-----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, UgqAH0RvNfNDFWg9pTtI1FcVDvASiyENNQ8iC/UN5ZRBcs6AaWlYnQwQPX61CdSD 5T1bikEktF3z2YLWmClF4w== 0000881890-99-000007.txt : 19990817 0000881890-99-000007.hdr.sgml : 19990817 ACCESSION NUMBER: 0000881890-99-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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: 99692049 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 JUNE 30, 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 June 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 August 16, 1999, 13,966,980 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 Months Ended June 30, 1999 and 1998 Condensed Balance Sheets - June 30, 1999 and March 31, 1999 Condensed Statements of Cash Flows - Three Months Ended June 30, 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 PART 1-FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ABAXIS, INC. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended June 30, ------------------------- 1999 1998 ------------ ------------ Revenues: Product sales, net......... $4,418,000 $3,059,000 Development and licensing revenue.................. 17,000 220,000 ------------ ------------ Total revenues 4,435,000 3,279,000 ------------ ------------ Costs and operating expenses: Cost of product sales...... 2,593,000 2,598,000 Research and development... 894,000 521,000 Selling, general, and administrative........... 1,609,000 1,253,000 ------------ ------------ Total costs and operating expenses................. 5,096,000 4,372,000 ------------ ------------ Loss from operations.......... (661,000) (1,093,000) Interest income 45,000 37,000 Other income (expense)........ -- -- ------------ ------------ Net loss...................... ($616,000) ($1,056,000) ============ ============ Basic and diluted loss per share (a)................ ($0.04) ($0.08) ============ ============ Shares used in calculating loss per share - basic and diluted....................... 13,957,980 13,466,268 ============ ============
(a) Loss attributable to common shareholders used in computation of loss per share for the three months ended June 30, 1999 and June 30, 1998 was $(676,000) and $(1,067,000), respectively. See Note 3 of Notes to condensed financial statements. See notes to condensed financial statements. ABAXIS, INC. CONDENSED BALANCE SHEETS
June 30, March 31, 1999 1999 ------------ ------------ (unaudited) (Note 1) Current assets: Cash and cash equivalents ....................... $3,919,000 $5,426,000 Trade and other receivables (net of allowance for doubtful accounts of $174,000 at June 30, 1999 and $174,000 at March 31, 1999).......... 3,448,000 2,731,000 Interest receivable ............................. 4,000 -- Inventories ..................................... 2,082,000 1,933,000 Prepaid expenses ................................ 227,000 233,000 ------------ ------------ Total current assets ................... 9,680,000 10,323,000 Property and equipment - net ...................... 3,236,000 2,518,000 Deposits and other assets ......................... 77,000 73,000 ------------ ------------ Total assets ...................................... $12,993,000 $12,914,000 ============ ============ Liabilities and Shareholders' Equity Current liabilities: Borrowings under line of credit.................. $701,000 $683,000 Accounts payable ................................ 1,317,000 1,087,000 Dividends payable ............................... 148,000 88,000 Accrued payroll and related expenses ............ 1,058,000 573,000 Other accrued liabilities ....................... 401,000 410,000 Warranty reserve ................................ 730,000 737,000 Deferred rent ................................... 48,000 53,000 Deferred revenue ................................ 372,000 258,000 Current portion of long-term debt ............... 606,000 606,000 ------------ ------------ Total current liabilities .............. 5,381,000 4,495,000 ------------ ------------ Long-term debt .................................... 746,000 889,000 ------------ ------------ Commitments and contingencies Shareholders' equity: Convertible preferred stock, no par value: authorized shares - 5,000,000; issued and outstanding shares - 4,000 on June 30,1999 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 - 13,966,980 on June 30, 1999 and 12,957,580 on March 31, 1999 .................. 63,954,000 63,944,000 Deferred compensation ........................... (26,000) (28,000) Accumulated deficit ............................. (60,643,000) (59,967,000) ------------ ------------ Total shareholders' equity ............. 6,866,000 7,530,000 ------------ ------------ Total liabilities and shareholders' equity ........ $12,993,000 $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)
Three Months Ended June 30, ------------------------- 1999 1998 ------------ ------------ Operating activities: Net loss............................................... ($616,000) ($1,056,000) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization........................ 138,000 172,000 Amortization of deferred compensation................ 2,000 -- Common stock issued for services..................... -- 9,000 Changes in assets and liabilities: Trade and other receivables....................... (717,000) (243,000) Interest receivable............................... (4,000) 95,000 Inventories....................................... (150,000) (265,000) Prepaid expenses.................................. 6,000 25,000 Deposits and other assets......................... (3,000) 6,000 Accounts payable.................................. 320,000 (395,000) Accrued payroll and related expenses.............. 485,000 (76,000) Other accrued liabilities......................... (105,000) (125,000) Warranty reserve.................................. (8,000) -- Deferred revenue and other........................ 114,000 (36,000) ------------ ------------ Net cash used in operating activities.................. (538,000) (1,889,000) ------------ ------------ Investing activities: Purchase of available-for-sale securities.............. -- (1,474,000) Maturities of available-for-sale securities............ -- 3,326,000 Purchase of property and equipment..................... (856,000) (406,000) ------------ ------------ Net cash provided by (used in) investing activities.... (856,000) 1,446,000 ------------ ------------ Financing activities: Proceeds from issuance of common stock................. 11,000 13,000 Proceeds from issuance of preferred stock.............. 18,000 -- Net proceeds from equipment financing.................. -- -- Repayment of equipment financing....................... (143,000) (41,000) ------------ ------------ Net cash used in financing activities.................. (114,000) (28,000) ------------ ------------ Increase (decrease) in cash and cash equivalents....... (1,508,000) (471,000) Cash and cash equivalents at beginning of period....... 5,426,000 1,701,000 ------------ ------------ Cash and cash equivalents at end of period............. $3,918,000 $1,230,000 ============ ============ Supplemental disclosures of cash flow information: Interest paid....................................... $75,000 $19,000 ============ ============ Noncash financing activities: Accrued dividends on preferred stock................ $60,000 -- ============ ============ 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. 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. New Accounting Pronouncement - In June 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. As a result of operating losses, there is no difference between the basic and diluted calculations of loss per share. Shares used in the calculation of diluted loss per share for the first quarters ended June 30, 1988 and 1999 exclude 1,362,731 and 3,624,182, respectively, 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 loss to net loss attributable to common shareholders is as follows:
Three Months Ended June 30, ------------------------- 1999 1998 ------------ ------------ Net loss...................... ($616,000) ($1,056,000) Cumulative preferred stock dividends............. (60,000) -- Value assigned to accretion of preferred stock.......... -- (11,000) ------------ ------------ Net loss attributable to common shareholders......... ($676,000) ($1,067,000) ============ ============
4. INVENTORY Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following:
June 30, March 31, 1999 1999 ------------ ------------ Raw materials................ $675,000 $910,000 Work-in-process.............. 621,000 574,000 Finished goods............... 786,000 449,000 ------------ ------------ $2,082,000 $1,933,000
============ ============ 5. 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 June 30, ------------------------- 1999 1998 ------------ ------------ Blood chemistry analyzers.... $1,662,000 $1,363,000 Reagent discs................ 2,436,000 1,694,000 Other........................ 25,000 36,000 ------------ ------------ Product sales, net......... 4,123,000 3,093,000 Development and licensing revenue.................... 312,000 186,000 ------------ ------------ Total revenues............... $4,435,000 $3,279,000 ============ ============
The following is a summary of revenues by geographic region based on customer location:
Quarters Ended June 30, ------------------------- 1999 1998 ------------ ------------ United States ............... $3,567,000 $2,572,000 Europe ...................... 600,000 235,000 Asia and Latin America....... 268,000 472,000 ------------ ------------ Total ....................... $4,435,000 $3,279,000 ============ ============
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 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 disks 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 the three months ended June 30, 1999, the Company's US revenues accounted for 80% of its total revenues versus 79% in the three months ended June 30, 1998, European revenues accounted for 14% versus 7% in the three-months ended June 30, 1998 and Asian and Latin American revenues accounted for 6% versus 14% in the three months ended June 30, 1998. 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 June 30, 1999, the Company placed 181 point-of-care blood chemistry analyzers worldwide, a 9% decrease from 198 instruments shipped in the three months ended June 30, 1998. During the three-months ended June 30, 1999, the Company placed 47 point-of- care blood hematology analyzers (the VetScan HMT). The VetScan HMT is a new product offered for the first time in June 1999. Therefore, total instruments shipped during the three months ended June 30, 1999 were 228. The decline in chemistry instrument sales reflects lower unit shipments to Japan and the US military. The Company does not expect instrument unit sales to Japan to recover in the near future, if at all. Shipments to the military declined due to the completion of a contract with the US Navy. The Company does not expect sales to the US military to increase unless an additional contract is completed. Reagent discs shipped during the three months ended June 30, 1999 were approximately 252,000, an increase of 41% compared to shipments of approximately 179,000 reagent discs during the three months ended June 30, 1998. The increase in reagent disc shipments during the three months ended June 30, 1999 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 currently being developed, in order to make a significant impact in the human medical market. The Company is currently preparing a submission to the FDA for two of the electrolytes, potassium and CO2. The third electrolyte, sodium, is currently in clinical trials and the fourth, chloride, is in research and development. There is no assurance that the products 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 June 30, 1999, the Company reported total revenues of approximately $4,435,000, a $1,156,000 or 35% increase from total revenues of approximately $3,279,000 for the three months ended June 30, 1998. Revenue increases in the three months ended June 30, 1999 compared to the three months ended June 30, 1998 were due to increased analyzer and reagent disc sales in Europe and the US. Total revenue in the US for the three months ended June 30, 1999 was approximately $3,566,000, a $993,000 or 39% increase from revenue of approximately $2,573,000 for the three months ended June 30, 1998. Total revenue in Europe for the three months ended June 30, 1999 was approximately $600,000, a $365,000 or 155% increase from revenue of approximately $235,000 for the three months ended June 30, 1998.Total revenue in Asia and Latin America was approximately $269,000, a $203,000 or 43% decline from revenue of approximately $472,000 for the three- months ended June 30, 1998. The increase in revenue in the US reflects an increase in reagent disc sales and the launch of the VetScan HMT instrument. The increase in revenue in Europe was due to an increase in instrument placements, the launch of the VetScan HMT and an increase in reagent disc sales. The decline in Asia and Latin America was due to unfavorable currency and economic conditions. The Company does not expect revenues from Asia and Latin America to recover in fiscal year 2000, if ever. Cost of Product Sales Cost of product sales during the three months ended June 30, 1999 was approximately $2,593,000 or 59% of total revenues, as compared to approximately $2,598,000 or 79% of total revenues in the three months ended June 30, 1998. The slight decrease in cost of product sales as a percent of revenue for the three months ended June 30, 1999 as compared to the same period last year was primarily a function of the increase in sales volume of reagent discs and lower unit costs resulting from improved manufacturing processes. Research and Development Expense The Company incurred research and development expenses of approximately $894,000 in the three months ended June 30, 1999 compared with $521,000 in the three months ended June 30, 1998. The $373,000 or 72% increase in research and development expenses in the three months ended June 30, 1999 compared to the three months ended June 30, 1998 is the result of increased spending in the development of new test methods and process development research for automating production. Research and development activities accounted for 20% of total revenues during the three months ended June 30, 1999 as compared to 16% of total revenues during the three months ended June 30, 1998. 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. Selling, General and Administrative Expense Selling, general and administrative expenses were approximately $1,609,000 or 36% of total revenues in the three months ended June 30, 1999 compared to $1,253,000 or 38% of total revenues in the three months ended June 30, 1998. The increase in selling, general and administrative expenses for the three months ended June 30, 1999 as compared to the same period last year 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 but decline as a percentage of total revenue, as a result of increased staffing and support demands associated with increased sales. Net Interest and Other Income (Expense) Net interest and other income totaled approximately $45,000 in the three months ended June 30, 1999 compared to $37,000 for the three months ended June 30, 1998. The Company incurred interest expense of approximately $1,000 on its capital equipment loan and its line of credit during the three months ended June 30, 1999, net of capitalized interest of approximately $75,000 on the purchase and installation of the new automated disk 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 $3,919,000 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 three months ended June 30, 1999 was $538,000 compared to $1,889,000 in the three months ended June 30, 1998. The decrease in net cash used in operating activities in the three months ended June 30, 1999 compared to the three months ended June 30, 1998 was due primarily to a decrease in the net loss, an increase in accounts payable and accrued payroll and other expenses offset by an increase in trade receivables. Net cash used in investing activities for the three months ended June 30, 1999 was $856,000 as compared to net cash provided of $1,446,000 for the three months ended June 30, 1998. The change from net cash used in the three months ended June 30, 1999 to net cash provided in 1998 was due primarily to the purchase of property and equipment in the three months ended June 30, 1999 and net maturities of available-for-sale securities in the three months ended June 30, 1998. Net cash used in financing activities for the three months ended June 30, 1999 was $114,000 as compared to $28,000 for the three months ended June 30, 1998. Cash used in financing activities for the three months ended June 30, 1999 is primarily the result of an increase in repayments on the equipment financing loan and the line of credit. The Company currently has $1,799,000 available under the line of credit. This line of credit expires in October 1999 and there can be no assurance that the Company will be able to extend the line of credit for another year. 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 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. Year 2000 Preparedness The Year 2000 issue is the result of computer programs which were written with two digits rather than four to signify a year (i.e., the year 1999 is denoted as "99" and not "1999"). Computer programs written using only two digits may recognize the year 2000 as the year 1900. This could result in a system failure or miscalculations causing disruption of operations. Readiness The Company has identified the following areas where efforts are underway to resolve year 2000 issues: (i) internal information technology (IT) systems, (ii) the Piccolo and VetScan instruments the Company markets, (iii) test equipment used in research and development, and (iv) third party vendors and distributors who do business with the Company. The Company has upgraded the internal IT systems to the vendor's specifications for year 2000 compliance. The IT systems will be tested during the second and third quarters of fiscal 2000 to determine that the IT systems are working within the specifications. The Company's Piccolo and VetScan systems were designed for year 2000 compliance. Tests have been completed on the systems that confirm year 2000 compliance. The Company intends to address year 2000 issues regarding its test equipment used in research and development and third party vendors who do business with the Company in the second and third quarters of fiscal 2000. Costs Aggregate costs for year 2000 efforts in the three months ended June 30, 1999 and fiscal year 2000 currently are anticipated to be less than $250,000, including approximately $50,000 expensed in the three months ended June 30, 1999 and for the year 2000 preparedness since inception for software and consulting services. . The remaining estimated costs for year 2000 issues are expected to be for consulting services, which will be expensed in the period they occur. Risks The Company is presently unable to assess the likelihood that the Company will experience significant operational problems due to unresolved year 2000 problems of third parties that do business with the Company. There can be no assurance that other entities will achieve timely year 2000 compliance; if they do not, year 2000 problems could have a material adverse impact on the Company's operations. Contingency Plans The Company presently believes that the most reasonably likely worst- case scenario that the Company might confront with respect to year 2000 issues has to do with failure at one or more of the Company's distributors over which the Company has no control. For example, if one or more of the Company's distributors were unable to ship product to the end-user, the Company would have to take orders and ship direct to the end-user customers. There are policies and procedures in place for direct shipments to the end-user as the Company currently ships product directly to some national accounts. Should this worst-case scenario occur, the Company would have to increase headcount in a number of operating areas, such as customer service, shipping and accounting. There can be no assurance that the Company can increase the operating capacity in a timely manner and there can be no assurance that these additional operating expenses would not have a material adverse financial impact on the Company. 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 2.5% 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 $701,000 as of June 30, 1999. For each 1% increase in the prime rate the Company would pay approximately $1,750 of additional interest expense each quarter. The long-term debt monthly interest expense is based on an interest rate of 16%. An increase in interest rates would have exposed the Company to higher interest expenses. The balance on long-term debt was approximately $1,352,000 as of June 30, 1999. For each 1% increase in interest rates, the Company would have paid approximately $3,380 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. August 16, 1999 by: /s/ Clinton H. Severson Date Clinton H. Severson President and Chief Executive Officer (Principal Executive Officer) August 16, 1999 by: /s/ Donald J. Stewart Date Donald J. Stewart Vice President of Finance & Administration and Chief Financial Officer (Principal Financial and Accounting Officer) INDEX TO EXHIBITS Exhibit Number Description - ------ ----------- 27.0 Financial Data Schedule 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 APR-01-1999 JUN-30-1999 3,919,000 0 3,622,000 174,000 2,082,000 9,680,000 3,236,000 0 12,993,000 5,381,000 0 0 3,581,000 63,954,000 (60,669,000) 12,993,000 4,418,000 4,435,000 2,593,000 2,593,000 2,503,000 0 0 (616,000) 0 (616,000) 0 0 0 (616,000) (0.04) (0.04)
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