-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WFJ6ysQG0RWFpfluRRx32KvdtilhYlOjnxP5oUqy1O8sTYZPY/VIjCwFecephIie dDtGzMAOih3GPHI5iRRVVg== 0000881890-00-000001.txt : 20000216 0000881890-00-000001.hdr.sgml : 20000216 ACCESSION NUMBER: 0000881890-00-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ABAXIS INC CENTRAL INDEX KEY: 0000881890 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 770213001 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19720 FILM NUMBER: 544557 BUSINESS ADDRESS: STREET 1: 1320 CHESAPEAKE TERRACE CITY: SUNNYVALE STATE: CA ZIP: 94089 BUSINESS PHONE: 4087340200 MAIL ADDRESS: STREET 2: 1320 CHESAPEAKE TERRACE CITY: SUNNYVALE STATE: CA ZIP: 94089 10-Q 1 FORM 10-Q FOR PERIOD ENDED DECEMBER 31, 1999 UNITED STATES SECURITIES & EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------- FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _______ to _______ Commission file number 000-19720 ABAXIS, INC. (Exact name of registrant as specified in its charter) California 77-0213001 (State or other jurisdiction of (I.R.S. Employer incorporation or organization ) Identification No.) 1320 Chesapeake Terrace Sunnyvale, California 94089 (Address of principal executive offices) Telephone: (408) 734-0200 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), Yes [X] No and (2) has been subject to such filing requirements for the 90 days. Yes [X] No At February 8, 2000, 13,991,331 shares of common stock, no par value, were outstanding. TABLE OF CONTENTS ITEM Facing Sheet Table of Contents Part I. Financial Information Item 1. Financial Statements: Condensed Statements of Operations - Three and Nine Months Ended December 31, 1999 and 1998 Condensed Balance Sheets - December 31, 1999 and March 31, 1999 Condensed Statements of Cash Flows - Nine Months Ended December 31, 1999 and 1998 Notes to Condensed Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders Item 6. Exhibits and Reports on Form 8-K Signatures ABAXIS, INC. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended December 31, December 31, ------------------------- ------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Revenues: Product sales, net......... $6,458,000 $3,068,000 $15,876,000 $6,612,000 Development and licensing revenue.................. 35,000 35,000 105,000 150,000 ------------ ------------ ------------ ------------ Total revenues 6,493,000 3,103,000 15,981,000 6,762,000 ------------ ------------ ------------ ------------ Costs and operating expenses: Cost of product sales...... 3,336,000 2,144,000 8,702,000 5,029,000 Research and development... 816,000 755,000 2,618,000 1,233,000 Selling, general, and administrative........... 2,202,000 1,367,000 5,687,000 2,616,000 ------------ ------------ ------------ ------------ Total costs and operating expenses................. 6,354,000 4,266,000 17,007,000 8,878,000 ------------ ------------ ------------ ------------ Loss from operations.......... 139,000 (1,163,000) (1,026,000) (2,116,000) Interest income 15,000 (53,000) 81,000 31,000 Other income (expense)........ 18,000 (26,000) (7,000) (7,000) ------------ ------------ ------------ ------------ Net loss...................... $172,000 ($1,242,000) ($952,000) ($2,092,000) ============ ============ ============ ============ Basic and diluted loss per share (a)................ $0.01 ($0.09) ($0.09) ($0.15) ============ ============ ============ ============ Average number of common shares outstanding used in calculating basic earnings per share 13,976,000 13,885,000 13,969,000 13,741,000 ============ ============ ============ ============ Average number of common shares outstanding used in calculating diluted earnings per share 13,968,000 13,885,000 13,969,000 13,741,000 ============ ============ ============ ============
(a) Net income (loss) attributable to common shareholders used in computation of basic and diluted loss per share for the three and nine months ended December 31, 1999 and 1998 was $ 112,000, $(1,133,000), $ (1,242,000) and $(3,338,000) respectively. See Note 3 of Notes to Condensed Financial Statements. See Note 3 of Notes to condensed financial statements. See notes to condensed financial statements. ABAXIS, INC. CONDENSED BALANCE SHEETS
December 31, March 31, 1999 1999 ------------ ------------ (unaudited) (Note 1) Current assets: Cash and cash equivalents ....................... $2,694,000 $5,426,000 Trade and other receivables (net of allowance for doubtful accounts of $231,000 at Dec. 31, 1999 and $174,000 at March 31, 1999).......... 4,415,000 2,731,000 Interest receivable ............................. -- -- Inventories ..................................... 2,553,000 1,933,000 Prepaid expenses ................................ 202,000 233,000 ------------ ------------ Total current assets ................... 9,864,000 10,323,000 Property and equipment - net ...................... 3,663,000 2,518,000 Deposits and other assets ......................... 87,000 73,000 ------------ ------------ Total assets ...................................... $13,614,000 $12,914,000 ============ ============ Liabilities and Shareholders' Equity Current liabilities: Borrowings under line of credit.................. $771,000 $683,000 Accounts payable ................................ 1,696,000 1,087,000 Dividends payable ............................... 268,000 88,000 Accrued payroll and related expenses ............ 1,619,000 573,000 Other accrued liabilities ....................... 430,000 410,000 Warranty reserve ................................ 710,000 737,000 Deferred rent ................................... 61,000 53,000 Deferred revenue ................................ 463,000 258,000 Current portion of long-term debt ............... 392,000 606,000 ------------ ------------ Total current liabilities .............. 6,410,000 4,495,000 ------------ ------------ Long-term debt .................................... 690,000 889,000 ------------ ------------ Commitments and contingencies Shareholders' equity: Convertible preferred stock, no par value: authorized shares - 5,000,000; issued and outstanding shares - 4,000 on Dec. 31,1999 and 4,000 on March 31, 1999 ................... 3,581,000 3,581,000 Common stock, no par value: authorized shares - 35,000,000; issued and outstanding shares - 13,977,643 on Dec. 31, 1999 and 12,957,580 on March 31, 1999 .................. 64,111,000 63,944,000 Deferred compensation ........................... (79,000) (28,000) Accumulated deficit ............................. (61,099,000) (59,967,000) ------------ ------------ Total shareholders' equity ............. 6,514,000 7,530,000 ------------ ------------ Total liabilities and shareholders' equity ........ $13,614,000 $12,914,000 ============ ============
See notes to condensed financial statements. Note 1 - Amounts are derived from audited financial statements. ABAXIS, INC CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended December 31, ------------------------- 1999 1998 ------------ ------------ Operating activities: Net loss............................................... ($952,000) ($3,327,000) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization........................ 138,000 525,000 Amortization of deferred compensation................ (50,000) -- Common stock issued for services..................... -- -- Changes in assets and liabilities: Trade and other receivables....................... (1,684,000) (356,000) Interest receivable............................... -- 127,000 Inventories....................................... (620,000) (691,000) Prepaid expenses.................................. 97,000 (86,000) Deposits and other assets......................... (14,000) 11,000 Accounts payable.................................. 609,000 (629,000) Accrued payroll and related expenses.............. 1,046,000 19,000 Other accrued liabilities......................... 20,000 (22,000) Warranty reserve.................................. (27,000) 17,000 Deferred revenue and other........................ 213,000 (52,000) ------------ ------------ Net cash used in operating activities.................. (1,224,000) (4,464,000) ------------ ------------ Investing activities: Purchase of available-for-sale securities.............. -- (4,874,000) Maturities of available-for-sale securities............ -- 8,270,000 Purchase of property and equipment..................... (1,595,000) (801,000) ------------ ------------ Net cash provided by (used in) investing activities.... (1,595,000) 2,595,000 ------------ ------------ Financing activities: Proceeds from issuance of common stock................. 167,000 236,000 Proceeds from issuance of preferred stock.............. -- 3,568,000 Net proceeds from equipment financing.................. 1,176,000 1,974,000 Repayment of equipment financing....................... (1,655,000) (777,000) ------------ ------------ Net cash used in financing activities.................. (312,000) 5,001,000 ------------ ------------ Increase (decrease) in cash and cash equivalents....... (3,131,000) 3,132,000 Cash and cash equivalents at beginning of period....... 5,426,000 1,701,000 ------------ ------------ Cash and cash equivalents at end of period............. $2,295,000 $4,833,000 ============ ============ Supplemental disclosures of cash flow information: Interest paid....................................... $222,000 $160,000 ============ ============ Noncash financing activities: Accrued dividends on preferred stock................ $180,000 -- ============ ============ Conversion of preferred stock into common stock..... -- $2,440,000 ============ ============ Accretion of preferred stock........................ -- $11,000 ============ ============
See notes to condensed financial statements. ABAXIS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. These condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1999. The unaudited condensed financial statements included herein reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary to state fairly the results of and for the periods presented. Certain amounts as presented in the March 31, 1999 financial statements have been reclassified to conform to the fiscal year 2000 financial statement presentation. The results for the periods presented are not necessarily indicative of the results to be expected for the entire fiscal year ending March 31, 2000 or for any future period. 2. SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition - Revenues are recognized upon shipment. Rights of return are generally not provided and a provision for the estimated future cost of warranty is made at the time revenue is recognized. Revenues under extended warranty arrangements are recognized ratably over the related warranty period. Instrument revenues under cross distribution agreements (where the Company and another party purchase each other's products for sale) are recognized upon sale of the products to the end user. Comprehensive Income (Loss) - In the first quarter of fiscal year 1999, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," which requires an enterprise to report, by major components and as a single total, the change in its net assets during the period from nonowner sources. Comprehensive income (loss) was the same as net income (loss) for the three and six months ended December 31, 1999 and 1998. New Accounting Pronouncement - In September 1998, the Financial Accounting Standards Board issued Statement of Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", (SFAS 133) which establishes accounting and reporting standards for derivative instruments and for hedging activities. SFAS 133 requires that entities recognize all derivatives as either assets or liabilities and measure those instruments at fair value. Adoption of this statement is not expected to have a material impact on the Company's financial position, results of operations or cash flows. The Company is currently required to adopt SFAS 133 in its financial statements in the first quarter of the fiscal year ending March 31, 2002. 3. PER SHARE INFORMATION Basic loss per share is computed based upon the weighted average number of shares of common stock outstanding and the net loss attributable to common shareholders. Diluted loss per share is computed by dividing net income (loss) by the weighted average number of common shares that would have been outstanding during the period assuming the issuance of common shares for all dilutive potential common shares outstanding. Shares used in the calculation of diluted loss per share for the three months ended December 31, 1998 exclude 1,635,000 and for the nine months ended December 31, 1999 and 1998 exclude 2,173,000 and 1,662,000, common equivalent shares related to options, warrants and preferred stock. Loss attributable to common shareholders includes accrued dividends and the accretion relating to the calculated imbedded yield representing the discount on the assumed potential conversion of the preferred stock issued by the Company. The reconciliation of net income (loss) to net income (loss) attributable to common shareholders is as follows:
Three Months Ended Nine Months Ended December 13, 1999 December 13, 1999 ------------------------- ------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Net loss...................... $172,000 ($1,242,000) ($953,000) ($3,327,000) Cumulative preferred stock dividends............. (60,000) -- (180,000) -- Value assigned to accretion of preferred stock.......... -- -- -- (11,000) ------------ ------------ ------------ ------------ Net loss attributable to common shareholders......... $112,000 ($1,242,000) ($1,133,000) ($3,338,000) ============ ============ ============ ============
The reconciliation of average number of common shares outstanding used in calculating basic earnings per share and in calculating diluted earnings per share:
Quarters Ended Dec, 31 Nine Mos. Ended Dec 31, ------------------------- ------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Average number of common shares ousttanding used in calculating basic earnings per share...... 13,976,000 13,885,000 13,969,000 13,741,000 Peferred stock................ 1,600,000 -- -- -- Average number of stock options outstanding.................... 727,000 -- -- -- Average number of warrants outstanding.................. 71,000 ------------ ------------ ------------ ------------ Average number of common shares outstanding used in calculating diluted earnings per share..... 16,374,000 13,885,000 13,969,000 13,741,000 ============ ============ ============ ============
4. INVENTORY Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following:
December 31, March 31, 1999 1999 ------------ ------------ Raw materials................ $821,000 $910,000 Work-in-process.............. 854,000 574,000 Finished goods............... 878,000 449,000 ------------ ------------ $2,553,000 $1,933,000
============ ============ 5. CO-PROMOTION AGREEMENT On September 30, 1999 the Company announced a co-promotion agreement with ABBOTT Laboratories ("ABBOTT"). The agreement is for two years with an option, exercisable by ABBOTT for three additional years. Under this agreement, the ABBOTT animal health sales force will co-promote Abaxis' VetScan chemistry analyzer in the United States and Canada. ABBOTT will receive a commission on analyzers placed above a predetermined baseline number per quarter payable over an approximate eight year period. The present value of the commission obligation is recorded concurrently with the instrument sales using a discount rate of 9.75%. In addition, ABBOTT will provide up to $5 million in financing to support the Company's expansion of manufacturing capacity. Such borrowings will bear interest at 1.6% below prime, with interest payable quarterly and principal repayment no later than December 31, 2007. The difference between the discounted interest rate and the Company's incremental borrowing rate is being amortized over the initial two year term of the agreement. In addition, ABBOTT agreed to provide additional financing at 1.6% below prime to support additional sales programs contemplated by the Company. 6. LINE OF CREDIT AND LONG-TERM DEBT In September 1999, the Company refinanced the line of credit and the equipment financing loan. The new line of credit is $4,000,000, of which $2,500,000 is currently available. The additional $1,500,000 could become available if the Company elects to pay a certain fee to the bank. The amount borrowed under the line of credit as of December 31, 1999 was $771,000 and carries an interest rate equal to 1% above the prime rate, which was 8.50% at December 31, 1999. The new equipment financing loan was used to refinance the previous equipment financing loan. The equipment financing loan carries and interest rate of 1.5% above the prime rate. 7. CUSTOMER AND GEOGRAPHIC INFORMATION The Company currently operates in one segment. The following is a summary of revenues from external customers for each group of products and services provided by the Company:
Quarters Ended Dec, 31 Nine Mos. Ended Dec 31, ------------------------- ------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Blood chemistry analyzers.... $3,577,000 $1,300,000 $7,369,000 $4,134,000 Reagent discs................ 2,686,000 1,595,000 7,711,000 4,998,000 Other........................ 195,000 173,000 796,000 548,000 ------------ ------------ ------------ ------------ Product sales, net......... 6,458,000 3,068,000 15,876,000 9,680,000 Development and licensing revenue.................... 35,000 35,000 105,000 185,000 ------------ ------------ ------------ ------------ Total revenues............... $6,493,000 $3,103,000 $15,981,000 $9,865,000 ============ ============ ============ ============
The following is a summary of revenues by geographic region based on customer location:
Quarters Ended Dec, 31 Nine Mos. Ended Dec 31, ------------------------- ------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ United States ............... $5,377,000 $2,501,000 $13,021,000 $8,095,000 Europe ...................... 899,000 381,000 2,203,000 935,000 Asia and Latin America....... 217,000 221,000 757,000 835,000 ------------ ------------ ------------ ------------ Total ....................... $6,493,000 $3,103,000 $15,981,000 $9,865,000 ============ ============ ============ ============
The Company's long-lived assets are located in the United States. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview This Management's Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements which reflect the Company's current views with respect to future events and financial performance. In this report, the words "anticipates", "believes", "expects", "future", "intends", "plans", and similar expressions identify forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties, including but not limited to those discussed below, that could cause actual results to differ materially from historical results or those anticipated. Such risks and uncertainties include market acceptance of the Company's products and continuing development of its products, including obtaining required Food and Drug Administration ("FDA") clearance and other government approvals, risks associated with manufacturing and distributing products on a commercial scale, including complying with Federal and state food and drug regulations, and general market conditions and competition. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Abaxis, Inc. (the "Company") develops, manufactures and markets portable blood chemistry analysis systems for use in any patient-care setting to provide clinicians with rapid blood constituent measurements. The Company's products consist of a compact 6.9 kilogram analyzer and a series of single-use plastic discs called reagent discs that contain all the chemicals required to perform a panel of up to 12 tests. The system can be operated with minimal training and performs multiple routine tests on whole blood, serum or plasma using either venous or fingerstick samples. The system provides test results in less than 15 minutes with the precision and accuracy equivalent to a clinical laboratory. The Company currently markets this system for veterinary use under the name VetScan and in the human medical market under the name Piccolo. In addition to the blood chemistry analysis system, the Company markets a hematology analysis system. The hematology system, the VetScan HMT, is purchased from MELET SCHLOESING Laboratories International ("MELET") through a cross OEM agreement. MELET markets the VetScan as the MScan in certain European markets. In the three months ended December 31, 1999, the Company's US revenues accounted for 83% of its total revenues versus 81% in the three months ended December 31, 1998. In the nine months ended December 31, 1999, the Company's US revenues accounted for 81% of its total revenues versus 82% in the nine months ended December 31, 1998. European revenues accounted for 14% versus 12% in the three-months ended December 31, 1998. In the nine months ended December 31, 1999, the Company's European revenues accounted for 14% of its total revenues versus 9% in the nine months ended December 31, 1998. Asian and Latin American revenues accounted for 3% versus 7% in the three months ended December 31, 1998. In the nine months ended December 31, 1999, the Company's Asian and Latin American revenues accounted for 5% of its total revenues versus 8% in the nine months ended December 31, 1998. During the nine month period ended December 31, 1999 the Asian and Latin American revenues declined due to adverse currency and economic conditions. The Company does not expect the Asian and Latin American markets to recover to previous levels in the near future. During the three months ended December 31, 1999, the Company shipped 312 point-of-care blood chemistry analyzers worldwide, a 63% increase from 192 instruments shipped in the three months ended December 31, 1998. During the three-months ended December 31, 1999, the Company shipped 172 point-of-care blood hematology analyzers (the VetScan HMT). The VetScan HMT is a new product offered for the first time in September 1999. Therefore, total instruments shipped during the three months ended December 31, 1999 were 484. During the nine months ended December 31, 1999, the Company placed 720 point-of-care blood chemistry analyzers worldwide, a 19% increase from 606 instruments shipped in the nine months ended December 31, 1998. During the nine months ended December 31, 1999, the Company shipped 291 point-of-care blood hematology analyzers (the VetScan HMT). Therefore, total instruments shipped during the nine months ended December 31, 1999 were 1,011. Reagent discs shipped during the three months ended December 31, 1999 were approximately 277,000, an increase of 62% compared to shipments of approximately 171,000 reagent discs during the three months ended December 31, 1998. Reagent discs shipped during the nine months ended December 31, 1999 were approximately 801,000, an increase of 51% compared to shipments of approximately 531,000 reagent discs during the nine months ended December 31, 1998. The increase in reagent disc shipments is consistent with the Company's belief that there will be recurring reagent disc revenue as the Company's product lines mature. This growth is mostly attributable to the expanded installed base of VetScan and Piccolo systems and higher consumption rates of institutional users. There can be no assurance growth in revenues or unit sales will continue or that the Company will be able to increase production to meet increased product demand. Sales for any future periods are not predictable with a significant degree of certainty. The Company generally operates with limited order backlog because its products typically are shipped shortly after orders are received. As a result, product sales in any quarter are generally dependent on orders booked and shipped in that quarter. The Company's expense levels, which are to a large extent fixed, are based in part on its expectations as to future revenues. Accordingly the Company may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. As a result, any such shortfall would have an immediate materially adverse impact on operating results and financial condition. Until sales volume of the Company's products, particularly its reagent discs, increases significantly so as to offset associated fixed costs and to realize certain manufacturing economies of scale, sales of the Company's products will result in further losses and adversely affect the Company's results of operations and financial condition. The Company believes that it needs to complete the development and obtain approval for its four electrolyte disc in order to make a significant impact in the human medical market. The Company recently received marketing clearance from the FDA for three of the electrolytes, potassium, CO2 and sodium. The fourth electrolyte, chloride, is in research and development. There is no assurance that chloride or any other product in development will be successfully developed or that the FDA will approve the marketing application. The Company believes that period to period comparisons of its results of operations are not necessarily meaningful. The Company's periodic operating results have in the past varied and in the future may vary significantly depending on, but not limited to, a number of factors, including the level of competition, the size and timing of sales orders; market acceptance of current and new products, new product announcements by the Company or its competitors, changes in pricing by the Company or its competitors; the ability of the Company to develop, introduce and market new products on a timely basis, component costs and supply constraints, manufacturing capacities and ability to scale up production, the mix of product sales between the analyzers and the reagent discs, mix in sales channels, levels of expenditure on research and development, changes in Company strategy, personnel changes, regulatory changes, and general economic trends. The Company continues to explore the application of its proprietary technology used to produce the dry reagents used in the reagent discs, called the Orbos Discrete Lyophilization Process, to other companies' products. This process allows the production of an accurate, precise amount of active chemical ingredients in the form of a soluble bead. The Company believes that the Orbos process has broad applications in products where delivery of active ingredients in a stable, pre-metered format is desired. The Company has contracts with Becton Dickinson Immunocytometry Systems and Pharmacia Biotech, Inc. to either supply products or license Orbos technology. The Company is currently working with other companies to determine potential suitability of the Orbos technology to these companies' products. As resources permit, the Company will pursue other development, licensing or manufacturing agreement opportunities for its Orbos technology with other companies. There can be no assurances, however, that other applications will be identified or that additional agreements with the Company will result. Results of Operations Revenue During the three months ended December 31, 1999, the Company reported total revenues of approximately $6,493,000, a $3,390,000 or 109% increase from total revenues of approximately $3,103,000 for the three months ended December 31, 1998. During the nine months ended December 31, 1999, the Company reported total revenues of approximately $15,981,000, a $6,116,000 or 62% increase from total revenues of approximately $9,865,000 for the nine months ended December 31, 1998. Revenue increases were due to increased analyzer and reagent disc sales in Europe and the US. Total revenue in the US for the three months ended December 31, 1999 was approximately $5,377,000, a $2,876,000 or 115% increase from revenue of approximately $2,501,000 for the three months ended December 31, 1998. Total revenue in the US for the nine months ended December 31, 1999 was approximately $13,021,000, a $4,926,000 or 61% increase from revenue of approximately $8,095,000 for the nine months ended December 31, 1998. The increase in revenue in the US reflects an increase in reagent disc sales, the launch of the VetScan HMT instrument and an increase in the number of sales personnel during the year. Total revenue in Europe for the three months ended December 31, 1999 was approximately $899,000, a $518,000 or 136% increase from revenue of approximately $381,000 for the three months ended December 31, 1998. Total revenue in Europe for the nine months ended December 31, 1999 was approximately $2,203,000, a $1,268,000 or 136% increase from revenue of approximately $935,000 for the nine months ended December 31, 1998. The increase in revenue in Europe was due to an increase in instrument placements due primarily to placements by Melet, the launch of the VetScan HMT and an increase in reagent disc sales. Total revenue in Asia and Latin America for the three months ended December 31, 1999 was approximately $217,000, a $4,000 or 2% decrease from revenue of approximately $221,000 for the three months ended December 31, 1998. Total revenue in Asia and Latin America was approximately $757,000, a $78,000 or 9% decrease from revenue of approximately $835,000 for the nine months ended December 31, 1998. The decrease in Asia and Latin America was due to adverse currency and economic conditions. Cost of Product Sales Cost of product sales during the three months ended December 31, 1999 was approximately $3,336,000 or 52% of product sales, as compared to approximately $2,144,000 or 69% of product sales in the three months ended December 31, 1998. Cost of product sales during the nine months ended December 31, 1999 was approximately $8,702,000 or 55% of product sales, as compared to approximately $7,173,000 or 74% of product sales in the nine months ended December 31, 1998. The decrease in cost of product sales as a percent of product sales for the three and nine months ended December 31, 1999 as compared to the same periods last year was primarily a function of the increase in sales volume of reagent discs and lower unit costs resulting from improved manufacturing processes. Selling, General and Administrative Expense Selling, general and administrative expenses were approximately $2,202,000 or 34% of total revenues in the three months ended December 31, 1999 compared to $1,367,000 or 44% of total revenues in the three months ended December 31, 1998. Selling, general and administrative expenses were approximately $5,687,000 or 36% of total revenues in the nine months ended December 31, 1999 compared to $3,983,000 or 40% of total revenues in the nine months ended December 31, 1998. The increase in selling, general and administrative expenses is primarily the result of the launch of new products and an increase in headcount. The Company expects the dollar amount of selling, general and administrative expense to increase in fiscal 2000 from fiscal year 1999 as a result of increased staffing and support demands associated with increased sales. Research and Development Expense Research and development expenses were approximately $816,000 or 13% of total revenues in the three months ended December 31, 1999 compared to $755,000 or 24% of total revenues in the three months ended December 31, 1998. Research and development expenses were approximately $2,618,000 or 16% of total revenues in the nine months ended December 31, 1999 compared to $1,988,000 or 20% of total revenues in the nine months ended December 31, 1998. The increase in research and development expenses is the result of increased spending in the development of new test methods and process development research for automating production. The Company expects the dollar amount of research and development expenses to increase in fiscal 2000 as compared to fiscal 1999 as the Company completes development and clinical trials of new test methods to expand its test menus as well as research in automation projects. There can be no assurance, however, that the Company will undertake such research and development activities in future periods or, if it does, that such activities will be successful. Net Interest and Other Income (Expense) The Company incurred interest expense of approximately $222,000 on its capital equipment loan and its line of credit during the three months ended December 31, 1999, net of capitalized interest of approximately $195,000 on the purchase and installation of the new automated disc production line. The Company expects interest expense to increase in fiscal 2000 as additional bank financing is used to meet working capital requirements associated with an increase in sales. Liquidity and Capital Resources As of March 31, 1999, the Company had approximately $2,694,000 in cash and cash equivalents. The Company expects to incur substantial additional costs to support its future operations, including further commercialization of its products and development of new test methods that will allow the Company to further penetrate the human diagnostic market; acquisition of capital equipment for the Company's manufacturing facilities, which includes the ongoing costs related to continuing development of its current and future products; development and implementation of an automated manufacturing line to provide capacity for commercial volumes; and additional pre-clinical testing and clinical trials for its current and future products. Net cash used in operating activities during the nine months ended December 31, 1999 was $913,000 compared to $4,452,000 in the nine months ended December 31, 1998. The decrease in net cash used in operating activities was due primarily to a decrease in the net loss, an increase in accounts payable, accrued payroll, deferred revenue and other expenses offset by an increase in trade receivables and inventories. Net cash used in investing activities for the nine months ended December 31, 1999 was $1,595,000 as compared to net cash provided of $2,595,000 for the nine months ended December 31, 1998. The change from net cash used in 1999 versus cash provided in 1998 was due primarily to the purchase of property and equipment in 1999 and net maturities of available-for-sale securities in 1998. Net cash used in financing activities for the nine months ended December 31, 1999 was $224,000 as compared to net cash provided of $5,520,000 for the nine months ended December 31, 1998. Cash used in financing activities for 1999 is primarily the result of repayments on the equipment financing loan, net of an proceeds from the issuance of common stock and proceeds from the line of credit. In September 1999, the Company refinanced its line of credit and equipment financing loan. The new line of credit is $4,000,000, of which $2,500,000 was available. The additional $1,500,000 could become available if the Company elects to pay a certain fee to the bank. As of December 31, 1999 the Company has $771,000 outstanding which carries an interest rate equal to 1% above the prime rate, which was 9.50% at December 31, 1999. This line of credit expires in November 2000 and there can be no assurance that the Company will be able to extend the line of credit for another year. The new equipment financing loan was used to refinance the previous equipment financing loan. The equipment financing loan carries and interest rate of 1.5% above the prime rate. As of December 31, 1999, the Company had $1,016,000 outstanding on the equipment financing loan. On September 30, 1999 the Company announced a co-promotion agreement with ABBOTT Laboratories ("ABBOTT"). The agreement is for two years with an option, exercisable by ABBOTT for three additional years. Under this agreement, the ABBOTT animal health sales force will co-promote Abaxis' VetScan chemistry analyzer in the United States and Canada. ABBOTT will receive a commission on analyzers placed above a predetermined baseline number per quarter payable over an approximate eight year period. In addition, ABBOTT will provide up to $5 million in financing to support the Company's expansion of manufacturing capacity. Such borrowings will bear interest at 1.6% below prime, with interest payable quarterly and principal repayment no later than December 31, 2007. In addition, ABBOTT agreed to provide additional financing at 1.6% below prime to support additional sales programs contemplated by the Company. The Company anticipates that its existing capital resources, debt financing, financing available from ABBOTT and anticipated revenue from the sales of its products will be adequate to satisfy its currently planned operating and financial requirements through the next twelve months. The Company's future capital requirements will largely depend upon the increased market acceptance of its point-of-care blood chemistry analyzer products. However, the Company's sales are not predictable due to its limited market experience with its products. In the event the sales are significantly below the anticipated level, the Company may need to obtain additional equity or debt financing. There can be no assurance that any such financing will be available on terms acceptable to the Company, if at all, and any additional equity financing may be dilutive to shareholders, while debt financing may involve restrictive covenants. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to financial market risks with respect to interest rates on the Company's accounts receivable line of credit and short-term investments. The Company does not use derivative financial instruments for speculative or trading purposes. The accounts receivable line of credit monthly interest expense is based on 1.0% over the prime rate. An increase in the prime rate would expose the Company to higher interest expenses. The balance on the line of credit was $771,000 as of December 31, 1999. For each 1% increase in the prime rate the Company would pay approximately $1,830 of additional interest expense each quarter. The long-term debt monthly interest expense is based on 1.5% over the prime rate. An increase in interest rates would have exposed the Company to higher interest expenses. The balance on long-term debt was approximately $1,016,000 as of December 31, 1999. For each 1% increase in interest rates, the Company would have paid approximately $2,500 of additional interest expense each quarter. The Company at times has investments in marketable debt securities that are subject to interest rate risks. These investments are classified as "available for sale" securities. The Company does not attempt to reduce or eliminate its market exposure on these investments. Although changes in interest rates may affect the fair market value of "available for sale" securities and cause unrealized gains or losses, such gains or losses would not be realized unless the investments were sold. PART II-OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits included herein (numbered in accordance with Item 601 of Regulation S-K) Exhibit Number Description 27.0 Financial Data Schedule (b) Reports on Form 8-K None SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ABAXIS, INC. January 14, 2000 by: /s/Clinton H. Severson Date Clinton H. Severson President and Chief Executive Officer (Principal Executive Officer) January 14, 2000 by: /s/ Donald J. Stewart Date Donald J. Stewart Vice President of Finance & Administration and Chief Financial Officer (Principal Financial and Accounting Officer) EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED BALANCE SHEETS, CONDENSED STATEMENTS OF OPERATIONS AND NOTES TO CONDENSED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS MAR-31-2000 OCT-01-1999 DEC-31-1999 2,694,000 0 4,415,000 231,000 2,553,000 9,864,000 3,663,000 0 13,614,000 6,410,000 0 0 3,581,000 64,111,000 (61,178,000) 13,614,000 6,485,000 6,493,000 3,336,000 3,336,000 3,018,000 0 0 172,000 0 172,000 0 0 0 172,000 0.01 0.01
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