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 December 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 Dec. 27, 1996
--------------------- --------------
$.66 2/3 par value 4,556,425
Page 1 of 10 Pages
The Exhibit Index is Located at Page 10
2
AMERICAN SCIENCE AND ENGINEERING, INC.
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For The Three Months Ended For The Nine Months Ended
-------------------------- -------------------------
Dec. 27, Dec. 29, Dec. 27, Dec. 29,
Dollars and shares in Thousands, except per share amounts 1996 1995 1996 1995
-------- -------- -------- --------
NET SALES AND CONTRACT REVENUE $7,127 $4,717 $20,511 $12,116
------ ------ ------- -------
COSTS AND EXPENSES:
Cost of sales and contracts 4,295 3,297 13,232 8,327
Selling, general and administrative expenses 1,696 1,030 4,568 2,951
Research and development 538 113 1,132 296
------ ------ ------- -------
Total costs and expenses 6,529 4,440 18,932 11,574
------ ------ ------- -------
OPERATING INCOME 598 277 1,579 542
------ ------ ------- -------
OTHER INCOME (EXPENSE):
Interest, net 18 10 88 48
Other, net (92) (35) (247) (131)
------ ------ ------- -------
Total other income (expense) (74) (25) (159) (83)
------ ------ ------- -------
INCOME BEFORE PROVISION
FOR INCOME TAXES 524 252 1,420 459
PROVISION FOR INCOME TAXES 21 - 60 -
------ ------ ------- -------
NET INCOME $ 503 $ 252 $ 1,360 $ 459
====== ====== ======= =======
INCOME PER COMMON SHARE AND
COMMON EQUIVALENT SHARE $ .10 $ .06 $ .28 $ .10
====== ====== ======= =======
INCOME PER COMMON SHARE,
ASSUMING FULL DILUTION $ .10 $ .05 $ .28 $ .10
====== ====== ======= =======
DIVIDENDS PAID PER SHARE NONE NONE NONE NONE
====== ====== ======= =======
SHARES USED IN INCOME PER SHARE
AND COMMON EQUIVALENT SHARES 4,822 4,563 4,801 4,473
====== ====== ======= =======
SHARES USED IN INCOME PER COMMON
SHARE, ASSUMING FULL DILUTION 4,846 4,605 4,816 4,494
====== ====== ======= =======
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-2
3
AMERICAN SCIENCE AND ENGINEERING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Dollars in Thousands Dec. 27, 1996 Mar. 29, 1996
------------- -------------
(Unaudited)
ASSETS CURRENT ASSETS:
Cash and cash equivalents $ 2,115 $ 3,377
Accounts receivable, net 6,036 3,875
Unbilled costs and fees, net 790 1,258
Inventories 4,420 4,314
Prepaid expenses and other current assets 158 278
Deferred income taxes 10 10
------- -------
Total current assets 13,529 13,112
------- -------
NON CURRENT ASSETS:
Deposits 110 257
Property and equipment, net of
accumulated depreciation of
$8,761 at Dec. 27, 1996 and
$8,507 at March 29, 1996 1,233 926
------- -------
$14,872 $14,295
======= =======
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-3
4
AMERICAN SCIENCE AND ENGINEERING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
Dollars in Thousands Dec. 27, 1996 Mar. 29, 1996
------------- -------------
(Unaudited)
LIABILITIES & CURRENT LIABILITIES:
STOCKHOLDERS' Current maturities of obligations
INVESTMENT under capital leases $ 17 $ 16
Accounts payable 2,309 2,021
Accrued legal 138 128
Accrued salaries and benefits 406 496
Accrued warranty costs 396 178
Accrued commissions 215 160
Deferred revenue 841 375
Customer deposits 274 2,670
Other current liabilities 441 258
------- -------
TOTAL CURRENT LIABILITIES 5,037 6,302
------- -------
NONCURRENT LIABILITIES:
Obligations under capital leases, net
of current maturities 47 59
Deferred compensation 182 192
Deferred rent 245 231
Deferred income taxes 10 10
------- -------
TOTAL NONCURRENT LIABILITIES 484 492
------- -------
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 4,556,425 shares at Dec. 27, 1996
and 4,500,627 shares at Mar. 29, 1996 3,041 3,001
Capital in excess of par value 14,992 14,556
Accumulated deficit (7,930) (9,290)
------- -------
10,103 8,267
Note receivable-Officer (640) (640)
Less: treasury stock -
57,907 shares at Dec.27, 1996 and
67,377 shares at March 29, 1996 at cost (112) (126)
------- -------
TOTAL STOCKHOLDERS' INVESTMENT 9,351 7,501
------- -------
$14,872 $14,295
======= =======
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-4
5
AMERICAN SCIENCE AND ENGINEERING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Dollars in Thousands For the Nine Months Ended
--------------------------------
Dec. 27, 1996 Dec. 29, 1995
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,360 $ 459
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Depreciation and amortization 254 148
Provisions for contract, restructuring, inventory, accounts
receivable and warranty reserves 723 30
Changes in assets and liabilities:
Accounts receivable (2,339) (2,222)
Unbilled costs and fees 443 741
Inventories (206) 99
Prepaid expenses and other assets 267 (155)
Accounts payable 288 (316)
Customer deposits (2,396) 20
Accrued expenses and other current liabilities 679 214
Noncurrent liabilities 5 7
------- -------
Total adjustments (2,282) (1,434)
------- -------
Net cash used for operating activities (922) (975)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (561) 33
------- -------
Cash (used for) provided by investing activities (561) 33
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings - 650
Repayment of officer note - (650)
Proceeds from exercise of stock options 232 40
Proceeds from issuance of stock - 902
Principal payments of capital lease obligations (11) (156)
------- -------
Cash provided by financing activities 221 786
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,262) (156)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,377 869
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,115 $ 713
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 8 $ 47
Income taxes paid $ 30 $ -
NON-CASH TRANSACTIONS:
Issuance of stock in lieu of fees $ 258 $ -
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-5
6
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:
Dec. 27, 1996 Mar. 29, 1996
------------- -------------
Raw materials and completed
sub-assemblies $3,018,000 $3,014,000
Work in process 1,402,000 1,300,000
---------- ----------
Total $4,420,000 $4,314,000
========== ==========
3. Income per Common and Common Equivalent Share
---------------------------------------------
Income per common share for the nine month period ended December 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.
-6
7
AMERICAN SCIENCE AND ENGINEERING, INC.
PREPARATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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:
Nine Months Ended
Dec. 27, 1996
-----------------
Provision for income taxes at statutory rate $ 483,000
Benefit from net operating loss carryforward (483,000)
Other tax liabilities 60,000
---------
$ 60,000
=========
-7
8
AMERICAN SCIENCE AND ENGINEERING, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
- --------
In the third quarter of fiscal 1997, the Company produced its seventh
consecutive quarter of increasing profits. Net sales and contract revenues were
$7,127,000 during the quarter, a 51% increase from the comparable year ago
period and a 7% increase from the second quarter of fiscal 1997. The company
earned net profits of $503,000 in the current quarter, a 100% increase compared
to net profits of $252,000 in the corresponding year ago period and a 12%
increase compared to net profits of $451,000 in the previous quarter.
Results of Operations
- ---------------------
Net sales and contract revenues of $7,127,000 in the third quarter increased by
$2,410,000 (51%) in comparison to the corresponding period a year ago and
increased by $442,000 (7%) compared to the second quarter of fiscal year 1997.
Compared to the previous quarter, security systems and related field service
revenues were higher by $618,000 (10%) and research and engineering revenues
were lower by $176,000 (32%). During the quarter, the Company shipped a large
volume of security systems, contributing to the largest quarterly revenue level
in nearly 11 years.
For the third quarter, costs of sales and contracts increased to $4,295,000 from
$3,297,000 in the corresponding period a year ago primarily due to increased
sales volume of X-ray inspection systems and field service revenues in the
current period. Costs of sales and contracts represented 60% of revenues versus
70% for the corresponding period last year and 65% for the second quarter of
fiscal year 1997. Costs of sales as a percentage of revenues in the current
quarter decreased over the previous quarter primarily due to increased volume
and a change in the sales mix.
Selling, general and administrative expenses of $1,696,000 for the third quarter
were higher by 65% compared to the corresponding year-ago period and higher by
15% compared to the second quarter of fiscal 1997. As a percent of sales,
selling, general and administrative expenses were 24% of revenues in the current
quarter compared to 22% of revenues for the corresponding year-ago period and
the second quarter of fiscal year 1997. This increase in the ratio of SG&A
expenses to sales in the third quarter of fiscal 1997 versus the year-ago period
and the second quarter of fiscal 1997 is primarily the result of increased sales
and marketing expenses.
Company-funded research and development expenses of $538,000 for the third
quarter were higher by $425,000 (376%) compared to the year-ago quarter and
higher by $188,000 (54%) compared to the second quarter of fiscal year 1997.
This increase is an intentional result of the Company's growing commitment to
internally-funded research and development programs.
The Company produced a net profit of $503,000 during the third quarter. This is
an improvement of $251,000 (100%) over net profit in the year-ago quarter and an
improvement of $52,000 (12%) over the net profit reported in the second quarter
of fiscal 1997. The improved profitability results primarily from increased
sales volume and reduced costs of sales and contracts as a percentage of
revenue, partially offset by higher selling, general and administrative expenses
and Company-funded research and development.
-8
9
AMERICAN SCIENCE AND ENGINEERING, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources
- -------------------------------
Net cash used by operating activities during the first nine months of fiscal
year 1997 was $922,000, compared to $975,000 net cash used during the
corresponding year-ago period. Cash and cash equivalents decreased by $1,262,000
to $2,115,000 as of December 27, 1996, compared to $3,377,000 on March 29, 1996.
This decrease is largely the result of normal drawdowns on unrestricted customer
cash advances for certain projects-in-progress. Working capital increased by
$1,682,000 (25%) since March 29, 1996, growing from $6,810,000 to $8,492,000 at
the end of the third 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.
-9
10
AMERICAN SCIENCE AND ENGINEERING, INC.
Part II - Other Information
Item 1. Legal Proceedings
In the Company's lawsuit against Martin Annis and AnnisTech, Inc., the
Massachusetts Superior Court issued a preliminary injunction prohibiting Dr.
Annis and AnnisTech from using AS&E's trade secrets or proprietary technology
and from working on a particular government contract. The injunction was upheld
by a single justice of the Massachusetts Appeals Court and remains in effect as
of the date of this filing.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit Index
-------------
Exhibit Page
------- ----
(11) Statement re: Computation 6
of 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: 3 February 1997 __________________________________________
Lee C. Steele
Vice President and 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 forwardlooking 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 "Risk Factors" in the Company's Registration Statement
on Form S-3 (SEC File No. 333-9151).
-10