American Science & Engineering (NASDAQ:ASEI), builder of systems that use X-rays to search trucks, cargo, and people for plastic explosives, weapons, illegal drugs, nuclear devices, and other contraband, reported strong results on Wednesday for its fiscal 2006 third quarter. The fact that sales are growing rapidly is a sad reflection of the times.

For the quarter, sales tallied $38.5 million, which was a 64% increase from the prior year. Meanwhile, earnings more than quadrupled from a year ago, reaching $9.7 million, or $0.95 per share.

One of the keys to the strong performance continues to be the Z backscatter van (ZBV). The ZBV is a unique product that a competitor, OSI Systems' (NASDAQ:OSIS) Rapiscan division, can't match. The ZBV is an ordinary commercial van outfitted with the equipment AS&E uses to perform its patented Z backscatter X-ray technique. These vans can be used to search people and vehicles, and used in Iraq to detect improvised explosive devices (IEDs).

There are plenty of reasons to be optimistic about the future of this company. ZBVs have been sold to 18 foreign countries, and it hopes to begin receiving additional, larger orders from many of these customers. Also, AS&E received an order for the new OmniView Gantry Cargo Inspection System from the Department of Defense during the latest quarter. OmniView is a relocatable inspection system that uses both backscattered X-rays and high energy X-rays that pass completely through trucks or containers to provide detailed images of the interior.

Another bit of good news is that AS&E's personnel screening system, called SmartCheck, is clearing hurdles with the Transportation Security Administration. This product uses backscattered X-rays to find weapons and contraband concealed under clothing. There has been some concern about this technology, because it essentially produces images of people without their clothes, so AS&E has been asked to modify a test system in order to maintain privacy.

While I think the future is bright for this company, some people obviously disagree -- almost 15% of the float is sold short. Most of AS&E's business is with the U.S. government, and government orders can be lumpy, so there's a possibility that AS&E could have a disappointing quarter at any time. Nevertheless, it just seems to me that there are too many potential positive developments to be short these shares. I'm reminded of a company called InVision Technologies that made systems for explosives detection. I began looking at InVision a little late, when the stock was selling for $25 per share after rising from the low single digits. InVision also had high short interest, but it didn't work out too well for the shorts. InVision was bought by GE (NYSE:GE) in 2004 for $50 per share. While I'm not predicting that AS&E will be acquired, I think there's a significant chance that the short sellers will be disappointed.

Dan Bloom doesn't own shares of any stock mentioned in this article. He welcomes your feedback at blm_dn@yahoo.com.