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Filed Pursuant to Rule 424(b)(3)
Securities and Exchange
Commission File No. 33-61903
AMERICAN SCIENCE AND ENGINEERING, INC.
SUPPLEMENT NO. 1
TO PROSPECTUS DATED
AUGUST 30, 1995
This Supplement No. 1, dated August 30, 1996, supplements the Prospectus of
American Science and Engineering, Inc. (the "Company") dated August 30, 1995
(the "Prospectus"), which forms a part of the Company's Registration Statement
on Form S-3 (Securities and Exchange Commission File No. 33-61903).
In addition to the Risk Factors and other information set forth or
incorporated in the Prospectus, Investors should consider carefully the
following additional risk factors in connection with an investment in the Common
Stock offered by the Prospectus. Cross references contained herein are to the
Prospectus, as supplemented hereby.
LIMITED SOURCES OF MATERIALS AND SERVICES
The Company currently procures certain critical components for its products from
single or limited sources. For example, the Company currently procures certain
of its X-ray tubes and related control devices from two sources; each such
source is the Company's sole supplier of particular tubes. Both of these sources
are located outside the United States. The Company has multiple sources,
including sources located in the United States, of other types of x-ray tubes.
In addition, the Company relies on single suppliers for the assembly of
proprietary circuit boards and all of the Company's scintillating material.
While long term supply contracts exist with a few single-source vendors, the
Company generally purchases these materials on a purchase order basis, and the
Company does not carry significant inventories of these materials. The inability
of the Company to obtain these materials in reliable, high-quality quantities
would result in significant delays or reductions in product shipments. The
Company from time to time experiences delays in receiving components from
vendors, and no assurance can be given that similar problems will not recur. If
the Company were to change certain of its vendors, a qualification process would
be required for the potential new suppliers, creating potential delays or
reductions in product shipments. Further, single source vendors could impose
significant price increases. The Company's reliance on single or limited sources
involves several additional risks, including reduced control over the timely
delivery, reliability, and quality of critical components. Any inability of the
Company to obtain timely deliveries of materials of acceptable quality, or a
significant increase in the prices of materials, could materially and adversely
affect the Company's operating results.
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EXPOSURE TO VOLATILE FEDERAL FUNDING PRIORITIES
The Company does a significant amount of business with agencies of the United
States government. See "RISK FACTORS-Customer Concentration." There can be no
assurance that the Company's existing relationships with Federal agencies will
continue, nor that the agencies themselves will continue to exist in their
present form. Further, national priorities are subject to change and often do
change, especially in response to the four-year Presidential election cycle.
Such changes could include a shift in the current priorities that have led to
demand for the Company's products. Additionally, the Company is exposed to the
Federal budget approval and appropriation cycle, which may be subject to
significant and unpredictable delays. All of these factors may materially and
adversely affect the Company's operating results.
COMPETITOR LITIGATION AND INTELLECTUAL PROPERTY CLAIMS
The X-ray security industry is characterized by vigorous competition, in part
through the pursuit and enforcement of intellectual property rights. Initiating
or defending against the enforcement of such rights may result in significant,
protracted, and costly litigation. At present, the Company is pursuing an
aggressive and complex intellectual property case against its former President
and founder. Also, a competitor recently filed a request for a declaratory
judgment that its product does not infringe upon certain of the Company's
patents. The Company expects intellectual property disputes to be an ordinary
part of its business for the foreseeable future. The Company may initiate claims
or litigation against third parties for infringement of the Company's
intellectual property rights, or to establish the validity of the Company's
property rights. There can be no assurance that the Company will prevail in any
such action. Litigation by or against the Company could result in significant
expense to the Company and divert the efforts of technical and management
personnel, whether or not such litigation results in a favorable outcome for the
Company. In the event of an adverse result in any such litigation, the Company
could be required to pay substantial damages, cease the manufacture, use and
sale of infringing products, expend significant resources to develop
non-infringing technology, discontinue the use of certain processes, or obtain
licenses for the infringing technology. However, there can be no assurance that
licenses will be offered or that the terms of any offered license will be
acceptable to the Company; that the Company will be successful in developing
non-infringing technology; or that the cost or time required to develop such
technology will be reasonable. The inability to obtain a license from a third
party for technology used by the Company could cause the Company to incur
substantial liabilities and to suspend the manufacture of infringing products.
In the event that a third party makes a successful claim of intellectual
property infringement against the Company or its customers, and a license is not
made available to the Company on commercially reasonable terms, or if the
Company is unable to protect its intellectual property rights against
infringement by a third party, the Company's business, financial condition, and
operating results may be adversely affected.
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PRODUCT PERFORMANCE LIABILITY
The Company's products are often used to detect the presence of bombs, weapons,
or other threats to personal safety in buildings, mail and delivery parcels,
aircraft luggage and air cargo, border crossings, public gatherings, and other
high-security venues. Operator error, misuse of the Company's equipment or a
malfunction of that equipment may lead to personal injury, loss of life, and
extensive property damage and resulting claims against the Company. The Company
is not aware that any such claims have been filed or are planned. The Company
maintains product liability, umbrella liability, and special aircraft products
liability insurance to provide a measure of protection against claims alleging
product malfunction or inadequate design. However, should any such claim be
made, there is no assurance that the Company's insurance protection is adequate
to protect against any and all future potential product liability claims.
Moreover, there can be no assurance that adequate product liability insurance
coverage will continue to be available at a reasonable cost. To the degree
liability claims exceed the current or available insurance coverages, there
could be a material adverse effect on the Company's business, financial
condition, and operating results. Additionally, regardless of the adequacy of
the Company's product liability insurance protection, any significant claim may
have a severely negative effect on the Company's industry and market reputation,
leading to a substantial decrease in demand for the Company's products. Such an
occurrence would have a material and adverse effect on the Company's revenues
and operating results.
RESEARCH AND DEVELOPMENT FUNDING
The Company competes in part based on the value of its advanced technology. It
is the Company's intention to remain on the leading edge of technology in its
fields of interest through research and development. There can be no assurance
that the Company will be able to continue to innovate, to bring its innovations
to market on a timely or cost effective basis, or that its innovations will not
be surpassed by other competitors or new technologies. Furthermore, the Company
must either generate its own research and development funding or obtain funds
from outside sources, primarily the U.S. Government. The Company competes with
many other companies and research institutions for government funding.
Additionally, government funding priorities are subject to frequent changes. See
"RISK FACTORS-Exposure to Volatile Federal Funding Priorities." There can be no
assurance that the Company will be able to generate the funds necessary to
support its research and development activities from operations or other
potential private sources, or that such funds will be available from the
government. The inability of the Company to fund its research and development
activities, or the failure of such activities to generate successful technology
accepted in the marketplace, may have a material adverse effect on the Company's
business and operations.
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GLOBAL POLITICAL AND ECONOMIC TRENDS
The Company's products are used primarily to detect drugs, explosives and other
contraband. The willingness of customers to pay for solutions to these problems
is subject in part to worldwide political and economic developments. Terrorist
incidents and other widely publicized events, the election or replacement of
influential politicians, the perceived seriousness of the problems addressed by
the Company's products, media coverage of these issues, budgetary and tax
concerns, exchange rates, diplomatic relations and the like may materially
affect the demand for the Company's products.
RAPID GROWTH
The Company has been experiencing rapid growth, with sales increasing over 37%
from fiscal year 1995 to fiscal year 1996. If achieved, continuing growth at
that rate may strain the Company's resources and limit the Company's ability to
address market opportunities. Continued growth may require significant
additional hiring, with concomitant time and attention paid to recruiting,
training, motivating and managing significant numbers of new employees.
Continued growth may also require expansion of the Company's physical plant and
capital equipment base, require the expansion of the Company's communications
and financial control systems, and other overhead support, and require
additional capital in order to fund such growth and the addition of such
resources and systems. There can be no assurance that such additional human,
financial and material resources will be available to the Company on reasonable
terms or that such resources can be integrated into the Company's operations
quickly and economically enough to allow the Company to continue to respond
profitably to expanding opportunities.
