1
FORM 10Q
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 June 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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)
(508) 262-8700
(Registrant's telephone number, including area code)
40 Erie Street, Cambridge, Massachusetts 02139
(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
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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 August 9, 1995
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$.66 2/3 par value 4,461,238
Page 1 of 11 Pages
The Exhibit Index is Located at Page 10
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AMERICAN SCIENCE AND ENGINEERING, INC.
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Dollars in thousands, except per
share amounts For The Three Months Ended
---------------------------
June 30, 1995 July 1, 1994
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NET SALES AND CONTRACT REVENUE $ 3,517 $ 2,523
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COSTS AND EXPENSES:
Cost of sales and contracts 2,453 1,566
Selling, general and administrative expenses 959 1,050
Research and development 55 352
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Total costs and expenses 3,467 2,968
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OPERATING INCOME (LOSS) 50 (445)
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OTHER (EXPENSE) INCOME:
Interest, net 31 3
Other, net (29) (21)
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Total other (expense) income 2 (18)
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INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES 52 (463)
PROVISION FOR INCOME TAXES - -
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NET INCOME (LOSS) $ 52 $ (463)
INCOME (LOSS) PER COMMON SHARE $ .01 $ (.11)
DIVIDENDS PAID PER SHARE NONE NONE
=========== ===========
SHARES USED IN INCOME (LOSS)
PER SHARE CALCULATIONS 4,317,000 4,129,000
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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AMERICAN SCIENCE AND ENGINEERING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Dollars in thousands
June 30, 1995 March 31, 1995
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(Unaudited)
ASSETS CURRENT ASSETS:
Cash and temporary investments $ 1,022 $ 869
Accounts receivable, net 3,430 2,831
Unbilled costs and fees, net 1,975 1,983
Inventories 3,537 3,709
Prepaid expenses and other current
assets 161 53
Deferred income taxes 28 28
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Total current assets 10,153 9,473
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Deposits 206 207
Property and equipment, net
of accumulated depreciation of
$8,386 at June 30,1995 and $8,336 at 1,062 1,054
March 31,1995 ------- -------
$11,421 $10,734
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AMERICAN SCIENCE AND ENGINEERING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
Dollars in thousands June 30, 1995 March 31, 1995
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(Unaudited)
LIABILITIES & CURRENT LIABILITIES:
STOCKHOLDERS' Current maturities of obligations
INVESTMENT under capital leases $ 16 $ 160
Accounts payable 2,372 2,169
Accrued legal 250 350
Accrued salaries and benefits 684 557
Accrued warranty costs 171 152
Accrued commissions 164 184
Accrued rent 390 570
Customer deposits 48 48
Accrued contract costs 27 27
Other current liabilities 1,354 640
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TOTAL CURRENT LIABILITIES 5,476 4,857
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NONCURRENT LIABILITIES
Obligations under capital leases, net
of current maturities 73 73
Deferred compensation 190 184
Deferred income taxes 28 28
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TOTAL NONCURRENT LIABILITIES 291 285
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STOCKHOLDERS' INVESTMENT
Preferred stock, no par value
Authorized - 100,000 shares
Issued - None
Common stock, $.66-2/3 par value
Authorized - 8,000,000 shares
Issued 4,257,120 shares at June 30
and 4,216,475 shares at March 31, 1995 2,841 2,838
Capital in excess of par value 13,619 13,612
Accumulated deficit (10,040) (10,092)
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6,420 6,358
Note receivable-Officer (640) (640)
Less: treasury stock -
67,377 shares at June 30
and March 31, 1995 at cost (126) (126)
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TOTAL STOCKHOLDERS' INVESTMENT 5,654 5,592
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$ 11,421 $ 10,734
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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AMERICAN SCIENCE AND ENGINEERING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Dollars in thousands
For the Three Months Ended
----------------------------
CASH FLOW FROM OPERATING ACTIVITIES: June 30, 1995 July 1, 1994
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Net (loss) $ 52 $ (463)
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Adjustments to reconcile net (loss) to net cash (used for)
provided by operating activities:
Depreciation and amortization 51 65
Amortization of deferred gain 0 (18)
Provisions for contract, restructuring,
inventory and warranty reserves (8) (52)
Changes in assets and liabilities
Accounts Receivable (599) 142
Unbilled costs and fees 8 102
Inventories 216 173
Prepaid expenses and other current assets (108) (93)
Accounts payable 203 39
Customer deposits -- 16
Accrued expenses and other current liabilities (125) (795)
Accrued restructuring costs -- (69)
Noncurrent liabilities 6 20
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Total adjustments (356) (470)
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Net cash (used for) provided by operating activities (304) (933)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (59) (35)
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Cash used for investing activities (59) (35)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Borrowings 650 --
Proceeds from capital lease financing -- --
Proceeds from exercise of stock options 10 --
Principal payments of capital lease obligations (144) (38)
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Cash (used for) provided by financing activities 516 (38)
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NET (DECREASE) INCREASE IN CASH AND TEMPORARY 153 (1,006)
INVESTMENTS
CASH AND TEMPORARY INVESTMENTS AT BEGINNING OF
PERIOD 869 2,496
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CASH AND TEMPORARY INVESTMENTS AT END OF PERIOD 1,022 $ 1,490
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 27 $ 5
Income taxes paid $ -- $ --
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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AMERICAN SCIENCE AND ENGINEERING, INC.
PREPARATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed 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 are subject
to year end audit by independent public accountants. Certain information and
footnote disclosure normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
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 condensed 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 condensed consolidated financial statements, in the opinion of management,
include all adjustments necessary to present fairly the Company's financial
position and the results of operations. Certain accounts have been reclassified
to conform with current year's presentation. See Management's Discussion and
Analysis of Financial Condition and Results of Operations on page 8. These
results are not necessarily to be considered indicative of the results for the
entire year.
The condensed consolidated financial statements contained herein have been
reviewed by Arthur Andersen & Co., the Company's independent public accountants
(see attached letter on page 11).
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Market and Operating Environment
As described in its latest Form 10-K, the Company has sustained
significant losses in the past two years owing to fundamental
weaknesses in the former management team and its strategies. While
current management has succeeded in reducing these losses, the
Company's liquidity and cash reserves have been depleted to a point
where outside financing was required to fund the growth of operations
back to the point of cash sufficiency.
Accordingly, several outside financing initiatives were accomplished
during and subsequent to the current quarter, the sum of which produced
a cash infusion of $1.5 million and an additional $1 million of bank
borrowing potential based upon the level of export business attained.
Management continues to pursue additional financing options.
With these initiatives, management believes that sufficient liquidity
has been attained to sustain operations in the short term. However,
revenues could continue to be volatile, new cash pressures may arise,
and additional outside financing may not be immediately available.
2. Significant Accounting Policies
The significant accounting policies followed by the Company and its
subsidiary in preparing its consolidated financial statements are set
forth in Note 2 to the consolidated financial
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statements included in Form 10-K for the year ended March 31, 1995. The
Company has made no change in these policies during this quarter.
3. Inventories
Inventories consisted of:
June 30, 1995 March 31, 1995
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Raw materials and completed
sub-assemblies $2,123,000 $2,485,000
Work in process 1,414,000 1,224,000
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Total $3,537,000 $3,709,000
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5. Income (Loss) Per Common and Common Equivalent Share
Income (loss) per common share for the three month periods ended June
30, 1995 and July 1, 1994 was computed by dividing income for the
period by the weighted average number of shares of common stock
outstanding during the period. Common stock equivalents (stock options)
were not considered in computing the loss per share as the effect would
have been anti-dilutive.
6. Income Taxes
The Company provides for income taxes on an interim basis based on the
estimated effective tax rate for the fiscal year. No income tax benefit
has been recorded in connection with the first three month's loss, as
the Company is uncertain as to the level of taxable income to be earned
during the balance of fiscal year 1996. At March 31, 1995, the Company
had available net operating loss carryforwards. Such carryforwards,
which are subject to review by the Internal Revenue Service,
approximate $9,792,000 and expire beginning in 1998. The Company also
has unused investment tax and other credits of approximately $318,000
expiring from 1996 through 2001.
At June 30, 1995, the Company had $4,272,000 of short and long-term
deferred tax assets and $163,000 of long-term deferred tax liabilities.
The Company has recorded a valuation allowance of $4,109,000 against
these amounts.
7. Loans from Officers
In April 1995, the Company received $650,000 in cash from Officers and
a Director as a temporary loan, payable on August 15, 1995. Interest is
payable monthly at the rate of prime plus 2% per annum. In addition,
the Company is issuing a total of 6,500 shares of its common stock and
warrants to purchase 65,000 shares of its common stock, proportionately
to the lenders. The warrants will be priced at the lowest trading price
of the stock on the American Stock Exchange during the term of the
loan. The Company has granted a subordinated security interest in all
its assets to the lenders. In the event of default, the loan provides
for additional consideration.
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AMERICAN SCIENCE AND ENGINEERING, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
During the fiscal year ended March 31, 1995 and continuing into the current
first quarter ended June 30, 1995, management has pursued a program to control
costs, strengthen the management team, rebuild sales, and reduce the Company's
burdensome facilities costs. Progress was made in all such areas during the
first quarter.
Net sales and contract revenues grew to $3,517,000 during the quarter, a 15%
increase over the previous fourth quarter of fiscal 1995 and a 39% increase from
the comparable year ago period. A net profit of $52,000 was reported in the
current quarter compared to a loss of $564,000 the previous quarter and a loss
of $463,000 in the corresponding year ago period.
Additionally, during the current quarter, the litigation brought against the
Company by its founder and former President was resolved fully in the Company's
favor, thereby eliminating a significant financial uncertainty.
Finally, progress was made in improving the Company's liquidity and cash
position through three outside financing transactions which will be discussed
further in this section.
Backlog
Total backlog at the end of the first quarter was $2,838,000 compared to
$2,710,000 at the previous quarter ended March 31, 1995. Order backlog for X-ray
inspection systems improved relative to the previous quarter, while research and
engineering contract backlog declined as work on current contracts proceeded
with no new contracts awarded during the quarter.
Results of Operations
Net sales and contract revenues in the first quarter increased by $994,000 (39%)
compared to the corresponding period a year ago and increased by $460,000 (15%)
compared to the previous fourth quarter of fiscal year 1995. Compared to the
previous quarter, security systems and related field service revenues were up by
$877,000 (46%), research and engineering revenues were down by $178,000 (21%),
and control systems revenues were down by $236,000 (86%).
One positive development during the quarter was the signing of a multi-year
contract to supply the Company's Model 101XL(R) and Model 101 Van X-ray
inspection systems to the U.S. Customs Service. In the current quarter,
approximately $1.1 million of revenue is attributable to shipments under this
new contract. Additional significant shipments are expected throughout the
duration of this contract.
For the first quarter, costs of sales and contracts of $2,453,000 were higher by
57% compared to the corresponding period a year ago due to the increased sales
volume of X-ray inspection systems, field services, and contract research. Costs
of sales and contracts represented 70% of revenues versus 62% for the
corresponding period last year and 74% for the previous fourth quarter of fiscal
year 1995.
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The cost percentage in the current quarter was higher than expected due to
higher costs incurred in a fixed price research contract that was delayed in
completion from April until the second fiscal quarter of this year.
Selling, general, and administrative expenses of $959,000 for the first quarter
were lower by 9% compared to the corresponding yearago period and lower by 18%
compared to the fourth quarter of fiscal 1995. As a percent of sales, selling,
general, and administrative expenses were 27% of revenues in the current quarter
compared to 42% of revenues for the corresponding year-ago period and 38% for
the fourth quarter of fiscal year 1995. The reduced spending on SG&A in the
current quarter is due to non-recurring spending on relocation and legal matters
that occurred in the previous quarter.
Company-funded research and development expenses of $55,000 for the first
quarter were lower by $297,000 (84%) compared to the year-ago quarter and lower
by $160,000 (74%) compared to the fourth quarter of fiscal year 1995. The
Company has allocated much of its scarce technical resources to the substantial
backlog of customer-funded research projects. Therefore, Company-funded R&D
spending will remain at relatively low levels for at least the next quarter.
The Company produced a net profit of $52,000 during the first quarter. This is
an improvement of $515,000 over the net loss in the year-ago quarter and an
improvement of $616,000 over the net loss reported in the previous fourth
quarter of fiscal 1995. The improved profitability results from substantially
higher revenue and gross profit levels in the current quarter, especially for
the X-ray system and related field service segments, and the reduced overhead
levels associated with the new facility.
Liquidity and Capital Resources
The Company made significant improvements to its liquidity and capital resources
during and subsequent to the current quarter. Net cash used for operating
activities during the first quarter was $304,000, compared to $933,000 net cash
used during the corresponding year-ago period. Cash and temporary investments
improved slightly during the current quarter, increasing by $153,000 since March
31, 1995. More importantly, the following sources of outside capital were
successfully raised during and subsequent to the current quarter:
- On April 13,1995, certain officers and a Director loaned the Company $650,000
for a 4-month period in anticipation that the Company would be able to arrange
more permanent financing.
- On June 27, 1995, a $1 million line of credit agreement was signed with a
local bank, secured by foreign accounts receivable and in-process inventory for
export orders, and guaranteed by the U.S. Export Import Bank. In July, 1995, the
first borrowings under this new line were approved. This is the first time in
nearly three years that the Company has been approved for bank credit.
- On July 19, 1995, the Company closed on a private placement of common stock to
overseas investors, yielding $857,250 in net proceeds.
These three initiatives have temporarily relieved the Company's acute cash
shortage and provide management some flexibility as it implements its plans for
revenue growth and eventual cash self-sufficiency during fiscal year 1996.
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AMERICAN SCIENCE AND ENGINEERING, INC.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
Exhibit Page
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(11) Statement re: Computation of 7
Income (Loss) per Common
and Common Equivalent Share
(28) Letter Concerning Review by 11
Independent Public Accountant
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the quarter
NONE
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: 11 August 1995 ------------------------------
Lee C. Steele
Vice President and Chief Financial
Officer
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ARTHUR ANDERSEN & CO.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
American Science and Engineering, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of
American Science and Engineering, Inc. (a Massachusetts corporation) and
subsidiary as of June 30, 1995, and the related condensed consolidated
statements of operations and cash flows for the three-month period then ended.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
/s/Arthur Andersen & Co.
Boston, Massachusetts
August 11, 1995
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