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FORM 10-Q
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 JUNE 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 JUNE 30, 2002
--------------------- --------------
$.66 2/3 par value 6,809,770
Page 1 of 12 Pages
The Exhibit Index is Located on Page 12
AMERICAN SCIENCE AND ENGINEERING, INC.
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
Dollars in thousands
JUNE 30, 2002 MARCH 31, 2002
------------- --------------
ASSETS Current assets:
Cash and cash equivalents $ 13,678 $ 7,591
Accounts receivable, net of allowances of $111 at
June 30, 2002 and March 31, 2002 8,819 7,216
Unbilled costs and fees, net of allowances
of $437 at June 30, 2002 and March 31, 2002 4,961 5,456
Inventories 22,358 21,013
Deferred income taxes 2,475 2,475
Prepaid expenses and other current assets 627 685
Total current assets 52,918 44,436
Non-current assets:
Non-current deferred income taxes 823 823
Other assets 175 204
Patents and other intangibles, net of
accumulated amortization of $371 at June
30, 2002 and $351 at March 31, 2002 94 115
Property and equipment, net of accumulated
depreciation of $15,903 at June 30, 2002
and $15,366 at March 31, 2002 4,234 4,663
------------- --------------
$ 58,244 $ 50,241
============= ==============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-2-
AMERICAN SCIENCE AND ENGINEERING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(CONTINUED)
Dollars in thousands
JUNE 30, 2002 MARCH 31, 2002
------------- --------------
LIABILITIES & Current liabilities:
STOCKHOLDERS' Line of credit $ - $ 9,319
INVESTMENT Accounts payable 4,677 6,557
Accrued salaries and benefits 1,981 1,577
Accrued warranty costs 350 196
Deferred revenue 1,030 1,030
Customer deposits 5,783 4,875
Accrued income taxes 768 763
Other current liabilities 1,357 1,783
------------- --------------
Total current liabilities 15,946 26,100
------------- --------------
Non-current liabilities:
Warrant liability 2,396 -
Deferred revenue 790 691
Deferred compensation 100 109
Deferred rent 193 212
------------- --------------
Total non-current liabilities 3,479 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 6,809,770 shares at June 30, 2002
and 5,549,478 shares at March 31, 2002 4,539 3,699
Capital in excess of par value 38,241 22,482
Accumulated deficit (3,961) (3,052)
------------- --------------
Total stockholders' investment 38,819 23,129
------------- --------------
$ 58,244 $ 50,241
============= ==============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-3-
AMERICAN SCIENCE AND ENGINEERING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Dollars and shares in thousands, except per share amounts
FOR THE THREE MONTHS ENDED
---------------------------------
JUNE 30, 2002 JUNE 30, 2001
------------- -------------
Net sales and contract revenues $ 14,918 $ 19,105
Cost of sales and contracts 11,428 14,491
------------- -------------
Gross profit 3,490 4,614
Expenses:
Selling, general and administrative expenses 3,172 2,668
Research and development 1,866 1,597
------------- -------------
Total expenses 5,038 4,265
------------- -------------
Operating income (loss) (1,548) 349
------------- -------------
Other income (expense):
Interest expense (86) (122)
Other, net 725 (70)
------------- -------------
Total other income (expense) 639 (192)
------------- -------------
Income (loss) before provision for
income taxes (909) 157
Provision for income taxes - 58
------------- -------------
Net income (loss) $ (909) $ 99
============= =============
Income (loss) per share - Basic $ (0.15) $ 0.02
============= =============
- Diluted $ (0.15) $ 0.02
============= =============
Weighted average shares - Basic 5,975 5,022
============= =============
- Diluted 5,975 5,056
============= =============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-4-
AMERICAN SCIENCE AND ENGINEERING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Dollars in thousands FOR THE THREE MONTHS ENDED
----------------------------
JUNE 30, 2002 JUNE 30, 2001
------------- -------------
Cash flows from operating activities:
Net income (loss) $ (909) $ 99
Adjustments to reconcile net income (loss) to net cash provided by (used for)
operating activities:
Depreciation and amortization 557 603
Provisions for contract, inventory, accounts receivable 350 57
and warranty reserves
Change in fair value of warrants issued (723) -
Changes in assets and liabilities:
Accounts receivable (1,603) 49
Unbilled costs and fees 495 3,122
Inventories (1,445) 794
Prepaid expenses, deposits and other assets 87 109
Accounts payable (1,880) (2,051)
Accrued income taxes 5 65
Customer deposits 908 1,462
Deferred revenue 99 73
Accrued expenses and other current liabilities (5) (1,369)
Non-current liabilities (29) (17)
------------- -------------
Total adjustments (3,184) 2,897
------------- -------------
Net cash provided by (used for) operating activities (4,093) 2,996
------------- -------------
Cash flows from investing activities:
Purchase of property and equipment (107) (228)
------------- -------------
Net cash used for investing activities (107) (228)
------------- -------------
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 1,183 -
------------- -------------
Net cash provided by financing activities 10,287 1,500
------------- -------------
Net increase in cash and cash equivalents 6,087 4,268
Cash and cash equivalents at beginning of period 7,591 1,206
------------- -------------
Cash and cash equivalents at end of period $ 13,678 $ 5,474
============= =============
Supplemental disclosures of cash flow information:
Interest paid $ 113 $ 134
Income taxes paid $ - $ 15
Non-cash transactions:
Issuance of stock and warrants in lieu of fees $ 279 $ 92
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-5-
AMERICAN SCIENCE AND ENGINEERING, INC.
PREPARATION OF UNAUDITED 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, 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 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 Company has only one reporting
segment, X-ray screening products.
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 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.
-6-
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.
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
Inventories consisted of:
(Dollars in thousands) June 30, 2002 March 31, 2002
------------- --------------
Raw materials and completed sub-assemblies $ 11,134 $ 10,483
Work in process 7,049 7,981
Finished goods 4,175 2,549
------------- --------------
Total $ 22,358 $ 21,013
============= ==============
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 quarters ended June 30, 2002 and 2001, common stock
equivalents of 627,000 and 33,300, respectively, were excluded from diluted
earnings per share, as their effect is anti-dilutive.
EARNINGS PER SHARE THREE MONTHS ENDED
------------------ ----------------------------
(in thousands except per share amounts) JUNE 30, 2002 JUNE 30, 2001
------------- -------------
BASIC
Net income (loss) $ (909) $ 99
------------- -------------
Weighted average shares 5,975 5,022
------------- -------------
Basic earnings (loss) per share $ (0.15) $ 0.02
------------- -------------
DILUTED
Net income (loss) $ (909) $ 99
------------- -------------
Weighted average shares 5,975 5,022
Effect of stock options - 34
------------- -------------
Weighted average shares, as adjusted 5,975 5,056
------------- -------------
Diluted earnings (loss) per share $ (0.15) $ 0.02
-7-
4. BORROWINGS
On November 30, 2000, the Company signed two new 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 June 30, 2002, there were no borrowings outstanding against this
facility and $3.4 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
June 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 first 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. 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 associated with
the warrants was recorded as a liability on the balance sheet at May 28,
2002 and the market to market change in the warrants value at June 30, 2002
of $723,000 was recorded as other income for the period. The potential cash
liability of $2,396,000 associated with the warrants is recorded as a
non-current liability on the June 30, 2002 balance sheet. The fair market
value of the warrants was determined using the Black Scholes pricing model
and an assumed volatility of 68% and interest rate of 5%. Proceeds to the
Company approximated $18.4 million, net of approximately $1.3 million of
issuance cost.
-8-
AMERICAN SCIENCE AND ENGINEERING, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales and contract revenues in the first quarter decreased by
$4,187,000 (22%) in comparison to the corresponding period a year ago and
decreased by $1,624,000 (10%) compared to the fourth quarter of fiscal
2002. The decrease in revenues from the previous quarter is due to reduced
sales of the Company's cargo products during the quarter and lower field
service revenues. These lower sales were offset in part with higher sales
of the Company's parcel products, which experienced record revenues in the
quarter based on strong order volume.
For the first quarter, cost of sales and contracts decreased to $11,428,000
from $14,491,000 in the corresponding period a year ago. Cost of sales and
contracts represented 77% of revenues versus 76% for the corresponding
period last year and 71% for the fourth quarter of fiscal year 2002. The
costs 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 partially
offset by increased sales of parcel products which are higher margin sales.
Selling, general and administrative expenses of $3,172,000 for the first
quarter were higher by 19% compared to the corresponding period last year
and higher by 9% compared to the fourth quarter of fiscal 2002. As a
percent of sales, selling, general and administrative expenses were 21% of
revenues in the current quarter compared to 14% of revenues for the
corresponding period a year ago and 18% for the fourth quarter of fiscal
year 2002. The increased costs in the quarter were due primarily to higher
insurance, trade show and bank financing costs offset in part by lower
legal expenses in the quarter.
Company-funded research and development expenses of $1,866,000 for the
first quarter increased by $269,000 (17%) compared to the corresponding
period last year and decreased by $448,000 or 19% from the fourth quarter
of fiscal year 2002. The current quarter expenditures focused on new
product initiatives and improvements to address the demands of increased
national security needs.
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 June 30, 2002, these
warrants were marked to market using Black-Scholes and the change in the
valuation of the warrants of $723,000 was recorded as a credit to other
income (expense) in the quarter.
The tax benefits earned in the first quarter of fiscal 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 June
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 the first quarter of fiscal 2002, the Company recorded a tax
provision of $58,000.
-9-
The Company incurred a net loss of $909,000 during the first quarter of
fiscal 2003. The Company had net income of $99,000 in the first quarter of
fiscal 2002 and a net loss of $2,022,000 in the fourth quarter of fiscal
2002.
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 will be 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 $6,087,000 to $13,678,000 at June
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 inventories and accounts receivable
and decreases in certain liabilities. Working capital increased by
$18,657,000 (102%) since March 31, 2002, increasing from $18,315,000 to
$36,972,000 at the end of the first quarter due primarily to the stock and
option proceeds received.
On November 30, 2000, the Company signed two new 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 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) $200 million. The agreements expire on
November 30, 2002.
The Company believes that existing cash and cash equivalents balances and
the continued availability of the HSBC facility, together with cash
generated from operations, will be sufficient to meet the Company's working
capital and capital expenditure requirements through the remainder of
fiscal 2003. The Company currently plans on refinancing either under the
same agreement with HSBC or a similar agreement with a new facility.
At June 30, 2002, there were no borrowings outstanding against this
facility and $3.4 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
June 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. The Company expects that it will be unable to meet this
covenant next quarter; however, the bank to date has been willing to
provide a waiver for this noncompliance.
-10-
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.
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.
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.
-11-
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 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 has 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 has also been
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 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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 May 30, 2002 announcing completion of a
private equity placement.
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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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: August 14, 2002 /s/ Andrew R. Morrison
----------------------------------
Andrew R. Morrison
Vice President, Chief Financial
Officer and Treasurer
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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EXHIBIT INDEX
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
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