10-Q

UNITED STATES SECURITIES AND 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 December 31, 2012

or

o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 000-19720

ABAXIS, INC.

(Exact name of registrant as specified in its charter)

California	77-0213001
(State of Incorporation)	(I.R.S. Employer Identification No.)

3240 Whipple Road

Union City, California 94587

(Address of principal executive offices)

(510) 675-6500

(Registrant’s telephone number including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x                                No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer o	Accelerated filer x	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o                                No x

As of February 6, 2013, there were 22,102,000 shares of the registrant’s common stock outstanding.

ABAXIS, INC.

Form 10-Q

For the Quarter Ended December 31, 2012

TABLE OF CONTENTS

		Page
PART I.  FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited):
	Condensed Consolidated Balance Sheets as of December 31, 2012 and March 31, 2012	3
	Condensed Consolidated Statements of Income for the Three and Nine Months Ended December 31, 2012 and 2011	4
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended December 31, 2012 and 2011	5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2012 and 2011	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38
PART II.  OTHER INFORMATION
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 3.	Defaults Upon Senior Securities	49
Item 4.	Mine Safety Disclosures	49
Item 5.	Other Information	49
Item 6.	Exhibits	50
SIGNATURES		51

2

PART I.  FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements (Unaudited)

ABAXIS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share data)

	December 31,		March 31,
	2012		2012
ASSETS
Current assets:
Cash and cash equivalents	$	47,427	$	45,843
Short-term investments		22,644		21,689
Receivables (net of allowances of $225 at December 31, 2012 and $283 at March 31, 2012)		36,094		30,694
Inventories		25,069		19,597
Prepaid expenses and other current assets		7,067		5,423
Net deferred tax assets, current		4,356		4,151
Total current assets		142,657		127,397
Long-term investments		21,712		23,442
Investment in unconsolidated affiliate		2,613		2,626
Property and equipment, net		25,512		24,296
Intangible assets, net		3,515		3,990
Other assets		97		85
Total assets	$	196,106	$	181,836
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	11,536	$	6,381
Accrued payroll and related expenses		8,380		6,336
Accrued taxes		229		266
Other accrued liabilities		2,314		1,991
Deferred revenue		1,388		1,212
Warranty reserve		993		1,245
Total current liabilities		24,840		17,431
Non-current liabilities:
Deferred rent		712		641
Net deferred tax liabilities		159		199
Deferred revenue		3,517		2,396
Warranty reserve		473		601
Notes payable, less current portion		707		783
Total non-current liabilities		5,568		4,620
Total liabilities		30,408		22,051
Commitments and contingencies (Note 9)
Shareholders' equity:
Preferred stock, no par value: 5,000,000 shares authorized; no shares issued and outstanding		-		-
Common stock, no par value: 35,000,000 shares authorized; 22,023,000 and 21,699,000 shares issued and outstanding at December 31, 2012 and at March 31, 2012, respectively		117,217		110,063
Retained earnings		48,435		49,697
Accumulated other comprehensive income		46		25
Total shareholders' equity		165,698		159,785
Total liabilities and shareholders' equity	$	196,106	$	181,836

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

3

ABAXIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except share and per share data)

	Three Months Ended					Nine Months Ended
	December 31,					December 31,
	2012		2011			2012			2011
Revenues	$	49,802	$	37,850		$	136,074		$	113,878
Cost of revenues		23,726		17,372			64,026			52,156
Gross profit		26,076		20,478			72,048			61,722
Operating expenses:
Research and development		3,802		2,634			10,348			9,096
Sales and marketing		12,373		9,927			35,647			28,414
General and administrative		2,210		3,280			10,153			11,194
Gain from legal settlement		-		-			(17,250	)		-
Total operating expenses		18,385		15,841			38,898			48,704
Income from operations		7,691		4,637			33,150			13,018
Interest and other income (expense), net		293		(91	)		318			259
Income before income tax provision		7,984		4,546			33,468			13,277
Income tax provision		2,996		1,696			12,707			4,892
Net income	$	4,988	$	2,850		$	20,761		$	8,385
Net income per share:
Basic net income per share	$	0.23	$	0.13		$	0.95		$	0.38
Diluted net income per share	$	0.22	$	0.13		$	0.93		$	0.37
Cash dividends declared per share	$	1.00	$	-		$	1.00		$	-
Shares used in the calculation of net income per share:
Weighted average common shares outstanding - basic		21,968,000		21,672,000			21,902,000			22,213,000
Weighted average common shares outstanding - diluted		22,341,000		21,990,000			22,316,000			22,579,000

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

4

ABAXIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2012			2011			2012		2011
Net income	$	4,988		$	2,850		$	20,761	$	8,385
Other comprehensive income:
Net change in unrealized gain (loss) on investments		(2	)		(17	)		36		(17	)
Provision (benefit) for income taxes related to items of other comprehensive income		(1	)		(3	)		15		(3	)
Other comprehensive income (loss), net of tax		(1	)		(14	)		21		(14	)
Comprehensive income	$	4,987		$	2,836		$	20,782	$	8,371

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

5

ABAXIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Nine Months Ended
	Decmeber 31,
	2012			2011
Cash flows from operating activities:
Net income	$	20,761		$	8,385
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,448			3,725
Investment premium amortization, net		638			754
Net loss on disposals of property and equipment		19			10
Net loss on foreign exchange translation		174			402
Share-based compensation expense		5,290			4,194
Excess tax benefits from share-based awards		(1,826	)		(717	)
Provision for deferred income taxes		(253	)		157
Equity in net loss of unconsolidated affiliate		13			101
Changes in assets and liabilities:
Receivables, net		(5,368	)		1,703
Inventories		(6,321	)		(1,100	)
Prepaid expenses and other current assets		(330	)		(1,142	)
Other assets		(13	)		21
Accounts payable		5,156			108
Accrued payroll and related expenses		2,046			(380	)
Accrued taxes		393			(559	)
Other accrued liabilities		323			380
Deferred rent		71			181
Deferred revenue		1,297			733
Warranty reserve		(380	)		383
Net cash provided by operating activities		26,138			17,339
Cash flows from investing activities:
Purchases of available-for-sale investments		-			(8,268	)
Purchases of held-to-maturity investments		(18,337	)		(18,174	)
Proceeds from maturities and redemptions of held-to-maturity investments		18,261			35,337
Proceeds from maturities and redemptions of available-for-sale investments		249			-
Purchases of property and equipment		(4,334	)		(5,960	)
Proceeds from disposal of property and equipment		4			-
Net cash (used in) provided by investing activities		(4,157	)		2,935
Cash flows from financing activities:
Proceeds from notes payable from municipal agency		-			147
Proceeds from the exercise of stock options		1,593			576
Tax withholdings related to net share settlements of restricted stock units		(1,584	)		(2,172	)
Excess tax benefits from share-based awards		1,826			717
Repurchases of common stock		-			(27,328	)
Dividends paid		(22,023	)		-
Net cash used in financing activities		(20,188	)		(28,060	)
Effect of exchange rate changes on cash and cash equivalents		(209	)		(317	)
Net increase (decrease) in cash and cash equivalents		1,584			(8,103	)
Cash and cash equivalents at beginning of period		45,843			43,471
Cash and cash equivalents at end of period	$	47,427		$	35,368
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net of refunds	$	12,206		$	4,809
Supplemental disclosure of non-cash flow information:
Change in unrealized gain (loss) on investments, net of tax	$	21		$	(14	)
Transfers of equipment between inventory and property and equipment, net	$	878		$	1,130
Net change in capitalized share-based compensation	$	29		$	68
Common stock withheld for employee taxes in connection with share-based compensation	$	1,584		$	2,172
Repayment of notes payable by credits from municipal agency	$	76		$	70
Warrants issued for intangible assets	$	-		$	388

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

6

ABAXIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business. Abaxis, Inc. (“Abaxis,” the “Company” or “we”), incorporated in California in 1989, develops, manufactures, markets and sells portable blood analysis systems for use in the human or veterinary patient-care setting to provide clinicians with rapid blood constituent measurements.  In October 2011, Abaxis began providing veterinary reference laboratory diagnostic and consulting services for veterinarians.  We conduct business worldwide and manage our business on the basis of the following two reportable segments:  the medical market and the veterinary market.

Abaxis Europe GmbH, our wholly-owned subsidiary in Darmstadt, Germany, markets, promotes and distributes diagnostic systems for medical and veterinary uses in the European market.

Principles of Consolidation.  The accompanying unaudited condensed consolidated financial statements include the accounts of Abaxis and our wholly-owned subsidiary, Abaxis Europe GmbH.  Intercompany transactions and balances have been eliminated in consolidation.

Basis of Presentation.  We have prepared the unaudited condensed consolidated financial statements included herein pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim periods.  The unaudited condensed consolidated financial statements included herein reflect all normal recurring adjustments, which are, in the opinion of our management, necessary to state fairly the results of operations and financial position for the periods presented.  The results for the three and nine month periods ended December 31, 2012 are not necessarily indicative of the results to be expected for the entire fiscal year ending March 31, 2013 or for any interim or future period.

These unaudited condensed consolidated financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2012.

Reclassifications.  Certain reclassifications have been made to prior periods’ financial statements to conform to the current period presentation, primarily related to segment categories (Note 14. Segment Reporting Information).  These reclassifications did not result in any change in previously reported net income, total assets or shareholders’ equity.

Use of Estimates.  The preparation of condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period, and related disclosures.  Such management estimates include allowance for doubtful accounts, sales and other allowances, estimated selling price of our products, fair value of investments, valuation of inventory, fair value and useful lives of intangible assets, income taxes, valuation allowance for deferred tax assets, share-based compensation and warranty reserves.  Our management bases their estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.  Our actual results may differ materially from these estimates.

Significant Accounting Policies.  The significant accounting policies used in preparation of these condensed consolidated financial statements are disclosed in our Annual Report on Form 10-K for the year ended March 31, 2012 filed with the SEC on June 14, 2012, and have not changed significantly since such filing.

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

Disclosures about Offsetting Assets and Liabilities:  In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-11, “Disclosures about Offsetting Assets and Liabilities,” (Topic 210) - Balance Sheet (ASU 2011-11), to enhance disclosure requirements relating to the offsetting of assets and liabilities on an entity's balance sheet.  The update requires enhanced disclosures regarding assets and liabilities that are presented net or gross in the statement of financial position when the right of offset exists, or that are subject to an enforceable master netting arrangement.  The new disclosure requirements relating to this update are retrospective and effective for the Company beginning on April 1, 2013.  The update only requires additional disclosures, as such, we do not expect the adoption of this accounting pronouncement to have a material impact on our consolidated financial position, results of operations or cash flows.

7

NOTE 3. INVESTMENTS

Our investments are classified as either available-for-sale or held-to-maturity.  The following table summarizes available-for-sale and held-to-maturity investments as of December 31, 2012 and March 31, 2012 (in thousands):

	Available-for-Sale Investments
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2012	Cost		Gain		(Loss)		Value
Certificates of deposits	$	996	$	6	$	-	$	1,002
Corporate bonds		6,033		71		-		6,104
Municipal bonds		531		1		-		532
Total available-for-sale investments	$	7,560	$	78	$	-	$	7,638

	Held-to-Maturity Investments
			Gross		Gross
	Amortized		Unrecognized		Unrecognized			Fair
December 31, 2012	Cost		Gain		(Loss)			Value
Certificates of deposits	$	3,590	$	1	$	(1	)	$	3,590
Corporate bonds		19,953		172		(2	)		20,123
Municipal bonds		13,175		38		(20	)		13,193
Total held-to-maturity investments	$	36,718	$	211	$	(23	)	$	36,906

	Available-for-Sale Investments
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
March 31, 2012	Cost		Gain		(Loss)		Value
Certificates of deposits	$	1,245	$	2	$	-	$	1,247
Corporate bonds		6,047		38		-		6,085
Municipal bonds		961		1		-		962
Total available-for-sale investments	$	8,253	$	41	$	-	$	8,294

	Held-to-Maturity Investments
			Gross		Gross
	Amortized		Unrecognized		Unrecognized			Fair
March 31, 2012	Cost		Gain		(Loss)			Value
Certificates of deposits	$	844	$	-	$	-		$	844
Corporate bonds		23,072		131		(31	)		23,172
Municipal bonds		12,921		71		(1	)		12,991
Total held-to-maturity investments	$	36,837	$	202	$	(32	)	$	37,007

The amortized cost of our held-to-maturity investments approximates their fair value.  As of December 31, 2012 and March 31, 2012, we did not have other-than-temporary impairment in the fair value of any individual security classified as held-to-maturity or available-for-sale.  As of December 31, 2012 and March 31, 2012, we had unrealized gains on available-for-sale investments, net of related income taxes of $46,000 and $25,000, respectively.  Redemptions of investments in accordance with callable provisions during the three months ended December 31, 2012 and 2011 were $0 and $250,000, respectively, and during the nine months ended December 31, 2012 and 2011 were $717,000 and $13.3 million, respectively.

The following table summarizes the amortized cost and fair value of our investments, classified by stated maturity as of December 31, 2012 and March 31, 2012 (in thousands):

	December 31, 2012				December 31, 2012
	Available-for-Sale Investments				Held-to-Maturity Investments
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in less than one year	$	1,029	$	1,032	$	21,612	$	21,669
Due in 1 to 4 years		6,531		6,606		15,106		15,237
Total investments	$	7,560	$	7,638	$	36,718	$	36,906

	March 31, 2012				March 31, 2012
	Available-for-Sale Investments				Held-to-Maturity Investments
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in less than one year	$	670	$	670	$	21,019	$	21,062
Due in 1 to 4 years		7,583		7,624		15,818		15,945
Total investments	$	8,253	$	8,294	$	36,837	$	37,007

8

NOTE 4. FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (“exit price”) in an orderly transaction between market participants at the measurement date.  When determining fair value, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability.  The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs).  The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).  The three levels of the fair value hierarchy are described below:

Level 1:  Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2:  Directly or indirectly observable inputs as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active.  Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.

Level 3:  Unobservable inputs that are supported by little or no market data and require the use of significant management judgment.  These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

The following table summarizes financial assets, measured at fair value on a recurring basis, by level within the fair value hierarchy as of December 31, 2012 and March 31, 2012 (in thousands):

	As of December 31, 2012
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	8,342	$	-	$	-	$	8,342
Available-for-sale investments:
Certificates of deposits		-		1,002		-		1,002
Corporate bonds		-		6,104		-		6,104
Municipal bonds		-		532		-		532
Total assets at fair value	$	8,342	$	7,638	$	-	$	15,980

	As of March 31, 2012
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	6,996	$	-	$	-	$	6,996
Available-for-sale investments:
Certificates of deposits		-		1,247		-		1,247
Corporate bonds		-		6,085		-		6,085
Municipal bonds		-		962		-		962
Total assets at fair value	$	6,996	$	8,294	$	-	$	15,290

As of December 31, 2012 and March 31, 2012, our Level 1 financial assets are comprised of money market mutual funds.  Our cash equivalents are highly liquid instruments with original or remaining maturities of three months or less at the time of purchase that are readily convertible into cash.  The fair value of our Level 1 financial assets is based on quoted market prices of the underlying security.  As of December 31, 2012 and March 31, 2012, we did not have any Level 1 financial liabilities.

As of December 31, 2012 and March 31, 2012, our Level 2 financial assets are comprised of certificates of deposits, corporate bonds and municipal bonds.  We review trading activity and pricing for these investments as of the measurement date.  When sufficient quoted pricing for identical securities is not available, we use market pricing and other observable market inputs for similar securities obtained from third party data providers.  These inputs represent quoted prices for similar assets in active markets or these inputs have been derived from observable market data.  This approach results in the classification of these securities as Level 2 of the fair value hierarchy.  As of December 31, 2012 and March 31, 2012, we did not have any Level 2 financial liabilities.

9

As of December 31, 2012 and March 31, 2012, we did not have any Level 3 financial assets or liabilities measured at fair value on a recurring basis.  During the three and nine months ended December 31, 2012 and 2011, we did not have any Level 3 financial assets or liabilities measured at fair value on a recurring basis.

NOTE 5. INVENTORIES

Inventories include material, labor and overhead, and are stated at the lower of cost (first-in, first-out method) or market.  Components of inventories were as follows (in thousands):

	December 31,		March 31,
	2012		2012
Raw materials	$	12,729	$	9,046
Work-in-process		3,501		3,369
Finished goods		8,839		7,182
Inventories	$	25,069	$	19,597

NOTE 6. INVESTMENT IN UNCONSOLIDATED AFFILIATE

Our investment in an unconsolidated affiliate consists of an investment in equity securities of Scandinavian Micro Biodevices APS (“SMB”).  In February 2011, we purchased a 15% equity ownership interest in SMB, for $2.8 million in cash.  SMB is a privately-held developer and manufacturer of point-of-care diagnostic products for veterinary use.  SMB, based in Farum, Denmark, has been the original equipment manufacturer of the Abaxis VetScan VSpro point-of-care specialty analyzer since 2008.  Abaxis has had exclusive distribution rights for the analyzer and associated cartridges in North America since 2008.  Starting January 2011, Abaxis has non-exclusive rights in other areas of the world.  We accounted for our investment in SMB using the equity method due to our significant influence over SMB’s operations.  Our allocated portions of SMB’s net income (loss) during the three months ended December 31, 2012 and 2011 were $21,000 and $(29,000), respectively, and during the nine months ended December 31, 2012 and 2011 were $(13,000) and $(101,000), respectively.

NOTE 7. WARRANTY RESERVES

We provide for the estimated future costs to be incurred under our standard warranty obligation on our instruments and reagent discs.

Instruments.  Our standard warranty obligation on instruments ranges from one to three years, depending on the type of product.  The estimated contractual warranty obligation is recorded when the related revenue is recognized and any additional amount is recorded when such cost is probable and can be reasonably estimated.  Cost of revenues reflects estimated warranty expense for instruments sold in the current period and any adjustments in estimated warranty expense for the installed base under our standard warranty obligation based on our quarterly evaluation of service experience.  The estimated accrual for warranty exposure is based on historical experience as to product failures, estimated product failure rates, estimated repair costs, material usage and freight incurred in repairing the instrument after failure and known design changes under the warranty plan.

During the nine months ended December 31, 2012, we recorded an adjustment to pre-existing warranties of $290,000, which reduced our warranty reserves and our cost of revenues, based on both historical and projected product performance rates of instruments.  Management periodically evaluates the sufficiency of the warranty provisions and makes adjustments when necessary.  If an unusual performance rate related to warranty claims is noted, an additional warranty accrual may be assessed and recorded when a failure event is probable and the cost can be reasonably estimated.

Reagent Discs.  We record a provision for defective reagent discs when the related sale is recognized and any additional amount is recorded when such cost is probable and can be reasonably estimated.  The warranty cost includes the replacement costs and freight of a defective reagent disc.  The balance of accrued warranty reserve related to replacement of defective reagent discs at December 31, 2012 and March 31, 2012 was $570,000 and $564,000, respectively, which was classified as a current liability on the condensed consolidated balance sheets.

We evaluate our estimates for warranty reserves on an ongoing basis and believe we have the ability to reasonably estimate warranty costs.  However, unforeseeable changes in factors may impact the estimate for warranty and such changes could cause a material change in our warranty reserve accrual in the period in which the change was identified.

10

The change in our accrued warranty reserve during the three and nine months ended December 31, 2012 and 2011 is summarized as follows (in thousands):

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2012			2011			2012			2011
Balance at beginning of period	$	1,480		$	1,436		$	1,846		$	1,222
Provision for warranty expense		337			500			998			1,113
Warranty costs incurred		(351	)		(331	)		(1,088	)		(987	)
Adjustment to pre-existing warranties		-			-			(290	)		257
Balance at end of period		1,466			1,605			1,466			1,605
Non-current portion of warranty reserve		473			482			473			482
Current portion of warranty reserve	$	993		$	1,123		$	993		$	1,123

NOTE 8. BORROWINGS

Notes Payable.  We have a ten year loan agreement with the Community Redevelopment Agency of the City of Union City (“the Agency”) whereby the Agency provides us with an unsecured loan of up to $1.0 million, primarily to purchase capital equipment.  The loan was effective January 2011, bears interest at 5.0% and is payable quarterly.  As of December 31, 2012, our short-term and long-term notes payable balances were $100,000 and $707,000, respectively, and we recorded the short-term balance in other accrued liabilities on the consolidated balance sheets.  The entire outstanding balance of the note shall be payable in full on the earlier of:  (i) December 2020, or (ii) the date Abaxis ceases operations in Union City, California.  The Agency also has the right to accelerate the maturity date and declare all balances immediately due and payable upon the event of default as defined in the loan agreement.  We evaluate covenants in our loan agreement on a quarterly basis, and we were in compliance with such covenants as of December 31, 2012.

In accordance with the terms of the loan agreement, the Agency will provide Abaxis with an annual credit that can be applied against the accrued interest and outstanding principal balance on a quarterly basis.  The Agency determines the annual credit based on certain taxes paid by Abaxis to the City of Union City, California for a specified period, as defined in the loan agreement.  We anticipate that our annual credits from the Agency will be used to fully repay our notes payable due to the Agency.  We may carry forward unused quarterly credits to apply against our outstanding balance in a future period.  Credits applied to repay our notes payable and accrued interest are recorded in “Interest and other income (expense), net” on the consolidated statements of income.

NOTE 9. COMMITMENTS AND CONTINGENCIES

Purchase Commitments.  In October 2008, we entered into an original equipment manufacturing (“OEM”) agreement with SMB of Denmark to purchase VSpro specialty analyzers and related cartridges.  Effective January 2011, we amended and restated our OEM agreement, including the terms of our minimum purchase commitments.  Under the amended agreement, we committed to purchase a minimum number of VSpro specialty analyzers and related cartridges on an annual basis during each calendar year 2011 through 2015.  Our purchase obligations in the future may be adjusted if our minimum purchase commitments are not met during a calendar year period.  At December 31, 2012, our total remaining outstanding commitment due is approximately $9.4 million.

In December 2011, we executed a term sheet to enter into a development and supply equipment agreement with Diatron MI PLC (“Diatron”) of Hungary to purchase Diatron hematology instruments.  Effective July 2012, we entered into a development and supply agreement with Diatron and under the agreement terms, we committed to purchase a minimum number of hematology instruments on an annual basis through fiscal year 2015.  At December 31, 2012, our total remaining outstanding commitment due is approximately $7.9 million.  Furthermore, at December 31, 2012, we prepaid $1.5 million to Diatron for future purchases of hematology instruments and reagents, which was recorded in prepaid expenses and other currents assets on the consolidated balance sheet.  The commitment amount is based on the minimum number of hematology instruments that we are required to purchase, the cost of the instruments and the Euro exchange rate at period-end.  Because the exchange rate will fluctuate in the future, the amount of the purchase commitment in dollars will change accordingly.

Patent Licensing Agreement.  Effective January 2009, we entered into a license agreement with Alere.  Under our license agreement, we licensed co-exclusively certain worldwide patent rights related to lateral flow immunoassay technology in the field of animal health diagnostics in the professional marketplace.  The license agreement provides that Alere shall not grant any future rights to any third parties under its current lateral flow patent rights in the animal health diagnostics field in the professional marketplace.  The license agreement enables us to develop and market products under rights from Alere to address animal health and laboratory animal research markets.

11

In exchange for the license rights, we (i) paid an up-front license fee of $5.0 million to Alere in January 2009, (ii) agreed to pay royalties during the term of the agreement, based solely on sales of products in a jurisdiction country covered by valid and unexpired claims in that jurisdiction under the licensed Alere patent rights, and (iii) agreed to pay a yearly minimum license fee of between $500,000 to $1.0 million per year, which fee will be creditable against any royalties due during such calendar year.  The royalties, if any, are payable through the date of the expiration of the last valid patent licensed under the agreement that includes at least one claim in a jurisdiction covering products we sell in that jurisdiction.  The yearly minimum fees became payable starting in fiscal 2011 for so long as we desire to maintain exclusivity under the agreement.

Litigation.  On June 28, 2010, we filed a patent infringement lawsuit against Cepheid.  On September 24, 2012, the parties agreed to terminate all pending and future claims connected with the litigation in exchange for a one-time payment by Cepheid of $17.3 million, which we recognized as an offset to operating expenses during the second quarter of fiscal 2013.

On October 1, 2012, St. Louis Police Retirement System, a purported shareholder of Abaxis, filed a lawsuit against certain officers and each of our directors in the United States District Court for the Northern District of California alleging, among other things, that the directors violated Section 14(a) of the Securities Exchange Act of 1934 and breached their fiduciary duties by allegedly failing to disclose material information in our 2010 proxy statement, breached their fiduciary duties by allegedly violating the terms of our 2005 Equity Incentive Plan, and breached their fiduciary duties by failing to disclose alleged material information in our 2012 proxy statement regarding (1) the events leading up to our proposal to amend the 2005 Equity Incentive Plan to eliminate the limit on the number of shares that may be issued pursuant to restricted stock units, and (2) the effects of the proposed amendment on certain settled and outstanding restricted stock units.  The plaintiff seeks, among other things, damages, disgorgement and attorney’s fees.  In addition, the plaintiff sought, and on October 23, 2012 the court issued, an order preliminarily enjoining our shareholder vote on Proposal 2 in our 2012 proxy statement, regarding an amendment to the 2005 Equity Incentive Plan, until such time as additional disclosures could be made.  The Company filed with the SEC and mailed to shareholders supplemental proxy materials approved by the court, the injunction was lifted and our shareholders approved the proposal to amend our 2005 Equity Incentive Plan.  The defendants have filed motions to dismiss the claims.  A hearing on the motions is currently scheduled for March 5, 2013.  Management believes the claims raised by the plaintiff are without merit and intends to contest them vigorously.

We are involved from time to time in various litigation matters in the normal course of business.  There can be no assurance that existing or future legal proceedings arising in the ordinary course of business or otherwise will not have a material adverse effect on our business, consolidated financial position, results of operations or cash flows.

NOTE 10. EQUITY COMPENSATION PLANS AND SHARE-BASED COMPENSATION

Equity Compensation Plan

As of December 31, 2012, we have one equity incentive plan under which our equity securities are authorized for issuance to our employees, directors and consultants.  Our share-based compensation plan is described below.

2005 Equity Incentive Plan.  Our 2005 Equity Incentive Plan (the “Equity Incentive Plan”) restated and amended our 1998 Stock Option Plan.  The Equity Incentive Plan allows for the awards of stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance cash awards, performance shares, performance units, deferred compensation awards or other share-based awards to employees, directors and consultants.  On November 8, 2012, our shareholders approved an amendment to the Equity Incentive Plan to, among other things, (i) increase the aggregate number of shares of common stock reserved for issuance under the Equity Incentive Plan by 900,000 shares and increase the maximum number of shares that may be issued pursuant to incentive stock options, (ii) clarify that the prohibition on repricing stock options and stock appreciation rights without prior shareholder approval also applies to prohibit the cancellation of such awards in exchange for cash, (iii) remove a 500,000-share limit on the number of shares that may be issued upon settlement of restricted stock units and other full-value awards, (iv) eliminate the requirement that no participant may be granted more than one performance award for the same performance period under the Equity Incentive Plan and (v) reapprove the Internal Revenue Code Section 162(m) performance criteria and award limits of the Equity Incentive Plan to permit us to continue to grant awards to key officers that qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code.  As of December 31, 2012, the Equity Incentive Plan provided for the issuance of a maximum of 6,786,000 shares, of which 1,112,000 shares of common stock were then available for future issuance.  The shares available for future issuance excluded 63,000 shares issuable upon settlement of restricted stock units with performance vesting provisions that were approved by the Board of Directors but are deemed not to have been granted for accounting purposes in accordance with Accounting Standards Codification (“ASC”) 718-10-55-95.  See “Restricted Stock Unit Awards (Performance Vesting)” section in this Note for additional information.  Shares that are canceled or forfeited from an award and shares withheld in satisfaction of tax withholding obligations are again available for issue under the Equity Incentive Plan.

Our current practice is to issue new shares of common stock from our authorized shares for share-based awards upon the exercise of stock options or vesting of restricted stock units.

12

Share-Based Compensation

The following table summarizes total share-based compensation expense, net of tax, related to restricted stock units during the three and nine months ended December 31, 2012 and 2011, which is included in our condensed consolidated statements of income (in thousands, except per share data):

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2012			2011			2012			2011
Cost of revenues	$	228		$	187		$	673		$	698
Research and development		300			226			854			641
Sales and marketing		613			475			1,885			1,402
General and administrative		638			624			1,878			1,453
Share-based compensation expense before income taxes		1,779			1,512			5,290			4,194
Income tax benefit		(641	)		(526	)		(1,898	)		(1,459	)
Total share-based compensation expense after income taxes	$	1,138		$	986		$	3,392		$	2,735
Net impact of share-based compensation on:
Basic net income per share	$	0.05		$	0.05		$	0.15		$	0.12
Diluted net income per share	$	0.05		$	0.04		$	0.15		$	0.12

Share-based compensation has been classified in the condensed consolidated statements of income or capitalized on the condensed consolidated balance sheets in the same manner as cash compensation paid to employees.  Capitalized share-based compensation costs at December 31, 2012 and March 31, 2012 were $168,000 and $139,000, respectively, which were included in inventories on our condensed consolidated balance sheets.

Cash Flow Impact

The accounting standard with respect to share-based payment requires cash flows resulting from excess tax benefits to be classified as a part of cash flows from financing activities.  Excess tax benefits are realized tax benefits from tax deductions for exercised stock options and vested restricted stock units in excess of the deferred tax asset attributable to share-based compensation expense for such share-based awards.  Excess tax benefits are considered realized when the tax deductions reduce taxes that otherwise would be payable.  Excess tax benefits classified as a financing cash inflow for the three months ended December 31, 2012 and 2011 were $681,000 and $231,000, respectively, and for the nine months ended December 31, 2012 and 2011 were $1.8 million and $717,000, respectively.

Stock Options

Options granted to employees and directors generally expire ten years from the grant date.  Options granted to employees generally become exercisable over a period of four years based on cliff-vesting terms and continuous employment.  Options granted to non-employee directors generally become exercisable over a period of one year based on monthly vesting terms and continuous service.  We have not granted any stock options since the beginning of fiscal 2007 and we did not grant stock options during the three and nine months ended December 31, 2012.  We have recognized compensation expense during the requisite service period of the stock option.  As of December 31, 2012, we had no unrecognized compensation expense related to stock options granted.

Stock Option Activity

The following table summarizes information regarding options outstanding and options exercisable at December 31, 2012 and the changes during the nine-month period then ended:

				Weighted		Weighted
				Average		Average		Aggregate
				Exercise		Remaining		Intrinsic
	Number of			Price		Contractual		Value
	Shares			Per Share		Life (Years)		(In thousands)
Outstanding at March 31, 2012		282,000		$	15.21
Granted		-			-
Exercised		(114,000	)		14.06
Canceled or forfeited		-			-
Outstanding at December 31, 2012		168,000		$	15.99		1.03	$	3,555
Vested and expected to vest at December 31, 2012		168,000		$	15.99		1.03	$	3,555
Exercisable at December 31, 2012		168,000		$	15.99		1.03	$	3,555

The aggregate intrinsic value in the table above represents the pre-tax intrinsic value, based on our closing stock price as of December 31, 2012, that would have been received by the option holders had all option holders exercised their stock options as of that date.  Total intrinsic value of stock options exercised during the three months ended December 31, 2012 and 2011 was $1.6 million and $370,000, respectively, and during the nine months ended December 31, 2012 and 2011 was $2.7 million and $2.3 million, respectively.  Cash proceeds from stock options exercised during the three months ended December 31, 2012 and 2011 were $1.3 million and $146,000, respectively, and during the nine months ended December 31, 2012 and 2011 were $1.6 million and $576,000, respectively.

13

Restricted Stock Units

Since fiscal 2007, we grant restricted stock unit awards to employees and directors as part of our share-based compensation program.  Awards of restricted stock units may be either grants of time-based or performance-based restricted stock units that are issued at no cost to the recipient, as described below.  From time to time, restricted stock unit awards granted to employees may be subject to accelerated vesting upon achieving certain performance-based milestones.  Additionally, the Compensation Committee of our Board of Directors (the “Compensation Committee”) in its discretion, may provide in the event of a change in control for the acceleration of vesting and/or settlement of the restricted stock unit held by a participant upon such conditions and to such extent as determined by the Compensation Committee.  Our Board of Directors has adopted an executive change in control severance plan, which it may terminate or amend at any time, that provides that awards granted to executive officers will accelerate fully on a change of control.  The vesting of non-employee director awards granted under the Equity Incentive Plan automatically will also accelerate in full upon a change in control.

Restricted Stock Unit Awards (Time Vesting)

Restricted stock unit awards (time vesting) entitle holders to receive shares of common stock at the end of a specified period of time.  For restricted stock unit awards (time vesting), vesting is based on continuous employment or service of the holder.  Upon vesting, the equivalent number of common shares are typically issued net of tax withholdings.  If the service vesting conditions are not met, unvested restricted stock unit awards (time vesting) will be forfeited.  Generally, the restricted stock unit awards (time vesting) vest according to one of the following time-based vesting schedules:

· Restricted stock unit awards (time vesting) to employees:  Four-year time-based vesting as follows:  five percent vesting after the first year; additional ten percent after the second year; additional 15 percent after the third year; and the remaining 70 percent after the fourth year of continuous employment with the Company.

· Restricted stock unit awards (time vesting) to non-employee directors:  100 percent vesting after one year of continuous service to the Company.

The fair value of restricted stock unit awards (time vesting) used in our expense recognition method is measured based on the number of shares granted and the closing market price of our common stock on the date of grant.  Such value is recognized as an expense over the corresponding requisite service period.  The share-based compensation expense is reduced for an estimate of the restricted stock unit awards that are expected to be forfeited.  The forfeiture estimate is based on historical data and other factors, and compensation expense is adjusted for actual results.  As of December 31, 2012, the total unrecognized compensation expense related to restricted stock unit awards (time vesting) granted amounted to $20.4 million, which is expected to be recognized over a weighted average service period of 1.9 years.

Restricted Stock Unit Awards (Performance Vesting)

Starting in fiscal 2013, we also grant restricted stock unit awards (performance vesting), which entitle holders to receive shares of common stock based on performance-based vesting criteria.  For restricted stock unit awards (performance vesting), vesting is based on our achievement of corporate annual performance targets.

During the first quarter of fiscal 2013, our Board of Directors approved the grant of 84,000 shares of restricted stock unit awards (performance vesting), of which approximately 21,000 shares have been granted.  Because each annual performance target is set at the start of each respective single-fiscal year performance period, only 25% of the total restricted stock unit awards (performance vesting) are deemed granted each year over the four-year period in accordance with ASC 718-10-55-95.  Accordingly, 75% of the total restricted stock unit awards (performance vesting) approved are not deemed granted for accounting purposes as of December 31, 2012 pursuant to ASC 718-10-55-95.  The performance periods for the fiscal 2013 grants run from April 1, 2012 through March 31, 2016, consisting of four one-year performance periods.  Approximately 25% of the total 84,000 shares approved by the Board of Directors will be granted each year over such four-year period.  Each grant has a vesting term of approximately one year, with vesting based upon:  (1) achievement of certain pre-established corporate annual performance-related goals, as established by the Compensation Committee; and (2) the grantee’s satisfying service requirements through the vesting period.  The fiscal 2013 performance target was established at the grant date following ASC 718-10-55-95 and the aggregate estimated grant date fair value was $752,000 or $35.62 per share based on the closing market price of our common stock on the date of grant.  The number of vested restricted stock unit awards (performance vesting) is determined at the end of each annual performance period.

14

The fair value of our restricted stock unit awards (performance vesting) used in our expense recognition method is measured based on the number of shares granted, the closing market price of our common stock on the date of grant and an estimate of the probability of the achievement of the performance goals.  We recognize any related share-based compensation expense ratably over the service period based on the most probable outcome of the performance condition.  The amount of share-based compensation expense recognized in any one period can vary based on the attainment or expected attainment of the performance goals.  If such performance goals are not ultimately met, no compensation expense is recognized and any previously recognized compensation expense is reversed.  As of December 31, 2012, the total unrecognized compensation expense related to restricted stock unit awards (performance vesting) granted amounted to $178,000, which is expected to be recognized over a weighted average service period of 0.3 years.

Restricted Stock Unit Activity

The following table summarizes restricted stock unit activity for the nine months ended December 31, 2012:

	Time-Based Restricted					Performance-Based Restricted
	Stock Units					Stock Units
				Weighted				Weighted
				Average				Average
	Number of			Grant Date		Number of		Grant Date
	Shares			Fair Value(1)		Shares		Fair Value(1)
Nonvested at March 31, 2012		1,120,000		$	24.06		-	$	-
Granted(2)		180,000			35.83		21,000		35.62
Vested(3)		(255,000	)		23.45		-		-
Canceled or forfeited		(68,000	)		26.09		-		-
Nonvested at December 31, 2012		977,000		$	26.24		21,000	$	35.62

(1) The weighted average grant date fair value of restricted stock units is based on the number of shares and the closing market price of our common stock on the date of grant.

(2) The shares granted for restricted stock unit awards (performance vesting) do not include the awards approved by the Board of Directors during the period that are deemed not to have been granted in accordance with ASC 718-10-55-95.

(3) The number of restricted stock units vested includes shares that we withheld on behalf of our employees to satisfy the statutory tax withholding requirements.

Total intrinsic value of time-based restricted stock units vested during the three months ended December 31, 2012 and 2011 was $265,000 and $608,000, respectively, and during the nine months ended December 31, 2012 and 2011 was $9.0 million and $6.5 million, respectively.  The total grant date fair value of time-based restricted stock units vested during the three months ended December 31, 2012 and 2011 was $177,000 and $598,000, respectively, and during the nine months ended December 31, 2012 and 2011 was $6.0 million and $5.1 million, respectively.

NOTE 11. SHAREHOLDERS’ EQUITY

Share Repurchase Program

In August 2011, the Board of Directors authorized the repurchase of up to an aggregate of $40.0 million of our common stock.  In January 2012, the Board of Directors approved a $15.0 million increase to the Company’s existing share repurchase program, to a total of $55.0 million.  Since the share repurchase program began, through December 31, 2012, we have repurchased 1.2 million shares of our common stock at a total cost of $27.3 million.  As of December 31, 2012, $27.7 million of our common stock may yet be purchased under such authorization.  The repurchases are made from time to time on the open market at prevailing market prices or in negotiated transactions off the market.  Repurchased shares are retired.  During the three and nine months ended December 31, 2012, we did not repurchase any of our common stock.

Dividend Payments

In December 2012, the Company declared a special cash dividend of $1.00 per share on our outstanding common stock, payable on December 28, 2012 to shareholders of record as of the close of business on December 17, 2012.  The total dividend payout was $22.0 million and was made from retained earnings.

Common Stock Warrants

At December 31, 2012 and March 31, 2012, there were 30,000 warrants outstanding, of which 12,000 shares were vested, to purchase common stock at a weighted average exercise price of $3.00 per share, expiring in fiscal years 2016 through 2017.  The fair value of the warrants issued were determined using the Black-Scholes option-pricing model and are amortized over their estimated useful life, of approximately ten years, as an intangible asset.  The warrants vest at a rate of 20% annually from their issuance dates and have a term of five years.

15

NOTE 12. NET INCOME PER SHARE

Basic net income per share is computed by dividing the net income attributable to common shareholders by the weighted average number of common shares outstanding during the period.  Diluted net income per share is computed by dividing the net income 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 using the treasury stock method.  Dilutive potential common shares outstanding include outstanding stock options, restricted stock units and warrants.

The following is a reconciliation of the weighted average number of common shares outstanding used in calculating basic and diluted net income per share (in thousands, except share and per share data):

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2012		2011		2012		2011
Numerator:
Net income	$	4,988	$	2,850	$	20,761	$	8,385
Denominator:
Weighted average common shares outstanding - basic		21,968,000		21,672,000		21,902,000		22,213,000
Weighted average effect of dilutive securities:
Stock options		87,000		107,000		101,000		139,000
Restricted stock units		258,000		185,000		285,000		212,000
Warrants		28,000		26,000		28,000		15,000
Weighted average common shares outstanding - diluted		22,341,000		21,990,000		22,316,000		22,579,000
Net income per share:
Basic net income per share	$	0.23	$	0.13	$	0.95	$	0.38
Diluted net income per share	$	0.22	$	0.13	$	0.93	$	0.37

Stock options and warrants are excluded from the computation of diluted weighted average shares outstanding if the exercise price of the stock options and warrants is greater than the average market price of our common stock during the period because the inclusion of these stock options and warrants would be antidilutive to net income per share.  There were no stock options and warrants excluded from the computation of diluted weighted average shares outstanding during the three and nine months ended December 31, 2012 and 2011.

We excluded the following restricted stock units from the computation of diluted weighted average shares outstanding because the inclusion of these awards would be antidilutive to net income per share:

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2012		2011		2012		2011
Weighted average number of shares underlying antidilutive restricted stock units		-		307,000		31,000		249,000

If the performance criteria for our restricted stock unit awards (performance vesting) are achieved, these awards will be considered outstanding for the purpose of computing diluted net income per share if the effect is dilutive.  Starting with the first quarter of fiscal 2013, we granted 21,000 restricted stock unit awards (performance vesting), with vesting based on the achievement of certain pre-established corporate annual performance related goals.  Because the performance criteria for our restricted stock unit awards (performance vesting) were not achieved during the three and nine months ended December 31, 2012, these awards were not included in the diluted net income per share calculation.

NOTE 13. INCOME TAXES

During the three months ended December 31, 2012 and 2011, our income tax provision was $3.0 million, based on an effective tax rate of 38%, and $1.7 million, based on an effective tax rate of 37%, respectively.  During the nine months ended December 31, 2012 and 2011, our income tax provision was $12.7 million, based on an effective tax rate of 38%, and $4.9 million, based on an effective tax rate of 37%, respectively.  During the three and nine months ended December 31, 2012, our effective tax rates were primarily impacted by higher state tax expense and the expiration of the federal research and development tax credit, as compared to the three and nine months ended December 31, 2011.

On January 2, 2013, President Barack Obama signed into law The American Taxpayer Relief Act of 2012, which reinstated the federal research and development tax credit retroactive to January 1, 2012 and extended the credit through December 31, 2013.  As a result of the new legislation, we expect to recognize a tax benefit of approximately $400,000 during the three months ending March 31, 2013.

We did not have any unrecognized tax benefits as of December 31, 2012 and March 31, 2012.  During the three and nine months ended December 31, 2012 and 2011, we did not recognize any interest or penalties related to unrecognized tax benefits.

16

NOTE 14.  SEGMENT REPORTING INFORMATION

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by our chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.

Abaxis develops, manufactures, markets and sells portable blood analysis systems for use in the human or veterinary patient-care setting to provide clinicians with rapid blood constituent measurements.  We identify our reportable segments as those customer groups that represent more than 10% of our combined revenue or gross profit or loss of all reported operating segments.  We manage our business on the basis of the following two reportable segments: (i) the medical market and (ii) the veterinary market, which are based on the products sold and services provided by market and customer group.  For the products that we manufacture and sell, each reportable segment has similar manufacturing processes, technology and shared infrastructures.  The accounting policies for segment reporting are the same as for the Company as a whole.  We do not segregate assets by segments since our chief operating decision maker, or decision making group, does not use assets as a basis to evaluate a segment’s performance.

Medical Market

In the medical market reportable segment, we serve a worldwide customer group consisting of military installations (ships, field hospitals and mobile care units), physicians’ office practices across all specialties, urgent care, outpatient and walk-in clinics (free-standing or hospital-connected), health screening operations, home care providers (national, regional or local), nursing homes, ambulance companies, oncology treatment clinics, dialysis centers, pharmacies and hospital laboratories.  Starting in the first quarter of fiscal 2013, we also began to serve the pharmaceutical clinical trial market.  The products manufactured and sold in this segment primarily consist of Piccolo chemistry analyzers and medical reagent discs.

Veterinary Market

In the veterinary market reportable segment, we serve a worldwide customer group consisting of companion animal hospitals, animal clinics with mixed practices of small animals, birds and reptiles, equine and bovine practitioners, veterinary emergency clinics, veterinary referral hospitals, universities, government, pharmaceutical companies, biotechnology companies and private research laboratories.  The products manufactured and sold in this segment primarily consist of VetScan chemistry analyzers and veterinary reagent discs.  We also sell OEM supplied products in this segment consisting of VetScan hematology instruments and related reagent kits, VetScan VSpro specialty analyzers and related consumables, VetScan i-STAT analyzers and related VetScan i-STAT consumables and rapid tests.  During fiscal 2011, we began developing Abaxis Veterinary Reference Laboratories (“AVRL”), a full-service laboratory testing facility, based in Olathe, Kansas.  In October 2011, we began operating and providing veterinary reference laboratory diagnostic and consulting services for veterinarians in the United States through AVRL.

Total Revenues, Cost of Revenues and Gross Profit by Segment

The table below summarizes revenues, cost of revenues and gross profit from our two operating segments and from certain unallocated items for the three and nine months ended December 31, 2012 and 2011 (in thousands):

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2012			2011			2012			2011
Revenues:
Medical Market	$	8,977		$	8,147		$	25,267		$	22,636
Veterinary Market		39,865			28,467			107,299			87,684
Other(1)		960			1,236			3,508			3,558
Total revenues		49,802			37,850			136,074			113,878
Cost of revenues:
Medical Market(2)		4,282			3,514			11,286			10,180
Veterinary Market(2)		17,980			12,472			48,582			37,893
Other(1)(2)		1,464			1,386			4,158			4,083
Total cost of revenues		23,726			17,372			64,026			52,156
Gross profit:
Medical Market(2)		4,695			4,633			13,981			12,456
Veterinary Market(2)		21,885			15,995			58,717			49,791
Other(1)(2)		(504	)		(150	)		(650	)		(525	)
Gross profit	$	26,076		$	20,478		$	72,048		$	61,722

(1) Represents unallocated items, not specifically identified to any particular business segment.

(2) Includes certain prior period amounts by operating segment and unallocated items that were reclassified to conform to the current period presentation.

17

NOTE 15. REVENUES BY PRODUCT AND SERVICE CATEGORY AND GEOGRAPHIC REGION AND SIGNIFICANT CONCENTRATIONS

Revenue Information

The following is a summary of our revenues by product and service category (in thousands):

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
Revenues by Product and Service Category	2012		2011		2012		2011
Instruments(1)	$	13,969	$	9,079	$	35,456	$	25,364
Consumables(2)		32,786		26,808		91,680		83,019
Other products and services(3)		3,009		1,925		8,825		5,372
Product and service revenues, net		49,764		37,812		135,961		113,755
Development and licensing revenue		38		38		113		123
Total revenues	$	49,802	$	37,850	$	136,074	$	113,878

(1) Instruments include chemistry analyzers, hematology instruments, VSpro specialty analyzers and i-STAT analyzers.

(2) Consumables include reagent discs, hematology reagent kits, VSpro specialty cartridges, i-STAT cartridges and rapid tests.

(3) Other products and services include veterinary reference laboratory diagnostic and consulting services.

The following is a summary of our revenues by geographic region based on customer location (in thousands):

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
Revenues by Geographic Region	2012		2011		2012		2011
North America	$	41,797	$	31,847	$	110,876	$	93,540
Europe		6,197		4,516		19,906		16,326
Asia Pacific and rest of the world		1,808		1,487		5,292		4,012
Total revenues	$	49,802	$	37,850	$	136,074	$	113,878

Significant Concentrations

During the three months ended December 31, 2012, one distributor in the United States, MWI Veterinary Supply, Inc., accounted for 12% of our total worldwide revenues.  During the three months ended December 31, 2011, one distributor in the United States, Animal Health International, accounted for 15% of our total worldwide revenues.  During the nine months ended December 31, 2012, one distributor in the United States, Animal Health International, accounted for 11% of our total worldwide revenues.  During the nine months ended December 31, 2011, one distributor in the United States, Animal Health International, accounted for 12% of our total worldwide revenues.  Animal Health International was formed in 2011 from two animal health companies, which included Walco International, Inc., d/b/a DVM Resources.

At December 31, 2012, two distributors in the United States accounted for 17% and 11%, respectively, of our total receivables balance.  At March 31, 2012, one distributor in the United States accounted for 19% of our total receivables balance.

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

FORWARD-LOOKING STATEMENTS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements, which reflect our current views with respect to future events and financial performance.  In this report, the words “will,” “anticipates,” “believes,” “expects,” “intends,” “plans,” “future,” “projects,” “estimates,” “would,” “may,” “could,” “should,” “might,” 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, in Part II, Item 1A of this report and in Part I, Item 1A of our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”), that could cause actual results to differ materially from historical results or those anticipated.  Such risks and uncertainties relate to the vulnerability of our manufacturing operations to potential interruptions and delays, fluctuations in our quarterly results of operations and difficulty in predicting future results, our dependence on certain sole or limited source suppliers, market acceptance of our products and services and the continuing development of our products and services, protection of Abaxis’ intellectual property or claims of infringement of intellectual property asserted by third parties, risks involved in carrying of inventory, development of our sales, marketing and distribution experience, and our ability to attract, train and retain competent sales personnel, general market conditions, competition and other risks detailed under “Risk Factors” in this Quarterly Report on Form 10-Q.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.  We assume no obligation to update any forward-looking statements as circumstances change.

18

BUSINESS OVERVIEW

Company Description

Abaxis, Inc. develops, manufactures, markets and sells portable blood analysis systems for use in the human or veterinary patient-care setting to provide clinicians with rapid blood constituent measurements.  In October 2011, Abaxis also began providing veterinary reference laboratory diagnostic and consulting services for veterinarians through Abaxis Veterinary Reference Laboratories (“AVRL”).

Our corporate headquarters are located in Union City, California, from which we conduct our manufacturing, warehousing, research and development, regulatory, sales and marketing and administrative activities.  We market and sell our products worldwide by maintaining direct sales forces and through independent distributors.  Our sales force is primarily located in the United States.  Abaxis Europe GmbH, our wholly-owned subsidiary in Germany since July 2008, markets and distributes diagnostic systems for medical and veterinary uses in the European market.

Financial Results.  In the third quarter of fiscal 2013, total revenues were $49.8 million, an increase of 32% over last year’s comparable quarter.  The growth included increases in both revenues from instrument sales, which were $14.0 million, an increase of 54% when compared to last year’s quarter, and revenues from consumable sales, which were $32.8 million, an increase of 22% when compared to last year’s quarter.  These increases were primarily attributable to initial stocking orders by our two new distributors during the third quarter of fiscal 2013, Abbott Point of Care Inc. (“Abbott”) for our medical products and MWI Veterinary Supply, Inc. (“MWI”) for our veterinary products, to support their marketing and sales efforts commencing in January 2013.  Gross profit in the third quarter of fiscal 2013 was $26.1 million, an increase of 27% over last year’s comparable quarter primarily attributable to changes in the product mix in our veterinary market.

Sales and marketing expenses were $12.4 million in the third quarter of fiscal 2013 and $9.9 million for the same period last year, an increase of $2.5 million, or 25%.  The increase in sales and marketing expenses was primarily due to costs associated with the restructuring of our sales and marketing personnel in the medical market resulting from our distribution agreement with Abbott, which we entered into in October 2012 and increased costs related to headcount and promotional and marketing spending to support the ongoing growth of our veterinary business in North America.  General and administrative expenses were $2.2 million in the third quarter of fiscal 2013 and $3.3 million for the same period last year, a decrease of 33%, primarily due to higher legal expenses incurred last year related to pursuing a patent infringement case, which we resolved in September 2012.

Net income in the third quarter of fiscal 2013 was $5.0 million, an increase of $2.1 million from $2.9 million for the same period last year, due primarily to an increase in total revenues.  Our diluted earnings per share increased to $0.22 in the third quarter of fiscal 2013 from $0.13 in the third quarter of fiscal 2012.

Cash, cash equivalents and investments increased by $809,000 during the nine months ended December 31, 2012 to a total of $91.8 million at December 31, 2012.  The primary source of cash and cash equivalents during the nine months ended December 31, 2012 was operating cash flows of $26.1 million.  Key non-operating uses of cash during the nine months ended December 31, 2012 included the payment of a special cash dividend of $1.00 per share, totaling $22.0 million to shareholders of record on December 17, 2012.

Products and Services.  We manage our business in two operating segments, the medical market and veterinary market, as described below.  See “Segment Results” in this section for a detailed discussion of financial results.

Medical Market.We serve a worldwide customer group in the medical market consisting of military installations (ships, field hospitals and mobile care units), physicians’ office practices across all specialties, urgent care, outpatient and walk-in clinics (free-standing or hospital-connected), health screening operations, home care providers (national, regional or local), nursing homes, ambulance companies, oncology treatment clinics, dialysis centers, pharmacies and hospital laboratories.  Starting in the first quarter of fiscal 2013, we also began to serve the pharmaceutical clinical trial market.  As of January 2013, pursuant to our Exclusive Agreement (the “Abbott Agreement”) with Abbott, Abbott has the exclusive right to sell and distribute in the United States and China (including Hong Kong) our Piccolo Xpress chemistry analyzer and associated consumables in the professionally-attended human healthcare market in this territory, excluding sales and distribution to Catapult Health LLC and specified customer segments, including pharmacy and retail store clinics, shopping malls and contract research organizations (CROs) and cruise ship lines.  We maintain the right to sell and distribute these products outside of this territory.  Under the Abbott Agreement, we have certain responsibilities for providing technical support and warranty services to Abbott in support of its marketing and sales efforts.  The initial term of the Abbott Agreement ends on December 31, 2017, and after the initial term, the Abbott Agreement renews automatically for successive one-year periods unless terminated by either party based upon a notice of non-renewal six months prior to the then-current expiration date.

19

The products manufactured and sold in the medical market segment primarily consist of Piccolo chemistry analyzers and medical reagent discs.  The Piccolo chemistry analyzers provide on the spot routine multi-chemistry and electrolyte results using a small patient sample size in any treatment setting.  The Piccolo profiles are used with the Piccolo chemistry analyzers and are packaged as single-use medical reagents, configured to aid in disease diagnosis or monitor disease treatment.

Veterinary Market.  Our VetScan products serve a worldwide customer group in the veterinary market consisting of companion animal hospitals, animal clinics with mixed practices of small animals, birds and reptiles, equine and bovine practitioners, veterinary emergency clinics, veterinary referral hospitals, universities, government, pharmaceutical companies, biotechnology companies and private research laboratories.  Our product and service offerings in the veterinary market are described as follows:

Point-of-Care Blood Chemistry Analyzers.  The products manufactured and sold in this segment primarily consist of VetScan chemistry analyzers and veterinary reagent discs.  The VetScan is a chemistry, electrolyte, immunoassay and blood gas analyzer that delivers results from a sample of whole blood, serum or plasma.  The VetScan profiles are packaged as single-use plastic veterinary reagent discs.  Each reagent disc contains a diluent and all the profiles necessary to perform a complete multi-chemistry blood analysis.

Hematology.  We offer two types of VetScan hematology instruments and related reagent kits, the VetScan HM5 and VetScan HM2.  The VetScan HM5 is a fully automated five-part cell counter offering a comprehensive 22-parameter complete blood count (“CBC”) analysis, including direct eosinophil counts and eosinophil percentage, specifically designed for veterinary applications.  The VetScan HM2 is a fully automated three-part cell counter offering an 18-parameter CBC analysis, including a 3-part white blood cell differential (lymphocytes, monocytes and granulocytes).

VSpro Specialty.  We offer two tests, coagulation and fibrinogen testing, which are used with the VSpro specialty analyzer.  The VetScan VSpro coagulation tests assist in the diagnosis and evaluation of suspected bleeding disorders, toxicity/poisoning, evaluation of disseminated intravascular coagulation, hepatic disease and in monitoring therapy and the progression of disease states.  The VetScan VSpro Fibrinogen tests provide quantitative in-vitro determination of fibrinogen levels in equine platelet poor plasma from a citrated stabilized whole blood sample.

i-STAT.  The VetScan i-STAT analyzers and related VetScan i-STAT consumables are used to deliver accurate blood gas, electrolyte, chemistry and hematology results in minutes from 2-3 drops of whole blood.

Rapid Tests.  Our VetScan rapid tests include the following:  Canine Heartworm Rapid Test, a highly sensitive and specific test for the detection of Dirofilaria immitis in canine or feline whole blood, serum or plasma; Canine Lyme Rapid Test, which detects Borrelia burgdorferi in canine whole blood, serum or plasma; Canine Parvovirus Rapid Test, a qualitative test for the detection of canine parvovirus antigen in feces; and Giardia Rapid Test, which detects giardiasis, a gastrointestinal infection caused by the protozoan parasite Giardia.

Abaxis Veterinary Reference Laboratories.  During fiscal 2011, we began developing AVRL, a full-service laboratory testing facility, based in Olathe, Kansas.  In October 2011, we began providing veterinary reference laboratory diagnostic and consulting services for veterinarians in the United States through AVRL.  AVRL also focuses on providing specialty and esoteric testing and analysis.  This service complements our full suite of on-site laboratory instrumentation and rapid diagnostics for in hospital routine, critical care and emergency medicine laboratory needs.

Factors that May Impact Future Performance

Our industry is impacted by numerous competitive, regulatory and other significant factors.  Our sales for any future periods are not predictable with a significant degree of certainty, and may depend on a number of factors outside of our control, including but not limited to inventory or timing considerations by our distributors.  We generally operate with a limited order backlog because our products are typically shipped shortly after orders are received.  Product sales in any quarter are generally dependent on orders booked and shipped in that quarter.  As a result, any such revenues shortfall would negatively affect our operating results and financial condition.  In addition, our 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 the sales volumes of our Piccolo and VetScan products and to achieve profitability in AVRL and to successfully compete with other competitors.  We believe that period to period comparisons of our results of operations are not necessarily meaningful indicators of future results.

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS

Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States and pursuant to the rules and regulations of the Securities and Exchange Commission.  The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period.  On an on-going basis, we evaluate our estimates and the sensitivity of these estimates to deviations in the assumptions used in making them.  We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.  However, there can be no assurance that our actual results will not differ from these estimates.

20

We have identified the policies below as critical because they are not only important to understanding our financial condition and results of operations, but also because application and interpretation of these policies requires both judgment and estimates of matters that are inherently uncertain and unknown.  Accordingly, actual results may differ materially from our estimates.  The impact and any associated risks related to these policies on our business operations are discussed below.  A more detailed discussion on the application of these and other accounting policies are included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2012.

Revenue Recognition.  Our primary customers are distributors and direct customers in both the medical and veterinary markets. Service revenues are primarily generated from veterinary reference laboratory diagnostic and consulting services for veterinarians.  Revenues from product sales and services, net of estimated sales allowances, discounts and rebates, are recognized when (i) evidence of an arrangement exists, (ii) upon shipment of the products or rendering of services to the customer, (iii) the sales price is fixed or determinable and (iv) collection of the resulting receivable is reasonably assured.  Rights of return are not provided.  From time to time, we offer discounts on AVRL services for a specified period as incentives.  Discounts are reductions to invoiced amounts within a specified period and are recorded at the time services are performed.  Net service revenues are recognized at the time services are performed.

Amounts collected in advance of revenue recognition are recorded as a current or non-current deferred revenue liability based on the time from the balance sheet date to the future date of revenue recognition.  We recognize revenues associated with extended maintenance agreements ratably over the life of the contract.

Multiple Element Revenue Arrangements.On April 1, 2011, we adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2009-13, Multiple-Deliverable Revenue Arrangements, an amendment to Accounting Standards Codification (“ASC”) Topic 605, Revenue Recognition (ASU 2009-13).  We elected to apply the amendment prospectively to new or materially modified revenue arrangements after its effective date.  The FASB amended the accounting standards for certain multiple deliverable revenue arrangements.  A multiple-element arrangement includes the sale of one or more tangible product offerings with one or more associated services offerings, each of which are individually considered separate units of accounting.  The determination of our units of accounting did not change with the adoption of the new revenue recognition guidance and as such we allocate revenues to each element in a multiple-element arrangement based upon the relative selling price of each deliverable.  When applying the relative selling price method, we determine the selling price for each deliverable using vendor-specific objective evidence (“VSOE”) of selling price, if it exists, or third-party evidence (“TPE”) of selling price.  If neither VSOE nor TPE of selling price exist for a deliverable, we use our best estimate of selling price for that deliverable.  Revenue allocated to each element is then recognized when all revenue recognition criteria are met for each element.

Our sales arrangements contain multiple element revenue arrangements in which a customer may purchase a combination of instruments, consumables or extended maintenance agreements.  Additionally, we provide incentives in the form of free goods or extended maintenance agreements to customers in connection with the sale of our instruments.  Pursuant to the guidance of ASU 2009-13, revenues from such sales are allocated separately to the instruments, consumables, extended maintenance agreements and incentives based on the relative selling price method.  Amounts allocated to each element are based on its objectively determined fair value, such as the sales price for the product or service when it is sold separately.  Revenues allocated to each element are then recognized when the basic revenue recognition criteria, as described above, are met for each element.  Revenues associated with incentives in the form of free goods are deferred until the goods are shipped to the customer.  Revenues associated with incentives in the form of extended maintenance agreements are deferred and recognized ratably over the life of the maintenance contract.  Incentives in the form of extended maintenance agreements are our most significant multiple element arrangement.

Starting in fiscal 2012, we participate in selling arrangements in the veterinary market that include multiple deliverables, such as instruments, consumables and service agreements associated with our veterinary reference laboratory.  Under these arrangements, we recognize revenue upon delivery of the product or performance of the service during the term of the service contract when the basic revenue recognition criteria, as described above, is met for each element.  We allocate revenues to each element based on the relative selling price of each deliverable.  Amounts allocated to each element are based on its objectively determined fair value, such as the sales price for the product or service when it is sold separately.

From time to time, we offer customer incentives comprising of arrangements with customers to include discounts on future sales of services associated with our veterinary reference laboratory.  We apply judgment in determining whether future discounts are significant and incremental.  When the future discount offered is not considered significant and incremental, we do not account for the discount as an element of the original arrangement.  To determine whether a discount is significant and incremental, we look to the discount provided in comparison to standalone sales of the same product to similar customers, the level of discount provided on other elements in the arrangement, and the significance of the discount to the overall arrangement.  If the discount in the multiple element arrangement approximates the discount typically provided in standalone sales, that discount is not considered incremental.  During the three and nine months ended December 31, 2012, our customer incentive programs with future discounts were not significant.

21

Customer Programs.From time to time, we offer customer marketing and incentive programs.  Our most significant customer programs are described as follows:

Instrument Trade-In Programs.  We periodically offer trade-in programs to customers for trading in an existing instrument to purchase a new instrument and we will either provide incentives in the form of free goods or reduce the sales price of the instrument.  These incentives in the form of free goods are recorded based on the relative selling price method according to the policies described above.

Instrument Rental Programs.  We periodically offer programs to customers whereby certain instruments are made available to customers for rent or on an evaluation basis. These programs typically require customers to purchase a minimum quantity of consumables during a specified period for which we recognize revenues on the related consumables according to the policies described above.  Depending on the program offered, customers may purchase the instrument during the rental or evaluation period.  Proceeds from such sale are recorded as revenues according to the policies described above.  Rental income, if any, are also recorded as revenue according to the policies described above.

Distributor and Customer Rebate Programs.  We periodically offer distributor pricing rebates and customer incentives, such as cash rebates, from time to time.  The distributor pricing rebates are offered to distributors upon meeting the sales volume requirements during a qualifying period and are recorded as a reduction to gross revenues during a qualifying period.  Cash rebates are offered to distributors or customers who purchase certain products or instruments during a promotional period and are recorded as a reduction to gross revenues.

Royalty Revenues.  Royalties are typically based on licensees’ net sales of products that utilize our technology and are recognized as earned in accordance with the contract terms when royalties from licensees can be reliably measured and collectibility is reasonably assured, such as upon the receipt of a royalty statement from the licensee.  Our royalty revenue depends on the licensees’ use of our technology, and therefore, may vary from period to period and impact our revenues during a quarter.

Allowance for Doubtful Accounts.  We maintain an allowance for doubtful accounts based on our assessment of the collectibility of the amounts owed to us by our customers.  In determining the amount of the allowance, we make judgments about the creditworthiness of customers which is mostly determined by the customer’s payment history and the outstanding period of accounts.  We specifically identify amounts that we believe to be uncollectible and the allowance for doubtful accounts is adjusted accordingly.  An additional allowance is recorded based on certain percentages of our aged receivables, using historical experience to estimate the potential uncollectible and our assessment of the general financial condition of our customer base.  If our actual collections experience changes, revisions to our allowances may be required, which could adversely affect our operating income.

Fair Value Measurements.  Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (“exit price”) in an orderly transaction between market participants at the measurement date.  When determining fair value, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability.  The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs).  The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).  The three levels of the fair value hierarchy are described below:

Level 1:  Quoted prices (unadjusted) in active markets for identical assets or liabilities.  As of December 31, 2012, we used Level 1 assumptions for our cash equivalents which are traded in an active market.  The valuations are based on quoted prices of the underlying security that are readily and regularly available in an active market, and accordingly, a significant degree of judgment is not required.

Level 2:  Directly or indirectly observable inputs as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active.  Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.  As of December 31, 2012, our available-for-sale investments in certificates of deposits, corporate bonds and municipal bonds, totaled $7.6 million, using Level 2 inputs, based on market pricing and other observable market inputs for similar securities obtained from various third party data providers.

22

Level 3:  Unobservable inputs that are supported by little or no market data and require the use of significant management judgment.  These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.  As of December 31, 2012, we did not have any Level 3 financial assets or liabilities measured at fair value on a recurring basis.

Fair value is a market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measure.  Therefore, even when market assumptions are not readily available, our own assumptions are developed to reflect those that market participants would use in pricing the asset or liability at the measurement date.  At December 31, 2012, we also had $36.7 million in investments classified as held-to-maturity and carried at amortized cost.

Investment in Unconsolidated Affiliate.  In February 2011, we purchased a 15% equity ownership interest in Scandinavian Micro Biodevices APS (“SMB”), for $2.8 million in cash.  We use the equity method to account for our investment in this entity that we do not control, but where we have the ability to exercise significant influence.  Equity method investments are recorded at original cost and adjusted periodically to recognize (1) our proportionate share of the investees’ net income or losses after the date of investment, (2) additional contributions made and dividends or distributions received, and (3) impairment losses resulting from adjustments to net realizable value.  We eliminate all intercompany transactions in accounting for our equity method investments.  We record our proportionate share of the investees’ net income or losses in “Interest and other income (expense), net” on the consolidated statements of income.  At December 31, 2012, our investment in unconsolidated affiliate totaled $2.6 million.

We assess the potential impairment of our equity method investments when indicators such as a history of operating losses, a negative earnings and cash flow outlook, and the financial condition and prospects for the investee’s business segment might indicate a loss in value.  To date, since our investment in SMB, we have not recorded an impairment charge on this investment.

Warranty Reserves.  We provide for the estimated future costs to be incurred under our standard warranty obligation on our instruments.  Our standard warranty obligation on instruments ranges from one to three years, depending on the type of product.  The estimated contractual warranty obligation is recorded when the related revenues are recognized and any additional amount is recorded when such cost is probable and can be reasonably estimated.  Cost of revenues reflects estimated warranty expense for instruments sold in the current period and any adjustments in estimated warranty expense for the installed base under our standard warranty obligation based on our quarterly evaluation of service experience.  While we engage in product quality programs and processes, including monitoring and evaluating the quality of our suppliers, our estimated accrual for warranty exposure is based on our historical experience as to product failures, estimated product failure rates, estimated repair costs, material usage and freight incurred in repairing the instrument after failure and known design changes under the warranty plan.

A provision for defective reagent discs is recorded when the related sale is recognized and any additional amount is recorded when such cost is probable and can be reasonably estimated, at which time they are included in cost of revenues.  The warranty cost includes the replacement costs and freight of a defective reagent disc.

As of December 31, 2012, our current portion of warranty reserves for instruments and reagent discs totaled $993,000 and our non-current portion of warranty reserves for instruments totaled $473,000, which reflects our estimate of warranty obligations based on the estimated product failure rates, the number of instruments in standard warranty, estimated repair and related costs of instruments, and an estimate of defective reagent discs and replacement and related costs of a defective reagent disc.

Each quarter, we reevaluate our estimate of warranty reserves, including our assumptions.  During the nine months ended December 31, 2012, we recorded an adjustment to pre-existing warranties of $290,000, which reduced our warranty reserves and our cost of revenues, based on both historical and projected product performance rates of instruments.

Management periodically evaluates the sufficiency of the warranty provisions and makes adjustments when necessary.  If an unusual performance rate related to warranty claims is noted, an additional warranty accrual may be assessed and recorded when a failure event is probable and the cost can be reasonably estimated.  We review the historical warranty cost trends and analyze the adequacy of the ending accrual balance of warranty reserves each quarter.  The determination of warranty reserves requires us to make estimates of the estimated product failure rate, expected costs to repair or replace the instruments and to replace defective reagent discs under warranty.  If actual repair or replacement costs of instruments or replacement costs of reagent discs differ significantly from our estimates, adjustments to cost of revenues may be required.  Additionally, if factors change and we revise our assumptions on the product failure rate of instruments or reagent discs, then our warranty reserves and cost of revenues could be materially impacted in the quarter of such revision, as well as in following quarters.

Inventories.  We state inventories at the lower of cost or market, cost being determined using standard costs which approximate actual costs using the first-in, first-out (FIFO) method.  Inventories include material, labor and overhead.  We establish provisions for excess, obsolete and unusable inventories after evaluation of future demand and market conditions.  If future demand or actual market conditions are less favorable than those estimated by management or if a significant amount of the material were to become unusable, additional inventory write-downs may be required, which would have a negative effect on our operating income.

23

Valuation of Long-Lived Assets.  We evaluate the carrying value of our long-lived assets, such as property and equipment and amortized intangible assets, whenever events or changes in business circumstances or our planned use of long-lived assets indicate that the carrying amount of an asset may not be fully recoverable or their useful lives are no longer appropriate.  We look to current and future profitability, as well as current and future undiscounted cash flows, excluding financing costs, as primary indicators of recoverability.  An impairment loss would be recognized when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposal is less than the carrying amount.  If impairment is determined to exist, any related impairment loss is calculated based on fair value and long-lived assets are written down to their respective fair values.  We did not recognize any impairment charges on long-lived assets during the three or nine months ended December 31, 2012.

Income Taxes.  We account for income taxes using the liability method under which deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be recovered.

We recognize and measure benefits for uncertain tax positions using a two-step approach.  The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of evidence indicates that it is more likely than not that the tax position will be sustained upon audit, including resolution of any related appeals or litigation processes.  For tax positions that are more likely than not to be sustained upon audit, the second step is to measure the tax benefit as the largest amount that is more than 50 percent likely to be realized upon settlement.  Significant judgment is required to evaluate uncertain tax positions.  At December 31, 2012 and March 31, 2012, we had no significant uncertain tax positions.  Our policy is to include interest and penalties related to gross unrecognized tax benefits within our provision for income taxes.  During the three and nine months ended December 31, 2012 and 2011, we did not recognize any interest or penalties related to uncertain tax positions in the consolidated statements of income, and at December 31, 2012 and March 31, 2012, we had no accrued interest or penalties.

On January 2, 2013, President Barack Obama signed into law The American Taxpayer Relief Act of 2012, which reinstated the federal research and development tax credit retroactive to January 1, 2012 and extended the credit through December 31, 2013.  As a result of the new legislation, we expect to recognize a tax benefit of approximately $400,000 during the three months ending March 31, 2013.

Share-Based Compensation Expense.  We account for share-based compensation arrangements using the fair value method.  We recognize share-based compensation expense, net of an estimated forfeiture rate, over the requisite service period of the award to employees and directors.  As required by fair value provisions of share-based compensation, employee share-based compensation expense recognized is calculated over the requisite service period of the awards and reduced for estimated forfeitures.  The forfeiture rate is estimated based on historical data of our share-based compensation awards that are granted and cancelled prior to vesting and upon historical experience of employee turnover.  Changes in estimated forfeiture rates and differences between estimated forfeiture rates and actual experience may result in significant, unanticipated increases or decreases in share-based compensation expense from period to period.  To the extent we revise our estimate of the forfeiture rate in the future, our share-based compensation expense could be materially impacted in the quarter of revision, as well as in following quarters.

We have not granted any stock options since the beginning of fiscal 2007 and we did not grant stock options during the three and nine months ended December 31, 2012.  We have recognized compensation expense during the requisite service period of the stock option.  As of December 31, 2012, we had no unrecognized compensation expense related to stock options granted.

Since fiscal 2007, we grant restricted stock unit awards to employees and directors as part of our share-based compensation program.  Equity award grants to consultants were insignificant.  Awards of restricted stock units may be either grants of time-based or performance-based restricted stock units that are issued at no cost to the recipient, as described below.

For restricted stock unit awards (time vesting), the fair value of restricted stock unit awards (time vesting) used in our expense recognition method is measured based on the number of shares granted and the closing market price of our common stock on the date of grant.  Share-based compensation expense is recognized net of an estimated forfeiture rate, over the requisite service period of the award.  As a result, if factors change and we use different assumptions, our share-based compensation expense could be materially different in the future.

We grant restricted stock unit awards (performance vesting) starting in fiscal 2013.  During the first quarter of fiscal 2013, our Board of Directors approved the grant of 84,000 shares of restricted stock unit awards (performance vesting), of which approximately 21,000 shares have been granted.  Because each annual performance target is set at the start of each respective single-fiscal year performance period, only 25% of the total restricted stock unit awards (performance vesting) are deemed granted each year over the four-year period in accordance with ASC 718-10-55-95.  Accordingly, 75% of the total restricted stock unit awards (performance vesting) approved are not deemed granted for accounting purposes as of December 31, 2012 pursuant to ASC 718-10-55-95.  The performance periods for the fiscal 2013 grants run from April 1, 2012 through March 31, 2016, consisting of four one-year performance periods.  Approximately 25% of the total 84,000 shares approved by the Board of Directors will be granted each year over such four-year period.  Each grant has a vesting term of approximately one year, with vesting based upon:  (1) achievement of certain pre-established corporate annual performance-related goals, as established by the Compensation Committee of our Board of Directors; and (2) the grantee’s satisfying service requirements through the vesting period.  The fiscal 2013 performance target was established at the grant date following ASC 718-10-55-95 and the aggregate estimated grant date fair value was $752,000 or $35.62 per share based on the closing market price of our common stock on the date of grant.  The number of vested restricted stock unit awards (performance vesting) is determined at the end of each annual performance period.

24

The fair value of our restricted stock unit awards (performance vesting) used in our expense recognition method is measured based on the number of shares granted, the closing market price of our common stock on the date of grant and an estimate of the probability of the achievement of the performance goals.  We recognize any related share-based compensation expense ratably over the service period based on the most probable outcome of the performance condition.  The amount of share-based compensation expense recognized in any one period can vary based on the attainment or expected attainment of the performance goals.  If such performance goals are not ultimately met, no compensation expense is recognized and any previously recognized compensation expense is reversed.

Share-based compensation expense resulted in a material impact on our earnings per share and on our condensed consolidated financial statements for fiscal 2012 and during the three and nine months ended December 31, 2012.  The impact of share-based compensation expense on our condensed consolidated financial results is disclosed in Note 10, “Equity Compensation Plans and Share-Based Compensation” in the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.  We expect that share-based compensation will materially impact our consolidated financial statements in the foreseeable future.

RESULTS OF OPERATIONS

Abaxis develops, manufactures, markets and sells portable blood analysis systems for use in the human or veterinary patient-care setting to provide clinicians with rapid blood constituent measurements.  In October 2011, Abaxis began providing veterinary reference laboratory diagnostic and consulting services for veterinarians.  We operate in two segments:  (i) the medical market and (ii) the veterinary market.  See “Segment Results” in this section for a detailed discussion.

Total Revenues

Revenues by Geographic Region and by Product and Service Category.  Revenues by geographic region based on customer location and revenues by product and service category during the three and nine months ended December 31, 2012 and 2011 were as follows (in thousands, except percentages):

	Three Months Ended											Nine Months Ended
	December 31,						Change					December 31,						Change
Revenues by Geographic Region	2012			2011			Increase/ (Decrease)		Percent Change			2012			2011			Increase/ (Decrease)		Percent Change
North America	$	41,797		$	31,847		$	9,950		31	%	$	110,876		$	93,540		$	17,336		19	%
Percentage of total revenues		84	%		84	%							81	%		82	%
Europe		6,197			4,516			1,681		37	%		19,906			16,326			3,580		22	%
Percentage of total revenues		12	%		12	%							15	%		14	%
Asia Pacific and rest of the world		1,808			1,487			321		22	%		5,292			4,012			1,280		32	%
Percentage of total revenues		4	%		4	%							4	%		4	%
Total revenues	$	49,802		$	37,850		$	11,952		32	%	$	136,074		$	113,878		$	22,196		19	%

	Three Months Ended											Nine Months Ended
	December 31,						Change					December 31,						Change
Revenues by Product and Service Category	2012			2011			Increase/ (Decrease)		Percent Change			2012			2011			Increase/ (Decrease)			Percent Change
Instruments(1)	$	13,969		$	9,079		$	4,890		54	%	$	35,456		$	25,364		$	10,092			40	%
Percentage of total revenues		28	%		24	%							26	%		22	%
Consumables(2)		32,786			26,808			5,978		22	%		91,680			83,019			8,661			10	%
Percentage of total revenues		66	%		71	%							67	%		73	%
Other products and services(3)		3,009			1,925			1,084		56	%		8,825			5,372			3,453			64	%
Percentage of total revenues		6	%		5	%							7	%		5	%
Product and service revenues, net		49,764			37,812			11,952		32	%		135,961			113,755			22,206			20	%
Percentage of total revenues		100	%		100	%							100	%		100	%
Development and licensing revenue		38			38			-		0	%		113			123			(10	)		(8	)%
Percentage of total revenues	<1%			<1%								<1%			<1%
Total revenues	$	49,802		$	37,850		$	11,952		32	%	$	136,074		$	113,878		$	22,196			19	%

(1) Instruments include chemistry analyzers, hematology instruments, VSpro specialty analyzers and i-STAT analyzers.

(2) Consumables include reagent discs, hematology reagent kits, VSpro cartridges, i-STAT cartridges and rapid tests.

(3) Other products and services include veterinary reference laboratory diagnostic and consulting services.

25

Three Months Ended December 31, 2012 Compared to Three Months Ended December 31, 2011

North America.  During the three months ended December 31, 2012, total revenues in North America increased by 31%, or $10.0 million, as compared to the same period in fiscal 2012.  The change in total revenues in North America was primarily attributable to the following:

· Total sales of our Piccolo chemistry analyzers and medical reagent discs in North America (excluding sales to the U.S. government) increased by 19%, or $1.1 million, primarily due to an increase in the sales volume of Piccolo chemistry analyzers and medical reagent discs to our distributor, Abbott, as initial stocking order since we entered into the Abbott Agreement in October 2012.

· Total sales of our Piccolo chemistry analyzers and medical reagent discs to the U.S. government decreased by 48%, or $313,000, primarily due to a decrease in the U.S. Military’s needs for our products as a result of U.S. troops leaving Iraq in 2011.

· Total sales of our VetScan chemistry analyzers and veterinary reagent discs in North America increased by 37%, or $5.5 million, primarily due to (a) an increase in the sales volume of VetScan chemistry analyzers due in part to additional sales personnel and sales to various distributors, including MWI as initial stocking order since we entered into a distribution agreement in September 2012 and (b) an increase in the sales volume of veterinary reagent discs resulting from an expanded installed base of our VetScan chemistry analyzers.

· Total sales of our VetScan hematology instruments and hematology reagent kits in North America increased by 56%, or $2.1 million, primarily due to an increase in the sales volume of VetScan hematology instruments due in part to additional sales personnel and sales to various distributors, including MWI as initial stocking order.

· Total sales from our VetScan VSpro specialty analyzers and related consumables, VetScan i-STAT analyzers and related consumables and VetScan rapid tests in North America increased by 11%, or $560,000, primarily due to an increase in the sales volume of VetScan VSpro specialty analyzers and VetScan i-STAT analyzers, due in part to additional sales personnel and sales to various distributors, including MWI as initial stocking order.  The increase in sales was partially offset by a decrease in the sales volume of VetScan rapid tests primarily due to inventory stock adjustments by distributors.

· Other product and service revenues in North America increased by 58%, or $1.0 million, primarily due to an increase in service revenues from veterinary reference laboratory diagnostic and consulting services to new customers and increased business with current customers.  The increase in other products and services was partially offset by an increase in deferred revenue related to extended maintenance contracts offered to customers from time to time as incentives in the form of free services in connection with the sale of our products.

Europe.  During the three months ended December 31, 2012, total revenues in Europe increased by 37%, or $1.7 million, as compared to the same period in fiscal 2012.  Revenues from Piccolo chemistry analyzers and medical reagent discs increased by 5%, or $75,000, primarily due to sales of Piccolo chemistry analyzers to an international medical supplies sourcing and support company to support a pharmaceutical clinical trial conducted by a biotechnology company.  Total VetScan chemistry analyzers and veterinary reagent discs sales increased by 63%, or $1.5 million, primarily due to an increase in the sales volume of veterinary reagent discs of 117%, or $1.6 million, primarily resulting from lower inventory purchases by a distributor in the third quarter of fiscal 2012.

Asia Pacific and rest of the world.  During the three months ended December 31, 2012, total revenues in Asia Pacific and rest of the world increased by 22%, or $321,000, as compared to the same period in fiscal 2012.  The increase in total revenues in Asia Pacific and rest of the world was primarily attributable to an increase in sales of VetScan chemistry analyzers and veterinary reagent discs by 41%, or $348,000, primarily due to an increase in the sales volume of VetScan chemistry analyzers and veterinary reagent discs to various distributors.

Significant concentration.  During the three months ended December 31, 2012, one distributor in the United States, MWI, accounted for 12% of our total worldwide revenues.  During the three months ended December 31, 2011, one distributor in the United States, Animal Health International, accounted for 15% of our total worldwide revenues.  Animal Health International was formed in 2011 from two animal health companies, which included Walco International, Inc., d/b/a DVM Resources.

26

Nine Months Ended December 31, 2012 Compared to Nine Months Ended December 31, 2011

North America.  During the nine months ended December 31, 2012, total revenues in North America increased by 19%, or $17.3 million, as compared to the same period in fiscal 2012.  The change in total revenues in North America was primarily attributable to the following:

· Total sales of our Piccolo chemistry analyzers and medical reagent discs in North America (excluding sales to the U.S. government) increased by 6%, or $977,000, primarily due to an increase in the sales volume of Piccolo chemistry analyzers and medical reagent discs to our distributor, Abbott, as initial stocking order since we entered into the Abbott Agreement in October 2012.

· Total sales of our Piccolo chemistry analyzers and medical reagent discs to the U.S. government decreased by 47%, or $1.3 million, primarily due to a decrease in the U.S. Military’s needs for our products as a result of U.S. troops leaving Iraq in 2011.

· Total sales of our VetScan chemistry analyzers and veterinary reagent discs in North America increased by 21%, or $9.6 million, primarily due to (a) an increase in the sales volume of VetScan chemistry analyzers due in part to additional sales personnel and sales to various distributors, including MWI as initial stocking order, (b) an increase in the sales volume of veterinary reagent discs resulting from an expanded installed base of our VetScan chemistry analyzers and (c) higher average selling prices of VetScan chemistry analyzers and veterinary reagent discs.

· Total sales of our VetScan hematology instruments and hematology reagent kits in North America increased by 33%, or $3.6 million, primarily due to an increase in the sales volume of VetScan hematology instruments due in part to additional sales personnel and sales to various distributors, including MWI as initial stocking order.

· Total sales from our VetScan VSpro specialty analyzers and related consumables, VetScan i-STAT analyzers and related consumables and VetScan rapid tests in North America increased by 8%, or $1.3 million, primarily due to an increase in the sales volume of VetScan VSpro specialty analyzers and VetScan i-STAT analyzers, due in part to additional sales personnel and sales to various distributors, including MWI as initial stocking order.  The increase in sales was partially offset by a decrease in the sales volume of VetScan rapid tests primarily due to inventory stock adjustments by distributors during the third quarter of fiscal 2013.

· Other product and service revenues in North America increased by 64%, or $3.2 million, primarily due to an increase in service revenues from veterinary reference laboratory diagnostic and consulting services to new customers and increased business with current customers.  Veterinary reference laboratory diagnostic and consulting services provided by AVRL started in the third quarter of fiscal 2012.  The increase in other products and services was partially offset in the third quarter of fiscal 2013 by an increase in deferred revenue related to extended maintenance contracts offered to customers from time to time as incentives in the form of free services in connection with the sale of our products.

Europe.  During the nine months ended December 31, 2012, total revenues in Europe increased by 22%, or $3.6 million, as compared to the same period in fiscal 2012.  Revenues from Piccolo chemistry analyzers and medical reagent discs increased by 74%, or $2.7 million, primarily due to (a) sales of Piccolo chemistry analyzers to an international medical supplies sourcing and support company to support a pharmaceutical clinical trial conducted by a biotechnology company and (b) an increase in the sales volume of medical reagent discs to various distributors.  Total VetScan chemistry analyzers and veterinary reagent discs sales increased by 5%, or $524,000, primarily due to an increase in the sales volume of veterinary reagent discs to a distributor.

Asia Pacific and rest of the world.  During the nine months ended December 31, 2012, total revenues in Asia Pacific and rest of the world increased by 32%, or $1.3 million, as compared to the same period in fiscal 2012.  Revenues from veterinary instruments increased by 54%, or $647,000, primarily due to an increase in the sales volume of VetScan chemistry analyzers to various distributors.  Revenues from veterinary consumables increased by 25%, or $575,000, primarily due to an increase in the sales volume of veterinary reagent discs to various distributors.

Significant concentration.  During the nine months ended December 31, 2012, one distributor in the United States, Animal Health International, accounted for 11% of our total worldwide revenues.  During the nine months ended December 31, 2011, one distributor in the United States, Animal Health International, accounted for 12% of our total worldwide revenues.

Segment Results

Total Revenues, Cost of Revenues and Gross Profit by Segment.  We identify our reportable segments as those customer groups that represent more than 10% of our combined revenue or gross profit or loss of all reported operating segments.  We manage our business on the basis of the following two reportable segments:  (i) the medical market and (ii) the veterinary market, which are based on the products sold and services provided by market and customer group.

27

Three Months Ended December 31, 2012 Compared to Three Months Ended December 31, 2011

The following table presents revenues, cost of revenues, gross profit and percentage of revenues by operating segments and from certain unallocated items for the three months ended December 31, 2012 and 2011 (in thousands, except percentages):

	Three Months Ended
	December 31,												Change
				Percent of						Percent of			Increase/			Percent
	2012			Revenues(1)			2011			Revenues(1)			(Decrease)			Change
Revenues:
Medical Market	$	8,977			100	%	$	8,147			100	%	$	830			10	%
Percentage of total revenues		18	%					22	%
Veterinary Market		39,865			100	%		28,467			100	%		11,398			40	%
Percentage of total revenues		80	%					75	%
Other(2)		960						1,236						(276	)		(22	)%
Percentage of total revenues		2	%					3	%
Total revenues		49,802						37,850						11,952			32	%
Cost of revenues:
Medical Market(3)		4,282			48	%		3,514			43	%		768			22	%
Veterinary Market(3)		17,980			45	%		12,472			44	%		5,508			44	%
Other(2)(3)		1,464						1,386						78			6	%
Total cost of revenues		23,726						17,372						6,354			37	%
Gross profit:
Medical Market(3)		4,695			52	%		4,633			57	%		62			1	%
Veterinary Market(3)		21,885			55	%		15,995			56	%		5,890			37	%
Other(2)(3)		(504	)					(150	)					(354	)		(236	)%
Gross profit	$	26,076					$	20,478					$	5,598			27	%

(1) The percentages reported are based on revenues by operating segment.

(2) Represents unallocated items, not specifically identified to any particular business segment.

(3) Includes certain prior period amounts by operating segment and unallocated items that were reclassified to conform to the current period presentation.

Medical Market

Revenues for Medical Market Segment

During the three months ended December 31, 2012, total revenues in the medical market increased by 10% or $830,000, as compared to the same period in fiscal 2012.  Total revenues from Piccolo chemistry analyzers increased by 21%, or $479,000, during the three months ended December 31, 2012, as compared to the same period in fiscal 2012, primarily attributable to (a) an increase in the sales volume of Piccolo chemistry analyzers in North America to our distributor, Abbott, as initial stocking order since we entered into the Abbott Agreement in October 2012 and (b) sales to an international medical supplies sourcing and support company in Europe to support a pharmaceutical clinical trial conducted by a biotechnology company.  These increases were partially offset by a decrease in sales to the U.S. government due to a decrease in the U.S. Military’s needs for our products as a result of U.S. troops leaving Iraq in 2011.

Total revenues from medical reagent discs increased by 6%, or $314,000, during the three months ended December 31, 2012, as compared to the same period in fiscal 2012, primarily attributable to an increase in the sales volume of medical reagent discs in North America to our distributor, Abbott, as initial stocking order.

Gross Profit for Medical Market Segment

Gross profit for the medical market segment was flat during the three months ended December 31, 2012, as compared to the same period in fiscal 2012.  Gross profit percentages for the medical market segment during the three months ended December 31, 2012 and 2011 were 52% and 57%, respectively.  In absolute dollars, the increase in gross profit for the medical market segment was primarily due to an increase in the sales volume of Piccolo chemistry analyzers and medical reagent discs to Abbott, partially offset by lower average selling prices of Piccolo chemistry analyzers and medical reagent discs to Abbott.  As a percentage of total revenues, the decrease in gross profit margin was primarily due to lower average selling prices of medical reagent discs.

Veterinary Market

Revenues for Veterinary Market Segment

During the three months ended December 31, 2012, total revenues in the veterinary market increased by 40%, or $11.4 million, as compared to the same period in fiscal 2012.  Total revenues from veterinary instruments increased by 65%, or $4.4 million, during the three months ended December 31, 2012, as compared to the same period in fiscal 2012, primarily attributable to (a) an increase in the sales volume of VetScan chemistry analyzers, VetScan hematology instruments, VetScan VSpro specialty analyzers and VetScan i-STAT analyzers in North America, due in part to additional sales personnel and sales to various distributors, including MWI as initial stocking order and (b) an increase in the sales volume of VetScan chemistry analyzers to various distributors in Asia Pacific and rest of the world.

28

Total revenues from consumables in the veterinary market increased by 27%, or $5.7 million, during the three months ended December 31, 2012, as compared to the same period in fiscal 2012, primarily attributable to (a) an increase in the sales volume of veterinary reagent discs in North America resulting from an expanded installed base of our VetScan chemistry analyzers, (b) an increase in the sales volume of veterinary reagent discs in Europe, primarily resulting from lower inventory purchases by a distributor in the third quarter of fiscal 2012, and (c) an increase in the sales volume of veterinary reagent discs to various distributors in Asia Pacific and rest of the world.  These increases were partially offset by a decrease in the sales volume of VetScan rapid tests primarily due to inventory stock adjustments by distributors in North America.

Total revenues from other products and services in the veterinary market increased by $1.3 million, during the three months ended December 31, 2012, as compared to the same period in fiscal 2012, primarily attributable to veterinary reference laboratory diagnostic and consulting services provided by AVRL in North America from sales to new customers and increased business with current customers.

Gross Profit for Veterinary Market Segment

Gross profit for the veterinary market segment increased by 37%, or $5.9 million, during the three months ended December 31, 2012, as compared to the same period in fiscal 2012.  Gross profit percentages for the veterinary market segment during the three months ended December 31, 2012 and 2011 were 55% and 56%, respectively.  In absolute dollars, the increase in gross profit for the veterinary market segment was primarily attributable to an increase in the sales volume of VetScan chemistry analyzers, VetScan hematology instruments, and veterinary reagent discs, partially offset by a decrease in the sales volume of VetScan rapid tests and an increase in costs of services for veterinary reference laboratory diagnostic and consulting services provided by AVRL.  As a percentage of total revenues, the decrease in gross profit margin was primarily due to (a) an increase in the sales volume of our OEM supplied products, which have a lower margin contribution and (b) costs of services for veterinary reference laboratory diagnostic and consulting services provided by AVRL.

Other

Gross profit in our other category decreased by $354,000, during the three months ended December 31, 2012, as compared to the same period in fiscal 2012, primarily attributable to an increase in deferred revenue related to extended maintenance contracts offered to customers as incentives in the form of free goods in connection with the sale of our products.

Nine Months Ended December 31, 2012 Compared to Nine Months Ended December 31, 2011

The following table presents revenues, cost of revenues, gross profit and percentage of revenues by operating segments and from certain unallocated items for the nine months ended December 31, 2012 and 2011 (in thousands, except percentages):

	Nine Months Ended
	December 31,												Change
				Percent of						Percent of			Increase/			Percent
	2012			Revenues(1)			2011			Revenues(1)			(Decrease)			Change
Revenues:
Medical Market	$	25,267			100	%	$	22,636			100	%	$	2,631			12	%
Percentage of total revenues		19	%					20	%
Veterinary Market		107,299			100	%		87,684			100	%		19,615			22	%
Percentage of total revenues		79	%					77	%
Other(2)		3,508						3,558						(50	)		(1	)%
Percentage of total revenues		2	%					3	%
Total revenues		136,074						113,878						22,196			19	%
Cost of revenues:
Medical Market(3)		11,286			45	%		10,180			45	%		1,106			11	%
Veterinary Market(3)		48,582			45	%		37,893			43	%		10,689			28	%
Other(2)(3)		4,158						4,083						75			2	%
Total cost of revenues		64,026						52,156						11,870			23	%
Gross profit:
Medical Market(3)		13,981			55	%		12,456			55	%		1,525			12	%
Veterinary Market(3)		58,717			55	%		49,791			57	%		8,926			18	%
Other(2)(3)		(650	)					(525	)					(125	)		(24	)%
Gross profit	$	72,048					$	61,722					$	10,326			17	%

(1) The percentages reported are based on our revenues by operating segment.

(2) Represents unallocated items, not specifically identified to any particular business segment.

(3) Includes certain prior period amounts by operating segment and unallocated items that were reclassified to conform to the current period presentation.

29

Medical Market

Revenues for Medical Market Segment

During the nine months ended December 31, 2012, total revenues in the medical market increased by 12%, or $2.6 million, as compared to the same period in fiscal 2012.  Total revenues from Piccolo chemistry analyzers increased by 44%, or $2.6 million, during the nine months ended December 31, 2012, as compared to the same period in fiscal 2012, primarily attributable to (a) an increase in the sales volume of Piccolo chemistry analyzers in North America to our distributor, Abbott, as initial stocking order since we entered into the Abbott Agreement in October 2012 and (b) sales to an international medical supplies sourcing and support company in Europe to support a pharmaceutical clinical trial conducted by a biotechnology company.  These increases were partially offset by a decrease in sales to the U.S. government due to a decrease in the U.S. Military’s needs for our products as a result of U.S. troops leaving Iraq in 2011.

Total revenues from medical reagent discs were flat during the nine months ended December 31, 2012, as compared to the same period in fiscal 2012, primarily attributable to (a) an increase in the sales volume of medical reagent discs in North America to our distributor, Abbott, as initial stocking order and (b) an increase in the sales volume of medical reagent discs to various distributors in Europe.  These increases were partially offset by a decrease in sales to the U.S. government due to a decrease in the U.S. Military’s needs for our products as a result of U.S. troops leaving Iraq in 2011.

Gross Profit for Medical Market Segment

Gross profit for the medical market segment increased by 12%, or $1.5 million, during the nine months ended December 31, 2012, as compared to the same period in fiscal 2012.  Gross profit percentages for the medical market segment during the nine months ended December 31, 2012 and 2011 were 55% for each respective period.  In absolute dollars, the increase in gross profit for the medical market segment was primarily due to (a) sales of Piccolo chemistry analyzers to an international medical supplies sourcing and support company to support a pharmaceutical clinical trial conducted by a biotechnology company and (b) an increase in the sales volume of Piccolo chemistry analyzers to Abbott, partially offset by lower average selling prices of Piccolo chemistry analyzers and medical reagent discs to Abbott.

Veterinary Market

Revenues for Veterinary Market Segment

During the nine months ended December 31, 2012, total revenues in the veterinary market increased by 22%, or $19.6 million, as compared to the same period in fiscal 2012.  Total revenues from veterinary instruments increased by 38%, or $7.5 million, during the nine months ended December 31, 2012, as compared to the same period in fiscal 2012, primarily attributable to (a) an increase in the sales volume of VetScan chemistry analyzers, VetScan hematology instruments, VetScan VSpro specialty analyzers and VetScan i-STAT analyzers in North America, due in part to additional sales personnel and sales to various distributors, including MWI as initial stocking order, (b) higher average selling prices of VetScan chemistry analyzers in North America, and (c) an increase in the sales volume of VetScan chemistry analyzers to various distributors in Asia Pacific and rest of the world.

Total revenues from consumables in the veterinary market increased by 13%, or $8.8 million, during the nine months ended December 31, 2012, as compared to the same period in fiscal 2012, primarily attributable to (a) an increase in the sales volume of veterinary reagent discs in North America resulting from an expanded installed base of our VetScan chemistry analyzers, (b) higher average selling prices of veterinary reagent discs in North America, (c) an increase in the sales volume of veterinary reagent discs to a distributor in Europe, and (d) an increase in the sales volume of veterinary reagent discs to various distributors in Asia Pacific and rest of the world.  These increases were partially offset by a decrease in the sales volume of VetScan rapid tests primarily due to inventory stock adjustments by distributors in North America during the third quarter of fiscal 2013.

Total revenues from other products and services in the veterinary market increased by $3.2 million, during the nine months ended December 31, 2012, as compared to the same period in fiscal 2012, primarily attributable to veterinary reference laboratory diagnostic and consulting services provided by AVRL in North America from sales to new customers and increased business with current customers.  Veterinary reference laboratory diagnostic and consulting services provided by AVRL started in the third quarter of fiscal 2012.

Gross Profit for Veterinary Market Segment

Gross profit for the veterinary market segment increased by 18%, or $8.9 million, during the nine months ended December 31, 2012, as compared to the same period in fiscal 2012.  Gross profit percentages for the veterinary market segment during the nine months ended December 31, 2012 and 2011 were 55% and 57%, respectively.  In absolute dollars, the increase in gross profit for the veterinary market segment was primarily attributable to (a) an increase in the sales volume of VetScan chemistry analyzers, VetScan hematology instruments, and veterinary reagent discs and (b) higher average selling prices of veterinary reagent discs and hematology reagent kits.  These increases in gross profit were partially offset by (a) an increase in freight costs to ship products and (b) costs of services for veterinary reference laboratory diagnostic and consulting services provided by AVRL beginning in the third quarter of fiscal 2012.  As a percentage of total revenues, the decrease in gross profit margin was primarily due to (a) an increase in the sales volume of our OEM supplied products, which have a lower margin contribution and (b) costs of services for veterinary reference laboratory diagnostic and consulting services provided by AVRL beginning in the third quarter of fiscal 2012.

30

Other

Gross profit in our other category decreased by $125,000, during the nine months ended December 31, 2012, as compared to the same period in fiscal 2012, primarily attributable to higher costs on materials and overhead allocations on facilities, both related to our instrument repair and support center, which were not allocated to a particular segment.

Cost of Revenues

The following sets forth our cost of revenues for the periods indicated (in thousands, except percentages):

	Three Months Ended											Nine Months Ended
	December 31,						Change					December 31,						Change
							Increase/		Percent									Increase/		Percent
	2012			2011			(Decrease)		Change			2012			2011			(Decrease)		Change
Cost of revenues	$	23,726		$	17,372		$	6,354		37	%	$	64,026		$	52,156		$	11,870		23	%
Percentage of total revenues		48	%		46	%							47	%		46	%

Cost of revenues includes the cost of material, costs associated with manufacturing, assembly, packaging, warranty repairs, test and quality assurance for our instruments and consumables and manufacturing overhead, including costs of personnel and equipment associated with manufacturing support.  Beginning in the third quarter of fiscal 2012, cost of revenues includes cost of services for veterinary reference laboratory diagnostic and consulting services provided by AVRL.

Three and Nine Months Ended December 31, 2012 Compared to Three and Nine Months Ended December 31, 2011

The increase in cost of revenues, in absolute dollars and as a percentage of revenues, during the three months ended December 31, 2012, as compared to the same period in fiscal 2012, was primarily due to (a) an increase in the sales volume of veterinary instruments, (b) an increase in the sales volume of medical and veterinary reagent discs, and (c) costs of services provided by AVRL.

The increase in cost of revenues, in absolute dollars and as a percentage of revenues, during the nine months ended December 31, 2012, as compared to the same period in fiscal 2012, was primarily due to (a) an increase in the sales volume of medical and veterinary instruments, (b) an increase in the sales volume of veterinary reagent discs, (c) an increase in freight costs to ship products, and (d) costs of services provided by AVRL beginning in the third quarter of fiscal 2012.

Gross Profit

The following sets forth our gross profit for the periods indicated (in thousands, except percentages):

	Three Months Ended											Nine Months Ended
	December 31,						Change					December 31,						Change
							Increase/		Percent									Increase/		Percent
	2012			2011			(Decrease)		Change			2012			2011			(Decrease)		Change
Gross profit	$	26,076		$	20,478		$	5,598		27	%	$	72,048		$	61,722		$	10,326		17	%
Gross profit percentage		52	%		54	%							53	%		54	%

Three and Nine Months Ended December 31, 2012 Compared to Three and Nine Months Ended December 31, 2011

Gross profit during the three months ended December 31, 2012 increased by 27%, or $5.6 million, as compared to the same period in fiscal 2012, primarily attributable to the following: (a) an increase in the sales volume of Piccolo chemistry analyzers and medical reagent discs to Abbott and (b) an increase in the sales volume of VetScan chemistry analyzers, VetScan hematology instruments, and veterinary reagent discs.  These increases in gross profit were partially offset by (a) lower average selling prices of Piccolo chemistry analyzers and medical reagent discs to Abbott, (b) a decrease in the sales volume of VetScan rapid tests and (c) an increase in costs of services for veterinary reference laboratory diagnostic and consulting services provided by AVRL.  As a percentage of total revenues, the decrease in gross profit margin was primarily due to (a) an increase in the sales volume of our OEM supplied products, which have a lower margin contribution and (b) costs of services for veterinary reference laboratory diagnostic and consulting services provided by AVRL.

31

Gross profit during the nine months ended December 31, 2012 increased by 17%, or $10.3 million, as compared to the same period in fiscal 2012, primarily attributable to the following: (a) sales of Piccolo chemistry analyzers to an international medical supplies sourcing and support company to support a pharmaceutical clinical trial conducted by a biotechnology company, (b) an increase in the sales volume of Piccolo chemistry analyzers to Abbott, (c) an increase in the sales volume of VetScan chemistry analyzers, VetScan hematology instruments, and veterinary reagent discs, and (d) higher average selling prices of veterinary reagent discs and hematology reagent kits.  These increases in gross profit were partially offset by (a) lower average selling prices of Piccolo chemistry analyzers and medical reagent discs to Abbott, (b) an increase in freight costs to ship products and (c) costs of services for veterinary reference laboratory diagnostic and consulting services provided by AVRL beginning in the third quarter of fiscal 2012.  As a percentage of total revenues, the decrease in gross profit margin was primarily due to (a) an increase in the sales volume of our OEM supplied products, which have a lower margin contribution and (b) costs of services for veterinary reference laboratory diagnostic and consulting services provided by AVRL beginning in the third quarter of fiscal 2012.

Research and Development

The following sets forth our research and development expenses for the periods indicated (in thousands, except percentages):

	Three Months Ended											Nine Months Ended
	December 31,						Change					December 31,						Change
							Increase/		Percent									Increase/		Percent
	2012			2011			(Decrease)		Change			2012			2011			(Decrease)		Change
Research and development expenses	$	3,802		$	2,634		$	1,168		44	%	$	10,348		$	9,096		$	1,252		14	%
Percentage of total revenues		8	%		7	%							8	%		8	%

Research and development expenses consist of personnel costs (including salaries, benefits and share-based compensation expense), consulting expenses and materials and related expenses associated with the development of new tests and test methods, clinical trials, product improvements and optimization and enhancement of existing products and expenses related to regulatory and quality assurance.  Research and development expenses are primarily based on the project activities planned and the level of spending depends on budgeted expenditures.

Three and Nine Months Ended December 31, 2012 Compared to Three and Nine Months Ended December 31, 2011

The increase in research and development expenses, in absolute dollars, during the three and nine months ended December 31, 2012, as compared to the same period in fiscal 2012, was primarily attributable to new product development and enhancement of existing products in both the medical and veterinary markets.  Share-based compensation expense included in research and development expenses during the three months ended December 31, 2012 and 2011 was $300,000 and $226,000, respectively, and during the nine months ended December 31, 2012 and 2011 was $854,000 and $641,000, respectively.

We anticipate research and development expenses for fiscal 2013 to remain consistent as a percentage of total revenues, as we develop new products for both the medical and veterinary markets.  There can be no assurance, however, that we will undertake such research and development activities in future periods or, if we do, that such activities will be successful or cost effective.

Sales and Marketing

The following sets forth our sales and marketing expensesfor the periods indicated (in thousands, except percentages):

	Three Months Ended											Nine Months Ended
	December 31,						Change					December 31,						Change
							Increase/		Percent									Increase/		Percent
	2012			2011			(Decrease)		Change			2012			2011			(Decrease)		Change
Sales and marketing expenses	$	12,373		$	9,927		$	2,446		25	%	$	35,647		$	28,414		$	7,233		25	%
Percentage of total revenues		25	%		26	%							26	%		25	%

Sales and marketing expenses consist of personnel costs (including salaries, benefits and share-based compensation expense), commissions and travel-related expenses for personnel engaged in selling, costs associated with advertising, lead generation, marketing programs, trade shows, services related to customer and technical support and costs associated with advertising and marketing of AVRL.

Three and Nine Months Ended December 31, 2012 Compared to Three and Nine Months Ended December 31, 2011

The increase in sales and marketing expenses, in absolute dollars, during the three and nine months ended December 31, 2012, as compared to the same period in fiscal 2012, was primarily due to (a) costs associated with restructuring our sales and marketing personnel in the medical market resulting from our distribution agreement with Abbott and (b) increased costs related to headcount and promotional and marketing spending to support AVRL and the ongoing growth of our veterinary business in North America.  AVRL began providing services starting in the third quarter of fiscal 2012.  Share-based compensation expense included in sales and marketing expenses during the three months ended December 31, 2012 and 2011 was $613,000 and $475,000, respectively, and during the nine months ended December 31, 2012 and 2011 was $1.9 million and $1.4 million, respectively.

32

General and Administrative

The following sets forth our general and administrative expenses for the periods indicated (in thousands, except percentages):

	Three Months Ended												Nine Months Ended
	December 31,						Change						December 31,						Change
							Increase/			Percent									Increase/			Percent
	2012			2011			(Decrease)			Change			2012			2011			(Decrease)			Change
General and administrative expenses	$	2,210		$	3,280		$	(1,070	)		(33	)%	$	10,153		$	11,194		$	(1,041	)		(9	)%
Percentage of total revenues		4	%		9	%								7	%		10	%

General and administrative expenses consist of personnel costs (including salaries, benefits and share-based compensation expense), and expenses for outside professional services related to general corporate functions, including accounting and legal, and other general and administrative expenses.

Three and Nine Months Ended December 31, 2012 Compared to Three and Nine Months Ended December 31, 2011

General and administrative expenses, in absolute dollars, during the three months ended December 31, 2012, as compared to the same period in fiscal 2012, decreased primarily due to higher legal expenses in the third quarter of fiscal 2012.  Share-based compensation expense included in general and administrative expenses during the three months ended December 31, 2012 and 2011 was $638,000 and $624,000, respectively.

General and administrative expenses, in absolute dollars, during the nine months ended December 31, 2012, as compared to the same period in fiscal 2012, decreased primarily due to $1.6 million related to start-up costs incurred to develop AVRL during the first six months of fiscal 2012, partially offset by an increase in share-based compensation expense because forfeiture estimates were adjusted to reflect actual forfeitures when an award vested in the first quarter of fiscal 2013.  Share-based compensation expense included in general and administrative expenses during the nine months ended December 31, 2012 and 2011 was $1.9 million and $1.5 million, respectively.

Gain from Legal Settlement

On September 24, 2012 we resolved our patent infringement litigation with Cepheid.  As part of the settlement, the parties agreed to terminate all pending and future claims connected with the litigation in exchange for a one-time payment by Cepheid of $17.3 million, which we recognized as an offset to operating expenses during the second quarter of fiscal 2013.

Interest and Other Income (Expense), Net

The following sets forth our interest and other income (expense), net, for the periods indicated (in thousands):

	Three Months Ended							Nine Months Ended
	December 31,					Change		December 31,				Change
						Increase/						Increase/
	2012		2011			(Decrease)		2012		2011		(Decrease)
Interest and other income (expense), net	$	293	$	(91	)	$	384	$	318	$	259	$	59

Interest and other income (expense), net consists primarily of interest earned on cash and cash equivalents and investments, foreign currency exchange gains and losses and our equity in net income (loss) of an unconsolidated affiliate.

Three and Nine Months Ended December 31, 2012 Compared to Three and Nine Months Ended December 31, 2011

The increase in interest and other income (expense), net, during the three months ended December 31, 2012, as compared to the same period in fiscal 2012, was primarily attributable to net favorable foreign currency exchange rates during the third quarter of fiscal 2013.

The increase in interest and other income (expense), net, during the nine months ended December 31, 2012, as compared to the same period in fiscal 2012, was primarily attributable to net favorable foreign currency exchange rates.

33

Income Tax Provision

The following sets forth our income tax provision for the periods indicated (in thousands, except percentages):

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2012			2011			2012			2011
Income tax provision	$	2,996		$	1,696		$	12,707		$	4,892
Effective tax rate		38	%		37	%		38	%		37	%

Three and Nine Months Ended December 31, 2012 Compared to Three and Nine Months Ended December 31, 2011

During the three months ended December 31, 2012 and 2011, our income tax provision was $3.0 million, based on an effective tax rate of 38%, and $1.7 million, based on an effective tax rate of 37%, respectively.  During the nine months ended December 31, 2012 and 2011, our income tax provision was $12.7 million, based on an effective tax rate of 38%, and $4.9 million, based on an effective tax rate of 37%, respectively.  During the three and nine months ended December 31, 2012, our effective tax rates were primarily impacted by higher state tax expense and the expiration of the federal research and development tax credit, as compared to the three and nine months ended December 31, 2011.

On January 2, 2013, President Barack Obama signed into law The American Taxpayer Relief Act of 2012, which reinstated the federal research and development tax credit retroactive to January 1, 2012 and extended the credit through December 31, 2013.  As a result of the new legislation, we expect to recognize a tax benefit of approximately $400,000 during the three months ending March 31, 2013.

We did not have any unrecognized tax benefits as of December 31, 2012 and March 31, 2012.  During the three and nine months ended December 31, 2012 and 2011, we did not recognize any interest or penalties related to unrecognized tax benefits.

LIQUIDITY AND CAPITAL RESOURCES

Cash, Cash Equivalents and Investments

The following table summarizes our cash, cash equivalents and short-term and long-term investments at December 31, 2012 and March 31, 2012 (in thousands, except percentages):

	December 31,			March 31,
	2012			2012
Cash and cash equivalents	$	47,427		$	45,843
Short-term investments		22,644			21,689
Long-term investments		21,712			23,442
Total cash, cash equivalents and investments	$	91,783		$	90,974
Percentage of total assets		47	%		50	%

At December 31, 2012, we had net working capital of $117.8 million compared to $110.0 million at March 31, 2012.

Cash Flow Changes

Cash provided by (used in) operating, investing and financing activities for the nine months ended December 31, 2012 and 2011 were as follows (in thousands):

	Nine Months Ended
	December 31,
	2012			2011
Net cash provided by operating activities	$	26,138		$	17,339
Net cash (used in) provided by investing activities		(4,157	)		2,935
Net cash used in financing activities		(20,188	)		(28,060	)
Effect of exchange rate changes on cash and cash equivalents		(209	)		(317	)
Net increase (decrease) in cash and cash equivalents	$	1,584		$	(8,103	)

Cash and cash equivalents at December 31, 2012 were $47.4 million compared to $45.8 million at March 31, 2012.  The increase in cash and cash equivalents during the nine months ended December 31, 2012 was primarily due to net cash provided by operating activities of $26.1 million and proceeds from maturities and redemptions of investments of $18.5 million.  The increase was partially offset by purchases of investments of $18.3 million and dividends payment of $22.0 million during the nine months ended December 31, 2012.

34

Cash Flows from Operating Activities

During the nine months ended December 31, 2012, we generated $26.1 million in cash from operating activities, compared to $17.3 million during the nine months ended December 31, 2011.  The cash provided by operating activities during the nine months ended December 31, 2012 was primarily the result of net income of $20.8 million, adjusted for the effects of non-cash adjustments including depreciation and amortization of $4.4 million and share-based compensation expense of $5.3 million, partially offset by a decrease of $1.8 million related to excess tax benefits from share-based awards.

Other changes in operating activities during the nine months ended December 31, 2012 were as follows:

(i) Receivables, net increased by $5.4 million, from $30.7 million at March 31, 2012 to $36.1 million as of December 31, 2012, primarily due to higher sales in the last month of the quarter ended December 31, 2012.

(ii) Inventories increased by $5.5 million, from $19.6 million at March 31, 2012 to $25.1 million as of December 31, 2012, primarily due to an increase in raw materials and finished goods to support future demand.

(iii) Prepaid expenses and other current assets increased by $1.7 million, from $5.4 million at March 31, 2012 to $7.1 million as of December 31, 2012, primarily attributable to the timing of estimated income tax payments.

(iv) Accounts payable increased by $5.1 million, from $6.4 million at March 31, 2012 to $11.5 million as of December 31, 2012, primarily due to the timing and payment of services and inventory purchases.

(v) Accrued payroll and related expenses increased by $2.1 million, from $6.3 million at March 31, 2012 to $8.4 million as of December 31, 2012, primarily due to an increase in accrued payroll as a result of timing of payment obligations.

(vi) Total deferred revenue increased by $1.3 million, resulting from an increase in the current portion of deferred revenue of $176,000, from $1.2 million at March 31, 2012 to $1.4 million as of December 31, 2012, and an increase in the non-current portion of deferred revenue of $1.1 million from $2.4 million at March 31, 2012 to $3.5 million as of December 31, 2012.  The increase in deferred revenue balances is due to (a) an increase in extended maintenance contracts offered to customers in the form of free services in connection with the sale of our instruments during the nine months ended December 31, 2012 and (b) selling arrangements offered from time to time in the veterinary market that include multiple deliverables, such as instruments, consumables and service agreements associated with our veterinary reference laboratory.  The net increase in deferred revenue was partially offset by deferred revenue recognized ratably over the life of the maintenance contract.

(vii) Total warranty reserves decreased by $380,000, resulting from a decrease in the current portion of warranty reserves of $252,000, from $1.2 million at March 31, 2012 to $993,000 as of December 31, 2012, and a decrease in the non-current portion of warranty reserves of $128,000, from $601,000 at March 31, 2012 to $473,000 as of December 31, 2012.  During the nine months ended December 31, 2012, we recorded an adjustment to pre-existing warranties of $290,000, which reduced our warranty reserves and our cost of revenues, based on both historical and projected product performance rates of instruments.  Our warranty reserves is primarily based on (a) the number of instruments in standard warranty, estimated product failure rates and estimated repair costs and (b) an estimate of defective reagent discs and replacement costs.  Management continually evaluates the sufficiency of the warranty provisions and makes adjustments when necessary.  If an unusual performance rate related to warranty claims is noted, an additional warranty accrual may be assessed and recorded when a failure event is probable and the cost can be reasonably estimated.

We anticipate that we will incur incremental additional costs to support our future operations, including further additional pre-clinical testing and clinical trials for our current and future products; research and design costs related to the continuing development of our current and future products; acquisition of capital equipment for our manufacturing facility and costs to operate AVRL.  Furthermore, during the nine months ended December 31, 2012, we incurred legal costs related to a patent infringement lawsuit against Cepheid.  In the future, we may continue to incur additional legal costs.

Cash Flows from Investing Activities

Net cash used in investing activities during the nine months ended December 31, 2012 totaled $4.2 million, compared to net cash provided by investing activities of $2.9 million during the nine months ended December 31, 2011.  Changes in investing activities were as follows:

Investments.  Cash used to purchase investments in certificates of deposits, corporate bonds and municipal bonds totaled $18.3 million during the nine months ended December 31, 2012.  Cash provided by proceeds from maturities and redemptions of investments in certificates of deposits, corporate bonds and municipal bonds totaled $18.5 million during the nine months ended December 31, 2012.

35

Property and Equipment.  Cash used to purchase property and equipment totaled $4.3 million during the nine months ended December 31, 2012, primarily to support increased capacity requirements in our production line and AVRL operations.  We anticipate that we will continue to purchase property and equipment as necessary in the normal course of our business.

Cash Flows from Financing Activities

Net cash used in financing activities during the nine months ended December 31, 2012 totaled $20.2 million, compared to net cash used in financing activities of $28.1 million during the nine months ended December 31, 2011.  The changes during the nine months ended December 31, 2012 were primarily due to payments made for tax withholdings related to net share settlements of restricted stock units of $1.6 million and dividends payment of $22.0 million, partially offset by proceeds from the exercise of stock options of $1.6 million and excess tax benefits from share-based awards of $1.8 million.  In December 2012, our Board of Directors declared a special cash dividend of $1.00 per share on our outstanding common stock.  This dividend, which totaled $22.0 million, was paid on December 28, 2012.  Additionally, during the nine months ended December 31, 2012, we did not purchase any shares pursuant to our share repurchase program described below.

Share Repurchase Program

In August 2011, our Board of Directors authorized the repurchase of up to an aggregate of $40.0 million of our common stock.  In January 2012, the Board of Directors approved a $15.0 million increase to the Company’s existing share repurchase program, to a total of $55.0 million.  Since the share repurchase program began, through December 31, 2012, we have repurchased 1.2 million shares of our common stock at a total cost of $27.3 million.  As of December 31, 2012, $27.7 million of our common stock may yet be purchased under such authorization.  The repurchases are made from time to time on the open market at prevailing market prices or in negotiated transactions off the market.  Repurchased shares are retired.  During the three and nine months ended December 31, 2012, we did not repurchase any of our common stock.

Financial Condition

We believe that cash and cash equivalents, investments and expected cash flows from operations will be sufficient to fund our operations, capital requirements and share repurchase program for at least the next twelve months.  Our future capital requirements will largely depend upon the increased market acceptance of our point-of-care blood analyzer products and of our Abaxis Veterinary Reference Laboratories.  However, our sales for any future periods are not predictable with a significant degree of certainty.  Regardless, we may seek to raise additional funds to pursue strategic opportunities.

Contractual Obligations

Purchase Commitments.  In October 2008, we entered into an original equipment manufacturing (“OEM”) agreement with SMB of Denmark to purchase VSpro specialty analyzers and related cartridges.  Effective January 2011, we amended and restated our OEM agreement, including the terms of our minimum purchase commitments.  Under the amended agreement, we committed to purchase a minimum number of VSpro specialty analyzers and related cartridges on an annual basis during each calendar year 2011 through 2015.  Our purchase obligations in the future may be adjusted if our minimum purchase commitments are not met during a calendar year period.  At December 31, 2012, our total remaining outstanding commitment due is approximately $9.4 million.

In December 2011, we executed a term sheet to enter into a development and supply equipment agreement with Diatron MI PLC (“Diatron”) of Hungary to purchase Diatron hematology instruments.  Effective July 2012, we entered into a development and supply agreement with Diatron and under the agreement terms, we committed to purchase a minimum number of hematology instruments on an annual basis through fiscal year 2015.  At December 31, 2012, our total remaining outstanding commitment due is approximately $7.9 million.  Furthermore, at December 31, 2012, we prepaid $1.5 million to Diatron for future purchases of hematology instruments and reagents, which was recorded in prepaid expenses and other currents assets on the consolidated balance sheet.  The commitment amount is based on the minimum number of hematology instruments that we are required to purchase, the cost of the instruments and the Euro exchange rate at period-end.  Because the exchange rate will fluctuate in the future, the amount of the purchase commitment in dollars will change accordingly.

Notes Payable.  We have a ten year loan agreement with the Community Redevelopment Agency of the City of Union City (“the Agency”) whereby the Agency provides us with an unsecured loan of up to $1.0 million, primarily to purchase capital equipment.  The loan was effective January 2011, bears interest at 5.0% and is payable quarterly.  As of December 31, 2012, our short-term and long-term notes payable balances were $100,000 and $707,000, respectively, and we recorded the short-term balance in other accrued liabilities on the consolidated balance sheets.  The entire outstanding balance of the note shall be payable in full on the earlier of:  (i) December 2020, or (ii) the date Abaxis ceases operations in Union City, California.  The Agency also has the right to accelerate the maturity date and declare all balances immediately due and payable upon the event of default as defined in the loan agreement.  We evaluate covenants in our loan agreement on a quarterly basis, and we were in compliance with such covenants as of December 31, 2012.

36

In accordance with the terms of the loan agreement, the Agency will provide Abaxis with an annual credit that can be applied against the accrued interest and outstanding principal balance on a quarterly basis.  The Agency determines the annual credit based on certain taxes paid by Abaxis to the City of Union City, California for a specified period, as defined in the loan agreement.  We anticipate that our annual credits from the Agency will be used to fully repay our notes payable due to the Agency.  We may carry forward unused quarterly credits to apply against our outstanding balance in a future period.  Credits applied to repay our notes payable and accrued interest are recorded in “Interest and other income (expense), net” on the consolidated statements of income.

Patent Licensing Agreement.  Effective January 2009, we entered into a license agreement with Alere.  Under our license agreement, we licensed co-exclusively certain worldwide patent rights related to lateral flow immunoassay technology in the field of animal health diagnostics in the professional marketplace.  The license agreement provides that Alere shall not grant any future rights to any third parties under its current lateral flow patent rights in the animal health diagnostics field in the professional marketplace.  The license agreement enables us to develop and market products under rights from Alere to address animal health and laboratory animal research markets.

In exchange for the license rights, we (i) paid an up-front license fee of $5.0 million to Alere in January 2009, (ii) agreed to pay royalties during the term of the agreement, based solely on sales of products in a jurisdiction country covered by valid and unexpired claims in that jurisdiction under the licensed Alere patent rights, and (iii) agreed to pay a yearly minimum license fee of between $500,000 to $1.0 million per year, which fee will be creditable against any royalties due during such calendar year.  The royalties, if any, are payable through the date of the expiration of the last valid patent licensed under the agreement that includes at least one claim in a jurisdiction covering products we sell in that jurisdiction.  The yearly minimum fees became payable starting in fiscal 2011 for so long as we desire to maintain exclusivity under the agreement.

Contingencies

On June 28, 2010, we filed a patent infringement lawsuit against Cepheid.  On September 24, 2012, the parties agreed to terminate all pending and future claims connected with the litigation in exchange for a one-time payment by Cepheid of $17.3 million, which we recognized as an offset to operating expenses during the second quarter of fiscal 2013.

On October 1, 2012, St. Louis Police Retirement System, a purported shareholder of Abaxis, filed a lawsuit against certain officers and each of our directors in the United States District Court for the Northern District of California alleging, among other things, that the directors violated Section 14(a) of the Securities Exchange Act of 1934 and breached their fiduciary duties by allegedly failing to disclose material information in our 2010 proxy statement, breached their fiduciary duties by allegedly violating the terms of our 2005 Equity Incentive Plan, and breached their fiduciary duties by failing to disclose alleged material information in our 2012 proxy statement regarding (1) the events leading up to our proposal to amend the 2005 Equity Incentive Plan to eliminate the limit on the number of shares that may be issued pursuant to restricted stock units, and (2) the effects of the proposed amendment on certain settled and outstanding restricted stock units.  The plaintiff seeks, among other things, damages, disgorgement and attorney’s fees.  In addition, the plaintiff sought, and on October 23, 2012 the court issued, an order preliminarily enjoining our shareholder vote on Proposal 2 in our 2012 proxy statement, regarding an amendment to the 2005 Equity Incentive Plan, until such time as additional disclosures could be made.  The Company filed with the SEC and mailed to shareholders supplemental proxy materials approved by the court, the injunction was lifted and our shareholders approved the proposal to amend our 2005 Equity Incentive Plan.  The defendants have filed motions to dismiss the claims.  A hearing on the motions is currently scheduled for March 5, 2013.  Management believes the claims raised by the plaintiff are without merit and intends to contest them vigorously.

We are involved from time to time in various litigation matters in the normal course of business.  There can be no assurance that existing or future legal proceedings arising in the ordinary course of business or otherwise will not have a material adverse effect on our business, consolidated financial position, results of operations or cash flows.

Off-Balance Sheet Arrangements

As of December 31, 2012, we did not have any off-balance sheet arrangements, as defined in Item 303 of Regulation S-K promulgated under the Securities Act of 1933.  In addition, we identified no variable interests in any variable interest entities.

RECENT ACCOUNTING PRONOUNCEMENTS

A discussion of recent accounting pronouncements is included in Note 2 of the Notes to Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.

37

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We are exposed to the impact of interest rate changes with respect to our short-term and long-term investments.  Our investment objective is to invest excess cash in cash equivalents and in various types of investments to maximize yields without significantly increased risk.  At December 31, 2012, our short-term and long-term investments totaled $22.6 million and $21.7 million, respectively, consisting of investments in certificates of deposits, corporate bonds and municipal bonds.

As of December 31, 2012, we had $36.7 million in investments classified as held-to-maturity and carried at amortized cost.  We have the ability to hold the investments classified as held-to-maturity in our investment portfolio at December 31, 2012 until maturity and therefore, we believe we have no material exposure to interest rate risk.  As of December 31, 2012, our investments classified as available-for-sale totaled $7.6 million, which we recorded at fair market value with unrealized gains or losses resulting from changes in fair value reported as a separate component of accumulated other comprehensive income (loss), net of any tax effects, in shareholders’ equity.  A sensitivity analysis assuming a hypothetical 10% movement in interest rates applied to our total investment balances at December 31, 2012 indicated that such market movement would not have a material effect on our business, operating results or financial condition.  We have not experienced any significant loss on our investment portfolio during fiscal 2012 or during the nine months ended December 31, 2012.

As a matter of management policy, we do not currently enter into transactions involving derivative financial instruments.  In the event we do enter into such transactions in the future, such items will be accounted for in accordance with Accounting Standards Codification 815, “Derivatives and Hedging.”

Investment in a Privately Held Company

In February 2011, we purchased a 15% equity ownership interest in SMB, a privately-held developer and manufacturer of point-of-care diagnostic products for veterinary use, for $2.8 million in cash.  SMB, based in Farum, Denmark, has been the original equipment manufacturer of our VetScan VSpro point-of-care specialty analyzer since 2008.  The investment is recorded in “Investment in Unconsolidated Affiliate” in our consolidated balance sheets and we use the equity method to account for our investment in this entity that we do not control, but where we have the ability to exercise significant influence.  As of December 31, 2012, the total carrying amount of our investment in SMB was $2.6 million.  The investment is inherently risky and we could lose our entire investment in this company.  To date, since our investment in SMB, we have not recorded an impairment charge on this investment.

Foreign Currency Rate Fluctuations

We operate primarily in the United States and a majority of our revenues, cost of revenues, operating expenses and capital purchasing activities are transacted in U.S. dollars.  However, we are exposed to foreign currency exchange rate fluctuations on the hematology products purchased from Diatron MI PLC, which are primarily denominated in Euros.

Abaxis Europe GmbH, our wholly-owned subsidiary since July 2008, markets, promotes and distributes diagnostic systems for medical and veterinary uses.  Abaxis Europe GmbH’s functional currency is in U.S. dollars.  Foreign currency denominated account balances of our subsidiary are remeasured into U.S. dollars at the end-of-period exchange rates for monetary assets and liabilities, and historical exchange rates for nonmonetary assets.  Accordingly, the effects of foreign currency transactions, and of remeasuring the financial condition into the functional currency, resulted in foreign currency gains and losses, which were included in “Interest and other income (expense), net” on our consolidated statements of income.  For our sales denominated in foreign currencies, we are exposed to foreign currency exchange rate fluctuations on revenue and collection of receivables.  To the extent the U.S. dollar strengthens against the Euro currency, the translation of the foreign currency denominated transactions may result in reduced cost of revenues and operating expenses.  Similarly, our cost of revenues and operating expenses will increase if the U.S. dollar weakens against the Euro currency.

Other than the foregoing, there have been no material changes in our market risk during the three months ended December 31, 2012 compared to the disclosures in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2012.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated that the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2012.  Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of such date, our disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

38

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the fiscal quarter ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act.

Inherent Limitations on Controls and Procedures

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.  Accordingly, even an effective system of internal control will provide only reasonable assurance that the objectives of the internal control system are met.

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

On October 1, 2012, St. Louis Police Retirement System, a purported shareholder of Abaxis, filed a lawsuit against certain officers and each of our directors in the United States District Court for the Northern District of California (Case No. C-12-5086 (YGR)), alleging, among other things, that the directors violated Section 14(a) of the Securities Exchange Act of 1934 and breached their fiduciary duties by allegedly failing to disclose material information in our 2010 proxy statement, breached their fiduciary duties by allegedly violating the terms of our 2005 Equity Incentive Plan, and breached their fiduciary duties by failing to disclose alleged material information in our 2012 proxy statement regarding (1) the events leading up to our proposal to amend the 2005 Equity Incentive Plan to eliminate the limit on the number of shares that may be issued pursuant to restricted stock units, and (2) the effects of the proposed amendment on certain settled and outstanding restricted stock units.  The plaintiff seeks, among other things, damages, disgorgement and attorney’s fees.  In addition, the plaintiff sought, and on October 23, 2012 the court issued, an order preliminarily enjoining our shareholder vote on Proposal 2 in our 2012 proxy statement, regarding an amendment to the 2005 Equity Incentive Plan, until such time as additional disclosures could be made.  The Company filed with the SEC and mailed to shareholders supplemental proxy materials approved by the court, the injunction was lifted and our shareholders approved the proposal to amend our 2005 Equity Incentive Plan.  The defendants have filed motions to dismiss the claims.  A hearing on the motions is currently scheduled for March 5, 2013.  Management believes the claims raised by the plaintiff are without merit and intends to contest them vigorously.

We are involved from time to time in various litigation matters in the normal course of business.  There can be no assurance that existing or future legal proceedings arising in the ordinary course of business or otherwise will not have a material adverse effect on our business, consolidated financial position, results of operations or cash flows.

Item 1A.  Risk Factors

RISK FACTORS THAT MAY AFFECT OUR PERFORMANCE

Our future performance is subject to a number of risks.  If any of the following risks actually occur, our business could be harmed and the trading price of our common stock could decline.

When used in these risk factors, the words “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “future,” “intends,” “may,” “might,” “plans,” “projects,” “will” and similar expressions identify forward-looking statements.  Our actual results could differ materially from those that we project in the forward-looking statements as a result of factors that we have set forth throughout this document as well as additional risks not presently known to us or that we currently believe are immaterial that may also significantly impair our business operations.

In evaluating our business, you should carefully consider the following risks in addition to the other information in our Annual Report on Form 10-K for the fiscal year ended March 31, 2012 as filed with the Securities and Exchange Commission on June 14, 2012.  We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995.  It is not possible to predict or identify all such factors and, therefore, you should not consider the following risks to be a complete statement of all the potential risks or uncertainties that we face.

39

Our facilities and manufacturing operations are vulnerable to interruption as a result of natural disasters and system failures.  Any such interruption may harm our business.

Our success depends on the efficient and uninterrupted operation of our manufacturing operations, which are co-located with our corporate headquarters in Union City, California.  These manufacturing operations are vulnerable to damage or interruption from earthquakes, fire, floods, power loss, telecommunications failures, break-ins and similar events.  A failure of manufacturing operations, be it in the development and manufacturing of our Piccolo or VetScan blood chemistry analyzers or the reagent discs used in the blood chemistry analyzers, could result in our inability to supply customer demand.  We do not have a backup facility to provide redundant manufacturing capacity in the event of a system failure or other significant loss or problem.  Accordingly, if our manufacturing operations in Union City, California were interrupted, we may be required to bring an alternative facility online, a process that could take several weeks to several months or more.

Additionally, we rely on several information systems to keep financial records, process customer orders, manage inventory, process shipments to customers and operate other critical functions.  If we were to experience a system disruption in the information technology systems that enable us to interact with customers and suppliers, it could result in the loss of sales and customers and significant incremental costs, which could adversely affect our business.  Although we carry property and business interruption insurance, our coverage may not be adequate to compensate us for all losses that may occur.

We are not able to predict sales in future quarters and a number of factors affect our periodic results, which makes our quarterly operating results less predictable.

We are not able to accurately predict our sales in future quarters.  Our revenue in the medical and veterinary markets are derived primarily by selling to distributors that resell our products to the ultimate user.  While we are better able to predict sales of our reagent discs, as we sell these discs primarily for use with blood chemistry analyzers that we sold in prior periods, we generally are unable to predict with much certainty sales of our blood chemistry analyzers, as we typically sell our blood chemistry analyzers to new users.  Accordingly, our sales in any one quarter or period are not indicative of our sales in any future period.

We generally operate with a limited order backlog, because we ship our products shortly after we receive the orders from our customers.  As a result, our product sales in any quarter are generally dependent on orders that we receive and ship in that quarter.  As a result, any such revenues shortfall would immediately materially and adversely impact our operating results and financial condition.

The sales cycle for our products can fluctuate, which may cause revenue and operating results to vary significantly from period to period.  We believe this fluctuation is primarily due (i) to seasonal patterns in the decision making processes by our independent distributors and direct customers, (ii) to inventory or timing considerations by our distributors and (iii) on the purchasing requirements of the U.S. government to acquire our products.  Accordingly, we believe that period to period comparisons of our results of operations are not necessarily meaningful.

In the future, our periodic operating results may vary significantly depending on, but not limited to, a number of factors, including:

· new product or service announcements made by us or our competitors;

· changes in our pricing structures or the pricing structures of our competitors;

· our ability to develop, introduce and market new products or services on a timely basis, or at all;

· our manufacturing capacities and our ability to increase the scale of these capacities;

· the mix of sales among our instruments, consumable products and services;

· the amount we spend on research and development; and

· changes in our strategies.

We depend on limited or sole suppliers, many of whom we do not have long-term contracts with, and failure of our suppliers to provide the components or products to us could harm our business.

We use several key components that are currently available from limited or sole sources as discussed below.

· Blood Chemistry Analyzer Components:  Our blood analyzer products use several technologically-advanced components that we currently purchase from a limited number of suppliers, including certain components from single source suppliers, Hamamatsu Corporation and UDT Sensors (a division of OSI Optoelectronics).  Our analyzers also use a printer that is primarily made by Seiko North America Corporation.  The loss of the supply of any of these components could force us to redesign our blood chemistry analyzers.

40

· Reagent Discs:  Two injection-molding manufacturers, C. Brewer & Co. and Nypro, Inc., currently make the molded plastic discs that, when loaded with reagents and welded together, form our reagent disc products.  We believe that only a few manufacturers are capable of producing these discs to the narrow tolerances that we require.  To date, we have only qualified these two manufacturers to manufacture the molded plastic discs.

· Reagent Chemicals:  We currently depend on the following single source vendors for some of the chemicals that we use to produce the reagents and dry reagent chemistry beads that are either inserted in our reagent discs, lateral flow rapid tests or sold as stand-alone products:  Amano Enzyme USA Co., Ltd., Kikkoman Corporation Biochemical Division, Microgenics Corporation, a division of Thermo Fisher Scientific, Roche Molecular Biochemicals of Roche Diagnostics Corporation, a division of F. Hoffmann-La Roche, Ltd., SA Scientific Co., Sekisui Diagnostics (formerly Genzyme Diagnostics), Sigma Aldrich Inc. and Toyobo Specialties.

We market original equipment manufacturer supplied products that are currently available from limited sources as discussed below.

· Hematology Instruments and Reagent Kits:  Our VetScan hematology instruments are manufactured by Diatron in Hungary and are purchased by us as a completed instrument.  In addition, currently, we have qualified two suppliers to produce the reagent kits for our hematology instruments:  Clinical Diagnostic Solutions, Inc. and Diatron.

· VSpro Specialty Analyzers and Cartridges:  Our VetScan VSpro specialty analyzers and cartridges are manufactured by Scandinavian MicroBiodevices APS in Denmark and are purchased by us as completed products.

· i-STAT Analyzers and Cartridges: Our VetScan i-STAT 1 analyzers and cartridges are manufactured by Abbott in North America and are purchased by us as completed products.

We primarily operate on a purchase order basis with most of our suppliers and, therefore, these suppliers are under no contractual obligation to supply us with their products or to do so at specified prices.  Although we believe that there may be potential alternate suppliers available for these critical components, to date we have not qualified additional vendors beyond those referenced above and cannot assure you we would be able to enter into arrangements with additional vendors on favorable terms, or at all.  For the suppliers of original equipment manufactured products that we have long-term contracts with, there can be no assurance that these suppliers will always fulfill their obligations under these contracts, or that any suppliers will not experience disruptions in their ability to supply our requirements for products.  In addition, under some contracts with suppliers we have minimum purchase obligations and our failure to satisfy those obligations may result in loss of some or all of our rights under these contracts.

Because we are dependent on a limited number of suppliers and manufacturers for our products, we are particularly susceptible to any interruption in the supply of these products or the viability of our assembly arrangements.  The loss of any one of these suppliers or a disruption in our manufacturing arrangements could adversely affect our business and financial condition.

We would fail to achieve anticipated revenues if the market does not accept our products or services.

We believe that our core compact blood chemistry analyzer product differs substantially from current blood chemistry analyzers on the market.  We compete with centralized laboratories that offer a greater number of tests than our products, but do so at a greater overall cost and require more time.  We also compete with other point-of-care analyzers that cost more, require more maintenance and offer a narrower range of tests.  However, these point-of-care analyzers are generally marketed by larger companies which have greater resources for sales and marketing, in addition to a recognized brand name and established distribution relationships.

In the human medical market, we believe that our blood chemistry analyzers offer customers many advantages, including substantial improvements in practice efficiencies.  However, the implementation of point-of-care diagnostics in physicians’ offices involves changes to current standard practices, such as using large clinical laboratories, and adopting our technology requires a shift in both the procedures and mindset of care providers.  The human medical market in particular is highly regulated, structured, difficult to penetrate and often slow to adopt new product offerings.  If we are unable to convince large numbers of medical clinics, hospitals and other point-of-care environments of the benefits of our Piccolo blood chemistry analyzers and our other products, we could fail to achieve anticipated revenue.

Historically, in the veterinary market, we have marketed our VetScan products through both direct sales and distribution channels to veterinarians.  We continue to develop new animal blood tests to expand our product offerings; however, we cannot be assured that these products will be accepted by the veterinary market.  Any failure to achieve market acceptance with our current or future products or services would harm our business and financial condition.

41

We rely on patents and other proprietary information, the loss of which would negatively affect our business.

As of December 31, 2012, 61 patent applications have been filed on our behalf with the United States Patent and Trademark Office (“USPTO”), of which 33 patents have been issued and 16 patents are currently active.  Additionally, we have filed several international patent applications covering the same subject matter as our domestic applications.  The patent position of any medical device manufacturer, including us, is uncertain and may involve complex legal and factual issues.  Consequently, we may not be issued any additional patents, either domestically or internationally.  Furthermore, our patents may not provide significant proprietary protection because there is a chance that they will be circumvented or invalidated.  We cannot be certain that we were the first creator of the inventions covered by our issued patents or pending patent applications, or that we were the first to file patent applications for these inventions, because (1) the USPTO maintains all patent applications that are not filed in any foreign jurisdictions in secrecy until it issues the patents (when a patent application owner files a request for nonpublication) and (2) publications of discoveries in the scientific or patent literature tend to lag behind actual discoveries by several months.  We may have to participate in interference proceedings, which are proceedings in front of the USPTO, to determine who will be issued a patent.  These proceedings could be costly and could be decided against us.

We also rely upon copyrights, trademarks and unpatented trade secrets.  Others may independently develop substantially equivalent proprietary information and techniques that would undermine our proprietary technologies.  Further, others may gain access to our trade secrets or disclose such technology.  Although we require our employees, consultants and advisors to execute agreements that require that our corporate information be kept confidential and that any inventions by these individuals are property of Abaxis, there can be no assurance that these agreements will provide meaningful protection or adequate remedies for our trade secrets in the event of unauthorized use or disclosure of such information.  The unauthorized dissemination of our confidential information would negatively impact our business.

We must increase sales of our Piccolo and VetScan products or we may not be able to increase or sustain profitability.

Our ability to continue to be profitable and to increase profitability will depend, in part, on our ability to increase our sales volumes of our Piccolo and VetScan products.  Increasing the sales volume of our products will depend upon, among other things, our ability to:

· continue to improve our existing products and develop new and innovative products;

· increase our sales and marketing activities;

· effectively manage our manufacturing activities; and

· effectively compete against current and future competitors.

We cannot assure you that we will be able to successfully increase the sales volumes of our products to increase or sustain profitability.

We must continue to increase our sales, marketing and distribution efforts in the human diagnostic market or our business will not grow.

The human diagnostic market is fragmented, heavily regulated and constantly changing.  Our limited sales, marketing and distribution capabilities are continually challenged to translate these changes into compelling value propositions for our prospective customers.  Accordingly, we cannot assure you that:

· we will be able to maintain consistent growth through our key distributors in the human diagnostic market;

· the costs associated with sales, marketing and distributing our products will not be excessive; or

· government regulations or private insurer policies will not adversely affect our ability to be successful.

Beginning in January 2013, pursuant to the Abbott Agreement, Abbott has the exclusive right to sell and distribute in the United States and China (including Hong Kong) our Piccolo Xpress chemistry analyzer and associated consumables in the professionally-attended human healthcare market in this territory, excluding sales and distribution to Catapult Health LLC and specified customer segments, including pharmacy and retail store clinics, shopping malls and contract research organizations (CROs) and cruise ship lines.  As a result of the Abbott Agreement, we will no longer have control over the marketing and sale of such products into most of the U.S. and China medical market.  The success of our medical business in these markets will be dependent on the efforts of Abbott and, should these efforts be unsuccessful, our business, financial condition and results of operations are likely to be adversely affected.  In addition, as a result of this agreement, we have substantially reduced the size of our United States medical sales force.  The initial term of the Abbott Agreement ends on December 31, 2017, and after the initial term, the agreement renews automatically for successive one-year periods unless terminated by either party based upon a notice of non-renewal six months prior to the then-current expiration date.  In the event the agreement is terminated, we would be required to invest and re-establish presence and sales capabilities in markets that were served by Abbott and/or identify one or more suitable replacement distribution partner(s), which would require significant time and effort.  We could not be assured of replacing the capabilities of Abbott in those markets.  New sales personnel and distribution partners take time to train and gain full productivity with customers, and if we are unable to accomplish this successfully, our business, financial condition and results of operations could be adversely affected.  Should we fail to effectively develop our sales, marketing and distribution efforts and navigate regulatory challenges, our growth will be limited and our results of operations will be adversely affected.

42

We depend on key members of our management and scientific staff and, if we fail to retain and recruit qualified individuals, our ability to execute our business strategy and generate sales would be harmed.

We are highly dependent on the principal members of our management and scientific staff.  The loss of any of these key personnel, including in particular Clinton H. Severson, our President, Chief Executive Officer and Chairman of our Board of Directors, might impede the achievement of our business objectives.  We may not be able to continue to attract and retain skilled and experienced marketing, sales and manufacturing personnel on acceptable terms in the future because numerous medical products and other high technology companies compete for the services of these qualified individuals.  We currently do not maintain key man life insurance on any of our employees.

We rely primarily on distributors to sell our products and we rely on sole distributor arrangements in a number of countries. Our failure to successfully develop and maintain these relationships could adversely affect our business.

We sell our medical and veterinary products primarily through a limited number of distributors.  As a result, we are dependent upon these distributors to sell our products and to assist us in promoting and creating a demand for our products.  We operate on a purchase order basis with the distributors and the distributors are under no contractual obligation to continue carrying our products.  Further, many of our distributors may carry our competitors’ products, and may promote our competitors’ products over our own products.

We depend on a number of distributors in North America who distribute our VetScan products.  We depend on our distributors to assist us in promoting our products in the veterinary market, and accordingly, if one or more of our distributors were to stop selling our products in the future, we may experience a temporary sharp decline or delay in our sales revenues until our customers identify another distributor or purchase products directly from us.

In the United States medical market, we depend on a few distributors for our Piccolo products.  We entered into formal distribution agreements with the following distributors to sell and market Piccolo chemistry analyzers and medical reagent discs:  Henry Schein’s Medical Group, McKesson Medical-Surgical Inc. and PSS World Medical, Inc.  We depend on these distributors to assist us in promoting market acceptance of our Piccolo chemistry analyzers.  The loss of any of these distributors would have a material negative impact on our operating results and financial condition.  In particular, beginning in January 2013, pursuant to the Abbott Agreement, Abbott has the exclusive right to sell and distribute in the United States and China (including Hong Kong) our Piccolo Xpress chemistry analyzer and associated consumables in the professionally-attended human healthcare market in this territory, subject to certain limitations discussed above.  As a result of the Abbott Agreement, we will no longer have control over the marketing and sale of such products into most of the U.S. and China medical market which subjects us to certain risks, as discussed above.

Internationally, we rely on only a few distributors for our products in both the medical and veterinary diagnostic markets.  We currently rely on distributors that carry either our medical or veterinary products in the following countries:  Australia, Austria, Belgium, Canada, Czech Republic, Denmark, France, Germany, Hong Kong, India, Indonesia, Ireland, Israel, Italy, Japan, Korea, Macao, Mexico, the Netherlands, New Zealand, the Philippines, Portugal, Romania, Russia, Singapore, Spain, Sweden, Switzerland, Turkey, the United Arab Emirates, the United Kingdom and the United States.  Our distributors in each of these countries are responsible for obtaining the necessary approvals to sell our new and existing products.  These distributors may not be successful in obtaining proper approvals for our new and existing products in their respective countries, and they may not be successful in marketing our products.  Furthermore, an inability of, or any delays by, our distributor in receiving the necessary approvals for our new or other products can adversely impact our revenues in a country.  We plan to continue to enter into additional distributor relationships to expand our international distribution base and presence.  However, we may not be successful in entering into additional distributor relationships on favorable terms, or at all.  In addition, our distributors may terminate their relationship with us at any time.  Historically, we have experienced a high degree of turnover among our international distributors.  This turnover makes it difficult for us to establish a steady distribution network overseas.  Consequently, we may not be successful in marketing our Piccolo and VetScan products internationally, and our business and financial condition may be harmed as a result.

43

The failure of our Abaxis Veterinary Reference Laboratories to compete effectively and achieve profitability could have a negative impact on our growth and profitability.

For Abaxis Veterinary Reference Laboratories (“AVRL”) to compete effectively and achieve profitability, we must convince our existing and prospective customers in the veterinary market that our service offerings would be an attractive revenue-generating addition to their practices.  In addition, we have to demonstrate that the services offered now and in the future at AVRL are and will be attractive alternatives to those offered by our competitors, by differentiating our services on the basis of such factors as the range of tests offered, turnaround time, cost effectiveness and reliability of results.  This is difficult to do, especially to compete with existing competitors and new market entrants.  Some of our competitors for sales of on-site testing products have a more established relationship with these customers than we do, which could inhibit AVRL’s market penetration efforts.  We cannot be assured that AVRL or its services will be accepted by the veterinary market.  If we are unable to convince large numbers of veterinarians of the benefits of AVRL or otherwise fail to achieve market acceptance for AVRL’s services, the growth of AVRL will be limited accordingly, which could harm our laboratory business and financial condition.

We need to successfully manufacture and market additional reagent discs for the human diagnostic market if we are to compete in that market.

We have developed a blood analysis system that consists of a portable blood analyzer and single-use reagent discs.  Each reagent disc performs a series of standard blood tests.  We believe that it is necessary to develop additional series of reagent discs with various tests for use with the Piccolo chemistry analyzers if we are to compete in that market.  Historically, we have developed reagent discs suitable for the human medical and veterinary diagnostic markets.  We have received 510(k) clearances from the U.S. Food and Drug Administration (“FDA”) for 26 test methods in the human medical market.  These tests are included in standard tests for which the medical community receives reimbursements from third-party payors such as managed care organizations and Medicare.  We may not be able to successfully manufacture or market these reagent discs.  Our failure to meet these challenges will materially adversely affect our operating results and financial condition.

We rely on relationships with partners and other third parties that license our technologies and pay us royalties on sales of their products.  Failure to maintain these relationships, poor performance by these companies or disputes with these companies could negatively impact our business.

We rely on collaborative relationships with other companies for revenues resulting from royalties payable by these third parties in connection with technologies that they license from us.  If third parties fail to perform under license agreement or generate royalties to the level of our expectations, our operating results may be harmed.  In addition, reliance on collaborative relationships poses a number of risks, including the following risks:

· we may not be able to control the amount and timing of resources that our collaborators may devote to products from which we derive royalties;

· disputes may arise with respect to the ownership of rights to technology developed with our partners, such as our recently-settled litigation with Cepheid;

· disagreements with our partners could cause delays in, or termination of, the research, development or commercialization of products or result in litigation or arbitration;

· contracts with our partners may fail to provide significant protection or may fail to be effectively enforced if one of these partners fails to perform;

· should a partner fail to develop or commercialize products based on technologies we may license, we may not receive any future payments or any royalties for the technologies or products;

· collaborative arrangements are often terminated or allowed to expire, such as our former license with Cepheid, which would adversely impact our royalty revenues; and

· our corporate partners may be unable to pay us, particularly in light of current economic conditions.

Given these risks, there is a great deal of uncertainty regarding the success of our current and future collaborative efforts.

We may not be able to compete effectively with larger, more established entities or their products, or with future organizations or future products, which could cause our sales to decline.

The diagnostic market is a well-established field in which there are a number of competitors that have substantially greater financial resources and larger, more established marketing, sales and service organizations than we do.  We compete primarily with the following organizations:

· commercial clinical laboratories;

· hospitals’ clinical laboratories; and

· manufacturers of bench top multi-test blood analyzers and other testing systems that health care providers can use “on-site” (a listing of our competitors is listed below).

44

Historically, hospitals and commercial laboratories perform most of the human diagnostic testing, and veterinary specialized commercial laboratories perform most of the veterinary medical testing.  We have identified five principal factors that we believe customers typically use to evaluate our products and those of our competitors.  These factors include the following:

· range of tests offered;

· immediacy of results;

· cost effectiveness;

· ease of use; and

· reliability of results.

We believe that we compete effectively on each of these factors except for the range of tests offered.  Clinical laboratories are effective at processing large panels of tests using skilled technicians and complex equipment.  While our current offering of instruments and reagent discs cannot provide the same broad range of tests as hospitals and commercial laboratories, we believe that in certain markets, our products provide a sufficient breadth of test menus to compete successfully with clinical laboratories given the advantages of our products with respect to the other four factors.  In addition, we cannot assure you that we will continue to be able to compete effectively on cost effectiveness, ease of use, immediacy of results or reliability of results.  We also cannot assure you that we will ever be able to compete effectively on the basis of range of tests offered.

Our principal competitors in the point-of-care human diagnostic market are Alere (formerly Inverness Medical Technologies), Alfa Wassermann S.P.A., Abbott Laboratories’ i-STAT division, Johnson & Johnson (including its subsidiary, Ortho-Clinical Diagnostics, Inc.) and F. Hoffmann-La Roche Ltd.  Many of our competitors in the human diagnostic market have significantly larger product lines to offer and greater financial and other resources than we do.  In particular, many of these competitors have large sales forces and well-established distribution channels and brand names.  Our principal competitors in the veterinary diagnostic market are Idexx Laboratories, Inc. and Heska Corporation.  Idexx has a larger veterinary product line and sales force than we do and a well-established distribution network and brand name.  Consequently, we must develop our distribution channels and significantly expand our direct sales force in order to compete more effectively in these markets.

Our veterinary reference laboratory, AVRL, competes in the commercial laboratory arena nationwide with a full menu of laboratory diagnostics.  We differentiate our services on the following factors:  range of tests offered, turnaround time, cost effectiveness and reliability of results.  AVRL’s principal competitors are Idexx and Antech Diagnostics, a division of VCA Antech, Inc.

Changes in third-party payor reimbursement regulations can negatively affect our business.

By regulating the maximum amount of reimbursement they will provide for blood testing services, third-party payors, such as managed care organizations, pay-per-service insurance plans, Medicare and Medicaid, can indirectly affect the pricing or the relative attractiveness of our human testing products.  For example, the Centers for Medicare and Medicaid Services (the “CMS”) set the level of reimbursement of fees for blood testing services for Medicare beneficiaries.  If third-party payors decrease the reimbursement amounts for blood testing services, it may decrease the likelihood that physicians and hospitals will adopt point-of-care diagnostics as a viable means of care delivery.  Consequently, we would need to charge less for our products.  If the government and third-party payors do not provide for adequate coverage and reimbursement levels to allow health care providers to use our products, the demand for our products will decrease and our business and financial condition would be harmed.

We are subject to numerous governmental regulations and regulatory changes are difficult to predict and may be damaging to our business.

Need for Government Regulation for our Products

Our Piccolo products are medical devices subject to regulation by the FDA, under the Federal Food, Drug, and Cosmetic Act (“FDCA”).  Medical devices, to be commercially distributed in the United States, must receive either 510(k) premarket clearance or Premarket Approval (“PMA”) from the FDA pursuant to the FDCA prior to marketing.  Devices deemed to pose relatively less risk are placed in either class I or II, which generally requires the manufacturer to submit a premarket notification requesting permission for commercial distribution; this is known as 510(k) clearance.  Most lower risk, or class I, devices are exempted from this requirement.  Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life supporting or implantable devices, or devices deemed not substantially equivalent to a previously 510(k) cleared device or a preamendment class III device for which PMA applications have not been called, are placed in class III requiring PMA approval.  The FDA has classified our Piccolo products as class I or class II devices, depending on their specific intended uses and indications for use.

45

510(k) Clearance Pathway

To obtain 510(k) clearance, a manufacturer must submit a premarket notification demonstrating that the proposed device is substantially equivalent in intended use, principles of operation, and technological characteristics to a previously 510(k) cleared device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not called for submission of PMA applications.  The FDA’s 510(k) clearance pathway usually takes from three to six months, but it can take longer.

After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, requires a new 510(k) clearance or could require a PMA approval.  The FDA requires each manufacturer to make this determination in the first instance, but the FDA can review any such decision.  If the FDA disagrees with a manufacturer’s decision not to seek a new 510(k) clearance, the agency may retroactively require the manufacturer to seek 510(k) clearance or PMA approval.  The FDA also can require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or PMA approval is obtained, to redesign the device or to submit new data or information to the FDA.  Products marketed following the FDA clearance also are subject to significant postmarket requirements.

As of December 31, 2012, we have received the FDA premarket clearance for our Piccolo chemistry analyzer and 26 reagent tests that we have on 15 reagent discs.  We are currently developing additional tests which we will have to clear with the FDA through the 510(k) notification procedures.  These new test products are crucial for our continued success in the human medical market.  If we do not receive 510(k) clearance for a particular product, we will not be able to market that product in the United States until we provide additional information to the FDA and gain premarket clearance.  The inability to market a new product during this time could harm our future sales.

Effects of the Clinical Laboratory Improvement Amendments on our Products

Our Piccolo products are also affected by the Clinical Laboratory Improvement Amendments of 1988 (“CLIA”).  The CLIA Regulations are intended to ensure the quality and reliability of all medical testing in the United States regardless of where the tests are performed.  The current CLIA regulations divide laboratory tests into three categories:  “waived,” “moderately complex” and “highly complex.”  Four of the tests performed using the Piccolo system are in the “moderately complex” category.  This category requires that any location in which testing is performed be certified as a laboratory.  Hence, we can only sell some Piccolo products to customers who meet the standards of a laboratory.  To receive “laboratory” certification, a testing facility must be certified by the CMS.  After the testing facility receives a “laboratory” certification, it must then meet the CLIA regulations.  Because we can only sell some Piccolo products to testing facilities that are certified “laboratories,” the market for some products is correspondingly constrained.

We can currently offer the following Piccolo reagent discs as waived tests to the medical market:  Basic Metabolic Panel, Comprehensive Metabolic Panel, Electrolyte Panel, General Chemistry 6, General Chemistry 13, Kidney Check, Lipid Panel, Lipid Panel Plus, Liver Panel Plus, MetLyte 8 Panel and Renal Function Panel.  Waived status permits untrained personnel to run the Piccolo chemistry analyzer using these tests; thus, extending the sites (doctors’ offices and other point-of-care environments) that can use the Piccolo chemistry analyzer.  Although we are engaged in an active program to test and apply for CLIA waivers for additional analytes, we cannot assure you that we will successfully receive CLIA waived status from the FDA for other products.  Consequently, for the reagent discs that have not received CLIA waived status, the market for our Piccolo products may be confined to those testing facilities that are certified as “laboratories” and our growth would be limited accordingly, which could harm our business and financial condition.

Animal and Plant Health Inspection Service Licensure of Veterinary Biologics

Our canine heartworm antigen (“CHW”) diagnostic product is regulated as a veterinary biologic under the Virus, Serum, and Toxin Act of 1913.  In October 2009, we announced that we received licensure of our CHW test utilizing a rotor-based assay system consisting of eleven other important canine health determinations from the Animal and Plant Health Inspection Service (“APHIS”).  Veterinary biologics are licensed as are their manufacturing facilities.  Products are subject to extensive testing to establish their purity, safety, potency, and efficacy.  Licensed biologics are also required to be prepared in accordance with a filed Outline of Production, among other requirements.  Failure to comply with APHIS licensure or post-marketing approval requirements can result in the inability to obtain product or establishment licenses or cause the revocation or suspension of such licenses.

In February 2012, we received a second license from APHIS for our lateral flow test for VetScan Canine Lyme Rapid Test, a highly sensitive and specific test for the detection of Borrelia burgdorferi in canine whole blood, serum or plasma.  We are currently developing additional tests that will be subject to APHIS licensure as veterinary biologics.  If we do not receive licensure for these additional tests, we will not be able to market those products in the United States and our growth would be limited accordingly.

46

Need to Comply with Manufacturing Regulations and Various Federal, State, Local and International Regulations

The 1976 Medical Device Amendment also requires us to manufacture our Piccolo products in accordance with Good Manufacturing Practices guidelines.  Current Good Manufacturing Practice requirements are set forth in the 21 CFR 820 Quality System Regulation.  These requirements regulate the methods used in, and the facilities and controls used for the design, manufacture, packaging, storage, installation and servicing of our medical devices intended for human use.  Our manufacturing facility is subject to periodic inspections.  In addition, various state regulatory agencies may regulate the manufacture of our products.

Federal, state, local and international regulations regarding the manufacture and sale of health care products and diagnostic devices may change.  In addition, as we continue to sell in foreign markets, we may have to obtain additional governmental clearances in those markets.  To date, we have complied with the following federal, state, local and international regulatory requirements:

· United States Food and Drug Administration (“FDA”):  In March 2012, December 2010, August 2008, September 2005 and March 2003, the FDA conducted a facility inspection and verified our compliance with the 21 CFR 820 Regulation.

· United States Department of Agriculture:  In October 2009, we received a United States Veterinary Biologics Establishment License from the United States Department of Agriculture.

· State of California Food and Drug Branch (“FDB”):  In April 2001, the FDB granted our manufacturing facility “in compliance” status, based on the regulations for Good Manufacturing Practices for medical devices.  In May 2001, the FDB granted licensing for our manufacturing facility in Union City, California.  In December 2010, the FDB conducted a routine facility inspection and verified our compliance with Good Manufacturing Practices for medical devices.

· International Organization for Standardization (“ISO”):  In May 2002, we received our ISO 9001 certification, expanding our compliance with international quality standards.  In December 2003, we received ISO 13485 Quality System certification as required by the 2003 European In Vitro Device Directive.  This certified our quality system specifically to medical devices.  In April 2005, we received the Canadian Medical Device Conformity Assessment System stamp on our ISO 13485 certificate to signify compliance with Health Canada regulations.  In October 2009, we received our recertification to the ISO 13485:2003 Quality System Standard for medical devices.  In May 2010, May 2011 and July 2012, we were recommended for continued certification to ISO 13485:2003 by our current ISO registrar.

We are not required to comply with all of the FDA government regulations applicable to the human medical market when manufacturing our VetScan products; however, we intend for all of our manufacturing operations to be compliant with the Quality System Regulation to help ensure product quality and integrity regardless of end use or patient.  As we continue to sell in foreign markets, we may have to obtain additional governmental clearances in those markets.  We cannot assure you that we will successfully pass the latest FDA inspection or any re-inspection by the FDA or the State of California.  In addition, we cannot assure you that we can comply with all current or future government manufacturing requirements and regulations.  We cannot predict what impact, if any, such current or future regulatory changes would have on our business.  We may not be able to obtain regulatory clearances for our products in the United States or in foreign markets, and the failure to obtain these regulatory clearances will materially adversely affect our business and results of operations.  If we are unable to comply with the regulations, or if we do not pass routine inspections, our business and results of operations will be materially adversely affected.  Although we believe that we will be able to comply with all applicable regulations of the FDA and of the State of California, including the Quality System Regulation, current regulations depend on administrative interpretations.  Future interpretations made by the FDA, CMS or other regulatory bodies may adversely affect our business.

We may inadvertently design or produce defective products, which may subject us to significant warranty liabilities or product liability claims.  We may have insufficient product liability insurance to pay material uninsured claims.

Our business exposes us to potential warranty and product liability risks that are inherent in the design, testing, manufacturing and marketing of human and veterinary medical products.  Although we have established procedures for quality control on both the raw materials that we receive from suppliers as well as the design and manufacturing of our products, these procedures may prove inadequate to detect a design or manufacturing defect.  In addition, our Piccolo and VetScan chemistry analyzers may be unable to detect all errors that could result in the misdiagnosis of human or veterinary patients.

We may be subject to substantial claims for defective products under our warranty policy or product liability laws.  In addition, our policy is to credit medical providers for any defective product that we produce, including those reagent discs that are rejected by our Piccolo and VetScan chemistry analyzers.  Therefore, even if a mass defect within a lot or lots of reagent discs were detected by our Piccolo and VetScan chemistry analyzers, the replacement of such reagent discs free of charge would be costly and could materially harm our financial condition.  Further, in the event that a product defect is not detected in our Piccolo chemistry analyzer, our relatively recent expansion into the human medical market greatly increases the risk that the amount of damages involved with just one product defect would be material to our operations.  Our product liability insurance and cash may be insufficient to cover potential liabilities.  In addition, in the future the coverage that we require may be unavailable on commercially reasonable terms, if at all.  Even with our current insurance coverage, a mass product defect, product liability claim or recall could subject us to claims above the amount of our coverage and would materially adversely affect our business and our financial condition.

47

We may experience manufacturing problems related to our instruments, which could materially and adversely affect our revenues and business.

We manufacture our blood chemistry analyzers at our manufacturing facility in Union City, California.  Should we experience problems related to the manufacture of our blood chemistry analyzer, we could fail to achieve anticipated revenues or we may incur an additional increase in our cost of revenues.  These problems may include manufacturing defects and product failures, defects in raw materials acquired from our suppliers, delays in receipt of raw materials from our suppliers, obsolescence, increases in raw materials costs and labor disturbances.  There can be no assurance that our efforts to resolve manufacturing difficulties will be successful or that similar problems will not arise in the future.  If we are unable to prevent such problems from occurring in the future, we may not be able to manufacture sufficient quantities to meet anticipated demand and, therefore, will not be able to effectively market and sell our blood chemistry analyzers or other instruments that we market and sell; accordingly, our revenues and business would be materially adversely affected.

Fluctuations in foreign exchange rates and the possible lack of financial stability in foreign countries could prevent overseas sales growth.

For our international sales denominated in U.S. dollars, an increase in the value of the U.S. dollar relative to foreign currencies could make our products less competitive in international markets.  For our sales denominated in foreign currencies, we are subject to fluctuations in exchange rates between the U.S. dollar and the particular foreign currency.  Our operating results could also be adversely affected by the seasonality of international sales and the economic conditions of our overseas markets.

We are subject to complex requirements from legislation requiring companies to evaluate internal control over financial reporting.

Rules adopted by the Securities and Exchange Commission pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require an assessment of internal control over financial reporting by our management and an attestation of the effectiveness of our internal control over financial reporting by an independent registered public accounting firm.  We have an ongoing program to perform the assessment, testing and evaluation to comply with these requirements and we expect to continue to incur significant expenses for Section 404 compliance on an ongoing basis.

Our management assessed the effectiveness of our internal control over financial reporting as of our fiscal years ended March 31, 2012 and 2011.  Although we received an unqualified opinion on our consolidated financial statements for the fiscal years ended March 31, 2012 and 2011, and on the effectiveness of our internal control over financial reporting as of March 31, 2012 and 2011, we cannot predict the outcome of our testing in future periods.  In the event that our internal control over financial reporting is not effective as defined under Section 404, or any failure to implement required new or improved controls, or difficulties encountered in implementation could harm operating results or prevent us from accurately reporting financial results or cause a failure to meet our reporting obligations in the future.  If management cannot assess internal control over financial reporting is effective, or our independent registered public accounting firm is unable to provide an unqualified attestation report on such assessment, investor confidence and our share value may be negatively impacted.

We must comply with strict and potentially costly environmental regulations or we could pay significant fines.

We are subject to stringent federal, state and local laws, rules, regulations and policies that govern the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials and wastes.  In particular, we are subject to laws, rules and regulations governing the handling and disposal of biohazardous materials used in the development and testing of our products.  Our costs to comply with applicable environmental regulations consist primarily of handling and disposing of human and veterinary blood samples for testing (whole blood, plasma, serum).  Although we believe that we have complied with applicable laws and regulations in all material respects and have not been required to take any action to correct any noncompliance, we may have to incur significant costs to comply with environmental regulations if our manufacturing to commercial levels continues to increase.  In addition, if a government agency determines that we have not complied with these laws, rules and regulations, we may have to pay significant fines and/or take remedial action that would be expensive and we do not carry environmental-related insurance coverage.

48

Our operating results could be materially affected by unanticipated changes in our tax provisions or exposure to additional income tax liabilities.

Our determination of our tax liability is subject to review by applicable tax authorities.  Any adverse outcome of such a review could have an adverse effect on our operating results and financial condition.  In addition, the determination of our provision for income taxes and other tax liabilities requires significant judgment including our determination of whether a valuation allowance against deferred tax assets is required.  Although we believe our estimates and judgments are reasonable, the ultimate tax outcome may differ from the amounts recorded in our consolidated financial statements and may materially affect our financial results in the period or periods for which such determination is made.

Our stock price is highly volatile and investing in our stock involves a high degree of risk, which could result in substantial losses for investors.

The market price of our common stock, like the securities of many other medical products companies, fluctuates over a wide range, and will continue to be highly volatile in the future.  During the quarter ended December 31, 2012, the closing sale prices of our common stock on the NASDAQ Global Market ranged from $34.34 to $38.92 per share and the closing sale price on December 31, 2012, was $37.10 per share.  During the last eight fiscal quarters ended December 31, 2012, our stock price closed at a high of $39.81 per share on July 18, 2012 and a low of $19.99 per share on August 8, 2011.  Many factors may affect the market price of our common stock, including:

· fluctuation in our operating results;

· announcements of technological innovations or new commercial products by us or our competitors;

· changes in governmental regulation in the United States and internationally;

· prospects and proposals for health care reform;

· governmental or third-party payors’ controls on prices that our customers may pay for our products;

· developments or disputes concerning our patents or our other proprietary rights;

· product liability claims and public concern as to the safety of our devices or similar devices developed by our competitors; and

· general market conditions.

Because our stock price is so volatile, investing in our common stock is highly risky.  A potential investor must be able to withstand the loss of his entire investment in our common stock.

Our shareholder rights plan and our ability to issue preferred stock may delay or prevent a change of control of Abaxis.

Our shareholder rights plan, adopted by our board of directors on April 22, 2003, may make it more difficult for a third party to acquire, or discourage a third party from attempting to acquire control of, Abaxis.  The shareholder rights plan could limit the price that investors might be willing to pay in the future for shares of our common stock.

In addition, our board of directors has the authority to issue up to 5,000,000 shares of preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the shareholders, except to the extent required by NASDAQ rules.  The issuance of preferred stock, while providing flexibility in connection with possible financings or acquisitions or other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock and, consequently, negatively affect our stock price.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

We did not repurchase any equity securities during the period covered by this report.

Item 3.  Defaults Upon Senior Securities

Not applicable.

Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information

Not applicable.

49

Item 6.  Exhibits

Exhibit No.	Description of Document
3.1	Restated Articles of Incorporation (Filed with the Securities and Exchange Commission as an exhibit with our Annual Report on Form 10-K for the fiscal year ended March 31, 1993 and incorporated herein by reference.)
3.2	Certificate of Amendment of Amended and Restated Articles of Incorporation (Filed with the Securities and Exchange Commission as an exhibit with our Quarterly Report on Form 10-Q for the quarterly period ended December 31, 1996 and incorporated herein by reference.)
3.3	By-laws (Filed with the Securities and Exchange Commission in our Registration Statement No. 33-44326 on December 11, 1991 and incorporated herein by reference.)
3.4	Amendment to the By-laws (Filed with the Securities and Exchange Commission as an exhibit with our Current Report on Form 8-K on July 30, 2007 and incorporated herein by reference.)
4.1	Registration Rights Agreement, dated as of March 29, 2002 (Filed with the Securities and Exchange Commission as an exhibit with our Current Report on Form 8-K on May 13, 2002 and incorporated herein by reference.)
4.2	Reference is made to Exhibit 3.1, Exhibit 3.2, Exhibit 3.3 and Exhibit 3.4.
10.1*	Exclusive Agreement, dated October 26, 2012, by and between Abbott Point of Care Inc. and the Company
10.2	Non-Exclusive Distributor Agreement, dated as of September 28, 2012, by and between MWI Veterinary Supply, Inc. (“MWI”) and the Company (Filed with the Securities and Exchange Commission as an exhibit with MWI’s Annual Report on Form 10-K for the fiscal year ended September 30, 2012 and incorporated herein by reference.)
10.3*	Letter Agreement, dated as of September 28, 2012, by and between MWI and the Company (Filed with the Securities and Exchange Commission as an exhibit with MWI’s Annual Report on Form 10-K for the fiscal year ended September 30, 2012 and incorporated herein by reference.)
10.4	2005 Equity Incentive Plan, as amended and restated
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1#	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2#	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS†	XBRL Instance Document
101.SCH†	XBRL Taxonomy Extension Schema Document
101.CAL†	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF†	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB†	XBRL Taxonomy Extension Label Linkbase Document
101.PRE†	XBRL Taxonomy Extension Presentation Linkbase Document

# These exhibits are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Abaxis, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q and irrespective of any general incorporation language contained in any such filing.

† Pursuant to applicable securities laws and regulations, the Registrant is deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and is not subject to liability under any anti-fraud provisions of the federal securities laws as long as the Registrant has made a good faith attempt to comply with the submission requirements and promptly amends the interactive data files after becoming aware that the interactive data files fail to comply with the submission requirements.  These interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.

* Confidential treatment has been requested from the Securities and Exchange Commission for portions of this exhibit.

50

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.

	ABAXIS, INC.
	(Registrant)
Date:  February 11, 2013	BY:	/s/ Clinton H. Severson
		Clinton H. Severson
		President, Chief Executive Officer and Director
		(Principal Executive Officer)
Date:  February 11, 2013	BY:	/s/ Alberto R. Santa Ines
		Alberto R. Santa Ines
		Chief Financial Officer and Vice Presidentof Finance
		(Principal Financial and Accounting Officer)

51

EX-10.1

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Exhibit 10.1

EXECUTION COPY

EXCLUSIVE AGREEMENT

THIS EXCLUSIVE AGREEMENT (“Agreement”) is made and entered into on October 26, 2012 by and between Abbott Point of Care Inc., a Delaware corporation, having its principal place of business at 400 College Road East, Princeton, NJ 08540 (“Abbott”), and Abaxis, Inc., a Delaware corporation with offices at 3240 Whipple Road, Union City, CA 94587 (“Abaxis”), and effective as of January 2, 2013 (“Effective Date”).  Abbott and Abaxis are sometimes referred to herein individually as a “Party” and collectively as the “Parties”.

RECITALS

WHEREAS, Abaxis is a manufacturer of diagnostic health care equipment and reagents and desires to obtain an OEM distributor of Products (as hereinafter defined) in the Field (as hereinafter defined) in the Territory (as hereinafter defined);

WHEREAS, Abbott is a manufacturer and distributor of various products in the Field in the Territory; and

WHEREAS, in accordance with the terms and conditions hereof, Abaxis is willing to appoint Abbott as its exclusive distributor of Products in the Territory, and Abbott is willing to accept such appointment.

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and upon the terms and subject to the conditions set forth below, Abaxis and Abbott hereby agree as follows:

ARTICLE 1

DEFINITIONS

As used in this Agreement, the following terms shall have the meanings set forth below:

1.1           “Abaxis Trademarks” shall mean the Abaxis-owned trademarks and trade names set forth on Exhibit 1.1.

1

1.2           “Abbott Trademarks” shall mean the Abbott-owned trademarks and trade names set forth on Exhibit 1.2.

1.3           “Affiliate” shall mean, with respect to a Party, any other business entity which directly or indirectly controls, is controlled by, or is under common control with, such Party. A business entity or party shall be regarded as in control of another business entity if it owns, or directly or indirectly controls, at least fifty percent (50%) of the voting stock or other ownership interest of the other business entity, or if it directly or indirectly possesses the power to direct or cause the direction of the management and policies of the other business entity by any means whatsoever.

1.4           "Analyzer" shall mean the Piccolo Xpress® device.

1.5           "Base Target" shall mean, for each Contract Year, the minimum unit number of Product purchases required to be made by Abbott and its Affiliates during such Contract Year.

1.6           “Confidential Information” shall mean any proprietary, confidential or non-public information, including without limitation information relating to products, End Users, suppliers, data, processes, prototypes, samples, plans, marketing plans, reports, forecasts, technical or commercial information, patents, patent applications, research, research results and other trade secrets, strategies, Know-How (as hereinafter defined) or intellectual property rights disclosed in writing by one Party to the other Party under this Agreement, as well as information disclosed orally and disclosed to be “Confidential Information” at the time of disclosure, to the extent such oral disclosure is reduced to writing, marked “Confidential” and provided to the receiving Party within [ * ] after oral disclosure.  “Confidential Information” shall not include any information which:

(a) Is known to the receiving Party before receipt thereof under this Agreement, as evidenced by the receiving Party’s written records;

(b) Is disclosed to the receiving Party without restriction by a Third Party (as hereinafter defined) not under an obligation of nondisclosure to the disclosing Party;

(c) Is or becomes part of the public domain other than through a breach of this Agreement by the receiving Party;

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

2

(d) Is disclosed by the disclosing Party to a Third Party without a duty of confidentiality;

(e) Is independently developed by or for the receiving Party without use of the disclosing Party’s Confidential Information, as evidenced by the receiving Party’s records; or

(f) Is disclosed by the receiving Party with the disclosing Party’s prior written approval.

1.7           “Contract Quarter” shall mean each calendar quarter during the Initial Term or any Renewal Term (as defined in Section 8.1).

1.8           “Contract Year” shall mean the twelve (12) month period from January 1 through December 31 of each year during the Term, provided that the first Contract Year shall mean the calendar year ending on December 31, 2013.

1.9           "Dealer" shall mean a natural person, corporation, partnership, trust, joint venture, government authority or other legal entity or organization in the Territory, other than Abaxis or Abbott and/or their respective Affiliates, which purchases Products from Abbott for the purpose of resale to End Users for use solely in the Field.

1.10          "Disc" shall mean the disposable test component of a particular Product that contains Abaxis’ [ * ] and [ * ] and operates on an Analyzer.

1.11          "End User" shall mean a natural person, corporation, partnership, trust, joint venture, government authority or other legal entity or organization in the Field in the Territory, other than Abaxis or Abbott and/or their respective Affiliates, that purchases Products under this Agreement for its own use or consumption solely in the Field.

1.12          “Field” shall mean the professionally attended human healthcare market but excluding the following: Catapult Health, LLC, pharmacy and retail store clinics, shopping malls, contract research organizations (CROs), and cruise lines.  The Field does not include use in the veterinary healthcare market.

1.13          “Know-How” shall mean any and all data and information, including but not limited to ideas, designs, engineering drawings, methodologies of preparation or manufacturing, processes, instructions for use, formula enhancements, raw material specifications, raw material standards, and sources of raw material procurements, relating to the manufacture of Products.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

3

1.14          "Products" shall mean the products manufactured by or for Abaxis listed on Exhibit 1.14.

1.15          "Product Purchases" shall mean, for each Contract Year, the Products purchased by Abbott and its Affiliates from Abaxis.  For the purposes of this definition, a Product shall be considered purchased in the Contract Year in which it was delivered after having been duly ordered in accordance with the terms and conditions hereunder.

1.16          "Product Sales" means the Products Sold in the Field in the Territory by Abbott directly to:  (a) Dealers for Sale or resale to End Users; or (b) End Users; net of returns.  Notwithstanding the foregoing, Products returned as a result of non-compliance with the warranties set forth in Section 3.4(f) shall be counted as Product Sales, it being understood that any replacement Products corresponding to such returned Products shall not be included in Product Sales.

1.17          “Purchase Price” shall mean the price for Analyzers, Discs and other Products purchased by Abbott and its Affiliates from Abaxis hereunder, as set forth on Exhibit 1.17 and more fully described in Section 3.3.

1.18          "Sale", "Sell" or "Sold" shall mean to sell, hire, let, rent, lease or otherwise dispose of Product to a Third Party or Affiliate, provided such Affiliate is an End User of Products for commercial purposes for monetary or other valuable consideration.  "Sale", "Sell" or "Sold" shall not include a transaction where samples of Product are supplied without charge to a Third Party or Affiliate for marketing or demonstration purposes or in connection with clinical or other experimental trials.

1.19          “Term” shall mean the “Initial Term” and any “Renewal Term”.

1.20          "Territory" shall mean the United States and China, including Hong Kong.

1.21          "Third Party" shall mean a natural person, corporation, partnership, trust, joint venture, governmental authority or other legal entity or organization other than the Parties and/or their Affiliates.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

4

ARTICLE 2

APPOINTMENT AND AUTHORIZATION

2.1           Appointment.

(a)           Exclusive Appointment.  Subject to Section 2.5 below, Abaxis hereby appoints Abbott and its Affiliates for the Term as its exclusive distributor of Products in the Field in the Territory, and Abbott hereby accepts such appointment from Abaxis.  As exclusive distributor in the Field in the Territory as of the Effective Date, Abbott shall have the sole and exclusive right (even as to Abaxis) to Sell and distribute Products in the Territory for use in the Field.  Exhibit 2.1 contains a list of all (i) [ * ], including address and contact information, of any Product in the Field in the Territory known to Abaxis as of the date of this Agreement and (ii) [ * ], including address and contract information, of any Product in the Field in the Territory known to Abaxis as of the date of this Agreement.  Abaxis shall update Exhibit 2.1 not less than [ * ] prior to the Effective Date.

(b)           Abaxis Restriction.  For so long as Abbott is the exclusive distributor of Products in the Field in the Territory in accordance with the terms and provisions of this Agreement, Abaxis shall not Sell or, directly or indirectly (e.g., through Affiliates or Third Parties) distribute Products, in the Field in the Territory.  Upon reasonable prior notice and at mutually agreeable times, Abbott may, at Abbott’s expense, retain an independent third party auditor to audit Abaxis’ books and records relating to Abaxis’ Sales of Products solely to verify Abaxis’ compliance with its obligations under this Section 2.1(b), provided that such independent third party auditor shall execute a customary confidentiality agreement with the audited party with respect to the information received in connection with such audit that is not broader in scope or more burdensome than the confidentiality obligations contained in this Agreement.  Notwithstanding this subsection 2.1(b) or subsection 2.1(a) above, Abaxis may maintain certain consultative and technical staff, at Abaxis' expense, to assist Abbott in connection with such marketing, promotion, sales and distribution efforts.  Other than Section 3.2(b), nothing contained in this Agreement shall limit or be interpreted to limit Abaxis or Abaxis’ Affiliates from selling products not listed on Exhibit 1.14 in the Territory.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

5

2.2           [Intentionally Omitted].

2.3           Authorization.  Abaxis hereby authorizes Abbott to represent itself as Abaxis’ exclusive authorized distributor of Products in the Field in the Territory using Abaxis Trademarks in accordance with Section 4.2.

2.4           Minimum Purchase and Sales Requirements.

(a) Minimum Purchase Requirement.  Abbott shall achieve Product Purchases greater than or equal to the Base Target as set forth in the following Table 2.4(a) (“Minimum Purchase Requirement”).  If [ * ], or [ * ] in accordance with this Agreement, [ * ] and [ * ].  The Parties shall meet and negotiate in good faith to establish the Minimum Purchase Requirement for any Renewal Terms occurring beyond the years specified in Table 2.4(a).

Table 2.4(a)

	Base Target
Contract Year	Base Disc Purchases (Units)	Base Analyzer Purchases (Units)
[ * ]	[ * ]	[ * ]
[ * ]	[ * ]	[ * ]
[ * ]	[ * ]	[ * ]
[ * ]	[ * ]	[ * ]
[ * ]	[ * ]	[ * ]

(b) Minimum Sales Requirement.  Abbott shall achieve Product Sales of at least [ * ] of Product Purchases with respect to the number of units purchased by Abbott from Abaxis and, in turn, Sold by Abbott, within each Contract Year (“Minimum Sales Requirement”).  To achieve the Minimum Sales Requirement in a given Contract Year with respect to Discs, [ * ] must equal at least [ * ].  To achieve the Minimum Sales Requirement in a given Contract Year with respect to Analyzers, [ * ] must equal at least [ * ].

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

6

2.5           Failure to Achieve Minimum Purchase and Sale Requirements.  Abaxis’ sole remedies for Abbott’s failure to achieve the Minimum Purchase Requirement and Minimum Sales Requirement set forth in Section 2.4 above in any Contract Year shall be to convert Abbott’s status as exclusive distributor of Products in the Field in the Territory to non-exclusive distributor of Products in the Field in the Territory effective upon [ * ] prior written notice, and/or to terminate this Agreement upon [ * ] prior written notice.

2.6           Annual Product Purchases Calculation.  Following each Contract Year, the number of Product Purchases for such Contract Year shall be determined as set forth in Subsections 2.6(a) and/or 2.6(b) below and the Parties shall execute and attach to this Agreement the “Annual Product Purchase Calculation” form set forth on Exhibit 2.6 completed for such Contract Year.

(a) Abaxis Provides Abaxis Calculation.  Within [ * ] after the end of each Contract Year, Abaxis may provide Abbott with Abaxis’ written calculation of Abbott’s Product Purchases in such Contract Year (the "Abaxis Calculation").  If Abbott disagrees with the Abaxis Calculation, Abbott shall have [ * ] after receipt of the Abaxis Calculation to respond in writing, with (i) Abbott’s calculation; (ii) the difference between Abbott’s calculation and the Abaxis Calculation; and (iii) purchase order level detail so that Abaxis may verify Abbott’s calculation.  If Abaxis disagrees with Abbott’s calculation and Abbott requests, in writing, purchase order level detail for the Abaxis Calculation, Abaxis shall provide such information.  If the exchange of such information does not resolve the dispute, the Parties shall negotiate in good faith to determine the actual Product Purchases in such Contract Year and, if such dispute is not resolved within [ * ], the dispute shall be resolved pursuant to Section 9.11.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

7

(b) Abaxis Does Not Provide Abaxis Calculation.  If Abaxis does not provide Abbott with the Abaxis Calculation within [ * ] after the end of a given Contract Year, Abbott shall provide Abaxis with Abbott’s written calculation of Abbott’s Product Purchases in such Contract Year (the "Abbott Calculation") within [ * ] after the end of such Contract Year.  If Abaxis disagrees with the Abbott Calculation, Abaxis shall have [ * ] after receipt of the Abbott Calculation to respond, in writing, with (i) Abaxis’ calculation, (ii) the difference between Abaxis' calculation and the Abbott Calculation, and (iii) purchase order level detail so that Abbott may verify Abaxis’ calculation.  If Abbott disagrees with Abaxis' calculation and Abaxis requests, in writing, purchase order level detail for the Abbott Calculation, Abbott shall provide such information.  If the exchange of such information does not resolve the dispute, the Parties shall negotiate in good faith to determine the actual Product Purchases in such Contract Year and, if such dispute is not resolved within [ * ], the dispute shall be resolved pursuant to Section 9.11.

2.7           Annual Product Sales Calculation.  Abbott shall provide Abaxis with Abbott’s written calculation of Abbott’s Product Sales in each Contract Year in conjunction with its annual reporting obligations set forth in Section 3.8 of this Agreement.

2.8           Promotional Materials.  Abbott shall not disseminate or publish any written promotional materials or advertisements intended for customer distribution referencing the Products without Abaxis’ prior written approval, which approval shall not be unreasonably withheld.  Abbott shall ensure that translations, if any, are performed by professional translators into the applicable local language, and that such translations are certified.  Abbott shall forward any written promotional materials or advertisements, along with [ * ] copies of any translated materials and their associated certifications, requiring Abaxis’ approval pursuant to the terms of this Section 2.8 to the attention of Abaxis Regulatory Department, 3240 Whipple Road, Union City, CA 94587. Abaxis shall review and comment on such written promotional materials or advertisements within [ * ] after receipt thereof from Abbott.  If Abaxis does not respond during such [ * ] period, such promotional materials shall be deemed approved.

2.9           Performance by Affiliates.  Each of the Parties acknowledges and agrees that it shall remain fully responsible for the performance of any of its Affiliates with respect to any obligations delegated or assigned to its Affiliates under this Agreement.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

8

ARTICLE 3

SALES, MARKETING AND SUPPORT

3.1           Sales and Promotional Activities.

(a) Marketing.  Abbott shall, at its own expense, use commercially reasonable efforts to market and promote the Products in the Territory.  Abbott’s promotional activities shall include, but shall not be not limited to: (a) including the Products in its appropriate catalogs, promotional mailings and like publications; (b) developing, preparing and placing advertising concerning the Products in appropriate media or through appropriate direct mail; (c) exhibiting the Products at appropriate trade shows and exhibitions; (d) conducting commercially reasonable and appropriate market research; and (e) rendering other services customarily rendered by a distributor of human medical products.  By [ * ] of each Contract Year, Abbott shall provide Abaxis with a list of all proposed trade shows and exhibitions that it plans to attend in the next Contract Year.  Abbott may develop printed sales and promotional materials relating to the Products in the local language at its own expense.  Abbott shall provide such materials, if any, which have not been previously approved to Abaxis for Abaxis’ review and approval, which approval shall not be unreasonably delayed or withheld.  Abaxis shall review such materials within [ * ], and Abaxis’ failure to object to any materials within such [ * ] of sending shall be deemed approval.  If Abaxis objects to the material, Abbott shall modify such materials accordingly.

(b) Sales Personnel.  Abbott, at its sole cost and expense, shall engage, compensate, supervise, train and maintain such competent, qualified personnel as may be reasonably required to, deliver, promote, market, sell, and distribute the Products.

(c) Sales Effort.  Abbott shall use a degree of effort to market, promote and Sell the Products in the Field in the Territory that is consistent with [ * ], provided however that [ * ] and [ * ].

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

9

(d) Fees and Commission.  Abbott shall not [ * ].  Abbott shall not [ * ], including [ * ], provided however that [ * ].

(e) Appointment of Dealers.  Abbott shall have the right to appoint Dealersfor the sale of the Products in the Field in the Territory.  Abbott shall use commercially reasonable efforts to restrict each of its then-existing dealers from reselling Products to Third Parties outside the Field or Territory.  Abbott agrees that, if it enters into a new agreement or arrangement, following the Effective Date, with any dealer to allow such dealer to offer for Sale, Sell, have Sold, use, have used, market, have marketed, distribute, have distributed, import and have imported Products in the Field in any country or region of the Territory, Abbott shall use commercially reasonable efforts to restrict the dealer from reselling Products to Third Parties outside the Field and Territory.

(f) Technical Support.  Abaxis shall be responsible for Technical Support with the End User.  The term "Technical Support" shall mean complaint trending and tracking, maintenance of a Quality System compliant to governmental authority requirements of all markets in the Territory, complaint investigations for quality incidents, root cause determination, Product corrections and corrective actions resulting from quality issues, filing of all MDR reports, performance of risk evaluations and decision and execution authority on Product quality holds and field actions.  “Technical Support” shall also mean all Product improvement initiatives initiated in response to governmental authority requirements or customer satisfaction issues.

(g) Modified and New Products.  Abbott shall provide timely comprehensive information to its Dealers or End Users, as appropriate, with respect to newly available Products, discontinuance of Products and changes in existing Products, including, but not limited to, performance specification changes and required software upgrades in Analyzers (which may or may not be coupled to specific lots of Discs).  Abbott shall use commercially reasonable efforts to ensure that each End User in the Territory makes any such performance specification changes and software upgrades in a timely manner.  Abaxis shall inform Abbott in writing of newly available Products, the discontinuance of Products, or changes in existing Products at least [ * ] prior to the availability of such new Products or the effectiveness of such discontinuance or change, as the case may be.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

10

(h) Warranty Services.  Abaxis shall provide a technical liaison and assistance to End Users for standard and extended non-standard warranty services of the Products.  The standard warranty, as set forth in Exhibit 3.1(h) of this Agreement, shall [ * ] for a period of [ * ] of the [ * ].  Costs for repairs (inclusive of labor, overhead and standard shipping costs related to such repairs) performed under the standard warranty for each Analyzer shall be billed to and payable by Abbott [ * ] at $[ * ]; provided, however, that [ * ] in any [ * ] of the [ * ] and [ * ] that remain [ * ] in the [ * ].  Warranty services beyond the standard warranty shall constitute extended non-standard warranty, the costs for repairs (inclusive of labor, overhead, standard shipping costs and replacement parts related to such extended non-standard warranty repairs) for which shall be billed to and payable by Abbott [ * ] at $[ * ].  Abaxis shall only be obligated to provide repair services under the standard warranty for the [ * ] of (i) any [ * ] or (ii) if [ * ] within the [ * ], the [ * ] of the [ * ].  Notwithstanding the foregoing, with respect to any existing warranties as of the Effective date beyond the initial standard warranty, Abaxis [ * ] for the [ * ] of (i) any [ * ] or (ii) if [ * ] during the [ * ], the [ * ] of the [ * ].  Abaxis shall provide to Abbott within [ * ] following the end of [ * ] a report that provides the following for [ * ] by Abaxis: [ * ]; [ * ]; [ * ]; [ * ]; and [ * ].

(i) Order Entry.  Abbott acknowledges and agrees that it shall be responsible for all order entry, training, and education within the Territory relating to the operation and use of the Products.  All such services shall be performed in accordance with Abaxis’ standards and specifications, as notified by Abaxis to Abbott from time to time during the continuance of this Agreement.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

11

(j) Strategy Meetings.  Periodically during the Term (but not less than [ * ]), Abaxis and Abbott shall review topics which may include Abbott’s marketing and selling strategy, potential collaboration in the development of new Product assays or configurations to meet needs or opportunities in the Field, training of End Users, inventory, and other practices with a view toward maximizing End Users' use of and satisfaction with Products.

(k) Quality Assurance Audit by Abaxis.  Not more than [ * ], Abaxis shall, upon giving not less than [ * ] notice to Abbott, have the right, during normal business hours, to retain an independent Third Party to visit or assess all locations where Abbott maintains or ships inventory of Products to conduct a quality assurance audit of such facilities and/or an on-site surveillance of its inventory storage tracking, provided that such independent third party shall execute a customary confidentiality agreement with the audited party with respect to the information received in connection with such audit that is not broader in scope or more burdensome than the confidentiality obligations contained in this Agreement.  Provided further that some or all of such audit activities may be undertaken directly by Abaxis upon the prior mutual written agreement of the Parties.  In the event that an audit reveals matters that Abaxis determines should be corrected by Abbott, Abaxis shall provide, in writing, within [ * ] of such audit, a list of such matters and any proposed corrective action to be taken by Abbott.  Abbott shall respond within [ * ] of receiving Abaxis’ notification of the corrective action to be taken and an estimated complete date.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

12

(l) Quality Assurance Audit by Abbott.  Abbott shall, upon giving not less than [ * ] notice to Abaxis, have the right, during normal business hours, to retain an independent third party to visit or assess all locations where Abaxis manufactures, maintains, ships, or repairs inventory of Products to conduct a quality assurance audit of such facilities and/or an on-site surveillance of its inventory storage tracking, provided that such independent third party shall execute a customary confidentiality agreement with the audited party with respect to the information received in connection with such audit that is not broader in scope or more burdensome than the confidentiality obligations contained in this Agreement.  Provided further that some or all of such audit activities may be undertaken directly by Abbott upon the prior mutual written agreement of the Parties.  In the event that an audit reveals matters that Abbott determines should be corrected by Abaxis, Abbott shall provide, in writing, within [ * ] of such audit, a list of such matters and any proposed corrective action to be taken by Abaxis.  Abaxis shall respond within [ * ] of receiving Abbott’s notification of the corrective action to be taken and an estimated complete date.

(m) Compliance Audit.  Upon reasonable prior notice and at mutually agreeable times, Abaxis may, at Abaxis’ expense, retain an independent Third Party auditor to audit Abbott’s books and records pertaining to its business in the Field and Territory, to the extent such books and records are relevant to Abbott’s compliance with its obligations under this Section 3.1, solely to verify Abbott’s compliance with its obligations under this Section 3.1, provided that such independent third party auditor shall execute a customary confidentiality agreement with the audited party with respect to the information received in connection with such audit that is not broader in scope or more burdensome than the confidentiality obligations contained in this Agreement.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

13

3.2           Diversion and Counterfeiting.

(a) Resellers – Obligations of Abbott.  Abbott shall not promote or market any Product for use outside the Field or Territory, [ * ] will be [ * ] or otherwise [ * ].  Abbott shall not [ * ] that such [ * ].  In any event, Abbott shall [ * ] to [ * ].  Recognizing the end use of the Products is solely in healthcare in the Territory, Abbott shall not [ * ] or otherwise [ * ].  Abbott shall [ * ] and [ * ] to be [ * ].  Upon Abaxis’ request, if and to the extent Abbott or its Dealers Sell Products to customers for use outside the Field or Territory, Abbott shall [ * ] to the [ * ] and [ * ].  The Analyzer and Disc units Sold outside the Field or Territory shall not be included in Analyzer and Disc Purchases for the purpose of meeting the Minimum Purchase Requirement or the Minimum Sales Requirement contained in Section 2.4.  Without Abaxis’ specific written consent, Abbott may not [ * ] or otherwise [ * ].

(b) Resellers – Obligations of Abaxis.  Neither Abaxis nor its Affiliates shall promote or market any Product in the Territory for use in the Field, [ * ] will be [ * ]. Neither Abaxis nor its Affiliates shall [ * ] that such [ * ].  Abaxis shall [ * ] to [ * ].  Abaxis and its Affiliates shall not [ * ] or otherwise [ * ].  Abaxis shall [ * ] and [ * ] to be [ * ].  Without Abbott’s specific written consent, neither Abaxis nor its Affiliates may [ * ] or otherwise [ * ].

(c) Counterfeit Products.  Abbott shall purchase Products for distribution and Sale in the Field in the Territory exclusively from Abaxis.  If Abbott is offered the opportunity to purchase or otherwise becomes aware of any counterfeit products similar in appearance and/or function to the Products manufactured by an entity other than Abaxis (“Counterfeit Products”), Abbott shall promptly notify Abaxis thereof.  Abbott covenants and agrees not to knowingly purchase any Counterfeit Products, and the failure of Abbott to comply with the foregoing covenant and agreement shall constitute grounds for immediate termination of this Agreement by written notice to such effect sent by Abaxis.  Such termination of this Agreement shall be effective as of the date of receipt of any such notice by Abbott. In addition, Abbott acknowledges that its purchase of Counterfeit Products will cause Abaxis irreparable harm and that Abaxis shall have the right to equitable and injunctive relief, in addition to money damages, in the case of such action by Abbott.  Abbott further acknowledges and agrees that Abaxis shall have no obligation to provide any warranty services for Counterfeit Products, however obtained by a Dealer or End User in the Field and Territory.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

14

(d) Corrupt Practices.  Abbott shall comply with all relevant governmental rules and regulations with respect to Abbott’s promotion, marketing, Sale, and distribution of Products in the Field in the Territory.  Abbott agrees, in its performance of this Agreement, to comply with all applicable laws, including the U.S. Foreign Corrupt Practices Act (15 U.S.C. § 78dd-1, et seq.) (“FCPA”), U.S. export control laws, and anti-corruption laws in the Territory and to promptly notify Abaxis of any violations of such applicable laws by Abbott.  Further, Abbott represents and warrants that it shall take no action that would cause Abaxis to be in violation of the FCPA, U.S. export control laws or any other applicable anti-corruption laws in the Territory.  Abbott shall not use any compensation hereunder as payment to any government official or employee of any country in the Territory for the purpose of influencing such person's decisions or actions regarding the Products.

(e) Abbott Compliance Audit.  Upon reasonable prior notice and at mutually agreeable times, Abbott may, at Abbott’s expense, retain an independent third party auditor to audit Abaxis’ books and records relating to Abaxis’ Sales of Product solely to verify Abaxis’ compliance with its obligations under this Section 3.2, provided that such independent third party auditor shall execute a customary confidentiality agreement with the audited party with respect to the information received in connection with such audit that is not broader in scope or more burdensome than the confidentiality obligations contained in this Agreement.

(f) Abaxis Compliance Audit.  Upon reasonable prior notice and at mutually agreeable times, Abaxis may, at Abaxis’ expense, retain an independent third party auditor to audit Abbott’s books and records relating to Abbott’s Sales of Products solely to verify Abbott’s compliance with its obligations under this Section 3.2, provided that such independent third party auditor shall execute a customary confidentiality agreement with the audited party with respect to the information received in connection with such audit that is not broader in scope or more burdensome than the confidentiality obligations contained in this Agreement.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

15

3.3           Purchase Prices.  Abbott’s Purchase Prices for the Products as of the Effective Date are set forth in Exhibit 1.17, attached hereto and incorporated herein.  All Purchase Prices for the Products and payments therefor shall be in U.S. dollars.

(a) Price Adjustments.  The Purchase Price for each Product shall [ * ], upon [ * ] prior written notice, Abaxis may adjust the Purchase Prices for the Products, provided such increase may not exceed [ * ] of the [ * ]. “PPI” shall mean the most current final Producer Price Index for Manufacturing, Analytical and Scientific Instruments Except Optical, (industry code 334516-0), not seasonally adjusted, as published by the United States Department of Labor, Bureau of Labor Statistics; provided, that if the United States Department of Labor, Bureau of Labor Statistics, or a successor agency, ceases to publish the foregoing PPI, the index that will most nearly accomplish the purpose thereof and the use thereof by the parties hereto with respect to price increases under this Agreement shall be used in lieu of the foregoing PPI.

(b) [ * ].  Abbott shall have the right to purchase [ * ] from Abaxis per Calendar Year at [ * ] to be used for [ * ].  In addition, Abbott shall have the right to purchase [ * ] from Abaxis in the [ * ] at a price of $[ * ] to be used for [ * ].  Such purchases of Product for [ * ] in accordance with this subsection will not count towards the Minimum Purchase Requirement and will not incur premium charges.

(c) [Intentionally Omitted].

(d) Resale Prices.  Abaxis price increases to Abbott are in no way contingent upon Abbott agreeing to increase prices to its customers nor its effectiveness in increasing prices to its customers.  Abbott shall set its own prices for resale of the Products to customers, provided that Abaxis may, at its option, suggest resale prices to Abbott.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

16

(e) Taxes; Import Fees.  All Purchase Prices for the Products do not include insurance, freight, customs, duties, taxes, any foreign, federal, state or local taxes that may be applicable to Products including, without limitation, sales, excise ([ * ] by the [ * ]), value-added, withholding, and other taxes. Customs duties and charges, if any, shall be borne by Abbott.  Any and all export and import licenses or approvals for Products in the Territory shall be held in [ * ] name, and such licenses or approvals will, [ * ], either [ * ] with the [ * ] or [ * ], in either case [ * ].  For clarity, in the event applicable laws or regulations prevent such export and import licenses or approvals from being held in [ * ] name, [ * ].  When Abaxis has the legal obligation to collect such taxes, the appropriate amount shall be added to Abbott’s invoice and paid by Abbott unless Abbott provides Abaxis with a valid tax exemption certificate authorized by the appropriate taxing authority.  [ * ] shall be responsible for all [ * ] by the [ * ].

3.4           Other Terms and Conditions of Sale.  Abbott’s purchase of Products from Abaxis hereunder shall also be subject to the following terms and conditions of sale:

(a) Payment Terms.  Payment terms for all shipments of Products to Abbott shall be net [ * ] from the date of receipt of Abaxis' invoice to Abbott for each shipment of Products.  All payments shall be made without set-off or counterclaim and free and clear of and without deduction for any other charges of any kind, other than amounts that are the subject of a reasonable good faith dispute.  The invoiced amount shall be paid by Abbott to Abaxis by: (a) wire transfer to the bank specified by Abaxis, or (b) certified bankers check.  Abaxis reserves the right to change the payment or credit terms at any time upon [ * ] prior notice to Abbott.  Any invoiced amount not received within [ * ] of the date the payment was due shall be subject to a service charge of the lesser of [ * ] percent ([ * ]%) per month or the maximum rate permitted by law.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

17

(b) Order Entry.  Abbott shall order Products on purchase orders consistent with the process set forth in Section 3.5; provided, however, that Abbott shall [ * ] of the [ * ] of the [ * ].  All purchase order forms shall specify the quantities of each Product ordered, requested delivery dates, the identity of Products ordered, Product price, and delivery and shipping instructions including carrier selected.  All orders will be governed by the terms of this Agreement. Any other terms and conditions stated on such purchase orders shall not be applicable to purchases hereunder.

(c) Delivery.  All shipments of Products to Abbott shall be shipped F.O.B. Abaxis' facilities.  Abbott shall select the carriers for all shipments of Products hereunder following consultation with Abaxis, provided that [ * ].  Abbott shall be responsible for shipping charges for the Products, which shall be added to Abaxis’ invoices to Abbott.  Title and risk of loss shall pass to Abbott upon delivery of the Products to the carrier for shipment.  All shipments of Products shall [ * ] that [ * ] and [ * ].

(d) Acceptance of Product.  Abbott shall inspect all Products upon delivery in a commercially reasonable manner.  Failure by Abbott to give notice of defective or damaged Product within the time periods specified in Section 3.4(e)shall be deemed a waiver of Abaxis' obligations as stated herein, with respect to such defect or damage only.  Notwithstanding the foregoing, this Section 3.4(d) is not intended to limit Abbott’s rights under Section 7.3 with respect to defective or damaged Product.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

18

(e) Defective and Improper Delivery; Product Returns.  If Abbott or a Dealer or End User claims that: (a) incorrect Product was shipped; or (b) there was a shortage in the shipment, and notice in writing of such incorrect shipment or shortage is provided to Abaxis within [ * ] of receipt of the shipment then, upon receipt of such notice, Abaxis' sole obligation shall be to either replace any incorrectly shipped Product, make up any shortfall, or refund any Purchase Price paid by Abbott as a credit, at Abaxis' option; provided, however, that [ * ].  If any Product is claimed by Abbott, a Dealer or End User to be defective and Abaxis is notified in writing of such defect within [ * ] of receipt of the Product by the End User or, in the case of a latent defect, Abaxis is notified in writing within [ * ] of discovery of such latent defect within the warranty period stated in Section 3.4(f), then Abaxis' sole obligation shall be to either repair or replace any Product found by Abaxis to be defective or determined to be defective by a Third Party laboratory as provided below.  If Abbott claims a credit pursuant to this Section 3.4(e), such claim shall be accompanied by the original invoice issued by Abbott to the End User or Dealer returning the Product.  Upon request by Abaxis, Abbott shall deliver to Abaxis, at Abaxis’ cost, any returned Product with regard to which the credit is claimed.  Abaxis shall determine [ * ], which [ * ].  Any disagreements between the parties as to which a returned Product is defective shall, at the request of either party, be resolved by a mutually acceptable independent third party laboratory after analysis of the relevant Products.  Such third party laboratory shall determine whether such Products are defective, and the parties agree that such laboratory’s determination on this issue shall be final, binding, and determinative.  The party against whom the third party laboratory rules shall bear all costs of such third party testing.  All sales of the Products are final and there will be no Product returns accepted except as set forth in this Section 3.4(e) without Abaxis' prior written consent.

(f) Warranty.  In addition to the warranties provided in Article 6, Abaxis warrants that (i) each Product sold hereunder will, at the time of shipment, comply with the then-current specifications for such Product and be free and clear of any and all encumbrances, liens, or other third party claims; (ii) Products (including refurbished Analyzers) shall comply with Abaxis' standard warranty therefor, as set forth in Exhibit 3.4(f).  ABAXIS MAKES NO OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED, AND ABAXIS EXCLUDES AND DISCLAIMS ANY OTHER WARRANTIES INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. ABAXIS SHALL HAVE NO LIABILITY FOR INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES RELATING TO THE SALE OR USE OF THE PRODUCTS, INCLUDING LOST PROFITS.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

19

3.5           Rolling Forecasts.  [ * ] after the Effective Date, Abbott shall provide Abaxis with a monthly forecast of its requirements of the Products for the first full Contract Year.   On or before the [ * ] prior to the beginning of each subsequent calendar month during the Term, Abbott shall provide Abaxis with a rolling [ * ] forecast, the first [ * ] of which will be firm purchase orders binding on Abbott, the last [ * ] of each shall consist of Abbott’s best estimate forecast of its requirements of Products.  Abbott shall also provide, with each monthly forecast, a [ * ] rolling unit and dollar sales history detail for each individual Product, major customer type (Dealer and End User), United States and China, including Hong Kong, the quantities and prices of Products Sold by Abbott, the aggregate total dollar sales volume for purchases on a Product group-by-Product group basis and such other information relating to the Sales and distribution of Products by Abbott as Abaxis may reasonably request.

3.6           Inventory.   Abbott shall establish inventory targets and maintain inventory levels for Products [ * ] and shall maintain delivery targets [ * ].  Abbott shall ensure that Product is maintained in appropriate environmental conditions at all utilized Abbott distribution facilities, as prescribed by Abaxis.

3.7Export Regulations.  Abbott will not take any action which would, or fail to take any action where such failure would, directly or indirectly result in or constitute a violation by Abaxis or Abbott of any applicable law, treaty, ruling or regulation, including, without limitation, laws and regulations relating to the export, resale and distribution of the Products. In performing Abbott’s obligations, Abbott or any person acting on its behalf must not seek, accept, offer, promise or give any payments, fees, loans, services or gifts from or to any person or firm as a condition or result of doing business with Abaxis or Abbott. In performing its obligations under this Agreement, neither Abbott nor any person acting on Abbott’s behalf shall make, directly or indirectly, any offer or promise or authorization of a bribe, kickback, payoff or any other payment or gift intended to improperly influence an agent, government official, political party or candidate for public office to exercise their discretionary authority or influence in order to assist in the sale, marketing, promotion, importation, licensing or distribution of the Products.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

20

3.8    Annual Reporting; Books and Records.  Abbott shall provide to Abaxis annually within [ * ] following the end of each Contract Year, a report that provides Product unit Sales to Dealers and End Users that Abbott Sells to directly, aggregated monthly in each country or region, and the calculation of the percentage of Products Sold to customers by country or region.  Abbott shall maintain books and records in keeping with standard industry practice relating to the Sale of Products hereunder including monthly Disc unit Sales to Dealers and End Users that Abbott Sells to directly, aggregated monthly in each country or region, and shall retain such records during the Term and for [ * ] thereafter.  Such books and records shall be in accordance with generally accepted accounting principles reflecting each Product's unit Sales and per country or region in the Territory.  Upon [ * ] prior written notice to Abbott, Abbott’s books and records relating to the Sale of Product hereunder shall be open for inspection in accordance with the following terms.  To conduct such inspection, Abaxis shall retain, at its own expense, an independent certified public accountant reasonably acceptable to Abbott.  Such examination shall occur at Abbott’s principal place of business during normal business hours for the sole purpose of verifying the accuracy of financial calculations hereunder.  Such independent accountant shall be required to execute a mutually acceptable confidentiality agreement and shall report to Abaxis only the amount of any discrepancy, if any, in the calculations.  Abaxis shall bear the cost of such audit, unless the audit reveals inaccurate annual reporting of unit Sales greater than [ * ] percent ([ * ]%) or a value of [ * ] Dollars ($[ * ]) (whichever is greater), in which case Abbott shall reimburse Abaxis for its reasonable expenses incurred in connection with such audit.

3.9           Product Recalls and Complaints.  Upon [ * ] request, and at [ * ] sole cost, [ * ] shall assist [ * ] in identifying Dealers and End Users for notification in connection with any Product recalls; provided, however, that if such Product recall is due to any fault of or material breach by [ * ], then the cost of such Product recall shall be apportioned to [ * ] and [ * ] according to each Party’s relative fault for the Product recall. Within [ * ] of [ * ] own receipt of notice (at [ * ]) of any End User technical questions, complaints or actual or alleged Product defects, [ * ] shall notify [ * ] thereof orally, followed promptly by a written notice.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

21

3.10           Billing and Collections.  Abbott shall have sole responsibility for billings to and collections from customers for Abbott’s sales of Products.

3.11           Abaxis Trademarks.  Abbott acknowledges that Abaxis Trademarks are valid trademarks and trade names and the sole property of Abaxis, and Abbott shall not disparage or challenge the validity of Abaxis Trademarks during the Term.  Abbott shall promptly notify Abaxis of any actual or alleged infringements of Abaxis Trademarks of which Abbott becomes aware during the Term.  Nothing contained herein shall be construed to authorize Abbott: (a) to use any Abaxis Trademarks as a style or name, or as a part of the style or name, of any firm, partnership or corporation; (b) to apply Abaxis Trademarks to any goods other than the Products; or (c) at any time after the termination of this Agreement, to apply Abaxis Trademarks to goods or to any other use whatsoever.

3.12           Non-Competition Obligations.  During the Term, other than the Analyzer and the Discs, Abbott shall not promote, distribute or sell [ * ] that utilizes [ * ] for [ * ] (i) [ * ], (ii) [ * ], (iii) [ * ], (iv) [ * ], (v) [ * ], and (vi) any [ * ] in the Product from time to time during the Term (“Competitive Product”) in the Field in the Territory, and shall use its best efforts to ensure compliance with the provisions of this Section 3.12 by all Abbott employees, subject to the following exceptions and conditions:

(a)           Exception for Recall or Withdrawal.  If any Product is the subject of a recall, withdrawal or interruption of Product supply for a period in excess of [ * ], or a Product is not available for resale due to Abaxis’ inability to supply such Products, Abbott may, at its option, purchase and resell reasonably comparable replacement products for the duration of such recall or withdrawal or Product unavailability, provided that (i) [ * ] and [ * ], and [ * ] and [ * ] of such recall, withdrawal or Product unavailability; (ii) [ * ] and/or [ * ] which are [ * ] rather than [ * ]; (iii) Abbott shall return to selling recalled, withdrawn or unavailable Products [ * ] and discontinue selling competitor’s products within [ * ] of the availability of such Products [ * ]; (iv) Abaxis shall notify Abbott in writing at least [ * ] prior to the availability of such Products [ * ] to enable Abbott to commence reduction of competitive product stock.  In the event that Abbott does not cease selling replacement products and resume selling Products [ * ] as set forth above within [ * ] of such Products becoming available, Abaxis shall have the right, without prejudice to any other rights or remedies available to it, to terminate this Agreement upon [ * ] prior written notice to Abbott.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

22

(b)           Compliance Audit.  Upon reasonable prior notice to Abbott and at mutually agreeable times, Abaxis may, at Abaxis’ expense, retain an independent Third Party auditor to audit Abbott’s sales records, branch inventory and any other records necessary to verify Abbott’s compliance with its obligations under this Section 3.12, provided that such independent Third Party auditor shall execute a customary confidentiality agreement with the audited party with respect to the information received in connection with such audit that is not broader in scope or more burdensome than the confidentiality obligations contained in this Agreement.  In the event that any such audit reveals that Abbott is non-compliant with the provisions of this Section 3.12 or that Abbott has given to Abaxis false sales data or other information concerning the purchase or sale Products, Abaxis shall notify Abbott of the results of such audit and Abbott shall have [ * ] to cure any identified deficiencies.  In the event that Abbott does not cure any identified deficiencies within such [ * ] period, Abaxis may, as its sole remedy, terminate this Agreement on [ * ] notice to Abbott.

3.13           Regulatory Approvals.  If and solely to the extent required by local laws, Abaxis shall, [ * ], obtain and maintain in effect all regulatory registrations, permits, licenses and approvals (collectively, “Approvals”) necessary or appropriate for the importation of the Products into, and the distribution, sale, resale, and use of the Products within the Territory; provided however that Abbott shall, [ * ], obtain and maintain in effect all Approvals that Abaxis requests that Abbott obtain and maintain.  Abbott represents and warrants that it has and shall maintain at all times during the Term, all Approvals it has agreed to obtain and is responsible for on behalf of or for Abaxis pursuant to this Section 3.13. Abaxis shall promptly forward all copies of all such Approvals obtained and maintained by Abaxis to Abbott’s Regulatory Affairs Department. Abaxis shall inform Abbott within a reasonable period of time of any changes to the Approval process or the vigilance reporting requirements within the Territory.  To the extent permitted by applicable law, such Approvals shall be [ * ]. If, however, applicable law requires [ * ] of this [ * ], Abbott shall, [ * ] and [ * ], or to [ * ].  Abaxis represents and warrants that it has and shall maintain at all times during the term of this Agreement, all Approvals it is responsible for (other than those of Abbott) pursuant to this Section 3.13.  Should Abaxis fail to obtain or maintain such Approvals during the term of this Agreement, Abbott shall have the right to immediately terminate this Agreement upon written notice to Abaxis.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

23

3.14           Legal Environment.  Each Party shall immediately advise the other if it becomes aware of any legislation, rule, regulation or other law (including, but not limited to, all health and safety, custom, trade, tariff or other import laws, approvals process or vigilance reporting requirements) which is in effect or which may come into effect after this Agreement becomes effective and which affects the importation of the Products into, or the distribution, sale, or use of the Products within the Field in the Territory, and the Parties shall use commercially reasonable efforts to remain informed of all such legislation, rules, regulations or other laws.

3.15           Quality.  Abbott shall maintain a distribution record system, compliant with all applicable laws and regulations, that enables Abaxis to effect any required Product quality holds or Product recalls.

3.16           Contacts with Authorities.  Abbott shall notify Abaxis of any correspondence exchanged with local authorities regarding the distribution of the Products in the Territory.

3.17           Debarment and Exclusion.  Abbott represents and warrants that, to the best of its knowledge, neither it, nor any of its employees or agents providing services under this Agreement, has ever been, is currently, or is the subject of a proceeding that could lead to that Party becoming, as applicable, a Debarred Individual or Debarred Entity.  A “Debarred Individual” is an individual who has been debarred by the U.S. Food and Drug Administration (“FDA”) pursuant to Title 21 United States Code §335a (a) or (b), or by any other competent authority, including, without limitation, any local competent authority, from providing services in any capacity to a person that has an approved or pending drug product application. A “Debarred Entity” is a corporation, partnership or association that has been debarred by FDA pursuant to Title 21 United States Code §335a (a) or (b), or by any other competent authority, including, without limitation, any local competent authority, from submitting or assisting in the submission of any abbreviated drug application, or a subsidiary or affiliate of such a corporation, partnership or association.  Abbott further covenants, represents and warrants that if, during the term of this Agreement, it becomes aware that it, or any of its employees or agents providing services under this Agreement, becomes or is the subject of a proceeding that could lead to that Party becoming, as applicable, a Debarred Individual or Debarred Entity, Abbott shall immediately notify Abaxis, and Abaxis shall have the right to immediately terminate this Agreement.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

24

3.18           Customer Communication.  Abbott shall promptly inform Abaxis of any Product quality-related communication (i.e., Product information, customer letters, device correction).  Abbott shall follow the reasonable actions requested by Abaxis regarding quality-related matters and, at Abaxis’ request, provide any reasonable quality-related information without delay to its customers.

3.19           Promotional Materials.  At no cost to Abbott, Abaxis shall provide Abbott

with such promotional materials relating to the Products as Abaxis deems appropriate in such quantities as may be mutually agreed for Abbott’s use hereunder.  Such documents shall be in the English language, and may be in other languages to the extent already available.  As required by local regulatory laws or regulations, Abbott shall, at its own cost, arrange for translation and certification of the translation of documents relating to the Products by a professional translator into the local language(s) of Customers and shall revise such translation (and update the applicable certification) in accordance with the changes to the Documents that may be made from time to time by Abaxis.  Such translation shall at a minimum meet all regulatory requirements of the Territory and be of a standard deemed appropriate for medical products and comparable with that provided for other products sold into the health care industry in the Territory.  Abbott will provide any documents translated into the local language, along with their associated certifications, to Abaxis for review and shall revise such translation according to Abaxis’ comments.

3.20           Training For Abbott and End Users.  Abaxis shall provide Abbott personnel such training, at Abaxis' expense, as Abbott may request in writing and that Abaxis, at its sole discretion, deems reasonable.  Notwithstanding the above, all expenses incurred by Abbott’s personnel in connection with such training, including without limitation, travel and other per diem expenses shall be borne by Abbott.  Records of original training (i.e., excluding any follow-up training) directed by Abaxis will be maintained at Abaxis’ place of business in its Document Control department, and copies of such records will be provided to Abbott.  Abbott, prior to shipment of Products to an End User, shall provide to each such End User Product storage and use instructions.  Abbott shall use commercially reasonable efforts to ensure that all necessary and adequate introductory training is made available to End Users within [ * ] after receipt of Analyzers and Discs; further, Abbott shall provide its End Users with necessary and adequate training and support within [ * ] after delivery of the first shipment of Products to an End User.  Upon Abbott’s written request, Abaxis may provide follow-up training, at its sole discretion, at Abbott’s facility.  Abaxis shall pay for its employees' salaries and their travel and travel-related expenses, including meals, lodging and other living expenses.  For training situations not covered by this Section 3.20, and the Parties shall discuss how to equitably share the travel and related expenses.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

25

ARTICLE 4

INTELLECTUAL PROPERTY

4.1           Markings.  Products distributed by Abbott hereunder shall include the Abaxis Trademarks.  Abbott shall not omit or alter patent numbers, trade names or trademarks, numbers or series or any other Abaxis markings affixed on the Products obtained from Abaxis or alter labeling of Products.  Abbott is not authorized to use the trademark and trade name “Abaxis” or any other trademark or trade name of Abbott in any manner except to indicate that Abbott is the exclusive distributor of Product in the Field in the Territory and that Abaxis is the manufacturer of the Products, which use shall in any event be consistent with the provisions of Section 4.2 during the Term, that Abbott is an independent distributor for Abaxis and is selling Abaxis’ Products.

4.2           Use of Trademarks and Tradenames.

(a)           Abaxis hereby grants to Abbott a license to use, on a nonexclusive basis for the Term, in the Field, in the Territory, without cost to Abbott other than payment for the Products, the Abaxis Trademarks, solely to identify Abaxis as the manufacturer of the Products and for Abbott’s distribution of Products and related performance under this Agreement.  Abbott’s license to use the Abaxis Trademarks shall include the right to use the Abaxis Trademarks in connection with advertising and marketing the Products, and the right to promote that Abbott is an independent distributor for Abaxis and is selling Abaxis' Products.    The Abaxis Trademarks and the goodwill associated therewith are and shall remain the exclusive property of Abaxis.  Abbott shall not:  (a) use the Abaxis Trademarks as part of any composite mark including any elements not approved in advance in writing by Abaxis; (b) challenge the validity or enforceability of the Abaxis Trademarks (unless such restriction is illegal); or (c) acquire any proprietary rights in the Abaxis Trademarks by reason of any activities under this Agreement or otherwise.  All uses of the Abaxis Trademarks by Abbott and any additional goodwill created thereby shall inure to the exclusive benefit of Abaxis.  Except for the limited right to use the Abaxis Trademarks as set forth herein, no right, license or other interest with respect to the Abaxis Trademarks is granted under this Agreement.  Abaxis, at all times during the Term on reasonable notice, shall have the right to inspect the materials and services on or in connection with which the Abaxis Trademarks are used in order to assure Abaxis that its quality standards relating to the Products and Abbott’s servicing and other provisions of this Agreement pertinent to the Abaxis Trademarks are being observed.  If at any time Abaxis shall reasonably object to any use to which the Abaxis Trademarks are put, Abbott shall promptly cease any such use.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

26

(b)           Abbott hereby grants to Abaxis a license to use (but with no obligation to use), on a non-exclusive basis for the Term, in the Field in the Territory, the Abbott Trademarks, solely to identify Abbott as a distributor for the Products.  Abaxis acknowledges and agrees that Abbott is the sole and exclusive owner of all right, title and interest in and to the Abbott Trademarks, and that any and all goodwill derived from its use of the Abbott Trademarks as permitted hereunder shall inure solely to the benefit of Abbott.  Abaxis shall obtain the prior written approval of Abbott for all use of the Abbott Trademarks, including, but not limited to, use of the Abbott Trademarks in any publication, press release, marketing materials, promotional materials, or website.  Abbott may grant or withhold approval at Abbott’s sole discretion.  If at any time Abbott shall reasonably object to any use to which the Abbott Trademarks are put, Abaxis shall promptly cease any such use.  Abaxis shall not, during or after the Term, anywhere in the world, take any action that in Abbott’s sole and absolute discretion impairs or contests or tends to impair or contest the validity of Abbott’s right title and interest in and to Abbott’s Trademarks.

(c)           Abbott agrees to refrain from any use of the Abaxis Trademarks in a manner that threatens to damage the goodwill associated with the Abaxis Trademarks or which threatens to tarnish the reputation or otherwise reflect unfavorably upon Abaxis.  Abaxis agrees to refrain from any use of the Abbott Trademarks in a manner that threatens to damage the goodwill associated with the Abbott Trademarks or which threatens to tarnish the reputation or otherwise reflect unfavorably upon Abbott.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

27

4.3           License to Use Computer Software.  All software, on whatever media and in whatever form, Abaxis shall deliver to Abbott hereunder (the "Software") is and shall remain the property of Abaxis and its suppliers and licensors thereof and shall only be used in accordance with the terms of this Agreement and any End User License Agreements (each, a "EULA") distributed therewith.  The Software contains copyrighted and proprietary trade secrets of Abaxis (and its suppliers and licensors), and Abbott shall keep the Software in confidence.  Abbott shall not copy, use or disassemble the Software unless agreed by Abaxis.  Abbott shall have the right to reproduce Software only for:  (a) one backup/archival copy; and (b) installation on and use with equipment designated by Abaxis as suitable therefor and for use solely with the Products distributed by Abbott.  Abbott shall reproduce the copyright and other proprietary notices of Abaxis and Third Parties present in the Software delivered to Abbott.  Abbott’s license to use and distribute the Software shall terminate on the earlier of:  (w) termination of this Agreement; (x) discontinuance of use of the designated equipment for the Software; (y) discontinuance of payment of periodic license and maintenance fees, if any; or (z) breach by Abbott of any of the above given terms; provided, that End Users' license rights shall continue in accordance with each EULA.  All copies of Software with respect to which the license hereunder is terminated shall be returned to Abaxis within [ * ] after such termination.  Abbott shall deliver to each End User a copy of Abaxis' EULA, which shall inform them that such Software is and shall remain the property of Abaxis and its suppliers and licensors.  Copies of the translated materials shall be provided by Abbott to Abaxis for inclusion in the technical file before any CE marked Product is distributed in Abbott’s territory in the Field.

ARTICLE 5

CONFIDENTIALITY

5.1           Confidential Information.  It is contemplated that in the course of the performance of this Agreement each Party may, from time to time, disclose Confidential Information to the other Party.  The Confidential Information may be in any form whatsoever and shall be disclosed by one Party to the other Party in connection with this Agreement pursuant to the respective rights and obligations hereunder.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

28

5.2           Term of Confidentiality.  Except to the extent expressly authorized by this Agreement or otherwise agreed to in writing, during the term of this Agreement and for a period of [ * ] following the termination of this Agreement, the receiving Party shall take such reasonable measures to maintain such Confidential Information as confidential as it takes to protect its own proprietary and confidential information, shall not use for its own benefit or the benefit of others, and shall not publish or otherwise disclose such Confidential Information except that each Party shall be each permitted to disclose portions of Confidential Information to the extent reasonably necessary to exercise its rights or fulfill its obligations hereunder, to such Party’s employees, agents, attorneys, accountants and other professional advisors, provided that such recipients of Confidential Information are subject to an obligation of confidentiality to such Party.

5.3           Disclosure Due to Judicial or Administrative Processes.  In the event that a receiving Party is required by applicable judicial or administrative process to disclose Confidential Information, it shall promptly notify the disclosing Party and will reasonably cooperate with and allow the disclosing Party, at its sole cost and expense, a reasonable time to oppose such process and/or seek a protective order to limit exposure to and dissemination of said Confidential Information.

5.4           Disclosure Mandated by Law.  To the extent any disclosure is required by applicable law or regulation, including but not limited to securities or other laws or regulations of any country, the Parties shall consult with each other regarding the contents of such disclosure prior to such disclosure, and the Party intending to disclose the Confidential Information pursuant to this Section 5.4 in any event shall provide to the other Party a draft copy of the information to be disclosed for approval at least [ * ] prior to such disclosure, such approval not to unreasonably withheld.

5.5           Publicity.  Neither Party shall make any public announcement concerning this Agreement, nor make any public statement which includes the name of the other Party or any of its Affiliates, or otherwise use the name of the other Party or any of its Affiliates in any public statement or document, except as may be required by law or judicial order, without the written consent of such other Party, which written consent shall not be unreasonably withheld.  Notwithstanding the foregoing, Abaxis shall have the right, without obtaining Abbott’s consent, to make a public announcement that solely communicates the fact that Abaxis has filed a legally required disclosure with the Securities and Exchange Commission relating to the execution of this Agreement, provided that Abbott shall have an opportunity to review and comment on such disclosure at least [ * ] before such disclosure is filed.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

29

5.6           Terms of the Agreement.  The terms of this Agreement are confidential and shall be treated as Confidential Information hereunder.

5.7           Return or Destruction of Confidential Information.  Upon expiration or termination of this Agreement, or at any time upon request by Abaxis, Abbott shall promptly return to Abaxis or destroy all Confidential Information disclosed by Abaxis to Abbott (including any and all copies thereof).  Upon request, Abbott shall certify to Abaxis that such action has been taken.  Upon expiration or termination of this Agreement, or at any time upon request by Abbott, Abaxis shall promptly return to Abbott or destroy all Confidential Information disclosed by Abbott to Abaxis (including any and all copies thereof).  Upon request, Abaxis shall certify to Abbott that such action has been taken.

ARTICLE 6

REPRESENTATIONS AND WARRANTIES

6.1           Each Party hereby represents and warrants to the other Party as follows:

(a)           Corporate Existence and Power.  Such Party (a) is a corporation duly organized, validly existing and in good standing under the laws of the state in which it is incorporated, (b) has the corporate power and authority and the legal right to own and operate its property and assets, to lease the property and assets it operates under lease, and to carry on its business as it is now being conducted and as it is proposed to be conducted hereunder, and (c) is in compliance with all requirements of applicable laws and regulations, except as previously disclosed to the other Party or to the extent that any noncompliance would not have a material adverse effect on the properties, business, or financial condition of such Party and would not materially and adversely affect such Party's ability to perform its obligations under this Agreement.

(b)           Authorization and Enforcement of Obligations.  Such Party (a) has the corporate power and authority and the legal right to enter into this Agreement and to perform its obligations hereunder, and (b) has taken all necessary corporate action on its part to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder.  This Agreement has been duly executed and delivered on behalf of such Party, and constitutes a legal, valid, binding obligation, enforceable against such Party in accordance with its terms.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

30

(c)           Consents.  All necessary consents, approvals and authorizations of all governmental authorities and other persons required to be obtained by such Party in connection with the execution, delivery and performance of this Agreement have been obtained.

(d)           No Conflict.  The execution and delivery of this Agreement and the performance of such Party's obligations hereunder (a) do not conflict with or violate any requirement of applicable laws or regulations and (b) do not conflict with, violate or breach or constitute a default or require any consent under, any contractual obligation of such Party.

(e)           Compliance With Laws.  Each Party shall perform its obligations hereunder in compliance with all applicable laws, including without limitation federal, state and local laws, regulations and accepted industry guidelines.

6.2           Intellectual Property Representations and Warranties.  Abaxis represents and warrants to Abbott as follows:

(a)           Abaxis owns the intellectual property or has the right to license the intellectual property for which a license is granted under this Agreement, including, but not limited to, the Abaxis Trademarks and Software;

(b)           Abaxis will [ * ], the [ * ] that are set forth in this Agreement;

(c)           To Abaxis’ knowledge, the [ * ] are [ * ] in the Territory;

(d)           As of the date of this Agreement and to Abaxis’ knowledge, [ * ] by the [ * ] in accordance with this Agreement, including, but not limited to, [ * ] and [ * ] in accordance with this Agreement;

(e)           As of the date of this Agreement, there have been no written claims or assertions made against Abaxis that the making, using, offering for sale, importing or distribution of the Products in the Territory [ * ], or [ * ].

ARTICLE 7

INDEMNIFICATION AND INSURANCE

7.1           Abbott Indemnification.  Abbott shall defend, indemnify and hold harmless Abaxis, its Affiliates, and the officers, directors, employees and agents of Abaxis and its Affiliates, from and against any and all liabilities, damages, claims, demands, costs, or expenses (including reasonable attorneys' fees) claimed by any Third Party for any property or other economic loss or damage or injury or death suffered by it to the extent the same is determined to have been caused by (i) [ * ] or [ * ], or (ii) [ * ], other than [ * ], but only if [ * ] or [ * ], or [ * ].

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

31

7.2           Insurance.  During the Term, Abaxis and Abbott shall each maintain general business liability insurance coverage, including, if applicable, self-insurance, in the minimum aggregate amount of [ * ] Dollars ($[ * ]).

7.3           Abaxis Indemnification.  Abaxis shall defend, indemnify and hold harmless Abbott, its Affiliates, and the officers, directors, employees and agents of Abbott and its Affiliates, from and against any and all liabilities, damages, claims, demands, costs, or expenses (including reasonable attorneys’ fees) claimed by any Third Party for any property or other economic loss or damage or injury or death suffered by it to the extent the same is determined to have arisen out of or been attributable to: (i) [ * ] in the [ * ] and for [ * ] or [ * ]; (ii) [ * ] other than [ * ] or [ * ]; (iii) any [ * ] relating to the [ * ], or [ * ], including, but not limited to, [ * ] or [ * ] in accordance with the terms of this Agreement; or (iv) [ * ] or [ * ].  Abaxis’ obligations hereunder will apply only when the applicable Product is unmodified by Abbott, lawfully used in the Field, lawfully dispensed or lawfully distributed all in accordance with the terms and conditions of this Agreement, and used in accordance with the applicable operator’s manual, product insert or as otherwise instructed in writing by Abaxis.  Any other use of the applicable Product will not be subject to this indemnity.

7.4           Conditions of Indemnifications.  If Abaxis seeks indemnification from Abbott pursuant to Section 7.1 or Abbott seeks indemnification from Abaxis pursuant to Section 7.3, the Party seeking indemnification shall (a) notify the other Party in writing of the claim or suit for which indemnification is sought within [ * ] after the date the Party seeking indemnification itself receives notice of such claim or suit and (b) allow the other Party to control the defense or settlement of such claim or suit, provided that the Party seeking indemnification may, at its own option and expense, participate in the defense or settlement of such claim or suit, and provided further that the indemnifying Party shall not enter into any binding settlement, consent to any judgment or otherwise resolve any such claim or suit pursuant to which the indemnified Party would be obligated to take or refrain from taking any action or to make any payments or admissions, without the indemnified Party’s prior written consent, such consent not to be unreasonably withheld or delayed.  Failure to deliver written notice pursuant to this Section 7.4 shall only relieve the indemnifying Party of its obligations under this Article 7 if and to the extent such indemnifying Party is actually materially prejudiced thereby.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

32

ARTICLE 8

TERM AND TERMINATION

8.1           Expiration.  Unless terminated earlier by written agreement of the Parties or in accordance with the provisions of this Agreement, the term of this Agreement shall commence on the Effective Date and continue until the conclusion of [ * ] Contract Years thereafter (“Initial Term”).  UPON EXPIRATION OF THE INITIAL TERM, THE AGREEMENT SHALL CONTINUE AUTOMATICALLY FOR ADDITIONAL SUCCESSIVE ONE (1) YEAR PERIODS (EACH ONE (1) YEAR PERIOD AFTER THE INITIAL TERM, A “RENEWAL TERM”) UNLESS TERMINATED BY EITHER PARTY BY GIVING WRITTEN NOTICE OF NON-RENEWAL TO THE OTHER PARTY NOT LESS THAN [ * ] PRIOR TO EXPIRATION OF THE INITIAL TERM OR ANY RENEWAL TERM OR UNLESS OTHERWISE TERMINATED IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT.  The Initial Term and Renewal Terms shall be defined as the “Term” of the Agreement.  If Abaxis gives notice to Abbott of its election not to renew this Agreement, [ * ] on the last day of the Term.

8.2           Early Termination.  This Agreement may be terminated as set forth below and following provision of written notice:

(a) Bankruptcy.  A Party may terminate this Agreement if the other Party becomes insolvent, is adjudged bankrupt, applies for judicial or extra-judicial settlement with its creditors, makes an assignment for the benefit of its creditors, voluntarily files for bankruptcy or has a receiver or trustee (or the like) in bankruptcy appointed by reason of its insolvency, or in the event an involuntary bankruptcy action is filed against the other Party and not dismissed within [ * ], or if the other Party becomes the subject of liquidation or dissolution proceedings or otherwise discontinues business.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

33

(b) Default.  A Party may terminate this Agreement if the other Party commits a material breach of this Agreement and the Party alleged to be in breach fails to (i) cure such breach or (ii) commence dispute resolution proceedings under Section 9.11 contesting whether a breach has occurred and/or whether such breach is a material breach within [ * ] after receipt of written notice from the Party asserting the breach. For purposes of this Section, a material breach by Abaxis shall include, but is not limited to, any material breach by Abaxis of its non-competition obligations pursuant to Section 3.12.

(c) Change of Control.  In the event that a Third Party, directly or indirectly, acquires at least fifty percent (50%) of the controlling interest in or assets of Abaxis, whether in a single transaction or otherwise, including any sale of assets, sale of shares, mixed sale of assets and shares, merger, consolidation or other form of business combination transaction (“Change of Control”), Abaxis shall give written notice of such Change of Control to Abbott within [ * ] of the effective date of such Change of Control.  Within [ * ] of a Change of Control, [ * ] shall have the right to terminate this Agreement upon written notice to [ * ], which [ * ].  Within [ * ] of a Change of Control, [ * ], which [ * ].  If during the [ * ] Contract Year or any time thereafter (i.e., the [ * ] if the [ * ]) [ * ] gives notice to [ * ] of its election to terminate this Agreement pursuant to this Section 8.2(c), [ * ] shall [ * ] in the [ * ] by [ * ] in the [ * ].

8.3           Effect of Termination.  Upon the termination of this Agreement:

(a) The Parties shall immediately cease the use of any Confidential Information of the other Party and, in the case of Abbott, of the Abaxis Trademarks, except as permitted in Section 8.3(b) below.

(b) Unless this Agreement is terminated by Abaxis for Abbott’s breach or bankruptcy, and subject to Abaxis' rights as provided in this Section 8.3, (i) [ * ] within [ * ] and for which [ * ], and (ii) [ * ] on the [ * ] for a [ * ].

(c) Abaxis shall have the right (but not the obligation), upon prior written notice to Abbott given within [ * ] after termination to purchase from Abbott all or any portion of the Products in its inventory, for the same Purchase Prices paid for such products by Abbott, at the time of such termination for credit against outstanding invoices, or for cash refund to the extent there are no invoices then outstanding.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

34

(d) Abbott shall return to Abaxis all promotional and sales training materials provided to Abbott by Abaxis under this Agreement.

(e) To the extent permitted by law, Abbott shall [ * ] and [ * ], which [ * ], which [ * ], or which [ * ].

(f) Abbott shall not, in the final [ * ] of any notification of termination (or such actual time after notice and before actual termination, if shorter), undertake any actions intended or designed to cause End Users to purchase higher than normal levels of inventory of Products.

8.4           Continuing Obligations.  Upon any termination of this Agreement (except termination for cause by Abbott due to Abaxis' breach), at Abaxis' election and in accordance with Abaxis' instructions, Abbott shall:  (a) [ * ] or [ * ]; and (b) [ * ], including [ * ].  Following termination of this Agreement for any reason, Abbott shall have no further obligations to End Users with respect to Software updates and maintenance or technical support.  Nothing in this Agreement shall be construed as preventing Abbott from soliciting End Users for other products following the termination of this Agreement.

8.5           Post-Termination Obligations.  Termination or expiration of this Agreement through any means and for any reason shall not relieve the Parties of any obligations accruing prior thereto, and shall be without prejudice to the rights and remedies of either Party with respect to any breach of any of the provisions of this Agreement.

8.6           Survival.  The following Articles and Sections shall survive termination or expiration of the Agreement:  Articles [ * ] and Sections [ * ].  In addition, all provisions that expressly survive termination, that are irrevocable or that arise due to termination shall survive in accordance with their terms.  Any other provisions of this Agreement contemplated by their terms to pertain to a period of time following termination or expiration of this Agreement shall survive only for the specified period of time.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

35

ARTICLE 9

MISCELLANEOUS

9.1           Force Majeure.  Neither Party shall be held in breach of this Agreement for failure to perform any of its obligations hereunder and the time required for performance shall be extended for a period equal to the period of such delay, provided that such delay has been caused by or is a result of any acts of God; acts of the public enemy; civil strife; wars declared or undeclared; embargoes; labor disputes, including strikes, lockouts, job actions or boycotts; fires; explosions; floods; shortages of material or energy; events caused by reason of laws or regulations or orders by any government, governmental entity or instrumentality or by any other supervening unforeseeable circumstances beyond the reasonable control of the Party so affected.  The Party so affected shall: (a) give prompt written notice to the other Party of the nature and date of commencement of the force majeure event and its expected duration; and (b) use its commercially reasonable efforts to relieve the effect of such cause as rapidly as possible.

9.2           Assignment.  This Agreement may be assigned by Abbott to an Abbott Affiliate without consent of Abaxis. In addition, (a) any Party may without the consent of the other Party assign its rights to payments under this Agreement and (b) any Party may without the consent of the other Party assign its rights and delegate performance of its obligations under this Agreement in connection with a sale of all or substantially all of that portion of the business of the assigning Party to which this Agreement relates (whether such sale is structured as a sale of assets, sale of shares, mixed sale of assets and shares, merger, consolidation or other form of business combination transaction).  The assigning Party shall provide a written notice to the other Party of any assignment pursuant to clause (b) above as of the date of the assignment.  Following any assignment pursuant to clause (b) above, the assigning Party shall continue to be responsible for the performance of all obligations arising under this Agreement prior to the date of assignment, and the assignee shall be responsible for the performance of all obligations arising under this Agreement on or after the date of the assignment.  In addition, Abbott shall identify to Abaxis the Affiliate as promptly as practicable following assignment to such Affiliate.

Except as otherwise provided in this Section 9.2, no Party shall assign its rights or delegate performance of its obligations under this Agreement to any Third Party without the prior written consent of the other Party, such consent not to be unreasonably withheld, and any attempted assignment without such consent shall be void.  This Agreement shall inure to the benefit of and shall be binding upon and enforceable by, the Parties and their successors and permitted assigns.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

36

9.3           Binding Effect.  This Agreement shall be binding upon and inure to the benefit of each of the Parties and its successors and permitted assigns.

9.4           Waiver.  No waiver or modification of any of the terms of this Agreement shall be valid unless in writing and signed by authorized representatives of both Parties.  Failure by either Party to enforce any of its rights under this Agreement shall not be construed as a waiver of such rights nor shall a waiver by either Party in one or more instances be construed as constituting a continuing waiver or as a waiver in other instances.

9.5           Severability.  Any provision of this Agreement that in any way contravenes the law of any state or country in which this Agreement is effective shall, in that state or country, to the extent the law is contravened, be considered separable and non-applicable and shall not effect any other provision or provisions of this Agreement.  Parties shall cooperate to mitigate the effects of any such contravening clause/term.

9.6           Relationship of the Parties.  The relationship of the Parties under this Agreement is that of independent contractors.  Nothing contained in this Agreement is intended or is to be construed so as to constitute the Parties as partners, joint ventures, or either Party as an agent or employee of the other.  Neither Party has any express or implied right under this Agreement to assume or create any obligation on behalf of or in the name of the other, or to bind the other Party to any contract, agreement or undertaking with any Third Party, and no conduct of the Parties shall be deemed to infer such right.

9.7           Entire Agreement; Modifications.  This Agreement, together with any exhibits hereto, constitute the entire agreement between the Parties relating to the subject matter hereof.  It may not be modified or amended except in a writing and signed by both Parties.  All previous agreements or arrangements between the Parties, written or oral, relating to the subject matter hereof are hereby canceled and superseded.

9.8           Compliance with Law.  In performing this Agreement, each Party shall comply with all applicable laws, regulations and guidelines and shall not be required to perform or omit to perform any act required or permitted under this Agreement if such performance or omission would violate the provisions of any such law, regulation or guideline.

9.9           Counterparts.  This Agreement may be executed in one or more identical counterparts, each of which shall be considered an original and all of which together shall constitute one and the same instrument.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

37

9.10           Governing Law.  All disputes arising in any manner out of or in relation to this Agreement shall be resolved in accordance with the laws of Illinois, without reference to its choice of laws provisions.  Each Party hereby disclaims the application to this Agreement of the United Nations Convention on the International Sale of Goods.

9.11           Alternative Dispute Resolution.  Any dispute that arises in connection with this Agreement shall be binding on the Parties and resolved by binding Alternative Dispute Resolution (“ADR”) in the manner described in Exhibit 9.11.

9.12           Notices.  Any notice, report, payment or statement required or permitted under this Agreement shall be considered to be given when in writing sent by certified mail (return receipt requested), postage prepaid, or faxed then mailed, or if sent via courier and addressed to the Party for whom it is intended at its address of record.  The record address of the Parties is as follows:

If to Abaxis:	Abaxis, Inc.
	Attn: Chief Commercial Officer
	3240 Whipple Road
	Union City, CA 94587
	Fax: 510-441-6150
with copy to:	Cooley LLP
	3175 Hanover Street
	Palo Alto, CA 94304-1130
	Attn:  Glen Sato, Esq.
	Fax: 650-849-7400
If to Abbott:	Director, Business Development
	Abbott Point of Care
	400 College Road East
	Princeton, NJ  08540
	Tel: 609-454-9418
	Fax: 609-228-5570
with copy to:	Divisional Vice President, Commercial Legal Operations
	Abbott Laboratories
	AP6A-2
	100 Abbott Park Road
	Abbott Park, IL 60064-6049
	Fax: 847-938-1206

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

38

9.13           Expenses.  Unless otherwise specifically provided for herein, all costs and expenses incurred with connection with this Agreement and the transactions contemplated hereby shall be paid by the Party that shall have incurred the same, and the other Party shall have no liability thereto.

9.14           Interpretation.  When a reference is made in this Agreement to Sections, Subsections, Tables or Exhibits, such references shall be to a Section, Subsection, Table or Exhibit to this Agreement unless otherwise indicated.  The words “include,” “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation.”  The table of contents and headings, if contained in this Agreement, have been inserted for convenience of reference only and shall not be relied upon in construing this Agreement.  Use of any gender herein to refer to any person shall be deemed to comprehend masculine, feminine, and neuter unless the context clearly requires otherwise.

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

39

IN WITNESS WHEREOF, each Party has caused this Agreement to be signed by its duly authorized representative as of the date set forth below.

ABBOTT POINT OF CARE INC.		ABAXIS, INC.
By:	/s/  Greg Arnsdorff	By:	/s/  Clinton H. Severson
Name:  Greg Arnsdorff		Name:  Clinton H. Severson
Title:  President		Title:  Chairman, President and CEO
Date:  10/26/12		Date:  10/26/12

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

40

Exhibit 1.1

Abaxis Trademarks

MARK	COUNTRY	APPLICATION/ REGISTRATION NO.	CLASS/GOODS/ SERVICES	CURRENT STATUS
[ * ]	[ * ]	[ * ]	[ * ]	[ * ]
[ * ]	[ * ]	[ * ]	[ * ]	[ * ]
[ * ]	[ * ]	[ * ]	[ * ]	[ * ]
[ * ]	[ * ]	[ * ]	[ * ]	[ * ]
[ * ]	[ * ]	[ * ]	[ * ]	[ * ]
[ * ]	[ * ]	[ * ]	[ * ]	[ * ]

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

41

Exhibit 1.2

Abbott Trademarks

Mark	Territory	Class/ Goods/Services	Registration No.	Current Status
[ * ]	[ * ]	[ * ]	[ * ]	[ * ]
[ * ]	[ * ]	[ * ]	[ * ]	[ * ]
[ * ]	[ * ]	[ * ]	[ * ]	[ * ]
[ * ]	[ * ]	[ * ]	[ * ]	[ * ]
[ * ]	[ * ]	[ * ]	[ * ]	[ * ]
[ * ]	[ * ]	[ * ]	[ * ]	[ * ]

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

42

Mark	Territory	Class/ Goods/Services	Registration No.	Current Status
[ * ]	[ * ]	[ * ]	[ * ]	[ * ]

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

43

Mark	Territory	Class/ Goods/Services	Registration No.	Current Status
[ * ]	[ * ]	[ * ]	[ * ]	[ * ]
[ * ]	[ * ]	[ * ]	[ * ]	[ * ]
[ * ]	[ * ]	[ * ]	[ * ]	[ * ]
[ * ]	[ * ]	[ * ]	[ * ]	[ * ]

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

44

Mark	Territory	Class/ Goods/Services	Registration No.	Current Status
[ * ]	[ * ]	[ * ]	[ * ]	[ * ]
[ * ]	[ * ]	[ * ]	[ * ]	[ * ]
[ * ]	[ * ]	[ * ]	[ * ]	[ * ]

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

45

Exhibit 1.14

Products

PICCOLO EXPRESS CHEMISTRY ANALYZER
	[ * ]	[ * ]
[ * ] REAGENT DISCS
	[ * ]	[ * ]
	[ * ]	[ * ]
	[ * ]	[ * ]
	[ * ]	[ * ]
	[ * ]	[ * ]
	[ * ]	[ * ]
	[ * ]	[ * ]
	[ * ]	[ * ]
	[ * ]	[ * ]
[ * ] REAGENT DISCS
	[ * ]	[ * ]
	[ * ]	[ * ]
	[ * ]	[ * ]
	[ * ]	[ * ]
	[ * ]	[ * ]
	[ * ]	[ * ]
	[ * ]	[ * ]
[ * ]
	[ * ]	[ * ]
	[ * ]	[ * ]
	[ * ]	[ * ]
	[ * ]	[ * ]
[ * ]
	[ * ]	[ * ]
	[ * ]	[ * ]
	[ * ]	[ * ]
	[ * ]	[ * ]
	[ * ]	[ * ]
	[ * ]	[ * ]
	[ * ]	[ * ]
	[ * ]	[ * ]
	[ * ]	[ * ]
	[ * ]	[ * ]
	[ * ]	[ * ]
	[ * ]	[ * ]
	[ * ]	[ * ]
	[ * ]	[ * ]

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

46

Exhibit 1.17

Purchase Price

Discs

[ * ]

Analyzers

[ * ]

[ * ]

[ * ]

Part #:	Price:
[ * ]	[ * ]
[ * ]	[ * ]
[ * ]	[ * ]
[ * ]	[ * ]

[ * ]

Part #:	Price:
[ * ]	[ * ]
[ * ]	[ * ]
[ * ]	[ * ]
[ * ]	[ * ]
[ * ]	[ * ]
[ * ]	[ * ]
[ * ]	[ * ]
[ * ]	[ * ]
[ * ]	[ * ]
[ * ]	[ * ]
[ * ]	[ * ]
[ * ]	[ * ]
[ * ]	[ * ]
[ * ]	[ * ]

[ * ] are subject to [ * ]

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

47

Exhibit 2.1

[ * ] and [ * ]

(Known to Abaxis as of the date of this Agreement)

(See attached list)

[*]

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

48

Exhibit 2.6

Annual Product Purchase Calculation

Contract Year:_____________
Abaxis Calculation:_____________	date provided to Abbott: __________
Approved by Abbott:__ Yes / __ No*	date approved by Abbott: _________
* if No:
Abbott Calculation:_____________	date provided to Abaxis: __________
Approved by Abaxis:__ Yes / __ No **	date approved by Abaxis: _________
** if No:
Agreed Calculation:_____________	date agreed:____________

Official Determination of Product Purchases

For Contract Year         _______ is _____________________.

Agreed and Accepted by:
Abbott Point of Care Inc.	Abaxis, Inc.
By:	By:
Name:	Name:
Title:	Title:
Date:	Date:

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

49

Exhibit 3.1(h)

Standard Warranty

Abaxis warrants the Analyzer (excluding disposable or consumable supplies) against defects in materials and workmanship for [ * ] to the [ * ].

If Abaxis receives notice of such defects during the warranty period, Abaxis shall, at its option, either repair or replace products which prove to be defective.  During this warranty period, Abaxis shall [ * ].

Costs for repairs (inclusive of labor, overhead and standard shipping costs related to such repairs) performed under the standard warranty for each Analyzer shall be billed to and payable by Abbott [ * ] at $[ * ]; provided, however, that [ * ] in any [ * ] of the [ * ] and [ * ] that remain [ * ] in the [ * ].  Abaxis will provide at its discretion one of the following to customers with an Analyzer requiring service during the warranty period: (1) [ * ] which will [ * ], or (2) [ * ] for the [ * ] and [ * ].

With respect to software or firmware, if Abaxis receives notice of defects in these products during the warranty period, [ * ], provided that [ * ].  Abaxis does not [ * ] or [ * ].

Warranty services beyond the standard warranty shall constitute extended non-standard warranty, the costs (inclusive of labor, overhead, standard shipping costs and replacement parts related to such extended non-standard warranty repairs) for which shall be billed to and payable by Abbott [ * ] at $[ * ].

Abaxis shall provide to Abbott within [ * ] following the end of [ * ] a report that provides the following for [ * ] by Abaxis: [ * ]; [ * ]; [ * ]; [ * ]; and [ * ].

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

50

Exhibit 9.11

Alternate Dispute Resolution (ADR)

The Parties recognize that from time to time a dispute may arise relating to either Party’s rights or obligations under this Agreement. The Parties agree that any such dispute shall be resolved by the Alternative Dispute Resolution (“ADR”) provisions set forth in this Exhibit 9.11, the result of which shall be binding upon the Parties.

[ * ]

[ * ] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

51

EX-10.4

Exhibit 10.4

ABAXIS, INC.

2005 EQUITY INCENTIVE PLAN

Table of Contents

			Page
1.	ESTABLISHMENT, PURPOSE AND TERM OF PLAN		A-1
	1.1	Establishment	A-1
	1.2	Purpose	A-1
	1.3	Term of Plan	A-1
2.	DEFINITIONS AND CONSTRUCTION		A-1
	2.1	Definitions	A-1
	2.2	Construction	A-7
3.	ADMINISTRATION		A-7
	3.1	Administration by the Committee	A-7
	3.2	Administration with Respect to Insiders	A-7
	3.3	Committee Complying with Section 162(m)	A-7
	3.4	Powers of the Committee	A-7
	3.5	Option or SAR Repricing	A-9
	3.6	Indemnification	A-9
4.	SHARES SUBJECT TO PLAN		A-9
	4.1	Maximum Number of Shares Issuable	A-9
	4.2	Adjustments for Changes in Capital Structure	A-10
5.	ELIGIBILITY AND AWARD LIMITATIONS		A-10
	5.1	Persons Eligible for Awards	A-10
	5.2	Participation	A-10
	5.3	Incentive Stock Option Limitations	A-10
	5.4	Award Limits	A-11
6.	TERMS AND CONDITIONS OF OPTIONS		A-12
	6.1	Exercise Price	A-12
	6.2	Exercisability and Term of Options	A-12
	6.3	Payment of Exercise Price	A-13
	6.4	Effect of Termination of Service	A-13
	6.5	Transferability of Options	A-14
7.	TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS		A-14
	7.1	Types of SARs Authorized	A-14

A-i

Table of Contents

(continued)

			Page
	7.2	Exercise Price	A-14
	7.3	Exercisability and Term of SARs	A-14
	7.4	Deemed Exercise of SARs	A-14
	7.5	Effect of Termination of Service	A-15
	7.6	Nontransferability of SARs	A-15
8.	TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS		A-15
	8.1	Types of Restricted Stock Awards Authorized	A-15
	8.2	Purchase Price	A-15
	8.3	Purchase Period	A-15
	8.4	Vesting and Restrictions on Transfer	A-15
	8.5	Voting Rights; Dividends and Distributions	A-16
	8.6	Effect of Termination of Service	A-16
	8.7	Nontransferability of Restricted Stock Award Rights	A-16
9.	TERMS AND CONDITIONS OF PERFORMANCE AWARDS		A-16
	9.1	Types of Performance Awards Authorized	A-17
	9.2	Initial Value of Performance Shares and Performance Units	A-17
	9.3	Establishment of Performance Period, Performance Goals and Performance Award Formula	A-17
	9.4	Performance Cash Awards	A-17
	9.5	Measurement of Performance Goals	A-18
	9.6	Settlement of Performance Awards	A-18
	9.7	Voting Rights; Dividend Equivalent Rights and Distributions	A-19
	9.8	Effect of Termination of Service	A-20
	9.9	Nontransferability of Performance Awards	A-20
10.	TERMS AND CONDITIONS OF RESTRICTED STOCK UNIT AWARDS		A-20
	10.1	Grant of Restricted Stock Unit Awards	A-20
	10.2	Vesting	A-20
	10.3	Voting Rights, Dividend Equivalent Rights and Distributions	A-21
	10.4	Effect of Termination of Service	A-21
	10.5	Settlement of Restricted Stock Unit Awards	A-21

A-ii

Table of Contents

(continued)

			PAGE
	10.6	Nontransferability of Restricted Stock Unit Awards	A-22
11.	DEFERRED COMPENSATION AWARDS		A-22
	11.1	Establishment of Deferred Compensation Award Programs	A-22
	11.2	Terms and Conditions of Deferred Compensation Awards	A-22
12.	OTHER STOCK-BASED AWARDS		A-24

13.	CHANGE IN CONTROL		A-24
	13.1	Effect of Change in Control on Options and SARs	A-24
	13.2	Effect of Change in Control on Restricted Stock Awards	A-24
	13.3	Effect of Change in Control on Performance Awards	A-25
	13.4	Effect of Change in Control on Restricted Stock Unit Awards	A-25
	13.5	Effect of Change in Control on Deferred Compensation and Other Stock-Based Awards	A-25
14.	COMPLIANCE WITH SECURITIES LAW		A-25
15.	TAX WITHHOLDING		A-26
	15.1	Tax Withholding in General	A-26
	15.2	Withholding in Shares	A-26
16.	AMENDMENT OR TERMINATION OF PLAN		A-26
17.	MISCELLANEOUS PROVISIONS		A-26
	17.1	Repurchase Rights	A-26
	17.2	Provision of Information	A-27
	17.3	Rights as Employee, Consultant or Director	A-27
	17.4	Rights as a Shareholder	A-27
	17.5	Fractional Shares	A-27
	17.6	Severability	A-27
	17.7	Beneficiary Designation	A-27
	17.8	Unfunded Obligation	A-28
	17.9	Choice of Law	A-28

A-iii

ABAXIS, INC.

2005 EQUITY INCENTIVE PLAN

1.   Establishment, Purpose and Term of Plan.

1.1           Establishment.  The Abaxis, Inc. 2005 Equity Incentive Plan (the “Plan”) is hereby established effective as of its approval by the shareholders of the Company (the “Effective Date”).  The Plan is the successor to the Company’s 1998 Stock Option Plan and its share reserve.

1.2Purpose.  The purpose of the Plan is to advance the interests of the Participating Company Group and its shareholders by providing an incentive to attract and retain the best qualified personnel to perform services for the Participating Company Group, by motivating such persons to contribute to the growth and profitability of the Participating Company Group, by aligning their interests with interests of the Company’s shareholders, and by rewarding such persons for their services by tying a significant portion of their total compensation package to the success of the Company.  The Plan seeks to achieve this purpose by providing for Awards in the form of Options, Stock Appreciation Rights, Restricted Stock Awards, Performance Shares, Performance Units, Performance Cash Awards, Restricted Stock Units, Deferred Compensation Awards and other Stock-Based Awards as described below.

1.3Term of Plan.  The Plan shall continue in effect until the earlier of its termination by the Board or the date on which all of the shares of Stock available for issuance under the Plan have been issued and all restrictions on such shares under the terms of the Plan and the agreements evidencing Awards granted under the Plan have lapsed.  However, all Awards shall be granted, if at all, within ten (10) years from the Effective Date.

2.   Definitions and Construction.

2.1Definitions.  Whenever used herein, the following terms shall have their respective meanings set forth below:

(a)“Affiliate” means (i) an entity, other than a Parent Corporation, that directly, or indirectly through one or more intermediary entities, controls the Company or (ii) an entity, other than a Subsidiary Corporation, that is controlled by the Company directly, or indirectly through one or more intermediary entities.  For this purpose, the term “control” (including the term “controlled by”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of the relevant entity, whether through the ownership of voting securities, by contract or otherwise; or shall have such other meaning assigned such term for the purposes of registration on Form S-8 under the Securities Act.

(b)“Award” means any Option, SAR, Restricted Stock Award, Performance Share, Performance Unit, Performance Cash Award, Restricted Stock Unit or Deferred Compensation Award or other Stock-Based Award granted under the Plan.

A-1

(c)     “Award Agreement” means a written agreement between the Company and a Participant setting forth the terms, conditions and restrictions of the Award granted to the Participant.

(d)“Board” means the Board of Directors of the Company.

(e)“Change in Control” means, unless otherwise defined by the Participant’s Award Agreement or contract of employment or service, an Ownership Change Event or a series of related Ownership Change Events (collectively, the “Transaction”) wherein the shareholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting stock of the Company or the corporation or corporations to which the assets of the Company were transferred (the “Transferee Corporation(s)”), as the case may be.  For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting stock of one or more corporations which, as a result of the Transaction, own the Company or the Transferee Corporation(s), as the case may be, either directly or through one or more subsidiary corporations.  The Board shall have the right to determine whether multiple sales or exchanges of the voting stock of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive.

(f)      “Code” means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder.

(g)“Committee” means the Compensation Committee or other committee of the Board consisting of at least two members of the Board that has been duly appointed to administer the Plan and having such powers as shall be specified by the Board.  If no committee of the Board has been appointed to administer the Plan, the Board shall exercise all of the powers of the Committee granted herein, and, in any event, the Board may in its discretion exercise any or all of such powers.

(h)“Company” means Abaxis, Inc., a California corporation, or any successor corporation thereto.

(i)       “Consultant” means a person engaged to provide consulting or advisory services (other than as an Employee or a member of the Board) to a Participating Company, provided that the identity of such person, the nature of such services or the entity to which such services are provided would not preclude the Company from offering or selling securities to such person pursuant to the Plan in reliance on registration on a Form S-8 Registration Statement under the Securities Act.

(j)       “Deferred Compensation Award” means an award of Stock Units granted to a Participant pursuant to Section 11 of the Plan.

(k)“Director” means a member of the Board.

A-2

(l)       “Disability” means the permanent and total disability of the Participant, within the meaning of Section 22(e)(3) of the Code.

(m)     “Dividend Equivalent” means a credit, made at the discretion of the Committee or as otherwise provided by the Plan, to the account of a Participant in an amount equal to the cash dividends paid on one share of Stock for each share of Stock represented by an Award held by such Participant.

(n)     “Employee” means any person treated as an employee (including an Officer or a member of the Board who is also treated as an employee) in the records of a Participating Company and, with respect to any Incentive Stock Option granted to such person, who is an employee for purposes of Section 422 of the Code; provided, however, that neither service as a member of the Board nor payment of a director’s fee shall be sufficient to constitute employment for purposes of the Plan.  The Company shall determine in good faith and in the exercise of its discretion whether an individual has become or has ceased to be an Employee and the effective date of such individual’s employment or termination of employment, as the case may be.  For purposes of an individual’s rights, if any, under the Plan as of the time of the Company’s determination, all such determinations by the Company shall be final, binding and conclusive, notwithstanding that the Company or any court of law or governmental agency subsequently makes a contrary determination.

(o)      “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(p)       “Fair Market Value” means, as of any date, the value of a share of Stock or other property as determined by the Committee, in its discretion, or by the Company, in its discretion, if such determination is expressly allocated to the Company herein, subject to the following:

(i)      Except as otherwise determined by the Committee, if, on such date, the Stock is listed on a national or regional securities exchange or market system, the Fair Market Value of a share of Stock shall be the closing price of a share of Stock as quoted on the New York Stock Exchange or such other national or regional securities exchange or market system constituting the primary market for the Stock, as reported in The Wall Street Journal or such other source as the Company deems reliable.  If the relevant date does not fall on a day on which the Stock has traded on such securities exchange or market system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date, or such other appropriate day as shall be determined by the Committee, in its discretion.

(ii)Notwithstanding the foregoing, the Committee may, in its discretion, determine the Fair Market Value of a share of Stock in good faith and in a manner that complies with Sections 409A and 422 of the Code.

(q)       “Incentive Stock Option” means an Option intended to be (as set forth in the Award Agreement) and which qualifies as an incentive stock option within the meaning of Section 422(b) of the Code.

A-3

(r)       “Insider” means an Officer, a Director or any other person whose transactions in Stock are subject to Section 16 of the Exchange Act.

(s)       “Net-Exercise” means a procedure by which the Participant will be issued a number of shares of Stock determined in accordance with the following formula:

X = Y(A-B)/A, where

X = the number of shares of Stock to be issued to the Participant upon exercise of the Option;

Y = the total number of shares with respect to which the Participant has elected to exercise the Option;

A = the Fair Market Value of one (1) share of Stock;

B = the exercise price per share (as defined in the Participant’s Award Agreement).

(t)       “Nonemployee Director” means a Director who is not an Employee.

(u)      “Nonstatutory Stock Option” means an Option not intended to be (as set forth in the Award Agreement) an incentive stock option within the meaning of Section 422(b) of the Code.

(v)       “Officer” means any person designated by the Board as an officer of the Company.

(w)      “Option” means the right to purchase Stock at a stated price for a specified period of time granted to a Participant pursuant to Section 6 of the Plan.  An Option may be either an Incentive Stock Option or a Nonstatutory Stock Option.

(x)       “Option Expiration Date” means the date of expiration of the Option’s term as set forth in the Award Agreement.

(y)       “Ownership Change Event” shall be deemed to have occurred if any of the following occurs with respect to the Company:

(i)the direct or indirect sale or exchange in a single or series of related transactions by the shareholders of the Company of more than fifty percent (50%) of the voting stock of the Company;

(ii)     a merger or consolidation in which the Company is a party;

(iii)   the sale, exchange, or transfer of all or substantially all of the assets of the Company; or

(iv)    a liquidation or dissolution of the Company.

A-4

(z)       “Parent Corporation” means any present or future “parent corporation” of the Company, as defined in Section 424(e) of the Code.

(aa)     “Participant” means any eligible person who has been granted one or more Awards.

(bb)     “Participating Company” means the Company or any Parent Corporation, Subsidiary Corporation or Affiliate.

(cc)     “Participating Company Group” means, at any point in time, all entities collectively which are then Participating Companies.

(dd)     “Performance Award” means an Award of Performance Shares,  Performance Units or a Performance Cash Award.

(ee)     “Performance Award Formula” means, for any Performance Award, a formula or table established by the Committee pursuant to Section 9.3 of the Plan which provides the basis for computing the value of a Performance Award at one or more threshold levels of attainment of the applicable Performance Goal(s) measured as of the end of the applicable Performance Period.

(ff)      “Performance Cash Award” means an award granted pursuant to the terms and conditions of Section 9.4 representing a right granted to a Participant to receive a payment equal to a specified amount of cash, as determined by the Committee, based on performance.

(gg)    “Performance Goal” means a performance goal established by the Committee pursuant to Section 9.3 of the Plan.

(hh)    “Performance Period” means a period established by the Committee pursuant to Section 9.3 of the Plan at the end of which one or more Performance Goals are to be measured.

(ii)      “Performance Share” means a bookkeeping entry representing a right granted to a Participant pursuant to Section 9 of the Plan to receive a payment equal to the value of a Performance Share, as determined by the Committee, based on performance.

(jj)      “Performance Unit” means a bookkeeping entry representing a right granted to a Participant pursuant to Section 9 of the Plan to receive a payment equal to the value of a Performance Unit, as determined by the Committee, based upon performance.

(kk)    “Restricted Stock Award” means an Award of Restricted Stock.

(ll)      “Restricted Stock Unit” or “Stock Unit” means a bookkeeping entry representing a right granted to a Participant pursuant to Section 10 or Section 11 of the Plan, respectively, to receive a share of Stock on a date determined in accordance with the provisions of Section 10 or Section 11, as applicable, and the Participant’s Award Agreement.

A-5

(mm)  “Restriction Period” means the period established in accordance with Section 8.4 of the Plan during which shares subject to a Restricted Stock Award are subject to Vesting Conditions.

(nn)    “Retirement” means termination as an Employee of a Participating Company at age 55 or older, provided that the Participant was an Employee for at least five consecutive years prior to the date of such termination.

(oo)     “Rule 16b-3” means Rule 16b-3 under the Exchange Act, as amended from time to time, or any successor rule or regulation.

(pp)     “SAR” or “Stock Appreciation Right” means a bookkeeping entry representing, for each share of Stock subject to such SAR, a right granted to a Participant pursuant to Section 7 of the Plan to receive payment in any combination of shares of Stock or cash of an amount equal to the excess, if any, of the Fair Market Value of a share of Stock on the date of exercise of the SAR over the exercise price.

(qq)     “Section 162(m)” means Section 162(m) of the Code.

(rr)     “Securities Act” means the Securities Act of 1933, as amended.

(ss)     “Service” means a Participant’s employment or service with the Participating Company Group, whether in the capacity of an Employee, a Director or a Consultant.  A Participant’s Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders such Service or a change in the Participating Company for which the Participant renders such Service, provided that there is no interruption or termination of the Participant’s Service.  Furthermore, a Participant’s Service shall not be deemed to have terminated if the Participant takes any military leave, sick leave, or other bona fide leave of absence approved by the Company.  However, if any such leave taken by a Participant exceeds ninety (90) days, then on the ninety-first (91st) day following the commencement of such leave any Incentive Stock Option held by the Participant shall cease to be treated as an Incentive Stock Option and instead shall be treated thereafter as a Nonstatutory Stock Option, unless the Participant’s right to return to Service with the Participating Company Group is guaranteed by statute or contract.  Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, a leave of absence shall not be treated as Service for purposes of determining vesting under the Participant’s Award Agreement.  A Participant’s Service shall be deemed to have terminated either upon an actual termination of Service or upon the entity for which the Participant performs Service ceasing to be a Participating Company.  Subject to the foregoing, the Company, in its discretion, shall determine whether the Participant’s Service has terminated and the effective date of such termination.

(tt)“Stock” means the common stock of the Company, as adjusted from time to time in accordance with Section 4.2 of the Plan.

(uu)    “Stock-Based Awards” means any award that is valued in whole or in part by reference to, or is otherwise based on, the Stock, including dividends on the Stock, but excluding those Awards described in Sections 6 through 11 of the Plan.

A-6

(vv)     “Subsidiary Corporation” means any present or future “subsidiary corporation” of the Company, as defined in Section 424(f) of the Code.

(ww)    “Ten Percent Owner” means a Participant who, at the time an Option is granted to the Participant, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of a Participating Company (other than an Affiliate) within the meaning of Section 422(b)(6) of the Code.

(xx)     “Vesting Conditions” mean those conditions established in accordance with Section 8.4 or Section 10.2 of the Plan prior to the satisfaction of which shares subject to a Restricted Stock Award or Restricted Stock Unit Award, respectively, remain subject to forfeiture or a repurchase option in favor of the Company upon the Participant’s termination of Service.

2.2Construction.  Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan.  Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular.  Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.

3.   Administration.

3.1Administration by the Committee.  The Plan shall be administered by the Committee.  All questions of interpretation of the Plan or of any Award shall be determined by the Committee, and such determinations shall be final and binding upon all persons having an interest in the Plan or such Award.

3.2Administration with Respect to Insiders.  With respect to participation by Insiders in the Plan, at any time that any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall be administered in compliance with the requirements, if any, of Rule 16b-3.

3.3Committee Complying with Section 162(m).  While the Company is a “publicly held corporation” within the meaning of Section 162(m), the Board may establish a Committee of “outside directors” within the meaning of Section 162(m) to approve the grant of any Award which might reasonably be anticipated to result in the payment of employee remuneration that would otherwise exceed the limit on employee remuneration deductible for income tax purposes pursuant to Section 162(m).

3.4Powers of the Committee.  In addition to any other powers set forth in the Plan and subject to the provisions of the Plan, the Committee shall have the full and final power and authority, in its discretion:

(a)       to determine the persons to whom, and the time or times at which, Awards shall be granted and the number of shares of Stock or units to be subject to each Award;

(b)       to determine the type of Award granted and to designate Options as Incentive Stock Options or Nonstatutory Stock Options;

A-7

(c)       to determine the Fair Market Value of shares of Stock or other property;

(d)       to determine the terms, conditions and restrictions applicable to each Award (which need not be identical) and any shares acquired pursuant thereto, including, without limitation, (i) the exercise or purchase price of shares purchased pursuant to any Award, (ii) the method of payment for shares purchased pursuant to any Award, (iii) the method for satisfaction of any tax withholding obligation arising in connection with Award, including by the withholding or delivery of shares of Stock, (iv) the timing, terms and conditions of the exercisability or vesting of any Award or any shares acquired pursuant thereto, (v) the Performance Award Formula and Performance Goals applicable to any Award and the extent to which such Performance Goals have been attained, (vi) the time of the expiration of any Award, (vii) the effect of the Participant’s termination of Service on any of the foregoing, and (viii) all other terms, conditions and restrictions applicable to any Award or shares acquired pursuant thereto not inconsistent with the terms of the Plan;

(e)       to determine whether an Award will be settled in shares of Stock, cash, or in any combination thereof;

(f)       to approve one or more forms of Award Agreement;

(g)      to amend, modify, extend, cancel or renew any Award or to waive any restrictions or conditions applicable to any Award or any shares acquired pursuant thereto;

(h)      to accelerate, continue, extend or defer the exercisability or vesting of any Award or any shares acquired pursuant thereto, including with respect to the period following a Participant’s termination of Service;

(i)       without the consent of the affected Participant and notwithstanding the provisions of any Award Agreement to the contrary, to unilaterally substitute at any time a Stock Appreciation Right providing for settlement solely in shares of Stock in place of any outstanding Nonstatutory Stock Option, provided that such Stock Appreciation Right covers the same number of shares of Stock and provides for the same exercise price (subject in each case to adjustment in accordance with Section 4.2) as the replaced Nonstatutory Stock Option and otherwise provides substantially equivalent terms and conditions as the replaced Nonstatutory Stock Option, as determined by the Committee;

(j)       to prescribe, amend or rescind rules, guidelines and policies relating to the Plan, or to adopt sub-plans or supplements to, or alternative versions of, the Plan, including, without limitation, as the Committee deems necessary or desirable to comply with the laws or regulations of or to accommodate the tax policy, accounting principles or custom of, foreign jurisdictions whose citizens may be granted Awards;

(k)      to correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award Agreement and to make all other determinations and take such other actions with respect to the Plan or any Award as the Committee may deem advisable to the extent not inconsistent with the provisions of the Plan or applicable law; and

A-8

(l)       to delegate to the Chief Executive Officer or the Chief Financial Officer the authority with respect to ministerial matters regarding the Plan and Awards made under the Plan.

3.5Option or SAR Repricing.  Without the affirmative vote of holders of a majority of the shares of Stock cast in person or by proxy at a meeting of the shareholders of the Company at which a quorum representing a majority of all outstanding shares of Stock is present or represented by proxy, the Board shall not approve a program providing for either (a) the cancellation of outstanding Options or SARs and the grant in substitution therefore of cash and/or new Options or SARs having a lower exercise price or (b) the amendment of outstanding Options or SARs to reduce the exercise price thereof.  This paragraph shall not be construed to apply to “issuing or assuming a stock option in a transaction to which section 424(a) applies,” within the meaning of Section 424 of the Code.

3.6Indemnification.  In addition to such other rights of indemnification as they may have as members of the Board or the Committee or as officers or employees of the Participating Company Group, members of the Board or the Committee and any officers or employees of the Participating Company Group to whom authority to act for the Board, the Committee or the Company is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same.

4.   Shares Subject to Plan.

4.1          Maximum Number of Shares Issuable.  Subject to adjustment as provided in Section 4.2, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be six million seven hundred eighty-six thousand (6,786,000) and shall consist of authorized but unissued or reacquired shares of Stock or any combination thereof.  If an outstanding Award for any reason expires or is terminated or canceled without having been exercised or settled in full, or if shares of Stock acquired pursuant to an Award subject to forfeiture or repurchase are forfeited or repurchased by the Company, the shares of Stock allocable to the terminated portion of such Award or such forfeited or repurchased shares of Stock shall again be available for issuance under the Plan.  Shares of Stock shall not be deemed to have been issued pursuant to the Plan (a) with respect to any portion of an Award that is settled in cash or (b) to the extent such shares are withheld or reacquired by the Company in satisfaction of tax withholding obligations pursuant to Section 15.2.  Upon payment in shares of Stock pursuant to the exercise of an SAR, the number of shares available for issuance under the Plan shall be reduced only by the number of shares actually issued in such payment.  If the exercise price of an Option is paid by tender to the Company, or attestation to the ownership, of shares of Stock owned by the Participant, or by means of a Net-Exercise, the number of shares available for issuance under the Plan shall be reduced only by the net number of shares for which the Option is exercised.

A-9

4.2Adjustments for Changes in Capital Structure.  Subject to any required action by the shareholders of the Company, in the event of any change in the Stock effected without receipt of consideration by the Company, whether through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares, or similar change in the capital structure of the Company, or in the event of payment of a dividend or distribution to the shareholders of the Company in a form other than Stock (excepting normal cash dividends) that has a material effect on the Fair Market Value of shares of Stock, appropriate adjustments shall be made in the number and kind of shares subject to the Plan and to any outstanding Awards, in the Award limits set forth in Section 5.4, and in the exercise or purchase price per share under any outstanding Award in order to prevent dilution or enlargement of Participants’ rights under the Plan.  For purposes of the foregoing, conversion of any convertible securities of the Company shall not be treated as “effected without receipt of consideration by the Company.” Any fractional share resulting from an adjustment pursuant to this Section 4.2 shall be rounded down to the nearest whole number.  The Committee in its sole discretion, may also make such adjustments in the terms of any Award to reflect, or related to, such changes in the capital structure of the Company or distributions as it deems appropriate, including modification of Performance Goals, Performance Award Formulas and Performance Periods.  The adjustments determined by the Committee pursuant to this Section 4.2 shall be final, binding and conclusive.

5.   Eligibility and Award Limitations.

5.1Persons Eligible for Awards.  Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants; provided, however, Nonstatutory Stock Options and SARs may not be granted to Employees, Directors and Consultants who are providing Service only to any “parent” of the Company, as such term is defined in Rule 405 promulgated under the Securities Act, unless the stock underlying such Awards is treated as “service recipient stock” under Section 409A of the Code because the Awards are granted pursuant to a corporate transaction (such as a spin off transaction) or unless such Awards comply with the distribution requirements of Section 409A of the Code.

5.2          Participation.  Awards other than Nonemployee Director Awards are granted solely at the discretion of the Committee.  Eligible persons may be granted more than one Award.  However, excepting Nonemployee Director Awards, eligibility in accordance with this Section shall not entitle any person to be granted an Award, or, having been granted an Award, to be granted an additional Award.

5.3Incentive Stock Option Limitations.

(a)Persons Eligible.  An Incentive Stock Option may be granted only to a person who, on the effective date of grant, is an Employee of the Company, a Parent Corporation or a Subsidiary Corporation (each being an “ISO-Qualifying Corporation”).

A-10

(b)Fair Market Value Limitation.  To the extent that options designated as Incentive Stock Options (granted under all stock option plans of the Participating Company Group, including the Plan) become exercisable by a Participant for the first time during any calendar year for stock having a Fair Market Value greater than One Hundred Thousand Dollars ($100,000), the portion of such options which exceeds such amount shall be treated as Nonstatutory Stock Options.  For purposes of this Section, options designated as Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of stock shall be determined as of the time the option with respect to such stock is granted.  If the Code is amended to provide for a limitation different from that set forth in this Section, such different limitation shall be deemed incorporated herein effective as of the date and with respect to such Options as required or permitted by such amendment to the Code.  If an Option is treated as an Incentive Stock Option in part and as a Nonstatutory Stock Option in part by reason of the limitation set forth in this Section, the Participant may designate which portion of such Option the Participant is exercising.  In the absence of such designation, the Participant shall be deemed to have exercised the Incentive Stock Option portion of the Option first.  Upon exercise, shares issued pursuant to each such portion shall be separately identified.

5.4Award Limits.

(a)Maximum Number of Shares Issuable Pursuant to Incentive Stock Options.  Subject to adjustment as provided in Section 4.2, the maximum aggregate number of shares of Stock that may be issued under the Plan pursuant to the exercise of Incentive Stock Options shall not exceed six million seven hundred eighty-six thousand (6,786,000) shares.

(b)Minimum Vesting for Full Value Awards.  Except with respect to a maximum of five percent (5%) of the shares of Stock authorized for issuance under Section 4.1, any Restricted Stock Awards, Restricted Stock Unit Awards and Performance Awards (“Full Value Awards”) which vest on the basis of the Participant’s continued Service shall not provide for vesting which is any more rapid than annual pro rata vesting over a three (3) year period and any Full Value Awards which vest upon the attainment of Performance Goals shall provide for a Performance Period of at least twelve (12) months.

(c)Section 162(m) Award Limits.  The following limits shall apply to the grant of any Award if, at the time of grant, the Company is a “publicly held corporation” within the meaning of Section 162(m).

(i)      Options and SARs.  Subject to adjustment as provided in Section 4.2, no Employee shall be granted within any fiscal year of the Company one or more Options or Freestanding SARs which in the aggregate are for more than 100,000 shares.

(ii)     Restricted Stock and Restricted Stock Unit Awards.  Subject to adjustment as provided in Section 4.2, no Employee shall be granted within any fiscal year of the Company one or more Restricted Stock Awards or Restricted Stock Unit Awards, subject to Vesting Conditions based on the attainment of Performance Goals, for more than 500,000 shares.

(iii)   Performance Share and Performance Unit Awards.  Subject to adjustment as provided in Section 4.2, no Employee shall be granted (1) Performance Shares which could result in such Employee receiving more than 500,000 shares for each full fiscal year of the Company contained in the Performance Period for such Award, or (2) Performance Units which could result in such Employee receiving value equal to more than 500,000 shares for each full fiscal year of the Company contained in the Performance Period for such Award.

A-11

(iv)    Performance Cash Awards.  In any calendar year, the Committee may not grant a Performance Cash Award that has a maximum value that may be paid to any Participant in excess of five million dollars ($5,000,000).

(v)     Stock-Based Awards.  Subject to adjustment as provided in Section 4.2, no Employee may be granted Stock-Based Awards which could result in the Employee receiving more than 50,000 shares (or equivalent value) in any fiscal year of the Company.

6.   Terms and Conditions of Options.

Options shall be evidenced by Award Agreements specifying the number of shares of Stock covered thereby, in such form as the Committee shall from time to time establish.  No Option or purported Option shall be a valid and binding obligation of the Company unless evidenced by a fully executed Award Agreement.  Award Agreements evidencing Options may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:

6.1Exercise Price.  The exercise price for each Option shall be established in the discretion of the Committee; provided, however, that (a) the exercise price per share shall be not less than the Fair Market Value of a share of Stock on the effective date of grant of the Option and (b) no Incentive Stock Option granted to a Ten Percent Owner shall have an exercise price per share less than one hundred ten percent (110%) of the Fair Market Value of a share of Stock on the effective date of grant of the Option.  Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an exercise price lower than the minimum exercise price set forth above if such Option is granted pursuant to an assumption or substitution for another option in a manner qualifying under the provisions of Section 424(a) of the Code.

6.2Exercisability and Term of Options.  Options shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria and restrictions as shall be determined by the Committee and set forth in the Award Agreement evidencing such Option; provided, however, that (a) no Option shall be exercisable after the expiration of ten (10) years after the effective date of grant of such Option, and (b) no Incentive Stock Option granted to a Ten Percent Owner shall be exercisable after the expiration of five (5) years after the effective date of grant of such Option.  Subject to the foregoing, unless otherwise specified by the Committee in the grant of an Option, any Option granted hereunder shall terminate ten (10) years after the effective date of grant of the Option, unless earlier terminated in accordance with its provisions.

A-12

6.3Payment of Exercise Price.

(a)       Forms of Consideration Authorized.  Except as otherwise provided below, payment of the exercise price for the number of shares of Stock being purchased pursuant to any Option shall be made (i) in cash, by check or in cash equivalent, (ii) by tender to the Company, or attestation to the ownership, of shares of Stock owned by the Participant having a Fair Market Value not less than the exercise price, (iii) by delivery of a properly executed notice of exercise together with irrevocable instructions to a broker providing for the assignment to the Company of the proceeds of a sale or loan with respect to some or all of the shares being acquired upon the exercise of the Option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System) (a “Cashless Exercise”), (iv) by delivery of a properly executed notice of exercise electing a Net-Exercise, (v) by such other consideration as may be approved by the Committee from time to time to the extent permitted by applicable law, or (vi) by any combination thereof.  The Committee may at any time or from time to time grant Options which do not permit all of the foregoing forms of consideration to be used in payment of the exercise price or which otherwise restrict one or more forms of consideration.

(b)       Limitations on Forms of Consideration.

(i)Tender of Stock.  Notwithstanding the foregoing, an Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock to the extent such tender or attestation would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company’s stock.

(ii)     Cashless Exercise.  The Company reserves, at any and all times, the right, in the Company’s sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of Options by means of a Cashless Exercise, including with respect to one or more Participants specified by the Company notwithstanding that such program or procedures may be available to other Participants.

6.4Effect of Termination of Service.

(a)Option Exercisability.  Subject to earlier termination of the Option as otherwise provided herein and unless otherwise provided by the Committee, an Option shall be exercisable after a Participant’s termination of Service only during the applicable time periods provided in the Award Agreement.

(b)Extension if Exercise Prevented by Law.  Notwithstanding the foregoing, unless the Committee provides otherwise in the Award Agreement, if the exercise of an Option within the applicable time periods is prevented by the provisions of Section 14 below, the Option shall remain exercisable until three (3) months (or such longer period of time as determined by the Committee, in its discretion) after the date the Participant is notified by the Company that the Option is exercisable, but in any event no later than the Option Expiration Date.

(c)Extension if Participant Subject to Section 16(b).  Notwithstanding the foregoing, if a sale within the applicable time periods of shares acquired upon the exercise of the Option would subject the Participant to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Participant would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Participant’s termination of Service, or (iii) the Option Expiration Date.

A-13

6.5Transferability of Options.  During the lifetime of the Participant, an Option shall be exercisable only by the Participant or the Participant’s guardian or legal representative.  Prior to the issuance of shares of Stock upon the exercise of an Option, the Option shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of descent and distribution.

7.   Terms and Conditions of Stock Appreciation Rights.

Stock Appreciation Rights shall be evidenced by Award Agreements specifying the number of shares of Stock subject to the Award, in such form as the Committee shall from time to time establish.  No SAR or purported SAR shall be a valid and binding obligation of the Company unless evidenced by a fully executed Award Agreement.  Award Agreements evidencing SARs may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:

7.1Types of SARs Authorized.  SARs may be granted in tandem with all or any portion of a related Option (a “Tandem SAR”) or may be granted independently of any Option (a “Freestanding SAR”).  A Tandem SAR may be granted either concurrently with the grant of the related Option or at any time thereafter prior to the complete exercise, termination, expiration or cancellation of such related Option.

7.2Exercise Price.  The exercise price for each SAR shall be established in the discretion of the Committee; provided, however, that (a) the exercise price per share subject to a Tandem SAR shall be the exercise price per share under the related Option and (b) the exercise price per share subject to a Freestanding SAR shall be not less than the Fair Market Value of a share of Stock on the effective date of grant of the SAR.

7.3Exercisability and Term of SARs.

 (a)Tandem SARs.  Tandem SARs shall be exercisable only at the time and to the extent, and only to the extent, that the related Option is exercisable, subject to such provisions as the Committee may specify where the Tandem SAR is granted with respect to less than the full number of shares of Stock subject to the related Option.

 (b)Freestanding SARs.  Freestanding SARs shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria and restrictions as shall be determined by the Committee and set forth in the Award Agreement evidencing such SAR; provided, however, that no Freestanding SAR shall be exercisable after the expiration of ten (10) years after the effective date of grant of such SAR.

7.4Deemed Exercise of SARs.  If, on the date on which an SAR would otherwise terminate or expire, the SAR by its terms remains exercisable immediately prior to such termination or expiration and, if so exercised, would result in a payment to the holder of such SAR, then any portion of such SAR which has not previously been exercised shall automatically be deemed to be exercised as of such date with respect to such portion.

A-14

7.5Effect of Termination of Service.  Subject to earlier termination of the SAR as otherwise provided herein and unless otherwise provided by the Committee in the grant of an SAR and set forth in the Award Agreement, an SAR shall be exercisable after a Participant’s termination of Service only as provided in the Award Agreement.

7.6Nontransferability of SARs.  During the lifetime of the Participant, an SAR shall be exercisable only by the Participant or the Participant’s guardian or legal representative.  Prior to the exercise of an SAR, the SAR shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of descent and distribution.

8.   Terms and Conditions of Restricted Stock Awards.

Restricted Stock Awards shall be evidenced by Award Agreements specifying the number of shares of Stock subject to the Award, in such form as the Committee shall from time to time establish.  No Restricted Stock Award or purported Restricted Stock Award shall be a valid and binding obligation of the Company unless evidenced by a fully executed Award Agreement.  Award Agreements evidencing Restricted Stock Awards may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:

8.1Types of Restricted Stock Awards Authorized.  Restricted Stock Awards may or may not require the payment of cash compensation for the stock.  Restricted Stock Awards may be granted upon such conditions as the Committee shall determine, including, without limitation, upon the attainment of one or more Performance Goals described in Section 9.5.  If either the grant of a Restricted Stock Award or the lapsing of the Restriction Period is to be contingent upon the attainment of one or more Performance Goals, the Committee shall follow procedures substantially equivalent to those set forth in Sections 9.3 through 9.6(a).

8.2Purchase Price.  The purchase price, if any, for shares of Stock issuable under each Restricted Stock Award and the means of payment shall be established by the Committee in its discretion.

8.3Purchase Period.  A Restricted Stock Award requiring the payment of cash consideration shall be exercisable within a period established by the Committee.

8.4Vesting and Restrictions on Transfer.  Shares issued pursuant to any Restricted Stock Award may or may not be made subject to Vesting Conditions based upon the satisfaction of such Service requirements, conditions, restrictions or performance criteria, including, without limitation, Performance Goals as described in Section 9.5, as shall be established by the Committee and set forth in the Award Agreement evidencing such Award.  During any Restriction Period in which shares acquired pursuant to a Restricted Stock Award remain subject to Vesting Conditions, such shares may not be sold, exchanged, transferred, pledged, assigned or otherwise disposed of other than as provided in the Award Agreement or as provided in Section 8.7.  Upon request by the Company, each Participant shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder and shall promptly present to the Company any and all certificates representing shares of Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.

A-15

8.5Voting Rights; Dividends and Distributions.  Except as provided in this Section, Section 8.4 and any Award Agreement, during the Restriction Period applicable to shares subject to a Restricted Stock Award, the Participant shall have all of the rights of a shareholder of the Company holding shares of Stock, including the right to vote such shares and to receive all dividends and other distributions paid with respect to such shares.  However, in the event of a dividend or distribution paid in shares of Stock or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.2, any and all new, substituted or additional securities or other property (other than normal cash dividends) to which the Participant is entitled by reason of the Participant’s Restricted Stock Award shall be immediately subject to the same Vesting Conditions as the shares subject to the Restricted Stock Award with respect to which such dividends or distributions were paid or adjustments were made.

8.6          Effect of Termination of Service.  Unless otherwise provided by the Committee in the grant of a Restricted Stock Award and set forth in the Award Agreement, if a Participant’s Service terminates for any reason, whether voluntary or involuntary (including the Participant’s death or disability), then the Participant shall forfeit to the Company any shares acquired by the Participant pursuant to a Restricted Stock Award which remain subject to Vesting Conditions as of the date of the Participant’s termination of Service in exchange for the payment of the purchase price, if any, paid by the Participant.  The Company shall have the right to assign at any time any repurchase right it may have, whether or not such right is then exercisable, to one or more persons as may be selected by the Company.

8.7Nontransferability of Restricted Stock Award Rights.  Prior to the issuance of shares of Stock pursuant to a Restricted Stock Award, rights to acquire such shares shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or the laws of descent and distribution.  All rights with respect to a Restricted Stock Award granted to a Participant hereunder shall be exercisable during his or her lifetime only by such Participant or the Participant’s guardian or legal representative.

9.   Terms and Conditions of Performance Awards.

Performance Awards shall be evidenced by Award Agreements in such form as the Committee shall from time to time establish.  No Performance Award or purported Performance Award shall be a valid and binding obligation of the Company unless evidenced by a fully executed Award Agreement.  Award Agreements evidencing Performance Awards may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:

A-16

9.1Types of Performance Awards Authorized.  Performance Awards may be in the form of either Performance Shares, Performance Units or a Performance Cash Award.  Each Award Agreement evidencing a Performance Award shall specify the number of Performance Shares or Performance Units subject thereto, the Performance Award Formula, the Performance Goal(s) and Performance Period applicable to the Award, and the other terms, conditions and restrictions of the Award.

9.2Initial Value of Performance Shares and Performance Units.  Unless otherwise provided by the Committee in granting a Performance Award, each Performance Share shall have an initial value equal to the Fair Market Value of one (1) share of Stock, subject to adjustment as provided in Section 4.2, on the effective date of grant of the Performance Share.  Each Performance Unit shall have an initial value determined by the Committee.  The final value payable to the Participant in settlement of a Performance Award determined on the basis of the applicable Performance Award Formula will depend on the extent to which Performance Goals established by the Committee are attained within the applicable Performance Period established by the Committee.

9.3Establishment of Performance Period, Performance Goals and Performance Award Formula.  In granting each Performance Award, the Committee shall establish in writing the applicable Performance Period, Performance Award Formula and one or more Performance Goals which, when measured at the end of the Performance Period, shall determine on the basis of the Performance Award Formula the final value of the Performance Award to be paid to the Participant.  To the extent compliance with the requirements under Section 162(m) with respect to “performance-based compensation” is desired, the Committee shall establish the Performance Goal(s) and Performance Award Formula applicable to each Performance Award no later than the earlier of (a) the date ninety (90) days after the commencement of the applicable Performance Period or (b) the date on which 25% of the Performance Period has elapsed, and, in any event, at a time when the outcome of the Performance Goals remains substantially uncertain.  Once established, the Performance Goals and Performance Award Formula shall not be changed during the Performance Period.  The Company shall notify each Participant granted a Performance Award of the terms of such Award, including the Performance Period, Performance Goal(s) and Performance Award Formula.

9.4Performance Cash Awards.  A Performance Cash Award is a cash award with a targeted specified dollar amount that may be paid contingent upon the attainment during a Performance Period of certain Performance Goals.  A Performance Cash Award may also require the completion of a specified period of Service.  At the time of grant of a Performance Cash Award, the length of any Performance Period, the Performance Goals to be achieved during the Performance Period, and the measure of whether and to what degree such Performance Goals have been attained shall be conclusively determined by the Committee, in its sole discretion.  The Board may provide for or, subject to such terms and conditions as the Board may specify and in compliance with the requirements of Section 409A of the Code, may permit a Participant to elect for, the payment of any Performance Cash Award to be deferred to a specified date or event.  The Committee may specify the form of payment of Performance Cash Awards, which may be cash or other property, or may provide for a Participant to have the option for his or her Performance Cash Award, or such portion thereof as the Board may specify, to be paid in whole or in part in cash or other property.

A-17

9.5Measurement of Performance Goals.  Performance Goals shall be established by the Committee on the basis of targets to be attained (“Performance Targets”) with respect to one or more measures of business or financial performance (each, a “Performance Measure”), subject to the following:

(a)Performance Measures.  Performance Measures shall have the same meanings as used in the Company’s financial statements, or, if such terms are not used in the Company’s financial statements, they shall have the meaning applied pursuant to generally accepted accounting principles, or as used generally in the Company’s industry.  Performance Measures shall be calculated with respect to the Company and each Subsidiary Corporation consolidated therewith for financial reporting purposes or such division or other business unit as may be selected by the Committee.  For purposes of the Plan, the Performance Measures applicable to a Performance Award shall be calculated in accordance with generally accepted accounting principles, but prior to the accrual or payment of any Performance Award for the same Performance Period and excluding the effect (whether positive or negative) of any change in accounting standards or any extraordinary, unusual or nonrecurring item, as determined by the Committee, occurring after the establishment of the Performance Goals applicable to the Performance Award.  Each such adjustment, if any, shall be made solely for the purpose of providing a consistent basis from period to period for the calculation of Performance Measures in order to prevent the dilution or enlargement of the Participant’s rights with respect to a Performance Award.  Performance Measures may be one or more of the following, as determined by the Committee: revenue; sales; expenses; operating income; gross margin; operating margin; earnings before any one or more of: stock-based compensation expense, interest, taxes, depreciation and amortization; pre-tax profit; net operating income; net income; economic value added; free cash flow; operating cash flow; stock price; earnings per share; return on shareholder equity; return on capital; return on assets; return on investment; employee satisfaction; employee retention; balance of cash, cash equivalents and marketable securities; market share; daily average revenue trades; asset gathering metrics; number of customers; customer satisfaction; product development; product quality; completion of a joint venture or other corporate transaction; completion of identified special project; and overall effectiveness of management; or such other measures as determined by the Committee consistent with this Section 9.5(a).

(b)Performance Targets.  Performance Targets may include a minimum, maximum, target level and intermediate levels of performance, with the final value of a Performance Award determined under the applicable Performance Award Formula by the level attained during the applicable Performance Period.  A Performance Target may be stated as an absolute value or as a value determined relative to a standard selected by the Committee.

9.6Settlement of Performance Awards.

(a)Determination of Final Value.  As soon as practicable following the completion of the Performance Period applicable to a Performance Award, the Committee shall certify in writing the extent to which the applicable Performance Goals have been attained and the resulting final value of the Award earned by the Participant and to be paid upon its settlement in accordance with the applicable Performance Award Formula.

A-18

(b)Discretionary Adjustment of Award Formula.  In its discretion, the Committee may, either at the time it grants a Performance Award or at any time thereafter, provide for the positive or negative adjustment of the Performance Award Formula applicable to a Performance Award that is not intended to constitute “qualified performance based compensation” to a “covered employee” within the meaning of Section 162(m) (a “Covered Employee”) to reflect such Participant’s individual performance in his or her position with the Company or such other factors as the Committee may determine.  With respect to a Performance Award intended to constitute qualified performance-based compensation to a Covered Employee, the Committee shall have the discretion to reduce some or all of the value of the Performance Award that would otherwise be paid to the Covered Employee upon its settlement notwithstanding the attainment of any Performance Goal and the resulting value of the Performance Award determined in accordance with the Performance Award Formula.

(c)Payment in Settlement of Performance Awards.  As soon as practicable following the Committee’s determination and certification in accordance with Sections 9.6(a) and (b), payment shall be made to each eligible Participant (or such Participant’s legal representative or other person who acquired the right to receive such payment by reason of the Participant’s death) of the final value of the Participant’s Performance Award.  Payment of such amount shall be made in cash, shares of Stock, or a combination thereof as determined by the Committee.

9.7Voting Rights; Dividend Equivalent Rights and Distributions.  Participants shall have no voting rights with respect to shares of Stock represented by Performance Share Awards until the date of the issuance of such shares, if any (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company).  However, the Committee, in its discretion, may provide in the Award Agreement evidencing any Performance Share Award that the Participant shall be entitled to receive Dividend Equivalents with respect to the payment of cash dividends on Stock having a record date prior to the date on which the Performance Shares are settled or forfeited.  Such Dividend Equivalents, if any, shall be credited to the Participant in the form of additional whole Performance Shares as of the date of payment of such cash dividends on Stock.  The number of additional Performance Shares (rounded to the nearest whole number) to be so credited shall be determined by dividing (a) the amount of cash dividends paid on such date with respect to the number of shares of Stock represented by the Performance Shares previously credited to the Participant by (b) the Fair Market Value per share of Stock on such date.  Dividend Equivalents may be paid currently or may be accumulated and paid to the extent that Performance Shares become nonforfeitable, as determined by the Committee.  Settlement of Dividend Equivalents may be made in cash, shares of Stock, or a combination thereof as determined by the Committee, and may be paid on the same basis as settlement of the related Performance Share as provided in Section 9.6.  Dividend Equivalents shall not be paid with respect to Performance Units.  In the event of a dividend or distribution paid in shares of Stock or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.2, appropriate adjustments shall be made in the Participant’s Performance Share Award so that it represents the right to receive upon settlement any and all new, substituted or additional securities or other property (other than normal cash dividends) to which the Participant would entitled by reason of the shares of Stock issuable upon settlement of the Performance Share Award, and all such new, substituted or additional securities or other property shall be immediately subject to the same Performance Goals as are applicable to the Award.

A-19

9.8Effect of Termination of Service.  Unless otherwise provided by the Committee in the grant of a Performance Award and set forth in the Award Agreement, the effect of a Participant’s termination of Service on the Performance Award shall be as follows:

(a)Death or Disability.  If the Participant’s Service terminates because of the death or Disability of the Participant before the completion of the Performance Period applicable to the Performance Award, the final value of the Participant’s Performance Award shall be determined by the extent to which the applicable Performance Goals have been attained with respect to the entire Performance Period and shall be prorated based on the number of months of the Participant’s Service during the Performance Period.  Payment shall be made following the end of the Performance Period in any manner permitted by Section 9.6.

(b)Other Termination of Service.  If the Participant’s Service terminates for any reason except death or Disability before the completion of the Performance Period applicable to the Performance Award, such Award shall be forfeited in its entirety.

9.9Nontransferability of Performance Awards.  Prior to settlement in accordance with the provisions of the Plan, no Performance Award shall be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of descent and distribution.  All rights with respect to a Performance Award granted to a Participant hereunder shall be exercisable during his or her lifetime only by such Participant or the Participant’s guardian or legal representative.

10.   Terms and Conditions of Restricted Stock Unit Awards.

Restricted Stock Unit Awards shall be evidenced by Award Agreements specifying the number of Restricted Stock Units subject to the Award, in such form as the Committee shall from time to time establish.  No Restricted Stock Unit Award or purported Restricted Stock Unit Award shall be a valid and binding obligation of the Company unless evidenced by a fully executed Award Agreement.  Award Agreements evidencing Restricted Stock Units may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:

10.1         Grant of Restricted Stock Unit Awards.  Restricted Stock Unit Awards may be granted upon such conditions as the Committee shall determine, including, without limitation, upon the attainment of one or more Performance Goals described in Section 9.5.  If either the grant of a Restricted Stock Unit Award or the Vesting Conditions with respect to such Award is to be contingent upon the attainment of one or more Performance Goals, the Committee shall follow procedures substantially equivalent to those set forth in Sections 9.3 through 9.6(a).

10.2         Vesting.  Restricted Stock Units may or may not be made subject to Vesting Conditions based upon the satisfaction of such Service requirements, conditions, restrictions or performance criteria, including, without limitation, Performance Goals as described in Section 9.5, as shall be established by the Committee and set forth in the Award Agreement evidencing such Award.

A-20

10.3         Voting Rights, Dividend Equivalent Rights and Distributions.  Participants shall have no voting rights with respect to shares of Stock represented by Restricted Stock Units until the date of the issuance of such shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company).  However, the Committee, in its discretion, may provide in the Award Agreement evidencing any Restricted Stock Unit Award that the Participant shall be entitled to receive Dividend Equivalents with respect to the payment of cash dividends on Stock having a record date prior to the date on which Restricted Stock Units held by such Participant are settled.  Such Dividend Equivalents, if any, shall be paid by crediting the Participant with additional whole Restricted Stock Units as of the date of payment of such cash dividends on Stock.  The number of additional Restricted Stock Units (rounded to the nearest whole number) to be so credited shall be determined by dividing (a) the amount of cash dividends paid on such date with respect to the number of shares of Stock represented by the Restricted Stock Units previously credited to the Participant by (b) the Fair Market Value per share of Stock on such date.  Such additional Restricted Stock Units shall be subject to the same terms and conditions and shall be settled in the same manner and at the same time (or as soon thereafter as practicable) as the Restricted Stock Units originally subject to the Restricted Stock Unit Award.  In the event of a dividend or distribution paid in shares of Stock or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.2, appropriate adjustments shall be made in the Participant’s Restricted Stock Unit Award so that it represents the right to receive upon settlement any and all new, substituted or additional securities or other property (other than normal cash dividends) to which the Participant would entitled by reason of the shares of Stock issuable upon settlement of the Award, and all such new, substituted or additional securities or other property shall be immediately subject to the same Vesting Conditions as are applicable to the Award.

10.4         Effect of Termination of Service.  Unless otherwise provided by the Committee in the grant of a Restricted Stock Unit Award and set forth in the Award Agreement, if a Participant’s Service terminates for any reason, whether voluntary or involuntary (including the Participant’s death or disability), then the Participant shall forfeit to the Company any Restricted Stock Units pursuant to the Award which remain subject to Vesting Conditions as of the date of the Participant’s termination of Service.

10.5         Settlement of Restricted Stock Unit Awards.  The Company shall issue to a Participant on the date on which Restricted Stock Units subject to the Participant’s Restricted Stock Unit Award vest or on such other date determined by the Committee, in its discretion, and set forth in the Award Agreement one (1) share of Stock (and/or any other new, substituted or additional securities or other property pursuant to an adjustment described in Section 10.3) for each Restricted Stock Unit then becoming vested or otherwise to be settled on such date, subject to the withholding of applicable taxes.  Notwithstanding the foregoing, if permitted by the Committee and set forth in the Award Agreement, the Participant may elect in accordance with terms specified in the Award Agreement to defer receipt of all or any portion of the shares of Stock or other property otherwise issuable to the Participant pursuant to this Section.

A-21

10.6         Nontransferability of Restricted Stock Unit Awards.  Prior to the issuance of shares of Stock in settlement of a Restricted Stock Unit Award, the Award shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of descent and distribution.  All rights with respect to a Restricted Stock Unit Award granted to a Participant hereunder shall be exercisable during his or her lifetime only by such Participant or the Participant’s guardian or legal representative.

11.   Deferred Compensation Awards.

11.1         Establishment of Deferred Compensation Award Programs.  This Section 11 shall not be effective unless and until the Committee determines to establish a program pursuant to this Section.  The Committee, in its discretion and upon such terms and conditions as it may determine, may establish one or more programs pursuant to the Plan that is exempt from or compliant with the requirements of Section 409A of the Code and under which:

(a)Participants designated by the Committee who are Insiders or otherwise among a select group of highly compensated Employees may irrevocably elect, prior to a date specified by the Committee, to reduce such Participant’s compensation otherwise payable in cash (subject to any minimum or maximum reductions imposed by the Committee) and to be granted automatically at such time or times as specified by the Committee one or more Awards of Stock Units with respect to such numbers of shares of Stock as determined in accordance with the rules of the program established by the Committee and having such other terms and conditions as established by the Committee.

(b)Participants designated by the Committee who are Insiders or otherwise among a select group of highly compensated Employees may irrevocably elect, prior to a date specified by the Committee, to be granted automatically an Award of Stock Units with respect to such number of shares of Stock and upon such other terms and conditions as established by the Committee in lieu of:

(i)shares of Stock otherwise issuable to such Participant upon the exercise of an Option;

(ii)     cash or shares of Stock otherwise issuable to such Participant upon the exercise of an SAR; or

(iii)    cash or shares of Stock otherwise issuable to such Participant upon the settlement of a Performance Award or Performance Unit.

11.2        Terms and Conditions of Deferred Compensation Awards.  Deferred Compensation Awards granted pursuant to this Section 11 shall be evidenced by Award Agreements in such form as the Committee shall from time to time establish.  No such Deferred Compensation Award or purported Deferred Compensation Award shall be a valid and binding obligation of the Company unless evidenced by a fully executed Award Agreement.  Award Agreements evidencing Deferred Compensation Awards may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:

A-22

(a)Vesting Conditions.  Deferred Compensation Awards shall not be subject to any vesting conditions.

(b)Terms and Conditions of Stock Units.

(i)      Voting Rights; Dividend Equivalent Rights and Distributions.  Participants shall have no voting rights with respect to shares of Stock represented by Stock Units until the date of the issuance of such shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company).  However, a Participant shall be entitled to receive Dividend Equivalents with respect to the payment of cash dividends on Stock having a record date prior to date on which Stock Units held by such Participant are settled.  Such Dividend Equivalents shall be paid by crediting the Participant with additional whole and/or fractional Stock Units as of the date of payment of such cash dividends on Stock.  The method of determining the number of additional Stock Units to be so credited shall be specified by the Committee and set forth in the Award Agreement.  Such additional Stock Units shall be subject to the same terms and conditions and shall be settled in the same manner and at the same time (or as soon thereafter as practicable) as the Stock Units originally subject to the Stock Unit Award.  In the event of a dividend or distribution paid in shares of Stock or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.2, appropriate adjustments shall be made in the Participant’s Stock Unit Award so that it represent the right to receive upon settlement any and all new, substituted or additional securities or other property (other than normal cash dividends) to which the Participant would be entitled by reason of the shares of Stock issuable upon settlement of the Award.

(ii)     Settlement of Stock Unit Awards.  A Participant electing to receive an Award of Stock Units pursuant to this Section 11, shall specify at the time of such election a settlement date with respect to such Award.  The Company shall issue to the Participant as soon as practicable following the earlier of the settlement date elected by the Participant or the date of termination of the Participant’s Service, a number of whole shares of Stock equal to the number of whole Stock Units subject to the Stock Unit Award.  Such shares of Stock shall be fully vested, and the Participant shall not be required to pay any additional consideration (other than applicable tax withholding) to acquire such shares.  Any fractional Stock Unit subject to the Stock Unit Award shall be settled by the Company by payment in cash of an amount equal to the Fair Market Value as of the payment date of such fractional share.

(iii)    Nontransferability of Stock Unit Awards.  Prior to their settlement in accordance with the provision of the Plan, no Stock Unit Award shall be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of descent and distribution.  All rights with respect to a Stock Unit Award granted to a Participant hereunder shall be exercisable during his or her lifetime only by such Participant or the Participant’s guardian or legal representative.

A-23

12.   Other Stock-Based Awards.

In addition to the Awards set forth in Sections 6 through 11 above, the Committee, in its sole discretion, may carry out the purpose of this Plan by awarding Stock-Based Awards as it determines to be in the best interests of the Company and subject to such other terms and conditions as it deems necessary and appropriate.

13.   Change in Control.

Notwithstanding any other provision of the Plan, any unexercisable or unvested portion of each outstanding Award held by a Nonemployee Director or an officer and any shares acquired upon the exercise thereof shall be immediately exercisable and vested in full as of the date ten (10) days prior to the date of a Change in Control but conditioned upon the consummation of the Change in Control.

13.1       Effect of Change in Control on Options and SARs.

(a)Accelerated Vesting.  Notwithstanding any other provision of the Plan to the contrary except as provided in this Section 13, the Committee, in its sole discretion, may provide in any Award Agreement or, in the event of a Change in Control, may take such actions as it deems appropriate to provide for the acceleration of the exercisability and vesting in connection with such Change in Control of any or all outstanding Options and SARs and shares acquired upon the exercise of such Options and SARs upon such conditions and to such extent as the Committee shall determine.

(b)Assumption or Substitution.  In the event of a Change in Control, the surviving, continuing, successor, or purchasing entity or parent thereof, as the case may be (the “Acquiror”), may, without the consent of any Participant, either assume the Company’s rights and obligations under outstanding Options and SARs or substitute for outstanding Options and SARs substantially equivalent options and SARs (as the case may be) for the Acquiror’s stock.  Any Options or SARs which are not assumed by the Acquiror in connection with the Change in Control nor exercised as of the time of consummation of the Change in Control shall terminate and cease to be outstanding effective as of the time of consummation of the Change in Control.

(c)Cash-Out of Options.  The Committee may, in its sole discretion and without the consent of any Participant, determine that, upon the occurrence of a Change in Control, each or any Option or SAR outstanding immediately prior to the Change in Control shall be canceled in exchange for a payment with respect to each vested share of Stock subject to such canceled Option or SAR in (i) cash, (ii) stock of the Company or of a corporation or other business entity a party to the Change in Control, or (iii) other property which, in any such case, shall be in an amount having a Fair Market Value equal to the excess of the Fair Market Value of the consideration to be paid per share of Stock in the Change in Control over the exercise price per share under such Option or SAR (the “Spread”).  In the event such determination is made by the Committee, the Spread (reduced by applicable withholding taxes, if any) shall be paid to Participants in respect of their canceled Options and SARs as soon as practicable following the date of the Change in Control.

13.2        Effect of Change in Control on Restricted Stock Awards.  The Committee may, in its discretion, provide in any Award Agreement evidencing a Restricted Stock Award that, in the event of a Change in Control, the lapsing of the Restriction Period applicable to the shares subject to the Restricted Stock Award held by a Participant whose Service has not terminated prior to the Change in Control shall be accelerated effective immediately prior to the consummation of the Change in Control to such extent as specified in such Award Agreement.  Any acceleration of the lapsing of the Restriction Period that was permissible solely by reason of this Section 13.2 and the provisions of such Award Agreement shall be conditioned upon the consummation of the Change in Control.

A-24

13.3        Effect of Change in Control on Performance Awards.  The Committee may, in its discretion, provide in any Award Agreement evidencing a Performance Award that, in the event of a Change in Control, the Performance Award held by a Participant whose Service has not terminated prior to the Change in Control or whose Service terminated by reason of the Participant’s death or Disability shall become payable effective as of the date of the Change in Control to such extent as specified in such Award Agreement.

13.4        Effect of Change in Control on Restricted Stock Unit Awards.  The Committee may, in its discretion, provide in any Award Agreement evidencing a Restricted Stock Unit Award that, in the event of a Change in Control, the Restricted Stock Unit Award held by a Participant whose Service has not terminated prior to such date shall be settled effective as of the date of the Change in Control to such extent as specified in such Award Agreement.

13.5         Effect of Change in Control on Deferred Compensation and Other Stock-Based Awards.  The Committee may, in its discretion, provide in any Award Agreement evidencing a Deferred Compensation Award or other Stock-Based Award that, in the event of a Change in Control, the amounts payable pursuant to such Award shall be settled effective as of the date of the Change in Control to such extent as specified in such Award Agreement and in compliance with the requirements of Section 409A of the Code, to the extent applicable.

14.   Compliance with Securities Law.

The grant of Awards and the issuance of shares of Stock pursuant to any Award shall be subject to compliance with all applicable requirements of federal, state and foreign law with respect to such securities and the requirements of any stock exchange or market system upon which the Stock may then be listed.  In addition, no Award may be exercised or shares issued pursuant to an Award unless (a) a registration statement under the Securities Act shall at the time of such exercise or issuance be in effect with respect to the shares issuable pursuant to the Award or (b) in the opinion of legal counsel to the Company, the shares issuable pursuant to the Award may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act.  The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any shares hereunder shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained.  As a condition to issuance of any Stock, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company.

A-25

15.   Tax Withholding.

15.1         Tax Withholding in General.  The Company shall have the right to deduct from any and all payments made under the Plan, or to require the Participant, through payroll withholding, cash payment or otherwise, including by means of a Cashless Exercise or Net Exercise of an Option, to make adequate provision for, the federal, state, local and foreign taxes, if any, required by law to be withheld by the Participating Company Group with respect to an Award or the shares acquired pursuant thereto.  The Company shall have no obligation to deliver shares of Stock, to release shares of Stock from an escrow established pursuant to an Award Agreement, or to make any payment in cash under the Plan until the Participating Company Group’s tax withholding obligations have been satisfied by the Participant.

15.2         Withholding in Shares.  The Company shall have the right, but not the obligation, to deduct from the shares of Stock issuable to a Participant upon the exercise or settlement of an Award, or to accept from the Participant the tender of, a number of whole shares of Stock having a Fair Market Value, as determined by the Company, equal to all or any part of the tax withholding obligations of the Participating Company Group.  The Fair Market Value of any shares of Stock withheld or tendered to satisfy any such tax withholding obligations shall not exceed the amount determined by the applicable minimum statutory withholding rates.

16.   Amendment or Termination of Plan.

The Board or the Committee may amend, suspend or terminate the Plan at any time.  However, without the approval of the Company’s shareholders, there shall be (a) no increase in the maximum aggregate number of shares of Stock that may be issued under the Plan (except by operation of the provisions of Section 4.2), (b) no change in the class of persons eligible to receive Incentive Stock Options, and (c) no other amendment of the Plan that would require approval of the Company’s shareholders under any applicable law, regulation or rule.  No amendment, suspension or termination of the Plan shall affect any then outstanding Award unless expressly provided by the Board or the Committee.  In any event, no amendment, suspension or termination of the Plan may adversely affect any then outstanding Award without the consent of the Participant unless necessary to comply with any applicable law, regulation or rule, including Section 409A of the Code.

17.   Miscellaneous Provisions.

17.1        Repurchase Rights.  Shares issued under the Plan may be subject to one or more repurchase options, or other conditions and restrictions as determined by the Committee in its discretion at the time the Award is granted.  The Company shall have the right to assign at any time any repurchase right it may have, whether or not such right is then exercisable, to one or more persons as may be selected by the Company.  Upon request by the Company, each Participant shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder and shall promptly present to the Company any and all certificates representing shares of Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.

A-26

17.2        Provision of Information.  Each Participant shall be given access to information concerning the Company equivalent to that information generally made available to the Company’s common shareholders.

17.3        Rights as Employee, Consultant or Director.  No person, even though eligible pursuant to Section 5, shall have a right to be selected as a Participant, or, having been so selected, to be selected again as a Participant.  Nothing in the Plan or any Award granted under the Plan shall confer on any Participant a right to remain an Employee, Consultant or Director or interfere with or limit in any way any right of a Participating Company to terminate the Participant’s Service at any time.  To the extent that an Employee of a Participating Company other than the Company receives an Award under the Plan, that Award shall in no event be understood or interpreted to mean that the Company is the Employee’s employer or that the Employee has an employment relationship with the Company.

17.4        Rights as a Shareholder.  A Participant shall have no rights as a shareholder with respect to any shares covered by an Award until the date of the issuance of such shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company).  No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such shares are issued, except as provided in Section 4.2 or another provision of the Plan.

17.5        Fractional Shares.  The Company shall not be required to issue fractional shares upon the exercise or settlement of any Award.

17.6        Severability.  If any one or more of the provisions (or any part thereof) of this Plan shall be held invalid, illegal or unenforceable in any respect, such provision shall be modified so as to make it valid, legal and enforceable, and the validity, legality and enforceability of the remaining provisions (or any part thereof) of the Plan shall not in any way be affected or impaired thereby.

17.7        Beneficiary Designation.  Subject to local laws and procedures, each Participant may file with the Company a written designation of a beneficiary who is to receive any benefit under the Plan to which the Participant is entitled in the event of such Participant’s death before he or she receives any or all of such benefit.  Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Company during the Participant’s lifetime.  If a married Participant designates a beneficiary other than the Participant’s spouse, the effectiveness of such designation may be subject to the consent of the Participant’s spouse.  If a Participant dies without an effective designation of a beneficiary who is living at the time of the Participant’s death, the Company will pay any remaining unpaid benefits to the Participant’s legal representative.

A-27

17.8         Unfunded Obligation.  Participants shall have the status of general unsecured creditors of the Company.  Any amounts payable to Participants pursuant to the Plan shall be unfunded and unsecured obligations for all purposes, including, without limitation, Title I of the Employee Retirement Income Security Act of 1974.  No Participating Company shall be required to segregate any monies from its general funds, or to create any trusts, or establish any special accounts with respect to such obligations.  The Company shall retain at all times beneficial ownership of any investments, including trust investments, which the Company may make to fulfill its payment obligations hereunder.  Any investments or the creation or maintenance of any trust or any Participant account shall not create or constitute a trust or fiduciary relationship between the Committee or any Participating Company and a Participant, or otherwise create any vested or beneficial interest in any Participant or the Participant’s creditors in any assets of any Participating Company.  The Participants shall have no claim against any Participating Company for any changes in the value of any assets which may be invested or reinvested by the Company with respect to the Plan.  Each Participating Company shall be responsible for making benefit payments pursuant to the Plan on behalf of its Participants or for reimbursing the Company for the cost of such payments, as determined by the Company in its sole discretion.  In the event the respective Participating Company fails to make such payment or reimbursement, a Participant’s (or other individual’s) sole recourse shall be against the respective Participating Company, and not against the Company.  A Participant’s acceptance of an Award pursuant to the Plan shall constitute agreement with this provision.

17.9         Choice of Law.  Except to the extent governed by applicable federal law, the validity, interpretation, construction and performance of the Plan and each Award Agreement shall be governed by the laws of the State of California, without regard to its conflict of law rules.

A-28

EX-31.1

EXHIBIT 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Clinton H. Severson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Abaxis, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  February 11, 2013	/s/ Clinton H. Severson
	Clinton H. Severson
	President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Alberto R. Santa Ines, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Abaxis, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  February 11, 2013	/s/ Alberto R. Santa Ines
	Alberto R. Santa Ines
	Chief Financial Officer and Vice President of Finance

EX-32.1

EXHIBIT 32.1

Certification of Chief Executive Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, Clinton H. Severson, Chief Executive Officer of Abaxis, Inc. (the “Registrant”), do hereby certify in accordance with the requirements set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350), as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) the Quarterly Report on Form 10-Q of the Registrant, to which this certification is attached as an exhibit (the “Report”), fully complies with the requirements of section 13(a) or section 15(d) of the Exchange Act; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant for the periods covered by the Report.

Dated:  February 11, 2013
	By:	/s/ Clinton H. Severson
		Clinton H. Severson
		President and Chief Executive Officer

This certification accompanies this Quarterly Report on Form 10-Q.  The certification is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Abaxis, Inc. under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date of this Quarterly Report on Form 10-Q and irrespective of any general incorporation language contained in any such filing.

EX-32.2

EXHIBIT 32.2

Certification of Chief Financial Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, Alberto R. Santa Ines, Chief Financial Officer of Abaxis, Inc. (the “Registrant”), do hereby certify in accordance with the requirements set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350), as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) the Quarterly Report on Form 10-Q of the Registrant, to which this certification is attached as an exhibit (the “Report”), fully complies with the requirements of section 13(a) or section 15(d) of the Exchange Act; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant for the periods covered by the Report.

Dated:  February 11, 2013
	By:	/s/ Alberto R. Santa Ines
		Alberto R. Santa Ines
		Chief Financial Officer and Vice President of Finance

This certification accompanies this Quarterly Report on Form 10-Q.  The certification is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Abaxis, Inc. under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date of this Quarterly Report on Form 10-Q and irrespective of any general incorporation language contained in any such filing.

XML

EQUITY COMPENSATION PLANS AND SHARE-BASED COMPENSATION, Stock Options (Details) (USD $)	3 Months Ended		9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Additional disclosures [Abstract]
Total intrinsic value of stock options exercised	$ 1,600,000	$ 370,000	$ 2,700,000	$ 2,300,000
Proceeds from the exercise of stock options	1,300,000	146,000	1,593,000	576,000
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Term of grant			10 years
Unrecognized compensation expense	0		0
Options, number of shares [Roll Forward]
Outstanding, beginning of period (in shares)			282,000
Granted (in shares)			0
Exercised (in shares)			(114,000)
Canceled or forfeited (in shares)			0
Outstanding, end of period (in shares)	168,000		168,000
Vested and expected to vest, end of period (in shares)	168,000		168,000
Exercisable, end of period (in shares)	168,000		168,000
Options, average exercise price per share [Roll Forward]
Outstanding, beginning of period (in dollars per share)			$ 15.21
Granted (in dollars per share)			$ 0
Exercised (in dollars per share)			$ 14.06
Canceled or forfeited (in dollars per share)			$ 0
Outstanding, end of period (in dollars per share)	$ 15.99		$ 15.99
Vested and expected to vest, end of period (in dollars per share)	$ 15.99		$ 15.99
Exercisable, end of period (in dollars per share)	$ 15.99		$ 15.99
Additional disclosures [Abstract]
Outstanding, weighted average remaining contractual life			1 year 11 days
Vested and expected to vest, weighted average remaining contractual life			1 year 11 days
Exercisable, weighted average remaining contractual life			1 year 11 days
Outstanding, aggregate intrinsic value	3,555,000		3,555,000
Vested and expected to vest, aggregate intrinsic value	3,555,000		3,555,000
Exercisable, aggregate intrinsic value	$ 3,555,000		$ 3,555,000
Stock Options [Member] | Employees [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period			4 years
Stock Options [Member] | Non-Employee Directors [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period			1 year

XML

INVENTORIES (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Mar. 31, 2012
INVENTORIES [Abstract]
Raw materials	$ 12,729	$ 9,046
Work-in-process	3,501	3,369
Finished goods	8,839	7,182
Inventories	$ 25,069	$ 19,597

XML

INVENTORIES (Tables)

9 Months Ended

Dec. 31, 2012

INVENTORIES [Abstract]

Components of inventories

Inventories include material, labor and overhead, and are stated at the lower of cost (first-in, first-out method) or market.  Components of inventories were as follows (in thousands):

	December 31,		March 31,
	2012		2012
Raw materials	$	12,729	$	9,046
Work-in-process		3,501		3,369
Finished goods		8,839		7,182
Inventories	$	25,069	$	19,597

XML

NET INCOME PER SHARE (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Numerator:
Net income	$ 4,988	$ 2,850	$ 20,761	$ 8,385
Denominator:
Weighted average common shares outstanding - basic (in shares)	21,968,000	21,672,000	21,902,000	22,213,000
Weighted average effect of dilutive securities:
Stock options (in shares)	87,000	107,000	101,000	139,000
Restricted stock units (in shares)	258,000	185,000	285,000	212,000
Warrants (in shares)	28,000	26,000	28,000	15,000
Weighted average common shares outstanding - diluted (in shares)	22,341,000	21,990,000	22,316,000	22,579,000
Net income per share:
Basic net income per share (in dollars per share)	$ 0.23	$ 0.13	$ 0.95	$ 0.38
Diluted net income per share (in dollars per share)	$ 0.22	$ 0.13	$ 0.93	$ 0.37
Restricted Stock Units (RSUs) [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Weighted average number of shares underlying antidilutive securities (in shares)	0	307,000	31,000	249,000
Restricted stock unit awards (performance vesting) not included in the diluted net income per share calculation (in shares)	21,000		21,000
Stock Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Weighted average number of shares underlying antidilutive securities (in shares)	0	0	0	0
Warrants [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Weighted average number of shares underlying antidilutive securities (in shares)	0	0	0	0

XML

COMMITMENTS AND CONTINGENCIES (Details) (USD $)	1 Months Ended	3 Months Ended		9 Months Ended
	Jan. 31, 2009	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Patent Licensing Agreement [Abstract]
Payments for up-front license fee	$ 5,000,000
Litigation [Abstract]
Gain (loss) related to litigation settlement		0	0	17,250,000	0
Coagulation and Specialty Analyzers and Related Cartridges [Member]
Long-term Purchase Commitment [Line Items]
Time period of purchase commitment				calendar year 2011 through 2015
Outstanding commitment due				9,400,000
Hematology Instruments [Member]
Long-term Purchase Commitment [Line Items]
Time period of purchase commitment				through fiscal year 2015
Outstanding commitment due				7,900,000
Prepaid for future purchases		$ 1,500,000		$ 1,500,000
Minimum [Member]
Patent Licensing Agreement [Abstract]
Annual license fee				between $500,000 to $1.0 million

XML

INVESTMENTS

9 Months Ended

Dec. 31, 2012

INVESTMENTS [Abstract]

INVESTMENTS

NOTE 3.  INVESTMENTS

Our investments are classified as either available-for-sale or held-to-maturity.  The following table summarizes available-for-sale and held-to-maturity investments as of December 31, 2012 and March 31, 2012 (in thousands):

	Available-for-Sale Investments
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
December 31, 2012	Cost		Gain		(Loss)			Value
Certificates of deposits	$	996	$	6	$	-		$	1,002
Corporate bonds		6,033		71		-			6,104
Municipal bonds		531		1		-			532
Total available-for-sale investments	$	7,560	$	78	$	-		$	7,638
	Held-to-Maturity Investments
			Gross		Gross
	Amortized		Unrecognized		Unrecognized			Fair
December 31, 2012	Cost		Gain		(Loss)			Value
Certificates of deposits	$	3,590	$	1	$	(1	)	$	3,590
Corporate bonds		19,953		172		(2	)		20,123
Municipal bonds		13,175		38		(20	)		13,193
Total held-to-maturity investments	$	36,718	$	211	$	(23	)	$	36,906

	Available-for-Sale Investments
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
March 31, 2012	Cost		Gain		(Loss)			Value
Certificates of deposits	$	1,245	$	2	$	-		$	1,247
Corporate bonds		6,047		38		-			6,085
Municipal bonds		961		1		-			962
Total available-for-sale investments	$	8,253	$	41	$	-		$	8,294
	Held-to-Maturity Investments
			Gross		Gross
	Amortized		Unrecognized		Unrecognized			Fair
March 31, 2012	Cost		Gain		(Loss)			Value
Certificates of deposits	$	844	$	-	$	-		$	844
Corporate bonds		23,072		131		(31	)		23,172
Municipal bonds		12,921		71		(1	)		12,991
Total held-to-maturity investments	$	36,837	$	202	$	(32	)	$	37,007

The amortized cost of our held-to-maturity investments approximates their fair value.  As of December 31, 2012 and March 31, 2012, we did not have other-than-temporary impairment in the fair value of any individual security classified as held-to-maturity or available-for-sale.  As of December 31, 2012 and March 31, 2012, we had unrealized gains on available-for-sale investments, net of related income taxes of $46,000 and $25,000, respectively.  Redemptions of investments in accordance with callable provisions during the three months ended December 31, 2012 and 2011 were $0 and $250,000, respectively, and during the nine months ended December 31, 2012 and 2011 were $717,000 and $13.3 million, respectively.

The following table summarizes the amortized cost and fair value of our investments, classified by stated maturity as of December 31, 2012 and March 31, 2012 (in thousands):

	December 31, 2012				December 31, 2012
	Available-for-Sale Investments				Held-to-Maturity Investments
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in less than one year	$	1,029	$	1,032	$	21,612	$	21,669
Due in 1 to 4 years		6,531		6,606		15,106		15,237
Total investments	$	7,560	$	7,638	$	36,718	$	36,906
	March 31, 2012				March 31, 2012
	Available-for-Sale Investments				Held-to-Maturity Investments
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in less than one year	$	670	$	670	$	21,019	$	21,062
Due in 1 to 4 years		7,583		7,624		15,818		15,945
Total investments	$	8,253	$	8,294	$	36,837	$	37,007

XML

INCOME TAXES (Details) (USD $)	3 Months Ended		9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Mar. 31, 2012
INCOME TAXES [Abstract]
Income tax provision	$ 2,996,000	$ 1,696,000	$ 12,707,000	$ 4,892,000
Effective income tax rate (in hundredths)	38.00%	37.00%	38.00%	37.00%
Expected tax benefit to recognize			400,000
Unrecognized tax benefits	0		0		0
Unrecognized tax benefits penalties and interest expense	$ 0	$ 0	$ 0	$ 0

XML

SEGMENT REPORTING INFORMATION (Tables)

9 Months Ended

Dec. 31, 2012

SEGMENT REPORTING INFORMATION [Abstract]

Revenues, cost of revenues and gross profit, by Segment

The table below summarizes revenues, cost of revenues and gross profit from our two operating segments and from certain unallocated items for the three and nine months ended December 31, 2012 and 2011 (in thousands):

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2012			2011			2012			2011
Revenues:
Medical Market	$	8,977		$	8,147		$	25,267		$	22,636
Veterinary Market		39,865			28,467			107,299			87,684
Other(1)		960			1,236			3,508			3,558
Total revenues		49,802			37,850			136,074			113,878
Cost of revenues:
Medical Market(2)		4,282			3,514			11,286			10,180
Veterinary Market(2)		17,980			12,472			48,582			37,893
Other(1)(2)		1,464			1,386			4,158			4,083
Total cost of revenues		23,726			17,372			64,026			52,156
Gross profit:
Medical Market(2)		4,695			4,633			13,981			12,456
Veterinary Market(2)		21,885			15,995			58,717			49,791
Other(1)(2)		(504	)		(150	)		(650	)		(525	)
Gross profit	$	26,076		$	20,478		$	72,048		$	61,722

(1) Represents unallocated items, not specifically identified to any particular business segment.

(2) Includes certain prior period amounts by operating segment and unallocated items that were reclassified to conform to the current period presentation.

XML

NET INCOME PER SHARE (Tables)

9 Months Ended

Dec. 31, 2012

NET INCOME PER SHARE [Abstract]

Reconciliation of weighted average number of common shares outstanding used in calculating basic and diluted net income per share

The following is a reconciliation of the weighted average number of common shares outstanding used in calculating basic and diluted net income per share (in thousands, except share and per share data):

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2012		2011		2012		2011
Numerator:
Net income	$	4,988	$	2,850	$	20,761	$	8,385
Denominator:
Weighted average common shares outstanding - basic		21,968,000		21,672,000		21,902,000		22,213,000
Weighted average effect of dilutive securities:
Stock options		87,000		107,000		101,000		139,000
Restricted stock units		258,000		185,000		285,000		212,000
Warrants		28,000		26,000		28,000		15,000
Weighted average common shares outstanding - diluted		22,341,000		21,990,000		22,316,000		22,579,000
Net income per share:
Basic net income per share	$	0.23	$	0.13	$	0.95	$	0.38
Diluted net income per share	$	0.22	$	0.13	$	0.93	$	0.37

Antidilutive securities excluded from computation of diluted weighted average shares outstanding

We excluded the following restricted stock units from the computation of diluted weighted average shares outstanding because the inclusion of these awards would be antidilutive to net income per share:

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2012		2011		2012		2011
Weighted average number of shares underlying antidilutive restricted stock units		-		307,000		31,000		249,000

XML

SEGMENT REPORTING INFORMATION (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended				9 Months Ended
	Dec. 31, 2012		Dec. 31, 2011		Dec. 31, 2012		Dec. 31, 2011
SEGMENT REPORTING INFORMATION [Abstract]
Minimum percentage of revenues or gross profit (loss) in order for customer group to be identified as reportable segment (in hundredths)					10.00%
Number of reportable segments					2
Segment Reporting Information [Line Items]
Revenue	$ 49,802		$ 37,850		$ 136,074		$ 113,878
Cost of revenues	23,726		17,372		64,026		52,156
Gross Profit	26,076		20,478		72,048		61,722
Medical Market [Member]
Segment Reporting Information [Line Items]
Revenue	8,977		8,147		25,267		22,636
Cost of revenues	4,282	[1]	3,514	[1]	11,286	[1]	10,180	[1]
Gross Profit	4,695	[1]	4,633	[1]	13,981	[1]	12,456	[1]
Veterinary Market [Member]
Segment Reporting Information [Line Items]
Revenue	39,865		28,467		107,299		87,684
Cost of revenues	17,980	[1]	12,472	[1]	48,582	[1]	37,893	[1]
Gross Profit	21,885	[1]	15,995	[1]	58,717	[1]	49,791	[1]
Other Market [Member]
Segment Reporting Information [Line Items]
Revenue	960	[2]	1,236	[2]	3,508	[2]	3,558	[2]
Cost of revenues	1,464	[1],[2]	1,386	[1],[2]	4,158	[1],[2]	4,083	[1],[2]
Gross Profit	$ (504)	[1],[2]	$ (150)	[1],[2]	$ (650)	[1],[2]	$ (525)	[1],[2]

[1] Includes certain prior period amounts by operating segment and unallocated items that were reclassified to conform to the current period presentation.

[2] Represents unallocated items, not specifically identified to any particular business segment.

XML

REVENUES BY PRODUCT AND SERVICE CATEGORY AND GEOGRAPHIC REGION AND SIGNIFICANT CONCENTRATIONS (Tables)

9 Months Ended

Dec. 31, 2012

REVENUES BY PRODUCT AND SERVICE CATEGORY AND GEOGRAPHIC REGION AND SIGNIFICANT CONCENTRATIONS [Abstract]

Summary of revenues by product and service category

The following is a summary of our revenues by product and service category (in thousands):

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
Revenues by Product and Service Category	2012		2011		2012		2011
Instruments(1)	$	13,969	$	9,079	$	35,456	$	25,364
Consumables(2)		32,786		26,808		91,680		83,019
Other products and services(3)		3,009		1,925		8,825		5,372
Product and service revenues, net		49,764		37,812		135,961		113,755
Development and licensing revenue		38		38		113		123
Total revenues	$	49,802	$	37,850	$	136,074	$	113,878

(1) Instruments include chemistry analyzers, hematology instruments, VSpro specialty analyzers and i-STAT analyzers.

(2) Consumables include reagent discs, hematology reagent kits, VSpro specialty cartridges, i-STAT cartridges and rapid tests.

(3) Other products and services include veterinary reference laboratory diagnostic and consulting services.

Summary of revenues by geographic region

The following is a summary of our revenues by geographic region based on customer location (in thousands):

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
Revenues by Geographic Region	2012		2011		2012		2011
North America	$	41,797	$	31,847	$	110,876	$	93,540
Europe		6,197		4,516		19,906		16,326
Asia Pacific and rest of the world		1,808		1,487		5,292		4,012
Total revenues	$	49,802	$	37,850	$	136,074	$	113,878

XML

INVESTMENTS (Details) (USD $)	3 Months Ended		9 Months Ended		12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Mar. 31, 2012
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 7,560,000		$ 7,560,000		$ 8,253,000
Gross Unrealized Gain	78,000		78,000		41,000
Gross Unrealized (Loss)	0		0		0
Fair Value	7,638,000		7,638,000		8,294,000
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost	36,718,000		36,718,000		36,837,000
Gross Unrecognized Gain	211,000		211,000		202,000
Gross Unrecognized (Loss)	(23,000)		(23,000)		(32,000)
Fair Value	36,906,000		36,906,000		37,007,000
Available-for-sale Securities and Held-to-maturity Securities [Abstract]
Other-than-temporary impairment	0		0		0
Unrealized gain (loss) on available-for-sale investments, net of related income taxes	46,000		46,000		25,000
Redemptions of investments	0	250,000	717,000	13,300,000
Available-for-sale investments by stated maturity, amortized cost [Abstract]
Amortized Cost, Due in less than one year	1,029,000		1,029,000		670,000
Amortized Cost, Due in 1 to 4 years	6,531,000		6,531,000		7,583,000
Amortized Cost, Total investments	7,560,000		7,560,000		8,253,000
Available-for-sale investments by stated maturity, fair value [Abstract]
Fair Value, Due in less than one year	1,032,000		1,032,000		670,000
Fair Value, Due in 1 to 4 years	6,606,000		6,606,000		7,624,000
Fair Value, Total investments	7,638,000		7,638,000		8,294,000
Held-to-maturity investments by stated maturity, amortized cost [Abstract]
Amortized Cost, Due in less than one year	21,612,000		21,612,000		21,019,000
Amortized Cost, Due in 1 to 4 years	15,106,000		15,106,000		15,818,000
Amortized Cost, Total investments	36,718,000		36,718,000		36,837,000
Held-to-maturity investments by stated maturity, fair value [Abstract]
Fair Value, Due in less than one year	21,669,000		21,669,000		21,062,000
Fair Value, Due in 1 to 4 years	15,237,000		15,237,000		15,945,000
Fair Value, Total investments	36,906,000		36,906,000		37,007,000
Certificates of Deposit [Member]
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost	3,590,000		3,590,000		844,000
Gross Unrecognized Gain	1,000		1,000		0
Gross Unrecognized (Loss)	(1,000)		(1,000)		0
Fair Value	3,590,000		3,590,000		844,000
Corporate Bonds [Member]
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost	19,953,000		19,953,000		23,072,000
Gross Unrecognized Gain	172,000		172,000		131,000
Gross Unrecognized (Loss)	(2,000)		(2,000)		(31,000)
Fair Value	20,123,000		20,123,000		23,172,000
Municipal Bonds [Member]
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost	13,175,000		13,175,000		12,921,000
Gross Unrecognized Gain	38,000		38,000		71,000
Gross Unrecognized (Loss)	(20,000)		(20,000)		(1,000)
Fair Value	13,193,000		13,193,000		12,991,000
Certificates of Deposit [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	996,000		996,000		1,245,000
Gross Unrealized Gain	6,000		6,000		2,000
Gross Unrealized (Loss)	0		0		0
Fair Value	1,002,000		1,002,000		1,247,000
Corporate Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	6,033,000		6,033,000		6,047,000
Gross Unrealized Gain	71,000		71,000		38,000
Gross Unrealized (Loss)	0		0		0
Fair Value	6,104,000		6,104,000		6,085,000
Municipal Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	531,000		531,000		961,000
Gross Unrealized Gain	1,000		1,000		1,000
Gross Unrealized (Loss)	0		0		0
Fair Value	$ 532,000		$ 532,000		$ 962,000

XML

RECENT ACCOUNTING PRONOUNCEMENTS

9 Months Ended

Dec. 31, 2012

RECENT ACCOUNTING PRONOUNCEMENTS [Abstract]

RECENT ACCOUNTING PRONOUNCEMENTS

NOTE 2.  RECENT ACCOUNTING PRONOUNCEMENTS

Disclosures about Offsetting Assets and Liabilities:  In December 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-11, "Disclosures about Offsetting Assets and Liabilities," (Topic 210) - Balance Sheet (ASU 2011-11), to enhance disclosure requirements relating to the offsetting of assets and liabilities on an entity's balance sheet.  The update requires enhanced disclosures regarding assets and liabilities that are presented net or gross in the statement of financial position when the right of offset exists, or that are subject to an enforceable master netting arrangement.  The new disclosure requirements relating to this update are retrospective and effective for the Company beginning on April 1, 2013.  The update only requires additional disclosures, as such, we do not expect the adoption of this accounting pronouncement to have a material impact on our consolidated financial position, results of operations or cash flows.

XML

FAIR VALUE MEASUREMENTS (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Mar. 31, 2012
Assets [Abstract]
Available-for-sale investments	$ 7,638	$ 8,294
Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Cash equivalents	8,342	6,996
Total assets at fair value	15,980	15,290
Quoted Prices in Active Markets for Identical Assets Level 1 [Member] | Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Cash equivalents	8,342	6,996
Total assets at fair value	8,342	6,996
Significant Other Observable Inputs Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Cash equivalents	0	0
Total assets at fair value	7,638	8,294
Significant Unobservable Inputs Level 3 [Member] | Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Cash equivalents	0	0
Total assets at fair value	0	0
Certificates of Deposit [Member] | Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Available-for-sale investments	1,002	1,247
Certificates of Deposit [Member] | Quoted Prices in Active Markets for Identical Assets Level 1 [Member] | Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Available-for-sale investments	0	0
Certificates of Deposit [Member] | Significant Other Observable Inputs Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Available-for-sale investments	1,002	1,247
Certificates of Deposit [Member] | Significant Unobservable Inputs Level 3 [Member] | Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Available-for-sale investments	0	0
Corporate Bonds [Member] | Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Available-for-sale investments	6,104	6,085
Corporate Bonds [Member] | Quoted Prices in Active Markets for Identical Assets Level 1 [Member] | Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Available-for-sale investments	0	0
Corporate Bonds [Member] | Significant Other Observable Inputs Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Available-for-sale investments	6,104	6,085
Corporate Bonds [Member] | Significant Unobservable Inputs Level 3 [Member] | Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Available-for-sale investments	0	0
Municipal Bonds [Member] | Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Available-for-sale investments	532	962
Municipal Bonds [Member] | Quoted Prices in Active Markets for Identical Assets Level 1 [Member] | Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Available-for-sale investments	0	0
Municipal Bonds [Member] | Significant Other Observable Inputs Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Available-for-sale investments	532	962
Municipal Bonds [Member] | Significant Unobservable Inputs Level 3 [Member] | Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Available-for-sale investments	$ 0	$ 0

XML

EQUITY COMPENSATION PLANS AND SHARE-BASED COMPENSATION, Restricted Stock Units (Details) (USD $)	3 Months Ended			9 Months Ended
	Dec. 31, 2012		Dec. 31, 2011	Dec. 31, 2012		Dec. 31, 2011
Time-Based Restricted Stock Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation expense	$ 20,400,000			$ 20,400,000
Weighted average service period for recognition of unrecognized compensation costs				1 year 10 months 24 days
Restricted Stock Unit Activity [Roll Forward]
Nonvested, beginning of period (in shares)				1,120,000
Granted (in shares)				180,000	[1]
Vested (in shares)				(255,000)	[2]
Canceled or forfeited (in shares)				(68,000)
Nonvested, end of period (in shares)	977,000			977,000
Restricted Stock Units Activity (in dollars per share) [Roll Forward]
Nonvested, beginning of period (in dollars per share)				$ 24.06	[3]
Granted (in dollars per share)				$ 35.83	[1],[3]
Vested (in dollars per share)				$ 23.45	[2],[3]
Canceled or forfeited (in dollars per share)				$ 26.09	[3]
Nonvested, end of period (in dollars per share)	$ 26.24	[3]		$ 26.24	[3]
Total intrinsic value	265,000		608,000	9,000,000		6,500,000
Total grant date fair value	177,000		598,000	6,000,000		5,100,000
Time-Based Restricted Stock Units [Member] | Employees [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Time-based vesting schedules				Four-year time-based vesting as follows: five percent vesting after the first year; additional ten percent after the second year; additional 15 percent after the third year; and the remaining 70 percent after the fourth year of continuous employment with the Company.
Time-Based Restricted Stock Units [Member] | Non-Employee Directors [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Time-based vesting schedules				100 percent vesting after one year of continuous service to the Company.
Performance-Based Restricted Stock Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation expense	178,000			178,000
Weighted average service period for recognition of unrecognized compensation costs				3 months 18 days
Maximum shares authorized for issuance (in shares)	84,000			84,000
Percentage of restricted stock unit awards deemed granted each year (in hundredths)				25.00%
Percentage of restricted stock unit awards approved, but deemed not granted (in hundredths)	75.00%			75.00%
Number of performance period				4
Duration of each performance period				1 year
Aggregate estimated grant date fair value	$ 752,000			$ 752,000
Restricted Stock Unit Activity [Roll Forward]
Nonvested, beginning of period (in shares)				0
Granted (in shares)				21,000	[1]
Vested (in shares)				0	[2]
Canceled or forfeited (in shares)				0
Nonvested, end of period (in shares)	21,000			21,000
Restricted Stock Units Activity (in dollars per share) [Roll Forward]
Nonvested, beginning of period (in dollars per share)				$ 0	[3]
Granted (in dollars per share)				$ 35.62	[1],[3]
Vested (in dollars per share)				$ 0	[2],[3]
Canceled or forfeited (in dollars per share)				$ 0	[3]
Nonvested, end of period (in dollars per share)	$ 35.62	[3]		$ 35.62	[3]

[1] The shares granted for restricted stock unit awards (performance vesting) do not include the awards approved by the Board of Directors during the period that are deemed not to have been granted in accordance with ASC 718-10-55-95.

[2] The number of restricted stock units vested includes shares that we withheld on behalf of our employees to satisfy the statutory tax withholding requirements

[3] The weighted average grant date fair value of restricted stock units is based on the number of shares and the closing market price of our common stock on the date of grant.

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Mar. 31, 2012
Current assets:
Cash and cash equivalents	$ 47,427	$ 45,843
Short-term investments	22,644	21,689
Receivables (net of allowances of $225 at December 31, 2012 and $283 at March 31, 2012)	36,094	30,694
Inventories	25,069	19,597
Prepaid expenses and other current assets	7,067	5,423
Net deferred tax assets, current	4,356	4,151
Total current assets	142,657	127,397
Long-term investments	21,712	23,442
Investment in unconsolidated affiliate	2,613	2,626
Property and equipment, net	25,512	24,296
Intangible assets, net	3,515	3,990
Other assets	97	85
Total assets	196,106	181,836
Current liabilities:
Accounts payable	11,536	6,381
Accrued payroll and related expenses	8,380	6,336
Accrued taxes	229	266
Other accrued liabilities	2,314	1,991
Deferred revenue	1,388	1,212
Warranty reserve	993	1,245
Total current liabilities	24,840	17,431
Non-current liabilities:
Deferred rent	712	641
Net deferred tax liabilities	159	199
Deferred revenue	3,517	2,396
Warranty reserve	473	601
Notes payable, less current portion	707	783
Total non-current liabilities	5,568	4,620
Total liabilities	30,408	22,051
Commitments and contingencies (Note 9)
Shareholders' equity:
Preferred stock, no par value: 5,000,000 shares authorized; no shares issued and outstanding	0	0
Common stock, no par value: 35,000,000 shares authorized; 22,023,000 and 21,699,000 shares issued and outstanding at December 31, 2012 and at March 31, 2012, respectively	117,217	110,063
Retained earnings	48,435	49,697
Accumulated other comprehensive income	46	25
Total shareholders' equity	165,698	159,785
Total liabilities and shareholders' equity	$ 196,106	$ 181,836

XML

REVENUES BY PRODUCT AND SERVICE CATEGORY AND GEOGRAPHIC REGION AND SIGNIFICANT CONCENTRATIONS (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended			12 Months Ended	9 Months Ended	12 Months Ended	9 Months Ended	3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended		3 Months Ended				9 Months Ended				3 Months Ended				9 Months Ended				3 Months Ended				9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012 Worldwide Revenues [Member] Customer Concentration Risk [Member]	Dec. 31, 2011 Worldwide Revenues [Member] Customer Concentration Risk [Member]	Dec. 31, 2012 Worldwide Revenues [Member] Customer Concentration Risk [Member]	Dec. 31, 2011 Worldwide Revenues [Member] Customer Concentration Risk [Member]	Dec. 31, 2012 Accounts Receivable [Member] Customer Concentration Risk [Member]	Mar. 31, 2012 Accounts Receivable [Member] Customer Concentration Risk [Member]	Dec. 31, 2012 Accounts Receivable [Member] Customer Concentration Risk [Member] Major Customer One [Member]	Mar. 31, 2012 Accounts Receivable [Member] Customer Concentration Risk [Member] Major Customer One [Member]	Dec. 31, 2012 Accounts Receivable [Member] Customer Concentration Risk [Member] Major Customer Two [Member]	Dec. 31, 2012 North America [Member]	Dec. 31, 2011 North America [Member]	Dec. 31, 2012 North America [Member]	Dec. 31, 2011 North America [Member]	Dec. 31, 2012 Europe [Member]	Dec. 31, 2011 Europe [Member]	Dec. 31, 2012 Europe [Member]	Dec. 31, 2011 Europe [Member]	Dec. 31, 2012 Asia Pacific and Rest of the World [Member]	Dec. 31, 2011 Asia Pacific and Rest of the World [Member]	Dec. 31, 2012 Asia Pacific and Rest of the World [Member]	Dec. 31, 2011 Asia Pacific and Rest of the World [Member]	Dec. 31, 2012 Instruments [Member]		Dec. 31, 2011 Instruments [Member]		Dec. 31, 2012 Instruments [Member]		Dec. 31, 2011 Instruments [Member]		Dec. 31, 2012 Consumables [Member]		Dec. 31, 2011 Consumables [Member]		Dec. 31, 2012 Consumables [Member]		Dec. 31, 2011 Consumables [Member]		Dec. 31, 2012 Other Products And Services [Member]		Dec. 31, 2011 Other Products And Services [Member]		Dec. 31, 2012 Other Products And Services [Member]		Dec. 31, 2011 Other Products And Services [Member]
Revenue from External Customer [Line Items]
Product and service revenues, net	$ 49,764	$ 37,812	$ 135,961	$ 113,755																						$ 13,969	[1]	$ 9,079	[1]	$ 35,456	[1]	$ 25,364	[1]	$ 32,786	[2]	$ 26,808	[2]	$ 91,680	[2]	$ 83,019	[2]	$ 3,009	[3]	$ 1,925	[3]	$ 8,825	[3]	$ 5,372	[3]
Development and licensing revenue	38	38	113	123
Total revenues	49,802	37,850	136,074	113,878										41,797	31,847	110,876	93,540	6,197	4,516	19,906	16,326	1,808	1,487	5,292	4,012
Revenues from External Customers [Line Items]
Total revenues	$ 49,802	$ 37,850	$ 136,074	$ 113,878										$ 41,797	$ 31,847	$ 110,876	$ 93,540	$ 6,197	$ 4,516	$ 19,906	$ 16,326	$ 1,808	$ 1,487	$ 5,292	$ 4,012
Concentration Risk [Line Items]
Number of major customers					1	1	1	1	2	1
Revenue or accounts receivable by major customer (in hundredths)					12.00%	15.00%	11.00%	12.00%			17.00%	19.00%	11.00%

[1] Instruments include chemistry analyzers, hematology instruments, VSpro specialty analyzers and i-STAT analyzers.

[2] Consumables include reagent discs, hematology reagent kits, VSpro specialty cartridges, i-STAT cartridges and rapid tests.

[3] Other products and services include veterinary reference laboratory diagnostic and consulting services.

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $)	9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Cash flows from operating activities:
Net income	$ 20,761,000	$ 8,385,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	4,448,000	3,725,000
Investment premium amortization, net	638,000	754,000
Net loss on disposals of property and equipment	19,000	10,000
Net loss on foreign exchange translation	174,000	402,000
Share-based compensation expense	5,290,000	4,194,000
Excess tax benefits from share-based awards	(1,826,000)	(717,000)
Provision for deferred income taxes	(253,000)	157,000
Equity in net loss of unconsolidated affiliate	13,000	101,000
Changes in assets and liabilities:
Receivables, net	(5,368,000)	1,703,000
Inventories	(6,321,000)	(1,100,000)
Prepaid expenses and other current assets	(330,000)	(1,142,000)
Other assets	(13,000)	21,000
Accounts payable	5,156,000	108,000
Accrued payroll and related expenses	2,046,000	(380,000)
Accrued taxes	393,000	(559,000)
Other accrued liabilities	323,000	380,000
Deferred rent	71,000	181,000
Deferred revenue	1,297,000	733,000
Warranty reserve	(380,000)	383,000
Net cash provided by operating activities	26,138,000	17,339,000
Cash flows from investing activities:
Purchases of available-for-sale investments	0	(8,268,000)
Purchases of held-to-maturity investments	(18,337,000)	(18,174,000)
Proceeds from maturities and redemptions of held-to-maturity investments	18,261,000	35,337,000
Proceeds from maturities and redemptions of available-for-sale investments	249,000	0
Purchases of property and equipment	(4,334,000)	(5,960,000)
Proceeds from disposal of property and equipment	4,000	0
Net cash (used in) provided by investing activities	(4,157,000)	2,935,000
Cash flows from financing activities:
Proceeds from notes payable from municipal agency	0	147,000
Proceeds from the exercise of stock options	1,593,000	576,000
Tax withholdings related to net share settlements of restricted stock units	(1,584,000)	(2,172,000)
Excess tax benefits from share-based awards	1,826,000	717,000
Repurchases of common stock	0	(27,328,000)
Dividends paid	(22,023,000)	0
Net cash used in financing activities	(20,188,000)	(28,060,000)
Effect of exchange rate changes on cash and cash equivalents	(209,000)	(317,000)
Net increase (decrease) in cash and cash equivalents	1,584,000	(8,103,000)
Cash and cash equivalents at beginning of period	45,843,000	43,471,000
Cash and cash equivalents at end of period	47,427,000	35,368,000
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net of refunds	12,206,000	4,809,000
Supplemental disclosure of non-cash flow information:
Change in unrealized gain (loss) on investments, net of tax	21,000	(14,000)
Transfers of equipment between inventory and property and equipment, net	878,000	1,130,000
Net change in capitalized share-based compensation	29,000	68,000
Common stock withheld for employee taxes in connection with share-based compensation	1,584,000	2,172,000
Repayment of notes payable by credits from municipal agency	76,000	70,000
Warrants issued for intangible assets	$ 0	$ 388,000

XML

WARRANTY RESERVES (Details) (USD $)	3 Months Ended		9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012 Instruments [Member]	Dec. 31, 2012 Reagent Discs [Member]	Mar. 31, 2012 Reagent Discs [Member]
Product Warranty Liability [Line Items]
Period of coverage for standard warranty obligation on instruments (in years)					one to three years
Change in accrued warranty reserve [Roll Forward]
Balance at beginning of period	$ 1,480,000	$ 1,436,000	$ 1,846,000	$ 1,222,000
Provision for warranty expense	337,000	500,000	998,000	1,113,000
Warranty costs incurred	(351,000)	(331,000)	(1,088,000)	(987,000)
Adjustment to pre-existing warranties	0	0	(290,000)	257,000
Balance at end of period	1,466,000	1,605,000	1,466,000	1,605,000
Non-current portion of warranty reserve	473,000	482,000	473,000	482,000
Warranty reserve, balance at end of period						570,000	564,000
Current portion of warranty reserve	$ 993,000	$ 1,123,000	$ 993,000	$ 1,123,000		$ 570,000	$ 564,000

XML

DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Dec. 31, 2012

DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Principles of Consolidation

Principles of Consolidation.  The accompanying unaudited condensed consolidated financial statements include the accounts of Abaxis and our wholly-owned subsidiary, Abaxis Europe GmbH.  Intercompany transactions and balances have been eliminated in consolidation.

Basis of Presentation

Basis of Presentation.  We have prepared the unaudited condensed consolidated financial statements included herein pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") for interim periods.  The unaudited condensed consolidated financial statements included herein reflect all normal recurring adjustments, which are, in the opinion of our management, necessary to state fairly the results of operations and financial position for the periods presented.  The results for the three and nine month periods ended December 31, 2012 are not necessarily indicative of the results to be expected for the entire fiscal year ending March 31, 2013 or for any interim or future period.

These unaudited condensed consolidated financial statements should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2012.

Reclassifications

Reclassifications.  Certain reclassifications have been made to prior periods' financial statements to conform to the current period presentation, primarily related to segment categories (Note 14. Segment Reporting Information).  These reclassifications did not result in any change in previously reported net income, total assets or shareholders' equity.

Use of Estimates

Use of Estimates.  The preparation of condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period, and related disclosures.  Such management estimates include allowance for doubtful accounts, sales and other allowances, estimated selling price of our products, fair value of investments, valuation of inventory, fair value and useful lives of intangible assets, income taxes, valuation allowance for deferred tax assets, share-based compensation and warranty reserves.  Our management bases their estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.  Our actual results may differ materially from these estimates.

XML

BORROWINGS (Details) (USD $)	1 Months Ended	9 Months Ended
	Jan. 31, 2011	Dec. 31, 2012	Mar. 31, 2012
BORROWINGS [Abstract]
Term of loan agreement	10 years
Face amount of debt	$ 1,000,000
Stated interest rate (in hundredths)	5.00%
Frequency of periodic payment	Quarterly
Short-term notes payable		100,000
Notes payable, less current portion		$ 707,000	$ 783,000
Maturity date		Dec. 31, 2020

XML

FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Dec. 31, 2012

FAIR VALUE MEASUREMENTS [Abstract]

Fair Value, Assets Measured on Recurring Basis

The following table summarizes financial assets, measured at fair value on a recurring basis, by level within the fair value hierarchy as of December 31, 2012 and March 31, 2012 (in thousands):

	As of December 31, 2012
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	8,342	$	-	$	-	$	8,342
Available-for-sale investments:
Certificates of deposits		-		1,002		-		1,002
Corporate bonds		-		6,104		-		6,104
Municipal bonds		-		532		-		532
Total assets at fair value	$	8,342	$	7,638	$	-	$	15,980

	As of March 31, 2012
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	6,996	$	-	$	-	$	6,996
Available-for-sale investments:
Certificates of deposits		-		1,247		-		1,247
Corporate bonds		-		6,085		-		6,085
Municipal bonds		-		962		-		962
Total assets at fair value	$	6,996	$	8,294	$	-	$	15,290

XML

DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Dec. 31, 2012

DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES [Abstract]

DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

NOTE 1.  DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business. Abaxis, Inc. ("Abaxis," the "Company" or "we"), incorporated in California in 1989, develops, manufactures, markets and sells portable blood analysis systems for use in the human or veterinary patient-care setting to provide clinicians with rapid blood constituent measurements.  In October 2011, Abaxis began providing veterinary reference laboratory diagnostic and consulting services for veterinarians.  We conduct business worldwide and manage our business on the basis of the following two reportable segments:  the medical market and the veterinary market.

Abaxis Europe GmbH, our wholly-owned subsidiary in Darmstadt, Germany, markets, promotes and distributes diagnostic systems for medical and veterinary uses in the European market.

Principles of Consolidation.  The accompanying unaudited condensed consolidated financial statements include the accounts of Abaxis and our wholly-owned subsidiary, Abaxis Europe GmbH.  Intercompany transactions and balances have been eliminated in consolidation.

Basis of Presentation.  We have prepared the unaudited condensed consolidated financial statements included herein pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") for interim periods.  The unaudited condensed consolidated financial statements included herein reflect all normal recurring adjustments, which are, in the opinion of our management, necessary to state fairly the results of operations and financial position for the periods presented.  The results for the three and nine month periods ended December 31, 2012 are not necessarily indicative of the results to be expected for the entire fiscal year ending March 31, 2013 or for any interim or future period.

These unaudited condensed consolidated financial statements should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2012.

Reclassifications.  Certain reclassifications have been made to prior periods' financial statements to conform to the current period presentation, primarily related to segment categories (Note 14. Segment Reporting Information).  These reclassifications did not result in any change in previously reported net income, total assets or shareholders' equity.

Use of Estimates.  The preparation of condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period, and related disclosures.  Such management estimates include allowance for doubtful accounts, sales and other allowances, estimated selling price of our products, fair value of investments, valuation of inventory, fair value and useful lives of intangible assets, income taxes, valuation allowance for deferred tax assets, share-based compensation and warranty reserves.  Our management bases their estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.  Our actual results may differ materially from these estimates.

Significant Accounting Policies.  The significant accounting policies used in preparation of these condensed consolidated financial statements are disclosed in our Annual Report on Form 10-K for the year ended March 31, 2012 filed with the SEC on June 14, 2012, and have not changed significantly since such filing.

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2012	Mar. 31, 2012
Current assets:
Receivables, allowances	$ 225	$ 283
Shareholders' equity:
Preferred stock, par value (in dollars per share)	$ 0	$ 0
Preferred stock, shares authorized (in shares)	5,000,000	5,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0	$ 0
Common stock, shares authorized (in shares)	35,000,000	35,000,000
Common stock, shares issued (in shares)	22,023,000	21,699,000
Common stock, shares outstanding (in shares)	22,023,000	21,699,000

XML

SHAREHOLDERS' EQUITY

9 Months Ended

Dec. 31, 2012

SHAREHOLDERS' EQUITY [Abstract]

SHAREHOLDERS' EQUITY

NOTE 11.  SHAREHOLDERS' EQUITY

Share Repurchase Program

In August 2011, the Board of Directors authorized the repurchase of up to an aggregate of $40.0 million of our common stock.  In January 2012, the Board of Directors approved a $15.0 million increase to the Company's existing share repurchase program, to a total of $55.0 million.  Since the share repurchase program began, through December 31, 2012, we have repurchased 1.2 million shares of our common stock at a total cost of $27.3 million.  As of December 31, 2012, $27.7 million of our common stock may yet be purchased under such authorization.  The repurchases are made from time to time on the open market at prevailing market prices or in negotiated transactions off the market.  Repurchased shares are retired.  During the three and nine months ended December 31, 2012, we did not repurchase any of our common stock.

Dividend Payments

In December 2012, the Company declared a special cash dividend of $1.00 per share on our outstanding common stock, payable on December 28, 2012 to shareholders of record as of the close of business on December 17, 2012.  The total dividend payout was $22.0 million and was made from retained earnings.

Common Stock Warrants

At December 31, 2012 and March 31, 2012, there were 30,000 warrants outstanding, of which 12,000 shares were vested, to purchase common stock at a weighted average exercise price of $3.00 per share, expiring in fiscal years 2016 through 2017.  The fair value of the warrants issued were determined using the Black-Scholes option-pricing model and are amortized over their estimated useful life, of approximately ten years, as an intangible asset.  The warrants vest at a rate of 20% annually from their issuance dates and have a term of five years.

XML

Document and Entity Information	9 Months Ended
	Dec. 31, 2012	Feb. 06, 2013
Document and Entity Information [Abstract]
Entity Registrant Name	ABAXIS INC
Entity Central Index Key	0000881890
Current Fiscal Year End Date	--03-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		22,102,000
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q3
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Dec. 31, 2012

XML

NET INCOME PER SHARE

9 Months Ended

Dec. 31, 2012

NET INCOME PER SHARE [Abstract]

NET INCOME PER SHARE

NOTE 12.  NET INCOME PER SHARE

Basic net income per share is computed by dividing the net income attributable to common shareholders by the weighted average number of common shares outstanding during the period.  Diluted net income per share is computed by dividing the net income 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 using the treasury stock method.  Dilutive potential common shares outstanding include outstanding stock options, restricted stock units and warrants.

The following is a reconciliation of the weighted average number of common shares outstanding used in calculating basic and diluted net income per share (in thousands, except share and per share data):

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2012		2011		2012		2011
Numerator:
Net income	$	4,988	$	2,850	$	20,761	$	8,385
Denominator:
Weighted average common shares outstanding - basic		21,968,000		21,672,000		21,902,000		22,213,000
Weighted average effect of dilutive securities:
Stock options		87,000		107,000		101,000		139,000
Restricted stock units		258,000		185,000		285,000		212,000
Warrants		28,000		26,000		28,000		15,000
Weighted average common shares outstanding - diluted		22,341,000		21,990,000		22,316,000		22,579,000
Net income per share:
Basic net income per share	$	0.23	$	0.13	$	0.95	$	0.38
Diluted net income per share	$	0.22	$	0.13	$	0.93	$	0.37

Stock options and warrants are excluded from the computation of diluted weighted average shares outstanding if the exercise price of the stock options and warrants is greater than the average market price of our common stock during the period because the inclusion of these stock options and warrants would be antidilutive to net income per share.  There were no stock options and warrants excluded from the computation of diluted weighted average shares outstanding during the three and nine months ended December 31, 2012 and 2011.

We excluded the following restricted stock units from the computation of diluted weighted average shares outstanding because the inclusion of these awards would be antidilutive to net income per share:

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2012		2011		2012		2011
Weighted average number of shares underlying antidilutive restricted stock units		-		307,000		31,000		249,000

If the performance criteria for our restricted stock unit awards (performance vesting) are achieved, these awards will be considered outstanding for the purpose of computing diluted net income per share if the effect is dilutive.  Starting with the first quarter of fiscal 2013, we granted 21,000 restricted stock unit awards (performance vesting), with vesting based on the achievement of certain pre-established corporate annual performance related goals.  Because the performance criteria for our restricted stock unit awards (performance vesting) were not achieved during the three and nine months ended December 31, 2012, these awards were not included in the diluted net income per share calculation.

XML

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) [Abstract]
Revenues	$ 49,802	$ 37,850	$ 136,074	$ 113,878
Cost of revenues	23,726	17,372	64,026	52,156
Gross profit	26,076	20,478	72,048	61,722
Operating expenses:
Research and development	3,802	2,634	10,348	9,096
Sales and marketing	12,373	9,927	35,647	28,414
General and administrative	2,210	3,280	10,153	11,194
Gain from legal settlement	0	0	(17,250)	0
Total operating expenses	18,385	15,841	38,898	48,704
Income from operations	7,691	4,637	33,150	13,018
Interest and other income (expense), net	293	(91)	318	259
Income before income tax provision	7,984	4,546	33,468	13,277
Income tax provision	2,996	1,696	12,707	4,892
Net income	$ 4,988	$ 2,850	$ 20,761	$ 8,385
Net income per share:
Basic net income per share (in dollars per share)	$ 0.23	$ 0.13	$ 0.95	$ 0.38
Diluted net income per share (in dollars per share)	$ 0.22	$ 0.13	$ 0.93	$ 0.37
Cash dividends declared per share (in dollars per share)	$ 1.00	$ 0	$ 1.00	$ 0
Shares used in the calculation of net income per share:
Weighted average common shares outstanding - basic (in shares)	21,968,000	21,672,000	21,902,000	22,213,000
Weighted average common shares outstanding - diluted (in shares)	22,341,000	21,990,000	22,316,000	22,579,000

XML

INVESTMENT IN UNCONSOLIDATED AFFILIATE

9 Months Ended

Dec. 31, 2012

INVESTMENT IN UNCONSOLIDATED AFFILIATE [Abstract]

INVESTMENT IN UNCONSOLIDATED AFFILIATE

NOTE 6.  INVESTMENT IN UNCONSOLIDATED AFFILIATE

Our investment in an unconsolidated affiliate consists of an investment in equity securities of Scandinavian Micro Biodevices APS ("SMB").  In February 2011, we purchased a 15% equity ownership interest in SMB, for $2.8 million in cash.  SMB is a privately-held developer and manufacturer of point-of-care diagnostic products for veterinary use.  SMB, based in Farum, Denmark, has been the original equipment manufacturer of the Abaxis VetScan VSpro point-of-care specialty analyzer since 2008.  Abaxis has had exclusive distribution rights for the analyzer and associated cartridges in North America since 2008.  Starting January 2011, Abaxis has non-exclusive rights in other areas of the world.  We accounted for our investment in SMB using the equity method due to our significant influence over SMB's operations.  Our allocated portions of SMB's net income (loss) during the three months ended December 31, 2012 and 2011 were $21,000 and $(29,000), respectively, and during the nine months ended December 31, 2012 and 2011 were $(13,000) and $(101,000), respectively.

XML

INVENTORIES

9 Months Ended

Dec. 31, 2012

INVENTORIES [Abstract]

INVENTORIES

NOTE 5.  INVENTORIES

Inventories include material, labor and overhead, and are stated at the lower of cost (first-in, first-out method) or market.  Components of inventories were as follows (in thousands):

	December 31,		March 31,
	2012		2012
Raw materials	$	12,729	$	9,046
Work-in-process		3,501		3,369
Finished goods		8,839		7,182
Inventories	$	25,069	$	19,597

XML

INVESTMENTS (Tables)

9 Months Ended

Dec. 31, 2012

INVESTMENTS [Abstract]

Available-for-sale and held-to-maturity investments

Our investments are classified as either available-for-sale or held-to-maturity.  The following table summarizes available-for-sale and held-to-maturity investments as of December 31, 2012 and March 31, 2012 (in thousands):

	Available-for-Sale Investments
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
December 31, 2012	Cost		Gain		(Loss)			Value
Certificates of deposits	$	996	$	6	$	-		$	1,002
Corporate bonds		6,033		71		-			6,104
Municipal bonds		531		1		-			532
Total available-for-sale investments	$	7,560	$	78	$	-		$	7,638
	Held-to-Maturity Investments
			Gross		Gross
	Amortized		Unrecognized		Unrecognized			Fair
December 31, 2012	Cost		Gain		(Loss)			Value
Certificates of deposits	$	3,590	$	1	$	(1	)	$	3,590
Corporate bonds		19,953		172		(2	)		20,123
Municipal bonds		13,175		38		(20	)		13,193
Total held-to-maturity investments	$	36,718	$	211	$	(23	)	$	36,906

	Available-for-Sale Investments
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
March 31, 2012	Cost		Gain		(Loss)			Value
Certificates of deposits	$	1,245	$	2	$	-		$	1,247
Corporate bonds		6,047		38		-			6,085
Municipal bonds		961		1		-			962
Total available-for-sale investments	$	8,253	$	41	$	-		$	8,294
	Held-to-Maturity Investments
			Gross		Gross
	Amortized		Unrecognized		Unrecognized			Fair
March 31, 2012	Cost		Gain		(Loss)			Value
Certificates of deposits	$	844	$	-	$	-		$	844
Corporate bonds		23,072		131		(31	)		23,172
Municipal bonds		12,921		71		(1	)		12,991
Total held-to-maturity investments	$	36,837	$	202	$	(32	)	$	37,007

Amortized cost and fair value of investments, classified by stated maturity

The following table summarizes the amortized cost and fair value of our investments, classified by stated maturity as of December 31, 2012 and March 31, 2012 (in thousands):

	December 31, 2012				December 31, 2012
	Available-for-Sale Investments				Held-to-Maturity Investments
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in less than one year	$	1,029	$	1,032	$	21,612	$	21,669
Due in 1 to 4 years		6,531		6,606		15,106		15,237
Total investments	$	7,560	$	7,638	$	36,718	$	36,906
	March 31, 2012				March 31, 2012
	Available-for-Sale Investments				Held-to-Maturity Investments
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in less than one year	$	670	$	670	$	21,019	$	21,062
Due in 1 to 4 years		7,583		7,624		15,818		15,945
Total investments	$	8,253	$	8,294	$	36,837	$	37,007

XML

INCOME TAXES

9 Months Ended

Dec. 31, 2012

INCOME TAXES [Abstract]

INCOME TAXES

NOTE 13.  INCOME TAXES

During the three months ended December 31, 2012 and 2011, our income tax provision was $3.0 million, based on an effective tax rate of 38%, and $1.7 million, based on an effective tax rate of 37%, respectively.  During the nine months ended December 31, 2012 and 2011, our income tax provision was $12.7 million, based on an effective tax rate of 38%, and $4.9 million, based on an effective tax rate of 37%, respectively.  During the three and nine months ended December 31, 2012, our effective tax rates were primarily impacted by higher state tax expense and the expiration of the federal research and development tax credit, as compared to the three and nine months ended December 31, 2011.

On January 2, 2013, President Barack Obama signed into law The American Taxpayer Relief Act of 2012, which reinstated the federal research and development tax credit retroactive to January 1, 2012 and extended the credit through December 31, 2013.  As a result of the new legislation, we expect to recognize a tax benefit of approximately $400,000 during the three months ending March 31, 2013.

We did not have any unrecognized tax benefits as of December 31, 2012 and March 31, 2012.  During the three and nine months ended December 31, 2012 and 2011, we did not recognize any interest or penalties related to unrecognized tax benefits.

XML

COMMITMENTS AND CONTINGENCIES

9 Months Ended

Dec. 31, 2012

COMMITMENTS AND CONTINGENCIES [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 9.  COMMITMENTS AND CONTINGENCIES

Purchase Commitments.  In October 2008, we entered into an original equipment manufacturing ("OEM") agreement with SMB of Denmark to purchase VSpro specialty analyzers and related cartridges.  Effective January 2011, we amended and restated our OEM agreement, including the terms of our minimum purchase commitments.  Under the amended agreement, we committed to purchase a minimum number of VSpro specialty analyzers and related cartridges on an annual basis during each calendar year 2011 through 2015.  Our purchase obligations in the future may be adjusted if our minimum purchase commitments are not met during a calendar year period.  At December 31, 2012, our total remaining outstanding commitment due is approximately $9.4 million.

In December 2011, we executed a term sheet to enter into a development and supply equipment agreement with Diatron MI PLC ("Diatron") of Hungary to purchase Diatron hematology instruments.  Effective July 2012, we entered into a development and supply agreement with Diatron and under the agreement terms, we committed to purchase a minimum number of hematology instruments on an annual basis through fiscal year 2015.  At December 31, 2012, our total remaining outstanding commitment due is approximately $7.9 million.  Furthermore, at December 31, 2012, we prepaid $1.5 million to Diatron for future purchases of hematology instruments and reagents, which was recorded in prepaid expenses and other currents assets on the consolidated balance sheet.  The commitment amount is based on the minimum number of hematology instruments that we are required to purchase, the cost of the instruments and the Euro exchange rate at period-end.  Because the exchange rate will fluctuate in the future, the amount of the purchase commitment in dollars will change accordingly.

Patent Licensing Agreement.  Effective January 2009, we entered into a license agreement with Alere.  Under our license agreement, we licensed co-exclusively certain worldwide patent rights related to lateral flow immunoassay technology in the field of animal health diagnostics in the professional marketplace.  The license agreement provides that Alere shall not grant any future rights to any third parties under its current lateral flow patent rights in the animal health diagnostics field in the professional marketplace.  The license agreement enables us to develop and market products under rights from Alere to address animal health and laboratory animal research markets.

In exchange for the license rights, we (i) paid an up-front license fee of $5.0 million to Alere in January 2009, (ii) agreed to pay royalties during the term of the agreement, based solely on sales of products in a jurisdiction country covered by valid and unexpired claims in that jurisdiction under the licensed Alere patent rights, and (iii) agreed to pay a yearly minimum license fee of between $500,000 to $1.0 million per year, which fee will be creditable against any royalties due during such calendar year.  The royalties, if any, are payable through the date of the expiration of the last valid patent licensed under the agreement that includes at least one claim in a jurisdiction covering products we sell in that jurisdiction.  The yearly minimum fees became payable starting in fiscal 2011 for so long as we desire to maintain exclusivity under the agreement.

Litigation.  On June 28, 2010, we filed a patent infringement lawsuit against Cepheid.  On September 24, 2012, the parties agreed to terminate all pending and future claims connected with the litigation in exchange for a one-time payment by Cepheid of $17.3 million, which we recognized as an offset to operating expenses during the second quarter of fiscal 2013.

On October 1, 2012, St. Louis Police Retirement System, a purported shareholder of Abaxis, filed a lawsuit against certain officers and each of our directors in the United States District Court for the Northern District of California alleging, among other things, that the directors violated Section 14(a) of the Securities Exchange Act of 1934 and breached their fiduciary duties by allegedly failing to disclose material information in our 2010 proxy statement, breached their fiduciary duties by allegedly violating the terms of our 2005 Equity Incentive Plan, and breached their fiduciary duties by failing to disclose alleged material information in our 2012 proxy statement regarding (1) the events leading up to our proposal to amend the 2005 Equity Incentive Plan to eliminate the limit on the number of shares that may be issued pursuant to restricted stock units, and (2) the effects of the proposed amendment on certain settled and outstanding restricted stock units.  The plaintiff seeks, among other things, damages, disgorgement and attorney's fees.  In addition, the plaintiff sought, and on October 23, 2012 the court issued, an order preliminarily enjoining our shareholder vote on Proposal 2 in our 2012 proxy statement, regarding an amendment to the 2005 Equity Incentive Plan, until such time as additional disclosures could be made.  The Company filed with the SEC and mailed to shareholders supplemental proxy materials approved by the court, the injunction was lifted and our shareholders approved the proposal to amend our 2005 Equity Incentive Plan.  The defendants have filed motions to dismiss the claims.  A hearing on the motions is currently scheduled for March 5, 2013.  Management believes the claims raised by the plaintiff are without merit and intends to contest them vigorously.

We are involved from time to time in various litigation matters in the normal course of business.  There can be no assurance that existing or future legal proceedings arising in the ordinary course of business or otherwise will not have a material adverse effect on our business, consolidated financial position, results of operations or cash flows.

XML

WARRANTY RESERVES

9 Months Ended

Dec. 31, 2012

WARRANTY RESERVES [Abstract]

WARRANTY RESERVES

NOTE 7.  WARRANTY RESERVES

We provide for the estimated future costs to be incurred under our standard warranty obligation on our instruments and reagent discs.

Instruments.  Our standard warranty obligation on instruments ranges from one to three years, depending on the type of product.  The estimated contractual warranty obligation is recorded when the related revenue is recognized and any additional amount is recorded when such cost is probable and can be reasonably estimated.  Cost of revenues reflects estimated warranty expense for instruments sold in the current period and any adjustments in estimated warranty expense for the installed base under our standard warranty obligation based on our quarterly evaluation of service experience.  The estimated accrual for warranty exposure is based on historical experience as to product failures, estimated product failure rates, estimated repair costs, material usage and freight incurred in repairing the instrument after failure and known design changes under the warranty plan.

During the nine months ended December 31, 2012, we recorded an adjustment to pre-existing warranties of $290,000, which reduced our warranty reserves and our cost of revenues, based on both historical and projected product performance rates of instruments.  Management periodically evaluates the sufficiency of the warranty provisions and makes adjustments when necessary.  If an unusual performance rate related to warranty claims is noted, an additional warranty accrual may be assessed and recorded when a failure event is probable and the cost can be reasonably estimated.

Reagent Discs.  We record a provision for defective reagent discs when the related sale is recognized and any additional amount is recorded when such cost is probable and can be reasonably estimated.  The warranty cost includes the replacement costs and freight of a defective reagent disc.  The balance of accrued warranty reserve related to replacement of defective reagent discs at December 31, 2012 and March 31, 2012 was $570,000 and $564,000, respectively, which was classified as a current liability on the condensed consolidated balance sheets.

We evaluate our estimates for warranty reserves on an ongoing basis and believe we have the ability to reasonably estimate warranty costs.  However, unforeseeable changes in factors may impact the estimate for warranty and such changes could cause a material change in our warranty reserve accrual in the period in which the change was identified.

The change in our accrued warranty reserve during the three and nine months ended December 31, 2012 and 2011 is summarized as follows (in thousands):

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2012			2011			2012			2011
Balance at beginning of period	$	1,480		$	1,436		$	1,846		$	1,222
Provision for warranty expense		337			500			998			1,113
Warranty costs incurred		(351	)		(331	)		(1,088	)		(987	)
Adjustment to pre-existing warranties		-			-			(290	)		257
Balance at end of period		1,466			1,605			1,466			1,605
Non-current portion of warranty reserve		473			482			473			482
Current portion of warranty reserve	$	993		$	1,123		$	993		$	1,123

XML

BORROWINGS

9 Months Ended

Dec. 31, 2012

BORROWINGS [Abstract]

BORROWINGS

NOTE 8.  BORROWINGS

Notes Payable.  We have a ten year loan agreement with the Community Redevelopment Agency of the City of Union City ("the Agency") whereby the Agency provides us with an unsecured loan of up to $1.0 million, primarily to purchase capital equipment.  The loan was effective January 2011, bears interest at 5.0% and is payable quarterly.  As of December 31, 2012, our short-term and long-term notes payable balances were $100,000 and $707,000, respectively, and we recorded the short-term balance in other accrued liabilities on the consolidated balance sheets.  The entire outstanding balance of the note shall be payable in full on the earlier of:  (i) December 2020, or (ii) the date Abaxis ceases operations in Union City, California.  The Agency also has the right to accelerate the maturity date and declare all balances immediately due and payable upon the event of default as defined in the loan agreement.  We evaluate covenants in our loan agreement on a quarterly basis, and we were in compliance with such covenants as of December 31, 2012.

In accordance with the terms of the loan agreement, the Agency will provide Abaxis with an annual credit that can be applied against the accrued interest and outstanding principal balance on a quarterly basis.  The Agency determines the annual credit based on certain taxes paid by Abaxis to the City of Union City, California for a specified period, as defined in the loan agreement.  We anticipate that our annual credits from the Agency will be used to fully repay our notes payable due to the Agency.  We may carry forward unused quarterly credits to apply against our outstanding balance in a future period.  Credits applied to repay our notes payable and accrued interest are recorded in "Interest and other income (expense), net" on the consolidated statements of income.

XML

EQUITY COMPENSATION PLANS AND SHARE-BASED COMPENSATION

9 Months Ended

Dec. 31, 2012

EQUITY COMPENSATION PLANS AND SHARE-BASED COMPENSATION [Abstract]

EQUITY COMPENSATION PLANS AND SHARE-BASED COMPENSATION

NOTE 10.  EQUITY COMPENSATION PLANS AND SHARE-BASED COMPENSATION

Equity Compensation Plan

As of December 31, 2012, we have one equity incentive plan under which our equity securities are authorized for issuance to our employees, directors and consultants.  Our share-based compensation plan is described below.

2005 Equity Incentive Plan.  Our 2005 Equity Incentive Plan (the "Equity Incentive Plan") restated and amended our 1998 Stock Option Plan.  The Equity Incentive Plan allows for the awards of stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance cash awards, performance shares, performance units, deferred compensation awards or other share-based awards to employees, directors and consultants.  On November 8, 2012, our shareholders approved an amendment to the Equity Incentive Plan to, among other things, (i) increase the aggregate number of shares of common stock reserved for issuance under the Equity Incentive Plan by 900,000 shares and increase the maximum number of shares that may be issued pursuant to incentive stock options, (ii) clarify that the prohibition on repricing stock options and stock appreciation rights without prior shareholder approval also applies to prohibit the cancellation of such awards in exchange for cash, (iii) remove a 500,000-share limit on the number of shares that may be issued upon settlement of restricted stock units and other full-value awards, (iv) eliminate the requirement that no participant may be granted more than one performance award for the same performance period under the Equity Incentive Plan and (v) reapprove the Internal Revenue Code Section 162(m) performance criteria and award limits of the Equity Incentive Plan to permit us to continue to grant awards to key officers that qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code.  As of December 31, 2012, the Equity Incentive Plan provided for the issuance of a maximum of 6,786,000 shares, of which 1,112,000 shares of common stock were then available for future issuance.  The shares available for future issuance excluded 63,000 shares issuable upon settlement of restricted stock units with performance vesting provisions that were approved by the Board of Directors but are deemed not to have been granted for accounting purposes in accordance with Accounting Standards Codification ("ASC") 718-10-55-95.  See "Restricted Stock Unit Awards (Performance Vesting)" section in this Note for additional information.  Shares that are canceled or forfeited from an award and shares withheld in satisfaction of tax withholding obligations are again available for issue under the Equity Incentive Plan.

Our current practice is to issue new shares of common stock from our authorized shares for share-based awards upon the exercise of stock options or vesting of restricted stock units.

Share-Based Compensation

The following table summarizes total share-based compensation expense, net of tax, related to restricted stock units during the three and nine months ended December 31, 2012 and 2011, which is included in our condensed consolidated statements of income (in thousands, except per share data):

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2012			2011			2012			2011
Cost of revenues	$	228		$	187		$	673		$	698
Research and development		300			226			854			641
Sales and marketing		613			475			1,885			1,402
General and administrative		638			624			1,878			1,453
Share-based compensation expense before income taxes		1,779			1,512			5,290			4,194
Income tax benefit		(641	)		(526	)		(1,898	)		(1,459	)
Total share-based compensation expense after income taxes	$	1,138		$	986		$	3,392		$	2,735
Net impact of share-based compensation on:
Basic net income per share	$	0.05		$	0.05		$	0.15		$	0.12
Diluted net income per share	$	0.05		$	0.04		$	0.15		$	0.12

Share-based compensation has been classified in the condensed consolidated statements of income or capitalized on the condensed consolidated balance sheets in the same manner as cash compensation paid to employees.  Capitalized share-based compensation costs at December 31, 2012 and March 31, 2012 were $168,000 and $139,000, respectively, which were included in inventories on our condensed consolidated balance sheets.

Cash Flow Impact

The accounting standard with respect to share-based payment requires cash flows resulting from excess tax benefits to be classified as a part of cash flows from financing activities.  Excess tax benefits are realized tax benefits from tax deductions for exercised stock options and vested restricted stock units in excess of the deferred tax asset attributable to share-based compensation expense for such share-based awards.  Excess tax benefits are considered realized when the tax deductions reduce taxes that otherwise would be payable.  Excess tax benefits classified as a financing cash inflow for the three months ended December 31, 2012 and 2011 were $681,000 and $231,000, respectively, and for the nine months ended December 31, 2012 and 2011 were $1.8 million and $717,000, respectively.

Stock Options

Options granted to employees and directors generally expire ten years from the grant date.  Options granted to employees generally become exercisable over a period of four years based on cliff-vesting terms and continuous employment.  Options granted to non-employee directors generally become exercisable over a period of one year based on monthly vesting terms and continuous service.  We have not granted any stock options since the beginning of fiscal 2007 and we did not grant stock options during the three and nine months ended December 31, 2012.  We have recognized compensation expense during the requisite service period of the stock option.  As of December 31, 2012, we had no unrecognized compensation expense related to stock options granted.

Stock Option Activity

The following table summarizes information regarding options outstanding and options exercisable at December 31, 2012 and the changes during the nine-month period then ended:

				Weighted		Weighted
				Average		Average		Aggregate
				Exercise		Remaining		Intrinsic
	Number of			Price		Contractual		Value
	Shares			Per Share		Life (Years)		(In thousands)
Outstanding at March 31, 2012		282,000		$	15.21
Granted		-			-
Exercised		(114,000	)		14.06
Canceled or forfeited		-			-
Outstanding at December 31, 2012		168,000		$	15.99		1.03	$	3,555
Vested and expected to vest at December 31, 2012		168,000		$	15.99		1.03	$	3,555
Exercisable at December 31, 2012		168,000		$	15.99		1.03	$	3,555

The aggregate intrinsic value in the table above represents the pre-tax intrinsic value, based on our closing stock price as of December 31, 2012, that would have been received by the option holders had all option holders exercised their stock options as of that date.  Total intrinsic value of stock options exercised during the three months ended December 31, 2012 and 2011 was $1.6 million and $370,000, respectively, and during the nine months ended December 31, 2012 and 2011 was $2.7 million and $2.3 million, respectively.  Cash proceeds from stock options exercised during the three months ended December 31, 2012 and 2011 were $1.3 million and $146,000, respectively, and during the nine months ended December 31, 2012 and 2011 were $1.6 million and $576,000, respectively.

Restricted Stock Units

Since fiscal 2007, we grant restricted stock unit awards to employees and directors as part of our share-based compensation program.  Awards of restricted stock units may be either grants of time-based or performance-based restricted stock units that are issued at no cost to the recipient, as described below.  From time to time, restricted stock unit awards granted to employees may be subject to accelerated vesting upon achieving certain performance-based milestones.  Additionally, the Compensation Committee of our Board of Directors (the "Compensation Committee") in its discretion, may provide in the event of a change in control for the acceleration of vesting and/or settlement of the restricted stock unit held by a participant upon such conditions and to such extent as determined by the Compensation Committee.  Our Board of Directors has adopted an executive change in control severance plan, which it may terminate or amend at any time, that provides that awards granted to executive officers will accelerate fully on a change of control.  The vesting of non-employee director awards granted under the Equity Incentive Plan automatically will also accelerate in full upon a change in control.

Restricted Stock Unit Awards (Time Vesting)

Restricted stock unit awards (time vesting) entitle holders to receive shares of common stock at the end of a specified period of time.  For restricted stock unit awards (time vesting), vesting is based on continuous employment or service of the holder.  Upon vesting, the equivalent number of common shares are typically issued net of tax withholdings.  If the service vesting conditions are not met, unvested restricted stock unit awards (time vesting) will be forfeited.  Generally, the restricted stock unit awards (time vesting) vest according to one of the following time-based vesting schedules:

· Restricted stock unit awards (time vesting) to employees:  Four-year time-based vesting as follows:  five percent vesting after the first year; additional ten percent after the second year; additional 15 percent after the third year; and the remaining 70 percent after the fourth year of continuous employment with the Company.

· Restricted stock unit awards (time vesting) to non-employee directors:  100 percent vesting after one year of continuous service to the Company.

The fair value of restricted stock unit awards (time vesting) used in our expense recognition method is measured based on the number of shares granted and the closing market price of our common stock on the date of grant.  Such value is recognized as an expense over the corresponding requisite service period.  The share-based compensation expense is reduced for an estimate of the restricted stock unit awards that are expected to be forfeited.  The forfeiture estimate is based on historical data and other factors, and compensation expense is adjusted for actual results.  As of December 31, 2012, the total unrecognized compensation expense related to restricted stock unit awards (time vesting) granted amounted to $20.4 million, which is expected to be recognized over a weighted average service period of 1.9 years.

Restricted Stock Unit Awards (Performance Vesting)

Starting in fiscal 2013, we also grant restricted stock unit awards (performance vesting), which entitle holders to receive shares of common stock based on performance-based vesting criteria.  For restricted stock unit awards (performance vesting), vesting is based on our achievement of corporate annual performance targets.  

During the first quarter of fiscal 2013, our Board of Directors approved the grant of 84,000 shares of restricted stock unit awards (performance vesting), of which approximately 21,000 shares have been granted.  Because each annual performance target is set at the start of each respective single-fiscal year performance period, only 25% of the total restricted stock unit awards (performance vesting) are deemed granted each year over the four-year period in accordance with ASC 718-10-55-95.  Accordingly, 75% of the total restricted stock unit awards (performance vesting) approved are not deemed granted for accounting purposes as of December 31, 2012 pursuant to ASC 718-10-55-95.  The performance periods for the fiscal 2013 grants run from April 1, 2012 through March 31, 2016, consisting of four one-year performance periods.  Approximately 25% of the total 84,000 shares approved by the Board of Directors will be granted each year over such four-year period.  Each grant has a vesting term of approximately one year, with vesting based upon:  (1) achievement of certain pre-established corporate annual performance-related goals, as established by the Compensation Committee; and (2) the grantee's satisfying service requirements through the vesting period.  The fiscal 2013 performance target was established at the grant date following ASC 718-10-55-95 and the aggregate estimated grant date fair value was $752,000 or $35.62 per share based on the closing market price of our common stock on the date of grant.  The number of vested restricted stock unit awards (performance vesting) is determined at the end of each annual performance period.

The fair value of our restricted stock unit awards (performance vesting) used in our expense recognition method is measured based on the number of shares granted, the closing market price of our common stock on the date of grant and an estimate of the probability of the achievement of the performance goals.  We recognize any related share-based compensation expense ratably over the service period based on the most probable outcome of the performance condition.  The amount of share-based compensation expense recognized in any one period can vary based on the attainment or expected attainment of the performance goals.  If such performance goals are not ultimately met, no compensation expense is recognized and any previously recognized compensation expense is reversed.  As of December 31, 2012, the total unrecognized compensation expense related to restricted stock unit awards (performance vesting) granted amounted to $178,000, which is expected to be recognized over a weighted average service period of 0.3 years.

Restricted Stock Unit Activity

The following table summarizes restricted stock unit activity for the nine months ended December 31, 2012:

	Time-Based Restricted					Performance-Based Restricted
	Stock Units					Stock Units
				Weighted				Weighted
				Average				Average
	Number of			Grant Date		Number of		Grant Date
	Shares			Fair Value(1)		Shares		Fair Value(1)
Nonvested at March 31, 2012		1,120,000		$	24.06		-	$	-
Granted(2)		180,000			35.83		21,000		35.62
Vested(3)		(255,000	)		23.45		-		-
Canceled or forfeited		(68,000	)		26.09		-		-
Nonvested at December 31, 2012		977,000		$	26.24		21,000	$	35.62

(1) The weighted average grant date fair value of restricted stock units is based on the number of shares and the closing market price of our common stock on the date of grant.

(2) The shares granted for restricted stock unit awards (performance vesting) do not include the awards approved by the Board of Directors during the period that are deemed not to have been granted in accordance with ASC 718-10-55-95.

(3) The number of restricted stock units vested includes shares that we withheld on behalf of our employees to satisfy the statutory tax withholding requirements.

Total intrinsic value of time-based restricted stock units vested during the three months ended December 31, 2012 and 2011 was $265,000 and $608,000, respectively, and during the nine months ended December 31, 2012 and 2011 was $9.0 million and $6.5 million, respectively.  The total grant date fair value of time-based restricted stock units vested during the three months ended December 31, 2012 and 2011 was $177,000 and $598,000, respectively, and during the nine months ended December 31, 2012 and 2011 was $6.0 million and $5.1 million, respectively.

XML

INVESTMENT IN UNCONSOLIDATED AFFILIATE (Details) (USD $)	1 Months Ended	3 Months Ended		9 Months Ended
	Feb. 28, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
INVESTMENT IN UNCONSOLIDATED AFFILIATE [Abstract]
Equity ownership interest purchased (in hundredths)	15.00%
Payment to acquire equity ownership interest in unconsolidated affiliate	$ 2,800,000
Allocated portion of unconsolidated affiliate's net income (loss)		$ 21,000	$ (29,000)	$ (13,000)	$ (101,000)

XML

REVENUES BY PRODUCT AND SERVICE CATEGORY AND GEOGRAPHIC REGION AND SIGNIFICANT CONCENTRATIONS

9 Months Ended

Dec. 31, 2012

REVENUES BY PRODUCT AND SERVICE CATEGORY AND GEOGRAPHIC REGION AND SIGNIFICANT CONCENTRATIONS [Abstract]

REVENUES BY PRODUCT AND SERVICE CATEGORY AND GEOGRAPHIC REGION AND SIGNIFICANT CONCENTRATIONS

NOTE 15.  REVENUES BY PRODUCT AND SERVICE CATEGORY AND GEOGRAPHIC REGION AND SIGNIFICANT CONCENTRATIONS

Revenue Information

The following is a summary of our revenues by product and service category (in thousands):

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
Revenues by Product and Service Category	2012		2011		2012		2011
Instruments(1)	$	13,969	$	9,079	$	35,456	$	25,364
Consumables(2)		32,786		26,808		91,680		83,019
Other products and services(3)		3,009		1,925		8,825		5,372
Product and service revenues, net		49,764		37,812		135,961		113,755
Development and licensing revenue		38		38		113		123
Total revenues	$	49,802	$	37,850	$	136,074	$	113,878

(1) Instruments include chemistry analyzers, hematology instruments, VSpro specialty analyzers and i-STAT analyzers.

(2) Consumables include reagent discs, hematology reagent kits, VSpro specialty cartridges, i-STAT cartridges and rapid tests.

(3) Other products and services include veterinary reference laboratory diagnostic and consulting services.

The following is a summary of our revenues by geographic region based on customer location (in thousands):

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
Revenues by Geographic Region	2012		2011		2012		2011
North America	$	41,797	$	31,847	$	110,876	$	93,540
Europe		6,197		4,516		19,906		16,326
Asia Pacific and rest of the world		1,808		1,487		5,292		4,012
Total revenues	$	49,802	$	37,850	$	136,074	$	113,878

Significant Concentrations

During the three months ended December 31, 2012, one distributor in the United States, MWI Veterinary Supply, Inc., accounted for 12% of our total worldwide revenues.  During the three months ended December 31, 2011, one distributor in the United States, Animal Health International, accounted for 15% of our total worldwide revenues.  During the nine months ended December 31, 2012, one distributor in the United States, Animal Health International, accounted for 11% of our total worldwide revenues.  During the nine months ended December 31, 2011, one distributor in the United States, Animal Health International, accounted for 12% of our total worldwide revenues.  Animal Health International was formed in 2011 from two animal health companies, which included Walco International, Inc., d/b/a DVM Resources.

At December 31, 2012, two distributors in the United States accounted for 17% and 11%, respectively, of our total receivables balance.  At March 31, 2012, one distributor in the United States accounted for 19% of our total receivables balance.

XML

WARRANTY RESERVES (Tables)

9 Months Ended

Dec. 31, 2012

WARRANTY RESERVES [Abstract]

Change in accrued warranty reserve

The change in our accrued warranty reserve during the three and nine months ended December 31, 2012 and 2011 is summarized as follows (in thousands):

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2012			2011			2012			2011
Balance at beginning of period	$	1,480		$	1,436		$	1,846		$	1,222
Provision for warranty expense		337			500			998			1,113
Warranty costs incurred		(351	)		(331	)		(1,088	)		(987	)
Adjustment to pre-existing warranties		-			-			(290	)		257
Balance at end of period		1,466			1,605			1,466			1,605
Non-current portion of warranty reserve		473			482			473			482
Current portion of warranty reserve	$	993		$	1,123		$	993		$	1,123

XML

SHAREHOLDERS' EQUITY (Details) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended			1 Months Ended		9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Mar. 31, 2012	Jan. 31, 2012 Share Repurchase Program [Member]	Aug. 31, 2011 Share Repurchase Program [Member]	Dec. 31, 2012 Share Repurchase Program [Member]
Share Repurchase Program [Abstract]
Authorized amount of stock repurchase							$ 40.0	$ 55.0
Increase to existing share repurchase program						15.0
Stock repurchased and retired to date (in shares)								1,200,000
Stock repurchased and retired to date (value)								27.3
Share repurchases yet to be purchased under authorization								27.7
Repurchase of common stock (in shares)	0		0
Dividend Payments [Abstract]
Cash dividend declared (in dollars per share)	$ 1.00	$ 0	$ 1.00	$ 0
Total dividend payout	$ 22.0		$ 22.0
Common Stock Warrants [Abstract]
Warrants outstanding (in shares)	30,000		30,000		30,000
Warrants vested (in shares)	12,000		12,000
Weighted average exercise price (in dollars per share)	$ 3.00		$ 3.00
Intangible asset useful life			10 years
Annual vesting percentage (in hundredths)			20.00%
Warrants term			5 years

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) [Abstract]
Net income	$ 4,988	$ 2,850	$ 20,761	$ 8,385
Other comprehensive income:
Net change in unrealized gain (loss) on investments	(2)	(17)	36	(17)
Provision (benefit) for income taxes related to items of other comprehensive income	(1)	(3)	15	(3)
Other comprehensive income (loss), net of tax	(1)	(14)	21	(14)
Comprehensive income	$ 4,987	$ 2,836	$ 20,782	$ 8,371

XML

FAIR VALUE MEASUREMENTS

9 Months Ended

Dec. 31, 2012

FAIR VALUE MEASUREMENTS [Abstract]

FAIR VALUE MEASUREMENTS

NOTE 4.  FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability ("exit price") in an orderly transaction between market participants at the measurement date.  When determining fair value, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability.  The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs).  The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).  The three levels of the fair value hierarchy are described below:

Level 1:  Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2:  Directly or indirectly observable inputs as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active.  Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.

Level 3:  Unobservable inputs that are supported by little or no market data and require the use of significant management judgment.  These values are generally determined using pricing models for which the assumptions utilize management's estimates of market participant assumptions.

The following table summarizes financial assets, measured at fair value on a recurring basis, by level within the fair value hierarchy as of December 31, 2012 and March 31, 2012 (in thousands):

	As of December 31, 2012
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	8,342	$	-	$	-	$	8,342
Available-for-sale investments:
Certificates of deposits		-		1,002		-		1,002
Corporate bonds		-		6,104		-		6,104
Municipal bonds		-		532		-		532
Total assets at fair value	$	8,342	$	7,638	$	-	$	15,980

	As of March 31, 2012
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	6,996	$	-	$	-	$	6,996
Available-for-sale investments:
Certificates of deposits		-		1,247		-		1,247
Corporate bonds		-		6,085		-		6,085
Municipal bonds		-		962		-		962
Total assets at fair value	$	6,996	$	8,294	$	-	$	15,290

As of December 31, 2012 and March 31, 2012, our Level 1 financial assets are comprised of money market mutual funds.  Our cash equivalents are highly liquid instruments with original or remaining maturities of three months or less at the time of purchase that are readily convertible into cash.  The fair value of our Level 1 financial assets is based on quoted market prices of the underlying security.  As of December 31, 2012 and March 31, 2012, we did not have any Level 1 financial liabilities.

As of December 31, 2012 and March 31, 2012, our Level 2 financial assets are comprised of certificates of deposits, corporate bonds and municipal bonds.  We review trading activity and pricing for these investments as of the measurement date.  When sufficient quoted pricing for identical securities is not available, we use market pricing and other observable market inputs for similar securities obtained from third party data providers.  These inputs represent quoted prices for similar assets in active markets or these inputs have been derived from observable market data.  This approach results in the classification of these securities as Level 2 of the fair value hierarchy.  As of December 31, 2012 and March 31, 2012, we did not have any Level 2 financial liabilities.

As of December 31, 2012 and March 31, 2012, we did not have any Level 3 financial assets or liabilities measured at fair value on a recurring basis.  During the three and nine months ended December 31, 2012 and 2011, we did not have any Level 3 financial assets or liabilities measured at fair value on a recurring basis.

XML

EQUITY COMPENSATION PLANS AND SHARE-BASED COMPENSATION (Tables)

9 Months Ended

Dec. 31, 2012

EQUITY COMPENSATION PLANS AND SHARE-BASED COMPENSATION [Abstract]

Total share-based compensation expense, net of tax

The following table summarizes total share-based compensation expense, net of tax, related to restricted stock units during the three and nine months ended December 31, 2012 and 2011, which is included in our condensed consolidated statements of income (in thousands, except per share data):

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2012			2011			2012			2011
Cost of revenues	$	228		$	187		$	673		$	698
Research and development		300			226			854			641
Sales and marketing		613			475			1,885			1,402
General and administrative		638			624			1,878			1,453
Share-based compensation expense before income taxes		1,779			1,512			5,290			4,194
Income tax benefit		(641	)		(526	)		(1,898	)		(1,459	)
Total share-based compensation expense after income taxes	$	1,138		$	986		$	3,392		$	2,735
Net impact of share-based compensation on:
Basic net income per share	$	0.05		$	0.05		$	0.15		$	0.12
Diluted net income per share	$	0.05		$	0.04		$	0.15		$	0.12

Stock option activity

The following table summarizes information regarding options outstanding and options exercisable at December 31, 2012 and the changes during the nine-month period then ended:

				Weighted		Weighted
				Average		Average		Aggregate
				Exercise		Remaining		Intrinsic
	Number of			Price		Contractual		Value
	Shares			Per Share		Life (Years)		(In thousands)
Outstanding at March 31, 2012		282,000		$	15.21
Granted		-			-
Exercised		(114,000	)		14.06
Canceled or forfeited		-			-
Outstanding at December 31, 2012		168,000		$	15.99		1.03	$	3,555
Vested and expected to vest at December 31, 2012		168,000		$	15.99		1.03	$	3,555
Exercisable at December 31, 2012		168,000		$	15.99		1.03	$	3,555

Restricted stock unit activity

The following table summarizes restricted stock unit activity for the nine months ended December 31, 2012:

	Time-Based Restricted					Performance-Based Restricted
	Stock Units					Stock Units
				Weighted				Weighted
				Average				Average
	Number of			Grant Date		Number of		Grant Date
	Shares			Fair Value(1)		Shares		Fair Value(1)
Nonvested at March 31, 2012		1,120,000		$	24.06		-	$	-
Granted(2)		180,000			35.83		21,000		35.62
Vested(3)		(255,000	)		23.45		-		-
Canceled or forfeited		(68,000	)		26.09		-		-
Nonvested at December 31, 2012		977,000		$	26.24		21,000	$	35.62

(1) The weighted average grant date fair value of restricted stock units is based on the number of shares and the closing market price of our common stock on the date of grant.

(2) The shares granted for restricted stock unit awards (performance vesting) do not include the awards approved by the Board of Directors during the period that are deemed not to have been granted in accordance with ASC 718-10-55-95.

(3) The number of restricted stock units vested includes shares that we withheld on behalf of our employees to satisfy the statutory tax withholding requirements.

XML

EQUITY COMPENSATION PLANS AND SHARE-BASED COMPENSATION (Details) (USD $)	3 Months Ended		9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Mar. 31, 2012
Equity Compensation Plan and Allocation of Share-based Compensation [Line Items]
Share-based compensation expense before income taxes	$ 1,779,000	$ 1,512,000	$ 5,290,000	$ 4,194,000
Income tax benefit	(641,000)	(526,000)	(1,898,000)	(1,459,000)
Total share-based compensation expense after income taxes	1,138,000	986,000	3,392,000	2,735,000
Net impact of share-based compensation on [Abstract]
Basic net income per share (in dollars per share)	$ 0.05	$ 0.05	$ 0.15	$ 0.12
Diluted net income per share (in dollars per share)	$ 0.05	$ 0.04	$ 0.15	$ 0.12
Capitalized share-based compensation costs	168,000		168,000		139,000
Excess tax benefits classified as financing cash inflow	681,000	231,000	1,826,000	717,000
2005 Equity Incentive Plan [Member]
Equity Compensation Plan and Allocation of Share-based Compensation [Line Items]
Increase in aggregate number of shares reserved for issuance (in shares)	900,000		900,000
Amendment to the 2005 equity incentive plan (in shares)	500,000		500,000
Maximum shares authorized for issuance (in shares)	6,786,000		6,786,000
Shares available for future issuance (in shares)	1,112,000		1,112,000
Shares approved by the Board of Directors that have not been granted in accordance with ASC 718-10-55-95 (in shares)	63,000		63,000
Cost of Revenues [Member]
Equity Compensation Plan and Allocation of Share-based Compensation [Line Items]
Share-based compensation expense before income taxes	228,000	187,000	673,000	698,000
Research and Development [Member]
Equity Compensation Plan and Allocation of Share-based Compensation [Line Items]
Share-based compensation expense before income taxes	300,000	226,000	854,000	641,000
Sales and Marketing [Member]
Equity Compensation Plan and Allocation of Share-based Compensation [Line Items]
Share-based compensation expense before income taxes	613,000	475,000	1,885,000	1,402,000
General and Administrative [Member]
Equity Compensation Plan and Allocation of Share-based Compensation [Line Items]
Share-based compensation expense before income taxes	$ 638,000	$ 624,000	$ 1,878,000	$ 1,453,000

XML

SEGMENT REPORTING INFORMATION

9 Months Ended

Dec. 31, 2012

SEGMENT REPORTING INFORMATION [Abstract]

SEGMENT REPORTING INFORMATION

NOTE 14.  SEGMENT REPORTING INFORMATION

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by our chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.

Abaxis develops, manufactures, markets and sells portable blood analysis systems for use in the human or veterinary patient-care setting to provide clinicians with rapid blood constituent measurements.  We identify our reportable segments as those customer groups that represent more than 10% of our combined revenue or gross profit or loss of all reported operating segments.  We manage our business on the basis of the following two reportable segments: (i) the medical market and (ii) the veterinary market, which are based on the products sold and services provided by market and customer group.  For the products that we manufacture and sell, each reportable segment has similar manufacturing processes, technology and shared infrastructures.  The accounting policies for segment reporting are the same as for the Company as a whole.  We do not segregate assets by segments since our chief operating decision maker, or decision making group, does not use assets as a basis to evaluate a segment's performance.

Medical Market

In the medical market reportable segment, we serve a worldwide customer group consisting of military installations (ships, field hospitals and mobile care units), physicians' office practices across all specialties, urgent care, outpatient and walk-in clinics (free-standing or hospital-connected), health screening operations, home care providers (national, regional or local), nursing homes, ambulance companies, oncology treatment clinics, dialysis centers, pharmacies and hospital laboratories.  Starting in the first quarter of fiscal 2013, we also began to serve the pharmaceutical clinical trial market.  The products manufactured and sold in this segment primarily consist of Piccolo chemistry analyzers and medical reagent discs.

Veterinary Market

In the veterinary market reportable segment, we serve a worldwide customer group consisting of companion animal hospitals, animal clinics with mixed practices of small animals, birds and reptiles, equine and bovine practitioners, veterinary emergency clinics, veterinary referral hospitals, universities, government, pharmaceutical companies, biotechnology companies and private research laboratories.  The products manufactured and sold in this segment primarily consist of VetScan chemistry analyzers and veterinary reagent discs.  We also sell OEM supplied products in this segment consisting of VetScan hematology instruments and related reagent kits, VetScan VSpro specialty analyzers and related consumables, VetScan i-STAT analyzers and related VetScan i-STAT consumables and rapid tests.  During fiscal 2011, we began developing Abaxis Veterinary Reference Laboratories ("AVRL"), a full-service laboratory testing facility, based in Olathe, Kansas.  In October 2011, we began operating and providing veterinary reference laboratory diagnostic and consulting services for veterinarians in the United States through AVRL.

Total Revenues, Cost of Revenues and Gross Profit by Segment

The table below summarizes revenues, cost of revenues and gross profit from our two operating segments and from certain unallocated items for the three and nine months ended December 31, 2012 and 2011 (in thousands):

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2012			2011			2012			2011
Revenues:
Medical Market	$	8,977		$	8,147		$	25,267		$	22,636
Veterinary Market		39,865			28,467			107,299			87,684
Other(1)		960			1,236			3,508			3,558
Total revenues		49,802			37,850			136,074			113,878
Cost of revenues:
Medical Market(2)		4,282			3,514			11,286			10,180
Veterinary Market(2)		17,980			12,472			48,582			37,893
Other(1)(2)		1,464			1,386			4,158			4,083
Total cost of revenues		23,726			17,372			64,026			52,156
Gross profit:
Medical Market(2)		4,695			4,633			13,981			12,456
Veterinary Market(2)		21,885			15,995			58,717			49,791
Other(1)(2)		(504	)		(150	)		(650	)		(525	)
Gross profit	$	26,076		$	20,478		$	72,048		$	61,722

(1) Represents unallocated items, not specifically identified to any particular business segment.

(2) Includes certain prior period amounts by operating segment and unallocated items that were reclassified to conform to the current period presentation.