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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 September 27, 1996
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)
(508) 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 Sept. 27, 1996
--------------------- --------------
$.66 2/3 par value 4,550,276
Page 1 of 11 Pages
The Exhibit Index is Located at Page 11
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AMERICAN SCIENCE AND ENGINEERING, INC.
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Dollars and shares in Thousands, except per share amounts
For The Three Months Ended For The Six Months Ended
-------------------------- ------------------------
Sept. 27, Sept.29, Sept. 27, Sept. 29,
1996 1995 1996 1995
---- ---- ---- ----
NET SALES AND CONTRACT REVENUE $ 6,685 $ 3,882 $ 13,384 $ 7,399
-------- -------- -------- --------
COSTS AND EXPENSES:
Cost of sales and contracts 4,329 2,577 8,937 5,030
Selling, general and administrative expenses 1,473 962 2,872 1,921
Research and development 350 128 594 183
-------- -------- -------- --------
Total costs and expenses 6,152 3,667 12,403 7,134
-------- -------- -------- --------
OPERATING INCOME 533 215 981 265
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest, net 24 (12) 71 (9)
Other, net (87) (48) (156) (49)
-------- -------- -------- --------
Total other income (expense) (63) (60) (85) (58)
-------- -------- -------- --------
INCOME BEFORE PROVISION
FOR INCOME TAXES 470 155 896 207
PROVISION FOR INCOME TAXES 19 -- 39 --
-------- -------- -------- --------
NET INCOME $ 451 $ 155 $ 857 $ 207
======== ======== ======== ========
INCOME PER COMMON SHARE AND
COMMON EQUIVALENT SHARE $ .09 $ .04 $ .18 $ .05
======== ======== ======== ========
INCOME PER COMMON SHARE,
ASSUMING FULL DILUTION $ .09 $ .04 $ .18 $ .05
======== ======== ======== ========
DIVIDENDS PAID PER SHARE NONE NONE NONE NONE
SHARES USED IN INCOME PER SHARE
AND COMMON EQUIVALENT SHARES 4,869 4,409 4,791 4,292
======== ======== ======== ========
SHARES USED IN INCOME PER COMMON
SHARE, ASSUMING FULL DILUTION 4,891 4,409 4,801 4,292
======== ======== ======== ========
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
Sept. 27, 1996 Mar. 29, 1996
-------------- -------------
(Unaudited)
ASSETS CURRENT ASSETS:
Cash and cash equivalents $ 2,244 $ 3,377
Accounts receivable, net 5,666 3,875
Unbilled costs and fees, net 1,038 1,258
Inventories 4,063 4,314
Prepaid expenses and other current
assets 303 278
Deferred income taxes 10 10
-------- --------
Total current assets 13,324 13,112
-------- --------
NON CURRENT ASSETS:
Deposits 110 257
Property and equipment, net
of accumulated depreciation of
$8,669 at Sept. 27,1996 and
$8,507 at March 29,1996 1,184 926
-------- --------
$ 14,618 $ 14,295
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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 (CONTINUED)
Dollars in thousands
Sept. 27, 1996 Mar. 29, 1996
-------------- -------------
(Unaudited)
LIABILITIES & CURRENT LIABILITIES:
STOCKHOLDERS' Current maturities of obligations
INVESTMENT under capital leases $ 16 $ 16
Accounts payable 2,849 2,021
Accrued legal 119 128
Accrued salaries and benefits 604 496
Accrued warranty costs 252 178
Accrued commissions 335 160
Deferred revenue 484 375
Customer deposits 479 2,670
Other current liabilities 361 258
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TOTAL CURRENT LIABILITIES 5,499 6,302
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NONCURRENT LIABILITIES:
Obligations under capital leases, net
of current maturities 51 59
Deferred compensation 185 192
Deferred rent 240 231
Deferred income taxes 10 10
------- -------
TOTAL NONCURRENT LIABILITIES 486 492
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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
4,550,276 shares at Sept. 27,1996
and 4,500,627 shares at Mar. 29, 1996 3,034 3,001
Capital in excess of par value 14,801 14,556
Accumulated deficit (8,432) (9,290)
------- -------
9,403 8,267
Note receivable-Officer (640) (640)
Less: treasury stock -
67,707 shares at Sept. 27, 1996
and Mar. 29, 1996 at cost (130) (126)
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TOTAL STOCKHOLDERS' INVESTMENT 8,633 7,501
------- -------
$14,618 $14,295
======= =======
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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AMERICAN SCIENCE AND ENGINEERING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Dollars in thousands
For the Six Months Ended
------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: Sept. 27, 1996 Sept. 29, 1995
-------------- --------------
Net income $ 857 $ 207
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Depreciation and amortization 162 98
Provisions for contract, restructuring, inventory and warranty reserves (56) (46)
Changes in assets and liabilities
Accounts receivable (1,861) (1,645)
Unbilled costs and fees 220 1,117
Inventories 301 169
Prepaid expenses and other assets 122 (150)
Accounts payable 828 (510)
Customer deposits (2,191) 2
Accrued expenses and other current liabilities 636 (398)
Noncurrent liabilities 3 4
------- -------
Total adjustments (1,836) (1,359)
------- -------
Net cash provided by (used for) operating activities (979) (1,152)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (420) 81
------- -------
Cash (used for) provided by investing activities (420) 81
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings -- 813
Repayment of officer note -- (650)
Proceeds from exercise of stock options 274 11
Proceeds from issuance of stock -- 902
Principal payments of capital lease obligations (8) (148)
------- -------
Cash (used for) provided by financing activities 266 928
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,133) (143)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,377 869
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,244 $ 726
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 3 $ 47
Income taxes paid $ 30 $ --
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 the annual
condensed 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 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. These results are not necessarily to be
considered indicative of the results for the entire year.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Nature of Operations and 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.
The significant accounting policies followed by the Company and its
subsidiary in preparing its consolidated financial statements are set
forth in Note 1 to the consolidated financial statements included in
Form 10-K for the year ended March 29, 1996. The Company has made no
change in these policies during this quarter.
2. Inventories
Inventories consisted of:
Sept. 27, 1996 Mar. 29, 1996
-------------- -------------
Raw materials and completed
sub-assemblies $2,706,000 $3,014,000
Work in process 1,357,000 1,300,000
---------- ----------
Total $4,063,000 $4,314,000
========== ==========
3. Income per Common and Common Equivalent Share
Income per common share for the six month period ended September 27,
1996 was computed by dividing net income by the weighted average number
of common stock and common stock equivalents outstanding during the
year. If dilutive, stock options and stock warrants were considered in
the computation of earnings per common and common equivalent shares.
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4. Income Taxes
At March 29, 1996, the Company had approximately $8,989,000 of federal
net operating loss carryforwards which can be used, subject to certain
limitations, to offset future federal taxable income. The carryforwards
expire beginning in the year 1998 through the year 2010. The Company
also has unused investment tax and other credits of approximately
$235,000 expiring from 1997 through 2001. The provision for income
taxes in the accompanying statement of income is substantially a
current provision and differs from the provision calculated by applying
the statutory federal income tax rate of 34% to income before provision
for income taxes due to the following:
Six Months Ended
Sept. 27, 1996
----------------
Provision for income taxes at statutory rate $ 305,000
Benefit from net operating loss carryforward (305,000)
Other tax liabilities 39,000
---------
$ 39,000
=========
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AMERICAN SCIENCE AND ENGINEERING, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
In the Second quarter of fiscal 1997, the Company produced its sixth consecutive
quarter of increasing profits, was awarded two significant contracts totaling
$6.2 million and enhanced its liquidity position through a significant outside
financing transaction which will be discussed further in this section. Net sales
and contract revenues were $6,685,000 during the quarter, approximately equal to
the first quarter of fiscal 1997 and a 72% increase from the comparable year ago
period. The company earned net profits of $451,000 in the current quarter
compared to net profits of $406,000 in the previous quarter and net profits of
$155,000 in the corresponding year ago period.
Results of Operations
Net sales and contract revenues in the second quarter increased by $2,803,000
(72%) in comparison to the corresponding period a year ago and decreased by
$14,000 (.2%) compared to the first quarter of fiscal year 1997. Compared to the
previous quarter, security systems and related field service revenues were down
by $128,000 (2%) and research and engineering revenues were higher by $114,000
(26%). The increase in research and engineering revenues was due to the receipt
and start of two new contracts to build a second mobile CargoSearch(TM) vehicle
inspection system with enhanced operating and detection capabilities for the
Department of Defense Advanced Research Projects Agency. These two contracts
combined are valued at $2.7 million.
In addition to the above mentioned new contract awards, several other positive
developments occurred during the quarter, including a $3.5 million contract
extension to supply and install X-ray inspection systems for a high profile U.S.
Government investigative agency and customer delivery and acceptance of the
Company's first PalletSearch(TM) system.
For the second quarter, costs of sales and contracts increased to $4,329,000
from $2,577,000 in the corresponding period a year ago due primarily to
increased sales volume of X-ray inspection systems and field services revenues
in the current period. Costs of sales and contracts represented 65% of revenues
versus 66% for the corresponding period last year and 69% for the first quarter
of fiscal year 1997. The costs of sales percentage of revenues in the current
quarter decreased over the previous quarter primarily due to a change in the
sales mix.
Selling, general and administrative expenses of $1,473,000 for the second
quarter were higher by 53% compared to the corresponding year-ago period and
higher by 5% compared to the first quarter of fiscal 1997. As a percent of
sales, selling, general and administrative expenses were 22% of revenues in the
current quarter compared to 25% of revenues for the corresponding year-ago
period and 21% for the first quarter of fiscal year 1997. This declining ratio
of SG&A expenses to sales in the second quarter of fiscal 1997 versus the
year-ago period is primarily the result of higher revenues. As compared to the
first quarter of fiscal 1997, the increasing ratio of SG&A expenses to sales in
the second quarter of fiscal 1997 is primarily the result of increased sales and
marketing expenses.
Company-funded research and development expenses of $350,000 for the second
quarter were higher by $222,000 (173%) compared to the year-ago quarter and
higher by $106,000 (43%) compared to the first quarter of fiscal year 1997. This
increase is an intentional result of the Company's commitment to research and
development.
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The Company produced a net profit of $451,000 during the second quarter. This is
an improvement of $296,000 over net profit in the year-ago quarter and an
improvement of $45,000 over the net profit reported in the first quarter of
fiscal 1997. The improved profitability results primarily from reduced costs of
sales and contracts partially offset by higher selling, general and
administrative expenses and Company funded research and development.
Liquidity and Capital Resources
Net cash used by operating activities during the first six months of fiscal year
1997 was $979,000, compared to $1,152,000 net cash used during the corresponding
year-ago period. Cash and cash equivalents decreased by $1,133,000 to $2,244,000
as of September 27, 1996, compared to $3,377,000 on March 29, 1996. Working
capital increased by $1,015,000 (15%) since March 29, 1996, growing from
$6,810,000 to $7,825,000 at the end of the second quarter.
No external borrowings were outstanding at the end of either the current or
previous quarter. Management believes the Company has access to sufficient
capital resources to support operations over the next several quarters.
During the quarter a line of credit for $2.5 million was closed with a local
bank. This line of credit is secured by eligible accounts receivable. Also
during the quarter, an additional $1.5 million borrowing facility was closed to
finance certain short lead-time orders the Company received during the quarter.
These new financing agreements replace the previous line of credit financing
agreements in place at March 29, 1996 and reported in the Company's latest
annual report on Form 10-K.
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AMERICAN SCIENCE AND ENGINEERING, INC.
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders.
The Special Meeting in Lieu of Annual Meeting of the Company was held on
September 26, 1996. At the meeting, all six of management's nominees to the
Board of Directors (Herman Feshbach, Al Gladen, Hamilton W. Helmer, Donald S.
McCarren, William E. Odom and Ralph S. Sheridan) were elected to a one year
term.
The stockholders also approved an amendment to the Company's Articles of
Organization ("Articles") limiting the liability of directors to the extent
permitted by Massachusetts law by a vote of 4,002,882 in favor to 71,250 opposed
and an amendment increasing the Company's authorized common stock, $.66 2/3 par
value, from 8,000,000 to 20,000,000 shares by a vote of 3,613,389 in favor to
459,998 opposed. In each case there were 20,000 broker non-votes.
The stockholders rejected six anti-takeover related proposals. The measures and
the votes in favor and against as well as broker non-votes are set forth below:
4. Amend the Articles to classify the Board of Directors into three
classes;
5. Amend the Articles to increase the number of authorized shares of the
Company's no par preferred stock from 100,000 to 1,000,000 shares and
to amend the terms of the preferred stock;
6. Amend the Articles to require the vote of 66 2/3% of each class of
outstanding stock to approve certain matters;
7. Amend the Company's By-Laws to require 90 day notice of any proposal by
a stockholder to nominate candidates for director at the Annual
Meeting;
8. Amend the By-Laws to require that special meetings of the stockholders
may only be called by the President, a majority of directors or by
stockholders holdings at least 50% of the Company's voting stock;
9. Amend the Articles to add a "fair price" amendment to the Articles of
Organization.
Proposal Number Votes For Votes Against Broker Non-Votes
--------------- --------- ------------- ----------------
4 2,109,211 461,381 1,517,234
5 1,656,814 831,903 1,552,573
6 1,598,842 960,643 1,516,134
7 1,762,516 801,894 1,516,134
8 1,520,891 1,038,927 1,516,134
9 1,837,346 734,518 1,516,134
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
Exhibit Page
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(11) Statement re: Computation of 6
Income per Common
and Common Equivalent Share
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
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: 31 October 1996 /s/ Lee C. Steele
__________________________________________
Lee C. Steele
Vice President and Chief Financial Officer
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