145
will be effective for the Company as of the beginning of fiscal year 2004.
This statement also amends FAS 13, "Accounting for Leases" and certain
other authoritative pronouncements to make technical corrections or
clarifications. FAS 145 will be effective related to the amendment of FAS
13 for all transactions occurring after May 15, 2002. All other provisions
of FAS 145 will be effective for financial statements issued after May 15,
2002. The Company is currently evaluating the impact of implementing FAS
145.
In July 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
(FAS 146), which nullifies Emerging Issues Task Force (EITF) Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an
-11-
<Page>
Activity (including Certain Costs Incurred in a Restructuring)." FAS 146
requires a liability for a cost associated with an exit or disposal
activity be recognized and measured initially at its fair value in the
period in which the liability is incurred. If fair value cannot be
reasonably estimated, the liability shall be recognized initially in the
period in which fair value can be reasonably estimated. The provisions of
FAS 146 will be effective for the Company prospectively for exit or
disposal activities initiated after December 31, 2002; however, this
standard is not expected to have a significant impact.
In October 2001, the FASB issued FAS No. 144, "Accounting for the
Impairment or Disposal of Long Lived Assets" which supercedes FAS No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of" and provisions of APB Opinion No. 30 "Reporting
the Results of Operations-Reporting the Effects of Disposal of a Segment of
a Business, and Extraordinary, Unusual and Infrequently Occurring Events
and Transactions", for the disposal of segments of a business. The
statement creates one accounting model, based on the framework established
in FAS No. 121, to be applied to all long-lived assets including
discontinued operations. FAS No. 144 was effective for the Company on April
1, 2002 and will be applied prospectively.
ITEM 4 - CONTROLS AND PROCEDURES
Within the 90-day period prior to the date of this report, we carried out
an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Rule 13a-14(c) and 15d-14(c) of the
Securities Exchange Act of 1934. Based upon that evaluation, our Chief
Executive Officer and our Chief Financial Officer concluded that our
disclosure controls and procedures are effective for gathering, analyzing
and disclosing the information we are required to disclose in reports filed
under such Act.
There have been no significant changes in our internal controls or in other
factors, which could significantly affect internal controls subsequent to
the date that the Company carried out its evaluation.
Part II - Other Information
ITEM 1 - LEGAL PROCEEDINGS
The United States Court of Appeals for the Federal Circuit in Washington,
D.C., in a decision issued December 29, 1999, ruled that American Science &
Engineering, may pursue a patent infringement claim against Vivid
Technologies which produces X-ray detection devices used in baggage
scanning equipment. The Appeals Court overturned a 1998 decision in Vivid's
favor by the Massachusetts Federal District Court. The lawsuit, filed by
Vivid Technologies in May 1996, concerns whether Vivid's X-ray detection
devices infringed on the Company's patent. The District Court had ruled
that the Company could not assert a claim that Vivid's devices infringed on
the Company's patent. The Appeals Court also reversed the district court's
finding on summary judgment that Vivid did not infringe on the Company's
patent, as well as the district court's denial of the Company's request for
discovery to oppose Vivid's summary judgment motion. Discovery is now
proceeding.
In September 1998, the Company filed suit against EG&G Astrophysics
Research Corp. ("EG&G") in U.S. District Court in Massachusetts alleging
that EG&G infringed 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
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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) X-ray
inspection system. In May 1999, the Court held a hearing on the Company's
motion for a preliminary injunction against both Customs and EG&G
prohibiting further performance of the contested contract and preventing
EG&G from utilizing the Company's trade secrets. In August 1999, the Court
issued a ruling denying the request for the preliminary injunction. In
December 1999, EG&G filed a motion for summary judgment that EG&G did not
misappropriate the Company's trade secrets and in March 2000 EG&G filed a
motion for summary judgment that EG&G did not infringe the Company's
patents. In February 2001, the court denied EG&G's and the Company's
motions for summary judgment. The Company is continuing to pursue its
claims against EG&G, but the suit against U.S. Customs Service has been
dismissed.
In a related matter, EG&G filed a request with the U.S. Patent and
Trademark Office ("USPTO") for re-examination of the two patents that
currently are at issue in the patent infringement action described above.
The Company filed oppositions to the re-examination requests and was
advised by the USPTO that the Company's MobileSearch X-ray inspection
patent was upheld in all material respects. The Company was also advised by
the USPTO that the Company's patent on its Z(R) Backscatter X-ray
inspection technology has been upheld in all material respects.
The Company is also subject to various legal proceedings and claims that
arise in the ordinary course of business. The Company currently believes
that resolving these matters will not have a material adverse impact on its
financial condition or results of operations.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the special meeting held in lieu of the annual meeting of Stockholders of the
Company held on September 19, 2002, the stockholders of the Company (1) elected
William E. Odom, Roger P. Heinisch, Hamilton W. Helmer, Donald J. McCarren,
Ralph S. Sheridan and Carl W. Vogt as directors of the Company to hold office
for a one-year term and no other nominations were made; and (2) approved an
amendment to adopt the Company's 2002 Combination Stock Option Plan. The votes
were as follows:
<Table>
<Caption>
Votes
Withheld or
Votes For Opposed Abstentions
--------- ----------- -----------
(1) Election of Directors:
William E. Odom 5,742,384 56,581
Roger P. Heinisch 5,742,384 56,581
Hamilton W. Helmer 5,742,384 56,581
Donald J. McCarren 5,742,384 56,581
Ralph S. Sheridan 4,498,479 1,096,986
Carl W. Vogt 5,742,330 56,635
2) Approval of the 2002 Combination Stock Option Plan 4,168,098 1,605,855 25,012
</Table>
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ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10 Employment agreement between the Company and Ralph S. Sheridan, dated
July 11, 2002
99.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) REPORTS ON FORM 8-K
A report on Form 8-K was filed on July 19, 2002 announcing the change of
auditors from Arthur Andersen to PricewaterhouseCoopers LLP.
The information required by Exhibit Item 11 (Statement re: Computation of Income
per Common and Common Equivalent Share) may be found in Footnote No. 3 on
Page 7.
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<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERICAN SCIENCE AND ENGINEERING, INC.
(Registrant)
Date November 14, 2002 /s/ Paul Theodore Owens
--------------------------------------
Paul Theodore Owens
Interim Chief Financial Officer
SAFE HARBOR STATEMENT
THE FOREGOING 10-Q CONTAINS STATEMENTS CONCERNING THE COMPANY'S FINANCIAL
PERFORMANCE AND BUSINESS OPERATIONS WHICH MAY BE CONSIDERED "FORWARD-LOOKING"
UNDER APPLICABLE SECURITIES LAWS.
THE COMPANY WISHES TO CAUTION READERS OF THIS FORM 10-Q THAT ACTUAL RESULTS
MIGHT DIFFER MATERIALLY FROM THOSE PROJECTED IN ANY FORWARD-LOOKING STATEMENTS.
FACTORS WHICH MIGHT CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN INCLUDE THE
FOLLOWING: SIGNIFICANT REDUCTIONS OR DELAYS IN PROCUREMENTS OF THE COMPANY'S
SYSTEMS BY THE UNITED STATES GOVERNMENT; DISRUPTION IN THE SUPPLY OF ANY
SOLE-SOURCE COMPONENT INCORPORATED INTO THE COMPANY'S PRODUCTS (OF WHICH THERE
ARE SEVERAL); LITIGATION SEEKING TO RESTRICT THE USE OF INTELLECTUAL PROPERTY
USED BY THE COMPANY; POTENTIAL PRODUCT LIABILITY CLAIMS AGAINST THE COMPANY;
GLOBAL POLITICAL TRENDS AND EVENTS WHICH AFFECT PUBLIC PERCEPTION OF THE THREAT
PRESENTED BY DRUGS, EXPLOSIVES AND OTHER CONTRABAND; THE ABILITY OF GOVERNMENTS
AND PRIVATE ORGANIZATIONS TO FUND PURCHASES OF THE COMPANY'S PRODUCTS TO ADDRESS
SUCH THREATS; AND THE POTENTIAL INSUFFICIENCY OF COMPANY RESOURCES, INCLUDING
HUMAN RESOURCES, CAPITAL, PLANT AND EQUIPMENT AND MANAGEMENT SYSTEMS, TO
ACCOMMODATE ANY FUTURE GROWTH. THESE AND CERTAIN OTHER FACTORS WHICH MIGHT CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED ARE MORE FULLY SET
FORTH UNDER THE CAPTION "FORWARD-LOOKING INFORMATION AND FACTORS AFFECTING
FUTURE PERFORMANCE" IN THE COMPANY'S REGISTRATION STATEMENT ON FORM 10-K.
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<Page>
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
SECTION 302 CERTIFICATION
I, Ralph S. Sheridan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Science and
Engineering, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect
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internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 14, 2002
/s/ Ralph S. Sheridan
- ---------------------------
Ralph S. Sheridan
President and Chief Executive Officer
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<Page>
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
SECTION 302 CERTIFICATION
I, Paul Theodore Owens, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Science and
Engineering, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
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<Page>
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Paul Theodore Owens
- -----------------------------
Paul Theodore Owens
Interim Chief Financial Officer
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<Page>
EXHIBIT INDEX
Exhibit No. Description
10 Employment Agreement Between the Company and Ralph Sheridan
dated July 11, 2002
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
99.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
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