<PAGE>
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 JUNE 30, 1999
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
<TABLE>
<CAPTION>
Outstanding at
Class Of Common Stock June 30, 1999
--------------------- --------------
<S> <C>
$.66 2/3 par value 4,891,370
Page 1 of 10 Pages
The Exhibit Index is Located at Page 10
<PAGE>
AMERICAN SCIENCE AND ENGINEERING, INC.
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For The Three Months Ended
--------------------------------
Dollars and shares in thousands, except per share amounts June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
NET SALES AND CONTRACT REVENUE $ 14,316 $ 11,692
COSTS AND EXPENSES: -------- --------
Cost of sales and contracts 9,871 7,239
Selling, general and administrative expenses 2,700 2,131
Research and development 1,399 1,408
-------- --------
Total costs and expenses 13,970 10,778
-------- --------
OPERATING INCOME 346 914
-------- --------
OTHER INCOME (EXPENSE):
Interest, net (2) 10
Other, net (35) (48)
-------- --------
Total other income (expense) (37) (38)
-------- --------
INCOME BEFORE PROVISION FOR
INCOME TAXES 309 876
PROVISION FOR INCOME TAXES 117 350
-------- --------
NET INCOME $ 192 $ 526
-------- --------
-------- --------
INCOME PER SHARE -BASIC $ .04 $ .11
-------- --------
-------- --------
-DILUTED $ .04 $ .10
-------- --------
-------- --------
DIVIDENDS PAID PER SHARE None None
-------- --------
-------- --------
WEIGHTED AVERAGE SHARES -BASIC 4,891 4,749
-------- --------
-------- --------
-DILUTED 5,018 5,111
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
-2-
<PAGE>
AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
Dollars in thousands
<TABLE>
<CAPTION>
ASSETS June 30, March 31,
1999 1999
------- -------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 752 $ 366
Accounts receivable, net of allowances of
$259 in June 30, and March 31,1999 10,640 7,958
Unbilled costs and fees, net of allowances of
$447 in June 30, and March 31,1999 3,862 2,374
Inventories 11,065 11,083
Deferred income taxes 1,370 1,370
Prepaid expenses and other current assets 1,901 1,224
------- -------
TOTAL CURRENT ASSETS 29,590 24,375
------- -------
Non-current deferred income taxes 254 254
Deposits 17 17
Other Assets 115 115
Patents and other intangibles, net of accumulated
amortization of $86 in June 30, 1999 and $55 in
March 31, 1999 380 401
Property, equipment and leasehold
improvements, net of accumulated depreciation of
$10,030 in June 30, 1999 and $9,677 in March
31, 1999 5,004 5,042
------ ------
$35,360 $30,204
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-3-
<PAGE>
AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
Dollars in thousands
<TABLE>
<CAPTION>
June 30, March 31,
LIABILITIES & STOCKHOLDERS' INVESTMENT 1999 1999
CURRENT LIABILITIES: ----------- ---------
(Unaudited)
<S> <C> <C>
Line of Credit $ 4,000 $ 1,000
Current maturities of obligations
under capital leases 20 20
Accounts payable 5,047 4,456
Accrued salaries and benefits 1,585 868
Accrued warranty costs 435 374
Accrued income taxes 394 350
Deferred revenue 646 756
Customer deposits 2,485 1,281
Other current liabilities 499 1,224
-------- --------
TOTAL CURRENT LIABILITIES 15,111 10,329
-------- --------
NON-CURRENT LIABILITIES:
Obligations under capital leases, net
of current maturities 16 20
Deferred revenue 162 67
Deferred compensation 148 149
Deferred rent 307 292
-------- --------
TOTAL NON-CURRENT LIABILITIES 633 528
-------- --------
COMMITMENTS AND CONTINGENCIES
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 4,891,370 shares in June 30, 1999
and 4,877,767 shares in March 31, 1999 3,261 3,252
Capital in excess of par value 17,462 17,394
Accumulated deficit (467) (659)
-------- --------
20,256 19,987
Note receivable-Officer (640) (640)
-------- --------
TOTAL STOCKHOLDERS' INVESTMENT 19,616 19,347
-------- --------
$ 35,360 $ 30,204
-------- --------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-4-
<PAGE>
AMERICAN SCIENCE AND ENGINEERING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Dollars in thousands
<TABLE>
<CAPTION>
For the Three Months Ended
----------------------------
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 192 $ 526
Adjustments to reconcile net income to net cash
used for operating activities:
Depreciation and amortization 384 184
Provisions for contract, inventory and warranty reserves 143 257
Changes in assets and liabilities:
Accounts receivable (2,682) (805)
Unbilled costs and fees (1,488) (1,765)
Inventories 18 (659)
Prepaid expenses, other current assets, and deposits (677) (367)
Accounts payable 591 27
Customer deposits 1,204 1,380
Accrued expenses and other current liabilities (156) (374)
Noncurrent liabilities 109 12
------- -------
Total adjustments (2,554) (2,110)
------- -------
Net cash used for operating activities (2,362) (1,584)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (325) (550)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 77 250
Net borrowings Line of credit 3,000 1,000
Principal payments of capital lease obligations (4) (5)
------- -------
Cash provided by financing activities 3,073 1,245
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 386 (889)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 366 2,290
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 752 $ 1,401
------- -------
------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 17 $ 9
Income taxes paid $ 220 $ 324
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
-5-
<PAGE>
AMERICAN SCIENCE AND ENGINEERING, INC.
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 Company has only one operating segment, the x-ray product.
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 31, 1999. The Company has made no change in these policies during this
quarter.
2. INVENTORIES
Inventories consisted of: (dollars in thousands)
<TABLE>
<CAPTION>
June 30, 1999 March 31,1999
------------- -------------
<S> <C> <C>
Raw materials and completed
sub-assemblies $ 5,521 $ 5,570
Work in process 5,544 5,513
------- -------
Total $11,065 $11,083
------- -------
------- -------
</TABLE>
-6-
<PAGE>
3. INCOME PER COMMON AND COMMON EQUIVALENT SHARE
In March 1997, the Financial Accounting Standards Board (FASB) issued statement
of Financial Accounting Standards (SFAS) No. 128, `Earnings per Share', which
establishes standards for computing and presenting earnings per share for
entities with publicly held common stock or potential common stock. The Company
adopted SFAS 128 in fiscal 1998 and as required, restated per share amounts for
all prior periods presented to conform to the new requirements. Basic earnings
per common share is computed by dividing net income by the weighted average
number of shares of common stock outstanding during the year. No dilution for
any potentially dilutive securities is included. 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.
<TABLE>
<CAPTION>
Earnings Per Share Three Months Ended
- ------------------ ------------------
In thousands except per share amounts June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
BASIC
Net income $ 192 $ 526
------------- -------------
Weighted average shares 4,891 4,749
------------- -------------
Basic earnings per share $ .04 $ .11
------------- -------------
DILUTED
Net income $ 192 $ 526
------------- -------------
Weighted average shares 4,891 4,749
Effect of stock options 127 362
------------- -------------
Weighted average shares, as adjusted 5,018 5,111
------------- -------------
Diluted earnings per share $ .04 $ .10
------------- -------------
------------- -------------
</TABLE>
4. INCOME TAXES
At March 31, 1999, the Company had approximately $67,000 of unused investment
tax and other credits which expire through 2001.
-7-
<PAGE>
AMERICAN SCIENCE AND ENGINEERING, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
In the first quarter of fiscal 2000 net sales and contract revenues grew to
$14,316,000, a 22% increase from the comparable period a year ago and a 5%
decrease from the previous quarter. The company earned net profits of $192,000
in the current quarter, a 64% decline compared to a net profit of $526,000 in
the corresponding period a year ago and 45% less than the net profit of $348,000
in the previous quarter.
This decline in profitability is principally due to the significant legal costs
associated with the two related lawsuits the Company has filed against a
competitor and a customer to prevent their improper use of our valuable
intellectual property.
RESULTS OF OPERATIONS
Net sales and contract revenues in the first quarter increased by $2,624,000
(22%) in comparison to the corresponding year ago period and decreased by
$712,000 (5%) compared to the fourth quarter of fiscal 1999. This decrease in
revenues from the previous quarter is due to decreased sales of x-ray equipment.
For the first quarter, costs of sales and contracts increased to $9,871,000 from
$7,239,000 in the corresponding period a year ago due primarily to increased
sales volume. Costs of sales and contracts represented 69% of revenues versus
62% for the corresponding period last year and 68% for the fourth quarter of
fiscal year 1999. The costs of sales percentage of revenues in the current
quarter increased from the previous quarter primarily due to sales mix.
Selling, general and administrative expenses of $2,700,000 for the first quarter
were higher by 27% compared to the corresponding year-ago period and higher by
12% compared to the fourth quarter of fiscal 1999. As a percent of sales,
selling, general and administrative expenses were 19% of revenues in the current
quarter compared to 18% of revenues for the corresponding year-ago period and
16% for the fourth quarter of fiscal year 1999. The increase is due primarily to
an increased amount of legal expenditures incurred, as well as an increased
sales base.
Company-funded research and development expenses of $1,399,000 (10% of revenues)
for the first quarter were lower by $9,000 (1%) compared to the year-ago quarter
and lower by $358,000 (20%) compared to the fourth quarter of fiscal year 1999.
This is essentially on budget.
-8-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $386,000 to $752,000 at June 30, 1999
compared to $366,000 on March 31, 1999. This increase was primarily due to an
increase in customer deposits, borrowings against the line of credit, partially
offset by an increase in accounts receivable and unbilled costs and fees.
Working capital increased by $433,000 (3%) since March 31, 1999, growing from
$14,046,000 to $14,479,000 at the end of the first quarter.
During June 1999, the Company renegotiated the revolving line of credit, from
$15.0 million to $20.0 million in anticipation of the increased standby letter
of credit capacity required to support the growth in international orders. The
Company's existing $8.25 million Export-Import Bank guaranteed export line of
credit remained unchanged. The Company's credit facilities restrict the payment
of dividends, except in shares of the Company's stock, without the consent of
the bank.
At June 30, 1999, the company had external borrowings, with a local bank, in the
amount of $4,000,000. Interest is payable monthly at the bank's prime rate of
interest.
YEAR 2000
The Company has assessed the potential impact of the year 2000 on the Company's
internal business systems, products and operations. The Company's year 2000
initiatives include (i) testing and upgrading internal business systems and
facilities; (ii) testing and developing necessary upgrades for the Company's
current products and certain discontinued products; (iii) contacting key
suppliers, vendors, and customers to determine their year 2000 compliance
status; and (iv) developing contingency plans.
The Company's State of Readiness
The Company has evaluated its critical information technology systems for year
2000 compliance, including its significant computer systems, software
applications, and related equipment. The Company has identified its
non-compliant systems in order to determine the need for upgrade or replacement.
The Company expects that its information technology systems will be year 2000
compliant before October, 1999. All identified problems will be remediated and
tested. The Company will continue testing of its critical internal business
systems as the upgrades are placed in production. The Company believes that all
of the products that it currently manufactures and sells are year 2000
compliant.
The Company has identified and contacted suppliers, vendors, and customers that
are believed to be significant to the Company's business operations in order to
assess their year 2000 readiness. As part of this effort, the Company
distributed questionnaires relating to year 2000 compliance to its significant
suppliers and vendors. It is developing a more detailed follow-up to ensure its
most critical suppliers and vendors have adequate year 2000 plans in place.
Contingency Plans
The Company is developing a contingency plan that will allow its primary
business operations to continue despite possible disruptions due to year 2000
problems. These plans include emergency
-9-
<PAGE>
power for information technology in case of a general power failure and
redundant data in similar computer systems to be used in case of a failure of
the existing IT system. As the Company continues to evaluate the year 2000
readiness of its business systems and facilities, products and significant
suppliers, vendors, and customers, it will modify and adjust its contingency
plan as may be required.
Costs to Address the Company's Year 2000 Issues
The primary costs of the year 2000 program relate to existing internal
resources. These additional costs have not been and will not be material.
However, since there is no uniform definition of year 2000 "compliance" and
there is no way to anticipate all possible situations, there can be no assurance
that the Company will not encounter unexpected costs or delays in achieving year
2000 compliance.
Risks of the Company's Year 2000 Issues
The company believes it has an effective program in place to resolve the year
2000 issue. However, since it is not possible to anticipate all possible future
outcomes there could be "worst case scenarios" in which the company would be
unable to conduct its business. While the Company anticipates completion of
testing and upgrades on a timely basis, possible "worst case scenarios" include
delays in upgrading mission critical IT systems and unexpected costs and delays
or disruptions in the Company's business. If any of the Company's material
suppliers, vendors or customers experience business disruptions due to year 2000
issues, the Company might also be adversely affected. There is expected to be a
significant amount of litigation relating to the year 2000 issue and there can
be no assurance that the Company will not incur material costs in defending or
initiating lawsuits. Any unexpected costs or delays arising from the year 2000
issue could have a significant adverse impact on the Company's business,
operations, and financial condition.
-10-
<PAGE>
AMERICAN SCIENCE AND ENGINEERING, INC.
Part II - Other Information
Item 1. LEGAL PROCEEDINGS
During the first quarter, a hearing on the Company's motions for preliminary
injunctions against the U.S. Customs Service and EG&G Astrophysics, Inc. was
heard in the U.S. District Court for the District of Massachusetts. These
related lawsuits have been described in greater detail in previous filings. As
of the date of this filing, no decision has been rendered on the preliminary
injunction motions and the Company cannot predict when such decision will be
forthcoming.
Additionally, EG&G's requests for reexamination of the two patents at issue in
the Federal Court suit remains pending before the U.S. Patent and Trademark
Office. The Company has filed its oppositions to the requests and cannot predict
when the Patent Office will rule on the requested reexaminations.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) REPORTS ON FORM 8-K
A report on Form 8-K was filed on April 7, 1999 concerning the Company's
litigation against the U.S. Customs Service and EG&G Astrophysics, Inc.
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: 11 August 1999
- ----------------------------------------
Lee C. Steele
Vice President and Chief Financial Officer
-11-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF AMERICAN SCIENCE AND ENGINEERING,
INC. FOR THE TREEE MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 752
<SECURITIES> 0
<RECEIVABLES> 10,640
<ALLOWANCES> 0
<INVENTORY> 11,065
<CURRENT-ASSETS> 29,590
<PP&E> 5,004
<DEPRECIATION> 10,030
<TOTAL-ASSETS> 35,360
<CURRENT-LIABILITIES> 15,111
<BONDS> 0
3,261
0
<COMMON> 0
<OTHER-SE> 16,355
<TOTAL-LIABILITY-AND-EQUITY> 35,360
<SALES> 14,316
<TOTAL-REVENUES> 14,316
<CGS> 9,871
<TOTAL-COSTS> 13,970
<OTHER-EXPENSES> (37)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 309
<INCOME-TAX> 117
<INCOME-CONTINUING> 192
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 192
<EPS-BASIC> 0.04
<EPS-DILUTED> 0.04
</TABLE>
