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FORM 10-Q
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 31, 1997
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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.
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(Exact name of Registrant as specified in its charter)
Massachusetts 04-2240991
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
829 Middlesex Turnpike
Billerica, Massachusetts 01821
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(Address of principal executive offices) (Zip Code)
(978) 262-8700
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(Registrant's telephone number, including area code)
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(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 Dec. 31, 1997
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$.66 2/3 par value 4,724,650
Page 1 of 10 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)
For The Three Months Ended For The Nine Months Ended
-------------------------- -------------------------
Dollars and shares in Thousands, except per share amounts Dec. 31, Dec. 27, Dec. 31, Dec. 27,
1997 1996 1997 1996
------- ------- ------- -------
NET SALES AND CONTRACT REVENUE $ 7,900 $ 7,127 $24,137 $20,511
------- ------- ------- -------
COSTS AND EXPENSES:
Cost of sales and contracts 4,692 4,295 14,658 13,232
Selling, general and administrative expenses 1,883 1,779 5,516 4,771
Research and development 569 538 1,914 1,132
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Total costs and expenses 7,144 6,612 22,088 19,135
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OPERATING INCOME 756 515 2,049 1,376
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OTHER INCOME (EXPENSE):
Interest, net 30 18 100 88
Other, net (5) (9) (16) (44)
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Total other income 25 9 84 44
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INCOME BEFORE PROVISION
FOR INCOME TAXES 781 524 2,133 1,420
PROVISION FOR INCOME TAXES 30 21 87 60
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NET INCOME $ 751 $ 503 $ 2,046 $ 1,360
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INCOME PER SHARE - PRIMARY/FULLY DILUTED $ .15 $ .10 $ .42 $ .28
======= ======= ======= =======
DIVIDENDS PAID PER SHARE NONE NONE NONE NONE
======= ======= ======= =======
WEIGHTED AVERAGE SHARES - PRIMARY 4,930 4,822 4,869 4,801
======= ======= ======= =======
- FULLY
DILUTED 5,013 4,846 4,925 4,816
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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
Dollars in Thousands Dec. 31, 1997 Mar. 28, 1997
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(Unaudited)
ASSETS CURRENT ASSETS:
Cash and cash equivalents $ 2,148 $ 3,202
Accounts receivable, net 7,272 5,019
Unbilled costs and fees, net 2,306 981
Inventories 6,297 4,736
Prepaid expenses and other current assets 90 157
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TOTAL CURRENT ASSETS 18,113 14,095
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NON CURRENT ASSETS:
Deposits 24 115
Property and equipment, net of
accumulated depreciation of
$9,306 at Dec. 31, 1997 and
$8,860 at March 28, 1997 1,769 1,304
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$19,906 $15,514
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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 Dec. 31, 1997 Mar. 28, 1997
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(Unaudited)
LIABILITIES & CURRENT LIABILITIES:
STOCKHOLDERS' Current maturities of obligations
INVESTMENT under capital leases $ 19 $ 18
Accounts payable 2,713 2,253
Accrued salaries and benefits 654 573
Accrued commissions 354 82
Accrued warranty costs 566 292
Deferred revenue 1,177 526
Other current liabilities 463 495
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TOTAL CURRENT LIABILITIES 5,946 4,239
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NONCURRENT LIABILITIES:
Obligations under capital leases, net
of current maturities 27 42
Deferred Revenue 424 660
Deferred compensation 167 174
Deferred rent 274 249
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TOTAL NONCURRENT LIABILITIES 892 1,125
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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 - 20,000,000 shares
Issued 4,724,650 shares at Dec. 31, 1997
and 4,585,209 shares at Mar. 28, 1997 3,150 3,058
Capital in excess of par value 16,072 15,273
Accumulated deficit (5,319) (7,365)
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13,903 10,966
Note receivable-Officer (640) (640)
Less: treasury stock -
64,907 shares at Dec. 31, 1997 and
62,481 shares at March 28, 1997,
at cost, respectively (195) (176)
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TOTAL STOCKHOLDERS' INVESTMENT 13,068 10,150
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$19,906 $15,514
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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 STATEMENTS OF CASH FLOWS
(Unaudited)
Dollars in Thousands For the Nine Months Ended
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Dec. 31, 1997 Dec. 28, 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,046 $ 1,360
Adjustments to reconcile net income to net cash (used for)
operating activities:
Depreciation and amortization 446 254
Provisions for contract, restructuring, inventory, accounts
receivable and warranty reserves 777 723
Changes in assets and liabilities:
Accounts receivable (2,253) (2,339)
Unbilled costs and fees (1,375) 443
Inventories (1,761) (206)
Prepaid expenses and other assets 158 267
Accounts payable 460 288
Customer deposits -- (2,396)
Accrued expenses and other current liabilities 852 679
Noncurrent liabilities (218) 5
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Total adjustments (2,914) (2,282)
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Net cash used for operating activities (868) (922)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (911) (561)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 739 232
Principal payments of capital lease obligations (14) (11)
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Cash provided by financing activities 725 221
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NET DECREASE IN CASH AND CASH EQUIVALENTS (1,054) (1,262)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,202 3,377
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,148 $ 2,115
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 5 $ 8
Income taxes paid $ 53 $ 30
NON-CASH TRANSACTIONS:
Issuance of stock in lieu of fees $ 133 $ 258
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 28, 1997.
Effective quarter ended September 30, 1997, the Company has elected to
change financial reporting from a fiscal month end to a calender month end.
In addition, the year end reporting period will end on March 31, 1998. This
change in month end has no material effect on the results of operations for
the quarter ended December 31, 1997.
2. INVENTORIES
Inventories consisted of:
Dec. 31, 1997 Mar. 28, 1997
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Raw materials and completed
subassemblies $4,075,000 $3,106,000
Work in process 2,122,000 1,334,000
Finished Goods 100,000 296,000
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Total $6,297,000 $4,736,000
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3. INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Income per common share for the nine-month period ended December 31, 1997,
was computed by dividing net income by the weighted average number of
common stock and common stock equivalents outstanding during the year.
Dilutive stock options and stock warrants were considered in the
computation of earnings per common and common equivalent shares.
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AMERICAN SCIENCE AND ENGINEERING, INC.
PREPARATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. INCOME TAXES
At March 28, 1997, the Company had approximately $6,986,000 of federal net
operating loss carryforwards which can be used, subject to certain
limitations, to offset future federal taxable income. The carryforwards
expire through the year 2010. The Company also has unused investment tax
and other credits of approximately $235,000 expiring 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. 31, 1997
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Provision for income taxes at statutory rate $ 725,000
Benefit from net operating loss carryforward (725,000)
Other tax liabilities 87,000
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$ 87,000
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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 third quarter of fiscal 1998, the Company produced its eleventh
consecutive quarter of increasing profits. Net sales and contract revenues were
$7,900,000 during the quarter, an 11% increase from the comparable year ago
period and a 9% decrease from the second quarter of fiscal 1998. The Company
earned net profits of $751,000 in the current quarter, a 49% increase compared
to net profits of $503,000 in the corresponding year ago period and a 10%
increase compared to net profits of $685,000 in the previous quarter.
RESULTS OF OPERATIONS
Net sales and contract revenues of $7,900,000 in the third quarter increased by
$773,000 (11%) in comparison to the corresponding period a year ago and
decreased by $805,000 (9%) compared to the second quarter of fiscal year 1998.
Compared to the previous quarter, security systems and related field service
revenues were lower by $493,000 (6%) due to the timing of orders now expected to
be received and shipped during the fourth quarter and beyond. Research and
engineering revenues were lower by $312,000 (39%) as compared to the second
quarter. This quarter to quarter decrease in research and engineering revenues
is due to slower than anticipated start-up of a $3.8 million contract for two
additional prototype MobileSearch(TM) systems during the third quarter.
For the third quarter, costs of sales and contracts increased to $4,692,000 from
$4,295,000 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 59.4% of revenues
versus 60.3% for the corresponding period last year and 59.6% for the second
quarter of fiscal year 1998.
Selling, general and administrative expenses of $1,883,000 for the third quarter
were higher by 6% compared to the corresponding year-ago period and lower by 4%
compared to the second quarter of fiscal 1998. As a percent of sales, selling,
general and administrative expenses were 24% of revenues in the current quarter
compared to 25% and 23% of revenues for the corresponding year-ago period and
the second quarter of fiscal year 1998, respectively.
Company-funded research and development expenses of $569,000 for the third
quarter were higher by $31,000 (6%) compared to the year-ago quarter and lower
by $312,000 (35%) compared to the second quarter of fiscal year 1998. This
decrease in quarter to quarter research and development expenditures is due to
the timing of certain development expenditures. The Company remains committed to
increasing the level of research and development activities in subsequent
quarters.
The Company produced a net profit of $751,000 during the third quarter. This is
an improvement of $248,000 (49%) over net profit in the year-ago quarter and an
improvement of $66,000 (10%) over the net profit reported in the second quarter
of fiscal 1998. The quarter to quarter improvement in profitability results
primarily from lower selling, general and administrative expenses and Company
funded research and development.
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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 1998 was $868,000, compared to $922,000 net cash used during the
corresponding year-ago period. Cash and cash equivalents decreased by $1,054,000
to $2,148,000 as of December 31, 1997, compared to $3,202,000 on March 28, 1997.
This decrease is largely due to increases in accounts receivable, unbilled costs
and fees, inventory, as well as property, plant and equipment. Working capital
increased by $2,311,000 (23%) since March 28, 1997, growing from $9,856,000 to
$12,167,000 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.
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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.
On January 28, 1998, the United States District Court for the District of
Massachusetts granted Vivid Technologies, Inc.'s request for a declaratory
judgment that Vivid does not infringe on two claims of the Company's U.S.
Patent No. 5,253,283. The Company expects to appeal the judgment on several
grounds.
Item 6. Exhibits and Reports on Form 8-K
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(a) EXHIBIT INDEX
Exhibit 27 - Financial Data Schedule
(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: 13 February 1998
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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 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 "Risk Factors" in the Company's Registration Statement
on Form S-3 (SEC File No. 333-9151).
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