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Proc-Type: 2001,MIC-CLEAR
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SECURITIES AND EXCHANGE COMMISSION 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 December 31, 2001 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.
3240 Whipple Road
Washington, D.C. 20549
(Exact name of registrant as specified in its charter)
Union City, California 94587
(Address of principal executive offices including zip code)
(510) 675-6500
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 reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ].
At February 2, 2002, 16,333,112 shares of common stock, no par value, were outstanding.
This Report on Form 10-Q consists of 16 pages. The exhibit index is on page 15.
ABAXIS, INC.
Report On Form 10-Q For The
Quarter Ended December 31, 2001
INDEX
Item | Page |
Facing Sheet |
|
Table of Contents |
|
PART I. Financial Information | |
Item 1. Financial Statements |
|
Condensed Statements of Operations - Three and Nine Months ended December 31, 2001 and 2000 |
|
Condensed Balance Sheets - December 31, 2001 and March 31, 2001 |
|
Condensed Statements of Cash Flows - Nine Months ended December 31, 2001 and 2000 |
|
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 1. Legal Proceedings |
|
Item 2: Changes in Securities and Use of Proceeds |
|
Item 4: Submission of Matters to a Vote of Security Holders |
|
Item 6. Exhibits and Reports on Form 8-K |
|
Signatures |
|
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Abaxis, Inc.
(a) Net income attributable to common shareholders used in the
computation of basic and diluted earnings per share for the three
and nine months ended December 31, 2001 was $331,000 and $336,000,
respectively, which included $115,000 and $331,000 in dividends,
respectively. Net loss attributable to common shareholders used in
the computation of basic and diluted loss per share for the three
and nine months ended December 31, 2000 was $(2,094,000) and
$(1,191,000), respectively, which reflects a deemed dividend
recorded in conjunction with the Series D Preferred Stock. See
note 3.
See notes to condensed financial statements.
Abaxis, Inc. (b) - Amounts are derived from audited financial statements
at March 31, 2001.
See notes to condensed financial statements.
Abaxis, Inc.
See notes to condensed financial statements.
ABAXIS, INC. 1. BASIS OF PRESENTATION The condensed unaudited financial statements included
herein have been prepared by the Company pursuant to the rules and regulations
of the Securities and Exchange Commission. These condensed unaudited financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 2001. The unaudited condensed financial statements
included herein reflect all normal recurring adjustments, which are, in the
opinion of management, necessary to state fairly the results of operations and
financial position for the periods presented. Certain amounts as presented in
the financial statements for the previous periods have been reclassified to
conform to the fiscal year 2002 financial statement presentation. The results
for the period ended December 31, 2001 are not necessarily indicative of the
results to be expected for the entire fiscal year ending March 31, 2002 or for
any future period. 2. SIGNIFICANT ACCOUNTING POLICIES Comprehensive Income - Comprehensive income was
the same as net income for the three months and nine months ended December 31,
2001 and 2000. New Accounting Pronouncements - In June 1998,
the Financial Accounting Standards Board, (the "FASB"), issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). SFAS 133, as amended, requires that
every derivative instrument, including certain derivative instruments embedded
in other contracts, be recorded on the balance sheet at its fair value. Changes
in the fair value of derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designated as
part of a hedge transaction and, if it is, the type of hedge transaction. The
Company adopted SFAS 133, as amended, effective April 1, 2001. The adoption of
SFAS 133, as amended, did not have a significant impact on the financial
position, results of operations or cash flows of the Company as the Company had
no stand-alone or embedded derivatives at March 31, 2001 and had not
historically entered into any derivative transactions to hedge currency or other
exposures. In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No.
140 replaces SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." It revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but carries over most of SFAS No.
125's provisions without reconsideration. The Company has adopted the applicable
disclosure requirements of SFAS No. 140 in its consolidated financial statements
as of March 31, 2001. Adoption of the remaining provisions of SFAS No. 140,
which were effective for transactions entered into after March 31, 2001, did not
have any impact on the Company's financial position or results of
operations. In November 2000, the Emerging Issues Task Force ("EITF") reached a consensus
on Issue No. 00-14, "Accounting for Certain Sales Incentives" which addresses
the recognition, measurement, and income statement classification for certain
sales incentives offered voluntarily by a vendor without charge to customers.
EITF Issue No. 00-14 was effective for the Company in the fourth quarter of
2001. As a result of its application, the Company has reclassified selling
expenses related to products given to customers at no charge from selling,
general and administrative expenses to cost of product sales for the three
months and nine months ended December 31, 2000 in the amount of approximately
$123,000 and $305,000, respectively. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of long-lived assets and the
associated asset retirement costs. Abaxis is required to adopt SFAS No. 143 at
the beginning of the Company's fiscal year 2004. The Company is currently in the
process of evaluating the impact of the adoption of SFAS No. 143. In October 2001, the FASB issued SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" and addresses the financial accounting and reporting for the
impairment or disposal of long-lived assets. Abaxis is required to adopt SFAS
No. 144 at the beginning of the Company's fiscal year 2003. The Company is
currently in the process of evaluating the impact of the adoption of SFAS No.
144. 3. PER SHARE INFORMATION Basic earnings (loss) per share is computed based upon
the weighted average number of shares of common stock outstanding and the net
income (loss) attributable to common shareholders. Diluted earnings per share is
computed by dividing net income (loss) attributable to common shareholders by
the weighted average number of common shares that would have been outstanding
during the period assuming the issuance of common shares for all potential
dilutive common shares outstanding. Shares used in the calculation of diluted
earnings per share for the three and nine months ended December 31, 2001 exclude
an aggregate of 3,435,720 and 2,819,167 common equivalent shares, respectively,
and for the three and nine months ended December 31, 2000 exclude an aggregate
of 1,540,000 and 1,026,000 common equivalent shares, respectively, related to
outstanding options and warrants, using the treasury stock method and related to
preferred shares issuable upon conversion of preferred stock, as their effect
would be antidilutive. In conjunction with the issuance of 6,578 shares of Series D
convertible preferred stock at $1,000 per share in October 2000 and November
2000, each investor received warrants to purchase 50 shares of common stock for
each preferred share acquired. The common stock warrants are exercisable at
$7.00 per share through October 3, 2006. The portion of proceeds attributable
to the value of such warrants of $1,418,000, determined using the Black-Scholes
option-pricing model, and a corresponding charge reflecting the value of the
embedded beneficial conversion feature was allocated to common stock. During
the three and nine months ended December 31, 2000, the Company recorded dividend
charges related to the accretion of the beneficial conversion feature of
$1,418,000. The loss attributable to common shareholders for the three and nine
months ended December 31, 2000 also includes accrued dividends payable to
preferred shareholders. The reconciliation of net income (loss) to net income
(loss) attributable to common shareholders is as follows: The reconciliation of the weighted average number of common
shares outstanding used in calculating basic earnings (loss) per share and in
calculating diluted earnings (loss) per share is as follows: 4. INVENTORY Inventories are stated at the lower of cost (first-in,
first-out) or market and consist of the following: 5. LINE OF CREDIT AND LONG-TERM DEBT In September 2001, the Company refinanced its existing line of credit and
equipment financing loans. The new line of credit provides for borrowings of up
to $6,250,000. Under this new line of credit agreement, $5,000,000 is
collateralized by the Company's domestic receivables and $1,250,000 is
collateralized by its receivables and inventory related to foreign customer
sales. Of the $5,000,000 domestic line of credit, $820,000 was committed to
secure the letter of credit for the lease of the Company's headquarters,
$700,000 was committed to secure the equipment financing loan and another
$200,000 was committed to secure other miscellaneous items. The line of credit
bears interest, payable monthly, at the prime rate (4.75% at December 31, 2001)
plus 1.0% and expires in September 2002. At December 31, 2001 the amount
outstanding under the line of credit was $1,581,000 and $1,259,000 was available
for additional borrowings. In September 2001, the Company refinanced its existing equipment financing
loans by consolidating the two existing loans into one loan. At December 31,
2001, the Company had $1,153,000 outstanding under the new equipment-financing
loan, which is collateralized by the Company's equipment and bears interest at
the prime rate (4.75% at December 31, 2001) plus 1.5%. Payments are due in
monthly installments of principal and interest totaling approximately $61,000
over a period of approximately two years. The net book value of assets pledged as collateral under the line of credit
and equipment financing loans totaled $6,612,000 and $6,570,000 at December 31,
2001 and 2000, respectively. The line of credit and equipment financing agreements contain certain
financial covenants, which are evaluated on a quarterly basis. These financial
covenants state that there is a requirement that the Company have a minimum net
profit of $1.00 for each quarter and liquidity coverage, as defined, of not less
than 2.00 to 1.00 along with a minimum of six months remaining liquidity, as
defined. Additionally, the Company is restricted from paying cash dividends on
any of its outstanding stock, except for cash dividends of up to $460,000
annually to its preferred shareholders. At December 31, 2001, the Company was in
compliance with all of these covenants. 6. CUSTOMER AND GEOGRAPHIC INFORMATION The Company currently operates in one segment and develops, manufactures
and markets portable blood analysis systems for use in any patient care setting
to provide clinicians with rapid blood constituent measurements. The following
is a summary of revenues from external customers for each group of products and
services provided by the Company: One customer, Vedco Inc., accounted for 43% and 53% of total revenues for
the three-month periods ended December 31, 2001 and 2000, respectively. Vedco
Inc. also accounted for 46% and 52% of total revenues for the nine-month periods
ended December 31, 2001 and 2000, respectively. The following is a summary of revenues by geographic region based on customer
location: 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, 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. The Company assumes no obligation to update
any forward-looking statements as circumstances change. Abaxis, Inc. (the "Company"), incorporated in California in
1989, develops, manufactures and markets portable blood analysis systems for use
in any patient-care setting to provide clinicians with rapid blood constituent
measurements. The Company's primary product is a system consisting of a compact
6.9 kilogram analyzer and a series of single-use plastic discs, called reagent
discs, containing 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 analyzer. The Company
currently markets this system for veterinary use under the name VetScan and in
the human medical market under the name Piccolo®. The Company also markets a
hematology analyzer under the name Vetscan HMT, which provides a complete blood
count ("CBC") including three-part white blood cell ("WBC") differential in less
than 2 minutes and requires only 12 In the three months ended December 31, 2001, the Company's U.S. revenues
accounted for 85% of its total revenues versus 84% in the three months ended
December 31, 2000. In the nine months ended December 31, 2001, the Company's
U.S. revenues accounted for 87% of its total revenues versus 84% in the nine
months ended December 31, 2000. International revenues accounted for 15% of
total revenues in the three months ended December 31, 2001 versus 16% in the
three months ended December 31, 2000. In the nine months ended December 31,
2001, international revenues accounted for 13% of its total revenues versus 16%
in the nine months ended December 31, 2000. The reason for the increase in U.S.
revenues and decrease in international revenues was due to the continued
strengthening of the U.S. dollar. During the three months ended December 31, 2001, the Company shipped
341 point-of-care blood analyzers worldwide, a 35% decrease from 523 instruments
shipped in the three months ended December 31, 2000. During the nine months
ended December 31, 2001, the Company shipped 962 point-of-care blood analyzers
worldwide, a 32% decrease from 1,408 instruments shipped in the nine months
ended December 31, 2000. The September 11, 2001 events continued to impact the
Company's instrument sales into the quarter ended December 31, 2001 as most of
the pending sales at the time of the events were either postponed or
indefinitely put on hold.
Reagent discs shipped during the three months ended December 31, 2001 were
approximately 415,000, an increase of 32% compared to shipments of approximately
315,000 reagent discs during the three months ended December 31, 2000. Reagent
discs shipped during the nine months ended December 31, 2001 were approximately
1,169,000, an increase of 18% compared to shipments of approximately 991,000
reagent discs during the nine months ended December 31, 2000. The increase in
reagent disc shipments is consistent with the Company's belief that there will
be increasing recurring reagent disc revenue as the Company's product lines
achieve greater market penetration and more consistent utilization. This growth
is mainly attributable to the expanded installed base of VetScan DXS systems and
higher consumption rates of institutional users. There can be no assurance that
growth in revenues or unit sales will continue. 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 of
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. The Company's sales may be adversely
impacted by pricing pressure from competitors. Our ability to be consistently
profitable will depend, in part, on our ability to increase our sales volumes of
our VetScan DXS and Piccolo products and to compete with other competitors
successfully. The Company believes that period to period comparisons of its
results of operations are not necessarily meaningful. There has been little or
no impact on the Company's business due to inflation. The Company has introduced the Canine Heartworm test to the market. In the
three months ended December 31, 2001, revenues related to the Canine Heartworm
test have not been significant. The Company also entered human clinical trials
for Basic Metabolic and MetLyte 8 and experienced positive response to these new
panels. The Company is currently preparing to enter human clinical trials
for phosphorous and magnesium and veterinarian clinical trials for Avian Reptilian
and a reformulated T4 and Cholesterol. There is no assurance that the products
will be successfully developed or that the United States Food and Drug
Administration will approve the marketing application. 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 expenditures on research and development; changes in Company strategy;
personnel changes; regulatory changes; and general economic trends. The
Company's operating results have been impacted by the September 11 events which
caused delays on shipment and postponement or cancellation of sales orders. The
Company's future operating results may vary significantly depending on risks
stemming from further possible terrorist attacks after September 11. 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. To date, revenues related to the Orbos
technology have not been significant. There can be no assurances, however, that
other applications will be identified or that additional agreements with the
Company will result. Results of Operations Total Revenues During the three months ended December 31, 2001, the Company reported
total revenues of $7,970,000, a $416,000 or 6% increase from total revenues of
$7,554,000 for the three months ended December 31, 2000. During the nine months
ended December 31, 2001, the Company reported total revenues of $22,223,000, a
$198,000 or 1% increase from total revenues of $22,025,000 for the nine months
ended December 31, 2000. The revenues increase was attributable to strong
reagent disc sales in the U.S due to an expanded installed base of VetScan DXS
systems and higher consumption rates of institutional users. The increase in
reagent sales is consistent with the Company's razor/razorblade business model
as recurring revenue grows from machines previously placed and the corresponding
increase in reagent disc sales. During the three months ended December 31, 2001, net product sales were
$7,935,000, a $416,000 or 6% increase from the $7,519,000 for the three months
ended December 31, 2000. The change in net product sales was due to an increase
of $1,386,000 in reagent sales and an increase of $349,000 in other sales most
of which was mainly due to an increase in Orbos sales offset by a decrease of
$1,319,000 in instrument sales. During the nine months ended December 31, 2001,
net product sales were $22,088,000, a $240,000 or 1% increase from the
$21,848,000 for the nine months ended December 31, 2000. The change in net
product sales was due to an increase of $2,765,000 in reagent sales and an
increase of $908,000 in other sales most of which was due to an increase in
Orbos sales offset by a decrease of $3,433,000 in instrument sales. During the three months ended December 31, 2001, the Company reported
development and licensing revenues of $35,000 which were the same as for the
three months ended December 31, 2000. During the nine months ended December 31,
2001, the Company reported development and licensing revenues of $135,000, a
$42,000 or 24% decrease from $177,000 for the nine months ended December 31,
2000. The fluctuations in development and licensing revenue are due to changes
in our customers' use of the Company's Orbos technology. Total revenues in the U.S. for the three months ended December 31, 2001 were
$6,778,000, a $438,000 or 7% increase from total U.S. revenues of $6,340,000 for
the three months ended December 31, 2000. The increase in revenues in the U.S.
for the three months ended December 31, 2001 reflects both an increase in
reagent sales of approximately $1,221,000 and development and licensing revenue
of approximately $348,000, which was partially, offset by a decrease in
instruments sales of $1,131,000. Total revenues in the U.S. for the nine months
ended December 31, 2001 were $19,323,000, a $782,000 or 4% increase from
revenues of $18,541,000 for the nine months ended December 31, 2001. The
increase in revenues in the U.S. for the nine months ended December 31, 2001
reflects both an increase in reagent sales of approximately $2,511,000 and
development, licensing and other revenue of approximately $866,000, which was
partially, offset by a decrease in instruments sales of $2,595,000. Total revenues in Europe for the three months ended December 31, 2001 were
$841,000, a $134,000 or 19% increase from revenues of $707,000 for the three
months ended December 31, 2000. The increase in revenues for the three months
ended December 31, 2001 was due to the Company's efforts in promoting sales in
Europe, which led to increased customer base. Total revenues in Europe for the
nine months ended December 31, 2001 were $1,958,000, a $57,000 or 3% decrease
from revenues of $2,015,000 for the nine months ended December 31, 2000. The
decrease in revenues in Europe for the nine months ended December 31, 2001 was
due to a decrease in instrument sales of $375,000, which was offset by an
increase in reagent sales of $318,000. The decrease in instrument sales was a
result of the strong US dollar during the period, relative to European
currencies, which also impacted the purchasing ability of potential European
customers. Total revenues in Asia and Latin America for the three months ended December
31, 2001 were $351,000, a $156,000 or 31% decrease from revenues of $507,000 for
the three months ended December 31, 2000. The decrease in Asia and Latin America
revenues for the three months ended December 31, 2001 were due to a decrease in
instrument sales of $162,000 offset by an increase in reagent sales of $6,000.
Total revenues in Asia and Latin America for the nine months ended December 31,
2001 were $942,000, a $527,000 or 36% decrease from revenues of $1,469,000 for
the nine months ended December 31, 2000. The decrease in Asia and Latin America
revenues for the nine months ended December 31, 2001 were due to both a decrease
in instrument sales of $463,000 and reagent sales of $64,000, which was a result
of the strong US dollar relative to the local currencies, which impacted the
purchasing ability of potential customers. Cost of Product Sales Cost of product sales during the three months ended December 31,
2001 was $4,139,000, or 52% of product sales, as compared to $4,550,000, or 61%
of product sales, in the three months ended December 31, 2000. Cost of product
sales during the nine months ended December 31, 2001 was $11,728,000 or 53% of
product sales, as compared to $11,863,000 or 54% of product sales in the nine
months ended December 31, 2000. The higher cost of product sales for both
periods in 2000 was due to the Company's manufacturing process being idle for
six weeks during the third quarter as the Company relocated to new facilities.
This temporary shutdown of manufacturing cost the Company approximately
$652,000. The increase for both periods in 2000 in cost of product sales as a
percentage of product sales was a result of additional overhead costs incurred
associated with the Company's relocation to new facilities.
Selling, General and Administrative Expense Selling, general and administrative expenses were $2,331,000, or 29% of
total revenues, in the three months ended December 31, 2001 compared to
$2,792,000, or 37% of total revenues, in the three months ended December 31,
2000. Selling, general and administrative expenses were $6,850,000, or 31% of
total revenues, in the nine months ended December 31, 2001 compared to
$7,205,000, or 33% of total revenues, in the nine months ended December 31,
2000. The higher selling, general and administrative expenses for both periods
in 2000 was primarily due to the one time charges of $380,000 associated with
the relocation to new facilities during the period. The Company expects
selling, general and administrative expenses to remain consistent as a
percentage of revenues. Research and Development Expense Research and development expenses were $991,000, or 12% of total
revenues, in the three months ended December 31, 2001, compared to $784,000, or
10% of total revenues, in the three months ended December 31, 2000. Research and
development expenses were $2,835,000, or 13% of total revenues, in the nine
months ended December 31, 2001 compared to $2,610,000, or 12% of total revenues,
in the nine months ended December 31, 2000. The Company expects the dollar
amount of research and development expenses to slightly increase in fiscal 2002
as compared to fiscal 2001 and slightly increase as a percentage of total
revenues as the Company completes development and clinical trials of new test
methods to expand its test menus as well as other development 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. Interest Income The Company's interest income was $13,000 for the three months
ended December 31, 2001, compared to $24,000 for the three months ended December
31, 2000. Interest income for the nine months ended December 31, 2001 was
$65,000 compared to $88,000 for the nine months ended December 31, 2000. The
interest income of $65,000 in fiscal 2002 included $38,000 of imputed interest
proceeds from the Company's rental reagent program and $27,000 from interest
earned on cash and cash equivalents. The decrease in interest income is mainly
due to a decrease in interest rates. Interest and Other Expense The Company incurred interest expense of $51,000 on its capital equipment
loan and its line of credit during the three months ended December 31, 2001. No
interest was capitalized during the period. The Company incurred interest
expense of $13,000 on its capital equipment loans and its line of credit during
the three months ended December 31, 2000, net of capitalized interest of $69,000
on the purchase and installation of the new semi-automated disc production line.
Interest expense for the nine months ended December 31, 2001 was $173,000, net
of capitalized interest of $74,000 and other expense of $6,000 for currency
losses. Interest expense for the nine months ended December 31, 2000 was
$74,000, net of capitalized interest of $150,000. The Company expects interest
expense to increase in fiscal 2002 as additional bank financing is used to meet
working capital requirements associated with an anticipated increase in sales.
Income Taxes Income taxes totaled $25,000 for the three months ended December 31, 2001
and no income tax expense was provided for the three months ended December 31,
2000. Income taxes totaled $29,000 for the nine months ended December 31, 2001
compared to $19,000 for the nine months ended December 31, 2000. Income tax
expense in these two periods primarily represents taxes on the portion of
taxable income for which net operating loss carry-forwards could not be utilized
under the federal alternative minimum tax rules. Liquidity and Capital Resources As of December 31, 2001, the Company had $2,788,000 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 facility, which includes the ongoing costs
related to continuing development of its current and future products; completion
of development and implementation of a semi-automated manufacturing line to
provide capacity for anticipated increased commercial volumes of reagent discs;
and additional pre-clinical testing and clinical trials for its current and
future products. Net cash provided by operating activities during the nine months ended
December 31, 2001 was $1,718,000 compared to net cash used of $2,324,000 in the
nine months ended December 31, 2000. The change in net cash used to net cash
provided by operating activities was due primarily to decreases totaling
$1,742,000 in trade receivables, inventories and deposits and other assets and
increases totaling $564,000 in accrued payroll and related expenses, warranty
reserve, other accrued liabilities, deferred rent and deferred revenue. The
decrease in trade receivables was attributable to lower outstanding days of
sales as a result of better collections. The higher inventory level in Fiscal
2001 was mainly a result of cash used to fund Piccolo inventory for orders which
did not materialize until Fiscal 2002. These sources of cash were partially
offset by an increase of $572,000 in prepaid expenses and a decrease in accounts
payable and long-term commission obligations totaling $1,991,000. Net cash used in investing activities for the nine months ended December 31,
2001 was $562,000 as compared to net cash used of $5,095,000 for the nine months
ended December 31, 2000. The significant decrease in net cash used is due to a
decrease in purchases of property and equipment. Net cash used in financing activities for the nine months ended December 31,
2001 was $380,000 as compared to net cash provided of $8,648,000 for the nine
months ended December 31, 2000. Cash used in financing activities for the nine
months ended December 31, 2001 was primarily the result of repayments on the line of
credit, equipment financing loan and capital lease obligations totaling $1,359,000, which
were partially offset by proceeds from the exercise of common stock options of
$379,000 and net borrowings of $600,000 from the line of credit. Cash provided
by financing activities for the nine months ended December 31, 2000 was
primarily the result of proceeds of $6,443,000 for the issuance of preferred
stock, $1,023,000 from the issuance of common stock, net borrowings of
$1,000,000 from the equipment financing loan and net borrowings of $500,000 from
the line of credit. In September 2001, the Company refinanced its existing line of credit and
equipment financing loans. The new line of credit provides for borrowings of up
to $6,250,000. Under this new line of credit agreement, $5,000,000 is
collateralized by the Company's domestic receivables and $1,250,000 is
collateralized by its receivables and inventory related to foreign customer
sales. Of the $5,000,000 domestic line of credit, $820,000 was committed to
secure the letter of credit for the lease of the Company's headquarters,
$700,000 was committed to secure the equipment financing loan and another
$200,000 was committed to secure other miscellaneous items. The line of credit
bears interest, payable monthly, at the prime rate (4.75% at December 31, 2001)
plus 1.0% and expires in September 2002. At December 31, 2001 the amount
outstanding under the line of credit was $1,581,000 and $1,259,000 was available
for additional borrowings. The line of credit agreement contains certain financial covenants, which are
evaluated on a quarterly basis. During the quarter ended December 31, 2001, the
Company was in compliance with these covenants. In September 2001, the Company refinanced its existing equipment
financing loans by consolidating the two existing loans into one loan. At
December 31, 2001, the Company had $1,153,000 outstanding under the new
equipment-financing loan, which is collateralized by the Company's equipment and
bears interest at the prime rate (4.75% at December 31, 2001) plus 1.5%.
Payments are due in monthly installments of principal and interest totaling
approximately $61,000 over a period of approximately two years. The net book value of assets pledged as collateral under the
line of credit and equipment financing loans totaled $6,612,000 and $6,570,000
at December 31, 2001 and 2000, respectively. The Company anticipates that its existing capital resources, debt
financing, and anticipated revenue from the sales of its products will be
adequate to satisfy its current operating and financial requirements. The
Company's future capital requirements will largely depend upon the increased
market acceptance of its point-of-care blood analyzer products. However, the
Company's sales are not predictable due to its limited market experience with
its products. In the event that sales are significantly below the anticipated
levels, the Company may need to obtain additional equity or debt financing. The
Company may also obtain additional equity or debt financing in the event that
the Company identifies potential market opportunities or that the Company is to
expand its current markets based on anticipated market demand. There can be no
assurance that any such financing will be available on terms acceptable to the
Company, if at all. Any additional equity financing may be dilutive to
shareholders, while debt financing may involve restrictive covenants. New Accounting Pronouncements - In June 1998, the
Financial Accounting Standards Board, (the "FASB"), issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). SFAS 133, as amended, requires that
every derivative instrument, including certain derivative instruments embedded
in other contracts, be recorded on the balance sheet at its fair value. Changes
in the fair value of derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designated as
part of a hedge transaction and, if it is, the type of hedge transaction. The
Company adopted SFAS 133, as amended, effective April 1, 2001. The adoption of
SFAS 133, as amended, did not have a significant impact on the financial
position, results of operations or cash flows of the Company as the Company had
no stand-alone or embedded derivatives at March 31, 2001 and had not
historically entered into any derivative transactions to hedge currency or other
exposures. In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No.
140 replaces SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." It revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but carries over most of SFAS No.
125's provisions without reconsideration. The Company has adopted the applicable
disclosure requirements of SFAS No. 140 in its consolidated financial statements
as of March 31, 2001. Adoption of the remaining provisions of SFAS No. 140,
which were effective for transactions entered into after March 31, 2001, did not
have any impact on the Company's financial position or results of
operations. In November 2000, the Emerging Issues Task Force ("EITF") reached a consensus
on Issue No. 00-14, "Accounting for Certain Sales Incentives" which addresses
the recognition, measurement, and income statement classification for certain
sales incentives offered voluntarily by a vendor without charge to customers.
EITF Issue No. 00-14 was effective for the Company in the fourth quarter of
2001. As a result of its application, the Company has reclassified selling
expenses related to products given to customers at no charge from selling,
general and administrative expenses to cost of product sales for the three
months and nine months ended December 31, 2000 in the amount of approximately
$123,000 and $305,000, respectively. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of long-lived assets and the
associated asset retirement costs. Abaxis is required to adopt SFAS No. 143 at
the beginning of the Company's fiscal year 2004. The Company is currently in the
process of evaluating the impact of the adoption of SFAS No. 143. In October 2001, the FASB issued SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" and addresses the financial accounting and reporting for the
impairment or disposal of long-lived assets. Abaxis is required to adopt SFAS
No. 144 at the beginning of the Company's fiscal year 2003. The Company is
currently in the process of evaluating the impact of the adoption of SFAS No.
144. 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 line of credit and equipment
financing loans. The Company does not use derivative financial instruments for
speculative or trading purposes. The line of credit's 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 $1,581,000 as
of December 31, 2001. For each 1% increase in the prime rate, the Company would
pay approximately $4,000 of additional interest expense per quarter. The annual interest expense on the equipment financing loans
is based on 1.5% over the prime rate. An increase in the prime rate would expose
the Company to higher interest expenses. The balance on this specific equipment
financing loan was $1,153,000 as of December 31, 2001. For each 1% increase in
interest rate, the Company would pay approximately $2,900 of additional interest
expense per quarter. The Company's sales are in dollars except for one customer, MELET. The
Company sells the VetScan to MELET priced in Euros. The Company does not hedge
this risk. There was no amount owed by MELET at December 31, 2001. PART II-OTHER INFORMATION Item 1. LEGAL PROCEEDINGS None Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its annual meeting of stockholders in
Union City, California on Tuesday, October 23, 2001. Of the 16,243,325 shares
outstanding as of September 4, 2001, the record date, 14,524,806 shares were
present or represented by proxy at the meeting on October 23, 2001. At the
meeting, the following actions were voted upon: (1) Each of the following five director nominees was re-elected to hold
office for the ensuing year on the basis of the following voting:
Clinton H. Severson Richard J. Bastiani, Ph.D. Brenton G.A. Hanlon Prithipal Singh, Ph.D. Ernest S. Tucker, III, M.D. (2) A majority of the outstanding shares of Abaxis common stock failed to
vote in favor of approving an increase in the maximum aggregate number of shares
of common stock authorized for issuance under the Abaxis 1998 Stock Option Plan
by 1,000,000 shares. The proposal consequently failed to pass, on the basis of
the following vote:
For: 3,996,743 Against: 1,373,516 Abstain: 29,675 (3) A majority of the outstanding shares of Abaxis common stock voted in
favor of appointing Deloitte & Touche LLP as the Company's independent
public accountants for Abaxis for the fiscal year ending March 31, 2002 on the
basis of the following vote:
For: 14,475,194 Against: 26,565 Abstain: 23,047 Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits included herein (numbered in accordance with Item 601 of
Regulation S-K) None
(b) Reports on Form 8-K None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Condensed Statements of Operations
(unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------------- --------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenues:
Product sales, net................. $ 7,935,000 $ 7,519,000 $ 22,088,000 $ 21,848,000
Development and licensing
revenue.......................... 35,000 35,000 135,000 177,000
------------ ------------ ------------ ------------
Total revenues........................ 7,970,000 7,554,000 22,223,000 22,025,000
------------ ------------ ------------ ------------
Costs and operating expenses:
Cost of product sales.............. 4,139,000 4,550,000 11,728,000 11,863,000
Selling, general, and
administrative................... 2,331,000 2,792,000 6,850,000 7,205,000
Research and development........... 991,000 784,000 2,835,000 2,610,000
------------ ------------ ------------ ------------
Total costs and operating
expenses......................... 7,461,000 8,126,000 21,413,000 21,678,000
------------ ------------ ------------ ------------
Income (loss) from operations......... 509,000 (572,000) 810,000 347,000
Interest income....................... 13,000 24,000 65,000 88,000
Interest and other expense............ (51,000) (13,000) (179,000) (74,000)
------------ ------------ ------------ ------------
Net income (loss) before income taxes. 471,000 (561,000) 696,000 361,000
Income taxes.......................... 25,000 -- 29,000 19,000
------------ ------------ ------------ ------------
Net income (loss)..................... $ 446,000 $ (561,000) $ 667,000 $ 342,000
============ ============ ============ ============
Basic and diluted earnings
(loss) per share (a)................. $ 0.02 $ (0.13) $ 0.02 $ (0.08)
============ ============ ============ ============
Weighted average number of
common shares outstanding
used in calculating basic
earnings (loss) per share........... 16,322,000 15,914,000 16,241,000 15,869,000
============ ============ ============ ============
Weighted average number of
shares outstanding used
in calculating diluted
earnings (loss) per share........... 16,734,000 15,914,000 16,723,000 15,869,000
============ ============ ============ ============
Condensed Balance Sheets
December 31, March 31,
2001 2001
------------ ------------
(unaudited) (b)
ASSETS
Current assets:
Cash and cash equivalents ......................... $ 2,788,000 $ 2,012,000
Trade receivables (net of allowances of
$398,000 at December 31, 2001 and $357,000
at March 31, 2001................................ 6,992,000 7,562,000
Inventories ....................................... 5,188,000 6,146,000
Prepaid expenses .................................. 798,000 406,000
------------ ------------
Total current assets ..................... 15,766,000 16,126,000
Property and equipment - net ........................ 8,972,000 9,455,000
Deposits and other assets ........................... 206,000 420,000
------------ ------------
Total assets ........................................ $ 24,944,000 $ 26,001,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings under line of credit.................... $ 1,581,000 $ 1,771,000
Accounts payable .................................. 1,701,000 3,622,000
Dividends payable ................................. 115,000 230,000
Accrued payroll and related expenses .............. 1,437,000 965,000
Other accrued liabilities ......................... 293,000 388,000
Warranty reserve .................................. 231,000 240,000
Deferred revenue .................................. 395,000 308,000
Current portion of capital lease obligations....... 99,000 117,000
Income taxes payable............................... 36,000 9,000
Current portion of long-term debt ................. 659,000 725,000
------------ ------------
Total current liabilities ................ 6,547,000 8,375,000
------------ ------------
Long-term deferred rent.............................. 165,000 41,000
Long-term deferred revenue........................... 441,000 456,000
Capital lease obligations, less current portion ..... 537,000 588,000
Long-term debt, less current portion ................ 494,000 928,000
Long-term commission obligation, less
current portion ................................ 48,000 118,000
------------ ------------
Total non-current liabilities ............ 1,685,000 2,131,000
------------ ------------
Commitments and contingencies
Shareholders' equity:
Convertible preferred stock, no par value:
authorized shares - 5,000,000; issued and
outstanding shares - 6,558 at December 31,
2001 and 6,578 at March 31, 2001................. 3,193,000 3,213,000
Common stock, no par value: authorized shares -
35,000,000; issued and outstanding shares -
16,333,112 at December 31, 2001 and
16,102,451 at March 31, 2001 .................... 75,342,000 74,453,000
Deferred stock compensation ....................... (4,000) (16,000)
Accumulated deficit ............................... (61,819,000) (62,155,000)
------------ ------------
Total shareholders' equity ............... 16,712,000 15,495,000
------------ ------------
Total liabilities and shareholders' equity .......... $ 24,944,000 $ 26,001,000
============ ============
Condensed Statements of Cash Flows
(unaudited)
Nine Months Ended
December 31,
------------------------
2001 2000
----------- -----------
Operating activities:
Net income............................................. $ 667,000 $ 342,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization........................ 1,225,000 913,000
Stock compensation, including amortization
of deferred stock compensation....................... 56,000 14,000
Changes in assets and liabilities:
Trade receiveables................................ 570,000 (2,253,000)
Inventories....................................... 958,000 (2,588,000)
Prepaid expenses.................................. (572,000) 13,000
Deposits and other assets......................... 214,000 (183,000)
Accounts payable.................................. (1,921,000) 1,892,000
Accrued payroll and related expenses.............. 472,000 (169,000)
Warranty reserve, other accrued liabilities
and deferred rent............................... 20,000 (125,000)
Deferred revenue.................................. 72,000 (15,000)
Long-term commission obligations.................. (70,000) (184,000)
Income taxes payable.............................. 27,000 19,000
----------- -----------
Net cash provided by (used in) operating activities.... 1,718,000 (2,324,000)
----------- -----------
Investing activities:
Purchase of property and equipment..................... (562,000) (5,095,000)
----------- -----------
Net cash used in investing activities.................. (562,000) (5,095,000)
----------- -----------
Financing activities:
Proceeds from issuance of preferred stock.............. -- 6,443,000
Exercise of warrants and common stock options.......... 379,000 1,023,000
Borrowings under line of credit........................ 600,000 500,000
Borrowings under equipment financing..................... -- 1,000,000
Repayment of line of credit.............................. (790,000) --
Repayment of equipment financing....................... (500,000) (294,000)
Repayment of capital lease obligations................. (69,000) (24,000)
----------- -----------
Net cash provided by (used in) financing activities.... (380,000) 8,648,000
----------- -----------
Net increase in cash and cash equivalents.............. 776,000 1,229,000
Cash and cash equivalents at beginning of period....... 2,012,000 2,049,000
----------- -----------
Cash and cash equivalents at end of period............. $ 2,788,000 $ 3,278,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest, net of interest capitalized. $ 193,000 $ 192,000
=========== ===========
Noncash financing activities:
Preferred stock dividends........................... $ 331,000 $ 1,533,000
=========== ===========
Warrants issued for services........................ $ -- $ 2,249,000
=========== ===========
Tenant improvements financed by leasing company..... $ -- $ 456,000
=========== ===========
Preferred stock dividends paid in common stock...... $ 446,000 $ --
=========== ===========
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------- -------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Net income (loss).......................... $ 446,000 $ (561,000) $ 667,000 $ 342,000
Preferred stock dividends.................. (115,000) (115,000) (331,000) (115,000)
Beneficial conversion feature
attributable to Series D Preferred Stock. -- (1,418,000) -- (1,418,000)
----------- ----------- ----------- -----------
Net income (loss) attributable to
common shareholders...................... $ 331,000 $ (2,094,000) $ 336,000 $ (1,191,000)
=========== =========== =========== ===========
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------- -------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Weighted average number of common
shares outstanding used in calculating
basic earnings (loss) per share.......... 16,322,000 15,914,000 16,241,000 15,869,000
Weighted average number of dilutive
stock options outstanding using
the treasury stock method................ 412,000 -- 482,000 --
----------- ----------- ----------- -----------
Weighted average number of shares
outstanding used in calculating
diluted earnings per share............... 16,734,000 15,914,000 16,723,000 15,869,000
=========== =========== =========== ===========
December 31, March 31,
2001 2001
----------- -----------
Raw materials.............................. $ 2,140,000 $ 3,339,000
Work-in-process............................ 1,447,000 1,284,000
Finished goods............................. 1,601,000 1,523,000
----------- -----------
$ 5,188,000 $ 6,146,000
=========== ===========
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------- -------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Blood analyzers............................ $ 2,620,000 $ 3,939,000 $ 7,535,000 $ 10,968,000
Reagent discs and kits..................... 4,775,000 3,389,000 13,377,000 10,612,000
Other...................................... 540,000 191,000 1,176,000 268,000
----------- ----------- ----------- -----------
Product sales, net....................... 7,935,000 7,519,000 22,088,000 21,848,000
Development and licensing
revenue.................................. 35,000 35,000 135,000 177,000
----------- ----------- ----------- -----------
Total revenues............................. $ 7,970,000 $ 7,554,000 $ 22,223,000 $ 22,025,000
=========== =========== =========== ===========
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------- -------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
United States ............................. $ 6,778,000 $ 6,340,000 $ 19,323,000 $ 18,541,000
Europe .................................... 841,000 707,000 1,958,000 2,015,000
Asia and Latin America..................... 351,000 507,000 942,000 1,469,000
----------- ----------- ----------- -----------
Total ..................................... $ 7,970,000 $ 7,554,000 $ 22,223,000 $ 22,025,000
=========== =========== =========== ===========
For Director: 13,944,987 Withheld from
Director: 561,277
For Director: 13,970,154 Withheld from
Director: 561,277
For Director: 13,965,279 Withheld from
Director: 561,277
For Director: 13,965,987 Withheld from
Director: 561,277
For Director: 13,971,237 Withheld from
Director: 561,277
ABAXIS, INC.
Date: February 13, 2002
(Registrant)
By:
/s/ Clinton H. Severson
Clinton H. Severson
President and Chief Executive Officer
(Principal Executive Officer)
By: | /s/ Alberto Santa Ines |
| |
Alberto Santa Ines | |
Interim Chief Financial Officer/Director of Finance (Principal Financial and Accounting Officer) |
!SGRQ89N0
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