Edgar Filing: ANALOGIC CORP

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 2 on

Form 10-Q/A


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


		For the period ended January 31, 2003

Or


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


		For the transition period from to

Commission file number 0-6715

Analogic Corporation

(Exact name of registrant as specified in its charter)


Massachusetts		04-2454372
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

8 Centennial Drive,
Peabody, Massachusetts		01960
(Address of principal executive offices)		(Zip Code)

(978) 977-3000
(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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes þ No o

The number of shares of Common Stock outstanding at March 6, 2003 was 13,362,501.

ANALOGIC CORPORATION

QUARTERLY REPORT ON FORM 10-Q/A
FOR THE QUARTER ENDED JANUARY 31, 2003
INTRODUCTORY NOTE
(in thousands, except for share data)

Pursuant to Rule 12b-15 of the Rules and Regulations under the Securities Exchange Act of 1934, this Amendment No. 2 on Form 10-Q/A to the Quarterly Report on Form 10-Q of Analogic Corporation (the “Company”) for the quarter ended January 31, 2003 is being filed to (i) restate the Company’s Condensed Consolidated Financial Statements (Unaudited) for the quarters ended January 31, 2003 and 2002, and (ii) revise related disclosures included in the Quarterly Report on Form 10-Q.

On January 14, 2005, the Company announced that it would restate its financial statements for the fiscal years ended July 31, 2002 and 2003 and each of the interim periods within those years. The purpose of this restatement is to reflect the application of the appropriate accounting principles to the recognition of software revenue and related costs by Camtronics Medical Systems, Ltd. (“Camtronics”), a wholly owned U.S. subsidiary of the Company. The restatement primarily involves a deferral of Camtronics’ revenues and associated costs from the fiscal period in which they were originally recorded to subsequent fiscal periods. As restated, the Company’s financial results for the quarter ended January 31, 2003 reflect a reduction in revenues of $174 and net income of $49, and no change in basic and diluted earnings per share; and the Company’s financial results for the quarter ended January 31, 2002 reflect a reduction in revenues of $10 and net income of $10, and no change in basic and diluted earnings per share. As restated, the Company’s financial results for the six months ended January 31, 2003 reflect a reduction in revenues of $225 and net income of $72, and no change in basic and diluted earnings per share; and the Company’s financial results for the six months ended January 31, 2002 reflect a reduction in revenues of $664, net income of $267, and basic and diluted earnings per share of $0.02. See Note 2, “Restatement,” of the Notes to Unaudited Condensed Consolidated Financial Statements for a more complete discussion of the restatement.

This Amendment No. 2 amends Part I, Items 1, 2, 3 and 4, and Part II, Item 6 of the Quarterly Report of Form 10-Q for the quarter ended January 31, 2003. This Amendment No. 2 continues to reflect circumstances as of the date of the original filing of the Quarterly Report on Form 10-Q, and the Company has not updated the disclosures contained therein to reflect events that occurred at a later date, except for items relating to the restatement.

ANALOGIC CORPORATION

INDEX


		Page No.
Part I. Financial Information
Item 1.	Financial Statements
	Unaudited Condensed Consolidated Balance Sheets as of January 31, 2003 (Restated) and July 31, 2002		4
	Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended January 31, 2003 (Restated) and 2002 (Restated)		5
	Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended January 31, 2003 (Restated) and 2002 (Restated)		6
	Notes to Unaudited Condensed Consolidated Financial Statements		7-24
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		25-32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		32
Item 4.	Controls and Procedures		32-33
Part II. Other Information
Item 6.	Exhibits		34
Signatures			35
Exhibit Index			36
Certifications			37-40
EX-31.1 Section 302 Certification of CEO
EX-31.2 Section 302 Certification of CFO
EX-32.1 Section 906 Certification of CEO
EX-32.2 Section 906 Certification of CFO

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

ANALOGIC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(In thousands)


	January 31,			July 31,
	2003			2002
	Restated
ASSETS
Current assets:
Cash and cash equivalents	$	135,130		$	123,168
Marketable securities, at market		48,217			58,621
Accounts and notes receivable, net of allowance for doubtful accounts of $2,354 at January 31, 2003 and $1,308 at July 31, 2002		60,208			61,119
Inventory		65,916			65,128
Costs related to deferred revenue		4,374			2,503
Refundable and deferred income taxes		12,284			11,763
Other current assets		8,781			7,969

Total current assets		334,910			330,271
Property, plant and equipment, net		84,095			79,613
Investments in and advances to affiliated companies		11,028			12,810
Capitalized software, net		4,737			4,333
Goodwill		4,800			258
Intangible assets, net		10,534			1,970
Costs related to deferred revenue		12,313			9,164
Other assets		218			220

Total assets	$	462,635		$	438,639

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Mortgage and other notes payable	$	1,384		$	226
Obligations under capital leases		270			314
Accounts payable, trade		18,170			24,836
Accrued liabilities		22,524			16,948
Deferred revenue		10,426			8,618
Advance payments		18,922			62,244
Accrued income taxes		16,571			3,118

Total current liabilities		88,267			116,304

Long-term liabilities:
Mortgage and other notes payable		3,954			4,069
Obligations under capital leases		275			337
Deferred revenue		18,632			13,500
Deferred income taxes		6,797			2,429

Total long-term liabilities		29,658			20,335

Commitments
Stockholders’ equity:
Common stock, $.05 par value		707			706
Capital in excess of par value		41,352			39,379
Retained earnings		313,523			274,757
Accumulated other comprehensive income		572			(320	)
Treasury stock, at cost		(7,612	)		(8,313	)
Unearned compensation		(3,832	)		(4,209	)

Total stockholders’ equity		344,710			302,000

Total liabilities and stockholders’ equity	$	462,635		$	438,639

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

ANALOGIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands except per share data)


	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2003			2002			2003			2002
	Restated			Restated			Restated			Restated
Net revenue:
Product	$	149,806		$	63,287		$	272,983		$	127,788
Engineering		5,475			4,261			11,855			11,738
Other		1,690			1,952			4,366			4,924

Total net revenue		156,971			69,500			289,204			144,450

Cost of sales:
Product		87,965			39,862			155,587			81,560
Engineering		3,507			5,231			8,403			11,854
Other		1,125			1,266			2,366			2,721
Asset impairment charges											8,883

Total cost of sales		92,597			46,359			166,356			105,018

Gross margin		64,374			23,141			122,848			39,432

Operating expenses:
Research and product development		14,571			10,382			25,948			20,544
Selling and marketing		8,448			7,830			16,380			16,118
General and administrative		8,595			6,575			16,428			14,440

		31,614			24,787			58,756			51,102

Income (loss) from operations		32,760			(1,646	)		64,092			(11,670	)

Other (income) expense:
Interest income		(1,221	)		(1,031	)		(2,509	)		(2,270	)
Interest expense		82			153			151			237
Equity in unconsolidated affiliates		855			(379	)		2,093			(1,033	)
Other, net		(1,301	)		128			(1,644	)		294

		(1,585	)		(1,129	)		(1,909	)		(2,772	)

Income (loss) before income taxes		34,345			(517	)		66,001			(8,898	)
Provision (benefit) for income taxes		13,080			(104	)		25,109			(1,780	)

Net income (loss)	$	21,265		$	(413	)	$	40,892		$	(7,118	)

Net income (loss) per common share:
Basic	$	1.61		$	(0.03	)	$	3.10		$	(0.54	)
Diluted		1.59			(0.03	)		3.07			(0.54	)
Weighted average shares outstanding:
Basic		13,215			13,071			13,194			13,073
Diluted		13,412			13,071			13,332			13,073

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

ANALOGIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)


	Six Months Ended
	January 31,
	2003			2002
	Restated			Restated
OPERATING ACTIVITIES:
Net income (loss)	$	40,892		$	(7,118	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Deferred income taxes		2,595			(3,015	)
Depreciation and amortization		9,332			7,861
Allowance for doubtful accounts		988			178
Impairment of assets		—			8,883
Loss on sale of equipment		8			52
Equity (gain) loss in unconsolidated affiliates		2,093			(1,033	)
Compensation from stock grants		577			478
Net changes in operating assets and liabilities		(30,632	)		6,861

NET CASH PROVIDED BY OPERATING ACTIVITIES		25,853			13,147

INVESTING ACTIVITIES:
Investments in and advances to affiliated companies		—			(7,500	)
Return of investment from affiliated company		516			1,502
Acquisition of businesses, net of cash acquired		(2,851	)		—
Acquisition of assets		(10,149	)		—
Additions to property, plant and equipment		(9,191	)		(13,387	)
Capitalized software		(1,071	)		(1,334	)
Proceeds from sale of property, plant and equipment		94			39
Maturities of marketable securities		10,225			7,475

NET CASH USED FOR INVESTING ACTIVITIES		(12,427	)		(13,205	)

FINANCING ACTIVITIES:
Payments on debt and capital lease obligations		(234	)		(945	)
Issuance of stock pursuant to stock options and employee stock purchase plan		2,451			374
Dividends paid to shareholders		(2,126	)		(1,851	)

NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES		91			(2,422	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(1,555	)		562

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		11,962			(1,918	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		123,168			46,013

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	135,130		$	44,095

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

ANALOGIC CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share data)

1. Basis of presentation:

The unaudited condensed consolidated financial statements of Analogic Corporation (the “Company”) presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the results for all periods presented. The results of the operations for the three and six months ended January 31, 2003 are not necessarily indicative of the results to be expected for the fiscal year ending July 31, 2003, or any other interim period.

These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended July 31, 2002, included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004, as filed with the SEC on February 1, 2005.

The condensed financial statements have not been audited by independent certified public accountants. The condensed consolidated balance sheet as of July 31, 2002, contains data derived from audited financial statements.

Certain financial statement items have been reclassified to conform to the current year’s financial presentation format.

2. Restatement:

The Company is restating its condensed financial statements for the fiscal years ended July 31, 2002 and 2003 and each of the interim periods included in those fiscal years to reflect the application of the appropriate accounting principles to the recognition of software revenue and related costs by its 100% owned U.S. subsidiary Camtronics Medical Systems, Ltd. (“Camtronics”). As restated, the Company’s financial results for the quarter ended January 31, 2003 reflect a reduction in revenues of $174 and net income of $49, and no change in basic and diluted earning per share; and the Company’s financial results for the quarter ended January 31, 2002 reflect a reduction in revenues of $10 and net income of $10, and no change in basic and diluted earnings per share. As restated, the Company’s financial results for the six months ended January 31, 2003 reflect a reduction in revenues of $225 and net income of $72, and no change in basic and diluted earnings per share; and the Company’s financial results for the six months ended January 31, 2002 reflect a reduction in revenues of $664, net income of $267, and basic and diluted earnings per share of $0.02, in each case as compared to the Company’s financial results previously reported for the three and six months ended January 31, 2003 and 2002. There are also resulting changes to the captions within the net Cash Provided by Operating Activities on the Statement of Cash Flows.

Summarized below is a more detailed discussion of the restatement affecting the three and six months ended January 31, 2003 and 2002, and a comparison of the amounts previously reported in the unaudited condensed consolidated balance sheets and unaudited condensed consolidated statements of operations in the Company’s Quarterly Report on Form 10-Q for the three and six months ended January 31, 2003 and 2002. The Company reclassified certain intangibles and goodwill balances related to the Company’s ownership of Cedara Software Corporation (“Cedara”) to investment in and advances to affiliated companies in the unaudited condensed consolidated balance sheets, and reclassified in the unaudited condensed consolidated statements of operations the amortization of intangible assets related to Cedara from general and administrative expense to equity loss in unconsolidated affiliates.

Software Revenue

Camtronics’ revenues are derived primarily from the sales of Digital Cardiac Information Systems. System sales revenues consist of the following components: computer software licenses, computer hardware, installation support, and sublicensed software. In addition, Camtronics generates revenues related to system sales for software support, hardware maintenance, training, consulting and other professional services.

Camtronics recognizes revenue in accordance with the provisions of American Institute of Certified Public Accountants (“AICPA”) Statement of Position 97-2, “Software Recognition” (“SOP 97-2”). SOP 97-2 requires revenue earned on software arrangements involving multiple-elements to be allocated to each element based on the fair values of those elements or by use of the residual method. Under the residual method, revenue is recognized in a multiple-element arrangement when vendor-specific objective evidence (“VSOE”) of fair value exists for all the undelivered elements in the arrangement, which is determined by the price charged when that element is sold separately (i.e. professional services, software support, hardware maintenance, hardware and sublicensed software), but does not exist for one or more of the delivered elements in the arrangement (i.e. software solutions). Specifically, Camtronics determines the VSOE of fair value of the maintenance portion of the arrangement based on the renewal price of the maintenance charged to clients; determines the VSOE of fair value of the professional services portion of the arrangement, other than installation services, based on hourly rates which Camtronics charges for these service when sold apart from a software license; and determines the VSOE of fair value of the hardware and software sublicenses based on the prices for these elements when they are sold separately from the software. If evidence of the VSOE of fair value cannot be established for the undelivered elements of a license agreement, the entire amount of revenue under the arrangement is deferred until these elements have been delivered or the VSOE of fair value for the remaining undelivered elements is established.

Inherent in the revenue recognition process are significant management estimates and judgments, which influence the timing and amount of revenue recognition. In particular, the application of SOP 97-2 requires judgment concerning whether a software arrangement includes multiple elements; if so, whether all such elements have been delivered; and if not, whether VSOE of fair value exists for the undelivered elements.

The restatements are required due to the incorrect application of software revenue recognition procedures with respect to certain Camtronic’s transactions. Under software revenue recognition rules, revenue cannot be recognized on a multiple-element software arrangement until such time as Camtronics has delivered or performed all elements of the arrangement or has VSOE of fair value for each undelivered or non-performed element of the arrangement. In the majority of the transactions underlying the restatement, Camtronics has delivered and the customer has paid for the software. However, revenue cannot be recognized from the transactions because some element of the transaction – such as the delivery of a software upgrade or the performance of customization services – has not been delivered or performed and VSOE of fair value for those elements cannot be determined.

The following tables show the effect of the restatement on the Company’s Statements of Operations and Balance Sheets.

Statements of Operations:


	Three Months Ended January 31, 2003
				(unaudited)
	Previously
	Reported			Restated			Change
Net revenue:
Product	$	149,980		$	149,806		$	(174	)(a)
Engineering		5,475			5,475
Other		1,690			1,690

Total net revenue		157,145			156,971			(174	)

Cost of sales:
Product		88,051			87,965			(86	)(b)
Engineering		3,507			3,507
Other		1,125			1,125

Total cost of sales		92,683			92,597			(86	)

Gross margin		64,462			64,374			(88	)

Operating expenses:
Research and product development		14,571			14,571
Selling and marketing		8,456			8,448			(8	)(c)
General and administrative		8,847			8,595			(252	)(d)

		31,874			31,614			(260	)

Income from operations		32,588			32,760			172

Other (income) expense:
Interest income		(1,221	)		(1,221	)
Interest expense		82			82
Equity in unconsolidated affiliates		603			855			252	(e)
Other, net		(1,301	)		(1,301	)

		(1,837	)		(1,585	)		252

Income before income taxes		34,425			34,345			(80	)
Provision for income taxes		13,111			13,080			(31	)(f)

Net income	$	21,314		$	21,265		$	(49	)

Net income per common share:
Basic	$	1.61		$	1.61
Diluted		1.59			1.59
Weighted average shares outstanding:
Basic		13,215			13,215
Diluted		13,412			13,412

Statements of Operations components increased (decreased) as a result of the following:


(a)	Net revenue: Product
	Adjust recognition of revenue for application of SOP97-2	$	(174	)


(b)	Cost of sales: Product
	Adjust cost of sales related to transactions for which revenue has been deferred	$	(86	)


(c)	Selling and marketing
	Adjust commission expense related to transactions for which revenue has been deferred	$	(8	)


(d)	General and administrative
	Reclassification not impacting net income	$	(252	)


(e)	Equity in unconsolidated affiliates
	Reclassification not impacting net income	$	252


(f)	Provision for income taxes
	Net decrease to provision due to above adjustments	$	(31	)

Statements of Operations:


	Six Months Ended January 31, 2003
				(unaudited)
	Previously
	Reported			Restated			Change
Net revenue:
Product	$	273,208		$	272,983		$	(225	)(a)
Engineering		11,855			11,855
Other		4,366			4,366

Total net revenue		289,429			289,204			(225	)

Cost of sales:
Product		155,684			155,587			(97	)(b)
Engineering		8,403			8,403
Other		2,366			2,366

Total cost of sales		166,453			166,356			(97	)

Gross margin		122,976			122,848			(128	)

Operating expenses:
Research and product development		25,948			25,948
Selling and marketing		16,390			16,380			(10	)(c)
General and administrative		16,932			16,428			(504	)(d)

		59,270			58,756			(514	)

Income from operations		63,706			64,092			386

Other (income) expense:
Interest income		(2,509	)		(2,509	)
Interest expense		151			151
Equity in unconsolidated affiliates		1,589			2,093			504	(e)
Other, net		(1,644	)		(1,644	)

		(2,413	)		(1,909	)		504

Income before income taxes		66,119			66,001			(118	)
Provision for income taxes		25,155			25,109			(46	)(f)

Net income	$	40,964		$	40,892		$	(72	)

Net income per common share:
Basic	$	3.10		$	3.10
Diluted		3.07			3.07
Weighted average shares outstanding:
Basic		13,194			13,194
Diluted		13,332			13,332

Statements of Operations components increased (decreased) as a result of the following:


(a)	Net revenue: Product
	Adjust recognition of revenue for application of SOP97-2	$	(225	)


(b)	Cost of sales: Product
	Adjust cost of sales related to transactions for which revenue has been deferred	$	(97	)


(c)	Selling and marketing
	Adjust commission expense related to transactions for which revenue has been deferred	$	(10	)


(d)	General and administrative
	Reclassification not impacting net income	$	(504	)


(e)	Equity in unconsolidated affiliates
	Reclassification not impacting net income	$	504


(f)	Provision for income taxes
	Net decrease to provision due to above adjustments	$	(46	)

Statements of Operations:


	Three Months ended January 31, 2002
				(unaudited)
	Previously
	Reported			Restated			Change
Net revenue:
Product	$	63,297		$	63,287		$	(10	) (a)
Engineering		4,261			4,261
Other		1,952			1,952

Total net revenue		69,510			69,500			(10	)

Cost of sales:
Product		39,860			39,862			2	(b)
Engineering		5,231			5,231
Other		1,266			1,266

Total cost of sales		46,357			46,359			2

Gross margin		23,153			23,141			(12	)

Operating expenses:
Research and product development		10,382			10,382
Selling and marketing		7,830			7,830
General and administrative		6,827			6,575			(252)	(c)

		25,039			24,787			(252	)

Income (loss) from operations		(1,886	)		(1,646	)		240

Other (income) expense:
Interest income		(1,031	)		(1,031	)
Interest expense		153			153
Equity in unconsolidated affiliates		(631	)		(379	)		252	(d)
Other, net		128			128

		(1,381	)		(1,129	)		252

Income (loss)before income taxes and minority interest		(505	)		(517	)		(12	)
Provision (benefit)for income taxes		(102	)		(104	)		(2)	(e)

Net income (loss)	$	(403	)	$	(413	)	$	(10	)

Net income (loss)per common share:
Basic	$	(0.03	)	$	(0.03	)
Diluted		(0.03	)		(0.03	)
Weighted average shares outstanding:
Basic		13,071			13,071
Diluted		13,071			13,071

Statements of Operations components increased (decreased) as a result of the following:


(a)	Net revenue: Product
	Adjust recognition of revenue for application of SOP97-2	$	(10	)


(b)	Cost of sales: Product
	Adjust cost of sales related to transactions for which revenue has been deferred	$	2


(c)	General and administrative
	Reclassification not impacting net income	$	(252	)


(d)	Equity in unconsolidated affiliates
	Reclassification not impacting net income	$	252


(e)	Provision (benefit) for income taxes
	Net increase in benefit due to above adjustments	$	(2	)

Statements of Operations:


	Six Months Ended January 31, 2002
				(unaudited)
	Previously
	Reported			Restated			Change
Net revenue:
Product	$	128,452		$	127,788		$	(664	)(a)
Engineering		11,738			11,738
Other		4,924			4,924

Total net revenue		145,114			144,450			(664	)

Cost of sales:
Product		81,849			81,560			(289	)(b)
Engineering		11,854			11,854
Other		2,721			2,721
Asset impairment charges		8,883			8,883

Total cost of sales		105,307			105,018			(289	)

Gross margin		39,807			39,432			(375	)

Operating expenses:
Research and product development		20,544			20,544
Selling and marketing		16,159			16,118			(41	)(c)
General and administrative		14,776			14,440			(336	)(d)

		51,479			51,102			(377	)

Income (loss) from operations		(11,672	)		(11,670	)		2

Other (income) expense:
Interest income		(2,033	)		(2,033	)
Equity in unconsolidated affiliates		(1,369	)		(1,033	)		336	(e)
Other, net		294			294

		(3,108	)		(2,772	)		336

Income (loss) before income taxes		(8,564	)		(8,898	)		(334	)
Provision (benefit) for income taxes.		(1,713	)		(1,780	)		(67	)(f)

Net income (loss)	$	(6,851	)	$	(7,118	)	$	(267	)

Net income (loss) per common share:
Basic	$	(0.52	)	$	(0.54	)		(0.02	) (g)
Diluted		(0.52	)		(0.54	)		(0.02	) (h)
Weighted average shares outstanding:
Basic		13,073			13,073
Diluted		13,073			13,073

Statements of Operations components increased (decreased) as a result of the following:


(a)	Net revenue: Product
	Adjust recognition of revenue for application of SOP97-2	$	(664	)


(b)	Cost of sales: Product
	Adjust cost of sales related to transactions for which revenue has been deferred	$	(289	)


(c)	Selling and marketing
	Adjust commission expense related to transactions for which revenue has been deferred	$	(41	)


(d)	General and administrative
	Reclassification not impacting net income	$	(336	)


(e)	Equity in unconsolidated affiliates
	Reclassification not impacting net income	$	336


(f)	Provision (benefit) for income taxes
	Net increase in benefit due to above adjustments	$	(67	)


(g)	Net income (loss) per common share: Basic
	Net effect to basic earnings per share due to above adjustments	$	(0.02	)


(h)	Net income (loss) per common share: Diluted
	Net effect to diluted earnings per share due to above adjustments	$	(0.02	)

Balance Sheets:


	January 31, 2003
				(unaudited)
	Previously
	Reported			Restated			Change
ASSETS
Current assets:
Cash and cash equivalents	$	135,130		$	135,130
Marketable securities, at market		48,217			48,217
Accounts and notes receivable, net of allowance for doubtful accounts		60,208			60,208
Inventories		65,916			65,916
Costs related to deferred revenue		3,945			4,374		$	429	(a)
Refundable and deferred income taxes		12,044			12,284			240	(b)
Other current assets		8,781			8,781

Total current assets		334,241			334,910			669
Property, plant and equipment, net		84,095			84,095
Investments in and advances to affiliated companies		6,051			11,028			4,977	(c)
Capitalized software, net		4,737			4,737
Goodwill		6,090			4,800			(1,290	) (d)
Intangible assets, net		14,221			10,534			(3,687	) (e)
Costs related to deferred revenue		11,732			12,313			581	(f)
Other assets		218			218

Total assets	$	461,385		$	462,635		$	1,250

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Mortgage and other notes payable	$	1,384		$	1,384
Obligations under capital leases		270			270
Accounts payable, trade		18,015			18,170		$	155	(g)
Accrued liabilities		22,524			22,524
Deferred revenue		9,612			10,426			814	(h)
Advance payments and other		18,922			18,922
Accrued income taxes		16,546			16,571			25	(i)

Total current liabilities		87,273			88,267			994

Long-term liabilities:
Mortgage and other notes payable		3,954			3,954
Obligations under capital leases		275			275
Deferred revenue		17,953			18,632			679	(j)
Deferred income taxes		6,797			6,797

Total long-term liabilities		28,979			29,658			679

Commitments
Stockholders’ equity:
Common stock, $.05 par value		707			707
Capital in excess of par value		41,352			41,352
Retained earnings		313,946			313,523			(423	) (k)
Accumulated other comprehensive income		572			572
Treasury stock, at cost		(7,612	)		(7,612	)
Unearned compensation		(3,832	)		(3,832	)

Total stockholders’ equity		345,133			344,710			(423	)

Total liabilities and stockholders’ equity	$	461,385		$	462,635		$	1,250

The increases (decreases) to the balance sheet components are due to (1) current period recognition of the effect of current period restatement for deferrals of revenue and related costs; and (2) the cumulative effect at the beginning of the quarter for the restatement of prior periods for similar matters. On a net basis the balance sheet components increased (decreased) due to the following:


(a)	Costs related to deferred revenue (short-term)
	Deferred costs related to deferred revenue	$	429


(b)	Refundable and deferred income taxes
	Deferred income tax related to deferred costs and revenue	$	240


(c)	Investment in and advances to affiliated companies
	Intangible asset reclassification not impacting net income	$	3,687
	Goodwill reclassification not impacting net income		1,290

	Total	$	4,977


(d)	Goodwill
	Reclassifications not impacting net income	$	(1,290	)


(e)	Intangible assets, net
	Reclassifications not impacting net income	$	(3,687	)


(f)	Costs related to deferred revenue (long-term)
	Deferred costs related to deferred revenue	$	581


(g)	Accounts payable, trade
	Accrued license related to deferred revenue	$	155


(h)	Deferred revenue (short-term)
	Deferred revenue classified as short-term	$	814


(i)	Accrued income taxes
	Tax provision adjusted for the change to net income	$	25


(j)	Deferred revenue (long-term)
	Deferred revenue classified as long-term	$	679


(k)	Retained earnings
	Net effect to retained earnings from above adjustments:
	Cumulative effect through July 31, 2002	$	(351	)
	Effect for the six months ended January 31, 2003	$	(72	)

	Total	$	(423	)

3. Balance sheet information:

Additional information for certain balance sheet accounts is as follows for the dates indicated:


	January 31,		July 31,
	2003		2002
Inventory:
Raw materials	$	37,236	$	34,753
Work-in-process		15,735		19,882
Finished goods		12,945		10,493

	$	65,916	$	65,128

Accrued liabilities:
Accrued employee compensation and benefits	$	12,025	$	11,036
Accrued warranty		6,927		3,235
Other		3,572		2,677

	$	22,524	$	16,948

Advance payments and other:
Long-lead-time components	$	8,850	$	50,550
Ramp-up funds		7,210		7,943
Customer deposits		2,862		3,751

	$	18,922	$	62,244

4. Business combinations:

During October 2002, Anrad Corporation, the Company’s wholly owned subsidiary located in Saint-Laurent, Quebec, purchased the remaining 52% of the outstanding common stock of FTNI, Inc. (“FTNI”) for $2,407 in cash. FTNI was founded by three Canadian companies in April 1997 to develop products for medical and industrial applications. Noranda Advanced Materials, which was one of the FTNI founders with a 48% ownership interest, was acquired by the Company in 1999 and renamed Anrad. With the purchase of the remaining shares of FTNI, Anrad has full ownership rights and access to FTNI’s basic technology and intellectual property. Upon completion of this transaction, Anrad’s total investment in FTNI amounted to approximately $2,746 of which approximately $2,019 was determined to be intellectual property and $727 represented the fair value of tangible net assets, primarily cash. The intellectual property will be amortized over its estimated useful life of five years. The supplemental pro-forma information disclosing the results of operations has not been presented due to its immateriality.

On November 6, 2002, the Company’s newly formed subsidiary, Sound Technology, Inc. (“STI”), acquired certain assets and liabilities of the Sound Technology business unit, located in State College, PA, from Acuson Corporation, a wholly owned subsidiary of Siemens Corporation, for approximately $10,100 in cash. STI produces linear and tightly curved array ultrasound transducers and probes for a broad range of clinical applications that are supplied to medical equipment companies worldwide. The Company’s acquisition cost of $10,100 was subsequently reduced by approximately $200 reflecting estimated post-closing purchase price adjustments. As a result, the net investment of $9,900 consists of approximately $2,800 of tangible net assets acquired and approximately $7,100 of intellectual property and other intangible assets. The intellectual property and other intangible assets will be amortized over their estimated useful life of five years. The supplemental pro-forma information disclosing the results of operations has not been presented due to their immateriality.

Also, on November 6, 2002, the Company’s subsidiary, Camtronics Medical Systems, Ltd., acquired all the shares of VMI Medical, Inc. (“VMI”), of Ottawa, Canada. VMI is a medical information software company specializing in clinical database, workflow automation and business improvement solutions for children’s heart centers. VMI was acquired for approximately $2,000 in cash, payable over a two year period, and future contingent consideration, which will be based upon the combined companies achieving certain performance criteria over specific time periods. The future contingent purchase price consideration at the date of acquisition was estimated to range from $5,000-$7,000. The Company has not recognized this future contingent purchase price consideration on its books as an investment or future liability. Once the contingency is resolved and the consideration is determinable, the Company will then record this purchase price adjustment. The Company paid $2,000 in cash related to the acquisition, assumed approximately $1,400 in net liabilities and acquired intellectual property valued at $3,400. The

supplemental pro-forma information disclosing the results of operations has not been presented due to its immateriality.

5. Investments in and advances to affiliated companies:

Summarized results of operations of the Company’s partially owned equity affiliates are as follows:


	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2003			2002			2003			2002
Net revenue	$	9,584		$	11,546		$	15,201		$	14,673
Gross margin		4,932			8,956			7,698			10,817
Income (loss) from operations before extraordinary items and discontinued operations		(1,671	)		(108	)		(5,586	)		267
Net income (loss)		(1,725	)		1,408			(5,567	)		1,780

6. Goodwill and intangible assets:

As of August 1, 2002, Analogic adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). Under SFAS No. 142, goodwill and certain other intangible assets with indefinite lives are no longer amortized, but instead are reviewed for impairment annually, or more frequently if impairment indicators arise. In connection with the adoption of SFAS No. 142, the Company was required to perform a transitional impairment assessment of goodwill within six months of adoption of this standard. SFAS No. 142 requires that the Company identify its reporting units and determine the carrying value of each of those reporting units by assigning assets and liabilities, including existing goodwill and intangible assets, to those reporting units. The Company assigned the entire balance of goodwill to Imaging Technology Products for the purpose of performing the transitional impairment test. The Company completed its transitional impairment assessment of goodwill during the first quarter ended October 31, 2002, and determined that goodwill was not impaired.

Goodwill increased from $258 at July 31, 2002 to $6,090 at January 31, 2003 due to the Company paying a premium in connection with the acquisition of VMI and FTNI and other intangible assets. The entire goodwill balance is included within the Imaging Technology Products segment. None of the goodwill is deductible for tax purposes.

The following table reflects the unaudited net income, as adjusted, of the Company, giving effect to SFAS No. 142 as if it were adopted on August 1, 2001:


	Three Months					Six Months
	Ended					Ended
	January 31,					January 31,
	2003		2002			2003		2002
	Restated		Restated			Restated		Restated
Net income (loss), as reported	$	21,265	$	(413	)	$	40,892	$	(7,118	)
Add goodwill amortization expense				34					68

Net income (loss), as adjusted	$	21,265	$	(379	)	$	40,892	$	(7,050	)

Basic earning (loss) per common share:
As reported	$	1.61	$	(0.03	)	$	3.10	$	(0.54	)
As adjusted	$	1.61		(0.03	)	$	3.10	$	(0.54	)
Diluted earning (loss) per common share:
As reported	$	1.59		(0.03	)	$	3.07	$	(0.54	)
As adjusted	$	1.59		(0.03	)	$	3.07	$	(0.54	)

Intangible assets at January 31, 2003 and July 2002, which will continue to be amortized, consisted of the following:


	January 31, 2003						July 31, 2002
			Accumulated						Accumulated
	Cost		Amortization		Net		Cost		Amortization		Net
	Restated		Restated		Restated
Amortizable Intangible Assets:
Software Technology	$	2,312	$	594	$	1,718	$	2,312	$	396	$	1,916
Intellectual Property		9,346		530		8,816		100		46		54

	$	11,658	$	1,124	$	10,534	$	2,412	$	442	$	1,970

Intellectual property increased by approximately $9,200 since July 31, 2002. This increase relates to the acquisition of intellectual property from STI of approximately $7,100 and FTNI of approximately $2,100.

The estimated amortization expense of intangible assets for the six months remaining in the current fiscal year, and each of the five succeeding years, is expected to be as follows:


2003 (Remaining 6 months)	$	1,140
2004		2,238
2005		2,232
2006		2,398
2007		2,005
2008		521

7. Net income (loss) per share:

Basic earnings per share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed using the sum of the weighted average number of common stock outstanding during the period and, if dilutive, the weighted average number of potential shares of common stock including invested restricted stock and from the assumed exercise of stock options using the treasury stock method.

The following table sets forth the computation of basic and diluted earnings per share:


	Three Months Ended					Six Months Ended
	January 31,					January 31,
	2003		2002			2003		2002
	Restated		Restated			Restated		Restated
Net income (loss)	$	21,265	$	(413	)	$	40,892	$	(7,118	)

Basic:
Weighted average number of common shares outstanding		13,215		13,071			13,194		13,073

Net income (loss) per share	$	1.61	$	(0.03	)	$	3.10	$	(0.54	)

Diluted:
Weighted average number of common shares outstanding		13,215		13,071			13,194		13,073
Dilutive effect of stock options		197		—			138

Total		13,412		13,071			13,332		13,073

Net income (loss) per share	$	1.59	$	(0.03	)	$	3.07	$	(0.54	)

Options to purchase 7 and 367 shares of common stock with exercise prices greater than the average market price of the Company’s common stock during the three months ended January 31, 2003 and 2002 were outstanding as of January 31, 2003 and 2002, respectively, and were not included in the computation of diluted earnings per share because their inclusion would have been antidilutive.

Options to purchase 830 and 802 shares of common stock with exercise prices greater than the average market price of the Company’s common stock during the six months ended January 31, 2003 and 2002, were outstanding as

of January 31, 2003 and 2002, respectively, were not included in the computation of diluted earnings per share because their inclusion would have been antidilutive. In addition, 147 shares of unvested restricted common stock were excluded from the computation of diluted earnings per share for the six months ended January 31, 2002, because their inclusion would have been antidilutive.

8. Dividends:

The Company declared dividends of $.08 per common share on December 11, 2002, payable January 7, 2003 to shareholders of record on December 24, 2002; and $.08 per common share on October 15, 2002 payable November 12, 2002 to shareholders of record on October 29, 2002.

9. Comprehensive income (loss):

The following table presents the calculation of total comprehensive income (loss) and its components:


	Three Months					Six Months
	Ended					Ended
	January 31,					January 31,
	2003		2002			2003			2002
	Restated		Restated			Restated			Restated
Net income (loss)	$	21,265	$	(413	)	$	40,892		$	(7,118	)
Other comprehensive income (loss),net of taxes:
Unrealized gains and losses from marketable securities, net of taxes of $96 and ($62), for the three months ended January 31, 2003 and 2002, and ($71) and $167 for the six months ended January 31, 2003, and 2002		146		(94	)		(108	)		256
Foreign currency translation adjustment, net of taxes of $517 and ($208), for the three months ended January 31, 2003 and 2002, and $579 and ($169) for the six months ended January 31, 2003 and 2002		789		(318	)		1,000			(259	)

Total comprehensive income (loss)	$	22,200	$	(825	)	$	41,784		$	(7,121	)

10. Supplemental disclosure of cash flow information:

Changes in operating assets and liabilities, net of the impact due to acquisitions, are as follows:


	Six Months Ended
	January 31,
	2003			2002
	Restated			Restated
Accounts and notes receivable	$	2,878		$	10,274
Accounts receivable from affiliates		601
Inventories		2,462			(3,394	)
Costs related to deferred revenue		(5,020	)		(2,656	)
Other current assets		(635	)		152
Other assets		(3,198	)		291
Accounts payable, trade		(7,643	)		1,341
Accrued liabilities		3,951			(2,868	)
Advance payments and deferred revenue		(37,430	)		3,962
Accrued income taxes		13,402			(241	)

Net changes in operating assets and liabilities	$	(30,632	)	$	6,861

11. Taxes:

The effective tax rate for the three and six months ended January 31, 2003 was 38% as compared to 20% for the same periods last year. This increase in the effective tax rate was due primarily to the less significant impact of the benefit of both tax exempt interest and the extraterritorial income exclusion as a percentage of pre-tax income.

12. Segment information:

The Company operates primarily within two segments within the electronics industry: Imaging Technology Products (consisting of medical and security imaging products) and Signal Processing Technology Products. Imaging Technology Products consist primarily of electronic systems and subsystems for medical imaging equipment and advanced explosive detection systems. Signal Processing Technology Products consist of Analog to Digital (A/D) converters and supporting modules, and high-speed digital signal processors. The Company’s Corporate and Other represents the Company’s hotel business and net interest income. Assets of Corporate and Other consist primarily of the Company’s cash equivalents, marketable securities, fixed and other assets, not specifically identifiable. The table below presents information about the Company’s reportable segments:


	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2003			2002			2003			2002
	Restated			Restated			Restated			Restated
Revenues:
Imaging technology products	$	150,763		$	60,079		$	272,667		$	121,860
Signal processing technology products		4,518			7,469			12,171			17,666
Corporate and other		1,690			1,952			4,366			4,924

Total	$	156,971		$	69,500		$	289,204		$	144,450

Income (loss) before income taxes:
Imaging technology products	$	35,309		$	753		$	64,805		$	2,513
Signal processing technology products(A)		(2,359	)		(2,315	)		(1,971	)		(14,469	)
Corporate and other		1,395			1,045			3,167			3,058

Total	$	34,345		$	(517	)	$	66,001		$	(8,898	)


	January 31,		July 31,
	2003		2002
	Restated
Identifiable assets:
Imaging technology products	$	236,116	$	199,113
Signal processing technology products		11,265		14,260
Corporate and other(B)		215,254		225,266

Total	$	462,635	$	438,639

(A)	Includes asset impairment charges on a pre-tax basis of $8,883 during the six months ended January 31, 2002.

(B)	Includes cash equivalents and marketable securities of $171,978 and $174,336 at January 31, 2003, and July 31, 2002, respectively.

13. Guarantor arrangements:

In November 2002, the Financial Accounting Standard Board (“FASB”) issued FIN No. 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34 (“FIN 45”). Fin 45 requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken by issuing the guarantee. Fin 45 also requires additional disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees it has issued. The accounting requirements for the initial recognition of guarantees are applicable on a prospective basis for guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for all guarantees outstanding, regardless of when they were issued or modified, for financial statements of interim or annual periods ending after December 15, 2002. The adoption of FIN 45 did not have a material effect on the Company’s consolidated financial statements. The following is a summary of agreements that the Company determined are within the scope of FIN 45.

The Company has agreements whereby it indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was serving, at the Company’s request in such capacity. The term of the

indemnification period is for the officer’s or director’s lifetime. The potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. Also, to the extent permitted by Massachusetts law, the Company’s Articles of Organization, require the Company to indemnify directors of the Company and the Company’s By-laws require the Company to indemnify the present or former directors and officers of the Company, and also permit indemnification of other employees and agents of the Company for whom the Board of Directors from time to time authorizes indemnification. In no instance, however, will indemnification be granted to a director otherwise entitled thereto who is determined to have (a) committed a breach of loyalty to the Company or its stockholders, (b) committed acts or omissions not in good faith or which involved intentional misconduct or a knowing violation of the law, or (c) derived any improper personal benefit in connection with a particular transaction. Because no claim for indemnification has been made by any person covered by said agreements, and/or the relevant provisions of the Company’s Articles or By-laws, the Company believes that its estimated exposure for these indemnification obligations is currently minimal. Accordingly, the Company has no liabilities recorded for these indemnity agreements and requirements as of January 31, 2003.

The Company’s standard original equipment manufacturing and supply agreements entered in the Company’s ordinary course of business typically contain an indemnification provision pursuant to which the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party in connection with any United States patent, or any copyright or other intellectual property infringement claim by any third party with respect to the Company’s products. Such provisions generally survive termination or expiration of the agreements. The potential amount of future payments the Company could be required to make under these indemnification provisions is, in some instances, unlimited. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes that its estimated exposure on these agreements is currently minimal. Accordingly, the Company has no liabilities recorded for these agreements as of January 31, 2003.

In fiscal 2002, the Company acquired a 19% interest in Cedara Software Corporation (“Cedara”) of Mississauga, Ontario, Canada. As part of the Company’s investment agreement, the Company has guaranteed certain debt owed by Cedara to its bank lender through the provision of a credit facility with the Company’s principal bank for approximately $6,300. During December 2002, the Company agreed to further guarantee an increase in the credit facility from approximately $6,300 to $9,800 based upon Cedara’s funding requirements. To date, no claims have been asserted against the Company in connection with the guarantee of Cedara’s debt. Accordingly, the Company has no liabilities recorded in connection with the Cedara guarantee as of January 31, 2003.

Generally, the Company warrants that its products will perform in all material respects in accordance with its standard published specification in effect at the time of delivery of the products to the customer for a period ranging from 12 to 18 months from the date of delivery. The Company provides for the estimated cost of product and service warranties based on specific warranty claims, claim history and engineering estimates, where applicable.

The following table presents the Company’s product warranty liability for the reporting periods:


	Three Months			Six Months
	Ended			Ended
	January 31,			January 31,
	2003			2003
Balance at the beginning of the period	$	4,704		$	3,235
Accruals for warranties issued during the period		3,643			6,396
Accruals related to pre-existing warranties (including changes in estimates)					(87	)
Settlements made in cash or in kind during the period		(1,420	)		(2,617	)

Balance at the end of the period	$	6,927		$	6,927

14. Explosive Assessment Computed Tomography (“EXACT”) Systems Agreement:

The Company announced in April 2002 that it had entered into an agreement to supply up to 1,000 of its EXACT systems to L-3 Communications’ Security and Detection System division (“L-3”). The EXACT is the core system of

L-3’s Examiner 3DX6000 certified Explosive Detection System that is being purchased by the United States Transportation Security Administration (“TSA”) and installed at major airports across the United States.

The Company recognizes product revenue upon shipment of EXACT systems and spare parts to L-3, at which time all revenue recognition criteria have been met. During the first quarter of fiscal 2003, the Company received firm orders from L-3 for 245 additional systems. These orders brought the total number of systems that had been ordered by L-3 for delivery to the TSA to 425. The Company shipped all 425 EXACT systems by December 31, 2002.

In December 2002, the Company received a purchase order from L-3 to deliver an additional 75 EXACT systems during the first four months of calendar 2003 for foreign and other anticipated orders. The Company believes that additional orders for EXACT systems should be forthcoming. At this time, the Company does not know when such orders will be placed or the quantities that will be required. The Company therefore expects that security imaging revenues may vary significantly from quarter to quarter.

The Company recorded cash received from L-3 for the purchase of long-lead-time inventory components in the advance payments and deferred revenue account within the liabilities section of the balance sheet. These payments are not recognized as revenue until the systems to which the inventory components relate have been shipped. As of January 31, 2003, the Company had a remaining balance of $8,850 recorded within the advance payments and deferred revenue account related to long-lead purchases.

The agreement also provided for the Company to receive $22,000 of ramp-up funds for the purpose of leasing and fitting up a facility and ensuring the availability of key critical raw material and inventory components from suppliers to meet the production and volume requirements of this contract. These costs incurred and assets purchased are fully reimbursed by L-3. The Company has not recorded any revenues, costs or assets related to these ramp-up funds. All cash received for ramp-up activities is recorded within the advance payments and deferred revenue account within the liability section of the balance sheet. These liabilities are reduced as the cash is spent on these activities. As of January 31, 2003, the Company had a balance of $7,210 of unexpended ramp-up funds recorded within the advance payments and deferred revenue account.

In addition to the $22,000 of ramp-up funds provided by L-3 on behalf of the TSA, the Company has spent approximately $5,700 of its own funds for the purchase of manufacturing and office equipment, which was capitalized during the six months ended January 31, 2003.

15. Recent accounting pronouncements:

In December 2002, the Financial Accounting Standard Board (“FASB”) issued SFAS No. 148, “Accounting for Stock Based Compensation — Transition and Disclosure — an amendment of FASB Statement No. 123” (“SFAS 148”). SAFS 148 provides for alternative methods of voluntary transition to the fair value based method of accounting for stock-based employee compensation, and it requires more prominent disclosures, in both interim and annual financial statements, about the method of accounting for stock-based employee compensation and the effect of the method used on reported financial results. SFAS 148 is effective for interim periods beginning after December 15, 2002, and for annual periods ending after December 15, 2002. As provided for in FAS No. 123, the Company has elected to apply Accounting Principals Board (“APB”) No. 25 “Accounting for Stock Issued to Employees” and related interpretations in accounting for the Company’s stock based compensation plans. APB No. 25 does not require options to be expensed when granted with an exercise price equal to fair market value. We intend to continue to apply the provisions of APB No. 25. The Company plans to make the required disclosures in the quarter ending April 30, 2003.

In January 2003, the Financial Accounting Standards Board (“FASB”) issued Financial Accounting Standards Board Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). FIN 46 requires that if an entity has a controlling financial interest in a variable interest entity, the assets, liabilities and results of activities of the variable interest entity should be included in the consolidated financial statements of the entity. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to January 31, 2003, the provisions of FIN 46 must be applied for the first

interim or annual period beginning after June 15, 2003. The Company is in the process of assessing what effect, if any, the adoption of FIN 46 will have on its financial position or results of operations.

16. Subsequent events:

On February 3, 2003, the Company announced that it is planning to construct a 100,000 square foot addition to its headquarters in Peabody, Massachusetts. This two-story addition will enable the Company to further consolidate its existing Massachusetts operations and to expand production capacity for its medical and security imaging system business.

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

All dollar amounts in this Item 2 are in thousands except per share data

The following information has been amended to reflect the revisions made to the Condensed Consolidated Financial Statements as further discussed in Note 2, “Restatement.” This information should be read in conjunction with the information contained in the Unaudited Condensed Consolidated Financial Statements, and Notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q/A.

Critical Accounting Policies, Judgments, and Estimates:

The U.S. Securities and Exchange Commission (“SEC”) has issued Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” (“FRR 60”), suggesting companies provide additional disclosure and commentary on their most critical accounting policies. In FRR 60, the SEC defined the most critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and operating results, and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates on matters that are inherently uncertain. These judgments are based on our historical experience, terms of existing contracts, our observance of trends in the industry, information provided by our customers and information available from other outside sources, as appropriate. Our critical accounting policies include:

Revenue Recognition

The Company recognizes the majority of its revenue in accordance with SEC Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements”. Revenue related to product sales is recognized upon shipment provided that title and risk of loss has passed to the customer, there is persuasive evidence of an arrangement, the sales price is fixed or determinable, collection of the related receivable is reasonably assured and customer acceptance criteria, if any, have been successfully demonstrated. For product sales with acceptance criteria that are not successfully demonstrated prior to shipment, revenue is recognized upon customer acceptance provided all other revenue recognition criteria have been met. Our sales contracts generally provide for the customer to accept title and risk of loss when the product leaves our facilities. When shipping terms or local laws do not allow for passage of title and risk of loss at shipping point, we defer recognizing revenue until title and risk of loss transfer to the customer.

For business units that sell software licenses, the Company recognizes revenue in accordance with the American Institute of Certified Public Accountants (“AICPA”)’s Statement of Position 97-2, “Software Revenue Recognition” (“SOP 97-2”). The application of SOP 97-2 requires judgment, including whether a software arrangement includes multiple elements, and if so, whether vendor-specific objective evidence (“VSOE”) of fair value exists for those elements. License revenue is recognized upon delivery, provided that persuasive evidence of an arrangement exists, no significant obligations with regards to installation or implementation remain, fees are fixed or determinable, collectibility is reasonably assured and customer acceptance, when applicable, is obtained. Hardware and software maintenance fees are marketed under annual and multi-year arrangements and are recognized as revenue ratably over the contracted maintenance term. Service revenues are recognized ratably over the life of the contracts.

The Company provides engineering services to some of its customers on a contractual basis and recognizes revenue using the percentage of completion method. The Company estimates the percentage of completion on contracts with fixed fees on a monthly basis utilizing hours incurred to date as a percentage of total estimated hours to complete the project. If the Company does not have a sufficient basis to measure progress towards completion, revenue is recognized upon completion of the contract. When total cost estimates exceed revenues, the Company accrues for the estimated losses immediately.

Revenue related to the hotel operations is recognized as services are performed.

Inherent in the revenue recognition process are significant management estimates and judgments, which influence the timing and the amount of revenue recognition. Camtronics, one of the Company’s subsidiaries, provides several models for the procurement of its digital cardiac information systems. The predominant model includes a perpetual

software license agreement, project-related installation services, professional consulting services, computer hardware and sub-licensed software and software support.

Camtronics provides installation services, which include project-scoping services, conducting pre-installation audits, detailed installation plans, actual installation of hardware components, and testing of all hardware and software installed at the customer site. Because installation services are deemed to be essential to the functionality of the software, software license and installation services, fees are recognized upon completion of installation.

Camtronics also provides professional consulting services, which include consulting activities that fall outside of the scope of the standard installation services. These services vary depending on the scope and complexity requested by the client. Examples of such services may include additional database consulting, system configuration, project management, interfacing to existing systems, and network consulting. Professional consulting services generally are not deemed to be essential to the functionality of the software, and thus, do not impact the timing of the software license revenue recognition. If VSOE exists, professional consulting service revenue is recognized as the services are performed.

Deferred revenue is comprised of 1) license fee, maintenance and other service revenues for which payment has been received and for which services have not yet been performed and 2) revenues related to delivered components of a multiple-element arrangement for which fair value has not been determined for components not yet delivered or accepted by the customer. Deferred costs represent costs related to these revenues; for example, costs of goods sold and services provided and sales commission expenses.

Inventories

The Company values inventory at the lower of cost or market using the first-in, first-out (FIFO) method. Management assesses the recoverability of inventory based on types and levels of inventory held, forecasted demand and changes in technology. These assessments require management judgments and estimates, and valuation adjustments for excess and obsolete inventory may be recorded based on these assessments.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, marketable securities and accounts receivable. The Company places its cash investments and marketable securities in high credit quality financial instruments and, by policy, limits the amount of credit exposure to any one financial institution. The Company grants credit to domestic and foreign original equipment manufacturers, distributors and end users, performs ongoing credit evaluations and adjusts credit limits based upon payment history and the customer’s current creditworthiness. The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses based upon historical experience and any specific customer collections issues that have been identified. While such credit losses have historically been within expectations and provisions established, there is no guarantee that the Company will continue to experience the same credit loss rates as in the past. Since the accounts receivable are concentrated in a relatively few number of customers, a significant change in liquidity or financial position of any one of these customers could have a material adverse impact on the collectability of accounts receivables and future operating results.

Warranty Reserve

The Company provides for the estimated cost of product warranties at the time products are shipped. Although the Company engages in extensive product quality programs and processes, its warranty obligation is affected by product failure rates and service delivery costs incurred in correcting a product failure. Should actual product failure rates or service costs differ from the Company’s estimates, which are based on specific warranty claims, historical data and engineering estimates, where applicable, revisions to the estimated warranty liability would be required. Such revisions could adversely affect the Company’s operating results.

Investments in and Advances to Affiliated Companies

The Company has several investments in affiliated companies related to areas of the Company’s strategic focus. The Company accounts for these investments using the equity method of accounting. In assessing the recoverability of these investments, the Company must make certain assumptions and judgments based on changes in the Company’s overall business strategy, the financial condition of the affiliated companies, market conditions and the industry and economic environment in which the entity operates. Adverse changes in market conditions or poor operating results of affiliated companies could result in losses or an inability to recover the carrying value of the investments, thereby requiring an impairment charge in the future.

Intangible Assets and Other Long-Lived Assets

Intangible assets consist of goodwill, intellectual property, licenses, and capitalized software. Other long-lived assets consist primarily of property, plant, and equipment. Intangible assets and property, plant, and equipment, excluding goodwill, are amortized using the straight-line method over their estimated useful life. The carrying value of goodwill and other intangible assets is reviewed on a quarterly basis for the existence of facts and circumstances both internally and externally that may suggest impairment. The Company determines whether impairment has occurred based on gross expected future cash flows, and measures the amount of impairment based on the related future discounted cash flows. To date, no such impairment has occurred. Factors which the Company considers important and that could trigger an impairment review include significant underperformance relative to expected historical or projected future operating results and significant negative industry or economic trends.

The cash flow estimates used to determine impairment, if any, contain management’s best estimates, using appropriate and customary assumptions and projections at the time. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company has ceased amortizing goodwill as of August 1, 2002 and will annually review the goodwill for potential impairment as well as on an event-driven basis, using a fair value approach.

Income Taxes

As part of the process of preparing the Company’s financial statements, the Company is required to estimate its income taxes in each of the jurisdictions in which it operates. This process involves estimating actual current tax exposure together with assessing temporary differences resulting from different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the balance sheet. The Company must then assess the likelihood that the deferred tax assets will be recovered from future taxable income and, to the extent that recovery is not likely, a valuation allowance must be established. To the extent a valuation allowance is established, the Company must include an expense within the tax provision in the statement of operations. In the event that actual results differ from these estimates, the provision for income taxes could be materially impacted.

Results of Operations

Six Months Fiscal 2003 (01/31/03) vs. Six Months Fiscal 2002 (01/31/02)

Product revenue for the six months ended January 31, 2003 was $272,983 as compared to $127,788 for the same period last year, an increase of 114%. The increase of $145,195 was primarily due to an increase of $153,500 in sales of Medical and Security Imaging Products, offset by a reduction in sales of Signal Processing Technology Products in the amount of $8,305 due primarily to lower demand for embedded multiprocessing equipment. Of the increased sales amount, $160,815 represents sales of EXACT systems and spare parts, $5,074 represents sales by Sound Technology Inc. (“STI”), and $9,364 represents sales due to increased demand for the Company’s Data Acquisitions Systems. These revenues were partially offset by a decrease of $18,728 primarily due to a reduction in sales of mid-range Computed Tomography (“CT”) medical systems previously supplied to Philips. The Company believes that additional orders for EXACT systems should be forthcoming. At this time, the Company does not know when such orders will be placed or the quantities that will be required. The Company therefore expects that security imaging revenues may vary significantly quarter to quarter.

Engineering revenue for the six months ended January 31, 2003 was $11,855 compared to $11,738 for the same period last years, an increase of 1%.

Other revenue of $4,366 and $4,924 represents revenue from the Hotel operation for the six months ended January 31, 2003 and 2002, respectively. The decrease in revenue is attributable to lower occupancy due to the economic decline in the travel and lodging industries.

Cost of product sales was $155,587 and $81,560 for the six months ended January 31, 2003 and 2002, respectively. Cost of product sales, as a percentage of product revenue was 57% for the six months ended January 31, 2003 compared to 64% for the same period last year. The decrease in the cost of product sales percentage over the prior year was primarily attributable to the increased sales of security imaging technology products, which have lower cost of sales than most of the Company’s other products.

Cost of engineering sales was $8,403 for the six months ended January 31, 2003 compared to $11,854 for the same period least year. The total cost of engineering sales as a percentage of engineering revenue decreased to 71% for the six months ended January 31, 2003 from 101% for the six months ended January 31, 2002. This percentage decrease was primarily attributable to license revenue recognized in the six months ended January 31, 2003 for which there was no associated cost.

Research and product development expenses were $25,948 for the six months ended January 31, 2003, or 9% of total revenue, as compared to $20,544 for the same period last year, or 14% of total revenue. The increase of $5,404 was due to the Company continuing to focus substantial resources in developing new generations of medical imaging equipment, including innovative CT systems for niche markets, advanced digital X-ray systems and subsystems for general radiography and mammography, and an extended family of multislice CT Data Acquisition Systems for both medical and security markets. In addition, the Company is developing security imaging systems for a variety of applications. The Company is in the initial stages of testing prototypes of an automated, CT-based portal screening system that can scan carry-on baggage at airports, “carry-in” baggage at public buildings, and parcels for corporations and delivery services. In addition, the Company continues to increase its investment in a number of other development projects to meet diverse, evolving security needs in the United States and abroad.

Selling and marketing expenses were $16,380 for the six months ended January 31, 2003, or 6% of the total revenue, as compared to $16,118 or 11% of total revenue for the same period last year. The increase of $262 is primarily associated with additional selling and marketing efforts by the Company’s subsidiaries, Camtronics Medical Systems, Ltd. and B-K Medical Systems A/S.

General and administrative expenses were $16,428, or 6% of total revenue, for the six months ended January 31, 2003 as compared to $14,440, or 10% of total revenue, for the same period last year. The increase of $1,988 was due primarily attributable to increased salaries, bonuses paid and accrued, provisions made for the 401(k)/profit sharing plan of approximately $800, bad debt expenses of approximately $600 primarily related to an unsecured note receivable, and approximately $300 related to incremental costs due to the acquisition of Sound Technology Inc., partially offset by a reduction of approximately $300 in outside consulting services.

Interest income was $2,509 for the six months ended January 31, 2003 as compared with $2,270 for the same period last year. The increase of $239 was primarily the result of higher invested cash balances partially offset by lower effective interest rates on short-term investments.

The Company recorded a loss of $2,093 related to equity in unconsolidated affiliates for the six months ended January 31, 2003 as compared to a gain of $1,033 for the same period last year. The equity loss consists primarily of $790 and $1,436 reflecting the Company’s share of losses in Shenzhen Anke High-Tech Co., Ltd. (“SAHCO”) and Cedara Software Corp., respectively, for the six months ended January 31, 2003, compared with an equity gain of $333 for SAHCO and an equity loss of $109 for Cedara Software Corp., for the same period last year. For the six months ended January 31, 2003 and 2002, the Company also recorded a gain in equity of $160 and $825, respectively, reflecting the Company’s share of profit in Enhanced CT Technology LLC.

Other income was $1644 for the six months ended January 31, 2003 compared to a loss of $294 for the same period last year. Other income for the first six months of fiscal 2003 represents primarily currency exchange gains from the intercompany balances with the Company’s Canadian and Danish subsidiary, versus currency exchange losses for the same period last year for the intercompany balances with the Company’s Canadian and Danish subsidiaries.

The effective tax rate for the six months ended January 31, 2003 was 38% versus 20% for the same period last year. This increase in the effective tax rate was due primarily to the less significant impact of the benefit of both tax-exempt interest and extraterritorial income exclusion as percentage of pretax income.

Net income for the six months ended January 31, 2003 was $40,892 or $3.10 per basic earnings per share and $3.07 per diluted earnings per share as compared to a net loss of $7,118 or $ 0.54 per basic and diluted earnings per share for the same period last year. The increase in net income over the prior year was primarily the result of increased revenue and profit derived from the sale of EXACT systems. The prior year’s loss included a pre-tax asset impairment charge of $8,883 related to certain assets of the Company’s Anatel subsidiary and its Test and Measurement division.

Results of Operations

Second Quarter Fiscal 2003 (01/31/03) vs. Second Quarter Fiscal 2002 (01/31/02)

Product revenue for the three months ended January 31, 2003 was $149,806 as compared to $63,287 for the same period last year, an increase of $86,519 or 137%. The increase was primarily due to $90,158 in sales of Medical and Security Imaging Products offset by a decrease of $3,639 of sales of Signal Processing Technology Products due to lower demand for embedded multiprocessing equipment. Of the increased sales amount $87,961 represents sales of EXACT systems and spare parts, and $5,074 represents sales by STI. These increases were partially offset by a decrease of $8,073 primarily due to a reduction of sales of mid-range Computed Tomography (“CT”) medical systems previously supplied to Philips and, to a lesser extent, a decline in sales of Direct Digital Radiography systems. The Company believes that additional orders for EXACT systems should be forthcoming. At this time, the Company does not know when such orders will be placed or the quantities that will be required. The Company therefore expects that security imaging revenues may vary significantly from quarter to quarter.

Engineering revenue for the three months ended January 31, 2003 was $5,475 compared to $4,261 for the same period last year, an increase of $1,214. The increase in engineering revenue was primarily due to an increase in funding for projects for developing medical and security imaging equipment.

Other revenues of $1,690 and $1,952 represent revenue from the Hotel operation for the three months ended January 31, 2003 and 2002, respectively. The decrease in revenues was attributable to lower occupancy due to the decline in the travel and lodging business.

Cost of product sales was $87,965 for the quarter ended January 31, 2003, compared to $39,862 for the same period last year. Cost of product sales as a percentage of product revenue was 59% and 63% for the three months ended January 31, 2003 and 2002, respectively. The decrease in the cost of product sales percentage over the prior year was primarily attributable to the sale of security imaging technology products, which have lower cost of sales than most of the Company’s other products.

Cost of engineering sales was $3,507 for the three months ended January 31, 2003, compared to $5,231 for the same period last year. The total cost of engineering sales as a percentage of engineering revenue decreased to 64% for the three months ended January 31, 2003, from 123% for the same period last year. The decrease in cost as a percentage of engineering revenue for the three months ended January 31, 2003 was primarily attributable to improved cost management related to customer funded projects. In the previous year’s quarter, the Company had several projects, which incurred cost overruns that were not reimbursable from its customers, resulting in costs exceeding revenues for the period.

Research and product development expenses were $14,571 for the three months ended January 31, 2003, or 9% of total revenue, compared to $10,382 for the same period last year, or 15% of total revenue. The increase of $4,189 was due to the Company continuing to focus substantial resources in developing new generations of medical imaging equipment, including innovative CT systems for niche markets, advanced digital X-ray systems and subsystems for general radiography and mammography, and an extended family of multislice CT Data Acquisition Systems for both medical and security markets. In addition, the Company is developing security imaging systems for a variety of applications. The Company is in the initial stages of testing prototypes of an automated, CT-based

portal screening system that can scan carry-on baggage at airports, “carry-in” baggage at public buildings, and parcels for corporations and delivery services. In addition, the Company continues to increase its investment in a number of other development projects to meet diverse, evolving security needs in the United States and abroad.

Selling and marketing expenses were $8,448 for the three months ended January 31, 2003, or 5% of total revenue, compared to $7,830 or 11% of total revenue for the same period last year. The increase of $618 was primarily associated with additional selling and marketing efforts by the Company’s subsidiaries, Camtronics Medical Systems, Ltd. and B-K Medical Systems S/A.

General and administrative expenses were $8,595, or 5% of total revenue, for the three months ended January 31, 2003, as compared to $6,575 or 9% of total revenue, for the same period last year. The increase of $2,020 was primarily attributable to increased salaries, bonuses paid and accrued, provisions made for the 401(k)/profit-sharing plan of approximately $900, approximately $250 in amortization related to acquired intangible assets, and approximately $300 related to incremental costs due to the acquisition of Sound Technology Inc.

Interest income was $1,221 for the three months ended January 31, 2003, compared to $1,031 for the same period last year. The increase of $190 was due to higher invested cash balances partially offset by lower effective interest rates.

The Company recorded a loss of $855 related to equity in unconsolidated affiliates for the three months ended January 31, 2003, as compared to a gain of $379 for the same period last year. The equity loss consists primarily of $321 and $689 reflecting the Company’s share of losses in SAHCO and Cedara Software Corporation, respectively, partially offset by a gain in equity of $160 for the Company’s share of profit in Enhanced CT Technologies LLC. For the three months ended January 31, 2002, the Company recorded a gain in equity of $418 reflecting the Company’s share of profit in Enhanced CT Technology LLC, and an equity loss of $25 reflecting the Company’s share of loss in Cedara Software Corporation.

Other income was $1,301 for the three months ended January 31, 2003, compared to a loss of $128 for the same period last year. Other income for the current quarter primarily represents currency exchange gains from the intercompany balances with the Company’s Canadian and Danish subsidiary, versus currency exchange loss for the same period last year from the intercompany balances with Company’s Canadian and Danish subsidiaries.

The effective tax rate for the three months ended January 31, 2003 was 38% versus 20% for the same period last year. This increase in the effective tax rate was due primarily to the less significant impact of the benefit of both tax-exempt interest and the extraterritorial income exclusion as a percentage of pretax income.

Net income for the three months ended January 31, 2003, was $21,265 or $1.61 per basic earnings per share and $1.59 per diluted earnings per share as compared to a net loss of $413 or $0.03 per basic and diluted earnings per share for the same period last year. The increase in net income over the prior year was primarily the result of increased revenue and profit derived from the sales of EXACT systems.

Liquidity and Capital Resources

The Company’s balance sheet reflects a current ratio of 3.8 to 1 at January 31, 2003, and 2.8 to 1 at July 31, 2002. Liquidity is sustained principally through funds provided from operations, with short-term deposits and marketable securities available to provide additional sources of cash. The Company places its cash investments in high credit quality financial instruments and, by policy, limits the amount of credit exposure to any one financial institution. The Company’s debt to equity ratio was .34 to 1 at January 31, 2003, and .45 to 1 at July 31, 2002. The Company believes that its balances of cash and cash equivalents, marketable securities and cash flows expected to be generated by future operating activities will be sufficient to meet its cash requirements over the next twelve months.

The Company faces limited exposure to financial market risks, including adverse movements in foreign currency exchange rates and changes in interest rates. These exposures may change over time as business practices evolve

and could have a material adverse impact on the Company’s financial results. The Company’s primary exposure has been related to local currency revenue and operating expenses in Canada and Europe.

The carrying amounts reflected in the unaudited condensed consolidated balance sheets of cash and cash equivalents, trade receivables, and trade payables approximate fair value at January 31, 2003, due to the short maturities of these instruments.

The Company maintains a bond investment portfolio of various issuers, types, and maturities. This portfolio is classified on the balance sheet as either cash and cash equivalents or marketable securities, depending on the lengths of time to maturity from original purchase. Cash equivalents include all highly liquid investments with maturities of three months or less from the time of purchase. Investments having maturities from the time of purchase in excess of three months are stated at amortized cost, which approximates fair value, and are classified as available for sale. A rise in interest rates could have an adverse impact on the fair value of the Company’s investment portfolio. The Company does not currently hedge these interest rate exposures.

Cash flow provided from operations was $25,853 for the first six months of fiscal 2003 compared to $13,147 during the same period of the prior year. The increase in cash flow from operations of $12,706 during the first six months of fiscal 2003 over the prior year period resulted primarily from increases in net income of $48,010 offset by a significant reduction in advance payments and deferred revenue of $41,392 primarily related to the EXACT contract with L-3.

Net cash used in investing activities was $12,427 for the first six months of fiscal 2003 compared to $13,205 for the same period last year. The decrease in net cash used of $778 was primarily due to reduced capital spending of $4,196 and $2,750 maturities of marketable securities which matured that the Company decided not to reinvest, offset by increased spending related to business acquisitions and investments in and advancements to affiliated companies of $5,500.

Net cash flow from financing activities was $91 for the first six months of fiscal 2003 versus a use of $2,422 for the prior year period. The increase in financing activities of $2,513 was primarily the result of issuance of stock pursuant to employee stock option and employee stock purchase plans.

The Company’s contractual obligations at January 31, 2003, and the effect such obligations are expected to have on liquidity and cash flows in future periods are as follows:


			Less						More
			than						than
Contractual Obligations	Total		1 year		1-3 years		4-5 years		5 years
Mortgage and notes payable	$	6,402	$	1,531	$	704	$	704	$	3,463
Capital leases		625		312		294		19
Operating leases (A)		10,610		2,475		4,722		1,128		2,285
Other commitments (B)		2,950		2,534		416

	$	20,587	$	6,852	$	6,136	$	1,851	$	5,748

(A)	Includes approximately $3.1 million of lease costs associated with the Haverhill facility funded by ramp-up monies received by the Company in connection with the EXACT system order.

(B)	Includes approximately $3.0 million of commitments to suppliers for the production of raw materials and inventory components funded by ramp-up monies received by the Company in connection with the EXACT system order.

As of January 31, 2003, the Company had approximately $30,000 in revolving credit facilities with various banks available for direct borrowings. As of January 31, 2003, there were no direct borrowings. However, the Company has guaranteed through a provision of a credit facility with its principal bank the debt owed by Cedara to its bank lender through a provision of a credit facility for approximately $9,800.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company places its cash investments in high credit quality financial instruments and, by policy, limits the amount of credit exposure to any one financial institution. The Company faces limited exposure to financial market risks, including adverse movements in foreign currency exchange rates and changes in interest rates. These exposures may change over time as business practices evolve and could have a material adverse impact on the Company’s financial results. The Company’s primary exposure has been related to local currency revenue and operating expenses in Canada and Europe.

The Company maintains a bond investment portfolio of various issuers, types, and maturities. The Company’s cash and investments include cash equivalents, which the Company considers to be investments purchased with original maturities of three months or less. Investments having original maturities in excess of three months are stated at amortized cost, which approximates fair value, and are classified as available for sale. Total interest income, net for the six months ended January 31, 2003 was $2,358. An interest rate change of 10% would not have a material impact to the fair value of the portfolio or to future earnings.

The Company’s three largest customers for the fiscal year ended July 31, 2002, each of which is a significant and valued customer, were Philips, General Electric and L-3 Communications, which accounted for approximately 18%, 12%, and 10%, respectively, of product and engineering revenue. For the six months ended January 31, 2003, these customers, L-3 Communications, General Electric and Philips accounted for approximately 57%, 7%, and 3%, respectively, of product and engineering revenue. Loss of any one of these customers would have a material adverse effect upon the Company’s business.

Item 4. Controls and Procedures

The Company’s management, with the participation of the Company’s chief executive officer and chief financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of January 31, 2003. The Company’s chief executive officer and chief financial officer believe that the Company’s disclosure controls and procedures were designed to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the Company’s chief executive officer and chief financial officer by others within those entities, particularly during the period in which this report was being prepared.

The Company’s management performed its initial evaluation of its disclosure controls and procedures shortly following the quarter ended January 31, 2003. However, in the course of preparing its Annual Report on Form 10-K for the fiscal year ended July 31, 2004, the Company further evaluated certain information leading it to question whether appropriate software revenue recognition procedures had been followed in all cases by its Camtronics Medical Systems Ltd. subsidiary. The Company conducted a review of Camtronics transactions and the revenue recognition procedures followed, which has led the Company to restate its financial statements for the first three quarters of the fiscal year ended July 31, 2004 and for the fiscal years ended July 31, 2002 and 2003 and each of the interim periods within those years (see Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements). Based upon this subsequent evaluation of the effectiveness of the Company’s disclosure controls and procedures performed by management, as well as the information learned as a result of its review of Camtronics transactions, the Company’s chief executive officer and chief financial officer have concluded that, as of January 31, 2003, there were a number of significant deficiencies in the controls and procedures relating to the Company’s Camtronics subsidiary that together constitute a material weakness in the Company’s internal control over financial reporting. Accordingly, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were not operating effectively as of January 31, 2003.

The principal internal control issues identified by the Company’s management are:

	•	the software revenue recognition expertise of Company management needs to be improved;

	•	the Company needs to enhance its written accounting policies and procedures related to software revenue recognition;

	•	the Company needs to enhance the training provided to employees with respect to software revenue recognition; and

	•	the business processes and procedures of Camtronics need to be improved to ensure that they do not have unintended consequences with respect to software revenue recognition.

Since identifying these issues, the Company has taken the following steps to improve its disclosure controls and procedures and internal control over financial reporting:

	•	Appointment of an interim President of Camtronics, succeeding the former President who left the employ of the Company, until such time that a full time President has been appointed.

	•	Appointment of a Controller, replacing Camtronics’ Vice President and Controller who left the employ of the Company.

	•	All subsidiary Controllers, who formerly reported to subsidiary General Managers, also now report directly to the Company’s Corporate finance organization.

	•	Detailed quarterly review of all software revenue transactions by the Company’s Corporate finance organization.

In addition, the Company plans to take the following additional actions to further improve its disclosure controls and procedures and internal control over financial reporting:

	•	Review and revise, as required, Camtronics software revenue recognition policies, procedures and processes to ensure compliance with SOP 97-2.

	•	Conduct periodic internal audit reviews of Camtronic’s business practices and software revenue recognition policies and procedures.

	•	Conduct software revenue recognition training for all Camtronics personnel who have responsibility for generating, administering, and recording software revenues.

The Company believes that the above steps taken and the planned additional actions will address and resolve the material weaknesses in the Company’s internal controls over financial reporting at its Camtronics subsidiary. With respect to planned additional actions, the Company will initiate and, where practicable, complete these actions on or before the end of its third quarter ending April 30, 2005.

While there have been significant changes (described above) in the Company’s internal control over financial reporting since October 31, 2004, no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended January 31, 2003 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

The certifications of the Company’s chief executive officer and chief financial officer attached as Exhibits 31.1 and 31.2 to this Quarterly Report on Form 10-Q/A include, in paragraph 4 of such certifications, information concerning the Company’s disclosure controls and procedures and internal control over financial reporting. Such certifications should be read in conjunction with the information contained in this Item 4 for a more complete understanding of the matters covered by such certifications.

PART II — OTHER INFORMATION

Item 6. Exhibits


Exhibit		Description
31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment to be signed on its behalf by the undersigned thereunto duly authorized.


		ANALOGIC CORPORATION
		Registrant

		/s/John W. Wood Jr.

		John W. Wood Jr.
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: March 1, 2005

		/s/John J. Millerick

		John J. Millerick
		Senior Vice President,
		Chief Financial Officer and Treasurer
		(Principal Financial and Accounting Officer)
Date: March 1, 2005

EXHIBIT INDEX


Exhibit		Description
31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350

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