Form 10-Q AMERICAN SCIENCE & ENGIN For: Sep 30

Article Stock Quotes (1)

FREE Breaking News Alerts from StreetInsider.com!

StreetInsider.com Top Tickers, 4/19/2024

1. NFLX
2. TSM
3. ISRG
4. INFY
5. SNV

6. TSLA
7. SPY
8. SMCI
9. AAPL
10. NVDA

Top News Most Read Special Reports

November 10, 2014 4:39 PM EST

E-mail

Table of Contents

�

UNITED STATES

�SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

�

FORM�10-Q

�

(Mark One)

�

x�� QUARTERLY REPORT PURSUANT TO SECTION�13 OR 15(d)�OF THE SECURITIES EXCHANGE ACT OF 1934

�

For the quarterly period ended September�30, 2014

�

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	�	04-2240991
(State or other jurisdiction of incorporation or organization)	�	(I.R.S. Employer 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 (or for such shorter period that the registrant was required to file such reports), and (2)�has been subject to such filing requirements for the past 90�days.� Yes�x� No�o

�

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule�405 of Regulation S-T (�232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).� Yes�x� No�o

�

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of �large accelerated filer,� �accelerated filer� and �smaller reporting company� in Rule�12b-2 of the Exchange Act.

�

Large accelerated filer	o	�	�	Accelerated filer	x
Non-accelerated filer	o	(Do not check if a smaller reporting company)	�	Smaller reporting company	o

�

Indicate by check mark whether the registrant is a shell company (as defined in Rule�12b-2 of the Securities Exchange Act of 1934).� Yes�o� No�x

�

The number of shares of the registrant�s common stock, $0.66 2/3 par value, outstanding as of November�3, 2014 was 7,866,168.

�

Table of Contents

�

TABLE OF CONTENTS

�

Part�I � Financial Information	�
Item 1 � Financial Statements	3
Unaudited Condensed Consolidated Balance Sheets � September�30, 2014 and March�31, 2014	3
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) � For the three and six months ended September�30, 2014 and September�30, 2013	4
Unaudited Condensed Consolidated Statements of Cash Flows � For the six months ended September�30, 2014 and September�30, 2013	5
Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2 � Management�s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3 � Quantitative and Qualitative Disclosure About Market Risk	16
Item 4 � Controls and Procedures	16
Part�II � Other Information	�
Item 1A � Risk Factors	17
Item 2 � Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 6 �Exhibits	17
Signatures	18

�

Z Backscatter�, ZBV�, AS&E�, Gemini�, OmniView�, Sentry�, SmartCheck�, Z Portal�, MINI Z��and all American Science and Engineering,�Inc. (�AS&E�) product names and AS&E logos are either registered trademarks or trademarks of American Science and Engineering,�Inc. in the United States and/or other countries. Other product and company names mentioned herein may be the trademarks of their respective owners.

�

Table of Contents

�

PART�I � FINANCIAL INFORMATION

ITEM 1 � FINANCIAL STATEMENTS

�

AMERICAN SCIENCE AND ENGINEERING,�INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

�

(In�thousands,�except�share�and�per�share�amounts)	�	September�30, 2014		�	March�31, 2014		�
Assets	�	�		�	�		�
Current assets:	�	�		�	�		�
Cash and cash equivalents	�	$	39,829	�	$	62,143	�
Restricted cash and investments	�	13,474		�	14,603		�
Short-term investments, at fair value	�	76,359		�	88,649		�
Accounts receivable, net of allowances of $343 and $323 at September�30, 2014 and March�31, 2014, respectively�	�	29,419		�	34,317		�
Unbilled costs and fees	�	5,763		�	2,491		�
Inventories, net	�	45,200		�	32,935		�
Prepaid expenses and other current assets	�	10,441		�	5,459		�
Deferred income taxes	�	4,775		�	4,775		�
Total current assets	�	225,260		�	245,372		�
Building, equipment and leasehold improvements, net	�	10,866		�	12,969		�
Restricted cash and investments	�	716		�	313		�
Deferred income taxes	�	6,318		�	6,318		�
Other assets, net	�	993		�	539		�
Total assets	�	$	244,153	�	$	265,511	�
�	�	�		�	�		�
Liabilities and Stockholders� Equity	�	�		�	�		�
Current liabilities:	�	�		�	�		�
Accounts payable	�	$	3,856	�	$	10,618	�
Accrued salaries and benefits	�	8,308		�	10,805		�
Accrued warranty costs	�	186		�	404		�
Accrued income taxes	�	�		�	2,338		�
Deferred revenue	�	11,360		�	10,934		�
Customer deposits	�	22,022		�	16,589		�
Current portion of lease financing liability	�	1,521		�	1,511		�
Other current liabilities	�	4,975		�	9,292		�
Total current liabilities	�	52,228		�	62,491		�
Lease financing liability, net of current portion	�	640		�	1,404		�
Deferred revenue	�	1,668		�	3,941		�
Other long-term liabilities	�	38		�	280		�
Total liabilities	�	54,574		�	68,116		�
Stockholders� equity:	�	�		�	�		�
Preferred stock, no par value, 100,000 shares authorized; no shares issued	�	�		�	�		�
Common stock, $0.66 2/3 par value, 20,000,000 shares authorized; 7,930,618 and 7,884,015 shares issued and outstanding at September�30, 2014 and March�31, 2014, respectively	�	5,287		�	5,255		�
Capital in excess of par value	�	37,854		�	35,236		�
Accumulated other comprehensive income (loss), net	�	(16		)	13		�
Retained earnings	�	146,454		�	156,891		�
Total stockholders� equity	�	189,579		�	197,395		�
Total liabilities and stockholders� equity	�	$	244,153	�	$	265,511	�

�

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

�

Table of Contents

�

AMERICAN SCIENCE AND ENGINEERING,�INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

�

�	�	Three�Months�Ended					�	Six�Months�Ended					�
(In�thousands,�except�per�share�amounts)	�	September�30, 2014		�	September�30, 2013		�	September�30, 2014		�	September�30, 2013		�
Net sales and contract revenues:	�	�		�	�		�	�		�	�		�
Net product sales and contract revenues	�	$	11,004	�	$	22,208	�	$	34,255	�	$	43,488	�
Net service revenues	�	12,062		�	21,608		�	24,348		�	43,412		�
Total net sales and contract revenues	�	23,066		�	43,816		�	58,603		�	86,900		�
�	�	�		�	�		�	�		�	�		�
Cost of sales and contracts:	�	�		�	�		�	�		�	�		�
Cost of product sales and contracts	�	6,531		�	14,341		�	18,829		�	26,894		�
Cost of service revenues	�	6,852		�	10,269		�	13,622		�	21,653		�
Total cost of sales and contracts	�	13,383		�	24,610		�	32,451		�	48,547		�
Gross profit	�	9,683		�	19,206		�	26,152		�	38,353		�
�	�	�		�	�		�	�		�	�		�
Expenses:	�	�		�	�		�	�		�	�		�
Selling, general and administrative expenses	�	9,118		�	6,913		�	17,309		�	14,322		�
Research and development costs	�	6,418		�	5,172		�	12,424		�	9,586		�
Total operating expenses	�	15,536		�	12,085		�	29,733		�	23,908		�
Operating income (loss)	�	(5,853		)	7,121		�	(3,581		)	14,445		�
�	�	�		�	�		�	�		�	�		�
Other income (expense):	�	�		�	�		�	�		�	�		�
Interest and investment income	�	87		�	75		�	165		�	169		�
Interest expense	�	(9		)	(14		)	(19		)	(29		)
Other, net	�	(99		)	(56		)	(252		)	(143		)
Total other income (expense)	�	(21		)	5		�	(106		)	(3		)
Income (loss) before provision for (benefit from) income taxes	�	(5,874		)	7,126		�	(3,687		)	14,442		�
Provision for (benefit from) income taxes	�	(1,968		)	2,387		�	(1,235		)	4,838		�
Net income (loss)	�	$	(3,906	)	$	4,739	�	$	(2,452	)	$	9,604	�
Other comprehensive income (loss):	�	�		�	�		�	�		�	�		�
Unrealized gain (loss) on available for sale securities (net of tax)	�	(15		)	60		�	(29		)	34		�
Comprehensive income (loss)	�	$	(3,921	)	$	4,799	�	$	(2,481	)	$	9,638	�
Income (loss) per share - Basic	�	$	(0.49	)	$	0.61	�	$	(0.31	)	$	1.23	�
Income (loss) per share - Diluted	�	$	(0.49	)	$	0.60	�	$	(0.31	)	$	1.22	�
Weighted average shares � Basic	�	7,917		�	7,820		�	7,904		�	7,831		�
Weighted average shares � Diluted	�	7,917		�	7,851		�	7,904		�	7,866		�
Dividends declared per share	�	$	0.50	�	$	0.50	�	$	1.00	�	$	1.00	�

�

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

�

Table of Contents

�

AMERICAN SCIENCE AND ENGINEERING,�INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

�

�	�	For�the�Six�Months�Ended					�
(In�thousands)	�	September�30, 2014		�	September�30, 2013		�
Cash flows from operating activities:	�	�		�	�		�
Net income (loss)	�	$	(2,452	)	$	9,604	�
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:	�	�		�	�		�
Depreciation and amortization	�	2,605		�	2,613		�
Provisions for contracts, inventory and accounts receivable reserves	�	(270		)	1,543		�
Amortization of bond premium	�	540		�	855		�
Deferred income taxes	�	�		�	1,894		�
Stock compensation expense	�	1,770		�	641		�
Changes in assets and liabilities:	�	�		�	�		�
Accounts receivable	�	4,878		�	7,490		�
Unbilled costs and fees	�	(3,272		)	5		�
Inventories	�	(11,534		)	(4,332		)
Prepaid expenses and other assets	�	(5,436		)	1,640		�
Accounts payable	�	(6,762		)	2,873		�
Accrued income taxes	�	(2,338		)	(2,094		)
Customer deposits	�	5,433		�	12,731		�
Deferred revenue	�	(1,847		)	(3,077		)
Accrued expenses and other liabilities	�	(7,274		)	(3,756		)
Net cash (used for) provided by operating activities	�	(25,959		)	28,630		�
�	�	�		�	�		�
Cash flows from investing activities:	�	�		�	�		�
Purchases of short-term investments	�	(29,212		)	(18,311		)
Proceeds from sales and maturities of short-term investments	�	40,933		�	57,534		�
Purchases of property and equipment, net	�	(943		)	(1,249		)
Net cash provided by investing activities	�	10,778		�	37,974		�
�	�	�		�	�		�
Cash flows from financing activities:	�	�		�	�		�
Decrease (increase) in restricted cash and investments	�	726		�	(1,222		)
Proceeds from exercise of stock options	�	888		�	1,497		�
Repurchase of shares of common stock	�	�		�	(12,306		)
Repayment of leasehold financing liability	�	(754		)	(742		)
Payment of common stock dividend	�	(7,993		)	(7,800		)
Reduction of income taxes paid due to the tax benefit from employee stock option expense	�	�		�	20		�
Net cash used for financing activities	�	(7,133		)	(20,553		)
�	�	�		�	�		�
Net (decrease) increase in cash and cash equivalents	�	(22,314		)	46,051		�
Cash and cash equivalents at beginning of period	�	62,143		�	40,418		�
Cash and cash equivalents at end of period	�	$	39,829	�	$	86,469	�

�

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

�

Table of Contents

�

AMERICAN SCIENCE AND ENGINEERING,�INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

�

1.�� GENERAL

�

The condensed consolidated financial statements include the accounts of American Science and Engineering,�Inc. and its wholly owned subsidiaries (the �Company�). All significant intercompany transactions and balances have been eliminated.

�

The unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of Form�10-Q and consequently do not include all disclosures required by Form�10-K. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes included in the Company�s Annual Report on Form�10-K for the fiscal year ended March�31, 2014, or fiscal 2014, as filed with the Securities and Exchange Commission on June�6, 2014.

�

The unaudited condensed consolidated financial statements, in the opinion of management, include all necessary adjustments, 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.

�

Nature of Operations

�

The Company develops, manufactures, markets, and sells X-ray inspection and other detection products for homeland security, force protection, and other critical defense applications.� The Company provides maintenance, warranty, engineering, and training services related to these products.� The Company has one reporting segment, X-ray screening products.

�

Significant Accounting Policies

�

For systems that are produced in a standard manufacturing operation and have shorter order to delivery cycles, the Company recognizes sales when title passes and when other revenue recognition criteria (such as transfer of risk and customer acceptance) are met.� Revenues on cost reimbursable and custom long-term fixed price contracts are generally recorded as costs are incurred using the percentage of completion method.

�

Occasionally, the Company receives requests from customers to hold product being purchased for a valid business purpose. The Company recognizes revenue for such arrangements provided the transaction meets, at a minimum, the following criteria: a valid business purpose for the arrangement exists; risk of ownership of the purchased product has transferred to the buyer; there is a fixed delivery date that is reasonable and consistent with the buyer�s business purpose; the product is ready for shipment; the Company has no continuing performance obligation in regards to the product and the product has been segregated from the Company�s inventories and cannot be used to fill other orders received.� There was no product being held under such arrangements at September�30, 2014 or March�31, 2014.

�

The other 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, 2014.� There have been no changes to the Company�s critical accounting policies during the six months ended September�30, 2014.

�

Stock Repurchase Program

�

On May�7, 2013, the Board of Directors announced the approval of its fifth Stock Repurchase Program which authorized the Company to repurchase up to an additional $35 million of shares of its common stock from time to time on the open market or in privately negotiated transactions.

�

During the six months ended September�30, 2014, the Company made no stock repurchases.� As of September�30, 2014, the remaining balance available under our fifth Stock Repurchase Program was $35,000,000.

�

Since September�30, 2014, the Company has repurchased 65,200 shares of its common stock at an average price of $48.33.

�

Table of Contents

�

Dividends

�

Three�Months�Ended

�

Six�Months�Ended

�

(In�thousands)

�

September�30,
2014

�

September�30,
2013

�

September�30,
2014

�

September�30,
2013

�

Dividends declared

�

0.50

�

0.50

�

1.00

�

1.00

�

Dividends paid

�

0.50

�

0.50

�

1.00

�

1.00

�

On November�10, 2014, the Company declared a cash dividend of $0.50 per share. The dividend will be paid on December�2, 2014 to all shareholders of record at the close of business on November�25, 2014.� Future dividends will be declared at the discretion of the Board of Directors and will depend upon such factors as the Board of Directors deems relevant.

�

Concentrations of Credit Risk

�

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents, restricted cash, short-term investments and accounts and unbilled receivables.� At times, the Company maintains cash balances in excess of insured limits. The Company maintains its cash and cash equivalents with major financial institutions.� The Company�s credit risk is managed by investing its cash in investment grade corporate debentures/bonds, U.S. government agency bonds, commercial paper, U.S. treasury bills, money market funds, and certificates of deposit.

�

New Accounting Pronouncements

�

In May�2014, the Financial Accounting Standards Board (�FASB�) issued Accounting Standards Update (�ASU�) No.�2014-09,�Revenue From Contracts With Customers, which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The ASU is based on the principle that an entity should recognize revenue in an amount that reflects the consideration to which an entity expects to be entitled in exchange for the goods or services transferred to its customers.�The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract.�Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard.�The guidance is effective for the interim and annual periods beginning on or after December�15, 2016 (early adoption is not permitted).�The Company is currently assessing the impact that this standard will have on its consolidated financial statements.

�

2.�� ACCOUNTING FOR STOCK-BASED COMPENSATION

�

The Company accounts for stock-based awards made to its employees and Board of Directors in accordance with Financial Accounting Standards Board Accounting Standards Codification (�FASB ASC�) 718, Compensation�Stock Compensation, which requires the measurement and recognition of all compensation costs for stock-based awards made to employees and the Board of Directors based upon fair value over the requisite service period for awards expected to vest.

�

The Company recognized $991,000 and $333,000 of stock-based compensation costs for the three months ended September�30, 2014 and September�30, 2013, respectively.� The Company recognized $1,770,000 and $641,000 of stock-based compensation costs for the six months ended September�30, 2014 and September�30, 2013, respectively.� The income tax benefit recognized related to the compensation costs for the three months ended September�30, 2014 and September�30, 2013 was approximately $332,000 and $112,000 respectively.� The income tax benefit recognized related to the compensation costs for the six months ended September�30, 2014 and September�30, 2013 was approximately $593,000 and $211,000, respectively.

�

The following table summarizes stock-based compensation costs included in the Company�s consolidated statements of operations and comprehensive income (loss):

�

Three�Months�Ended

�

Six�Months�Ended

�

(In�thousands)

�

September�30,
2014

�

September�30,
2013

�

September�30,
2014

�

September�30,
2013

�

Cost of revenues

�

297

�

104

�

523

�

217

�

Selling, general and administrative

�

694

�

229

�

1,247

�

424

�

Total share-based compensation expense before tax

�

991

�

333

�

1,770

�

641

�

Table of Contents

�

Stock Option and Other Compensation Plans

�

The Company has various stock option and other compensation plans for directors, officers, and employees.� The Company had the following stock plans outstanding as of September�30, 2014: the 2002 Combination Plan, the 2003 Stock Plan for Non-Employee Directors, the 2005 Equity and Incentive Plan and the 2014 Equity and Incentive Plan. There are 513,000 shares remaining available for issuance under these plans. Vesting periods are at the discretion of the Board of Directors and typically range from one to three years. Certain of the options granted vest upon the achievement of certain performance based goals as well as service time incurred.� Options under these plans are granted at fair market value and have a term of ten years from the date of grant.

�

Stock Options

�

The following tables summarize stock option activity for the six months ended September�30, 2014:

�

�	�	Number�of Shares	�	Weighted Average Exercise Price�($)		�	Weighted Average Contractual Life (years)	�	Aggregate Intrinsic Value		�
�	�	�	�	�		�	�	�	�		�
Options outstanding at March�31, 2014	�	224,964	�	$	62.75	�	3.57	�	�		�
Grants	�	�	�	�		�	�	�	�		�
Exercises	�	(22,224	)	39.90		�	�	�	$	588,000	�
Cancellations	�	(906	)	61.40		�	�	�	�		�
Options outstanding at September�30, 2014	�	201,834	�	$	65.27	�	3.29	�	�		�
Options exercisable at September�30, 2014	�	201,834	�	�		�	�	�	�		�

�

Information related to the stock options outstanding as of September�30, 2014 is as follows:

�

Range�of�Exercise�Prices

�

Number�of
�Shares

�

Weighted-Average
�Remaining
�Contractual
�Life�(years)

�

Weighted-Average
�Exercise�Price
($)

�

Exercisable
Number�of
Shares

�

Exercisable
Weighted-Average
Exercise�Price
($)

�

$�46.68-$60.00

�

36,933

�

1.01

�

52.76

�

36,933

�

52.76

�

$�60.01-$75.82

�

164,901

�

3.80

�

68.07

�

164,901

�

68.07

�

$�46.68-$75.82

�

201,834

�

3.29

�

65.27

�

201,834

�

65.27

�

The Company deems the Black-Scholes option pricing model as the most appropriate method for determining the estimated fair value of stock-based awards. The Black-Scholes method of valuation requires several assumptions: (1)�the expected term of the stock-based award; (2)�the expected future stock volatility over the expected term; (3)�a risk-free interest rate; and (4)�the expected dividend yield. The expected term represents the expected period of time that the Company believes the options will be outstanding based on historical information. Estimates of expected future stock price volatility are based on the historic volatility of the Company�s common stock and the risk-free interest rate is based on the U.S. Zero-Bond rate. The expected dividend yield is based on the assumption that the Company would continue paying dividends on its common stock at the same rate for the foreseeable future.

�

There were no options granted in the six month periods ended September�30, 2014 or September�30, 2013.

�

As of September�30, 2014, there was no remaining unrecognized compensation cost related to options granted.

�

Restricted Stock and Restricted Stock Units

�

The Company has instituted long-term incentive plans for certain key employees. These plans call for the issuance of restricted

�

Table of Contents

�

stock, restricted stock units, restricted stock options, and/or cash incentives which vest or are paid upon the achievement of certain performance-based goals as well as service time incurred.� Restricted stock and restricted stock units may also be granted to other employees with vesting periods that range from one to three years.� In addition, annually the non-employee directors are granted restricted stock. Restricted stock shares granted to our non-employee directors vest on a pro-rata basis, based on service time performed over a one-year period.� The fair values of the restricted stock and restricted stock unit awards are equal to the market price per share of the Company�s common stock on the date of grant.

�

Non-vested restricted stock and restricted stock unit awards are subject to the risk of forfeiture until the fulfillment of specified conditions. As of September�30, 2014, there was $4,320,000 of total unrecognized compensation costs related to non-vested restricted stock and restricted stock unit awards granted under the Company�s stock plans. These costs are expected to be recognized over a weighted average period of 1.15 years.

�

The following table summarizes the status of the Company�s non-vested restricted stock and restricted stock unit awards for the six months ended September�30, 2014:

�

�	�	Number�of Shares	�	Weighted�Average Grant�Date Fair�Value ($)		�
Outstanding at March�31, 2014	�	72,000	�	$	61.30	�
Granted	�	64,950	�	63.84		�
Vested	�	(26,028	)	61.19		�
Forfeited	�	(7,009	)	61.64		�
Outstanding at September�30, 2014	�	103,913	�	$	62.89	�

�

3.�� INVENTORIES

�

Inventories consist of material, labor and manufacturing overhead and are recorded at the lower of cost, using the weighted average cost method, or net realizable value. Excess manufacturing overhead costs attributable to idle facility expenses, freight, handling costs and wasted material (spoilage) attributable to abnormally low production volumes (levels that materially differ from budgeted production plans due primarily to changes in customer demand) are excluded from inventory and recorded as an expense in the period incurred.

�

The components of inventories at September�30, 2014 and March�31, 2014 were as follows:

�

(In�thousands)	�	September�30, 2014		�	March�31, 2014		�
Raw materials, completed sub-assemblies, and spare parts	�	$	20,033	�	$	18,482	�
Work-in-process	�	20,401		�	13,199		�
Finished goods	�	4,766		�	1,254		�
Total	�	$	45,200	�	$	32,935	�

�

4.�� INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE

�

Basic earnings (loss) per common share is computed by dividing net income (loss) available to common stockholders by the weighted average number of shares of common stock outstanding during the period.� Share-based payment awards entitling holders to receive non-forfeitable dividends before vesting are considered participating securities and thus are included in the calculation of basic earnings per share under the two-class method.� Diluted earnings per share include the dilutive impact of options, and restricted stock units using the average share price of the Company�s common stock for the period. For the three months ended September�30, 2014 and September�30, 2013, common stock equivalents of 298,000 and 181,000 shares, respectively, are excluded from diluted earnings per share, as their effect is anti-dilutive. For the six months ended September�30, 2014 and September�30, 2013, common stock equivalents of 294,000 and 181,000 shares, respectively, are excluded from diluted earnings per share, as their effect is anti-dilutive.

�

Table of Contents

�

Three�Months�Ended

�

Six�Months�Ended

�

(In�thousands�except�per�share�amounts)

�

September�30,
2014

�

September�30,
2013

�

September�30,
2014

�

September�30,
2013

�

Income (Loss) Per Share

�

Basic:

�

Net income (loss)

�

(3,906

)

4,739

�

(2,452

)

9,604

�

Weighted average number of common shares outstanding � basic

�

7,917

�

7,820

�

7,904

�

7,831

�

Net income (loss) per share � basic

�

(0.49

)

0.61

�

(0.31

)

1.23

�

Diluted:

�

Net income (loss)

�

(3,906

)

4,739

�

(2,452

)

9,604

�

Weighted average number of common shares outstanding

�

7,917

�

7,820

�

7,904

�

7,831

�

Assumed exercise of dilutive stock options and restricted stock units, using the treasury stock method

�

Weighted average number of common and potential common shares outstanding � diluted

�

7,917

�

7,851

�

7,904

�

7,866

�

Net income (loss) per share � diluted

�

(0.49

)

0.60

�

(0.31

)

1.22

�

5.�� LETTERS OF CREDIT

�

In the normal course of business, the Company may provide certain customers and potential customers with performance guarantees, which are generally backed by standby letters of credit. In general, the Company would only be liable for the amount of these guarantees in the event of default in the performance of its obligations, the probability of which management believes is low.� As of September�30, 2014, the Company had outstanding $26,512,000 in standby letters of credit.� These outstanding standby letters of credit are cash-secured at amounts ranging from 52% to 100% of the outstanding letters of credit, resulting in restricted cash and investments balance of $14,190,000 at September�30, 2014, of which $716,000 was considered long-term restricted cash and investments due to the expiration date of the underlying letters of credit.

�

6.�� FAIR VALUE MEASUREMENTS

�

The Company has categorized its financial assets, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below. If the inputs used to measure a financial instrument fall within different levels of the hierarchy, the categorization of such financial asset is based on the lowest level input that is significant to the fair value measurement of such instrument.

�

Financial assets are categorized based on the inputs to the valuation techniques as follows:

�

Level 1 - Financial assets whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company has the ability to access at the measurement date (examples include actively exchange-traded equity securities, listed derivatives, and most U.S. government and agency securities).

�

Level 2 - Financial assets whose values are based on quoted prices in markets where trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets.� Level 2 inputs include the following:

�

�� Quoted prices for identical or similar assets or liabilities in non-active markets;

�

�� Inputs other than quoted prices that are observable for substantially the full term of the asset or liability; and

�

�� Inputs that are derived principally from or corroborated by observable market data for substantially the full term of the asset or liability.

�

Level 3 - Financial assets whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management�s assumptions about the assumptions a market participant would use in pricing the asset or liability. The Company currently does not have any Level 3 financial assets or liabilities.

�

Table of Contents

�

The following table presents the financial assets that the Company measures at fair value on a recurring basis, based on the fair value hierarchy as of September�30, 2014 and March�31, 2014:

�

(In�thousands)	�	September�30, 2014		�	March�31, 2014		�
Level 1 � Financial Assets	�	�		�	�		�
Money market funds	�	$	34,762	�	$	33,623	�
Treasury bills	�	17,721		�	17,722		�
Total Level 1 Financial Assets	�	52,483		�	51,345		�
Level 2 � Financial Assets	�	�		�	�		�
Corporate debentures/bonds	�	31,996		�	41,424		�
Commercial paper	�	�		�	6,193		�
Government agency bonds	�	26,642		�	26,660		�
Total Level 2 Financial Assets	�	58,638		�	74,277		�
Total cash equivalents and short-term investments	�	$	111,121	�	$	125,622	�

�

These investments are classified as available-for-sale and are recorded at their fair market values using the specific identification method. As of September�30, 2014, all of the Company�s available-for-sale securities had contractual maturities of sixteen months or less. The Company had no material realized gains or losses on its available-for-sale securities for the three and six months ended September�30, 2014 and September�30, 2013, respectively. The unrealized holding gains or losses on these securities are included as a component of other comprehensive income (loss), as disclosed in the condensed consolidated statements of operations and comprehensive income (loss).

�

(In�thousands)

�

Amortized
Cost

�

Gross
Unrealized
Gains

�

Gross
Unrealized
Losses

�

Fair�Value

�

September�30, 2014:

�

Short-term investments:

�

Corporate debentures/bonds

�

32,032

�

(37

)

31,996

�

Government agency bonds

�

26,633

�

26,642

�

Treasury bills

�

17,704

�

17,721

�

Total short-term investments

�

76,369

�

(37

)

76,359

�

Cash equivalents:

�

Money market funds

�

34,762

�

34,762

�

Total cash equivalents

�

34,762

�

34,762

�

(In�thousands)

�

Amortized
Cost

�

Gross
Unrealized
Gains

�

Gross
Unrealized
Losses

�

Fair�Value

�

March�31, 2014:

�

Short-term investments:

�

Corporate debentures/bonds

�

38,076

�

(11

)

38,074

�

Commercial paper

�

6,193

�

6,193

�

Government agency bonds

�

26,652

�

)

26,660

�

Treasury bills

�

17,708

�

17,722

�

Total short-term investments

�

88,629

�

(13

)

88,649

�

Cash equivalents:

�

Money market funds

�

33,623

�

33,623

�

Corporate debentures/bonds

�

3,350

�

3,350

�

Total cash equivalents

�

36,973

�

36,973

�

Table of Contents

�

7.�� INCOME TAXES

�

The Company accounts for income taxes in accordance with FASB ASC 740,�Income Taxes, and recognizes deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities, calculated using enacted tax rates in effect for the year in which the differences are expected to be reflected in the tax return. The Company evaluates the need for a valuation allowance against its net deferred tax assets at period end based upon its three year cumulative income and its projections of future income, and records a valuation allowance against any net deferred tax assets if it is more likely than not that they will not be realized.

�

The Company is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ending March�31, 2011 through 2013 and by various state taxing authorities for the years ending March�31, 2007 through 2013.

�

8.�� GUARANTEES

�

Certain of the Company�s products carry a one-year warranty, the costs of which are accrued for at the time of shipment or delivery.� Accrual rates are based upon historical experience for the trailing twelve months and management�s judgment of future exposure.� Warranty experience for the three and six months ended September�30, 2014 and 2013 was as follows:

�

�	�	Three�Months�Ended					�	Six�Months�Ended					�
(In�thousands)	�	September�30, 2014		�	September�30, 2013		�	September�30, 2014		�	September�30, 2013		�
Warranty accrual - beginning of period	�	$	246	�	$	364	�	$	404	�	$	397	�
Accruals for warranties issued during the period	�	43		�	123		�	85		�	228		�
Adjustment of preexisting accrual estimates	�	(16		)	(51		)	(160		)	(66		)
Warranty costs incurred during the period	�	(87		)	(91		)	(143		)	(214		)
Warranty accrual � end of period	�	$	186	�	$	345	�	$	186	�	$	345	�

�

9.�� LEASE COMMITMENTS

�

In March�2005, the Company renewed its lease agreement for its corporate headquarters and manufacturing facilities in Billerica, Massachusetts.� As part of the lease agreement, the Company�s landlord agreed to certain renovations to the Billerica facility including the construction of additional high bay manufacturing space.� The Company was responsible for a portion of the construction costs and was deemed to be the owner of the building during the construction period under FASB ASC 840, Leases. �In January�2007, the Company amended this lease agreement to expand its lease to include the remaining available space in the building.� A total of $7,182,000 was capitalized to record the facility on its books with an offsetting credit to the lease financing liability.� In addition, amounts paid for construction were capitalized to fixed assets and the landlord construction allowances of $6,009,000 were recorded as additional lease financing liability.

�

At the completion of the construction of the initial renovations in February�2006, the lease was reviewed for potential sale-leaseback treatment in accordance with FASB ASC 840-40, Leases � Sale-Leaseback Transactions.� Based on this review, it was determined that the lease did not qualify for sale-leaseback treatment in accordance with FASB ASC 840-40.� As a result, the building and tenant improvement and associated lease financing liabilities remain on the Company�s books.� The lease financing liability is being amortized over the original lease term based on the payments designated in the agreement and the building and tenant improvement assets are being depreciated on a straight line basis over the lesser of their useful lives or the lease term.

�

In October�2014, the Company entered into an amendment to the lease agreement for the Billerica facilities extending the term of the lease through February�28, 2023 with an adjusted rent schedule commencing October�1, 2014.

�

10.�� COMMITMENTS AND CONTINGENCIES

�

Deferred Revenue

�

The Company offers extended warranty and service contracts to its customers. These contracts typically cover a period of one to five years, and include advance payments that are recorded as deferred revenue. Revenue is recognized as services are performed over

�

Table of Contents

�

the life of the contract, which represents the period over which these revenues are earned. Costs associated with these extended warranty and service contracts are expensed to cost of goods sold as incurred.

�

ITEM 2 � MANAGEMENT�S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

�

This Quarterly Report on Form�10-Q contains forward-looking statements that involve risks and uncertainties. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements within the meaning of Section�27A of the Securities Act of 1933 and Section�21E of the Exchange Act of 1934.� Without limiting the foregoing, the words �believes�, �anticipates�, �plans�, �expects�, �intends�, �should� and similar expressions are intended to identify forward-looking statements.� These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict, and you should not place undue reliance on our forward-looking statements.� The factors discussed under �Item 1A. Risk Factors�, among others, could cause actual results to differ materially from those indicated by forward-looking statements made herein and presented elsewhere by management from time to time.� We expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

�

Overview

�

American Science and Engineering,�Inc. develops and manufactures X-ray inspection systems for homeland security, force protection and other critical defense applications.� We provide maintenance, warranty, engineering, and training related to these products.

�

Our primary technologies are Z Backscatter technology which is used to detect explosives, illegal drugs, and other contraband even when concealed in complex backgrounds; and other technologies that expand the detection capability of our products beyond the material discrimination features of the Z Backscatter technology to include the penetration capability of high-energy transmission X-rays for dense cargos and/or other detection techniques.

�

Net sales and contract revenues for the second quarter of fiscal year ending March�31, 2015, or fiscal 2015, decreased to $23,066,000 compared to revenues of $43,816,000 for the second quarter of fiscal 2014. We reported an operating loss of $5,853,000 for the second quarter of fiscal 2015 compared to operating income of $7,121,000 for the second quarter of fiscal 2014.� Net losses for the second quarter of fiscal 2015 were $3,906,000 ($0.49 loss per share, on a diluted basis) compared to net income of $4,739,000 ($0.60 per share, on a diluted basis) for the second quarter of fiscal 2014. These results represent a 47% decrease in revenues, an $8,645,000 decrease in net income (loss), and a $1.09 decrease in earnings (loss) per share when compared to results for the second quarter of fiscal 2014.

�

Net sales and contract revenues for the first six months of fiscal 2015 decreased to $58,603,000 compared to revenues of $86,900,000 for the first six months of fiscal 2014. We reported an operating loss of $3,581,000 for the first six months of fiscal 2015 compared to operating income of $14,445,000 for the first six months of fiscal 2014.� Net losses for the first six months of fiscal 2015 were $2,452,000 ($0.31 loss per share, on a diluted basis) compared to net income of $9,604,000 ($1.22 earnings per share, on a diluted basis) for the first six months of fiscal 2014. These results represent a 33% decrease in revenues, a $12,056,000 decrease in net income (loss), and a $1.53 decrease in earnings (loss) per share when compared to results for the first six months of fiscal 2014.

�

The following table presents net sales and contract revenues by product and service categories:

�

Three�Months�Ended

�

Six�Months�Ended

�

(In�thousands)

�

September�30,
2014

�

September�30,
2013

�

September�30,
2014

�

September�30,
2013

�

Cargo Inspection Systems

�

4,035

�

8,911

�

13,181

�

22,529

�

Mobile Cargo Inspection Systems

�

2,772

�

8,434

�

14,335

�

13,242

�

Parcel and Personnel Screening Inspection Systems

�

1,534

�

2,099

�

2,299

�

3,941

�

Other product sales and contract revenue

�

2,663

�

2,764

�

4,440

�

3,776

�

Total net product sales and contract revenues

�

11,004

�

22,208

�

34,255

�

43,488

�

Net service revenues

�

12,062

�

21,608

�

24,348

�

43,412

�

Total net sales and contract revenues

�

23,066

�

43,816

�

58,603

�

86,900

�

Table of Contents

�

Critical Accounting Policies

�

We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as �critical� because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate, and different estimates�which also would have been reasonable�could have been used, which would have resulted in different financial results.

�

The critical accounting policies we identified in our most recent Annual Report on Form�10-K for the fiscal year ended March�31, 2014 are policies related to revenue recognition, inventories and related allowances for obsolete and excess inventory, and income taxes. It is important that the discussion of our operating results that follows be read in conjunction with the critical accounting policies disclosed in our Annual Report on Form�10-K, as filed with the Securities and Exchange Commission on June�6, 2014.� There have been no changes to our critical accounting policies during the three month period ended September�30, 2014.

�

Results of Operations

�

Net sales and contract revenues for the second quarter of fiscal 2015 decreased by $20,750,000 to $23,066,000 compared to the net sales and contract revenues of $43,816,000 for the corresponding period in the prior fiscal year.� Product sales and contract revenues decreased by $11,204,000 from the prior year due to a decrease of $5,662,000 in Mobile Cargo Inspection Systems revenues as shipments scheduled for the quarter were postponed due to contract issues and political unrest in certain destination locations.� In addition, Cargo Inspection Systems revenues decreased by $4,876,000 due to lower unit volume resulting from continued installation delays due to customer�s lack of readiness and a decline in bookings.� Net service revenues decreased by $9,546,000 to $12,062,000 compared to the second quarter of fiscal 2014 due primarily to the reduction in the number of systems under support contracts as a result of the continued withdrawal of U.S. forces from Iraq and Afghanistan.� Additionally, certain of these contracts have shifted from full service, fixed price contracts to variable labor only contracts resulting in lower revenue.

�

Net sales and contract revenues for the six months of fiscal 2015 decreased by $28,297,000 to $58,603,000 compared to the net sales and contract revenues of $86,900,000 for the corresponding period in the prior fiscal year.� Product sales and contract revenues decreased by $9,233,000 from the prior year due to a decrease in Cargo Inspection Systems revenues of $9,348,000 and Parcel and Personnel Inspection System revenues of $1,642,000 due to lower unit volume.� This decrease was offset in part by an increase of $1,093,000 in Mobile Cargo Inspection Systems revenues.� Net service revenues decreased by $19,064,000 to $24,348,000 compared to the first six months of fiscal 2014 due primarily to the reduction in the number of systems under support contracts as a result of the continued withdrawal of U.S. forces from Iraq and Afghanistan.� Additionally, certain of these contracts have shifted from full service, fixed price contracts to variable labor only contracts resulting in lower revenue.

�

Total cost of sales and contract revenues for the second quarter of fiscal 2015 decreased by $11,227,000 to $13,383,000 as compared to the corresponding period a year ago. Cost of product sales and contract revenues decreased by $7,810,000 to $6,531,000 as compared to the corresponding period a year ago.� Cost of product sales and contract revenues represented 59% of revenues versus 65% of revenues for the corresponding period in the prior year.� This resulted in an increase in gross margin percentage from the corresponding period a year ago as we accrued in the prior period $1.5 million in program costs overruns and anticipated losses on fixed price contracts which impacted gross margin by seven percentage points.� In the corresponding quarter of fiscal 2015, we accrued $304,000 in severance costs related to a workforce reduction which negatively impacted gross margin on products by three percentage points. The cost of service revenues for the second quarter of fiscal 2015 decreased by $3,417,000 to $6,852,000 as compared to the corresponding period a year ago.� Cost of service revenues increased to 57% of revenues from 48% of revenues in the corresponding period.� The decline in margins in the second quarter of fiscal 2015 is attributable primarily to $546,000 in costs accrued related to a contract default by a subcontractor as well as the accrual of $294,000 in severance costs related to the workforce reduction which impacted gross margin on services by two percentage points.

�

Total cost of sales and contract revenues for the first six months of fiscal 2015 decreased by $16,096,000 to $32,451,000 as compared to the corresponding period a year ago. Cost of product sales and contract revenues decreased by $8,065,000 to $18,829,000 as compared to the corresponding period a year ago.� Cost of product sales and contract revenues represented 55% of revenues versus 62% of revenues for the corresponding period in the prior year.� This resulted in an increase in gross margin percentage from the

�

Table of Contents

�

corresponding period a year ago as we accrued in the prior year period $1.5 million in program costs overruns and anticipated losses on fixed price contracts which impacted gross margin by three percentage points.� In addition, there was a shift in the product mix from the corresponding period in fiscal 2015 with a greater percentage of revenues deriving from Mobile Cargo products which historically earn higher margins than the other product groups. The cost of service revenues for the first six months of fiscal 2015 decreased by $8,031,000 to $13,622,000 as compared to the corresponding period a year ago.� Cost of service revenues increased to 56% of revenues from 50% of revenues in the corresponding period.� The decline in gross margin percentage in the first six months of fiscal 2015 as compared to the corresponding prior period is attributable to the $546,000 in costs related to the contract default by a subcontractor noted above and an increase in labor costs as a percentage of revenue to support systems under contract.

�

Selling, general and administrative expenses for the second quarter of fiscal 2015 increased by $2,205,000 to $9,118,000 as compared to the corresponding period a year ago.� Selling, general and administrative expenses represented 40% of revenues in the current period compared to 16% for the corresponding period in the prior year.� The increase in selling, general and administrative expenses from the prior year period was primarily the result of the accrual of severance costs of $552,000, an increase in legal costs of $533,000 related to intellectual property and other contract related matters, an increase in payroll and payroll related costs of $330,000 on increased headcount, an increase in marketing related expenses of $268,000 related to the proposal related efforts during the quarter, an increase in consulting expenses of $115,000 and an increase in travel related expenses of $98,000 as compared to the prior year.

�

Selling, general and administrative expenses for the first six months of fiscal 2015 increased by $2,987,000 to $17,309,000 as compared to the corresponding period a year ago.� Selling, general and administrative expenses represented 30% of revenues in the current period compared to 17% for the corresponding period in the prior year.� The increase in selling, general and administrative expenses from the prior year period was primarily the result of an increase in incentive compensation expense of $674,000, an increase in payroll and payroll related costs of $543,000 on increased headcount, an increase in marketing related expenses of $498,000 related to the launch of our new MINI Z product, as well as an increase in proposal related efforts during the period, an increase in travel related expenses of $248,000, an increase in legal costs of $223,000 related to intellectual property and other contract related matters, and an increase in consulting expenses of $140,000 as compared to the prior year.� In addition, during the six months ended September�30, 2014, we accrued severance costs of $552,000 impacting selling, general and administrative expenses primarily related to the workforce reduction effected at the end of the second quarter of fiscal 2015 equal to approximately 10% of the workforce.

�

Company funded research and development expenses for the second quarter of fiscal 2015 increased by $1,246,000 to $6,418,000 as compared to the corresponding period a year ago.� Research and development expenses represented 28% of revenues in the current quarter compared to 12% for the corresponding period in the prior year.�Research and development expenses increased as compared to the prior year period as engineering resources devoted to the completion of a significant custom-build revenue program at an international port during the prior year, returned to research and development activities, and our average engineering headcount also increased as compared to the corresponding prior year period.� In addition, the workforce reduction effected at the end of the second quarter of fiscal 2015 resulted in additional research and development expense of $350,000 during the period.

�

Company funded research and development expenses for the first six months of fiscal 2015 increased by $2,838,000 to $12,424,000 as compared to the corresponding period a year ago.� Research and development expenses represented 21% of revenues in the current quarter compared to 11% for the corresponding period in the prior year.�Research and development expenses increased as compared to the prior year period as engineering resources devoted to the completion of a significant custom-build revenue program at an international port during the prior year, returned to research and development activities, and our average engineering headcount also increased as compared to the corresponding prior year period.� In addition as noted above the workforce reduction effected at the end of the second quarter of fiscal 2015 resulted in additional research and development expense of $350,000 during the period.

�

Other income (expense) was ($21,000) of expense for the second quarter of fiscal 2015 as compared to $5,000 of income for the corresponding period a year ago.� The increase in other expense was the result of investment income increases offset by an increase of $41,000 in foreign currency transaction losses as compared to the prior year.

�

Other income (expense) was ($106,000) of expense for the first six months of fiscal 2015 as compared to ($3,000) of expense for the corresponding period a year ago.� The increase in other expense was the result of reduced investment income as well as an increase of $95,000 in foreign currency transaction losses as compared to the prior year.

�

We reported a pre-tax loss of $5,874,000 in the second quarter of fiscal 2015 as compared to pre-tax income of $7,126,000 in the

�

Table of Contents

�

corresponding period due to the factors described above.� We reported a pre-tax loss of $3,687,000 in the first six months of fiscal 2015 as compared to pre-tax income of $14,442,000 in the corresponding period due to the factors described above.

�

Our effective tax rate was 33.5% for all periods presented.

�

Liquidity and Capital Resources

�

Our sources of liquidity include, but are not limited to, our cash flows from operations and cash received from stock issuances related to option exercises.� We believe that our operating cash flows and cash and investments on hand are sufficient to fund our working capital requirements, capital expenditures, income tax obligations, dividends to our shareholders and performance guarantee collateralizations for the foreseeable future and also to fund stock repurchases as desired.

�

Summary of Cash Activities

�

Cash and cash equivalents decreased by $22,314,000 to $39,829,000 at September�30, 2014 compared to $62,143,000 at March�31, 2014.� Cash inflows for the period consisted primarily of:

�

1)�� net loss of $2,452,000 for the period offset by $4,645,000 in non-cash expenditures which included depreciation expense, stock based compensation, amortization of bond premiums, and provisions for contract, inventory and accounts receivable reserves;

2)�� net proceeds from sales and maturities of short-term investments of $11,721,000;

3)�� an increase of $5,433,000 in customer deposits during the period due to the timing of milestone payments on certain fixed price contracts; and

4)�� a decrease of $4,878,000 in accounts receivable from year end.

�

Offsetting these inflows were cash outflows including:

�

1)�� the payment of $7,993,000 in common stock dividends during the period as part of our quarterly dividend program;

2)�� an increase in inventories of $11,534,000 attributable to delays in shipments of finished goods and inventory buildup to fulfill projected and current orders;

3)�� a decrease in accrued expenses and other liabilities of $7,274,000 due primarily to the payment of incentive compensation, agent commissions and project-related costs accrued for at year end;

4)�� an increase in prepaid expenses and other assets of $5,436,000 attributable primarily to the payment of estimated taxes;

5)�� a decrease in accounts payable of $6,762,000 from the year end; and

6)�� a decrease in accrued income taxes of $2,338,000 due the payment of estimated taxes related to the year-end tax provision.

�

In the normal course of business, we may provide certain customers and potential customers with performance guarantees, which are generally backed by standby letters of credit. In general, we would only be liable for the amount of these guarantees in the event of default in the performance of our obligations; the probability of which management believes is low.� As of September�30, 2014, we had outstanding $26,512,000 in standby letters of credit.� These outstanding standby letters of credit are cash-secured at amounts ranging from 52% to 100% of the outstanding letters of credit, resulting in a restricted cash and investments balance of $14,190,000 at September�30, 2014, of which $716,000 was considered long-term restricted cash and investments due to the expiration date of the underlying letters of credit.

�

ITEM 3 � QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

�

There were no material changes in the quantitative and qualitative information about market risk since the end of our most recent fiscal year.� For further information, see Item 7A of our Annual Report on Form�10-K for the fiscal year ended March�31, 2014, as filed with the Securities and Exchange Commission on June�6, 2014.

�

ITEM 4 � CONTROLS AND PROCEDURES

�

a)�� Evaluation of disclosure controls and procedures

�

As of the end of the period covered by this report, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we reviewed and evaluated the effectiveness of our Company�s disclosure

�

Table of Contents

�

controls and procedures pursuant to Rule�13a-15(e)�and 15d-15(e)�of the Securities Exchange Act of 1934 as amended (the �Exchange Act�). Based upon their evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in the reports filed and submitted by it under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission�s rules�and forms, and to provide reasonable assurance that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

�

b)�� Changes in internal control over financial reporting

�

There have been no changes in our internal control over financial reporting as such term is defined in Rule�13a-15(f)�and 15d-15(f)�of the Exchange Act during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

�

PART�II � OTHER INFORMATION

�

ITEM 1A � RISK FACTORS

�

You should carefully review and consider the information regarding certain factors which could materially affect our business, financial condition or future results set forth under Item�1A. �Risk Factors� in our Form�10-K for the fiscal year ended March�31, 2014 as filed with the Securities and Exchange Commission on June�6, 2014. There have been no material changes from the factors disclosed in our Form�10-K for the year ended March�31, 2014, although we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the Securities and Exchange Commission.

�

ITEM 2 � UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

�

On May�7, 2013, the Board of Directors announced the approval of a Stock Repurchase Program which authorizes us to repurchase up to $35.0 million of shares of its common stock from time to time on the open market or in privately negotiated transactions. We made no repurchases of equity securities in the quarter ended September�30, 2014.

�

ITEM 6 � EXHIBITS

�

The exhibits listed on the Exhibit�Index immediately following the signature page�to this Quarterly Report on Form�10-Q are incorporated herein by reference, and are filed or furnished as part of this Quarterly Report on Form�10-Q.

�

The information required by Exhibit�Item 11 (Statement re: Computation of Income per Common and Common Equivalent Share) may be found in Note 4 to the Unaudited Condensed Consolidated Financial Statements in this quarterly report.

�

Table of Contents

�

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 thereunto duly authorized.

�

�	AMERICAN SCIENCE AND ENGINEERING,�INC.
�	�
Date: November�10, 2014	/s/�Kenneth J. Galaznik
�	Kenneth J. Galaznik
�	Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)

�

Table of Contents

�

EXHIBIT�INDEX

�

Exhibit Number	�	Description�of�Exhibits
�	�	�
10.1	�*	Form�of Non-Employee Director Restricted Stock Award Agreement under the 2014 Equity and Incentive Plan
�	�	�
10.2	�*	Form�of Restricted Stock Unit Grant Agreement under the 2014 Equity and Incentive Plan
�	�	�
10.3	�	Fifth Amendment to Lease of 829 Middlesex Turnpike, Billerica, Massachusetts
�	�	�
31.1�	�	Certification by Chief Executive Officer pursuant to Section�302 of the Sarbanes-Oxley Act of 2002*
�	�	�
31.2�	�	Certification by Chief Financial Officer pursuant to Section�302 of the Sarbanes-Oxley Act of 2002*
�	�	�
32.1�	�	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*
�	�	�
32.2�	�	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*
�	�	�
101	�	The following financial information from American Science and Engineering Inc.�s Quarterly Report on Form�10-Q for the quarter ended September�30, 2014, formatted in XBRL (eXtensible Business Reporting Language) includes: (i)�Condensed Consolidated Statements of Operations and Comprehensive Income for the three and six months ended September�30, 2014 and 2013, (ii)�Condensed Consolidated Balance Sheets at September�30, 2014 and March�31, 2014, (iii)�Condensed Consolidated Statements of Cash Flows for the six months ended September�30, 2014 and 2013, and (iv)�the Notes to Condensed Consolidated Financial Statements.*

�

�� Filed herewith

*�� Management contract or compensatory plan

�

Exhibit�10.1

�

American Science�& Engineering,�Inc.

2014 Equity and Incentive Plan

�

Non-Employee Director Restricted Stock Award Agreement

�

American Science�& Engineering,�Inc.

829 Middlesex Turnpike

Billerica, MA 01821

�

Ladies and Gentlemen:

�

The undersigned (i)�acknowledges that he/she has received an award (the �Award�) of restricted stock from American Science�& Engineering,�Inc. (the �Company�) under the 2014 Equity and Incentive Plan (as amended from time to time, the �Plan�) as a non-employee Director of the Company, subject to the terms set forth below and in the Plan; (ii)�further acknowledges receipt of a copy of the Plan as in effect on the date hereof; and (iii)�agrees with the Company as follows:

�

1.�� Effective Date.� This Agreement shall take effect as of ��, which is the date of grant of the Award.

�

2.�� Shares Subject to Award.� The Award consists of �� shares (the �Shares�) of common stock of the Company (�Stock�).� The undersigned�s rights to the Shares are subject to the restrictions described in this Agreement and the Plan (which is incorporated herein by reference with the same effect as if set forth herein in full) in addition to such other restrictions, if any, as may be imposed by law.

�

3.�� Meaning of Certain Terms.� Except as otherwise expressly provided, all terms used herein shall have the same meaning as in the Plan.� The term �vest� as used herein with respect to any Share means the lapsing of the forfeiture provisions set forth in Paragraph 5 below with respect to such Share.

�

4.�� Nontransferability of Shares.� The Shares acquired by the undersigned pursuant to this Agreement shall not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of, except as provided below and in the Plan.

�

5.�� Forfeiture Risk.� If the undersigned ceases to be a Director of the Company for any reason, excluding death (provided for in Paragraph 11 below), any then outstanding and unvested Shares acquired by the undersigned hereunder shall be automatically and immediately forfeited by the undersigned to the Company and available for reissue under the Plan.� The undersigned hereby (i)�appoints the Company as the attorney-in-fact of the undersigned to take such actions as may be necessary or appropriate to effectuate a transfer of the record ownership of any such Shares that are unvested and forfeited hereunder, (ii)�agrees to deliver to the Company, as a precondition to the issuance of any certificate or certificates with respect to unvested Shares hereunder, one or more

�

stock powers, endorsed in blank, with respect to such Shares, and (iii)�agrees to sign such other powers and take such other actions as the Company may reasonably request to accomplish the transfer or forfeiture of any unvested Shares that are forfeited hereunder.

�

6.�� Retention of Certificates.� Any certificates representing unvested Shares shall be held by the Company.� If unvested Shares are held in book entry form, the undersigned agrees that the Company may give stop transfer instructions to the depository to ensure compliance with the provisions hereof.

�

7.�� Vesting of Shares; Change in Control.� The Shares acquired hereunder shall vest in twelve (12) equal amounts on each of the first twelve (12) monthly anniversaries of �� (the �Vesting Start Date�).� Notwithstanding the foregoing, no Shares shall vest on any vesting date specified above unless the undersigned is then, and since the date of grant has continuously been, a Director of the Company.� Notwithstanding the foregoing, if a Change in Control of the Company occurs, then 100% of the Shares shall become vested immediately upon such Change in Control.� The term �Change in Control� means the occurrence hereafter of any of the following:

�

(i)�� Any Person, as such term is used in Sections 13(d)�and 14(d)�of the Act, other than the Company or a Subsidiary, becomes a beneficial owner (within the meaning of Rule�13d-3, as amended, as promulgated under the Exchange Act), directly or indirectly, in one or a series of transactions, of securities representing more than fifty percent (50%) of the combined voting power of the Company�s then outstanding securities;

�

(ii)�� The consummation of a merger or consolidation of the Company with any other Person, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation;

�

(iii)�� The closing of a sale or other disposition by the Company of all or substantially all of the assets of the Company;

�

(iv)�� Individuals who constitute the Board of Directors on the date hereof (�Incumbent Directors�) cease for any reason to constitute at least a majority of the board; provided, that any individual who becomes a member of the Board subsequent to the date hereof, whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors shall be treated as an Incumbent Director unless he or she assumed office as a result of an actual or threatened election contest with respect to the election or removal of directors; or

�

(v)�� A complete liquidation or dissolution of the Company.

�

8.�� Legend.� Any certificates representing unvested Shares shall contain a legend substantially in the following form:

�

THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS (INCLUDING FORFEITURE) OF THE 2014 EQUITY AND INCENTIVE PLAN OF AMERICAN SCIENCE AND ENGINEERING,�INC. AND A RESTRICTED STOCK AWARD AGREEMENT ENTERED INTO BETWEEN THE REGISTERED OWNER AND AMERICAN SCIENCE AND ENGINEERING,�INC.� COPIES OF SUCH PLAN AND AGREEMENT ARE ON FILE IN THE OFFICES OF AMERICAN SCIENCE�& ENGINEERING,�INC.

�

Following the vesting of any such Shares the Company shall, by its own action or upon the written request of the undersigned, cause a certificate or certificates covering such Shares, without the aforesaid legend, to be issued and delivered to the undersigned.� If any Shares are held in book-entry form, the Company may take such steps as it deems necessary or appropriate to record and manifest the restrictions applicable to such Shares.

�

9.�� Dividends,�etc.� The undersigned shall be entitled to (i)�receive any and all dividends or other distributions paid with respect to those Shares of which he is the record owner on the record date for such dividend or other distribution, and (ii)�vote any Shares of which he is the record owner on the record date for such vote; provided, however, that any property (other than cash) distributed with respect to a share of Stock (the �associated share�) acquired hereunder, including without limitation a distribution of Stock by reason of a stock dividend, stock split or otherwise, or a distribution of other securities with respect to an associated share, shall be subject to the restrictions of this Agreement in the same manner and for so long as the associated share remains subject to such restrictions, and shall be promptly forfeited if and when the associated share is so forfeited; and further provided, that the Compensation Committee may require that any cash distribution with respect to the Shares other than a normal cash dividend be placed in escrow or otherwise made subject to such restrictions as the Compensation Committee deems appropriate to carry out the intent of the Plan.� References in this Agreement to the Shares shall refer, mutatis mutandis, to any such restricted amounts.

�

10.�� Sale of Vested Shares.� The undersigned shall be entitled to sell, transfer, pledge, assign or otherwise encumber or dispose of any Share once it has vested, subject to (i)�satisfaction of any applicable tax withholding requirements with respect to the vesting or transfer of such Share; (ii)�the completion of any administrative steps (for example, but without limitation, the transfer of certificates) that the Company may reasonably impose; and (iii)�applicable requirements of federal and state securities laws.

�

11.�� Vesting Upon Death.� If the Director is terminated by reason of his or her death, then 100% of the Shares shall become vested in full, and the restrictions lifted.� In such event, the restrictions will be lifted from the Shares, and the Shares shall be freely transferable to the person(s)�to whom the Director�s share rights pass by will or by the applicable laws of descent and distribution.

�

12.�� Section�83(b).� The undersigned expressly acknowledges that he or she has been advised to confer promptly with a professional tax advisor to consider whether the undersigned should make a so-called �83(b)�election� with respect to the Shares.� Any such election, to be effective, must be made in accordance with applicable regulations and within thirty (30) days following the date of this

�

Award.� The Company has made no recommendation to the undersigned with respect to the advisability of making such an election and makes no representations or warranties to the undersigned regarding the tax consequences of the undersigned�s receipt of the Shares or their vesting or sale.

�

13.�� Waivers and Amendments.� The Compensation Committee, in its sole discretion, shall have the right at any time immediately to waive all or any part of the restrictions, conditions and other provisions of this Agreement or the Plan with regard to all or any part of the Shares held by the undersigned.

�

14.�� Governing Law.� This Agreement shall be governed by and construed under the laws of the Commonwealth of Massachusetts (without giving effect to any conflicts or choice of law provisions thereof that would cause the application of the domestic substantive laws of any other jurisdiction).

�

15.�� Successors and Assigns.� Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto.

�

16.�� Headings.� Descriptive headings are for convenience only and shall not control or affect the meaning or construction of any provision of this Agreement.

�

17.�� Entire Agreement.� This Agreement, in conjunction with the Plan, constitutes the full and entire understanding and agreement between the parties with regard to the subject hereof and supersedes all prior agreements and understandings, whether oral or written, with respect thereto.

�

18.�� Severability. �In case any provisions of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby, and each provision of this Agreement shall be enforced to the fullest extent permitted by law.

�

19.�� Counterparts.� This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.� For all purposes, signatures delivered and exchanged by facsimile or electronic transmission shall be binding and effective to the same extent as original signatures.

�

The foregoing Restricted Stock		�
Award Agreement is hereby accepted:		�
�		�
�		�
�		�
Name:	�	�
Title:	Director	�

�

AMERICAN SCIENCE AND ENGINEERING,�INC.		�
�		�
�		�
By:	�	�
�	Name:	�
�	Title:	�

�

Exhibit�10.2

�

AMERICAN SCIENCE AND ENGINEERING,�INC.

2014 Equity and Incentive Plan

�

Restricted Stock Unit Grant Agreement

�

American Science and Engineering,�Inc. (the �Company�), a Massachusetts corporation, hereby grants to the person named below restricted stock units (�Restricted Stock Units�) representing the right to receive shares of Common Stock, $0.6666 par value, of the Company (the �Award�) under and subject to the Company�s 2014 Equity and Incentive Plan (the �Plan�) on the terms and conditions set forth below and those attached hereto and in the Plan:

�

DEFINITIONS

�

Grant Date:	�	�	�	�
�	�	�	�	�
Participant:	�	�	�	�
�	�	�	�	�
Number of Restricted Stock Units:	�	�	�	�
�	�	�	�	�
Vesting Schedule:	�	Vesting Date	�	Units Vesting
�	�	��, 201X	�	��
�	�	��, 201X	�	��

�

By acceptance of this Award, the Participant agrees to the terms and conditions set forth above and those attached hereto and in the Plan.

�

PARTICIPANT			AMERICAN SCIENCE AND ENGINEERING,�INC.
�			�
�			�
By:	�	�	By:	�

�

AMERICAN SCIENCE AND ENGINEERING,�INC. 2014 EQUITY AND INCENTIVE PLAN

�

Restricted Stock Unit Terms and Conditions

�

1.�� Plan Incorporated by Reference.� This Award is issued pursuant to the terms of the Plan.� This Grant Agreement does not set forth all of the terms and conditions of the Plan, which are incorporated herein by reference.� Capitalized terms used and not otherwise defined in this Grant Agreement have the meanings given to them in the Plan.� The Committee administers the Plan and its determinations regarding the operation of the Plan are final and binding.� A copy of the Plan may be obtained upon written request without charge from the Human Resources Department of the Company.

�

2.�� Restricted Stock Units.� Each Restricted Stock Unit represents the right to receive one share of Common Stock, subject to the fulfillment of the Vesting Schedule and the other terms and conditions of this Award.

�

3.�� Vesting Schedule.� Upon each vesting of a Restricted Stock Unit in accordance with the Vesting Schedule set forth on the face of this Grant Agreement (each, a �Vesting Date�), and subject to the satisfaction of Section�8 below regarding taxes, the Company shall issue to the Participant one share of Common Stock for each Restricted Stock Unit that vests on such Vesting Date as soon as practicable after such Vesting Date, but in no event later than March�15 of the following calendar year.

�

4.�� Effect of Termination of Employment.� If the Participant�s status as an employee of the Company or a Subsidiary is terminated for any reason (voluntary or involuntary), all Restricted Stock Units that remain unvested shall upon termination of employment immediately and irrevocably terminate, and such unvested Restricted Stock Units and the underlying shares of Common Stock shall immediately and irrevocably be forfeited.� Notwithstanding the foregoing:

�

(a)�� If the Participant is on military leave, sick leave, or other leave of absence approved by the Company or the Subsidiary, his or her employment with the Company or the Subsidiary will be treated as continuing intact during the period of such leave.� The Participant�s employment will be deemed to have terminated on the first day after the expiration of such leave.

�

(b)�� If the Participant�s employment is terminated by reason of his or her death, this Award shall become fully vested without regard to the Vesting Schedule.

�

5.�� No Right to Shares or as a Stockholder.� The Participant shall not have any right in, or with respect to any of the shares of Common Stock subject to this Award (including voting rights) issuable under the Award until the Award vests and is settled by issuance of the shares to the Participant.

�

6.�� Change in Control. In the event of a �Change in Control of the Company� (as defined in the Plan), the Company in its discretion may take one or more of the actions specified in Section�20 of the Plan.

�

7.�� Award Not Transferable.� This Award is not transferable by the Participant other than by will or the laws of descent and distribution. The Committee may, in its sole discretion, allow the Participant to transfer this Award under a domestic relations order in settlement of marital or domestic property rights.

�

8.�� Payment of Taxes. The Participant shall pay to the Company, or make provision satisfactory to the Committee for payment of, any taxes required by law to be withheld with respect to the Award no later than the date of the event creating the tax liability.� The Company and its Subsidiaries may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind due to the Participant.� In the Committee�s discretion, the minimum tax obligations required by law to be withheld with respect to the Award may be paid in whole or in part in shares of Common Stock, including shares otherwise deliverable to the Participant upon any Vesting Date, valued at their Fair Market Value on the date of retention.

�

9.�� No Right To Employment.� No person shall have any claim or right to be granted an Award.� Neither the Plan nor this Award shall be deemed to give any Participant the right to continued employment or to limit the right of the Company or a Subsidiary to discharge any Participant at any time.

�

10.�� Amendment of Award.� The Committee may amend, modify, or terminate this Award, including substituting therefore another Award of the same or a different type, provided that the Participant�s consent to such action shall be required unless (i)�the Committee determines that the action, taking into account any related action, would not materially and adversely affect the Participant, or (ii)�the action is permitted by the terms of the Plan.

�

11.�� Data Privacy and Electronic Delivery.� By executing this Grant Agreement, the Participant: (i)�authorizes the Company, its Subsidiaries, and any agent of the Company or its Subsidiaries administering the Plan or providing Plan recordkeeping services, to disclose to the Company, its Subsidiaries or third-party service providers such information and data as may be deemed necessary or appropriate to facilitate the grant of Awards and the administration of the Plan; (ii)�waives any data privacy rights he or she may have with respect to such information; and (iii)�authorizes the Company, its Subsidiaries, and third-party service providers to store and transmit such information in electronic form.� The Participant agrees that the Company, its Subsidiaries, and their agents may deliver electronically all documents relating to the Plan or this Award (including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its stockholders.

�

12.�� Cancellation and Rescission of Award.� In consideration of this Award the Participant agrees that if Participant breaches Participant�s obligations under the terms of the American Science�& Engineering Employee Representation, Rights in Data, and Non-Compete Agreement, then the Company may cancel, suspend, withhold, or otherwise limit or restrict (in whole or in part) the vesting of this Award.� If this Award vests prior to the occurrence or discovery by the Company of any such breach, then the Committee may rescind the vesting of this Award at any time within the two (2)�year period after such vesting.� In the event of any rescission, the Participant shall pay to the Company the amount of income recognized upon vesting of the Award and any additional gain realized upon any sale of Award shares in such manner and on such terms and conditions as may be required by the Committee, and the Company shall be entitled to set-off the amount of any such income or gain against any amount that may be owed to the Participant.

�

13.�� Forfeiture of Awards under Sarbanes-Oxley Act.� If the Company is required to prepare an accounting restatement due to the material noncompliance of the Company, as a result of misconduct, with any financial reporting requirement under the securities laws, and if the Participant is one of the individuals subject to automatic forfeiture under Section�304 of the Sarbanes-Oxley Act of 2002, then, to the extent required by law, the Participant shall reimburse the Company for any amounts received pursuant to this Award during the 12-month period following the first public issuance or filing with the United States Securities and Exchange Commission, as the case may be, of the financial document embodying such financial reporting requirement.

�

Exhibit�10.3

�

FIFTH AMENDMENT TO LEASE

�

This FIFTH AMENDMENT TO LEASE (this �Amendment�) is made as of the 15th day of September, 2014 (the �Effective Date�) by and between DIRECT INVEST - 829 MIDDLESEX, LLC; DIRECT INVEST- 829 MIDDLESEX I, LLC; DIRECT INVEST- 829 MIDDLESEX 2, LLC; DIRECT INVEST- 829 MIDDLESEX 3, LLC; DIRECT INVEST- 829 MIDDLESEX 4, LLC; DIRECT INVEST- 829 MIDDLESEX 5, LLC; DIRECT INVEST- 829 MIDDLESEX 6, LLC; DIRECT INVEST- 829 MIDDLESEX 7, LLC; DIRECT INVEST- 829 MIDDLESEX 8, LLC; DIRECT INVEST- 829 MIDDLESEX 9, LLC; DIRECT INVEST- 829 MIDDLESEX 10, LLC; DIRECT INVEST- 829 MIDDLESEX� II, LLC; DIRECT INVEST- 829 MIDDLESEX� 12, LLC; DIRECT INVEST- 829 MIDDLESEX 13, LLC; DIRECT INVEST- 829 MIDDLESEX 14, LLC; DIRECT INVEST- 829 MIDDLESEX 15, LLC; DIRECT INVEST- 829 MIDDLESEX 16, LLC; DIRECT INVEST- 829 MIDDLESEX 17, LLC; and DIRECT INVEST- 829 MIDDLESEX 18, LLC as successor in interest to Middlesex Development Limited Partnership (�Landlord�), and AMERICAN SCIENCE AND ENGINEERING,�INC., (�Tenant�).

�

RECITALS

�

A.�� The Landlord and Tenant entered into that certain Lease dated January�12, 1995, as amended by that certain First Amendment dated June�11, 1997; that certain Second Amendment to Lease dated December�3, 2004; that certain Third Amendment to Lease, dated January�1, 2007 and that certain Fourth Amendment to Lease, dated January�18, 2011 (the �Original Lease�), of certain premises consisting of approximately� 186,200 rentable square feet of space (the �Premises�) within the building located at 829 Middlesex Turnpike, Billerica, Massachusetts (the �Building�), for a Term that is scheduled to expire on February�29, 2016, as more particularly described in the Original Lease.

�

B.�� Landlord and Tenant wish to amend the Original Lease to (i)�extend the Term of the Original Lease; and (ii)�amend certain other terms of the Original Lease.

�

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, Landlord and Tenant agree as follows:

�

1.�� Recitals; Capitalized Terms.� All of the foregoing recitals are true and correct. Unless otherwise defined herein, all capitalized terms used in this Amendment shall have the meanings ascribed to them in the Original Lease, and all references in the Original Lease to the �Lease� or �this Lease� or �herein� or �hereunder� or similar terms or to any section thereof shall mean the Original Lease, or such section thereof, as amended by this Amendment.� The Original Lease, as amended by this Amendment, is hereinafter referred to as the �Lease.�

�

1.�� Extension of Term.� The Term of the Lease is hereby extended for a period commencing on March�I, 2016 and expiring on February�28, 2023, unless otherwise extended or sooner terminated as provided in the Lease.

�

2.�� Fixed Rent.� Notwithstanding anything to the contrary set forth in the Original Lease, commencing on the first day of the month next following the effective date of this Amendment (the �Fixed Rent Amendment Date�), and thereafter during the Term of the Lease, as extended pursuant to this Amendment, Tenant shall pay Fixed Rent to Landlord, at the times and in the manner set forth in the Original Lease, in the amounts set forth below.� In addition to the foregoing, Tenant shall be entitled to a credit against the Fixed Rent next due under the Lease equal to the amount by which the amount of Fixed Rent paid under the Original Lease with respect to the Premise for the period from July�1, 2014 through the day immediately prior to the Fixed Rent Amendment Date exceeds the amount of Fixed Rent that Tenant would have paid if the Fixed Rent Amendment Date had occurred on July�1, 2014 and the Fixed Rent shown in the Table below had commenced on July�1, 2014.

�

Lease�Year	�	Fixed�Rent�per�Month		�	Fixed�Rent�per�Year		�
Fixed Rent Amendment Date- February�29,2016	�	$	108,616.67	�	$	1,303,400.00	�
March�1, 2016 � February�28, 2017	�	$	110,944.17	�	$	1,331,330.00	�
March 1, 2017- February�28,2019	�	$	139,650.00	�	$	1,675,800.00	�
March�1, 2019- February�29, 2020	�	$	143,529.17	�	$	1,722,350.00	�
March�1, 2020- February�28, 2021	�	$	147,408.33	�	$	1,768,900.00	�
March 1, 2021 -February�28, 2023	�	$	151,287.50	�	$	1,815,450.00	�

�

Notwithstanding the foregoing, Fixed Rent otherwise due for the period from March�1, 2016 through May�31, 2016 shall be abated, provided and on condition that there is then no default of Tenant under the Lease beyond applicable notice and cure periods.

�

3.�� Operating Costs. As of the effective date of this Amendment, the Original Lease is hereby further amended as follows:

�

(a)�� The management fee set forth in the definition of Operating Costs in Section�4.2.3 of the Original Lease is hereby amended to be two percent (2%) of gross rent derived from the Building.

�

(b)�� Landlord agrees that if at any time during the Term the annual costs and expenses that Landlord would incur in any calendar year for repair and maintenance of any item of the HVAC equipment listed on Exhibit�A, attached hereto and made a part hereof, would exceed ten percent (I0%) of the total replacement cost of such item (the �Repair Cost Limit�), then Landlord may either (i)�perform such maintenance and repair, but the incremental additional costs and expenses therefore in excess of the Repair Cost Limit shall be excluded from Operating Costs under the Lease for such calendar year, or (ii)�replace such item and the costs and expenses

�

for such item shall be included in Operating Costs, provided that such costs and expenses shall be amortized as a capital expense as and to the extent required under Section�4.2.3 of the Lease.

�

(c)�� Tenant agrees that it shall be responsible for the repair, maintenance and operation of the following systems and taking the following required actions at the Property: (i)�quarterly testing and inspections and repair and maintenance of the fire and life safety systems; and (ii)�pest control and extermination.�� Except for the foregoing items to be performed by Tenant, Landlord shall continue to be responsible for all other repair, maintenance and operations matters allocated to Landlord in the Original Lease.

�

4.�� Landlord�s Work.� Landlord shall, at Landlord�s sole cost and expense, prior to August�31,2015, (a)�replace the existing feed breakers in the main switch gear, (b)�have the existing 4000 amp main switch replaced with a new re-manufactured 4000 amp main switch, (c)�replace any bus or insulators that may be in need of replacement, and (d)�change the swing of the electric room door to open out into the hallway and install a crash bar (�Landlord�s Work�). All other items of repair, maintenance, replacement and upkeep shall be performed by the applicable party in accordance with the terms and conditions of the Lease.� Landlord will coordinate the timing of Landlord�s Work with Tenant, which Landlord�s Work shall be performed over two weekends between 6:00pm on Friday and 6:00 am on the following Monday. Landlord will have a standby generator available for the replacement of the feed breakers and the 4000 amp main switch.

�

5.�� Extension Option.� Any prior options to further extend the Term of the Lease are hereby deleted and replaced with the following:

�

Option to Extend.

�

(a)�� Provided that, at the time of such exercise, (i)�this Lease is in full force and effect, and (ii)�no default of Tenant shall have occurred and be continuing beyond applicable notice and cure periods (either at the time of exercise or at the commencement� of the Extended Term), and (iii)�Tenant shall be in occupancy of substantially all of the Premises for the conduct of its business and shall not have sublet the Premises (any of which conditions described in clauses (i), (ii), and (iii)�may be waived by Landlord at any time in Landlord�s� sole discretion), Tenant shall have the option to extend the Term of this Lease for one (1)�extended term (the �Extended Term�) of five (5)�years by giving written notice to Landlord not later than fifteen (15) months prior to the expiration date of the Term. The effective giving of such notice of extension by Tenant shall automatically extend the Term of this Lease for the Extended Term, and no instrument of renewal or extension need be executed.� In the event that Tenant fails timely to give such notice to Landlord, this Lease shall automatically terminate at the end of the original Term and Tenant shall have no further option to extend the Term of this Lease.� The Extended Term shall commence on the day immediately succeeding the expiration date of the original Term and shall end on the day immediately preceding the fifth (5th) anniversary of the first day of the Extended Term. The Extended Term shall be on all the terms and conditions of this Lease, except: (w)�during the Extended Term, Tenant shall have no further option to extend the Term, (x) the Fixed Rent for the Extended Term shall be the Fair Market Rental Value of the

�

Premises as of the commencement of the Extended Term, taking into account all relevant factors, determined pursuant to paragraph (b)�below, (y)�Landlord shall not be required to furnish any materials or perform any work to prepare the Premises for Tenant�s occupancy during the Extended Term and Landlord shall not be required to provide any work allowance or reimburse Tenant for any alterations made or to be made by Tenant, or to grant Tenant any rent concession.

�

(b)�� Promptly after receiving Tenant�s notice extending the Term of this Lease pursuant to paragraph (a)�above, but in no event sooner than twelve (12) months prior to the expiration of the Term, Landlord shall provide Tenant with Landlord�s good faith estimate of the Fair Market Rental Value (as defined in paragraph (c)�below) of the Premises for the upcoming Extended Tenn.� If Tenant is unwilling to accept Landlord�s estimate of the Fair Market Rental Value as set forth in Landlord�s notice referred to above, and the parties are unable to reach agreement thereon within thirty (30) days after the delivery of such notice by Landlord, then either party may submit the determination of the Fair Market Rental Value of the Premises to arbitration by giving notice to the other party naming the initiating party�s arbitrator within ten (10) days after the expiration of such thirty (30)-day period.� Within fifteen (15) days after receiving a notice of initiation of arbitration, the responding party shall appoint its own arbitrator by notifying the initiating party of the responding party�s arbitrator.� If the second arbitrator shall not have been so appointed within such fifteen (15) day period, the Fair Market Rental Value of the Premises shall be determined by the initiating party�s arbitrator.� If the second arbitrator shall have been so appointed, the two arbitrators thus appointed shall, within fifteen (15) days after the responding party�s� notice of appointment of the second arbitrator, appoint a third arbitrator.� If the two initial arbitrators are unable timely to agree on the third arbitrator, then either may, on behalf of both, request such appointment by the Boston office of JAMS,�Inc., or its successor, or, on its failure, refusal or inability to act, by a court of competent jurisdiction.� The Fair Market Rental Value of the Premises for the Extended Term shall be determined by the method commonly known as Baseball Arbitration, whereby Landlord�s selected arbitrator and Tenant�s selected arbitrator shall each set forth its respective determination of the Fair Market Rental Value of the Premises, and the third arbitrator must select one or the other (it being understood that the third arbitrator shall be expressly prohibited from selecting a compromise figure).� Landlord�s selected arbitrator and Tenant�s selected arbitrator shall deliver their determinations of the Fair Market Rental Value of the Premises to the third arbitrator within five (5)�Business Days of the appointment of the third arbitrator and the third arbitrator shall render his or her decision within ten (I0) days after receipt of both of the other two determinations of the Fair Market Rental Value of the Premises.� The third arbitrator�s decision shall be binding on both Landlord and Tenant.� All arbitrators shall be commercial real estate brokers who are independent from the parties and who have had at least ten (I0) years� experience in comparable buildings in the Market Area (as defined in paragraph (c)�below).� Each party shall pay the fees of its own arbitrator, and the fees of the third arbitrator shall be shared equally by the parties.� In the event Tenant initiates the aforesaid arbitration process and as of the commencement of the Extended Term the amount of the Fixed Rent for the Extended Term has not been determined, Tenant shall pay the amount determined by Landlord for the Premises and when the determination has actually been made, an appropriate retroactive adjustment shall be made as of the commencement of the Extended Term if necessary.� In the event that such determination

�

shall result in an overpayment by Tenant of any Fixed Rent, such overpayment shall be paid by Landlord to Tenant promptly after such determination has been made, and if such determination shall result in an underpayment by Tenant of any Fixed Rent, Tenant shall pay any such amounts to Landlord promptly following such determination.

�

(c)�� As used in this Lease, the term �Fair Market Rental Value� shall mean the fixed rents that landlords of comparable buildings in Bedford, Billerica and Chelmsford (the �Market Area�) have agreed to accept, and sophisticated, nonaffiliated tenants of comparable buildings have agreed to pay, in current arms-length, nonrenewal, nonequity (i.e., not being offered equity in the building), transactions for comparable space of a comparable size, for a term equal to the applicable Extended Term and taking into account all other relevant factors.

�

6.�� Restoration Requirements for Prior Alterations. Landlord and Tenant acknowledge and agree that the restoration obligations of Tenant with respect to the Premises upon the expiration or earlier termination of the Term of the Lease as set forth and described in Section�6.1.9 of the original Lease, Section�15 of the Second Amendment to Lease, Section�2 of the Fourth Amendment to Lease, that certain letter from Tenant to Landlord dated June�I 0, 2009, that certain letter from Tenant to Landlord dated December� I 0, 2009 and that certain letter from Landlord to Tenant dated April�13, 2011.� As more fully set forth in Exhibit�B, attached hereto, Tenant hereby ratifies and confirms all of the obligations set forth in such portions of the Lease except for:

�

(a)�� Tenant may abandon in place wiring in place as of the date of the Second Amendment to Lease; and

�

(b)�� If the at the expiration or earlier termination of the Term the Property and the adjacent parking lot referenced in the letter dated December� I 0, 2009 are owned by the same entity, Tenant will not be required to perform the restoration obligations set forth in such letter.

�

7.�� Letter of Credit.� The Letter of Credit currently held by Landlord shall be surrendered to Tenant within ten (10)�Business Days after the effective date of this Amendment and thereafter Tenant shall have no further obligation to maintain a Security Deposit or Letter of Credit under the Lease.

�

8.�� Holdover. Section�6.1.9 of the Original Lease is hereby amended to provide that the daily rate of rent payable by Tenant for the initial six (6)�months of any holdover after the expiration or earlier termination of the Term of the Lease shall be at 150%� of the rent and other charges in effect under the Lease as of the last day of the Term prior to such expiration or earlier termination, and thereafter shall be equal to two (2)�times the rent and other charges in effect under the Lease as of the last day of the Term prior to such expiration or earlier termination,

�

9.�� Mortgages.� The final sentence of Section�9.2 of the Original Lease is hereby deleted and replaced with the following:

�

Notwithstanding the foregoing, the subordination of this Lease to any future mortgage shall be conditioned upon the delivery to Tenant of a �Subordination, Non-Disturbance and Attornment Agreement� (�SNDA�) from such mortgagee, on such mortgagee�s standard SNDA form, and which provides, inter alia, that so long as Tenant is not in default hereunder (beyond any applicable notice and cure period) and attorns to such mortgagee in the event of a foreclosure or deed-in-lieu of foreclosure, Tenant�s rights under this Lease, including its right of possession of the Premises, shall not be disturbed. Landlord shall not be required to incur any out-of-pocket expense in procuring any such SNDA, and Landlord shall have no liability to Tenant in the event Landlord is unable to deliver any such SNDA to Tenant.

�

10.�� Brokerage and Offset Rights.

�

(a)�� Landlord and Tenant each represent and warrant to the other that they have not directly or indirectly dealt with any broker with respect to this Amendment except for Jones Lang LaSalle New England, LLC (�JLL�).� Landlord agrees that it shall be responsible for payment of brokerage fees pursuant to a separate agreement.� Each party agrees to exonerate and save harmless and indemnify the other against any claims for a commission by any broker, person or firm (other than JLL) with whom such party has dealt in connection with the execution and delivery of this Amendment or arising out of negotiations between Landlord and Tenant with respect to the Premises.

�

(b)�� Furthermore, and notwithstanding� anything contained in this Amendment or the Original Lease to the contrary, if Landlord fails to pay JLL all or a portion of the commission when due with respect to this Amendment pursuant to the separate agreement between Landlord and JLL, and such failure continues for more than sixty (60) days after written notice from Tenant to Landlord of such failure, Landlord agrees that Tenant may, in its sole and absolute discretion, pay such past due commission directly to JLL and, upon delivery by Tenant to Landlord of evidence of payment of such amounts, Tenant may offset such unpaid amounts against the next due payments of Fixed Rent up to the amount paid by Tenant to JLL.

�

II.�� Ratification.� Except as expressly modified by this Amendment, the Lease shall remain in full force and effect, and as further modified by this Amendment, is expressly ratified and confirmed by the parties hereto.� This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, subject to the provisions of the Lease regarding assignment and subletting.

�

12.�� Governing Law; Interpretation and Partial Invalidity.� This Amendment shall be governed and construed in accordance with the laws of the Commonwealth of Massachusetts.�� If any term of this Amendment, or the application thereof to any person or circumstances, shall to any extent be invalid or unenforceable, the remainder of this Amendment, or the application of such term to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each term of this Amendment shall be valid and enforceable to the fullest extent permitted by law.� The titles for the paragraphs are for convenience only and are not to be considered in construing this Amendment.� This Amendment contains all of the agreements of the parties with respect to the subject matter hereof, and supersedes all prior dealings between them with respect to such subject matter.� No delay or omission on the part of

�

either party to this Amendment in requiring performance by the other party or exercising any right hereunder shall operate as a waiver of any provision hereof or any rights hereunder, and no waiver, omission or delay in requiring performance or exercising any right hereunder on any one occasion shall be construed as a bar to or waiver of such performance or right on any future occasion.

�

13.�� Binding Agreement.� This document shall become effective and binding only upon the execution and delivery of this Amendment by both Landlord and Tenant and the parties obtaining the written consent to this Amendment from the current first mortgagee of the property.� In the event that the consent of such mortgagee has not been obtained within thirty (30) days from the date that Tenant executes and delivers this Amendment to Landlord, this Amendment shall be deemed null and void and of no further force or effect.

�

14.�� Counterparts and Authority. This Amendment may be executed in multiple counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same document.� Landlord and Tenant each warrant to the other that the person or persons executing this Amendment on its behalf has or have authority to do so and that such execution has fully obligated and bound such party to all terms and provisions of this Amendment.

�

[Remainder of Page�Intentionally Blank]

�

IN WITNESS WHEREOF, the undersigned executed this Amendment as of the date and year first written above.

�

LANDLORD:

�

DIRECT INVEST PROPERTY MANAGEMENT, L.L.C.,

a Delaware limited liability company, as authorized agent of Landlord

�

�	By:	Direct Invest, L.L.C., a Delaware limited liability company, its Sole Member
�	�	�
�	�	By:	NPV DI, L.L.C., a Delaware limited liability company, its Managing Member
�	�	�	�
�	�	�	Name:	/s/ William F Rand III	�
�	�	�	Title:�Manager

�

TENANT:

�

AMERICAN SCIENCE AND ENGINEERING,� INC.

�

�	BY:	/s/ Kenneth J. Galaznik		�
�	�	Name:	Kenneth J. Galaznik
�	�	Title:	Senior VP & CFO

�

Exhibit�31.1

�

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Section�302 Certification

�

I, Charles P. Dougherty, 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 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 report;

�

3.�� Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e)�and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules�13a-15(f)�and 15d-15(f)) for the registrant and have:

�

a.�� Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision 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 report is being prepared;

�

b.�� Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

�

c.�� Evaluated the effectiveness of the registrant�s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

�

d.�� Disclosed in this report any change in the registrant�s internal control over financial reporting that occurred during the registrant�s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant�s internal control over financial reporting; and

�

5.�� The registrant�s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant�s auditors and the audit committee of the registrant�s board of directors (or persons performing the equivalent functions):

�

a.�� All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant�s ability to record, process, summarize and report financial information; and

�

b.�� Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant�s internal control over financial reporting.

�

Date: November 10, 2014	/s/�Charles P. Dougherty
�	Charles P. Dougherty President and Chief Executive Officer

�

Exhibit�31.2

�

CERTIFICATION OF CHIEF FINANCIAL OFFICER

Section�302 Certification

�

I, Kenneth J. Galaznik, certify that:

�

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

�

c.�� Evaluated the effectiveness of the registrant�s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

�

b.�� Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant�s internal control over financial reporting.

�

Date: November�10, 2014	/s/�Kenneth J. Galaznik
�	Kenneth J. Galaznik
�	Senior Vice President, Chief Financial Officer and Treasurer

�

Exhibit�32.1

�

CERTIFICATION PURSUANT TO

SECTION�1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE

AS ADOPTED PURSUANT TO

SECTION�906 OF THE SARBANES-OXLEY ACT OF 2002

�

Pursuant to Section�1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section�906 of the Sarbanes-Oxley Act of 2002, the undersigned, the President and Chief Executive Officer of American Science�and Engineering,�Inc. (the �Company�), does hereby certify that to the undersigned�s knowledge:

�

1.�� the Company�s Report on Form�10-Q for the quarter ended September�30, 2014 (the �10-Q�) 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 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

�

Date: November�10, 2014	/s/�Charles P. Dougherty
�	Charles P. Dougherty President and Chief Executive Officer

�

A signed original of this written statement required by Section�906 has been provided to American Science�and Engineering,�Inc. and will be retained by American Science�and Engineering,�Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

�

Exhibit�32.2

�

CERTIFICATION PURSUANT TO

SECTION�1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,

AS ADOPTED PURSUANT TO

SECTION�906 OF THE SARBANES-OXLEY ACT OF 2002

�

Pursuant to Section�1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section�906 of the Sarbanes-Oxley Act of 2002, the undersigned, the Senior Vice President, Chief Financial Officer and Treasurer of American Science�and Engineering,�Inc. (the �Company�), does hereby certify that to the undersigned�s knowledge:

�

2.�� the information contained in the 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

�

Date: November�10, 2014	/s/�Kenneth J. Galaznik
�	Kenneth J. Galaznik
�	Senior Vice President, Chief Financial Officer and Treasurer

�

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

Create E-mail Alert Related Categories

SEC Filings

Sign up for StreetInsider Free!

Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!

Form 10-Q AMERICAN SCIENCE & ENGIN For: Sep 30

You May Also Be Interested In

Create E-mail Alert Related Categories

Sign up for StreetInsider Free!

Free News Feed