-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SMZTp9i3b59rOks4+otNiI+h94oP4bmBV7A/HAS/EJ5Nw4qTSHb5vfDwOnqM8leJ Mpp9Ohb0ZR+oAHIcTsw+UA== 0001047469-03-005655.txt : 20030214 0001047469-03-005655.hdr.sgml : 20030214 20030214170006 ACCESSION NUMBER: 0001047469-03-005655 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN SCIENCE & ENGINEERING INC CENTRAL INDEX KEY: 0000005768 STANDARD INDUSTRIAL CLASSIFICATION: X-RAY APPARATUS & TUBES & RELATED IRRADIATION APPARATUS [3844] IRS NUMBER: 042240991 STATE OF INCORPORATION: MA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06549 FILM NUMBER: 03568376 BUSINESS ADDRESS: STREET 1: 829 MIDDLESEX TURNPIKE STREET 2: 40 ERIE STREET CITY: BILLERICA STATE: MA ZIP: 01821 BUSINESS PHONE: 9782629700 MAIL ADDRESS: STREET 1: 40 ERIE STREET STREET 2: 829 MIDDLESEX TURNPIKE CITY: BILLERICA STATE: MA ZIP: 01821 10-Q 1 a2103518z10-q.htm FORM 10-Q
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FORM 10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 2002
OR
o	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 (State or other jurisdiction of incorporation or organization)		04-2240991 (I.R.S. Employer Identification No.)
829 Middlesex Turnpike Billerica, Massachusetts (Address of principal executive offices)		01821 (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 ý No o

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date

Class of Common Stock		Outstanding at December 31, 2002
$.66²/3 par value		6,857,772

AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARIES

PART I—FINANCIAL INFORMATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

		December 31, 2002			March 31, 2002
		Dollars in thousands
Assets
Current assets:
	Cash and cash equivalents	$	12,677		$	7,591
	Restricted cash		2,021			—
	Accounts receivable, net of allowances of $133 at December 31, 2002 and $111 at March 31, 2002		8,289			7,216
	Unbilled costs and fees, net of allowances of $437 at December 31, 2002 and March 31, 2002		4,055			5,456
	Inventories		18,350			21,013
	Deferred income taxes		685			2,475
	Prepaid expenses and other current assets		475			685

	Total current assets		46,552			44,436
	Non-current assets:
	Non-current deferred income taxes		2,613			823
	Other assets		149			204
	Patents and other intangibles, net of accumulated amortization of $386 at December 31, 2002 and $351 at March 31, 2002		54			115
	Property and equipment, net of accumulated depreciation of $16,946 at December 31, 2002 and $15,366 at March 31, 2002		3,558			4,663

		$	52,926		$	50,241

Liabilities & Stockholders' Investment
Current liabilities:
	Line of credit	$	—		$	9,319
	Accounts payable		4,260			6,557
	Accrued salaries and benefits		1,552			1,577
	Accrued warranty costs		588			196
	Deferred revenue		1,238			1,030
	Customer deposits		2,088			4,875
	Other current liabilities		2,912			2,546

	Total current liabilities		12,638			26,100

	Non-current liabilities:
	Warrant liability		1,624			—
	Deferred revenue		932			691
	Deferred compensation		91			109
	Deferred rent		155			212

	Total non-current liabilities		2,802			1,012

	Stockholders' investment: Preferred stock, no par value Authorized — 100,000 shares Issued — none		—			—
	Common stock, $0.66²/3 par value Authorized — 20,000,000 shares Issued 6,857,772 shares at December 31, 2002 and 5,549,478 shares at March 31, 2002		4,571			3,699
	Capital in excess of par value		38,631			22,482
	Accumulated deficit		(5,716	)		(3,052	)

	Total stockholders' investment		37,486			23,129

		$	52,926		$	50,241

The accompanying notes are an integral part of these consolidated financial statements.

AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARIES

PART I—FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

		For the Three Months Ended						For the Nine Months Ended
		Dec. 31, 2002			Dec. 31, 2001			Dec. 31, 2002			Dec. 31, 2001
		Dollars and shares in thousands, except per share amounts
Revenues: (see Note 1)
	Net product sales and contract revenues	$	14,768					$	42,572
	Net service revenues		2,452						6,501

	Total net revenues		17,220		$	14,248			49,073		$	48,854

Cost of sales and contracts:
	Cost of product sales and contracts		11,320						32,426
	Cost of service revenues		2,022						5,917

	Total cost of sales and contracts		13,342			11,078			38,343			37,686

Gross profit			3,878			3,170			10,730			11,168

Expenses:
	Selling, general and administrative		3,055			4,274			10,003			9,847
	Research and development		1,342			1,628			4,865			4,822

	Total expenses		4,397			5,902			14,868			14,669

Operating loss			(519	)		(2,732	)		(4,138	)		(3,501	)

Other income (expense):
	Interest income		28			2			81			19
	Interest expense		—			(106	)		(86	)		(366	)
	Other, net		(567	)		(55	)		1,479			(171	)

	Total other income (expense)		(539	)		(159	)		1,474			(518	)

Loss before income taxes			(1,058	)		(2,891	)		(2,664	)		(4,019	)
Benefit from income taxes			—			(1,099	)		—			(1,529	)

Net loss		$	(1,058	)	$	(1,792	)	$	(2,664	)	$	(2,490	)

Loss per share—Basic		$	(0.15	)	$	(0.35	)	$	(0.41	)	$	(0.49	)

—Diluted		$	(0.15	)	$	(0.35	)	$	(0.41	)	$	(0.49	)

Weighted average shares—Basic			6,838			5,174			6,544			5,075

— Diluted			6,838			5,174			6,544			5,075

The accompanying notes are an integral part of these consolidated financial statements.

AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

			For the Nine Months Ended
			December 31, 2002			December 31, 2001
			Dollars in thousands
Cash flows from operating activities:
Net loss			$	(2,664	)	$	(2,490	)
Adjustments to reconcile net loss to net cash used for operating activities:
	Depreciation and amortization			1,641			1,774
	Provisions for contract, inventory, accounts receivable and warranty reserves			1,008			161
	Change in fair value of warrants issued			(1,494	)		—
	Deferred income taxes			—			(1,084	)
	Changes in assets and liabilities:
		Accounts receivable		(1,098	)		(2,621	)
		Unbilled costs and fees		1,401			4,504
		Inventories		2,306			(2,913	)
		Prepaid expenses, deposits and other assets		265			156
		Accounts payable		(2,297	)		(677	)
		Customer deposits		(2,787	)		727
		Deferred revenue		449			53
		Accrued expenses and other current liabilities		505			(867	)
		Non-current liabilities		(75	)		(64	)

	Total adjustments			(171	)		(851	)

Net cash used for operating activities				(2,835	)		(3,341	)

Cash flows from investing activities:
	Increase in restricted cash			(2,021	)		—
	Purchase of property and equipment			(475	)		(536	)

Net cash used for investing activities				(2,496	)		(536	)

Cash flows from financing activities:
	Borrowing under (repayment of) line of credit			(9,319	)		3,300
	Repayments of officer's loan			—			640
	Proceeds from issuance of common stock and warrants, net			18,415			—
	Proceeds from exercise of stock options			1,321			3,568

Net cash provided by financing activities				10,417			7,508

Net increase in cash and cash equivalents				5,086			3,631
Cash and cash equivalents at beginning of period				7,591			1,206

Cash and cash equivalents at end of period			$	12,677		$	4,837

The accompanying notes are an integral part of these consolidated financial statements.

AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARIES
PREPARATION OF UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The 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 consolidated financial statements are subject to year end audit by independent public accountants. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been 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 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 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 CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Nature of Operations

The Company 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.

Significant Accounting Policies

The Company's CargoSearch systems and other cost reimbursable contracts are generally accounted for utilizing the percentage of completion method. Revenues for the Company's parcel systems (systems capable of scanning small parcels and packages) and its Bodysearch system are recognized in accordance with SAB 101. Service revenues for fiscal 2003 are expected to exceed 10% of total revenues and as such have been separately presented for the current year.

The Company's Export and Security Agreement with HSBC Bank USA requires certain cash balances to be restricted as collateral against outstanding standby letters of credit.

The Company has evaluated the period over which it expects to realize the benefit of deferred tax assets and accordingly has reclassified a portion of these balances to long-term.

The significant accounting policies followed by the Company and its Subsidiaries 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.

Certain amounts for fiscal 2002 have been reclassified to conform with the fiscal 2003 presentation.

New Accounting Pronouncements

and measurement of guarantor liabilities, which are effective for qualifying guarantees entered into or modified after December 31, 2002, but does not expect it to have a material impact on the Company's financial statements. The disclosure requirements of the Interpretation, which are effective for the quarter ended December 31, 2002, are included in Note 6 of this filing.

In November 2002, the Task Force reached a consensus on Emerging Issues Task Force Issue No. 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables". This issue addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how arrangement consideration should be measured and allocated to the separate units of accounting. This guidance is effective for the Company beginning in fiscal 2005 with early application permitted. The Company is currently evaluating the impact of this guidance on its revenue recognition policies.

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 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; however, this standard is not expected to have a significant impact.

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.

In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock- Based Compensation-Transition and Disclosure- an amendment of FASB Statement No. 123" (FAS 148). This statement amends SFAS No. 123 "Accounting for Stock Based Compensation" (FAS 123) to provide alternative methods of voluntarily transitioning to the fair value based method of accounting for stock-based employee compensation. FAS 148 also amends the disclosure requirements of FAS 123 to require disclosure of the method used to account for stock-based employee compensation and the effect of the

method on reported results in both annual and interim financial statements. The Company is in the process of assessing the impact of FAS No. 148 on its fiscal 2003 consolidated financial statements.

2. Inventories

Inventories consisted of:

	December 31, 2002		March 31, 2002
	(Dollars in thousands)
Raw materials and completed sub-assemblies	$	9,916	$	10,483
Work in process		5,103		7,981
Finished goods		3,331		2,549

Total	$	18,350	$	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 December 31, 2002 and 2001, common stock equivalents of 290,000 and 410,000, respectively, are excluded from diluted earnings per share, as their effect is anti-dilutive. For the nine months ended December 31, 2002 and 2001, common stock equivalents of 748,000 and 294,000 respectively, are excluded from diluted earnings per share, as their effect is anti-dilutive.

	Three Months Ended						Nine Months Ended
Earnings Per Share	Dec. 31, 2002			Dec. 31, 2001			Dec. 31, 2002			Dec. 31, 2001
	(in thousands except per share amounts)
Basic
Net loss	$	(1,058	)	$	(1,792	)	$	(2,664	)	$	(2,490	)

Weighted average shares		6,838			5,174			6,544			5,075

Basic loss per share	$	(0.15	)	$	(0.35	)	$	(0.41	)	$	(0.49	)

Diluted
Net loss	$	(1,058	)	$	(1,792	)	$	(2,664	)	$	(2,490	)

Weighted average shares		6,838			5,174			6,544			5,075
Effect of stock options and warrants		—			—			—			—

Weighted average shares, as adjusted		6,838			5,174			6,544			5,075

Diluted loss per share	$	(0.15	)	$	(0.35	)	$	(0.41	)	$	(0.49	)

4. Borrowings

On November 30, 2000, the Company signed two 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. This agreement was due to expire on November 30, 2002. These agreements were further amended on November 28, 2002 to reduce the domestic revolving credit facility to $5 million, with maximum borrowings set at 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) $2 million, or; (b) $5 million. In addition, the interest rate and certain financial covenants were amended and the expiration date of the facility was extended to February 28, 2003. The Company currently plans on refinancing either under the same agreement with HSBC or a similar agreement with a new facility; however, there can be no assurance that HSBC will renew the credit agreements or that alternative financing can be obtained.

At December 31, 2002, there were no borrowings outstanding against this facility and $4.6 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 December 31, 2002, the Company was not in compliance with the earnings covenant, but has obtained a waiver from the bank for this non-compliance for the third 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. Proceeds to the Company approximated $18.4 million, net of approximately $1.3 million of issuance cost. The warrants were immediately vested and have a five-year life expiring in May of 2007. Due to certain conversion features of these warrants, that provide that the holder may opt for a cash settlement in certain instances, including a merger, a sale of all or substantially all of the Company's assets, or a tender offer or exchange offer of shares of the Company's stock, a liability equal to the Black-Scholes valuation of the warrants at the deal closing date was recorded on the Company's balance sheet. The "mark to market" change in the warrants value at December 31, 2002 of $(592,000) and $1,496,000 was recorded as other income (expense) for the three months and nine months ended December 31, 2002, respectively. The liability of $1,624,000 associated with the warrants is recorded as a non-current liability on the December 31, 2002 balance sheet. The fair market value of the warrants was determined using the Black Scholes pricing model and an assumed volatility of 72% and interest rate of 5%.

6. Guarantees

At December 31, 2002, the Company had outstanding $4.6 million of letters of credit outstanding guaranteeing performance on certain large international cargo projects. These letters of credit are issued through the Company's export credit and security agreement (see Note 4) and have expiration dates through March 2004.

The Company's parcel product line carries a one-year warranty, the costs of which are accrued for at time of shipment. Accrual rates are based upon historical experience over the preceding twelve months and the adequacy of the warranty reserve is evaluated monthly. Warranty experience for the three and nine months ended December 31, 2002 is as follows:

	Three months ended December 31, 2002		Nine months ended December 31, 2002
	(in thousands)
Warranty accrual beginning of period	585		196
Accruals for warranties issued during the period	102		473
Accruals related to pre-existing warranties	—		153
Warranty costs incurred during period	(99	)	(234	)

Balance at end of period	588		588

AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Item 2—Results of Operations

Total net revenues in the third quarter increased by $2,972,000 (21%) in comparison to the corresponding period a year ago. This increase in the third quarter compared to the prior year is due to increased sales ($2.4 million) of the company's cargo products related to two large fixed site projects that started during the period. Service revenues also increased by $941,000 due to a large fixed price service contract entered into during the year. Parcel revenues declined year on year as the third quarter of fiscal 2002 had increased parcel demand immediately following the events of September 11^th.

Total net revenues for the nine-month period ended December 31, 2002 increased by $219,000 compared to the corresponding period a year ago. This increase is attributable to increased service revenues ($2,275,000) due primarily to new service contracts entered into during the year. This increase is offset by decreased cargo product revenues compared to the prior year due to fewer MobileSearch™ system sales during the current year. Procurements for these systems domestically have been delayed as budgets for Homeland Defense await resolution.

For the third quarter, total cost of sales and contracts increased to $13,342,000 from $11,078,000 in the corresponding period a year ago. Cost of sales and contracts represented 77% of revenues versus 78% for the corresponding period last year. In the prior year, the Company incurred significant service related costs associated with the Mexico service contract, which was in dispute. The revenue related to these expenditures was recorded in the fourth quarter of fiscal 2002 upon resolution of this dispute. Cost of product sales increased as a percentage of product revenues as compared to the corresponding period in fiscal 2002 as the third quarter of fiscal 2002 had numerous high margin upgrade projects, which are now completed, or near completion.

Total cost of sales and contracts for the nine-month period ended December 31, 2002 increased to $38,343,000 from $37,686,000 in the corresponding period a year ago. Cost of sales and contracts represented 78% of revenues versus 77% for the corresponding period last year. This increase is attributable to the increase in revenues noted above, as well the $290,000 for inventory write downs related to excess cargo inventories during the current fiscal year. These increased costs are offset somewhat by improved margins in the service area as the Mexico dispute affecting fiscal 2002 margins was resolved in the fourth quarter of fiscal 2002.

Selling, general and administrative expenses decreased to $3,055,000 for the third quarter of fiscal 2003 from $4,274,000 in the corresponding period a year ago. Selling, general and administrative expenses represented 18% of revenues in the current quarter compared to 30% for the corresponding period last year. In the third quarter of fiscal 2002, the Company incurred significant legal expenses (approximately $1.2 million) related to litigation settled during that quarter which accounted for the majority of the decrease year over year.

Selling, general and administrative expenses of $10,003,000 for the first nine months of fiscal 2003 increased by 2% over the selling, general and administrative expenses of $9,847,000 reported during the first nine months of fiscal 2002. The increased costs were due primarily to increased insurance ($225,000) consulting ($250,000) and trade and road show expenditures (approximately $150,000) as well as additional personnel in critical areas. This increase was offset by significant legal expenses (approximately $1.3 million) incurred in the prior year.

Company funded research and development expenses of $1,342,000 for the third quarter decreased by $286,000 (18%) compared to the corresponding period last year and decreased by $315,000 (19%) from the second quarter of fiscal 2003. Current quarter expenditures decreased comparatively as

engineering resources had increased utilization on cargo and contract engineering programs during the period.

Research and development expenses for the nine-month period ended December 31, 2002 were $4,865,000 as compared to $4,822,000 for the corresponding period last year. As a percentage of revenue, research and development expenses were 10% of revenues in each of the nine-month periods completed.

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 that the holder may opt for a cash settlement in certain instances, including a merger, a sale of all or substantially all of the Company's assets, or a tender offer or exchange offer of shares of the Company's stock, a liability equal to the Black-Scholes valuation of the warrants at the deal closing date was recorded on the Company's balance sheet. At December 31, 2002, these warrants were "marked to market" using Black- Scholes and the change in the valuation of the warrants of $592,000 was recorded as a debit to other expense in the quarter. During the nine months ended December 31, 2002, this calculation generated a $1,496,000 credit to other income (expense).

The potential tax benefits on losses incurred in 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 December 31, 2002 will be realized through future earnings. Given the Company's recent losses, the Company continues to monitor the recoverability of deferred tax assets. Should it be determined that it is more likely than not that such assets are not realizable, recording an additional valuation allowance could have a material adverse impact on earnings. In the quarter and nine months ended December 31, 2001, the Company recognized tax benefits of $1,099,000 and 1,529,000 respectively.

The Company incurred a net loss of $1,058,000 during the third quarter of fiscal 2003 as compared to a net loss of $1,792,000 in the third quarter of fiscal 2002. During the first nine months of fiscal 2003 the Company reported a loss of $2,664,000 as compared to a loss of $2,490,000 for the same period in the prior year. The significant factors contributing to these results are noted in the above sections.

Liquidity and Capital Resources

Cash and cash equivalents increased by $5,086,000 to $12,677,000 at December 31, 2002 compared to $7,591,000 at March 31, 2002. This increase in cash and cash equivalents is 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 accounts receivable and decreases in certain liabilities. Working capital increased by $15,578,000 (85%) since March 31, 2002, increasing from $18,336,000 to $33,914,000 at December 31, 2002 due primarily to the stock and option proceeds received.

On November 30, 2000, the Company signed two 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) $20 million. These agreements were further amended on November 28, 2002 to reduce the domestic revolving credit facility to $5 million, with maximum borrowings set at 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) $2 million, or; (b) $5 million. In addition, the interest rate and certain financial covenants were amended and the expiration date of the facility was extended to February 28, 2003.

The Company currently plans on refinancing either under the same agreement with HSBC or a similar agreement with a new facility; however, there can be no assurance that HSBC will renew the credit agreements or that alternative financing can be obtained. As discussed above, the Company has paid off the amounts outstanding under the domestic credit facilities and management believes the Company's working capital requirements through March 31, 2003 can be met without the line of credit. In addition, to the extent the Company's credit facility is not renewed, it would preclude the Company from obtaining financing through its current secured export credit and security agreement which could negatively impact the Company's ability to support international sales. However, management believes the Company's planned level of sales in 2003 can be achieved without access to export credit.

At December 31, 2002, there were no borrowings outstanding against this facility and $4.6 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 December 31, 2002, the Company was not in compliance with its earnings covenant but has received a waiver from the bank on this non-compliance.

The Company conducts its business worldwide with certain contracts situated in the Middle East. Increased hostilities in this region could potentially result in project delays and/or increased costs, which could adversely affect the Company's financial results in future periods.

New Accounting Pronouncements:

In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," which elaborates on required disclosures by a guarantor in its financial statements about obligations under certain guarantees that it has issued and clarifies the need for a guarantor to recognize, at the inception of certain guarantees, a liability for the fair value of the obligation undertaken in issuing the guarantee. The Company is reviewing the provisions of this Interpretation relating to initial recognition and measurement of guarantor liabilities, which are effective for qualifying guarantees entered into or modified after December 31, 2002, but does not expect it to have a material impact on the Company's financial statements. The disclosure requirements of the Interpretation, which are effective for the quarter ended December 31, 2002, are included in Note 6 of this filing.

In November 2002, the Task Force reached a consensus on Emerging Issues Task Force Issue No. 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables". This issue addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how arrangement consideration should be measured and allocated to the separate units of accounting. This guidance is effective for American Science and Engineering, Inc. beginning in Fiscal 2005 with early application permitted. The Company is currently evaluating the impact of this guidance on its revenue recognition policies.

Item 4—Controls and Procedures

Within the 90-day period prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective for gathering, analyzing and disclosing the information we are required to disclose in reports filed under such Act.

There have been no significant changes in our internal controls or in other factors, which could significantly affect internal controls subsequent to the date that the Company carried out its evaluation.

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.

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™ 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 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 and the Company's patent on its Z® Backscatter X-ray inspection technology were both 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 it is remote that the ultimate resolution of these matters will have a material adverse impact on its financial condition or results of operations.

Item 6—Exhibits and Reports on Form 8-K

(a): Exhibits

10 (c)(xii)		Employment agreement between the Company and Paul Theodore Owens dated December 12, 2002
10(d)(v)		Amended Revolving Loan and Security Agreement between American Science and Engineering, Inc. and HSBC bank dated November 28, 2002
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

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.

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 February 14, 2003		Paul Theodore Owens 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: Project delays or increased costs associated with prolonged international conflict, especially in light of the current situation in Iraq; 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.

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

Section 302 Certification

I, Ralph S. Sheridan, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of American Science and Engineering, Inc.;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a): Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b): Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c): Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a): All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b): Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.: The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 14, 2003
/s/ RALPH S. SHERIDAN Ralph S. Sheridan President and Chief Executive Officer

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

Section 302 Certification

I, Paul Theodore Owens, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of American Science and Engineering, Inc.;

2.

3.

4.

a): Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b): Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c): Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

a): All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b): Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.: The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 14, 2003
/s/ PAUL THEODORE OWENS Paul Theodore Owens Chief Financial Officer

EXHIBIT INDEX

Exhibit No.		Description
10(c)(xii)		Employment agreement between the Company and Paul Theodore Owens dated December 12, 2002
10(d)(v)		Amended Revolving Loan and Security Agreement between American Science and Engineering, Inc. and HSBC bank dated November 28, 2002
99.1		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARIES PART I—FINANCIAL INFORMATION CONSOLIDATED BALANCE SHEETS (Unaudited)
AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARIES PART I—FINANCIAL INFORMATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
PREPARATION OF UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2—Results of Operations

Item 4—Controls and Procedures

Part II—Other Information

Item 1—Legal Proceedings

Item 6—Exhibits and Reports on Form 8-K

SIGNATURES
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
EXHIBIT INDEX
EX-10.(C)(XII) 3 a2103518zex-10_cxii.htm EXHIBIT 10(C)(XII)
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Exhibit 10(c) (xii)

EMPLOYMENT AGREEMENT

This Agreement is made as of December 12, 2002 by and between American Science & Engineering, Inc. (the "Company"), a Massachusetts corporation having its principal place of business in Billerica, Massachusetts, and Paul Theodore Owens, (the "Executive") having his principal address at 32 Perrault Road, Needham Heights, Massachusetts.

The Company desires to retain the services of the Executive, and the Executive is willing to render such services, in accordance with the terms hereinafter set forth.

Accordingly, the Company and the Executive agree as follows:

1. The Company agrees to employ the Executive as, and the Executive agrees to perform the duties of Vice President, Chief Financial Officer and Treasurer of the Company.

2. (a) The Executive's weekly salary shall be $3,846.15 ("Base Salary") payable not less frequently than on a monthly basis in accordance with standard company policy for executives. The Executive shall also be eligible for an annual bonus in an amount of up to fifty (50%) percent of Base Salary (annualized) based on Executive's performance, as determined by the Company's CEO, of specific goals to be determined by the CEO. Executive shall also be granted options to purchase 50,000 shares of the Company's Common Stock at a price equal to the closing price on the date of this Agreement. The options will vest over three (3) years and will be otherwise implemented in accordance with the terms and conditions of the Company's 1999 Combination Stock Option Plan and approval of the grant by the Board of Directors.

(b) The Company will include the Executive in all life insurance, disability insurance, medical and all other benefit plans maintained by the Company for the benefit of its Executives.

3. (a) The Company shall pay to the Executive the "Severance Payment" in the event that the Executive is terminated by the Company within sixty (60) days prior to or twelve (12) months after the occurrence of a "Change of Control," as defined below. The Severance Payment shall be made at the time of such termination.

(b) The "Severance Payment" shall be a one-time payment equal to the higher of: (i) the Executive's base salary for one year at the annual rate in effect one month prior to the occurrence of the Change of Control, or (ii) the Executive's base salary for one year at the annual rate in effect at the time of such termination. The Severance Payment shall also include the continuation of all benefits received by the Executive prior to termination for a period equal to the lesser of one year or the start of new employment by the Executive in which he receives substantially similar benefits.

(i) any person (as defined in Section 13 (d) or 14 (d)(2) of the Securities Exchange Act of 1934) shall have become the beneficial owner of 50 percent or more of the combined voting power of the Company's voting securities;

(ii) the Continuing Directors shall have ceased for any reason to constitute a majority of the Board of Directors of the Company. For this purpose, a "Continuing Director" shall include members of the Board of Directors of the Company as of the date of this Agreement and any person nominated for election to the Board of Directors of the Company by a vote of the majority of the then Continuing Directors;

(iii) the stockholders approve the complete liquidation or dissolution of the Company, or

(iv) the stockholders approve by the requisite vote any of the following transactions:

(a) a merger or consolidation of the Company (except for a merger in respect of which no vote of the stockholders of the Company is required);

(b) a sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), whether as part of a dissolution or otherwise, of assets of the Company or of any direct or indirect majority-owned subsidiary or the Company (other than to any direct or indirect wholly-owned subsidiary or to the Company) having an aggregate market value equal to 50% or more of either the aggregate market value of all of the assets of the Company determined on a consolidated basis or the aggregate market value of all the outstanding stock of the Company immediately prior tot he transaction; or

4. (a) If the Executive is terminated for any reason other than (i) "Cause" (as defined below); or (ii) pursuant to a Change of Control as defined in Paragraph 3 (such reasons other than (i) or (ii) are hereinafter referred to as "Termination for Convenience") the Executive shall receive an amount equal to the greater of the amount that would be due under the Company's then-current severance policy, if any, or six months of his then-current Base Salary, payable, at the Company's option, on the last date of his employment or in weekly installments. In case of Termination for Convenience, the Executive shall be entitled to a continuation of all benefits being received by him at the time of termination for the lesser of six (6) months from the date of termination, or until the date in which the Executive begins new employment in which he receives substantially similar benefits. If the Executive is Terminated for Convenience within twelve (12) months after a change in the Company's President/CEO, the Executive shall be entitled to receive the Severance Payment described in Paragraph 2(b) in place of the benefits described in this Paragraph 3.

(b) For the purposes of this Agreement, "Cause" shall mean: (i) the determination by the President of the Company that the Executive has failed to perform his duties in the course of his employment under this Agreement consistent with those of a Vice President, Chief Financial Officer, or has failed to follow the reasonable instructions of, or to meet the goals set by, the President of the Company; or (ii) the final conviction of the Executive for, or his plea of nolo contendere to, a felony or any other crime that involves fraud, dishonesty or moral turpitude.

5. The Company may not assign all or any part of its obligations under this Agreement, except to a successor as provided for in this paragraph. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no succession had taken place. As used in this Agreement, unless the context requires otherwise, the "Company" shall mean the Company as defined above or any successor to its business or assets as aforesaid which assumes and agrees to perform this Agreement, by operation of law, or otherwise. This Agreement shall inure to the benefit of and be enforceable by and binding upon (i) any such successor and (ii) the Executive's personal or legal representatives, executors, administrators and designated beneficiaries.

6. This Agreement contains the entire agreement between the parties with respect to the subject mater hereof and supersedes all prior oral and written agreements, understandings and commitments between the parties relating to this Agreement. Notwithstanding the foregoing, the Executive shall at all times remain subject to all policies and procedures of the Company that relate to employees of the Company, except to the extent that this Agreement contains terms or provisions that are contrary to or

provides greater benefits than such policies and procedures, in which case this Agreement shall control. No amendment to this Agreement shall be made except by a written instrument signed by both parties.

7. The Executive agrees that, during the term of employment by the Company and during an additional period of (1) year which shall commence at the date of termination of Executive's employment, he will not:

(a) directly or indirectly work for, consult with, be affiliated with or otherwise provide services for any competitor of the Company, including without limitation any entity that designs, manufactures or sells x-ray inspection equipment;

(b) Hire, solicit, or attempt to induce any employee of the Company to leave its employ and to work directly or indirectly for or with Executive or any employer or contractor of Executive; or

(c) Directly or indirectly, individually or for or with any other party, provide any type of service(s) to any person or entity which was, during the last 12 months of Executive's employment, a customer or account of the Company, as would permit, enable or assist such customer in providing, for itself or others, products or services like or similar to those products or services which had been provided to such customer by the Company during the 12 month period preceding the termination of his employment.

8. If any agreement or covenant made by the Executive herein shall, to any extent, be determined by any court having jurisdiction as being too broad in area, time, or both, or otherwise to any extent held invalid, then the part or parts which are determined to be invalid or unenforceable shall be severed and the remaining parts of this Agreement shall continue in full force and effect.

9. Executive acknowledges that a breach or threatened breach of any commitment made by Executive in this Agreement could cause irreparable injury to the Company; that damages would not adequately compensate the Company for such breach or threatened breach and that such damages would be difficult to determine. Therefore, Executive agrees that the Company shall be entitled to such equitable and injunctive relief as may be available to restrain or prevent a breach or contemplated breach of any of the obligations of the Executive in this Agreement. The Company shall have this right in addition to damages and any other remedy available at law or in equity.

10. The Appendix A the AS&E Proprietary Information Procedure, is attached hereto and incorporated into this Agreement.

11. This Agreement shall be construed and enforced under and be governed in all respects by the law of the Commonwealth of Massachusetts, without regard to the conflict of law principles thereof.

12. This Agreement supercedes all prior agreements.

IN WITNESS WHEREOF, the Company has caused this instrument to be executed on its behalf by a duly authorized officer and the Executive has executed this instrument, all as of the date set forth above.

		AMERICAN SCIENCE & ENGINEERING, INC.
		By:		Ralph S. Sheridan, CEO and President
				Paul Theodore Owens

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Exhibit 10(c) (xii)

EMPLOYMENT AGREEMENT
EX-10.(D)(V) 4 a2103518zex-10_dv.htm EXHIBIT 10(D)(V)
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Exhibit 10(d)(v)

AMENDMENT NO. 2 TO REVOLVING LOAN AND SECURITY AGREEMENT

Amendment No. 2 ("Amendment") dated as of November 30, 2002 to Revolving Loan and Security Agreement dated as of November 30, 2000 between AMERICAN SCIENCE AND ENGINEERING, INC., a Massachusetts corporation ("Borrower") and HSBC BANK USA, a bank organized under the laws of the State of New York ("Bank").

WITNESSETH:

WHEREAS, Borrower has heretofore entered into financing arrangements with Bank pursuant to the terms and conditions of a Revolving Loan and Security Agreement dated as of November 30, 2000 between Bank and Borrower as amended by an Amendment No. 1 to Revolving Loan and Security Agreement dated as of February 14, 2002 between Bank and Borrower (together, the "Credit Agreement") and the Financing Agreements (as defined in the Credit Agreement);

WHEREAS, Borrower has requested and Bank is willing, subject to the terms and conditions hereof, to amend the Credit Agreement to, among other things: (a) extend the termination date therein; and (b) reduce the commitment thereunder.

NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which is acknowledged, Borrower and Bank mutually covenant, warrant and agree as follows:

SECTION 1. DEFINITIONS.

SECTION 1.1 Interpretation. For purposes of this Amendment, unless otherwise defined herein, all capitalized terms used herein including, but not limited to, those capitalized terms used and/or defined in the recitals hereto, shall have the respective meanings assigned to such terms in the Credit Agreement.

SECTION 2. AMENDMENT.

SECTION 2.1. Amendments to Section 1.1

(a) The definition of the term "Borrowing Capacity" in the Credit Agreement is amended by deleting the reference to "$5,000,000.00" contained therein and replacing it with "$2,000,000.00" so that the inventory sublimit is reduced accordingly.

(b) The definition of the term "Commitment" in the Credit Agreement is amended by deleting the reference to "$20,000,000.00" contained therein and replacing it with "$5,000,000.00".

(c) The definition of "Commitment Amount" in the Credit Agreement is amended by deleting the reference to "TWENTY MILLION AND 00/100 ($20,000,000.00) DOLLARS" contained therein and replacing it with "FIVE MILLION AND 00/100 ($5,000,000.00) DOLLARS".

(d) The definition of "Financing Agreements" in the Credit Agreement is amended by deleting ", the letter agreement re: credit line for equipment purchases dated February 14, 2002 and any time note(s) executed in connection therewith," after the words "Related Documents" and before the word "and" therein.

(e) The definition of "LIBOR Rate" in the Credit Agreement is amended by deleting the reference to "two hundred (200)" contained therein and replacing it with "two hundred fifty (250)".

(f) The definition of "Maximum Amount" in the Credit Agreement is amended by deleting the reference to "$20,000,000.00" contained therein and replacing it with "$5,000,000.00".

(g) The definition of "Prime Rate Loan" in the Credit Agreement is amended by deleting it in its entirety and replacing it with:

"'Prime Rate Loan' shall mean any or all Advances from time to time unpaid and bearing interest at the Prime Rate plus one quarter of one percent (¹/4%)."

(h) The definition of "Termination Date" contained in the Credit Agreement is amended by deleting the reference to "November 30, 2002" and replacing it with "February 28, 2003".

(i) New definitions are added to Section 1.1 of the Credit Agreement as follows:

(i): "'Cash and Cash Equivalents' means cash and cash equivalents as defined in accordance with GAAP."
(ii): "'EBIT' means total income before interest expenses and provision for federal taxes for any period."

SECTION 2.2. Amendment to Schedule 7.1. Schedule 7.1 of the Credit Agreement is amended so that the reference to "$20,000,000.00" contained therein is deleted and replaced with "$5,000,000.00."

SECTION 2.3. Amendment to Section 2.4. Section 2.4 of the Credit Agreement is amended by deleting Exhibit A therefrom and replacing it with Exhibit A annexed hereto and made a part hereof and all references to the term "Note" shall be deemed to be a reference to the Note attached as Exhibit A hereto.

SECTION 2.4. Amendment to Section 3.1. Section 3.1 of the Credit Agreement is amended by deleting the references to "Prime Rate" contained therein and replacing them with "Prime Rate plus one quarter of one percent (¹/4%)".

SECTION 2.5. Amendment to Section 7.1. Section 7.1 of the Credit Agreement with respect to Reporting Requirements is amended by deleting Exhibit C therefrom and replacing it with Exhibit C annexed hereto and made a part hereof and all references to "Exhibit C" contained in the Credit Agreement shall be deemed to be a reference to Exhibit C hereto. Section 7.1 of the Credit Agreement also is amended so that the reference to "7.20" contained therein is deleted and replaced with "7.21".

SECTION 2.6. Amendment to Section 7.17. Section 7.17 of the Credit Agreement with respect to Tangible Net Worth is amended by deleting: "and (c) $23,400,000.00 from March 31, 2002" therefrom, and replacing it with: "(c) $23,400,000.00 from March 31, 2002 through and including November 30, 2002; (d) $36,000,000.00 from December 1, 2002 through and including March 30, 2003; (e) $36,500,000.00 from March 31, 2003 through and including March 30, 2004; and (f) $38,000,000.00 from March 31, 2004".

SECTION 2.7. Amendment to Section 7.19. Section 7.19 of the Credit Agreement with respect to Senior Debt to Tangible Net Worth is amended by deleting the reference to "1.50 to 1.00" contained therein and replacing it with "1.00 to 1.00".

SECTION 2.8. Amendment to Section 7.20. (a) Section 7.20 of the Credit Agreement with respect to Cash Flow Coverage Ratio is amended by deleting it in its entirety and replacing it with the following:

"Section 7.20 Minimum Cash Reserve. Have Cash and Cash Equivalents of no less than $7,000,000.00 at all times".

(b) In furtherance of the foregoing, all references to the Cash Flow Coverage Ratio contained in the Credit Agreement, including without limitation, in the table of contents are deemed mutatis mutandis to be references to Minimum Cash Reserve.

SECTION 2.9. Amendment to Article VII. A new Section 7.21 is added to the Credit Agreement as follows:

"SECTION 7.21. EBIT. Have EBIT of not less than: (a) $0 for the fiscal quarter ending December 31, 2002; (b) $500,000.00 for the fiscal quarter ending March 31, 2003; and (c) $250,000.00 for the fiscal quarter ending June 30, 2003 and at all times thereafter."

SECTION 3. CONDITIONS PRECEDENT.

This Amendment shall only become effective upon the fulfillment, prior to or contemporaneously with the execution hereof, of the following conditions precedent:

SECTION 3.1.

(a) Execution of Amendment. The execution and delivery by Borrower and Bank of an original of this Amendment;

(b) Payment of Fees. (a) The payment by Borrower of: (i) a single amendment fee to the Bank in the amount of $6,250.00 in connection with this Amendment and the Amendment No. 2 to Export Credit and Security Agreement dated the date hereof between the Bank and the Borrower; and (ii) all reasonable legal fees and expenses of the Bank incurred in connection with the preparation of this Amendment, and any other documents, instruments or agreements executed in connection herewith or therewith, and (b) evidence in form and substance satisfactory to the Bank that the fees of the Export-Import Bank of the United States ("Eximbank") required in connection with the extension of the Eximbank Documents (as defined in the Export Credit and Security Agreement dated November 30, 2000 between Bank and Borrower (as amended, the "Export Credit Agreement") have been paid in full;

(c) Execution of New Note. The execution and delivery by Borrower of the Amended and Restated Revolving Loan Promissory Note in the form of Exhibit A annexed hereto and made a part hereof;

(d) Eximbank Acknowledgment. Receipt by the Bank of a written consent and acknowledgment of the extension of the Termination Date by the Eximbank, together with written confirmation from the Eximbank, in form and substance satisfactory to Bank that the Final Disbursement Date under the Eximbank Documents (as defined in the Export Credit Agreement) is deemed to be February 28, 2003, that the Eximbank Guarantee (as defined in the Export Credit Agreement) and the Eximbank Documents are ratified and reaffirmed in all respects and shall remain in full force and effect and such other matters as the Bank may deem appropriate;

(e) Government Contracts. Borrower shall deliver to the Bank a list of all of the government contracts to which Borrower is a party.

(f) Patents. Borrower shall deliver to the Bank a list of all of the patents owned by the Borrower; and

(g) Execution of Related Documents and Additional Matters. The execution and delivery by Borrower of: (a) an Amendment No. 2 to Export Credit and Security Agreement and an Amended and Restated Revolving Loan Promissory Note; (b) a letter agreement terminating the equipment credit line made available pursuant to the letter agreement re: credit line for equipment purchases dated February 14, 2002; (c) all other documents and legal matters, as may be necessary, in

connection with this Amendment and the transactions contemplated by the Credit Agreement as amended by this Amendment which shall be reasonably satisfactory in form and substance to Bank.

SECTION 4. MISCELLANEOUS.

SECTION 4.1. Representations and Warranties. (a) All terms, conditions, covenants, representations and warranties (other than any such representation and warranty that, by its terms, refers to a specific date other than the date hereof [; provided, however, that the Schedules to the Credit Agreement are deemed updated by the information contained in the Schedules attached hereto]) of Borrower contained in the Credit Agreement, except as expressly modified hereby, are ratified, confirmed and reaffirmed by Borrower as of the date hereof, remain in full force and effect as of the date hereof, and are incorporated herein by reference as if fully set forth herein.

(b) All such terms, conditions, covenants, representations and warranties (other than any such representation and warranty that, by its terms, refers to a specific date other than the date hereof [; provided, however, that the Schedules to the Credit Agreement are deemed updated by the information contained in the Schedules attached hereto]) of Borrower contained in all of the other Financing Agreements, except as expressly modified hereby, are ratified, confirmed and reaffirmed by Borrower as of the date hereof, remain in full force and effect as of the date hereof, and are subject to the terms of this Amendment.

(c) The Borrower represents and warrants to Bank that it has the necessary power and has taken all necessary action to make this Amendment the valid and enforceable obligation it purports to be, and that this Amendment constitutes the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as enforcement may be limited by principles of equity, bankruptcy, insolvency, or other laws affecting the enforcement of creditors' rights generally.

SECTION 4.2. GOVERNING LAW. THIS AMENDMENT AND THE OTHER FINANCING AGREEMENTS, AND ALL TRANSACTIONS HEREUNDER, AND ALL THE RIGHTS OF THE PARTIES, SHALL BE GOVERNED AS TO VALIDITY, CONSTRUCTION, ENFORCEMENT AND IN ALL OTHER RESPECTS BY THE LAWS OF THE STATE OF NEW YORK. THE BORROWER AGREES THAT THE COURTS OF THE STATE OF NEW YORK OR THE UNITED STATES DISTRICT COURT FOR THE UNITED STATES IN THE SOUTHERN DISTRICT OF NEW YORK SHALL HAVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES PERTAINING TO THE FINANCING TRANSACTIONS OF WHICH THIS AMENDMENT IS A PART AND/OR TO ANY MATTER ARISING OR IN ANY WAY RELATED TO THIS AMENDMENT OR ANY OTHER AGREEMENT BETWEEN THE BANK AND THE BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING AND BORROWER WAIVES PERSONAL SERVICE OF PROCESS AND AGREES THAT A SUMMONS AND COMPLAINT COMMENCING AN ACTION OR PROCEEDING IN ANY SUCH COURT SHALL BE PROPERLY SERVED AND SHALL CONFER PERSONAL JURISDICTION IF SERVED BY REGISTERED OR CERTIFIED MAIL TO BORROWER, OR AS OTHERWISE PROVIDED BY THE LAWS OF NEW YORK STATE OR THE UNITED STATES. NOTHING HEREIN SHALL AFFECT THE RIGHT OF BANK TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER EITHER IN ANY OTHER JURISDICTION OR TO SERVE PROCESS IN ANY OTHER JURISDICTION OR TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.

SECTION 4.3. WAIVERS.

(a) Prejudgment Remedy, etc. THE BORROWER ACKNOWLEDGES THAT THE ADVANCES ARE COMMERCIAL TRANSACTIONS AND WAIVES ITS RIGHT TO NOTICE

AND HEARING ALLOWED BY ANY STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEMDY, AND FURTHER WAIVES ALL RIGHTS TO REQUEST THE POSTING OF A BOND, WITH OR WITHOUT SURETY, TO PROTECT THE BORROWER OR ANY ENDORSER, GUARANTOR OR SURETY OF ANY OF THE OBLIGATIONS AGAINST DAMAGES THAT MAY BE CAUSED BY ANY PREJUDGMENT REMEDY. THE BORROWER FURTHER WAIVES DILIGENCE, DEMAND, PRESENTMENT FOR PAYMENT, NOTICE OF NONPAYMENT, PROTEST AND NOTICE OF ANY RENEWALS OR EXTENSTIONS.

(b) Jury Waiver. THE BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY COURT IN ANY SUIT, ACTION OR PROCEEDING IN ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THE FINANCING TRANSACTIONS OF WHICH THIS AMENDMENT IS A PART AND/OR THE ENFORCEMENT OF ANY OF THE BANK'S RIGHTS, INCLUDING WITHOUT LIMITATION, TORT CLAIMS.

(c) Voluntary Nature of Waivers. THE BORROWER ACKNOWLEDGES THAT IT MAKES THE FOREGOING WAIVERS IN SUBSECTIONS (a) AND (b) ABOVE, KNOWINGLY, WILLINGLY, WITHOUT DURESS AND VOLUNTARILY AND ONLY AFTER CONSIDERATION OF THE RAMIFICATIONS OF SUCH WAIVERS WITH ITS ATTORNEYS.

SECTION 4.4. Events of Default or Event of Default. No Events of Default or Event of Default has occurred and is continuing on the date hereof or shall be continuing after giving effect to, or result from, the execution and delivery of this Amendment and Borrower has no present reason to believe any Events of Default or Event of Default might or would occur after the date hereof.

SECTION 4.5. Survival of Representations and Warranties. All representations and warranties made in this Amendment or any other documents furnished in connection with this Amendment shall survive the execution and delivery of this Amendment and no investigation by the Bank or any closing shall affect the representations and warranties or the right of the Bank to rely upon them.

SECTION 4.6. Reference to Credit Agreement. The Credit Agreement, the Financing Agreements and any and all other agreements, documents, or instruments heretofore, now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Credit Agreement, as amended hereby, are hereby amended so that any reference in the Credit Agreement, the Financing Agreements or such other agreements, documents or instruments to the Credit Agreement shall mean a reference to the Credit Agreement as amended hereby.

SECTION 4.7. Further Assurances. The parties hereto shall execute and deliver such additional documents and take such additional action as may be necessary or desirable to effectuate the provisions and purposes of this Amendment.

SECTION 4.8. Successors and Assigns. Borrower and Bank as such terms are used herein shall include the legal representatives, successors and assigns of those parties.

SECTION 4.9. Counterparts. This Amendment may be executed in any number of counterparts and by the Bank and Borrower on separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same Amendment.

SECTION 4.10. Severability. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect shall be confined to the provision so held to be invalid or unenforceable.

SECTION 4.11. Conflicting Provisions. In the event of any conflict in the terms and provisions of this Amendment and the terms and provisions of the Credit Agreement, the terms and provisions of this Amendment shall govern.

SECTION 4.12. Entire Agreement. This Amendment constitutes the entire agreement and understanding between the parties hereto with respect to the transactions contemplated hereby and supersedes all prior negotiations, understandings, and agreements between such parties with respect to such transaction.

IN WITNESS WHEREOF, this Amendment has been duly executed by the parties hereto as of the day and year first above written.

		AMERICAN SCIENCE AND ENGINEERING, INC.
		By		(title)
		HSBC BANK USA
		By		(title)

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Exhibit 10(d)(v)

AMENDMENT NO. 2 TO REVOLVING LOAN AND SECURITY AGREEMENT
SECTION 1. DEFINITIONS.
SECTION 2. AMENDMENT.
SECTION 3. CONDITIONS PRECEDENT.
SECTION 4. MISCELLANEOUS.
EX-99.1 5 a2103518zex-99_1.htm EXHIBIT 99.1
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EXHIBIT 99.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of American Science & Engineering, Inc., a Massachusetts corporation (the "Company"), does hereby certify, to such officer's knowledge and belief, that: (1) the Quarterly Report on Form 10-Q for the quarter ended December 31, 2002 (the "Form 10-Q") of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (2) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Ralph S. Sheridan Chief Executive Officer
February 14, 2003

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EXHIBIT 99.1

EX-99.2 6 a2103518zex-99_2.htm EXHIBIT 99.2
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EXHIBIT 99.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Paul Theodore Owens Chief Financial Officer
February 14, 2003

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EXHIBIT 99.2

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