Form 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2009
or
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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)
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California
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77-0213001 |
(State of Incorporation)
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(I.R.S. Employer Identification No.) |
3240 Whipple Road
Union City, California 94587
(Address of principal executive offices)
(510) 675-6500
(Registrants 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 þ 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 o 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 the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
Yes o No þ
As of November 5, 2009, there were 22,022,000 shares of the Registrants common stock outstanding.
ABAXIS, INC.
Form 10-Q
For the Quarter Ended September 30, 2009
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
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Item 1. |
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Condensed Consolidated Financial Statements (Unaudited) |
ABAXIS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share data)
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Three Months Ended |
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Six Months Ended |
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September 30, |
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September 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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Revenues |
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$ |
30,262 |
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$ |
27,688 |
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$ |
59,887 |
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$ |
52,260 |
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Cost of revenues |
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12,411 |
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12,346 |
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24,881 |
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23,415 |
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Gross profit |
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17,851 |
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15,342 |
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35,006 |
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28,845 |
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Operating expenses: |
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Research and development |
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2,594 |
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2,082 |
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5,167 |
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4,079 |
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Sales and marketing |
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7,582 |
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6,494 |
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13,942 |
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12,321 |
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General and administrative |
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2,689 |
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1,952 |
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5,187 |
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3,614 |
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Total operating expenses |
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12,865 |
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10,528 |
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24,296 |
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20,014 |
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Income from operations |
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4,986 |
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4,814 |
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10,710 |
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8,831 |
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Interest and other income (expense), net |
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292 |
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326 |
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806 |
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788 |
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Income before income tax provision |
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5,278 |
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5,140 |
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11,516 |
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9,619 |
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Income tax provision |
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2,081 |
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1,843 |
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4,563 |
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3,546 |
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Net income |
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$ |
3,197 |
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$ |
3,297 |
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$ |
6,953 |
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$ |
6,073 |
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Net income per share: |
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Basic net income per share |
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$ |
0.15 |
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$ |
0.15 |
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$ |
0.32 |
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$ |
0.28 |
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Diluted net income per share |
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$ |
0.14 |
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$ |
0.15 |
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$ |
0.31 |
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$ |
0.27 |
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Shares used in the calculation of net income per share: |
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Weighted average common shares outstanding basic |
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22,005,000 |
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21,779,000 |
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21,985,000 |
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21,757,000 |
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Weighted average common shares outstanding diluted |
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22,574,000 |
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22,304,000 |
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22,492,000 |
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22,363,000 |
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Share-based compensation expense by function: |
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Cost of revenues |
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$ |
87 |
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$ |
40 |
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$ |
136 |
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$ |
75 |
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Research and development |
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214 |
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53 |
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354 |
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114 |
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Sales and marketing |
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304 |
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121 |
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549 |
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258 |
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General and administrative |
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764 |
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220 |
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1,226 |
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388 |
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Total share-based compensation expense |
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$ |
1,369 |
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$ |
434 |
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$ |
2,265 |
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$ |
835 |
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See accompanying Notes to the Condensed Consolidated Financial Statements.
3
ABAXIS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
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September 30, |
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March 31, |
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2009 |
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2009 |
ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
51,579 |
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$ |
49,237 |
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Short-term investments |
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17,068 |
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20,776 |
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Accounts receivables (net of allowances of $479 at September 30, 2009 and $388 at March 31, 2009) |
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22,412 |
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21,983 |
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Inventories |
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16,312 |
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15,735 |
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Prepaid expenses |
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1,467 |
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957 |
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Net deferred tax asset, current |
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4,652 |
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4,676 |
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Total current assets |
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113,490 |
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113,364 |
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Long-term investments |
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18,926 |
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4,886 |
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Property and equipment, net |
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14,106 |
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14,798 |
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Intangible assets, net |
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4,887 |
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5,175 |
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Other assets |
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45 |
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24 |
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Net deferred tax asset, non-current |
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2,464 |
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2,464 |
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Total assets |
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$ |
153,918 |
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$ |
140,711 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
5,432 |
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$ |
3,963 |
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Accrued payroll and related expenses |
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5,677 |
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3,698 |
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Accrued taxes |
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700 |
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34 |
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Other accrued liabilities |
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1,314 |
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1,116 |
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Deferred revenue |
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1,066 |
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1,024 |
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Warranty reserve |
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1,498 |
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1,714 |
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Total current liabilities |
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15,687 |
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11,549 |
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Non-current liabilities: |
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Deferred rent |
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46 |
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137 |
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Deferred revenue |
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1,399 |
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1,550 |
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Warranty reserve |
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730 |
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583 |
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Total non-current liabilities |
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2,175 |
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2,270 |
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Commitments and contingencies (Note 8) |
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Shareholders equity: |
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Preferred stock, no par value; 5,000,000 shares authorized; no shares issued and outstanding |
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Common stock, no par value; 35,000,000 shares authorized; 22,019,000 and 21,933,000 shares issued and outstanding
at September 30, 2009 and at March 31, 2009, respectively |
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120,060 |
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117,846 |
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Retained earnings |
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15,999 |
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9,046 |
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Accumulated other comprehensive loss |
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(3 |
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Total shareholders equity |
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136,056 |
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126,892 |
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Total liabilities and shareholders equity |
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$ |
153,918 |
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$ |
140,711 |
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See accompanying Notes to the Condensed Consolidated Financial Statements.
4
ABAXIS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
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Six Months Ended |
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September 30, |
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2009 |
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2008 |
Cash flows from operating activities: |
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Net income |
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$ |
6,953 |
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$ |
6,073 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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2,574 |
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2,066 |
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Investment premium amortization |
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51 |
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(Gain) loss on disposal of property and equipment |
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21 |
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(8 |
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(Gain) loss on foreign exchange translation |
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(209 |
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77 |
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Share-based compensation expense |
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2,265 |
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835 |
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Excess tax benefits from share-based awards |
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(351 |
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(3,085 |
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Provision for deferred income taxes |
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377 |
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2,332 |
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Changes in assets and liabilities: |
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Accounts receivables, net |
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(304 |
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(802 |
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Inventories |
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(1,415 |
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(160 |
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Prepaid expenses |
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(510 |
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(666 |
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Other assets |
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(21 |
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(18 |
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Accounts payable |
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1,468 |
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(1,457 |
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Accrued payroll and related expenses |
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1,979 |
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(44 |
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Accrued taxes |
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429 |
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736 |
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Other accrued liabilities |
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198 |
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207 |
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Deferred rent |
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(91 |
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(69 |
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Deferred revenue |
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(109 |
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420 |
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Warranty reserve |
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(69 |
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294 |
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Net cash provided by operating activities |
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13,236 |
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6,731 |
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Cash flows from investing activities: |
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Purchases of available-for-sale investments |
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(3,030 |
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Purchases of held-to-maturity investments |
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(20,565 |
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(7,090 |
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Proceeds from redemptions and principal payments of available-for-sale investments |
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2,374 |
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8,550 |
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Proceeds from maturities of held-to-maturity investments |
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10,833 |
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7,090 |
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Purchases of property and equipment |
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(739 |
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(1,074 |
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Proceeds from disposal of property and equipment |
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20 |
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Net cash (used in) provided by investing activities |
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(11,127 |
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7,496 |
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Cash flows from financing activities: |
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Proceeds from issuance of common stock under stock plans, net |
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(217 |
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66 |
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Excess tax benefits from share-based awards |
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351 |
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3,085 |
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Net cash provided by financing activities |
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134 |
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3,151 |
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Effect of exchange rate changes on cash and cash equivalents |
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99 |
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(25 |
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Net increase in cash and cash equivalents |
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2,342 |
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17,353 |
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Cash and cash equivalents at beginning of period |
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49,237 |
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17,219 |
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Cash and cash equivalents at end of period |
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$ |
51,579 |
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$ |
34,572 |
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Supplemental disclosure of cash flow information: |
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Cash paid for income taxes, net of refunds |
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$ |
3,502 |
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$ |
478 |
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Supplemental disclosure of non-cash flow information: |
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Change in unrealized gain (loss) on investments, net of tax |
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$ |
(3 |
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$ |
1,022 |
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Transfers of equipment between inventory and property and equipment, net |
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$ |
876 |
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$ |
1,233 |
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Net change in capitalized share-based compensation |
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$ |
38 |
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$ |
(4 |
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Common stock withheld for employee taxes in connection with share-based compensation |
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$ |
422 |
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$ |
275 |
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See accompanying Notes to the Condensed Consolidated Financial Statements.
5
ABAXIS, INC.
NOTES TO THE 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.
On July 1, 2008, our sales office in Darmstadt, Germany was incorporated as Abaxis Europe GmbH to
market, promote and distribute diagnostic systems for medical and veterinary uses. Abaxis Europe
GmbH, our wholly-owned subsidiary, was formed to provide customer support in a timely manner in
response to the growing and increasingly diverse services needs of customers in the European
market.
Principles of Consolidation. The accompanying unaudited condensed consolidated financial
statements as of and for the three and six month periods ended September 30, 2009 include the
accounts of Abaxis and our wholly-owned subsidiary, Abaxis Europe GmbH. All 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 six month periods ended September 30, 2009 are
not necessarily indicative of the results to be expected for the entire fiscal year ending March
31, 2010 or for any interim or future period.
These unaudited condensed consolidated financial statements should be read in conjunction with
Managements 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, 2009.
In preparing the accompanying unaudited condensed consolidated financial statements, we have
reviewed, as determined necessary by our management, events that have occurred after September 30,
2009 and through the time of filing these condensed consolidated financial statements on Form 10-Q
with the SEC on November 9, 2009. There were no subsequent events requiring recognition or
disclosure in the financial statements.
Reclassifications. Certain reclassifications have been made to prior periods financial statements
to conform to the current period presentation. These reclassifications had no material impact on
previously reported results of operations or financial position.
Use of Estimates in Preparation of Financial Statements. The preparation of 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
consolidated financial statements and the reported amounts of revenues and expenses during the
reporting period. Such management estimates include allowance for doubtful accounts, fair value of
investments, sales and other allowances, valuation of inventory, fair values of purchased
intangible assets, 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 consistent with those disclosed in our Annual
Report on Form 10-K for the year ended March 31, 2009 filed with the SEC on June 12, 2009, except
for the adoption of new accounting standards during the first six months of fiscal 2010 as
discussed below.
6
NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS
In October 2009, the Financial Accounting Standards Board (the FASB) issued amendments to the
accounting standard addressing multiple-deliverable revenue arrangements. The amendments provide
guidance in addressing how to determine whether an arrangement involving multiple deliverables
contains more than one unit of accounting, and how to allocate the consideration to each unit of
accounting. In an arrangement with multiple deliverables, the delivered items shall be
considered a separate unit of accounting if the delivered items have value to the customer on a
stand-alone basis. Items have value on a stand-alone basis if they are sold separately by any
vendor or the customer could resell the delivered items on a stand-alone basis; and if the
arrangement includes a general right of return relative to the delivered items, delivery or
performance of the undelivered items is considered probable and substantially in the control of the
vendor. We are currently evaluating the impact of adopting these amendments on our financial
statements.
In June 2009, the FASB issued the FASB Accounting Standards Codification (the Codification) as
the single source of authoritative U.S. generally accepted accounting principles (U.S. GAAP)
recognized by the FASB. The Codification does not change current U.S. GAAP, but is intended to
simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature
related to a particular topic in one place. All existing accounting standard documents will be
superseded and all other accounting literature not included in the Codification will be considered
non-authoritative. While the adoption of the Codification as of September 30, 2009 for the three
month period then ended and all subsequent annual and interim periods changes how we reference
accounting standards, the adoption did not have an impact on our consolidated financial position,
results of operations, or cash flows.
On June 30, 2009, we adopted amendments to the accounting standard addressing subsequent events.
The amendments provide guidance on the definition of what qualifies as a subsequent event those
events or transactions that occur following the balance sheet date, but before the financial
statements are issued, or are available to be issued and requires companies to disclose the date
through which subsequent events were evaluated and the basis for determining that date. This
disclosure should alert all users of financial statements that a company has not evaluated
subsequent events after that date in the set of financial statements being presented. The
amendments required additional disclosures only, and therefore did not have a material impact on
our consolidated financial position, results of operations or cash flows.
On June 30, 2009, we adopted amendments to the accounting standard addressing debt securities. The
amendments provide guidance in determining whether impairments in debt securities are other than
temporary, and modify the presentation and disclosures surrounding such instruments. The adoption
of these amendments did not have a material impact on our consolidated financial position, results
of operations or cash flows.
On June 30, 2009, we adopted amendments to the accounting standard addressing fair value of
financial instruments in interim reporting periods. The amendments provide guidance on the
disclosure requirements about fair value of financial instruments in interim reporting periods.
Such disclosures were previously required only in annual financial statements. The adoption of
these amendments did not have a material impact on our consolidated financial position, results of
operations or cash flows.
On June 30, 2009, we adopted amendments to the accounting standard addressing estimating fair
value. The amendments provide additional authoritative guidance to assist both issuers and users
of financial statements in determining whether a market is active or inactive, and whether a
transaction is distressed. The adoption of these amendments did not have a material impact on our
consolidated financial position, results of operations or cash flows.
On April 1, 2009, we adopted amendments to the accounting standard addressing intangibles, goodwill
and other assets. The amendments provide guidance to improve the consistency between the useful
life of a recognized intangible asset and the period of expected cash flows used to measure the
fair value of the asset under U.S. GAAP. The adoption of these amendments did not have a material
impact on our consolidated financial position, results of operations or cash flows.
On April 1, 2009, we adopted amendments to the accounting standard addressing derivatives and
hedging. The amendments change the disclosure requirements for derivative instruments and hedging
activities, requiring enhanced disclosures about how and why an entity uses derivative instruments,
how instruments are accounted for under U.S. GAAP, and how derivatives and hedging activities
affect an entitys financial position, financial performance and cash flows. The adoption of these
amendments required additional disclosure only, and therefore did not have an impact on our
consolidated financial position, results of operations, or cash flows.
7
NOTE 3. INVESTMENTS
The following table summarizes short-term and long-term investments by major security type (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
Cost or |
|
Gross Unrealized |
|
Fair |
|
|
Amortized Cost |
|
Gain (Loss) |
|
Value |
|
|
|
Short-term investments |
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities |
|
$ |
632 |
|
|
$ |
(5 |
) |
|
$ |
627 |
|
|
|
|
Total short-term investments in available-for-sale |
|
$ |
632 |
|
|
$ |
(5 |
) |
|
$ |
627 |
|
|
|
|
Held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposits |
|
$ |
16,441 |
|
|
$ |
|
|
|
$ |
16,441 |
|
|
|
|
Total short-term investments in held-to-maturity |
|
$ |
16,441 |
|
|
$ |
|
|
|
$ |
16,441 |
|
|
|
|
Total short-term investments |
|
$ |
17,073 |
|
|
$ |
(5 |
) |
|
$ |
17,068 |
|
|
|
|
Long-term investments |
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposits |
|
$ |
4,416 |
|
|
$ |
|
|
|
$ |
4,416 |
|
Corporate bonds |
|
|
13,145 |
|
|
|
|
|
|
|
13,145 |
|
U.S. agency securities |
|
|
1,365 |
|
|
|
|
|
|
|
1,365 |
|
|
|
|
Total long-term investments in held-to-maturity |
|
$ |
18,926 |
|
|
$ |
|
|
|
$ |
18,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
|
Cost or |
|
Gross Unrealized |
|
Fair |
|
|
Amortized Cost |
|
Gain (Loss) |
|
Value |
|
|
|
Short-term investments |
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposits |
|
$ |
20,776 |
|
|
$ |
|
|
|
$ |
20,776 |
|
|
|
|
Total short-term investments in held-to-maturity |
|
$ |
20,776 |
|
|
$ |
|
|
|
$ |
20,776 |
|
|
|
|
Long-term investments |
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposits |
|
$ |
2,376 |
|
|
$ |
|
|
|
$ |
2,376 |
|
Corporate bonds |
|
|
2,510 |
|
|
|
|
|
|
|
2,510 |
|
|
|
|
Total long-term investments in held-to-maturity |
|
$ |
4,886 |
|
|
$ |
|
|
|
$ |
4,886 |
|
|
|
|
As of September 30, 2009 and March 31, 2009, unrealized gain (loss) on investments, net of
related income taxes, was $(3,000) and $0, respectively.
The contractual maturities of short-term and long-term investments as of September 30, 2009, are as
follows (in thousands):
|
|
|
|
|
Investments excluding asset-backed securities |
|
Fair Value |
|
Due in less than one year |
|
$ |
16,441 |
|
Due in 1 to 4 years |
|
|
18,926 |
|
Asset-backed securities(1) |
|
|
|
|
Weighted average maturity less than 1 year |
|
|
399 |
|
Weighted average maturity 1 to 2 years |
|
|
228 |
|
|
|
|
|
Total investments |
|
$ |
35,994 |
|
|
|
|
|
|
|
|
(1) |
|
Asset-backed securities are separately disclosed as they are not due at a single maturity date. |
NOTE 4. FAIR VALUE MEASUREMENTS
On April 1, 2008, we adopted amendments to the accounting standard addressing the measurement of
the fair value of financial assets and financial liabilities. The amendments provide guidance on
defining fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. The
amendments establish a fair value hierarchy that distinguishes between (1) market participant
assumptions developed based on market data obtained from independent sources (observable inputs)
and (2) an entitys 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:
8
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 managements 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 September 30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2009 |
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
Active Markets for |
|
Significant Other |
|
Significant |
|
|
|
|
Identical Assets |
|
Observable Inputs |
|
Unobservable Inputs |
|
|
|
|
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
34,596 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
34,596 |
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities |
|
|
|
|
|
|
627 |
|
|
|
|
|
|
|
627 |
|
|
|
|
Total assets at fair value |
|
$ |
34,596 |
|
|
$ |
627 |
|
|
$ |
|
|
|
$ |
35,223 |
|
|
|
|
Our Level 1 financial assets are cash equivalents, comprised of money market mutual funds,
which 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. The fair value of
our Level 2 financial assets, comprised of asset-backed securities, is based on readily-available
pricing sources for the identical underlying security that may, or may not, be actively traded. As
of September 30, 2009, we did not have any Level 3 financial assets or liabilities.
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):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
March 31, |
|
|
2009 |
|
2009 |
|
|
|
Raw materials |
|
$ |
8,620 |
|
|
$ |
8,539 |
|
Work-in-process |
|
|
2,694 |
|
|
|
2,592 |
|
Finished goods |
|
|
4,998 |
|
|
|
4,604 |
|
|
|
|
Total Inventories |
|
$ |
16,312 |
|
|
$ |
15,735 |
|
|
|
|
NOTE 6. 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 two to three years. 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. The
estimated accrual for warranty exposure is based on historical experience, estimated product
failure rates, material usage, freight incurred in repairing the instrument after failure and known
design changes.
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. During the three and six months ended September 30, 2009, the provision for warranty expense
related to replacement of defective reagent discs was $(50,000) and $25,000, respectively. The
balance of accrued warranty reserve related to replacement of defective reagent discs at September
30, 2009 and 2008 was $328,000 and $392,000, respectively, which was classified as a current
liability on the balance sheet.
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.
9
The change in our accrued warranty reserve during the three and six months ended September 30, 2009
and 2008 is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
|
|
|
Balance at beginning of period |
|
$ |
2,385 |
|
|
$ |
2,115 |
|
|
$ |
2,297 |
|
|
$ |
1,948 |
|
Provision for warranty expense |
|
|
144 |
|
|
|
512 |
|
|
|
401 |
|
|
|
1,019 |
|
Warranty costs incurred |
|
|
(301 |
) |
|
|
(385 |
) |
|
|
(470 |
) |
|
|
(725 |
) |
|
|
|
|
|
Balance at end of period |
|
|
2,228 |
|
|
|
2,242 |
|
|
|
2,228 |
|
|
|
2,242 |
|
Non-current portion of warranty reserve |
|
|
730 |
|
|
|
625 |
|
|
|
730 |
|
|
|
625 |
|
|
|
|
|
|
Current portion of warranty reserve |
|
$ |
1,498 |
|
|
$ |
1,617 |
|
|
$ |
1,498 |
|
|
$ |
1,617 |
|
|
|
|
|
|
NOTE 7. LINE OF CREDIT
We have a line of credit with Comerica Bank-California which provides for borrowings of up to $2.0
million. The line of credit may be terminated upon notification by either party and any
outstanding balance is payable upon demand. The line of credit bears interest at the banks prime
rate minus 0.25%, which totaled 3.00% at September 30, 2009, and is payable monthly. At September
30, 2009, of the $2.0 million available, $97,000 was committed to secure a letter of credit for our
facilities lease. At September 30, 2009, there was no amount outstanding under our line of credit.
The weighted average interest rates on the line of credit during the three months ended September
30, 2009 and 2008 were 3.00% and 4.75%, respectively.
The line of credit agreement contains certain financial covenants, which are evaluated on a
quarterly basis. At September 30, 2009, we were in compliance with each of these covenants.
Included in these financial covenants, among other stipulations, are the following requirements:
|
|
We must have a minimum net income of $25,000 before preferred stock dividends and accretion
on preferred stock in any three quarters of a fiscal year, provided that any loss before
preferred stock dividends and accretion on preferred stock incurred in the remaining quarter
is not to exceed $250,000. |
|
|
|
We are required to be profitable, as defined, on a fiscal year to date basis beginning,
with respect to the current fiscal year, with the six month period ended September 30, 2009
and to have net income before preferred stock dividends and accretion on preferred stock of at
least $1.2 million for the fiscal year ending March 31, 2010. |
|
|
|
We are required to comply with certain financial covenants as follows: |
|
|
|
Financial Covenants |
|
Requirements |
|
Quick ratio, as defined
|
|
Not less than 2.00 to 1.00 |
Cash flow coverage, as defined
|
|
Not less than 1.25 to 1.00 |
Debt to net worth ratio, as defined
|
|
Not greater than 1.00 to 1.00 |
Tangible effective net worth, as defined
|
|
Not less than $25.7 million |
Borrowings under the line of credit are collateralized by our net book value of assets of $136.1
million at September 30, 2009, including our intellectual property.
NOTE 8. COMMITMENTS AND CONTINGENCIES
Purchase Commitments. In October 2008, we entered into an original equipment manufacturing (OEM)
agreement with Scandinavian Micro Biodevices APS (SMB) of Denmark to purchase coagulation
analyzers and coagulation cartridges. In the fourth quarter of fiscal 2009, we started marketing
the products and, upon achievement of certain milestones by SMB outlined in the agreement, we will
be subject to the minimum purchase commitments under the OEM agreement. These milestones have not
yet been met and we are currently purchasing coagulation analyzers and coagulation cartridges on a
purchase order basis, but all such purchases will count towards the
minimum purchase obligations if and when
they are triggered.
Patent License Agreement. Effective January 2009, we entered into a license agreement with
Inverness Medical Switzerland GmbH (Inverness). 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 Inverness 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 Inverness 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
Inverness 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
10
claims in that
jurisdiction under the licensed Inverness 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
are payable starting in fiscal 2011 for so long as we desire to maintain exclusivity under the
agreement.
Litigation. We are involved from time to time in various litigation matters in the normal course
of business. We believe that the ultimate resolution of these matters will not have a material
effect on our financial position or results of operations.
NOTE 9. SHARE-BASED COMPENSATION
We recognize share-based compensation expense, net of an estimated forfeiture rate, over the
requisite service period of the award to employees and directors. Share-based compensation has
been classified in the statements of operations or capitalized on the balance sheets in the same
manner as cash compensation paid to employees. Non-cash compensation expense recognized for
share-based awards during the three months ended September 30, 2009 and 2008 was $1.4 million and
$434,000, respectively, and during the six months ended September 30, 2009 and 2008 was $2.3
million and $835,000, respectively. Capitalized share-based compensation costs at September 30,
2009 and 2008 were $71,000 and $23,000, respectively, which were included in inventories on our
Condensed Consolidated Balance Sheets.
Cash Flow Impact
The FASB 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 September 30, 2009 and 2008 were $161,000 and $1.3
million, respectively, and for the six months ended September 30, 2009 and 2008 were $351,000 and
$3.1 million, respectively.
Equity Compensation Plans
Our share-based compensation plans are 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
shares, performance units, deferred compensation awards or other share-based awards to employees,
directors and consultants. On October 28, 2008, our shareholders approved an amendment to the
Equity Incentive Plan to increase the shares reserved for issuance under the Equity Incentive Plan
by 500,000 shares. As of September 30, 2009, the Equity Incentive Plan provides for the issuance
of a maximum of 5,386,000 shares, of which 477,000 shares of common stock were then available for
future issuance.
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.
See the Stock Options section in this Note for additional information.
Restricted stock units awarded to employees generally vest over a period of four years and the
awards may also be subject to accelerated vesting upon achieving certain performance-based
milestones and continuous employment during the vesting period. Restricted stock units awarded to
non-employee directors generally vest in full one year after the grant date based on continuous
service. See the Restricted Stock Units section in this Note for additional information.
1992 Outside Directors Stock Option Plan. Under our 1992 Outside Directors Stock Option Plan
(the Directors Plan), options to purchase shares of common stock were automatically granted,
annually, to non-employee directors. Options under the Directors Plan were nonqualified stock
options and were granted at the fair market value on the date of grant and expired ten years from
the date of grant. Options granted to non-employee directors generally become exercisable over a
period of one year based on monthly vesting terms and continuous service. The Directors Plan
provided for the issuance of a maximum of 250,000 shares. As of September 30, 2009, all
outstanding options under the Directors Plan were fully vested and fully exercisable and no shares
of common stock were available for future issuance because the time period for granting options
expired in accordance with the terms of the Directors Plan in June 2002.
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.
11
Stock Options
Prior to April 1, 2006, we granted stock options to employees, with an exercise price equal to the
closing market price of our common stock on the date of grant and with cliff-vesting terms over
four years, conditional on continuous employment with the Company. In addition, prior to April 1,
2006, we granted stock options to non-employee directors with an exercise price equal to the
closing market price of our common stock on the date of grant and became exercisable over a period
of one year based on monthly vesting terms, conditional on continuous service to the Company.
There were no stock options granted since the beginning of fiscal 2007 or during the six months
ended September 30, 2009.
We used the Black-Scholes option pricing model to determine the fair value of stock options granted
prior to March 31, 2006. The fair value of each stock option granted was estimated on the date of
the grant using the Black-Scholes option pricing model, based on a multiple option valuation
approach. We have recognized compensation expense during the requisite service period of the stock
option. As of September 30, 2009, 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
September 30, 2009 and the changes during the six-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, 2009 |
|
|
848,000 |
|
|
$ |
8.86 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(37,000 |
) |
|
|
5.57 |
|
|
|
|
|
|
|
|
|
Canceled or forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2009 |
|
|
811,000 |
|
|
$ |
9.01 |
|
|
|
2.77 |
|
|
$ |
14,398 |
|
|
|
|
Vested and expected to vest at September 30, 2009 |
|
|
811,000 |
|
|
$ |
9.01 |
|
|
|
2.77 |
|
|
$ |
14,398 |
|
|
|
|
Exercisable at September 30, 2009 |
|
|
811,000 |
|
|
$ |
9.01 |
|
|
|
2.77 |
|
|
$ |
14,398 |
|
|
|
|
The aggregate intrinsic value in the table above represents the pre-tax intrinsic value, based
on our closing stock price as of September 30, 2009, 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 September 30, 2009 and 2008 was
$500,000 and $230,000, respectively, and during the six months ended September 30, 2009 and 2008
was $665,000 and $1.0 million, respectively. Cash proceeds from stock options exercised during the
three months ended September 30, 2009 and 2008 were $167,000 and $123,000, respectively, and during
the six months ended September 30, 2009 and 2008 were $205,000 and $341,000, respectively.
Restricted Stock Units
We grant restricted stock unit awards to employees and directors as part of our share-based
compensation program which began in fiscal 2007. The restricted stock unit awards entitle holders
to receive shares of common stock at the end of a specified period of time. Vesting for restricted
stock unit awards 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 vesting
conditions are not met, unvested restricted stock unit awards will be forfeited. Generally, the
restricted stock unit awards vest according to one of the following time-based vesting schedules:
|
|
Restricted stock unit awards 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 to non-employee directors: 100 percent vesting after one
year of continuous service to the Company. |
Certain restricted stock unit awards granted to employees in fiscal 2007 may also 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.
The fair value of restricted stock unit awards 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
12
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 September 30, 2009, the
total unrecognized compensation expense related to restricted stock unit awards granted amounted to
$14.8 million, which is expected to be recognized over a weighted average service period of 2.34
years.
Restricted Stock Unit Activity
The following table summarizes restricted stock unit activity for the six months ended September
30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
Number of |
|
Grant Date |
|
|
Shares |
|
Fair Value(1) |
|
|
|
Unvested at March 31, 2009 |
|
|
690,000 |
|
|
$ |
23.43 |
|
Granted |
|
|
285,000 |
|
|
|
17.90 |
|
Vested(2) |
|
|
(73,000 |
) |
|
|
23.57 |
|
Canceled or forfeited |
|
|
(59,000 |
) |
|
|
23.57 |
|
|
|
|
Unvested at September 30, 2009 |
|
|
843,000 |
|
|
$ |
21.54 |
|
|
|
|
|
|
|
(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 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 restricted stock units vested during the three months ended September 30,
2009 and 2008 was $368,000 and $141,000, respectively, and during the six months ended September
30, 2009 and 2008 was $1.3 million and $1.1 million, respectively. The total grant date fair value
of restricted stock units vested during the three months ended September 30, 2009 and 2008 was
$282,000 and $155,000, respectively, and during the six months ended September 30, 2009 and 2008
was $1.7 million and $1.0 million, respectively.
NOTE 10. 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 and restricted stock units.
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 |
|
Six Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
3,197 |
|
|
$ |
3,297 |
|
|
$ |
6,953 |
|
|
$ |
6,073 |
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic |
|
|
22,005,000 |
|
|
|
21,779,000 |
|
|
|
21,985,000 |
|
|
|
21,757,000 |
|
Weighted average effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
427,000 |
|
|
|
509,000 |
|
|
|
397,000 |
|
|
|
549,000 |
|
Restricted stock units |
|
|
142,000 |
|
|
|
16,000 |
|
|
|
110,000 |
|
|
|
57,000 |
|
|
|
|
|
|
Weighted average common shares outstanding diluted |
|
|
22,574,000 |
|
|
|
22,304,000 |
|
|
|
22,492,000 |
|
|
|
22,363,000 |
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share |
|
$ |
0.15 |
|
|
$ |
0.15 |
|
|
$ |
0.32 |
|
|
$ |
0.28 |
|
|
|
|
|
|
Diluted net income per share |
|
$ |
0.14 |
|
|
$ |
0.15 |
|
|
$ |
0.31 |
|
|
$ |
0.27 |
|
|
|
|
|
|
13
We excluded the following stock options from the computation of diluted weighted average
shares outstanding because the exercise price of the stock options is greater than the average
market price of our common stock during the period and, therefore, the inclusion of these stock
options would be antidilutive to net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Weighted average number of shares underlying antidilutive stock options |
|
|
|
|
|
|
159,000 |
|
|
|
159,000 |
|
|
|
|
|
Weighted average exercise price per share underlying antidilutive stock options |
|
|
N/A |
|
|
$ |
21.65 |
|
|
$ |
21.65 |
|
|
|
N/A |
|
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 |
|
Six Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Weighted average number of shares underlying antidilutive restricted stock units |
|
|
64,000 |
|
|
|
375,000 |
|
|
|
206,000 |
|
|
|
178,000 |
|
NOTE 11. INCOME TAXES
Our effective tax rate for the three months ended September 30, 2009 and 2008 was 39% and 36%,
respectively, and for the six months ended September 30, 2009 and 2008 was 40% and 37%,
respectively.
The increase in the effective tax rate for the three and six months ended September 30, 2009, as
compared to the three and six months ended September 30, 2008, was primarily due to an increase in
non-deductible share-based compensation expense and a change in our investment portfolio, and
partially offset by an increase in federal research and development tax credits and tax benefits
for federal qualified production activities.
We did not have any unrecognized tax benefits as of September 30, 2009 or September 30, 2008.
During the three and six months ended September 30, 2009 and 2008, we did not recognize any
interest or penalties related to unrecognized tax benefits.
NOTE 12. COMPREHENSIVE INCOME
The following is a summary of comprehensive income for the three and six months ended September 30,
2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
|
|
|
Net income |
|
$ |
3,197 |
|
|
$ |
3,297 |
|
|
$ |
6,953 |
|
|
$ |
6,073 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on investments, net of tax |
|
|
8 |
|
|
|
939 |
|
|
|
(3 |
) |
|
|
1,022 |
|
|
|
|
|
|
Comprehensive income |
|
$ |
3,205 |
|
|
$ |
4,236 |
|
|
$ |
6,950 |
|
|
$ |
7,095 |
|
|
|
|
|
|
NOTE 13. 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 by
market and customer group. 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. Assets are not segregated by segments since our chief operating decision maker
does not use assets as a basis to evaluate a segments 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 and walk-in clinics (free-standing or hospital-connected), home
care providers (national, regional or local), nursing homes, ambulance companies, oncology
treatment clinics, hospital labs and draw stations. The products manufactured and sold in this
segment primarily consist of Piccolo chemistry analyzers and medical reagent discs.
14
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 primarily of hematology instruments and hematology reagent kits. Starting
in the fourth quarter of fiscal 2009, OEM supplied products also included coagulation analyzers,
coagulation cartridges and canine heartworm rapid tests. Starting in fiscal 2010, OEM supplied
products also included i-STAT analyzers and cartridges.
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 six months ended September 30, 2009
and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market |
|
$ |
6,345 |
|
|
$ |
6,015 |
|
|
$ |
12,108 |
|
|
$ |
12,544 |
|
Veterinary Market |
|
|
21,684 |
|
|
|
19,945 |
|
|
|
43,507 |
|
|
|
36,558 |
|
Other(1) |
|
|
2,233 |
|
|
|
1,728 |
|
|
|
4,272 |
|
|
|
3,158 |
|
|
|
|
|
|
Total revenues |
|
|
30,262 |
|
|
|
27,688 |
|
|
|
59,887 |
|
|
|
52,260 |
|
|
|
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market |
|
|
2,723 |
|
|
|
2,998 |
|
|
|
5,354 |
|
|
|
6,224 |
|
Veterinary Market |
|
|
8,321 |
|
|
|
8,240 |
|
|
|
17,038 |
|
|
|
15,283 |
|
Other(1) |
|
|
1,367 |
|
|
|
1,108 |
|
|
|
2,489 |
|
|
|
1,908 |
|
|
|
|
|
|
Total cost of revenues |
|
|
12,411 |
|
|
|
12,346 |
|
|
|
24,881 |
|
|
|
23,415 |
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market |
|
|
3,622 |
|
|
|
3,017 |
|
|
|
6,754 |
|
|
|
6,320 |
|
Veterinary Market |
|
|
13,363 |
|
|
|
11,705 |
|
|
|
26,469 |
|
|
|
21,275 |
|
Other(1) |
|
|
866 |
|
|
|
620 |
|
|
|
1,783 |
|
|
|
1,250 |
|
|
|
|
|
|
Gross profit |
|
$ |
17,851 |
|
|
$ |
15,342 |
|
|
$ |
35,006 |
|
|
$ |
28,845 |
|
|
|
|
|
|
|
|
|
(1) |
|
Represents unallocated items, not specifically identified to any particular business segment. |
NOTE 14. REVENUES BY PRODUCT CATEGORY AND GEOGRAPHIC REGION AND SIGNIFICANT CONCENTRATIONS
Revenue Information
The following is a summary of our revenues by product category (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
September 30, |
|
September 30, |
Revenues by Product Category |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
|
Instruments(1) |
|
$ |
6,553 |
|
|
$ |
6,892 |
|
|
$ |
12,830 |
|
|
$ |
14,694 |
|
Consumables(2) |
|
|
20,983 |
|
|
|
18,734 |
|
|
|
41,888 |
|
|
|
33,627 |
|
Other products |
|
|
1,807 |
|
|
|
1,317 |
|
|
|
3,446 |
|
|
|
2,427 |
|
|
|
|
|
|
Product sales, net |
|
|
29,343 |
|
|
|
26,943 |
|
|
|
58,164 |
|
|
|
50,748 |
|
Development and licensing revenue |
|
|
919 |
|
|
|
745 |
|
|
|
1,723 |
|
|
|
1,512 |
|
|
|
|
|
|
Total revenues |
|
$ |
30,262 |
|
|
$ |
27,688 |
|
|
$ |
59,887 |
|
|
$ |
52,260 |
|
|
|
|
|
|
|
|
|
(1) |
|
Instruments include chemistry analyzers, hematology instruments, coagulation analyzers and
i-STAT analyzers. |
|
(2) |
|
Consumables include reagent discs, hematology reagent kits, coagulation cartridges, i-STAT
cartridges and canine heartworm rapid tests. |
15
The following is a summary of revenues by geographic region based on customer location (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
September 30, |
|
September 30, |
Revenues by Geographic Region |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
|
North America |
|
$ |
24,774 |
|
|
$ |
22,413 |
|
|
$ |
48,885 |
|
|
$ |
42,708 |
|
Europe |
|
|
4,454 |
|
|
|
4,410 |
|
|
|
8,849 |
|
|
|
7,795 |
|
Asia Pacific and rest of the world |
|
|
1,034 |
|
|
|
865 |
|
|
|
2,153 |
|
|
|
1,757 |
|
|
|
|
|
|
Total revenues |
|
$ |
30,262 |
|
|
$ |
27,688 |
|
|
$ |
59,887 |
|
|
$ |
52,260 |
|
|
|
|
|
|
Significant Concentrations
Revenues from significant customers as a percentage of total revenues were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
Geographical |
|
September 30, |
|
September 30, |
Distributor |
|
Location |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Walco International, Inc., d/b/a DVM Resources |
|
United States |
|
|
10 |
% |
|
|
11 |
% |
|
|
10 |
% |
|
|
<10 |
% |
During the six months ended September 30, 2008, there were no distributors or direct customers that
accounted for more than 10% of our total worldwide revenues.
At September 30, 2009, one distributor in the United States accounted for 12% of our total accounts
receivable balance. At September 30, 2008, one distributor in the United States accounted for 13%
of our total accounts receivable balance.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
This Managements Discussion and Analysis of Financial Condition and Results of Operations includes
a number of forward-looking statements, which reflect Abaxis 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 include, but are not limited to, the market acceptance
of our products and the continuing development of our products, regulatory clearance and approvals
required by the United States Food and Drug Administration (FDA) and other government regulatory
authorities, risks associated with manufacturing and distributing our products on a commercial
scale, free of defects, risks related to the introduction of new instruments manufactured by third
parties, risks associated with entering the human diagnostic market on a larger scale, risks
related to the protection of Abaxis intellectual property or claims of infringement of
intellectual property asserted by third parties, risks involved in carrying of inventory, risks
associated with the ability to attract, train and retain competent sales personnel, general market
conditions and competition. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. Abaxis assumes no obligation
to update any forward-looking statements as circumstances change.
BUSINESS OVERVIEW
Abaxis, Inc. (Abaxis, us or we) was incorporated in California in 1989. Our principal
offices are located at 3240 Whipple Road, Union City, California 94587. Our telephone number is
(510) 675-6500 and our Internet address is www.abaxis.com. We make available free of charge on or
through our Internet website our annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable
after such material is electronically filed with or furnished to the SEC. Our common stock trades
on the NASDAQ Global Market under the symbol ABAX.
We develop, manufacture, market and sell portable blood analysis systems for use in the human or
veterinary patient-care setting to provide clinicians with rapid blood constituent measurements.
Our primary product is a blood analysis system, consisting of a compact portable analyzer and a
series of single-use plastic discs, called reagent discs, containing all the chemicals required to
perform a panel of up to 14 tests on human patients and 13 tests on veterinary patients. We
manufacture the system in our manufacturing facility in Union City, California and we market our
blood chemistry analyzers in both the medical market and in the veterinary market, as described
below.
|
|
Medical Market: We currently market the blood analysis system in the medical market under
the name Piccolo® xpress. Through October 2006, we marketed the blood analysis
system in the medical market as the Piccolo®, now referred to as the Piccolo
Classic. We continue to support and service our current population of Piccolo xpress and
Piccolo Classic chemistry analyzers. |
16
|
|
Veterinary Market: We currently market the blood analysis system in the veterinary market
under the name VetScan VS2®. Through March 2006, we marketed the blood analysis
system in the veterinary market as the VetScan®, now referred to as the VetScan
Classic. We continue to support and service our current population of VetScan VS2 and VetScan
Classic chemistry analyzers. |
In September 2007, we introduced a veterinary hematology instrument under the name VetScan HM5.
The VetScan HM5 offers a 22-parameter complete blood count (CBC) analysis, including a five-part
differential cell counter specifically designed for veterinary applications. In May 2004, we
introduced a veterinary hematology instrument that offers an 18-parameter CBC analysis, including a
three-part white blood cell differential, marketed originally as the VetScan HMII, and is now
referred to as the VetScan HM2. We currently purchase the hematology instruments from Diatron
Medical Instruments PLC. of Budapest, Hungary. Through April 2004, we marketed a veterinary
hematology instrument under the name VetScan HMT. We continue to support and service our current
population of VetScan HM5, VetScan HM2, VetScan HMII and VetScan HMT hematology instruments. We
also market reagent kits to be used with our hematology instruments which we currently purchase
from three suppliers: Clinical Diagnostic Solutions, Inc., Diatron Medical Instruments PLC. and
Mallinckrodt Baker BV.
In July 2008, our sales office in Darmstadt, Germany was incorporated as Abaxis Europe GmbH to
market, promote and distribute diagnostic systems for medical and veterinary uses. As a result,
Abaxis Europe GmbH became a wholly-owned subsidiary of Abaxis. The subsidiary was formed to
provide customer support in a timely manner in response to the growing and increasingly diverse
services needs of customers in the European market.
In January 2009, we introduced a veterinary coagulation analyzer under the name VetScan VSpro. The
VetScan VSpro assists in the diagnosis and evaluation of suspected bleeding disorders,
toxicity/poisoning, evaluation of Disseminated Intravascular Disease, hepatic disease and
monitoring therapy and progression of disease states. The point-of-care coagulation analyzer is
offered with a combination assay (PT/aPTT test cartridge) for canine testing. We currently
purchase the coagulation analyzers and coagulation cartridges from Scandinavian Micro Biodevices
APS of Farum, Denmark.
In January 2009, we introduced a canine heartworm rapid test under the name VetScan Canine
Heartworm Rapid Test. The VetScan Canine Heartworm Rapid Test is a highly sensitive and specific
test for the detection of Dirofilaria immitis in canine whole blood, serum or plasma. The lateral
flow immunoassay technology in the canine heartworm rapid tests provides immediate results.
In May 2009, we entered into an exclusive license agreement with Abbott Point of Care Inc.,
granting us the right to sell and distribute Abbotts i-STAT® 1 handheld instrument
(i-STAT 1 analyzer) and associated consumables (for blood gas, electrolyte, basic blood chemistry
and immunoassay testing) in the animal health care market worldwide. Our right to sell and
distribute these products is initially non-exclusive, but becomes exclusive in all countries of the
world, except for Japan, on November 1, 2009. Our rights in Japan remain non-exclusive for the
term of the agreement. The initial term of the agreement ends on December 31, 2014, and after this
initial term, our agreement continues automatically for successive one-year periods unless
terminated by either party. We started marketing and sales activities of the i-STAT cartridges in
the first quarter of fiscal 2010. In the second quarter of fiscal 2010, we started marketing and
sales activities of the i-STAT instrument in its current version. We expect to launch an
Abaxis-branded version of the i-STAT 1 instrument as part of our VetScan line in the second half of
fiscal 2010.
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. As a result, product
sales in any quarter are generally dependent on orders booked and shipped in that quarter. Our
expense levels, which are to a large extent fixed, are based in part on our expectations of future
revenues. Accordingly, we may be unable to adjust spending in a timely manner to compensate for
any unexpected revenue shortfall. As a result, any such 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
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 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 SEC. 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.
17
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, 2009.
Revenue Recognition and Deferred Revenue. Our primary customers are distributors and direct
customers in both the medical and veterinary markets. Revenues from product sales, net of
estimated sales allowances and rebates, are recognized when (i) evidence of an arrangement exists,
(ii) upon shipment of the products 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.
We recognize revenue associated with extended maintenance agreements ratably over the life of the
contract. Amounts collected in advance of revenue recognition are recorded as a current or
non-current liability based on the time from the balance sheet date to the future date of revenue
recognition. We provide incentives in the form of free goods or extended maintenance agreements to
customers in connection with the sale of our instruments. Revenues from such sales are allocated
separately to the instruments and incentives based on the relative fair value of each element.
Revenues allocated to incentives are deferred until the goods are shipped to the customer or are
recognized ratably over the life of the maintenance contract.
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
according to the policies described above.
Distributor and Customer Rebates. We offer distributor pricing rebates and customer incentives
from time to time. The distributor pricing rebates are offered to distributors upon meeting the
sales volume requirements during a qualifying period. The distributor pricing rebates 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.
Cash rebates are recorded as a reduction to gross revenues.
Sales and Other Allowances. We estimate a provision for defective reagent discs as part of sales
allowances when we issue credits to customers for defective reagent discs. We also establish, upon
shipment of our products to distributors, a provision for potentially defective reagent discs,
based on estimates derived from historical experience. The provision for potentially defective
reagent discs was recorded in sales allowances, using internal data available to estimate the level
of inventory in the distribution channel, the lag time for customers to report defective reagent
discs and the historical rates of defective reagent discs. Starting on July 1, 2007, the provision
for potentially defective reagent discs is recorded as part of warranty reserves, instead of sales
allowances, since we replace defective reagent discs rather than issue a credit to customers.
Changes in our estimates for accruals related to provisions for defective reagent discs have not
been material to our financial position or results of operations. In the future, the actual
defective reagent discs may exceed our estimates, which could adversely affect our financial
results.
Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts based on our
assessment of the collectability 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 customers 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. On April 1, 2008, we adopted amendments to the accounting standard
addressing the measurement of the fair value of financial assets and financial liabilities. The
amendments provide guidance on defining fair value as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. The amendments establish a fair value hierarchy that distinguishes between (1)
market participant assumptions developed based on market data obtained from independent sources
(observable inputs) and (2) an entitys 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
September 30, 2009, 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.
18
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 September 30, 2009, the fair value of our Level 2
financial assets is based on quoted prices for identical instruments in less active markets or
using other observable market inputs for comparable instruments.
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 managements estimates of market participant assumptions. As of
September 30, 2009, we did not have any Level 3 financial assets or liabilities.
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.
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 two to three years. 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. 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 historical experience, estimated product failure rates, material usage and freight
incurred in repairing the instrument after failure and known design changes.
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.
We 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 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.
Inventories. We state inventories at the lower of cost or market, cost being determined using
standard costs which approximates 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.
Valuation of Long-Lived Assets. The carrying value of our long-lived assets, such as property and
equipment and amortized intangible assets, are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be recoverable, in
accordance with guidance on the accounting for impairment or disposal of long-lived assets. 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.
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 to be
recovered.
On April 1, 2007, we adopted amendments to the accounting standard addressing the provisions of
accounting for uncertainty in income taxes. The amendments provide guidance on the accounting for
uncertainty in income taxes recognized in the consolidated financial statements and prescribe a
recognition threshold and measurement attribute for the financial statement recognition and
measurement of tax positions taken or expected to be taken in a tax return. The amendments also
provide guidance on derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. Our policy to include interest and penalties related to gross
unrecognized tax benefits within our provision for income taxes did not change despite the adoption
of these amendments.
19
Share-Based Compensation Expense. On April 1, 2006, we adopted the amendments to the accounting
standard addressing the fair value provisions of share-based payment. We recognize share-based
compensation expense, net of an estimated forfeiture rate, over the requisite service period of the
award to employees and directors.
We did not grant stock options during fiscal 2007, 2008 or 2009, or during the six months ended
September 30, 2009. For stock options granted prior to March 31, 2006, we use the Black-Scholes
option pricing model to determine the fair value. Determining the appropriate fair value model and
calculating the fair value of share-based awards requires highly subjective assumptions, as
described below.
|
|
Risk-free interest rate: The risk-free interest rate is based on U.S. Treasury yields in
effect at the time of grant for the expected term of the option. |
|
|
Expected stock price volatility: We estimate the volatility of our common stock at the
date of grant based on the historical volatility of our common stock. |
|
|
Expected term: We estimate the expected term of stock options granted based on historical
exercise and post-vesting termination patterns, which we believe are representative of future
behavior. |
|
|
Expected dividends: We have not paid cash dividends on our common stock and we do not
anticipate paying cash dividends in the foreseeable future; consequently, we use an expected
dividend yield of zero. |
For restricted stock units, the assumptions to calculate compensation expense is based on the fair
value of our stock at the grant date. As a result, if factors change and we use different
assumptions, our share-based compensation expense could be materially different in the future.
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.
RESULTS OF OPERATIONS
We develop, manufacture, market and sell portable blood analysis systems for use in the human or
veterinary patient-care setting to provide clinicians with rapid blood constituent measurements.
We operate in two segments: (i) the medical market and (ii) the veterinary market. See Segment
Results in this section for a detailed discussion.
20
Total Revenues
Revenues by Geographic Region and by Product Category. Revenues by geographic region based on
customer location and revenues by product category during the three and six months ended September
30, 2009 and 2008 were as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
September 30, |
|
Change |
|
September 30, |
|
Change |
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
Percent |
|
|
|
|
|
|
|
|
|
Increase/ |
|
Percent |
Revenues by Geographic Region |
|
2009 |
|
2008 |
|
(Decrease) |
|
Change |
|
2009 |
|
2008 |
|
(Decrease) |
|
Change |
|
|
|
North America |
|
$ |
24,774 |
|
|
$ |
22,413 |
|
|
$ |
2,361 |
|
|
|
11 |
% |
|
$ |
48,885 |
|
|
$ |
42,708 |
|
|
$ |
6,177 |
|
|
|
14 |
% |
Percentage of total revenues |
|
|
82 |
% |
|
|
81 |
% |
|
|
|
|
|
|
|
|
|
|
82 |
% |
|
|
82 |
% |
|
|
|
|
|
|
|
|
Europe |
|
|
4,454 |
|
|
|
4,410 |
|
|
|
44 |
|
|
|
1 |
% |
|
|
8,849 |
|
|
|
7,795 |
|
|
|
1,054 |
|
|
|
14 |
% |
Percentage of total revenues |
|
|
15 |
% |
|
|
16 |
% |
|
|
|
|
|
|
|
|
|
|
15 |
% |
|
|
15 |
% |
|
|
|
|
|
|
|
|
Asia Pacific and rest of the world |
|
|
1,034 |
|
|
|
865 |
|
|
|
169 |
|
|
|
20 |
% |
|
|
2,153 |
|
|
|
1,757 |
|
|
|
396 |
|
|
|
23 |
% |
Percentage of total revenues |
|
|
3 |
% |
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
3 |
% |
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
30,262 |
|
|
$ |
27,688 |
|
|
$ |
2,574 |
|
|
|
9 |
% |
|
$ |
59,887 |
|
|
$ |
52,260 |
|
|
$ |
7,627 |
|
|
|
15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
September 30, |
|
Change |
|
September 30, |
|
Change |
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
Percent |
|
|
|
|
|
|
|
|
|
Increase/ |
|
Percent |
Revenues by Product Category |
|
2009 |
|
2008 |
|
(Decrease) |
|
Change |
|
2009 |
|
2008 |
|
(Decrease) |
|
Change |
|
|
|
Instruments(1) |
|
$ |
6,553 |
|
|
$ |
6,892 |
|
|
$ |
(339 |
) |
|
|
(5 |
%) |
|
$ |
12,830 |
|
|
$ |
14,694 |
|
|
$ |
(1,864 |
) |
|
|
(13 |
%) |
Percentage of total revenues |
|
|
22 |
% |
|
|
25 |
% |
|
|
|
|
|
|
|
|
|
|
21 |
% |
|
|
28 |
% |
|
|
|
|
|
|
|
|
Consumables(2) |
|
|
20,983 |
|
|
|
18,734 |
|
|
|
2,249 |
|
|
|
12 |
% |
|
|
41,888 |
|
|
|
33,627 |
|
|
|
8,261 |
|
|
|
25 |
% |
Percentage of total revenues |
|
|
69 |
% |
|
|
68 |
% |
|
|
|
|
|
|
|
|
|
|
70 |
% |
|
|
64 |
% |
|
|
|
|
|
|
|
|
Other products |
|
|
1,807 |
|
|
|
1,317 |
|
|
|
490 |
|
|
|
37 |
% |
|
|
3,446 |
|
|
|
2,427 |
|
|
|
1,019 |
|
|
|
42 |
% |
Percentage of total revenues |
|
|
6 |
% |
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
6 |
% |
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales, net |
|
|
29,343 |
|
|
|
26,943 |
|
|
|
2,400 |
|
|
|
9 |
% |
|
|
58,164 |
|
|
|
50,748 |
|
|
|
7,416 |
|
|
|
15 |
% |
Percentage of total revenues |
|
|
97 |
% |
|
|
97 |
% |
|
|
|
|
|
|
|
|
|
|
97 |
% |
|
|
97 |
% |
|
|
|
|
|
|
|
|
Development and licensing revenue |
|
|
919 |
|
|
|
745 |
|
|
|
174 |
|
|
|
23 |
% |
|
|
1,723 |
|
|
|
1,512 |
|
|
|
211 |
|
|
|
14 |
% |
Percentage of total revenues |
|
|
3 |
% |
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
3 |
% |
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
30,262 |
|
|
$ |
27,688 |
|
|
$ |
2,574 |
|
|
|
9 |
% |
|
$ |
59,887 |
|
|
$ |
52,260 |
|
|
$ |
7,627 |
|
|
|
15 |
% |
|
|
|
|
|
|
|
|
(1) |
|
Instruments include chemistry analyzers, hematology instruments, coagulation analyzers and
i-STAT analyzers. |
|
(2) |
|
Consumables include reagent discs, hematology reagent kits, coagulation cartridges, i-STAT
cartridges and canine heartworm rapid tests. |
Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008
North America. During the three months ended September 30, 2009, total revenues in North
America increased 11%, or $2.4 million, as compared to the three months ended September 30, 2008.
The increase in total revenues in North America was attributed to the following:
|
|
Medical reagent discs sales in North America (excluding the U.S. government) increased 9%,
or $270,000, primarily due to an increase in units sold resulting from an expanded installed
base of our Piccolo chemistry analyzers. |
|
|
Veterinary reagent discs sales in North America increased 9%, or $884,000, primarily due to
higher average selling prices. |
|
|
Total sales from our original equipment manufacturing (OEM) supplied products, which
include our (a) VetScan VSpro coagulation analyzers and related consumables, which we launched
in our fourth quarter of fiscal 2009, (b) i-STAT analyzers and related consumables, which we
launched in our fiscal 2010, and (c) canine heartworm rapid tests, which we launched in our
fourth quarter of fiscal 2009, were $1.5 million in North America during the three months
ended September 30, 2009. |
|
|
Revenues from other products in North America increased 37%, or $455,000. The net increase
was primarily due to (a) a decrease in maintenance contracts offered to customers from time to
time as incentives in the form of free goods in connection with the sale of our products, for
which revenue is deferred and recognized ratably over the life of the maintenance contract and
(b) an increase in demand for products using the Orbos® Discrete Lyophilization
Process, which is strongly affected by seasonal demands. |
|
|
Revenues from development and licensing in North America increased 23%, or $174,000,
primarily due to royalties from a licensing agreement related to our proprietary technology,
the Orbos Discrete Lyophilization Process. |
The net increase in total revenues in North America was partially offset by the following:
|
|
Sales of our Piccolo chemistry analyzers in North America (excluding the U.S. government)
decreased 35%, or $483,000,
primarily due to inventory stock adjustments by distributors during the three months ended
September 30, 2009. |
21
|
|
Sales of our VetScan chemistry analyzers in North America decreased 19%, or $427,000,
primarily due to unfavorable economic conditions and the resulting impact of reduced capital
spending at the veterinary clinic level as a result of the reduced availability of credit to
customers. |
Europe. During the three months ended September 30, 2009, total revenues in Europe
increased 1%, or $44,000, as compared to the three months ended September 30, 2008. The increase
in total revenues in Europe was attributed to the following:
|
|
Medical reagent discs sales in Europe increased 154%, or $407,000, primarily due to an
increase in units sold to two distributors, which is based on the timing of inventory
purchases during the three months ended September 30, 2009. |
|
|
Sales of our VetScan chemistry analyzers in Europe increased 58%, or $297,000, primarily
due to the timing of inventory purchases by a distributor during the three months ended
September 30, 2009. |
|
|
Total sales of our VetScan hematology instruments and hematology reagent kits in Europe
increased 35%, or $70,000, during the three months ended September 30, 2009. |
The net increase in total revenues in Europe was partially offset by a decrease in veterinary
reagent discs sold in Europe of 27%, or $835,000, primarily due to the timing of inventory
purchases by a distributor during the three months ended September 30, 2008.
Significant concentration. One distributor in the United States, DVM Resources, accounted for 10%
and 11% of our total worldwide revenues during the three months ended September 30, 2009 and 2008,
respectively.
Six Months Ended September 30, 2009 Compared to Six Months Ended September 30, 2008
North America. During the six months ended September 30, 2009, total revenues in North
America increased 14%, or $6.2 million, as compared to the six months ended September 30, 2008.
The increase in total revenues in North America was attributed to the following:
|
|
Medical reagent discs sales in North America (excluding the U.S. government) increased 10%,
or $573,000, primarily due to an increase in units sold resulting from an expanded installed
base of our Piccolo chemistry analyzers. |
|
|
Veterinary reagent discs sales in North America increased 23%, or $4.3 million, primarily
due to an increase in units sold resulting from an expanded installed base of our VetScan
chemistry analyzers. |
|
|
Sales of our hematology reagent kits in North America increased 24%, or $474,000, primarily
due to an increase in units sold resulting from an expanded installed base of our VetScan
hematology instruments. |
|
|
Total sales from our OEM supplied products, which include our (a) VetScan VSpro coagulation
analyzers and related consumables, which we launched in our fourth quarter of fiscal 2009, (b)
i-STAT analyzers and related consumables, which we launched in our fiscal 2010, and (c) canine
heartworm rapid tests, which we launched in our fourth quarter of fiscal 2009, were $3.0
million in North America during the six months ended September 30, 2009. |
|
|
Revenues from other products sold in North America increased 39%, or $901,000. The net
increase was primarily due to (a) a decrease in maintenance contracts offered to customers
from time to time as incentives in the form of free goods in connection with the sale of our
products, for which revenue is deferred and recognized ratably over the life of the
maintenance contract and (b) an increase in demand for products using the Orbos Discrete
Lyophilization Process, which is strongly affected by seasonal demands. |
The net increase in total revenues in North America was partially offset by the following:
|
|
Sales of our Piccolo chemistry analyzers in North America (excluding the U.S. government)
decreased 49%, or $1.5 million, primarily due to inventory stock adjustments by distributors
during the six months ended September 30, 2009. |
|
|
Sales of our VetScan chemistry analyzers in North America decreased 27%, or $1.3 million,
primarily due to unfavorable economic conditions and the resulting impact of reduced capital
spending at the veterinary clinic level as a result of the reduced availability of credit to
customers. |
|
|
Sales of our hematology instruments in North America decreased 10%, or $311,000, primarily
due to unfavorable economic conditions and the resulting impact of reduced capital spending at
the veterinary clinic level as a result of the reduced availability of credit to customers. |
22
Europe. During the six months ended September 30, 2009, total revenues in Europe increased
14%, or $1.1 million, as compared to the six months ended September 30, 2008. The increase in
total revenues in Europe was attributed to the following:
|
|
Medical reagent discs sales in Europe increased 70%, or $456,000, primarily due to an
increase in units sold to two distributors, which is based on the timing of inventory
purchases during the six months ended September 30, 2009. |
|
|
Sales of our VetScan chemistry analyzers in Europe increased 29%, or $375,000, primarily
due to the timing of inventory purchases by a distributor during the six months ended
September 30, 2009. |
|
|
Total sales our VetScan hematology instruments and hematology reagent kits in Europe
increased 51%, or $190,000, during the six months ended September 30, 2009. |
The net increase in total revenues in Europe was partially offset by a decrease in veterinary
reagent discs sold in Europe of 3%, or $147,000, primarily due to the timing of inventory purchases
by a distributor during the six months ended September 30, 2008.
Significant concentration. One distributor in the United States, DVM Resources, accounted for 10%
of our total worldwide revenues during the six months ended September 30, 2009. There were no
distributors or direct customers that accounted for more than 10% of our total worldwide revenues
during the six months ended September 30, 2008.
Segment Results
Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008
The following table presents revenues, cost of revenues, gross profit and percent of revenues by
operating segments for the three months ended September 30, 2009 and 2008 (in thousands, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, |
|
|
Change |
|
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
|
Increase/ |
|
|
Percent |
|
|
|
2009 |
|
|
Revenues(1) |
|
|
2008 |
|
|
Revenues(1) |
|
|
(Decrease) |
|
|
Change |
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market |
|
$ |
6,345 |
|
|
|
100 |
% |
|
$ |
6,015 |
|
|
|
100 |
% |
|
$ |
330 |
|
|
|
5 |
% |
Percentage of total revenues |
|
|
21 |
% |
|
|
|
|
|
|
22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Veterinary Market |
|
|
21,684 |
|
|
|
100 |
% |
|
|
19,945 |
|
|
|
100 |
% |
|
|
1,739 |
|
|
|
9 |
% |
Percentage of total revenues |
|
|
72 |
% |
|
|
|
|
|
|
72 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Other(2) |
|
|
2,233 |
|
|
|
|
|
|
|
1,728 |
|
|
|
|
|
|
|
505 |
|
|
|
29 |
% |
Percentage of total revenues |
|
|
7 |
% |
|
|
|
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
30,262 |
|
|
|
|
|
|
|
27,688 |
|
|
|
|
|
|
|
2,574 |
|
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market |
|
|
2,723 |
|
|
|
43 |
% |
|
|
2,998 |
|
|
|
50 |
% |
|
|
(275 |
) |
|
|
(9 |
%) |
Veterinary Market |
|
|
8,321 |
|
|
|
38 |
% |
|
|
8,240 |
|
|
|
41 |
% |
|
|
81 |
|
|
|
1 |
% |
Other(2) |
|
|
1,367 |
|
|
|
|
|
|
|
1,108 |
|
|
|
|
|
|
|
259 |
|
|
|
23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
|
12,411 |
|
|
|
|
|
|
|
12,346 |
|
|
|
|
|
|
|
65 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market |
|
|
3,622 |
|
|
|
57 |
% |
|
|
3,017 |
|
|
|
50 |
% |
|
|
605 |
|
|
|
20 |
% |
Veterinary Market |
|
|
13,363 |
|
|
|
62 |
% |
|
|
11,705 |
|
|
|
59 |
% |
|
|
1,658 |
|
|
|
14 |
% |
Other(2) |
|
|
866 |
|
|
|
|
|
|
|
620 |
|
|
|
|
|
|
|
246 |
|
|
|
40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
$ |
17,851 |
|
|
|
|
|
|
$ |
15,342 |
|
|
|
|
|
|
$ |
2,509 |
|
|
|
16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The percentages reported are based on our revenues by operating segment.
|
|
(2) |
|
Represents unallocated items, not specifically identified to any particular business segment. |
Medical Market
Revenues for Medical Market Segment
During the three months ended September 30, 2009, total revenues in the medical market increased
5%, or $330,000, as compared to
the three months ended September 30, 2008. Components of the change were as follows:
Instruments. Total revenues from sales of our Piccolo chemistry analyzers decreased 20%, or
$420,000, during the three months ended September 30, 2009, as compared to the three months ended
September 30, 2008. The changes were primarily attributed to a
23
decrease in revenues in North
America (excluding the U.S. government) of 35%, or $483,000, primarily due to inventory stock
adjustments by distributors during the three months ended September 30, 2009.
Consumables. Total revenues from medical reagent discs increased 17%, or $661,000, during the
three months ended September 30, 2009, as compared to the three months ended September 30, 2008.
The increase in revenues from medical reagent discs was primarily attributed to (a) an increase in
revenues in North America (excluding the U.S. government) of 9%, or $270,000, primarily due to an
increase in units sold resulting from an expanded installed base of our Piccolo chemistry
analyzers, and (b) an increase in revenues in Europe of 154%, or $407,000, primarily due to an
increase in units sold to two distributors, which is based on the timing of inventory purchases
during the three months ended September 30, 2009.
Gross Profit for Medical Market Segment
Gross profit for the medical market segment increased 20%, or $605,000, during the three months
ended September 30, 2009, as compared to the three months ended September 30, 2008. Gross profit
percentages for the medical market segment during the three months ended September 30, 2009 and
2008 were 57% and 50%, respectively. In absolute dollars, the increase in gross profit for the
medical market segment was primarily due to (a) an increase in units of medical reagent discs sold
during the three months ended September 30, 2009 and (b) lower manufacturing costs on Piccolo
chemistry analyzers during the three months ended September 30, 2009.
Veterinary Market
Revenues for Veterinary Market Segment
During the three months ended September 30, 2009, total revenues in the veterinary market increased
9%, or $1.7 million, as compared to the three months ended September 30, 2008. Total revenues from
veterinary instruments sold increased 2%, or $81,000, during the three months ended September 30,
2009, as compared to the three months ended September 30, 2008. Total revenues from consumables in
the veterinary market increased 11%, or $1.6 million, during the three months ended September 30,
2009, as compared to the three months ended September 30, 2008. Components of the change were as
follows:
|
|
Sales of our VetScan chemistry analyzers decreased 6%, or $170,000, during the three months
ended September 30, 2009, as compared to the three months ended September 30, 2008. The
decrease in revenues was primarily attributed to a decrease in revenues in North America of
19%, or $427,000, primarily due to unfavorable economic conditions and the resulting impact of
reduced capital spending at the veterinary clinic level as a result of the reduced
availability of credit to customers, and partially offset by an increase in revenues in Europe
of 58%, or $297,000, primarily due to the timing of inventory purchases by a distributor
during the three months ended September 30, 2009. |
|
|
Total revenues from veterinary reagent discs increased 1%, or $116,000, during the three
months ended September 30, 2009, as compared to the three months ended September 30, 2008.
The increase in revenues was primarily attributed to an increase in revenues in North America
of 9%, or $884,000, primarily due to higher average selling prices, and partially offset by a
decrease in revenues in Europe of 27%, or $835,000, primarily due to the timing of inventory
purchases by a distributor during the three months ended September 30, 2008. |
|
|
Total sales from our OEM supplied products, which include our (a) VetScan VSpro coagulation
analyzers and related consumables, which we launched in our fourth quarter of fiscal 2009, (b)
i-STAT analyzers and related consumables, which we launched in our fiscal 2010, and (c) canine
heartworm rapid tests, which we launched in our fourth quarter of fiscal 2009, were $1.6
million during the three months ended September 30, 2009, primarily in North America. |
Gross Profit for Veterinary Market Segment
Gross profit for the veterinary market segment increased 14%, or $1.7 million, during the three
months ended September 30, 2009, as compared to the three months ended September 30, 2008. Gross
profit percentages for the veterinary market segment during the three months ended September 30,
2009 and 2008 were 62% and 59%, respectively. In absolute dollars, the increase in gross profit
for the veterinary market segment was primarily due to (a) an increase in units of hematology
reagent kits sold during the three months ended September 30, 2009, (b) higher average selling
prices of veterinary reagent discs sold during the three months ended September 30, 2009, and (c)
lower manufacturing costs on VetScan chemistry analyzers and veterinary reagent discs sold during
the three months ended September 30, 2009. The increase was partially offset by a decrease in
units of veterinary reagent discs sold during the three months ended September 30, 2009.
24
Six Months Ended September 30, 2009 Compared to Six Months Ended September 30, 2008
The
following table presents revenues, cost of revenues, gross profit and
percent of revenues by operating segments for the six months ended
September 30, 2009 and 2008 (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
September 30, |
|
|
Change |
|
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
|
Increase/ |
|
|
Percent |
|
|
|
2009 |
|
|
Revenues(1) |
|
|
2008 |
|
|
Revenues(1) |
|
|
(Decrease) |
|
|
Change |
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market |
|
$ |
12,108 |
|
|
|
100 |
% |
|
$ |
12,544 |
|
|
|
100 |
% |
|
$ |
(436 |
) |
|
|
(3 |
%) |
Percentage of total revenues |
|
|
20 |
% |
|
|
|
|
|
|
24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Veterinary Market |
|
|
43,507 |
|
|
|
100 |
% |
|
|
36,558 |
|
|
|
100 |
% |
|
|
6,949 |
|
|
|
19 |
% |
Percentage of total revenues |
|
|
73 |
% |
|
|
|
|
|
|
70 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Other(2) |
|
|
4,272 |
|
|
|
|
|
|
|
3,158 |
|
|
|
|
|
|
|
1,114 |
|
|
|
35 |
% |
Percentage of total revenues |
|
|
7 |
% |
|
|
|
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
59,887 |
|
|
|
|
|
|
|
52,260 |
|
|
|
|
|
|
|
7,627 |
|
|
|
15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market |
|
|
5,354 |
|
|
|
44 |
% |
|
|
6,224 |
|
|
|
50 |
% |
|
|
(870 |
) |
|
|
(14 |
%) |
Veterinary Market |
|
|
17,038 |
|
|
|
39 |
% |
|
|
15,283 |
|
|
|
42 |
% |
|
|
1,755 |
|
|
|
11 |
% |
Other(2) |
|
|
2,489 |
|
|
|
|
|
|
|
1,908 |
|
|
|
|
|
|
|
581 |
|
|
|
30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
|
24,881 |
|
|
|
|
|
|
|
23,415 |
|
|
|
|
|
|
|
1,466 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market |
|
|
6,754 |
|
|
|
56 |
% |
|
|
6,320 |
|
|
|
50 |
% |
|
|
434 |
|
|
|
7 |
% |
Veterinary Market |
|
|
26,469 |
|
|
|
61 |
% |
|
|
21,275 |
|
|
|
58 |
% |
|
|
5,194 |
|
|
|
24 |
% |
Other(2) |
|
|
1,783 |
|
|
|
|
|
|
|
1,250 |
|
|
|
|
|
|
|
533 |
|
|
|
43 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
$ |
35,006 |
|
|
|
|
|
|
$ |
28,845 |
|
|
|
|
|
|
$ |
6,161 |
|
|
|
21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The percentages reported are based on our revenues by operating segment. |
|
(2) |
|
Represents unallocated items, not specifically identified to any particular business segment. |
Medical Market
Revenues for Medical Market Segment
During the six months ended September 30, 2009, total revenues in the medical market decreased 3%,
or $436,000, as compared to the six months ended September 30, 2008. Components of the change were
as follows:
Instruments. Total revenues from sales of our Piccolo chemistry analyzers decreased 30%, or $1.4
million, during the six months ended September 30, 2009, as compared to the six months ended
September 30, 2008. The changes were primarily attributed to a decrease in revenues in North
America (excluding the U.S. government) of 49%, or $1.5 million, primarily due to inventory stock
adjustments by distributors during the six months ended September 30, 2009.
Consumables. Total revenues from medical reagent discs increased 13%, or $952,000, during the six
months ended September 30, 2009, as compared to the six months ended September 30, 2008. The
increase in revenues from medical reagent discs was primarily attributed to (a) an increase in
revenues in North America (excluding the U.S. government) of 10%, or $573,000, primarily due to an
increase in units sold resulting from an expanded installed base of our Piccolo chemistry
analyzers, and (b) an increase in revenues in Europe of 70%, or $456,000, primarily due to an
increase in units sold to two distributors, which is based on the timing of inventory purchases
during the six months ended September 30, 2009.
Gross Profit for Medical Market Segment
Gross profit for the medical market segment increased 7%, or $434,000, during the six months ended
September 30, 2009, as compared to the six months ended September 30, 2008. Gross profit
percentages for the medical market segment during the six months ended September 30, 2009 and 2008
were 56% and 50%, respectively. In absolute dollars, the increase in gross profit for the medical
market segment was primarily due to (a) an increase in units of medical reagent discs sold during
the six months ended September 30, 2009 and (b) lower manufacturing costs on Piccolo chemistry
analyzers during the six months ended September 30, 2009. The increase was partially offset by a
decrease in units of Piccolo chemistry analyzers sold during the six months ended September 30,
2009.
25
Veterinary Market
Revenues for Veterinary Market Segment
During the six months ended September 30, 2009, total revenues in the veterinary market increased
19%, or $6.9 million, as compared to the six months ended September 30, 2008. Total revenues from
veterinary instruments sold decreased 4%, or $447,000, during the six months ended September 30,
2009, as compared to the six months ended September 30, 2008. Total revenues from consumables in
the veterinary market increased 28%, or $7.3 million, during the six months ended September 30,
2009, as compared to the six months ended September 30, 2008. Components of the change were as
follows:
|
|
Sales of our VetScan chemistry analyzers decreased 14%, or $851,000, during the six months
ended September 30, 2009, as compared to the six months ended September 30, 2008. The
decrease in revenues was primarily attributed to a decrease in revenues in North America of
27%, or $1.3 million, primarily due to unfavorable economic conditions and the resulting
impact of reduced capital spending at the veterinary clinic level as a result of the reduced
availability of credit to customers, and partially offset by an increase in revenues in Europe
of 29%, or $375,000, primarily due to the timing of inventory purchases by a distributor
during the six months ended September 30, 2009. |
|
|
Total revenues from veterinary reagent discs increased 18%, or $4.2 million, during the six
months ended September 30, 2009, as compared to the six months ended September 30, 2008. The
increase in revenues was primarily attributed to an increase in revenues in North America of
23%, or $4.3 million, primarily due to an increase in units sold resulting from an expanded
installed base of our VetScan chemistry analyzers, and partially offset by a decrease in
revenues in Europe of 3%, or $147,000, primarily due to the timing of inventory purchases by a
distributor during the six months ended September 30, 2008. |
|
|
Total sales from our OEM supplied products, which include our (a) VetScan VSpro coagulation
analyzers and related consumables, which we launched in our fourth quarter of fiscal 2009, (b)
i-STAT analyzers and related consumables, which we launched in our fiscal 2010, and (c) canine
heartworm rapid tests, which we launched in our fourth quarter of fiscal 2009, were $3.1
million during the six months ended September 30, 2009, primarily in North America. |
Gross Profit for Veterinary Market Segment
Gross profit for the veterinary market segment increased 24%, or $5.2 million, during the six
months ended September 30, 2009, as compared to the six months ended September 30, 2008. Gross
profit percentages for the veterinary market segment during the six months ended September 30, 2009
and 2008 were 61% and 58%, respectively. In absolute dollars, the increase in gross profit for the
veterinary market segment was primarily due to (a) an increase in units of veterinary reagent discs
and hematology reagent kits sold during the six months ended September 30, 2009, (b) higher average
selling prices of veterinary reagent discs sold during the six months ended September 30, 2009, and
(c) lower manufacturing costs on VetScan chemistry analyzers and veterinary reagent discs sold
during the six months ended September 30, 2009.
Cost of Revenues
The following sets forth, our cost of revenues for the periods indicated (in thousands, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
September 30, |
|
Change |
|
September 30, |
|
Change |
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
Percent |
|
|
|
|
|
|
|
|
|
Increase/ |
|
Percent |
|
|
2009 |
|
2008 |
|
(Decrease) |
|
Change |
|
2009 |
|
2008 |
|
(Decrease) |
|
Change |
|
|
|
|
|
Cost of revenues |
|
$ |
12,411 |
|
|
$ |
12,346 |
|
|
$ |
65 |
|
|
|
1 |
% |
|
$ |
24,881 |
|
|
$ |
23,415 |
|
|
$ |
1,466 |
|
|
|
6 |
% |
Percentage of total revenues |
|
|
41 |
% |
|
|
45 |
% |
|
|
|
|
|
|
|
|
|
|
42 |
% |
|
|
45 |
% |
|
|
|
|
|
|
|
|
Cost of revenues includes the 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.
Three and Six Months Ended September 30, 2009 Compared to Three and Six Months Ended September 30,
2008
The increase in cost of revenues, in absolute dollars, during the three months ended September 30,
2009, as compared to the three months ended September 30, 2008, was primarily due to sales from our
OEM supplied products, which include our (a) VetScan VSpro coagulation analyzers and related
consumables, which we launched in our fourth quarter of fiscal 2009, (b) i-STAT analyzers and
related consumables, which we launched in our fiscal 2010, and (c) canine heartworm rapid tests,
which we launched in our fourth quarter of fiscal 2009. The increase in cost of revenues was
partially offset by (a) lower manufacturing costs on Piccolo chemistry analyzers, VetScan chemistry
analyzers and veterinary reagent discs sold during the three months ended September 30, 2009 and
(b) a decrease in the units of veterinary reagent discs sold during the three months ended
September 30, 2009. As a percentage of total revenues, the decrease in cost of revenues during the
three months ended September 30, 2009, as compared to the three months ended September 30, 2008,
was primarily due to higher average selling prices of veterinary reagent discs sold during the
three months ended September 30, 2009.
26
The increase in cost of revenues, in absolute dollars, during the six months ended September 30,
2009, as compared to the six months ended September 30, 2008, was primarily due to sales from our
OEM supplied products, which include our (a) VetScan VSpro coagulation analyzers and related
consumables, which we launched in our fourth quarter of fiscal 2009, (b) i-STAT analyzers and
related consumables, which we launched in our fiscal 2010, and (c) canine heartworm rapid tests,
which we launched in our fourth quarter of fiscal 2009. The increase in cost of revenues was
partially offset by (a) lower manufacturing costs on Piccolo chemistry analyzers, VetScan chemistry
analyzers and veterinary reagent discs sold during the six months ended September 30, 2009 and (b)
a decrease in Piccolo chemistry analyzers sold during the six months ended September 30, 2009. As
a percentage of total revenues, the decrease in cost of revenues during the six months ended
September 30, 2009, as compared to the six months ended September 30, 2008, was primarily due to
higher average selling prices of veterinary reagent discs sold during the six months ended
September 30, 2009.
Gross Profit
The following sets forth, our gross profit for the periods indicated (in thousands, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
September 30, |
|
Change |
|
September 30, |
|
Change |
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
Percent |
|
|
|
|
|
|
|
|
|
Increase/ |
|
Percent |
|
|
2009 |
|
2008 |
|
(Decrease) |
|
Change |
|
2009 |
|
2008 |
|
(Decrease) |
|
Change |
|
|
|
|
|
Total gross profit |
|
$ |
17,851 |
|
|
$ |
15,342 |
|
|
$ |
2,509 |
|
|
|
16 |
% |
|
$ |
35,006 |
|
|
$ |
28,845 |
|
|
$ |
6,161 |
|
|
|
21 |
% |
Total gross margin |
|
|
59 |
% |
|
|
55 |
% |
|
|
|
|
|
|
|
|
|
|
58 |
% |
|
|
55 |
% |
|
|
|
|
|
|
|
|
Three and Six Months Ended September 30, 2009 Compared to Three and Six Months Ended September 30,
2008
The increase in gross profit, in absolute dollars, during the three months ended September 30,
2009, as compared to the three months ended September 30, 2008, was primarily due to (a) an
increase in medical reagent discs sold during the three months ended September 30, 2009, (b) higher
average selling prices of veterinary reagent discs sold during the three months ended September 30,
2009, (c) an increase in hematology reagent kits sold during the three months ended September 30,
2009, and (d) lower manufacturing costs on Piccolo chemistry analyzers, VetScan chemistry analyzers
and veterinary reagent discs sold during the three months ended September 30, 2009. The increase
was partially offset by a decrease in veterinary reagent discs sold during the three months ended
September 30, 2009. As a percentage, the increase in gross margin during the three months ended
September 30, 2009, as compared to the three months ended September 30, 2008, was primarily due to
higher average selling prices of veterinary reagent discs sold during the three months ended
September 30, 2009.
The increase in gross profit, in absolute dollars, during the six months ended September 30, 2009,
as compared to the six months ended September 30, 2008, was primarily due to (a) an increase in
medical reagent discs sold during the six months ended September 30, 2009, (b) higher average
selling prices of veterinary reagent discs sold during the six months ended September 30, 2009, (c)
an increase in veterinary reagent discs and hematology reagent kits sold during the six months
ended September 30, 2009, and (d) lower manufacturing costs on Piccolo chemistry analyzers, VetScan
chemistry analyzers and veterinary reagent discs sold during the six months ended September 30,
2009. The increase was partially offset by a decrease in Piccolo chemistry analyzers sold during
the six months ended September 30, 2009. As a percentage, the increase in gross margin during the
six months ended September 30, 2009, as compared to the six months ended September 30, 2008, was
primarily due to higher average selling prices of veterinary reagent discs sold during the six
months ended September 30, 2009.
Operating Expenses
Research and Development
The following sets forth, our research and development expenses for the periods indicated (in
thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
September 30, |
|
Change |
|
September 30, |
|
Change |
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
Percent |
|
|
|
|
|
|
|
|
|
Increase/ |
|
Percent |
|
|
2009 |
|
2008 |
|
(Decrease) |
|
Change |
|
2009 |
|
2008 |
|
(Decrease) |
|
Change |
|
|
|
|
|
Research and development
expenses |
|
$ |
2,594 |
|
|
$ |
2,082 |
|
|
$ |
512 |
|
|
|
25 |
% |
|
$ |
5,167 |
|
|
$ |
4,079 |
|
|
$ |
1,088 |
|
|
|
27 |
% |
Percentage of total revenues |
|
|
9 |
% |
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
9 |
% |
|
|
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 enhancement of existing products.
27
Three and Six Months Ended September 30, 2009 Compared to Three and Six Months Ended September 30,
2008
The increase in research and development expenses, in absolute dollars, during the three and six
months ended September 30, 2009, as compared to the three and six months ended September 30, 2008,
was primarily due to new product development and enhancement of existing products and clinical
trials. Research and development expenses are based on the project activities planned and the
level of spending depends on budgeted expenditures. The projects primarily relate to new product
development in both the medical and veterinary markets and costs related to compliance with FDA
regulations and clinical trials. Share-based compensation expense during the three months ended
September 30, 2009 and 2008 was $214,000 and $53,000, respectively, and during the six months ended
September 30, 2009 and 2008 was $354,000 and $114,000, respectively.
We anticipate the dollar amount of research and development expenses to increase in fiscal 2010
from fiscal 2009 but remain consistent as a percentage of total revenues, as we complete 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.
Sales and Marketing
The following sets forth, our sales and marketing expenses for the periods indicated (in thousands,
except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
September 30, |
|
Change |
|
September 30, |
|
Change |
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
Percent |
|
|
|
|
|
|
|
|
|
Increase/ |
|
Percent |
|
|
2009 |
|
2008 |
|
(Decrease) |
|
Change |
|
2009 |
|
2008 |
|
(Decrease) |
|
Change |
|
|
|
|
|
Sales and marketing expenses |
|
$ |
7,582 |
|
|
$ |
6,494 |
|
|
$ |
1,088 |
|
|
|
17 |
% |
|
$ |
13,942 |
|
|
$ |
12,321 |
|
|
$ |
1,621 |
|
|
|
13 |
% |
Percentage of total revenues |
|
|
25 |
% |
|
|
23 |
% |
|
|
|
|
|
|
|
|
|
|
23 |
% |
|
|
24 |
% |
|
|
|
|
|
|
|
|
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 and
services related to customer and technical support.
Three and Six Months Ended September 30, 2009 Compared to Three and Six Months Ended September 30,
2008
The increase in sales and marketing expenses, in absolute dollars, during the three and six months
ended September 30, 2009, as compared to the three and six months ended September 30, 2008, was
primarily due to personnel-related costs resulting from (a) an increase in headcount in various
divisions, including sales and marketing, customer service and technical service, to support the
growth in both our medical and veterinary markets and (b) an increase in commission and bonus
expenses, which are based on the achievement of established goals. Share-based compensation
expense during the three months ended September 30, 2009 and 2008 was $304,000 and $121,000,
respectively, and during the six months ended September 30, 2009 and 2008 was $549,000 and
$258,000, respectively.
General and Administrative
The following sets forth, our general and administrative expenses for the periods indicated (in
thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
September 30, |
|
Change |
|
September 30, |
|
Change |
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
Percent |
|
|
|
|
|
|
|
|
|
Increase/ |
|
Percent |
|
|
2009 |
|
2008 |
|
(Decrease) |
|
Change |
|
2009 |
|
2008 |
|
(Decrease) |
|
Change |
|
|
|
|
|
General and administrative
expenses |
|
$ |
2,689 |
|
|
$ |
1,952 |
|
|
$ |
737 |
|
|
|
38 |
% |
|
$ |
5,187 |
|
|
$ |
3,614 |
|
|
$ |
1,573 |
|
|
|
44 |
% |
Percentage of total revenues |
|
|
9 |
% |
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
9 |
% |
|
|
7 |
% |
|
|
|
|
|
|
|
|
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, human resources and legal.
Three and Six Months Ended September 30, 2009 Compared to Three and Six Months Ended September 30,
2008
The increase in general and administrative expenses, in absolute dollars, during the three and six
months ended September 30, 2009, as compared to the three and six months ended September 30, 2008,
was primarily related to higher personnel-related costs, which includes (a) an increase in
share-based compensation expense, primarily due to the time-based vesting schedule of restricted
stock units awarded to employees, particularly in the fourth year of vesting, which vests at 70%,
and (b) an increase in headcount to support the growth of our business. Share-based compensation
expense during the three months ended September 30, 2009 and
2008 was $764,000 and $220,000, respectively, and during the six months ended September 30, 2009
and 2008 was $1.2 million and $388,000, respectively.
28
Interest and Other Income (Expense), Net
The following sets forth, our interest and other income (expense), net, for the periods indicated
(in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
September 30, |
|
Change |
|
September 30, |
|
Change |
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
Percent |
|
|
|
|
|
|
|
|
|
Increase/ |
|
Percent |
|
|
2009 |
|
2008 |
|
(Decrease) |
|
Change |
|
2009 |
|
2008 |
|
(Decrease) |
|
Change |
|
|
|
|
|
Interest and other
income (expense),
net |
|
$ |
292 |
|
|
$ |
326 |
|
|
$ |
(34 |
) |
|
|
(10 |
)% |
|
$ |
806 |
|
|
$ |
788 |
|
|
$ |
18 |
|
|
|
2 |
% |
Interest and other income (expense), net consists primarily of interest earned on cash, cash
equivalents, short-term and long-term investments and foreign currency exchange gains and losses.
Three and Six Months Ended September 30, 2009 Compared to Three and Six Months Ended September 30,
2008
The decrease in interest and other income (expense), net, during the three months ended September
30, 2009, as compared to the three months ended September 30, 2008, was primarily attributed to
lower interest yields in our investment portfolio, and partially offset by favorable foreign
currency exchange rates, compared to the same period in fiscal 2009.
The increase in interest and other income (expense), net, during the six months ended September 30,
2009, as compared to the six months ended September 30, 2008, was primarily attributed to favorable
foreign currency exchange rates, and partially offset by lower interest yields in our investment
portfolio, compared to the same period in fiscal 2009.
Income Tax Provision
The following sets forth, our income tax provision for the periods indicated (in thousands, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Income tax provision |
|
$ |
2,081 |
|
|
$ |
1,843 |
|
|
$ |
4,563 |
|
|
$ |
3,546 |
|
Effective tax rate |
|
|
39 |
% |
|
|
36 |
% |
|
|
40 |
% |
|
|
37 |
% |
Three and Six Months Ended September 30, 2009 Compared to Three and Six Months Ended September 30,
2008
Our effective tax rate for the three months ended September 30, 2009 and 2008 was 39% and 36%,
respectively, and for the six months ended September 30, 2009 and 2008 was 40% and 37%,
respectively.
The increase in the effective tax rate for the three and six months ended September 30, 2009, as
compared to the three and six months ended September 30, 2008, was primarily due to an increase in
non-deductible share-based compensation expense and a change in our investment portfolio, and
partially offset by an increase in federal research and development tax credits and tax benefits
for federal qualified production activities.
We did not have any unrecognized tax benefits as of September 30, 2009 or September 30, 2008.
During the three and six months ended September 30, 2009 and 2008, we did not recognize any
interest or penalties related to unrecognized tax benefits.
LIQUIDITY AND CAPITAL RESOURCES
Total cash, cash equivalents and short-term and long-term investments at September 30, 2009 and
March 31, 2009 were as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
March 31, |
|
|
2009 |
|
2009 |
Cash and cash equivalents |
|
$ |
51,579 |
|
|
$ |
49,237 |
|
Short-term investments |
|
|
17,068 |
|
|
|
20,776 |
|
Long-term investments |
|
|
18,926 |
|
|
|
4,886 |
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and investments |
|
$ |
87,573 |
|
|
$ |
74,899 |
|
|
|
|
|
|
|
|
|
|
Percentage of total assets |
|
|
57 |
% |
|
|
53 |
% |
|
|
|
|
|
|
|
|
|
29
Cash Flow Changes
Cash provided by (used in) the six months ended September 30, 2009 and 2008 were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
September 30, |
|
|
2009 |
|
2008 |
Net cash provided by operating activities |
|
$ |
13,236 |
|
|
$ |
6,731 |
|
Net cash (used in) provided by investing activities |
|
|
(11,127 |
) |
|
|
7,496 |
|
Net cash provided by financing activities |
|
|
134 |
|
|
|
3,151 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
99 |
|
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
$ |
2,342 |
|
|
$ |
17,353 |
|
|
|
|
|
|
|
|
|
|
At September 30, 2009, we had net working capital of $97.8 million compared to $101.8 million at
March 31, 2009. Cash and cash equivalents at September 30, 2009 were $51.6 million, compared to
$49.2 million at March 31, 2009. The increase in cash and cash equivalents during the six months
ended September 30, 2009 was primarily due to net cash provided by operating activities of $13.2
million and proceeds from maturities of investments and principal payments of asset-backed
securities of $13.2 million, partially offset by purchases of investments of $23.6 million.
Operating Activities
During the six months ended September 30, 2009, we generated $13.2 million in cash from operating
activities. The cash provided by operating activities during the six months ended September 30,
2009 was primarily the result of net income of $7.0 million, adjusted for the effects of non-cash
adjustments including depreciation and amortization of $2.6 million and share-based compensation
expense of $2.3 million.
Other changes in operating activities during the six months ended September 30, 2009 were as
follows:
(i) Net accounts receivables increased by $429,000, from $22.0 million at March 31, 2009 to $22.4
million as of September 30, 2009, primarily due to higher sales in the last month of the quarter
ended September 30, 2009.
(ii) Net inventories increased by $577,000, from $15.7 million at March 31, 2009 to $16.3 million
as of September 30, 2009, primarily due to an increase in finished goods to support future demand.
(iii) Prepaid expenses increased by $510,000, from $957,000 at March 31, 2009 to $1.5 million as of
September 30, 2009, primarily due to the timing of payments.
(iv) Accounts payable increased by $1.4 million, from $4.0 million at March 31, 2009 to $5.4
million as of September 30, 2009, primarily due to the timing and payment of services and inventory
purchases.
(v) Accrued payroll and related expenses increased by $2.0 million, from $3.7 million at March 31,
2009 to $5.7 million as of September 30, 2009, primarily due to an increase in accrued bonus as of
September 30, 2009, which was based on the achievement of established quarterly net sales and
quarterly pre-tax income goals during the quarter.
(vi) Accrued taxes increased by $666,000, from $34,000 at March 31, 2009 to $700,000 as of
September 30, 2009, primarily due to the utilization of all remaining federal net operating loss
carryovers in the fiscal year ended March 31, 2009.
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; and acquisition of capital equipment for our manufacturing facility, which includes the
ongoing costs related to the continuing development of our current and future products.
Investing Activities
Net cash used in investing activities during the six months ended September 30, 2009 totaled $11.1
million, compared to net cash provided by investing activities of $7.5 million during the six
months ended September 30, 2008. Changes in investing activities were as follows:
Investments. Cash used to purchase investments in asset-backed securities, certificates of
deposits, corporate bonds and U.S. agency securities totaled $23.6 million during the six months
ended September 30, 2009. Cash provided by proceeds from (a) maturities of certificates of
deposits totaled $10.8 million and (b) principal payments of asset-backed securities totaled $2.4
million, in each case during the six months ended September 30, 2009.
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Property and Equipment. Cash used to purchase property and equipment totaled $739,000 during the
six months ended September 30, 2009, primarily to support (a) sales and marketing activities and
(b) more efficient production lines. We anticipate that we will continue to purchase property and
equipment as necessary in the normal course of our business.
Financing Activities
Net cash provided by financing activities during the six months ended September 30, 2009 totaled
$134,000, primarily consisting of excess tax benefits from share-based awards of $351,000 and
proceeds from stock options exercised of $205,000, partially offset by the payment of income
withholding taxes of $422,000 due upon vesting of restricted stock units.
Contractual Obligations
Purchase Commitments. In October 2008, we entered into an original equipment manufacturing (OEM)
agreement with Scandinavian Micro Biodevices APS (SMB) of Denmark to purchase coagulation
analyzers and coagulation cartridges. In the fourth quarter of fiscal 2009, we started marketing
the products and, upon achievement of certain milestones by SMB outlined in the agreement, we will
be subject to the minimum purchase commitments under the OEM agreement. These milestones have not
yet been met and we are currently purchasing coagulation analyzers and coagulation cartridges on a
purchase order basis, but all such purchases will count towards the
minimum purchase obligations if and when
they are triggered.
Patent License Agreement. Effective January 2009, we entered into a license agreement with
Inverness Medical Switzerland GmbH (Inverness). 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 Inverness 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 Inverness 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
Inverness 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 Inverness 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
are payable starting in fiscal 2011 for so long as we desire to maintain exclusivity under the
agreement.
Line of Credit. We have a line of credit with Comerica Bank-California which provides for
borrowings of up to $2.0 million. The line of credit may be terminated upon notification by either
party and any outstanding balance is payable upon demand. At September 30, 2009, there was no
amount outstanding under our line of credit. Further information on our line of credit, including
the terms and conditions with respect to our loan covenants, is set forth in Note 7 of the Notes to
the Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.
Contingencies
We are involved from time to time in various litigation matters in the normal course of business.
While the outcome of these proceedings and claims cannot be predicted with certainty, we do not
currently believe that the ultimate resolution of these matters will have a material effect on our
financial position or results of operations.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Financial Condition
We anticipate that our existing capital resources, available line of credit and anticipated
revenues from the sales of our products will be adequate to satisfy our currently planned operating
and financial requirements through at least the next 12 months. Our future capital requirements
will largely depend upon the increased market acceptance of our point-of-care blood analyzer
products. 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.
RECENT ACCOUNTING PRONOUNCEMENTS
A discussion of recent accounting pronouncements is included in Note 2 of the Notes to the
Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.
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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 and line of credit.
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 September 30, 2009, our
short-term investments totaled $17.1 million, consisting of asset-backed securities and
certificates of deposits, and our long-term investments totaled $18.9 million, consisting of
certificates of deposits, corporate bonds and U.S. agency securities.
Historically, our investment portfolio had included auction rate securities, which became illiquid
as a result of the negative condition in the global credit markets. In September 2008, the bank
where our auction rate securities were held, reached agreements with the Financial Industry
Regulatory Authority, the State of Michigan Attorney General and the Michigan Office of Financial
and Insurance Regulation regarding the repurchase of auction rate securities. In October 2008, we
received a commitment from our bank to repurchase all of our remaining auction rate securities,
which repurchases were completed in the third quarter of fiscal 2009. During fiscal 2009, we
redeemed $37.0 million of our auction rate securities at 100% of par value. As of September 30,
2009, we no longer hold any auction rate securities.
We have the ability to hold the investments classified as held-to-maturity in our investment
portfolio at September 30, 2009 until maturity and therefore, we believe we have no material
exposure to interest rate risk. As of September 30, 2009, our short-term investment in
asset-backed securities were classified as available-for-sale and, consequently, 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, net of any tax effects, in
stockholders equity. A sensitivity analysis assuming a hypothetical 10% movement in interest
rates applied to our total investment balances at September 30, 2009 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 either
fiscal 2009 or during the six months ended September 30, 2009.
For our line of credit, which provides for borrowings of up to $2.0 million, the interest rate is
equal to the banks prime rate minus 0.25%, which totaled 3.00% at September 30, 2009.
Consequently, an increase in the prime rate would expose us to higher interest expenses. A
sensitivity analysis assuming a hypothetical 10% movement in the prime rate applied to our line of
credit balance at September 30, 2009 indicated that such market movement would not have a material
effect on our business, operating results or financial condition, as there was no amount
outstanding on our line of credit at September 30, 2009.
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, Accounting for
Derivatives and Hedging Activities.
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 instruments and
hematology reagent kits purchased from Diatron Messtechnik GmbH, which are primarily denominated in
Euros.
In the first quarter of fiscal 2009, operations from our sales office in Darmstadt, Germany were
stated in Euros and translated into U.S. dollars at the period-end exchange rates. In July 2008,
the Germany sales office was incorporated as our wholly-owned subsidiary, Abaxis Europe GmbH, to
market, promote and distribute diagnostic systems for medical and veterinary uses. Abaxis Europe
GmbHs 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 Condensed Consolidated Statements of Operations.
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 September 30, 2009 compared to the disclosures in Part II, Item 7A of our Annual
Report on Form 10-K for the fiscal year ended March 31, 2009.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on our managements evaluation, with the participation of our principal executive officer and
principal financial officer, as of the end of the period covered by this report, our principal
executive officer and principal financial officer have concluded that our disclosure controls and
procedures (which are defined under Securities and Exchange Commission rules as controls and other
procedures of a company that are designed to ensure that information required to be disclosed by a
company in the reports that it files or submits under the Securities Exchange Act of 1934, as
amended, (the Exchange Act) is recorded, processed, summarized and reported within required time
periods), were effective as of September 30, 2009.
Changes in Internal Control over Financial Reporting
During the quarter ended September 30, 2009, there was no change in our internal control over
financial reporting that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
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.
Item 4T. Controls and Procedures
Not applicable.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
We are involved from time to time in various litigation matters in the normal course of business.
We do not believe that the ultimate resolution of these matters will have a material effect on our
financial position or results of operations.
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 factors of which we are currently not aware.
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, 2009 as
filed with the Securities and Exchange Commission on June 12, 2009. 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.
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 is derived primarily by selling to distributors who 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 are not
indicative of our sales in any future period.
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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. We base our expense levels, which are
to a large extent fixed, in part on our expectations as to future revenues. We may be unable to
reduce our spending in a timely manner to compensate for any unexpected revenue shortfall. As a
result, any such 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 due primarily to (i)
seasonal patterns in the decision making processes by our independent distributors and direct
customers, (ii) inventory or timing considerations by our distributors and (iii) on the purchasing
requirements of the U.S. Military 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:
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new product announcements made by us or our competitors; |
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changes in our pricing structures or the pricing structures of our competitors; |
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our ability to develop, introduce and market new products on a timely basis; |
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our manufacturing capacities and our ability to increase the scale of these capacities; |
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the mix of product sales between our blood chemistry analyzers and our reagent disc
products; |
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the amount we spend on research and development; and |
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changes in our strategy. |
We would fail to achieve anticipated revenue if the market does not accept our products.
We believe that our core compact blood chemistry analyzer product differs substantially from
current blood chemistry analyzers on the market. Our primary competition is from 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 have relatively limited experience in large-scale sales of our
Piccolo blood chemistry analyzers. Although we believe that our blood chemistry analyzers offer
consumers many advantages, including substantial cost savings according to our analyses, in terms
of implementation of the actual product, these advantages involve changes to current standard
practices, such as using large clinical laboratories that will require changes 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
will suffer lost sales and could fail to achieve anticipated revenue.
Historically, in the veterinary market, we have marketed our VetScan systems through both direct
sales and distribution channels to veterinarians. We continue to develop new animal blood tests to
expand our product offerings and we cannot be assured that these tests will be accepted by the
veterinary market.
We rely on patents and other proprietary information, the loss of which would negatively affect our
business.
As of September 30, 2009, 42 patent applications have been filed on our behalf with the United
States Patent and Trademark Office (USPTO), of which 30 patents have been issued and 29 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 (unless a patent application owner files a request for publication) and (2)
publications of discoveries in the scientific or patent literature tend to lag behind actual
discoveries by several months. We may
34
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
profitability.
As of September 30, 2009, we had retained earnings of $16.0 million. 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:
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continue to improve our existing products and develop new and innovative products; |
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increase our sales and marketing activities; |
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effectively manage our manufacturing activities; and |
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effectively compete against current and future competitors. |
We cannot assure you that we will be able to successfully increase our sales volumes of our
products to sustain or increase profitability.
We must continue to develop our sales, marketing and distribution experience in the human
diagnostic market or our business will not grow.
Although we have gained experience marketing our VetScan products in the veterinary diagnostic
market, we have limited sales, marketing and distribution experience with our Piccolo chemistry
analyzers in the human diagnostic market. Accordingly, we cannot assure you that:
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we will be able to establish and maintain effective distribution arrangements in the human
diagnostic market; |
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any distribution arrangements that we are able to establish will be successful in marketing
our products; or |
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the costs associated with sales, marketing and distributing our products will not be
excessive. |
Should we fail to effectively develop our sales, marketing and distribution efforts, our growth
will be limited and our results of operations will be adversely affected.
We could fail to achieve anticipated revenue if we experience problems related to the manufacture
of our blood chemistry analyzers.
We manufacture our blood chemistry analyzers at our manufacturing facility in Union City,
California. During fiscal 2008, we experienced problems related to the manufacture of our new
blood chemistry analyzer, which were primarily related to difficulties and delays in obtaining
certain key components that we purchase from various suppliers. These manufacturing problems were
primarily related to quality control issues for key components that we obtain from our suppliers
and to design issues of the key components required in our blood chemistry analyzer. Our
difficulties in obtaining an adequate amount of quality components for the manufacture of our blood
chemistry analyzer had a materially adverse impact on our sales of VetScan chemistry analyzers in
fiscal 2008. We believe that we have taken appropriate steps to resolve these issues, including
securing quality parts from our suppliers, but there can be no assurance that our efforts to
resolve these manufacturing difficulties will continue to prove to be successful or that similar
manufacturing problems will not arise in the future. If we are unable to prevent similar 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; accordingly, our revenue and business would be materially adversely affected.
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We may inadvertently produce defective products, which may subject us to significant warranty
liabilities or product liability claims and we may have insufficient product liability insurance to
pay material uninsured claims.
Our business exposes us to potential warranty and product liability risks which are inherent in the
testing, manufacturing and marketing of human and veterinary medical products. We strive to apply
sophisticated methods to raw materials and produce defect-free medical test equipment. Although we
have established procedures for quality control on both the raw materials that we receive from
suppliers and our manufactured final products, these procedures may prove inadequate to detect a
defect that occurs in limited quantities, that we have not anticipated or otherwise. Our Piccolo
and VetScan chemistry analyzers may be unable to detect all errors which could result in the
misdiagnosis of human or veterinary patients.
Should we inadvertently manufacture and ship defective products, we may be subject to substantial
claims 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. We currently maintain limited product liability insurance that we believe is adequate
for our current needs, taking into account the risks involved and cost of coverage. However, 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.
We must effectively train and integrate the members of our sales team in order to achieve our
anticipated revenue or expand our business.
Many of our sales personnel directly involved in the sales and marketing activities of our products
have been employed by us for a limited period of time. In addition, we experience significant
turnover in our sales and marketing personnel. If we are to increase our direct sales,
particularly in the human medical market, we will need to train new sales personnel and supervise
our sales team closely. We also will continue hiring additional sales personnel. If we are unable
to retain our existing personnel, or attract and train additional qualified personnel, our growth
in the medical market may be limited due to our lack of resources to market our products.
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
and VetScan chemistry analyzers. 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 25 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 health maintenance organizations (HMOs) 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 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. Our
largest distributor in North America, DVM Resources, accounted for 10% of our total worldwide
revenues for each of the three and six months ended September 30, 2009. 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 revenue 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: National Distribution & Contracting, Inc.,
McKesson Medical-Surgical Inc., Cardinal Health, Henry Scheins Medical Group and PSS World
Medical, Inc. We depend on these distributors to assist us in promoting market acceptance of our
Piccolo chemistry analyzers.
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Internationally, we rely on only a few distributors for our products in both the medical and
veterinary diagnostic markets. In October 2007, following the termination of our prior distributor agreement with T. Chatani &
Co., Ltd., we signed an exclusive distribution agreement with
Central Scientific Commerce, Inc. (CSC) to distribute the complete line of our medical and
veterinary products in Japan. In the third quarter of fiscal 2008, CSC began the process of
registering our instruments, the VetScan VS2, VetScan HM5 and Piccolo xpress in Japan. The
registration process was completed in the first quarter of fiscal 2009, and consequently, CSC can
begin to import and market our instruments along with our reagent discs and kits. However, we
cannot assure you that our new distribution relationship with CSC will be as successful as our
prior distribution arrangement, or at all. 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 Japan.
We currently rely on distributors that carry either our medical or veterinary products in the
following countries: Afghanistan, Australia, Austria, Bahrain, Belgium, Canada, Czech Republic,
Denmark, France, Germany, Hong Kong, India, Ireland, Israel, Italy, Japan, Korea, Macao, New
Zealand, the Philippines, Portugal, Romania, Russia, Singapore, South Africa, Spain, Sweden,
Switzerland, Turkey, Ukraine, 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. We plan to continue to enter into additional distributor
relationships to expand our international distribution base and solidify our international
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.
We depend on limited or sole suppliers for several key components in our products, many of whom we
have not entered into contractual relationships with and failure of our suppliers to provide the
components to us could harm our business.
We use several key components that are currently available from limited or sole sources as discussed below:
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Reagent Discs: Two injection-molding manufacturers, C. Brewer & Co. and
Nypro, Inc., currently make the molded plastic discs which, 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. |
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Reagent Chemicals: We currently depend on the following single source vendors for some of
the chemicals that we use to produce the dry reagent chemistry beads that are either inserted
in our reagent discs or sold as stand-alone products: Amano Enzyme USA Co., Ltd., Genzyme
Corporation, Kikkoman Corporation Biochemical Division, Microgenics Corporation, Roche
Molecular Biochemicals of Roche Diagnostics Corporation, a division of F. Hoffmann-La Roche,
Ltd., Sigma Aldrich Inc. and Toyobo Specialties (formerly Shinko American Inc.). |
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Blood Chemistry Analyzer Components: Our blood analyzer products use several
technologically-advanced components that we currently purchase from a limited number of
vendors, including certain components from a single-source supplier, 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. |
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Hematology Instruments and Reagents: Our hematology instruments are manufactured by
Diatron Medical Instruments PLC. in Hungary and are purchased by us as a completed instrument.
In addition, to date, we have qualified only three suppliers to produce the reagents for our
hematology instruments: Clinical Diagnostic Solutions, Inc., Diatron Medical Instruments PLC.
and Mallinckrodt Baker BV. |
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Coagulation Analyzers and Cartridges: Our coagulation analyzers and cartridges are
manufactured by Scandinavian MicroBiodevices APS in Denmark and are purchased by us as
completed products. |
We primarily operate on a purchase order basis with all of the suppliers of our molded plastic
reagent discs, reagent chemicals, blood chemistry analyzer components, hematology instruments and
hematology reagents 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.
Because we are dependent on a limited number of suppliers and manufacturers for critical components
to 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 materially adversely affect our business and
financial condition.
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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.
Blood analysis 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 with the following organizations:
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commercial clinical laboratories; |
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hospitals clinical laboratories; and |
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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). |
Historically, hospitals and commercial laboratories performed most human diagnostic testing, and
commercial laboratories performed most 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:
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range of tests offered; |
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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 reagent discs cannot provide the
same broad range of tests, 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.
Competition in the human and veterinary diagnostic markets is intense. Our principal competitors
in the human diagnostic market are Alfa Wassermann S.P.A., i-STAT Corporation (which was purchased
by Abbott Laboratories), Johnson & Johnson (including its subsidiary, Ortho-Clinical Diagnostics,
Inc.), Kodak (DT60 analyzer), Polymedco, Inc. and F. Hoffman-La Roche (Reflotron system). Our
principal competitors in the veterinary diagnostic market are Idexx Laboratories, Inc. and Heska
Corporation. Most of our competitors have significantly larger product lines to offer and greater
financial and other resources than we do. In particular, many of our competitors have large sales
forces and well-established distribution channels. Consequently, we must develop our distribution
channels and significantly improve our direct sales force in order to compete in these markets.
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 HMOs, 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 amount that physicians and
hospitals are able to charge patients for such services. 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.
We are subject to numerous governmental regulations and regulatory changes are difficult to predict
and may be damaging to our business.
Need for FDA Certification for Our Medical Device Products
Our Piccolo products are regulated under the 1976 Medical Device Amendments to the Food, Drug and
Cosmetic Act, which is administered by the FDA. The FDA has classified our Piccolo products as
Class I and Class II devices. These classifications require us to submit to the FDA a
pre-market notification form or 510(k). The FDA uses the 510(k) to substantiate product claims
that are made by medical device manufacturers prior to marketing. In our 510(k) notification, we
must, among other things,
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establish that the product we plan to market is substantially equivalent to (1) a product that
was on the market prior to the adoption of the 1976 Medical Device Amendment or (2) a product that
the FDA has previously cleared under the 510(k) process.
The FDA review process of a 510(k) notification can last anywhere from three to six months, and the
FDA must issue a written order finding substantial equivalence before a company can market a
medical device. As of September 30, 2009, we have received market clearance from the FDA for our
Piccolo chemistry analyzer and 25 reagent tests that we have on 13 reagent discs. We are currently
developing additional tests that we will have to clear with the FDA through the 510(k) notification
procedures. These new test products are crucial for our 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, which could harm our future sales.
Need to Comply with Manufacturing 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. To date, we have complied with the
following federal, state, local and international regulatory requirements:
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In April 2001, the State of California Food and Drug Branch granted our manufacturing
facility in compliance status, based on the regulations for Good Manufacturing Practices for
medical devices. |
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In May 2001, the State of California Food and Drug Branch granted licensing for our
manufacturing facility in Union City, California. |
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In May 2002, we received our ISO 9001 certification, expanding our compliance with
international quality standards. |
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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. |
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In both March 2003 and September 2005, the FDA conducted a facility inspection and verified
our compliance with the 21 CFR 820 Regulation. |
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In November 2006, we received our recertification to the ISO 13485:2003 Quality System
Standard for medical devices. |
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In August 2008, the FDA conducted an additional facility inspection to verify our
compliance with 21 CFR 820 Regulation. |
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. 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.
Effects of the Clinical Laboratory Improvement Amendments on Our Products
Our Piccolo products are also affected by the Clinical Laboratory Improvement Amendments (the
CLIA) of 1988. The CLIA are intended to insure 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 the following three categories:
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moderately complex; and |
Many of the tests performed using the Piccolo chemistry analyzer 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,
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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. In April 2009, we submitted an assay for C-Reactive Protein (CRP) to
the FDA for 510(k) clearance. We cannot assure you that we will successfully receive 510(k)
clearance for this assay on a timely basis, or at all. We have included this assay on a new
reagent, MetLyte Plus CRP, which is currently offered for sale and distribution only outside the
United States. 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 can be limited accordingly.
Need to Comply with Various Federal, State, Local and International Regulations
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. Foreign
certifications that we have received include the following, among others:
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In December 2003, we received certification from the British Standards Institute to the ISO
13485:1996 Quality System standard for medical devices. This quality system certification,
along with successful completion of product testing to 2003 European standards and the
translation of Piccolo product documentation into the required languages, enabled us to meet
the compliance requirements of the CE Mark and the 2003 European In Vitro Device Directive. |
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In September 2005, we received the Canadian Medical Device Conformity Assessment System
stamp on our ISO 13485 certificate to signify compliance with Health Canada regulations. |
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In March 2006, we received our certification to the 2003 version of the ISO 13485 Quality
System Standard for medical devices. |
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In November 2006, we received our recertification to the ISO 13485:2003 Quality System
Standard for medical devices. |
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.
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 have incurred and may continue to incur, in future periods, significant share-based compensation
charges which may adversely affect our reported financial results.
Effective April 1, 2006, we adopted Accounting Standards Codification 718, Compensation-Stock
Compensation, issued by the Financial Accounting Standards Board, which requires the measurement
of all share-based payments to employees, using a fair-value-based method and the recording of such
expense in our results of operations. The fair value of restricted stock unit awards 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, net of an
estimated forfeiture rate, over the corresponding requisite service period. Since fiscal 2007, we
granted restricted stock unit awards annually to employees based on the following time-based
vesting schedule over a four-year period: 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. Since we began granting restricted stock
units as part of our share-based compensation program in fiscal 2007, share-based compensation
expense related to restricted stock units had a material impact on our earnings per share and on
our financial statements and we expect that it will continue to adversely impact our reported
results of operations, particularly in the fourth year of vesting for the restricted stock unit
awarded to employees. As of September 30, 2009, our unrecognized compensation expense related to
restricted stock unit awards granted to employees and directors to date totaled $14.8 million,
which is expected to be recognized over a weighted average service period of 2.34 years.
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
40
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 are subject to increasingly complex requirements from recent 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 controls 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, 2009 and 2008. Although we received an unqualified opinion on our
consolidated financial statements for the fiscal years ended March 31, 2009 and 2008, and on the
effectiveness of our internal control over financial reporting as of March 31, 2009 and 2008, we
cannot predict the outcome of our testing in future periods. In the event that our internal
controls over financial reporting are 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 may need additional funding in the future and these funds may not be available to us.
We believe that our existing capital resources, available line of credit and anticipated revenue
from the sales of our products will be adequate to satisfy our currently planned operating and
financial requirements through the next 12 months, although no assurances can be given. The terms
of our line of credit contain a number of covenants concerning financial tests that we must meet,
and these tests are more fully explained in Note 7 of the Notes to Consolidated Financial
Statements contained in this Quarterly Report on Form 10-Q.
Further, we expect to incur incremental additional costs to support our future operations,
including:
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further commercialization of our products and development of new test methods to allow us
to further penetrate the human diagnostic market and the veterinary diagnostic market; |
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our need to acquire capital equipment for our manufacturing facilities, which includes the
ongoing costs related to the continuing development of our current and future products; |
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research and design costs related to the continuing development of our current and future
products; and |
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additional pre-clinical testing and clinical trials for our current and future products. |
To the extent that our existing resources and anticipated revenue from the sale of our products are
insufficient to fund our activities or if we are unable to meet the financial covenants of our line
of credit, we may have to raise additional funds from the issuance of public or private securities.
In the event that we cannot maintain compliance with these financial covenants, we may also be
subject to increased interest rate expenses. We may not be able to raise additional funding, or if
we are able to, we may not be able to raise funding on acceptable terms. We may also dilute
then-existing shareholders if we raise additional funds by issuing new equity securities.
Alternately, we may have to relinquish rights to certain of our technologies, products and/or sales
territories if we are required to obtain funds through arrangements with collaborative partners.
If we are unable to raise needed funds, we may be required to curtail our operations significantly.
This would materially adversely affect our operating results and financial condition.
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
41
have to pay significant fines and/or take remedial action that would be expensive and we do not
carry environmental-related insurance coverage.
Our facilities and manufacturing operations are vulnerable to natural disasters and other
unexpected losses; system failures or delays 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. 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. Accordingly, if our location in Union City, California experienced a system
failure or regulatory problem that temporarily shuts down our manufacturing facility, our
manufacturing ability would become unavailable until we were able to bring an alternative facility
online, a process which could take several weeks or even months. These manufacturing operations
are also vulnerable to damage from earthquakes, fire, floods, power loss, telecommunications
failures, break-ins and similar events. Although we carry property and business interruption
insurance, our coverage may not be adequate to compensate us for all losses that may occur.
Additionally, our computer servers may be vulnerable to computer viruses, physical or electronic
break-ins and similar disruptions.
Fluctuations in foreign exchange rates and the possible lack of financial stability in foreign
countries could prevent overseas sales growth.
Our international sales are currently primarily U.S. dollar-denominated. As a result, an increase
in the value of the U.S. dollar relative to foreign currencies could make our products less
competitive in international markets. For the limited amount of our sales denominated in local
currencies, we are subject to fluctuations in exchange rates between the U.S. dollar and the
particular local currency. Our operating results could also be
adversely affected by the seasonality of international sales and the economic conditions of our
overseas markets.
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 (like any companys determination of its 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 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 September 30, 2009, the closing sale prices of our common stock on the NASDAQ Global
Market ranged from $18.68 to $29.22 per share and the closing sale price for our quarter ended
September 30, 2009 was $26.75 per share. During the last eight fiscal quarters ended September 30,
2009, our stock price closed at a high of $39.74 per share on December 24, 2007 and a low of $10.28
per share on October 27, 2008. Many factors may affect the market price of our common stock,
including:
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fluctuation in our operating results; |
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announcements of technological innovations or new commercial products by us or our
competitors; |
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changes in governmental regulation in the United States and internationally; |
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prospects and proposals for health care reform; |
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governmental or third-party payors controls on prices that our customers may pay for our
products; |
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developments or disputes concerning our patents or our other proprietary rights; |
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product liability claims and public concern as to the safety of our devices or similar
devices developed by our competitors; and |
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general market conditions. |
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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 shareholders 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
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Exhibit No. |
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Description of Document |
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3.1
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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.) |
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3.2
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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.) |
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3.3
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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.) |
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3.4
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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.) |
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4.1
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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.) |
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4.2
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Reference is made to Exhibit 3.1, Exhibit 3.2, Exhibit 3.3 and Exhibit 3.4. |
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31.1
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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2
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Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.1#
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Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.2#
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Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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# |
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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 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. |
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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.
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ABAXIS, INC.
(Registrant)
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Date: November 9, 2009 |
BY: |
/s/ Clinton H. Severson
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Clinton H. Severson |
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President, Chief Executive Officer and Director
(Principal Executive Officer) |
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Date: November 9, 2009 |
BY: |
/s/ Alberto R. Santa Ines
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Alberto R. Santa Ines |
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Chief Financial Officer and Vice President of Finance
(Principal Financial and Accounting Officer) |
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