e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended March
31, 2008
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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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
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(State or other jurisdiction
of incorporation or organization)
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(I.R.S. Employer
Identification No.)
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3240 Whipple Road, Union City, California
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94587
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(Address of principal executive
offices)
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(Zip code)
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Registrants telephone number, including area code:
(510) 675-6500
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Class
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Name of Each Exchange on Which Registered
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Common Stock, no par value
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The NASDAQ Stock Market, Inc.
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. 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
The aggregate market value of the voting stock held by
non-affiliates of Abaxis as of September 28, 2007, the last
business day of the second fiscal quarter, was $325,742,000
based upon the closing sale price reported for such date on the
NASDAQ Global Market. For purposes of this disclosure,
6,957,000 shares of common stock held by persons who hold
more than 5% of the outstanding shares of registrants
common stock and shares held by executive officers and directors
of the registrant have been excluded because such persons may be
deemed to be affiliates. This determination of affiliate status
is not necessarily conclusive for any other purpose and
exclusion of such shares should not be construed to indicate
that any such person possesses the power, direct or indirect, to
direct or cause the direction of the management or policies of
the registrant or that such person is controlled by or under
common control with the registrant.
As of June 9, 2008, there were 21,768,000 shares of
the Registrants common stock outstanding.
Abaxis,
Inc.
Annual
Report on
Form 10-K
For The
Fiscal Year Ended March 31, 2008
TABLE OF CONTENTS
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PART I
FORWARD-LOOKING
STATEMENTS
This report contains forward-looking statements within the
meaning of Sections 21E of the Securities Exchange Act of
1934, as amended that reflect Abaxis current view with
respect to future events and financial performance. In this
report, the words will, anticipates,
believes, expects, intends,
plans, future, project,
estimate, 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, 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 U.S. Food and Drug Administration (FDA) and
other government approvals, 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 associated
with liquidity concerns related to our auction rate securities,
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. Readers are
advised to read this Annual Report on
Form 10-K
in its entirety paying careful attention to the risk factors set
forth in this and other reports or documents filed by Abaxis
from time to time with the Securities and Exchange Commission
(SEC), particularly the quarterly reports on
Form 10-Q
and any current reports on
Form 8-K,
copies of which may be obtained from Abaxis or from the SEC at
its website at www.sec.gov.
GENERAL
Abaxis, Inc. (Abaxis, us or
we) develops, manufactures, markets and sells
portable blood analysis systems for use in any human or
veterinary patient-care setting to provide clinicians with rapid
blood constituent measurements. Abaxis 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. Our common stock
trades on the NASDAQ Global Market under the symbol
ABAX.
OUR
INDUSTRY: IN VITRO DIAGNOSTIC TESTING
We believe that a key element of the patient-centered,
cost-constrained health care system in the current year and
beyond will be the availability of blood analysis systems in the
patient care setting that are easily and reliably operated by
caregivers and that provide accurate, real time results to
enable rapid clinical decisions. The optimal system uses whole
blood, has built-in calibration and quality control, provides
quick turnaround time, is portable and is low cost. In addition,
the optimal near-patient system should be easy to use by people
with no special training and capable of transmitting test
results instantly to caregivers and patient information
management systems.
We have developed a blood analysis system incorporating all of
these criteria into a 5.1 kilogram (11.2 pounds) portable
analyzer and a series of menu-specific, multi-test single-use
reagent discs. The system is essentially a compact portable
laboratory that can be easily located near the patient. Each
reagent disc is pre-configured with multiple analytes and
contains all the reagents necessary to perform a fixed menu of
tests. Taking the system to the patient care site instead of
shipping the sample to a central laboratory makes blood testing
and analysis as easy as measuring the patients blood
pressure, temperature, and heart rate and eliminates the
necessity of multiple visits to the doctors office.
Additional advantages of near-patient testing include
eliminating errors from sample handling, transcription and
transportation. We have adapted this blood analysis system in
both the human medical and veterinary markets in order to bring
the same advantages to all health care professionals and
patients.
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ABAXIS
PRODUCTS
We operate in two segments: (i) the medical market and
(ii) the veterinary market. Revenues in the medical market
accounted for 23%, 20% and 16% of our total revenues for fiscal
2008, 2007 and 2006, respectively. Revenues in the veterinary
market accounted for 71%, 74% and 78% of our total revenues for
fiscal 2008, 2007 and 2006, respectively.
Point-of-Care
Blood Chemistry Analyzer
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. The system can be
operated with minimal training and performs multiple routine
tests on whole blood, serum or plasma samples. The system
provides test results in approximately 12 minutes with the
precision and accuracy equivalent to a clinical laboratory
analyzer. We manufacture the system in our manufacturing
facilities in Union City, California and we market the system in
both the medical market and in the veterinary market, as
described below.
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Medical Market: We currently market the blood
analysis system in the medical market under the name Piccolo
xpresstm.
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.
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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.
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Reagent
Discs
The reagent discs used with the blood chemistry analyzers are
designed to handle almost all technical steps of blood chemistry
testing automatically. The discs first separate a whole blood
sample into plasma and blood cells, meter the required quantity
of plasma and diluent, mix the plasma and diluent, and deliver
the mixture to the reagent chambers, called cuvettes, along the
disc perimeter. The diluted plasma dissolves and mixes with the
reagent beads initiating the chemical reactions, which are
monitored by the analyzer. The discs are 8-cm diameter,
single-use devices constructed from three ultrasonically welded
injection-molded plastic parts. The base and the middle piece
create the chambers, cuvettes and passageways for processing the
whole blood and mixing plasma with diluent and reagents. The top
piece, referred to as the bar code ring, is imprinted with bar
codes that contain disc-specific calibration information. In the
center of the disc is a plastic diluent container sealed with
polyethylene-laminated foil. Spherical lyophilized reagent beads
are placed in the cuvettes during disc manufacturing. Upon
completion of the analysis, used discs may be placed back into
their foil pouches to minimize human contact with blood prior to
proper disposal.
To perform a panel of tests, the operator collects a blood
sample, then transfers the sample into the reagent disc. The
operator places the disc into the analyzer drawer, and enters
patient, physician, and operator information. The analyzer spins
the disc to separate cells from plasma, meters and mixes plasma
with diluent, distributes diluted plasma to the cuvettes, and
monitors chemical reactions. In approximately 12 minutes,
results are printed or can be transmitted to a patient data
management system for inclusion in the patients medical
record. A computer port enables transmission of patient results
to external computers for patient data management.
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We offer our blood analysis system with a total of 27 diagnostic
tests. Our test methods are as follows:
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Test Methods
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Alanine aminotransferase
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ALT
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Lactate dehydrogenase
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LD
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Albumin
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ALB
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Magnesium
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MG
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Alkaline phosphatase
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ALP
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Phosphorous
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PHOS
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Amylase
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AMY
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Potassium
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K+
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Aspartate aminotransferase
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AST
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Sodium
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NA+
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Bile acids
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BA
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Thyroxine
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T4
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Calcium
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CA
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Total bilirubin
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TBIL
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Chloride
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CL-
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Total carbon dioxide
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tCO2
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Creatine kinase
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CK
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Total cholesterol
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CHOL
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Creatinine
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CRE
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Total protein
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TP
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Direct bilirubin
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DBIL
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Triglycerides
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TRIG
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Gamma glutamyltransferase
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GGT
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Urea nitrogen
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BUN
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Glucose
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GLU
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Uric acid
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UA
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High-density lipoprotein cholesterol
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HDL
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Twenty-one of these tests are marketed for both the medical and
veterinary markets. The tests for BA and
T4
are marketed exclusively in the veterinary market. The tests for
DBIL, HDL, LD and TRIG are marketed exclusively in the medical
market. We market our reagent products by configuring these 27
test methods in panels that are designed to meet a variety of
clinical diagnostic needs. We offer 13 multi-test reagent disc
products in the medical market and 8 multi-test reagent disc
products in the veterinary market.
The reagent discs offered with our Piccolo chemistry analyzers
are as follows:
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Piccolo Panels
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Description of the Test Panels
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Basic Metabolic Panel (CLIA waived)
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BUN, CA, CL-, CRE, GLU, K+, NA+,
tCO2.
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Basic Metabolic Panel Plus
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BUN, CA, CL-, CRE, GLU, K+, LD, MG, NA+,
tCO2.
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Comprehensive Metabolic Panel (CLIA waived)
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ALB, ALP, ALT, AST, BUN, CA, CL-, CRE, GLU, K+, NA+, TBIL,
tCO2,
TP.
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Electrolyte Panel (CLIA waived)
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CL-, K+, NA+,
tCO2.
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General Chemistry 6 (CLIA waived)
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ALT, AST, BUN, CRE, GGT, GLU.
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General Chemistry 13 (CLIA waived)
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ALB, ALP, ALT, AMY, AST, BUN, CA, CRE, GGT, GLU, TBIL, TP, UA.
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Hepatic Function Panel
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ALB, ALP, ALT, AST, DBIL, TBIL, TP.
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Kidney Check (CLIA waived)
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BUN, CRE.
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Lipid Panel (CLIA waived)
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CHOL, CHOL/HDL RATIO, HDL, LDL, TRIG, VLDL.
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Lipid Panel Plus (CLIA waived)
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ALT, AST, CHOL, CHOL/HDL RATIO, GLU, HDL, LDL, TRIG, VLDL.
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Liver Panel Plus (CLIA waived)
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ALB, ALP, ALT, AMY, AST, GGT, TBIL, TP.
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Metlyte 8 Panel
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BUN, CK , CL-, CRE, GLU, K+, NA+,
tCO2.
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Renal Function Panel
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ALB, BUN, CA, CL-, CRE, GLU, K+, NA+, PHOS,
tCO2.
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CLIA waived means the FDA has granted our
application to classify the product as having waived status with
respect to the Clinical Laboratory Improvement Amendments
(CLIA) of 1988. See Government
Regulation in this section for additional information on
CLIA.
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The reagent discs offered with our VetScan chemistry analyzers
are as follows:
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VetScan Profile
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Description of the Test Panels
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Avian/Reptilian Profile Plus
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ALB, AST, BA, CA, CK, GLOB, GLU, K+, NA+, PHOS, TP, UA.
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Comprehensive Diagnostic Profile
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ALB, ALP, ALT, AMY, BUN, CA, CRE, GLOB, GLU, K+, NA+, PHOS,
TBIL, TP.
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Critical Care Plus
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ALT, BUN, CL-, CRE, GLU, K+, NA+,
tCO2.
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Equine Profile Plus
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ALB, AST, BUN, CA, CK, CRE, GGT, GLOB, GLU, K+, NA+, TBIL,
tCO2,
TP.
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Large Animal Profile
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ALB, ALP, AST, BUN, CA, CK, GGT, GLOB, MG, PHOS, TP.
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Mammalian Liver Profile
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ALB, ALP, ALT, BA, BUN, CHOL, GGT, TBIL.
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Prep Profile II
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ALP, ALT, BUN, CRE, GLU, TP.
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Thyroxine
(T4)/Cholesterol
Profile
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CHOL,
T4.
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Hematology
In September 2007, we introduced a veterinary hematology
instrument under the name VetScan
HM5tm.
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
HM2tm.
We currently purchase the hematology instruments from Diatron MI
Kft. 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.
Orbos
Process
The dry reagents used in our reagent discs are produced using a
proprietary technology called the
Orbos®
Discrete Lyophilization Process (the Orbos process).
This process allows the production of a precise amount of active
chemical ingredient in the form of a soluble bead. The Orbos
process involves flash-freezing a drop of liquid reagent to form
a solid bead and then freeze-drying the bead to remove water.
The Orbos beads are stable in dry form and dissolve rapidly in
aqueous solutions. We believe that the Orbos process has broad
applications in products where delivery of active ingredients in
a stable, pre-metered format is desired. We have licensed the
technology underlying the Orbos process to bioMerieux, Inc.,
Cepheid and GE Healthcare (formerly Amersham Bioscience Corp.).
Additionally, we have a supply contract with Becton, Dickinson
and Company for products using the Orbos process. Revenues from
these arrangements, however, are unpredictable. We continue to
explore potential applications with other companies, although
there can be no assurance that we will be able to develop any
new applications for the Orbos process.
Future
Products
We continue to develop new products that we believe will provide
further opportunities for growth in the human medical and
veterinary markets. Development of tests for other disc products
will be targeted at specific applications based on fulfilling
clinical needs.
CUSTOMERS
AND DISTRIBUTION
We market and sell our products worldwide by maintaining direct
sales forces and through independent distributors. Our direct
sales force is primarily located in the United States and we
maintain one sales office outside of the United States in
Germany. Sales and marketing expenses were $23.7 million,
$20.6 million and $16.2 million, or 24%, 24% and 24%
of our total revenues, in fiscal 2008, 2007 and 2006,
respectively.
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Customers
Depending on the needs of a customer segment, we sell our
point-of-care blood analyzer products and reagent discs either
directly or through distributors. In the delivery of human or
veterinary care, there are many kinds of providers and a
multitude of sites where Abaxis products could be used as an
alternative to relying on a central laboratory for blood test
information, as described below.
Medical
Market
We believe that our Piccolo chemistry analyzer, consisting of a
menu of 25 reagent test results, is suitable for a wide variety
of the human medical market segments. These market segments
include 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.
Veterinary
Market
We believe that our veterinary reagent product offerings meet a
substantial part of the clinical diagnostic needs of
veterinarians and the research marketplace. Potential customers
for the VetScan chemistry analyzer and hematology analyzer are
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.
Distribution
Within North America
Medical
Market
We sell our human-oriented products directly to those customers
who serve large human patient populations with employed
caregivers such as the military, hospitals and managed care
organizations. As a result of health care reform, we anticipate
a consolidation of providers with more centralized purchasing of
medical products based on the standardization of care and the
use of patient outcome studies to influence purchase decisions.
We plan to achieve our direct sales objectives by employing
highly skilled sales specialists and sales teams to work closely
with providers in performing studies to show that the use of the
Piccolo blood chemistry analyzer, rather than laboratory
alternatives, can provide better outcomes at a lower cost.
Distribution alternatives in the human medical market can
contribute to identifying potential customers and introducing
the product, but often need the support of our personnel in
completing the sale. Product distributors are generally of two
types: (i) large companies that primarily serve hospitals,
clinics and large health maintenance organizations (HMOs)
nationwide using multiple warehouses and extensive
transportation systems, and (ii) smaller companies that
provide the daily supplies needed by office-based physicians.
Large distributors with local and regional companies can service
the office-based physicians market segment as well. In the human
medical market, national firms sell thousands of products,
including furniture, capital equipment, surgical instruments and
a myriad of consumables. The smaller companies generally direct
their product offerings to those items a physician uses daily in
caring for primarily ambulatory patients. These firms also may
sell lower priced equipment such as diagnostic instruments,
which are used in conjunction with consumable reagents.
We are currently exploring distribution alternatives and may
enter into arrangements, where appropriate. 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. in our third quarter of fiscal 2008, McKesson
Medical-Surgical Inc. in our first quarter of fiscal 2008,
Cardinal Health in our fourth quarter of fiscal 2007, Henry
Scheins Medical Group in our first quarter of fiscal 2007
and PSS World Medical, Inc. in our third quarter of fiscal 2006.
We are also currently pursuing direct medical sales, where
appropriate.
Veterinary
Market
Veterinarians are served typically by local distributors, some
with national affiliations. We work with various independent
distributors to sell our instruments and consumable products. In
the United States, we have both
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regional and national based distributors, which includes, among
others, American Veterinary Supply Corp., DVM Resources, IVESCO
LLC., Merritt Veterinary Supplies, Inc., Nelson Laboratories,
Penn Veterinary Supply, Inc., TW Medical Veterinary Supply and
Western Medical Supply, Inc. In addition to selling through
distributors, we directly supply our VetScan products to
Veterinary Centers of America (VCA), the nations largest
veterinary hospital chain. In fiscal 2008, one distributor in
the United States veterinary market, DVM Resources, accounted
for 12% of our total worldwide revenues.
From April 2004 through May 2006, we had a distribution
partnership with the veterinary division of Henry Schein,
Inc. While we continue to enter into arrangements with other
veterinary distributors, in May 2006, both Abaxis and Henry
Schein determined that it was in the best interest of both
companies to discontinue the distribution agreement due to Henry
Scheins acquisition of a regional distributor of a
competing company in the veterinary market. To support those
customers who were previously supplied products by Henry Schein,
we have had our current distributors supply and service these
sites, or depending on the customers needs and
geographical location, we will continue to support and service
these customers on a direct basis as well.
We also sell our veterinary products to distributors located in
Canada. Our veterinary reagents are sold to various distributors
in Canada, which includes Associated Veterinary Purchase, CDMV,
Distribution Vie et Sante, Midwest Veterinary Distribution
Cooperative Limited, Veterinary Purchasing Company Limited and
Western Drug Distribution Center Limited. Currently, we sell our
VetScan chemistry analyzers and hematology analyzers to one
distributor in Canada, Vet Novations.
We intend to enter into arrangements with additional veterinary
distributors within North America as well as pursue direct
veterinary sales, where appropriate.
Distribution
Outside of North America
Our international sales and marketing objectives include
identifying and defining the market segments in each country by
product and then focusing on specific objectives for each
segment in each country. These specific objectives include
modification and expansion of distribution and distributor
training and monitoring to ensure the attainment of sales goals.
We currently have distributors for our products in the following
foreign countries: Australia, Austria, Bahrain, Belgium, Czech
Republic, Denmark, France, Germany, Hong Kong, Ireland, Israel,
Italy, Japan, Korea, Macao, the Netherlands, New Zealand, the
Philippines, Portugal, Romania, Russia, Singapore, South Africa,
Spain, Sweden, Switzerland, Turkey, Ukraine, United Arab
Emirates and the United Kingdom. Our distributor in each of
these countries is responsible for obtaining the necessary
approvals to sell our new and existing products.
Revenues in Europe accounted for 13%, 12% and 11% of our total
revenues for fiscal 2008, 2007 and 2006, respectively. Revenues
in Asia Pacific and rest of the world accounted for 3%, 4% and
4% of our total revenues for fiscal 2008, 2007 and 2006,
respectively.
We plan to continue to enter into additional distributor
relationships to expand our international distribution base and
solidify our international presence.
MANUFACTURING
We manufacture our Piccolo and VetScan chemistry analyzers from
our facility located in Union City, California. The VetScan HM2
and HM5 are manufactured by Diatron in Budapest, Hungary and are
purchased by us as a completed instrument.
Our Piccolo products are regulated under the 1976 Medical Device
Amendments to the Food, Drug and Cosmetic Act, which is
administered by the FDA. To produce and commercially ship
Piccolo products, we must have a license to manufacture medical
products in the State of California, where we conduct our
principal manufacturing activities, and be registered by the FDA
as a medical device manufacturer. 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
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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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Although we are not required to comply with all of the
government regulations applicable to the human medical market
when manufacturing the VetScan products, we intend that all of
our manufacturing operations will be compliant with the Quality
System Regulation to help ensure product quality and integrity
regardless of end use or patient.
In addition to the development of standardized manufacturing
processes and quality control programs for the entire
manufacturing process, our manufacturing activities are
concentrated in the following three primary areas:
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Point-of-Care Blood Chemistry Analyzer: The
analyzer used in the Piccolo and VetScan systems employs a
variety of components designed or specified by us, including a
variable speed motor, microprocessors, a liquid crystal display,
a printer, a spectrophotometer and other electronic components.
These components are manufactured by several third-party vendors
that have been qualified and approved by us and then assembled
by our contract manufacturers. The components are assembled at
our facility in Union City into the finished product and
completely tested to ensure that the finished product meets
product specifications. The analyzer uses
technologically-advanced components, many of which are available
only from single source vendors. Currently, the technologically
advanced components are purchased from the following two single
source vendors, PerkinElmer, Inc. and UDT Sensors (a division of
OSI Optoelectronics). We do not have supply agreements with any
of these companies and they are not contractually obligated to
continue supplying us with components in the quantities or at
the prices that such companies have done historically.
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Reagent Discs: The molded plastic discs used
in the manufacture of the reagent disc are manufactured to our
specifications by established injection-molding manufacturers.
To achieve the precision required for accurate test results, the
discs must be molded to very strict tolerances. To date, we have
only qualified two manufacturers, C. Brewer & Co. and
Nypro, Inc. to mold the discs. We do not have supply agreements
with either of these companies and they are under no contractual
obligation to continue supplying us with discs either in the
quantities or at the prices that such companies have done
historically. We are also working with our suppliers to improve
yields and increase capacity on the existing production molds.
While we have increased the number of disc molding tools to
strengthen and better protect our line of supply, an inability
by our injection-molding manufacturers to supply sufficient
discs would have a material adverse impact on our results of
operations. We assemble the reagent discs by using the molded
plastic discs, loading the disc with reagents and then
ultrasonically welding together the top and bottom pieces.
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Reagent Beads: The reagent discs contain
diluent and all the dry reagent chemistry beads necessary to
perform blood analyses. We purchase chemicals from third-party
suppliers and formulate the raw materials, using proprietary
processes, into beads at the proper concentration and
consistency to facilitate placement in the reagent disc and
provide homogeneous dissolution and mixing when contacted by the
diluted plasma. We are dependent on the following companies who
are our single source providers of one or more chemicals that
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we use in the reagent production process: 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., Shinko American Inc. and
Sigma Aldrich Inc. We do not have supply agreements with
any of these companies and they are under no contractual
obligation to continue supplying us in the quantities or at the
price such companies have done historically. Although we believe
all of the chemicals provided by these companies would be
readily available elsewhere and we continue to evaluate vendor
sources to protect and improve our lines of supply, the loss of
any of these companies as a supplier could materially adversely
affect our manufacturing activities and results of operations.
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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.
MATERIAL
RELATIONSHIPS WITH SUPPLIERS AND OTHER THIRD PARTIES
Diatron Messtechnik GmbH. In our November 2003
original equipment manufacturing and supply manufacturing
(OEM) agreement with Diatron Messtechnik GmbH
(Diatron), we acquired the exclusive right to
distribute Diatrons veterinary hematology analyzers in
Australia, Canada, Japan, New Zealand and the
United States. The Diatron hematology instruments are
currently supplied by Diatron MI Kft. The agreement had a
five-year term and we were subject to certain minimum purchase
quantities during the original contract term. In September 2006,
the terms of the agreement, with respect to the purchase
commitments, were revised and we completed all of the purchase
commitments requirements in the quarter ended December 31,
2007. In February 2008, the terms of the OEM agreement, with
respect to the purchase commitments, were again revised. Under
the amended OEM agreement currently in effect, we are committed
to purchase a minimum number of hematology instruments through
fiscal 2009. See Note 8 Commitments and
Contingencies of the Notes to Financial Statements for
additional information.
DVM Resources. DVM Resources, one of our
distributors of veterinary products in the United States,
accounted for 12% and 15% of our total worldwide revenue in
fiscal 2008 and 2007, respectively.
COMPETITION
Competition in the human and veterinary diagnostic markets is
intense. 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 primarily with the following organizations: commercial
clinical laboratories, hospitals clinical laboratories and
manufacturers of bench top multi-test blood analyzers and other
testing systems that health care providers can use
on-site.
Historically, hospitals and commercial laboratories perform most
of the human medical testing, and veterinary specialized
commercial laboratories perform most of the veterinary medical
testing. We have identified five principal factors that we
believe customers typically use to evaluate our products and
those of our competitors. These factors are as follows:
(i) range of tests offered; (ii) the immediacy of
results; (iii) cost effectiveness; (iv) ease of use
and (v) 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
both a wide range and high volumes of discrete 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 our targeted market segments, 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.
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. Hoffmann-La Roche Ltd.
(Reflotron system). Our principal competitors in the veterinary
diagnostic market are Idexx Laboratories, Inc. and Heska
Corporation. Most of our competitors have significantly greater
financial, marketing, sales and technical and other resources
than we do. In particular, many of our competitors have large
sales forces and well-established distribution channels.
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Consequently, we are developing our distribution network and
expanding our direct sales force in order to compete in these
markets.
GOVERNMENT
REGULATION
U.S.
Food and Drug Administration Clearance
Our Piccolo products are regulated under the 1976 Medical Device
Amendment 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, 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 March 31,
2008, we have received market clearance from the FDA for our
Piccolo system 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 or any of these additional
tests, we will not be able to market that product in the United
States, which could harm our future sales.
Clinical
Laboratory Improvements Act Regulations
Our Piccolo products are also affected by 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 three categories: waived,
moderately complex and highly complex.
Many of the tests performed using the Piccolo system are in the
moderately complex category. This category requires
that any location in which testing is performed be certified as
a laboratory. Hence, we can only sell some Piccolo products to
customers who meet the standards of a laboratory. To receive
laboratory certification, a testing facility must be
certified by the Centers for Medicare and Medicaid Services.
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.
In October 2007, the FDA granted waived status under CLIA
regulations for the following analytes when used in conjunction
with the Piccolo xpress and Piccolo Classic chemistry analyzers
for the medical market: chloride
(CL-),
potassium (K+), sodium (NA+) and total carbon dioxide
(tCO2).
Prior to the end of fiscal 2007, the FDA granted waived status
under CLIA regulations for the following tests when used in
conjunction with our Piccolo chemistry analyzer: alanine
aminotransferase (ALT), albumin (ALB), alkaline phosphatase
(ALP), amylase (AMY), aspartate aminotransferase (AST), calcium
(CA), creatinine (CRE), gamma glutamyltransferase (GGT), glucose
(GLU), high-density lipoprotein cholesterol (HDL), total
bilirubin (TBIL), total protein (TP), triglycerides (TRIG),
total cholesterol (CHOL), urea nitrogen (BUN) and uric acid
(UA). Accordingly, we can offer the following Piccolo reagent
discs as waived tests to the medical market: Basic Metabolic
Panel, Comprehensive Metabolic Panel, Electrolyte Panel, General
Chemistry 6, General Chemistry 13, Kidney Check, Lipid Panel,
Lipid Panel Plus and Liver Panel Plus. 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.
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. However, we are engaged
in an active program to test and apply for CLIA waivers for
additional analytes.
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Other
Regulations
We are subject to a variety of federal, state, local and
international regulations regarding the manufacture and sale of
our products. 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.
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As we continue to sell in foreign markets, we may have to obtain
additional governmental clearances in those markets. The
government regulations for our medical and veterinary products
vary. We cannot predict what impact, if any, such current or
future regulatory changes would have on our business.
RESEARCH
AND DEVELOPMENT
Research and development activities are focused on the
following: developing new immunoassay tests, clinical trials,
preparation of submission for CLIA waived status on new test
methods and product improvements and enhancement of existing
products. Our research and development expenses, which consist
of salaries and benefits, consulting expenses and materials were
$7.0 million, $6.2 million and $6.1 million, or
7%, 7% and 9% of our total revenues, in fiscal 2008, 2007 and
2006, respectively.
PATENTS
AND PROPRIETARY TECHNOLOGIES
We have pursued the development of a patent portfolio to protect
our proprietary technology. As of March 31, 2008, 36 patent
applications have been filed on our behalf with the United
States Patent and Trademark Office, of which the following 29
have been issued and are active:
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Patent No.
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Description
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Issue Date
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Expiration Date
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5,061,381
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Apparatus and Method for Separating Cells from Biological Fluids
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October 29, 1991
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June 4, 2010
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5,122,284
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Apparatus and Method for Optically Analyzing Biological Fluids
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June 16, 1992
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June 4, 2010
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5,173,193
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Centrifugal Rotor Having Flow Partition
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December 22, 1992
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April 1, 2011
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5,242,606
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Sample Metering Port for Analytical Rotor Having Overflow Chamber
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September 7, 1993
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September 7, 2010
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5,275,016
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Cryogenic Apparatus
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January 4, 1994
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April 24, 2012
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5,304,348
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Reagent Container for Analytical Rotor
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April 19, 1994
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February 11, 2012
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5,384,247
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Determination of Sodium Ions in Fluids
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January 24, 1995
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January 24, 2012
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5,403,415
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Method and Device for Ultrasonic Welding
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April 4, 1995
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November 17, 2013
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5,409,665
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Simultaneous Cuvette Filling with Means to Isolate Cuvettes
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April 25, 1995
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September 1, 2013
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5,409,814
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Determination of Ions in Fluids
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April 25, 1995
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April 25, 2012
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5,413,732
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Reagent Compositions for Analytical Testing
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May 9, 1995
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May 9, 2012
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Patent No.
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Description
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Issue Date
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Expiration Date
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5,457,053
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Reagent Container for Analytical Rotor
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October 10, 1995
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October 10, 2012
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5,472,603
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Analytical Rotor with Dye Mixing Chamber
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December 5, 1995
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December 5, 2012
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5,478,750
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Methods for Photometric Analysis
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December 26, 1995
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March 31, 2013
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5,501,958
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Determination of Potassium Ions in Fluids
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March 26, 1996
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March 26, 2013
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5,518,930
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Simultaneous Cuvette Filling with Means to Isolate Cuvettes
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May 21, 1996
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September 1, 2013
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5,590,052
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Error Checking in Blood Analyzer
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December 31, 1996
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April 14, 2014
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5,591,643
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Simplified Inlet Channels
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January 7, 1997
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January 7, 2014
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5,599,411
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Method and Device for Ultrasonic Welding
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February 4, 1997
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November 17, 2013
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5,624,597
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Reagent Compositions for Analytical Testing
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April 29, 1997
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April 29, 2014
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5,693,233
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Methods of Transporting Fluids Within An Analytical Rotor
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December 2, 1997
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April 2, 2012
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5,776,563
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Dried Chemical Compositions
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July 7, 1998
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July 7, 2015
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5,998,031
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Dried Chemical Compositions
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December 7, 1999
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August 19, 2011
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6,068,971
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Process for Determination of Ions in Fluids by Masking of
Interfering Ions
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May 30, 2000
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May 30, 2017
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6,235,531
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Modified Siphons for Improved Metering Precision
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May 22, 2001
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September 1, 2013
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6,251,684
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Dried Chemical Compositions
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June 26, 2001
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August 18, 2011
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6,752,961
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Modified Siphons for Improved Metering Precision
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June 22, 2004
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September 1, 2013
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6,818,415
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Sodium Activation of Amylase
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November 16, 2004
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June 22, 2021
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7,177,767
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Systems and Methods for the Detection of Short and Long Samples
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February 13, 2007
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January 13, 2024
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Our policy is to file patent applications to protect technology,
inventions and improvements that are important to the
development of our business. We also rely upon trade secrets,
know-how, continuing technological innovations and licensing
opportunities to develop and maintain competitive position.
Fourteen international applications have been filed on our
behalf under the Patent Cooperation Treaty (PCT) and we are
selectively filing patent applications in countries where we
anticipate to market our products. Eighty-four national foreign
applications were filed on our behalf in various countries and
74 of them have been granted. Of these 74, a total of 39 have
been abandoned; and 1 patent was opposed by bioMerieux, which
was settled during fiscal 2006, granting bioMerieux a license
under certain of our patents.
EMPLOYEES
As of March 31, 2008, we had 321 full-time employees
distributed across the following divisions:
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33 in research and development;
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144 in manufacturing operations;
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129 in sales and marketing (including customer support); and
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15 in general and administrative.
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We also use temporary help to assist in performing certain
operational duties. As of March 31, 2008, we had
25 temporary employees with most of them assisting in
manufacturing operations. None of our employees is covered by a
collective bargaining agreement and we consider our relations
with our employees to be good.
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INFORMATION
AVAILABLE TO INVESTORS
We make available, free of charge on or through our Internet
address located at www.abaxis.com 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. In addition, copies of our reports, proxy
statements and other information filed electronically with the
SEC may be accessed at
http://www.sec.gov.
The public may also read and copy any materials filed with the
SEC at the SECs Public Reference Room at
100 F Street, NE, Washington, DC 20549. This
information may also be obtained by calling the SEC at
1-800-SEC-0330,
by sending an electronic message to the SEC at
publicinfo@sec.gov or by sending a fax to the SEC at
1-202-777-1027.
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.
In evaluating our business, you should carefully consider the
following risks in addition to the other information in this
Annual Report on
Form 10-K.
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.
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.
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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 and we cannot be assured that these tests
will be accepted by the veterinary market.
We
could fail to achieve anticipated revenue if problems related to
the manufacture of our new blood chemistry analyzers are not
resolved.
We manufacture our blood chemistry analyzers at our
manufacturing facility in Union City, California. We are
currently experiencing problems related to the manufacture of
our new blood chemistry analyzer, which are primarily related to
difficulties and delays in obtaining certain key components that
we purchase from various suppliers. These manufacturing problems
may be potentially related to quality control issues for key
components that we obtain from our suppliers or 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. If we are unable to resolve
these manufacturing problems on our new blood chemistry
analyzer, we will not be able to manufacture sufficient
quantities to meet anticipated demand and, therefore, will not
be able to effectively market and sell our new blood chemistry
analyzer; accordingly, our revenue and business would be
materially adversely affected.
We
have invested a significant portion of our cash in auction rate
securities, the market for which is currently illiquid. Funds
associated with certain of our auction rate securities may not
be accessible for an undetermined period of time and our auction
rate securities may experience an other than temporary decline
in value, which would adversely affect our statement of
operations.
Our marketable securities portfolio includes auction rate
securities that are structured with short-term interest rate
reset dates of generally less than 30 days, but with
contractual maturities that can be well in excess of ten years
or may never mature. At the end of each reset period, which
occurs ranging from every seven to 28 days, depending on
the security, investors can sell or continue to hold the
securities at par. This mechanism has historically provided a
liquid market for these securities. However, the recent negative
conditions in the global credit markets have prevented some
investors from liquidating their holdings of auction rate
securities because the amount of securities submitted for sale
has exceeded the amount of purchase orders for such securities.
At March 31, 2008, we held $37.0 million par value of
our investments in auction rate securities for which the
auctions had been unsuccessful. An auction failure, which is not
a default in the underlying debt instrument, occurs when there
are more sellers than
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buyers at a scheduled interest rate auction date and parties
desiring to sell their securities are unable to do so. If the
credit market does not improve, auctions for our invested
amounts may continue to fail. If an auction fails for securities
in which we have invested, we may be unable to liquidate some or
all of our auction rate securities at par, should we need or
desire to access the funds invested in those securities. In the
event we need or desire to access these funds, we will not be
able to do so until a future auction on these investments is
successful or a buyer is found outside the auction process. If a
buyer is found but is unwilling to purchase the investments at
par, we may incur a loss. Furthermore, if the issuers of the
auction rate securities are unable to successfully complete
future auctions and their credit ratings deteriorate, we may be
required to adjust the carrying value of these investments by
recording an impairment charge.
There is no assurance as to when the market for auction rate
securities will stabilize. The fair value of our auction rate
securities could change significantly based on market conditions
and continued uncertainties in the credit markets. If conditions
in the credit markets deteriorate further causing additional
auctions to fail, the funds associated with these auction rate
securities may also not be accessible for an undetermined period
of time, and we may be required to record losses or an
impairment charge on our auction rate securities portfolio in
future quarters, which would harm our financial condition.
We
rely on patents and other proprietary information, the loss of
which would negatively affect our business.
As of March 31, 2008, 36 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 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 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.
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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
must increase sales of our Piccolo and VetScan products or we
may not be able to maintain profitability.
As of March 31, 2008, we had cumulative net losses of
$3.0 million. Our ability to continue to be consistently
profitable 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.
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We cannot assure you that we will be able to successfully
increase our sales volumes of our products to sustain
profitability.
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.
As of March 31, 2008, we had 72 full-time sales
personnel directly involved in our sales and marketing
activities, many of whom 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, we will need to train new sales personnel and
supervise them 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 may be limited due to our lack of resources to market
our products.
17
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 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 the United States who
distribute our VetScan products. Our largest distributor in the
United States, DVM Resources, accounted for 12% and 15% of our
total worldwide revenues for fiscal 2008 and 2007, respectively.
While we continue to enter into arrangements with veterinary
distributors, we have also terminated our distribution
relationship with the veterinary division of Henry Schein in May
2006. While we have in the past, and expect to in the future,
support those customers who were previously supplied products by
Henry Schein through our current distributor base and direct
service, the loss of these customers or other distributors may
negatively affect our future revenues. Accordingly, if one or
more of our distributors were to stop selling our products in
the future, we may experience a sharp decline or delay in our
sales revenue.
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. in
our third quarter of fiscal 2008, McKesson Medical-Surgical Inc.
in our first quarter of fiscal 2008, Cardinal Health in our
fourth quarter of fiscal 2007, Henry Scheins Medical Group
in our first quarter of fiscal 2007 and PSS World Medical, Inc.
in our third quarter of fiscal 2006. We depend on these
distributors to assist us in promoting market acceptance of our
Piccolo chemistry analyzers.
Internationally, we rely on only a few distributors for our
products in both the medical and veterinary diagnostic markets.
We terminated our distributor agreement with T.
Chatani & Co., Ltd. in Japan in the first quarter of
fiscal 2008 and, although T. Chatani & Co., Ltd has
agreed to continue to service Abaxis customers, which includes
selling our reagent discs and hematology reagent kits, for a
limited period, our total product sales to
T. Chatani & Co., Ltd. under the arrangement have
significantly decreased and, as a result, our quarterly revenues
has been adversely impacted. In October 2007, 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
new 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: Australia,
Austria, Bahrain, Belgium, Canada, Czech Republic, Denmark,
France, Germany, Hong Kong, Ireland,
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Israel, Italy, Japan, Korea, Macao, the Netherlands, New
Zealand, the Philippines, Portugal, Romania, Russia, Singapore,
South Africa, Spain, Sweden, Switzerland, Turkey, Ukraine,
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 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.,
Shinko American Inc. and Sigma Aldrich Inc.
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Blood Chemistry Analyzer Components: Our blood
analyzer products use several technologically-advanced
components that we currently purchase from two single source
vendors, PerkinElmer, Inc. and UDT Sensors (a division of OSI
Optoelectronics). Our analyzers also use a printer that is
primarily made by Seiko North America Corporation. The loss of
the supply of any of these components could force us to redesign
our blood chemistry analyzers.
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Hematology Instruments and Reagents: Our
hematology instruments are manufactured by Diatron Messtechnik
GmbH 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 and
Mallinckrodt Baker BV.
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We operate on a purchase order basis with all of the suppliers
of our molded plastic reagent discs, reagent chemicals, blood
chemistry analyzer components and 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).
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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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immediacy of results;
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cost effectiveness;
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ease of use; and
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reliability of results.
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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 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.
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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, 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 March 31,
2008, 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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We cannot assure you that we will successfully pass 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
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regardless of where the tests are performed. The current CLIA
regulations divide laboratory tests into the following three
categories:
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waived;
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moderately complex; and
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highly complex.
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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.
In October 2007, the FDA granted waived status under CLIA
regulations for the following analytes when used in conjunction
with the Piccolo xpress and Piccolo Classic chemistry analyzers
for the medical market: chloride
(CL-),
potassium (K+), sodium (NA+) and total carbon dioxide
(tCO2).
Prior to the end of fiscal 2007, the FDA granted waived status
under CLIA regulations for the following tests when used in
conjunction with our Piccolo chemistry analyzer: alanine
aminotransferase (ALT), albumin (ALB), alkaline phosphatase
(ALP), amylase (AMY), aspartate aminotransferase (AST), calcium
(CA), creatinine (CRE), gamma glutamyltransferase (GGT), glucose
(GLU), high-density lipoprotein cholesterol (HDL), total
bilirubin (TBIL), total protein (TP), triglycerides (TRIG),
total cholesterol (CHOL), urea nitrogen (BUN) and uric acid
(UA). Accordingly, we can offer the following Piccolo reagent
discs as waived tests to the medical market: Basic Metabolic
Panel, Comprehensive Metabolic Panel, Electrolyte Panel, General
Chemistry 6, General Chemistry 13, Kidney Check, Lipid Panel,
Lipid Panel Plus and Liver Panel Plus. Waived status permits
untrained personnel to run the Piccolo chemistry analyzer using
these tests; thus, extending the sites (doctors offices
and other point-of-care environments) that can use the Piccolo
chemistry analyzer.
Although we are engaged in an active program to test and apply
for CLIA waivers for additional analytes, we cannot assure you
that we will successfully receive CLIA waived status from the
FDA for other products. Consequently, for the reagent discs that
have not received CLIA waived status, the market for our Piccolo
products may be confined to those testing facilities that are
certified as laboratories and our growth 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.
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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 under
SFAS No. 123(R), which may adversely affect our
reported financial results.
On April 1, 2006, we adopted Statement of Financial
Accounting Standards No. 123 (revised 2004),
Share-Based Payment
(SFAS No. 123(R)), 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 the
Companys common stock on the date of grant. Such value is
recognized as an expense, net of an estimated forfeiture rate,
for those shares expected to vest over the corresponding
requisite service period. Our policy is to recognize the expense
of restricted stock unit grants based on the vested portions of
the awards. During fiscal 2007 and 2008, we granted restricted
stock unit awards 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. During fiscal 2007 and 2008, 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 March 31, 2008, our total unrecognized
compensation expense related to restricted stock unit awards
granted to employees and directors to date totaled
$9.5 million.
We
depend on key members of our management and scientific staff
and, if we fail to retain and recruit qualified individuals, our
ability to execute our business strategy and generate sales
would be harmed.
We are highly dependent on the principal members of our
management and scientific staff. The loss of any of these key
personnel, including in particular Clinton H. Severson, our
President, Chief Executive Officer and Chairman of our Board of
Directors, might impede the achievement of our business
objectives. We may not be able to continue to attract and retain
skilled and experienced marketing, sales and manufacturing
personnel on acceptable terms in the future because numerous
medical products and other high technology companies compete for
the services of these qualified individuals. We currently do not
maintain key man life insurance on any of our employees.
We 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 to 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, 2008 and 2007. Although we received an
unqualified opinion on our financial statements for the fiscal
years ended March 31, 2008 and 2007, and on the
effectiveness of our internal control over financial reporting
as of March 31, 2008 and 2007, 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
23
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 under the
subheading Managements Discussion and Analysis of
Financial Condition and Results of Operations in this
Annual Report on
Form 10-K.
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;
|
|
|
|
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;
|
|
|
|
research and design costs related to the continuing development
of our current and future products; and
|
|
|
|
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. We handle and dispose
of human and veterinary blood samples for testing (whole blood,
plasma, serum), which cost approximately $90,000 in fiscal 2008,
and includes other environmental health and safety expenses to
comply with applicable environmental regulations. Although we
believe that we have complied with applicable laws and
regulations in all material respects and have not been required
to take any action to correct any noncompliance, we may have to
incur significant costs to comply with environmental regulations
if our manufacturing to commercial levels continues to increase.
In addition, if a government agency determines that we have not
complied with these laws, rules and regulations, we may have to
pay significant fines
and/or take
remedial action that would be expensive and we do not carry
environmental-related insurance coverage.
24
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 March 31, 2008, the closing sale
prices of our common stock on the NASDAQ Global Market ranged
from $20.89 to $37.88 per share and the closing sale price for
our quarter ended March 31, 2008 was $23.17 per share.
During the last eight fiscal quarters ended March 31, 2008,
our stock price closed at a high of $39.74 on December 24,
2007 and a low of $16.82 on May 24, 2006 and May 30,
2006. Many factors may affect the market price of our common
stock, including:
|
|
|
|
|
fluctuation in our operating results;
|
|
|
|
announcements of technological innovations or new commercial
products by us or our competitors;
|
|
|
|
changes in governmental regulation in the United States and
internationally;
|
|
|
|
prospects and proposals for health care reform;
|
|
|
|
governmental or third-party payors controls on prices that
our customers may pay for our products;
|
25
|
|
|
|
|
developments or disputes concerning our patents or our other
proprietary rights;
|
|
|
|
product liability claims and public concern as to the safety of
our devices or similar devices developed by our
competitors; and
|
|
|
|
general market conditions.
|
Because our stock price is so volatile, investing in our common
stock is highly risky. A potential investor must be able to
withstand the loss of his entire investment in our common stock.
Our
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 1B.
|
Unresolved
Staff Comments
|
Not applicable.
We occupy approximately 91,124 square feet of office,
research and development and manufacturing space in a building
in Union City, California. The lease agreement is for ten years
and commenced in January 2001. We have an option to extend the
lease for five additional years. Additionally, starting in
September 2007, we lease approximately 5,800 square feet of
office space in Darmstadt, Germany, expiring in fiscal 2013. We
believe that our current facilities are suitable and adequate to
meet our needs for the foreseeable future.
|
|
Item 3.
|
Legal
Proceedings
|
We are from time to time involved in various litigation matters
in the normal course of business. While the outcome of these
proceedings and claims cannot be predicted with certainty, we
believe that the ultimate resolution of these matters will not
have a material effect on our financial position or results of
operations.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
No matters were submitted to a vote of our security holders
during the quarter ended March 31, 2008.
26
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Market
Information for Common Stock
Our common stock is traded on the NASDAQ Global Market under the
symbol ABAX. The following table sets forth the
quarterly high and low
intra-day
per share sales prices for the common stock from April 1,
2006 through March 31, 2008 as reported on the NASDAQ
Global Market:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices
|
|
|
|
Fiscal 2008
|
|
|
Fiscal 2007
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
Quarter ended June 30
|
|
$
|
27.00
|
|
|
$
|
20.50
|
|
|
$
|
26.85
|
|
|
$
|
16.47
|
|
Quarter ended September 30
|
|
|
22.89
|
|
|
|
17.54
|
|
|
|
24.59
|
|
|
|
18.81
|
|
Quarter ended December 31
|
|
|
40.00
|
|
|
|
22.07
|
|
|
|
25.45
|
|
|
|
18.50
|
|
Quarter ended March 31
|
|
|
38.09
|
|
|
|
20.83
|
|
|
|
25.62
|
|
|
|
16.94
|
|
As of June 9, 2008, there were 21,768,000 shares of
our common stock outstanding, held by 147 shareholders of
record.
We did not repurchase any of our equity securities during the
fourth quarter of fiscal 2008.
Dividends
Under our debt agreements, we are restricted from paying
aggregate cash dividends on our capital stock in excess of 50%
of our net income on an annual basis. We have not paid cash
dividends on our common stock and do not anticipate paying cash
dividends in the foreseeable future.
27
Stock
Performance Graph(1)
The graph below compares the cumulative total shareholder return
on an investment in our common stock, the Russell 2000 Index and
the NASDAQ Medical Equipment Index over the past five year
period ended March 31, 2008. The shareholder return shown
on the graph below is not necessarily indicative of future
performance, and we do not make or endorse any predictions as to
future shareholder returns.
The graph assumes the investment of $100 on March 31, 2003
in our common stock, the Russell 2000 Index and the NASDAQ
Medical Equipment Index and assumes dividends, if any, are
reinvested. No dividends have been declared on our common stock
to date.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Abaxis, Inc., the Russell 2000 Index
and the NASDAQ Medical Equipment Index
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/2003
|
|
|
3/31/2004
|
|
|
3/31/2005
|
|
|
3/31/2006
|
|
|
3/31/2007
|
|
|
3/31/2008
|
Abaxis, Inc.
|
|
|
$
|
100.00
|
|
|
|
$
|
533.33
|
|
|
|
$
|
232.28
|
|
|
|
$
|
595.28
|
|
|
|
$
|
639.63
|
|
|
|
$
|
608.14
|
|
Russell 2000
|
|
|
$
|
100.00
|
|
|
|
$
|
163.83
|
|
|
|
$
|
172.70
|
|
|
|
$
|
217.34
|
|
|
|
$
|
230.18
|
|
|
|
$
|
200.25
|
|
NASDAQ Medical Equipment Securities
|
|
|
$
|
100.00
|
|
|
|
$
|
164.13
|
|
|
|
$
|
168.80
|
|
|
|
$
|
219.34
|
|
|
|
$
|
220.26
|
|
|
|
$
|
221.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This section is not soliciting material, is not
deemed filed with the Securities and Exchange
Commission and is not to be incorporated by reference in any
filing of Abaxis under the Securities Act of 1933, as amended,
or the Securities Exchange Act of 1934, as amended, whether made
before or after the date hereof and irrespective of any general
incorporation language contained in any such filing. |
28
|
|
Item 6.
|
Selected
Financial Data
|
The following selected financial data is qualified by reference
to and should be read in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and with the financial
statements, related notes thereto and other financial
information included elsewhere in this Annual Report on
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2008(1)
|
|
|
2007(1)
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except per share data)
|
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
100,551
|
|
|
$
|
86,221
|
|
|
$
|
68,928
|
|
|
$
|
52,758
|
|
|
$
|
46,874
|
|
Cost of revenues
|
|
|
45,507
|
|
|
|
39,362
|
|
|
|
30,075
|
|
|
|
24,811
|
|
|
|
22,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
55,044
|
|
|
|
46,859
|
|
|
|
38,853
|
|
|
|
27,947
|
|
|
|
23,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
6,966
|
|
|
|
6,180
|
|
|
|
6,127
|
|
|
|
5,150
|
|
|
|
4,757
|
|
Sales and marketing
|
|
|
23,689
|
|
|
|
20,569
|
|
|
|
16,219
|
|
|
|
10,820
|
|
|
|
10,701
|
|
General and administrative
|
|
|
6,681
|
|
|
|
5,735
|
|
|
|
5,775
|
|
|
|
4,881
|
|
|
|
3,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
37,336
|
|
|
|
32,484
|
|
|
|
28,121
|
|
|
|
20,851
|
|
|
|
19,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
17,708
|
|
|
|
14,375
|
|
|
|
10,732
|
|
|
|
7,096
|
|
|
|
4,720
|
|
Interest and other income (expense), net
|
|
|
2,096
|
|
|
|
1,774
|
|
|
|
787
|
|
|
|
269
|
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
19,804
|
|
|
|
16,149
|
|
|
|
11,519
|
|
|
|
7,365
|
|
|
|
4,825
|
|
Income tax provision (benefit)
|
|
|
7,301
|
|
|
|
6,076
|
|
|
|
4,044
|
|
|
|
2,514
|
|
|
|
(19,208
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
12,503
|
|
|
|
10,073
|
|
|
|
7,475
|
|
|
|
4,851
|
|
|
|
24,033
|
|
Preferred dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(419
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders
|
|
$
|
12,503
|
|
|
$
|
10,073
|
|
|
$
|
7,475
|
|
|
$
|
4,851
|
|
|
$
|
23,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.58
|
|
|
$
|
0.49
|
|
|
$
|
0.37
|
|
|
$
|
0.25
|
|
|
$
|
1.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
0.56
|
|
|
$
|
0.46
|
|
|
$
|
0.35
|
|
|
$
|
0.22
|
|
|
$
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in the calculation of net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic
|
|
|
21,499
|
|
|
|
20,643
|
|
|
|
19,985
|
|
|
|
19,696
|
|
|
|
18,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding diluted
|
|
|
22,261
|
|
|
|
21,846
|
|
|
|
21,492
|
|
|
|
21,662
|
|
|
|
20,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On April 1, 2006, we adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), Share-Based
Payment and included share-based compensation for employee
share-based awards in our statements of operations. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
17,219
|
|
|
$
|
10,183
|
|
|
$
|
10,164
|
|
|
$
|
5,776
|
|
|
$
|
9,324
|
|
Short-term investments
|
|
|
6,991
|
|
|
|
35,028
|
|
|
|
20,372
|
|
|
|
16,858
|
|
|
|
7,998
|
|
Working capital
|
|
|
52,500
|
|
|
|
74,517
|
|
|
|
49,949
|
|
|
|
38,744
|
|
|
|
25,865
|
|
Long-term investments
|
|
|
35,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
120,903
|
|
|
|
102,715
|
|
|
|
83,078
|
|
|
|
71,009
|
|
|
|
61,898
|
|
Long-term liabilities
|
|
|
2,161
|
|
|
|
2,167
|
|
|
|
1,679
|
|
|
|
1,629
|
|
|
|
938
|
|
Total shareholders equity
|
|
|
104,649
|
|
|
|
87,812
|
|
|
|
71,038
|
|
|
|
61,667
|
|
|
|
54,572
|
|
29
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion and analysis should be read in
conjunction with our financial statements and related notes
thereto included elsewhere in this Annual Report on
Form 10-K.
This discussion may contain forward-looking statements based
upon current expectations that involve risks and uncertainties.
Our actual results and the timing of selected events could
differ materially from those anticipated in these
forward-looking statements as a result of several factors,
including those set forth under Item 1A. Risk
Factors and elsewhere in this Annual Report on
Form 10-K.
BUSINESS
OVERVIEW
Abaxis, Inc. (Abaxis, us, or
we) develops, manufactures, markets and sells
portable blood analysis systems for use in any 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
facilities 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
xpresstm.
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.
|
|
|
|
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
HM5tm.
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
HM2tm.
We currently purchase the hematology instruments from Diatron MI
Kft. 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.
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 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 financial statements are prepared in accordance with
accounting principles generally accepted in the United States.
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
30
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.
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. For a
more detailed discussion on the application of these and other
accounting policies, see the Notes to Financial Statements
included in this Annual Report on
Form 10-K.
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 is allocated
separately to the instruments and incentives based on the
relative fair value of each element. Revenues allocated to
incentives is deferred until the goods are shipped to the
customer or is recognized ratably over the life of the
maintenance contract. At March 31, 2008, 2007 and 2006, the
current portion of deferred revenue balances was $807,000,
$917,000 and $939,000, respectively, and the non-current portion
of deferred revenue balances was $1.1 million,
$1.2 million and $938,000, respectively. The fluctuation in
balances is due to the types of customer incentives programs
offered during the period, depends on when the free goods are
shipped to the customer and the maintenance period of the
maintenance agreements.
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 the qualifying period.
Cash rebates are offered to customers who purchase specific
instruments during a promotional period. Cash rebates are
recorded as a reduction to gross revenues.
The distributor pricing rebate program, which started in fiscal
2005, is offered to distributors in the North America
veterinary market, upon meeting the sales volume requirements of
reagent discs during the qualifying period. Factors used in the
rebate calculations include the identification of products sold
subject to a rebate during the qualifying period and which
rebate percentage applies. Based on these factors and using
historical trends, adjusted for current changes, we estimate the
amount of the rebate that will be paid and record the liability
as a reduction to gross revenues when we record the sale of the
product. Settlement of the rebate accruals from the date of sale
ranges from one to three months after sale. At March 31,
2008, 2007 and 2006, the accrual balances related to distributor
pricing rebates were $140,000, $229,000 and $90,000,
respectively. The changes in the rebate accrual at each fiscal
year end are based upon distributors meeting the purchase
requirements during the quarter.
Rebate programs offered to customers vary from period to period
in the medical and veterinary markets. Generally, the customer
rebate program relates to the sale of certain products or
instruments during a specified promotional period. As part of
the rebate program, a customer receives a cash rebate upon
purchasing certain instruments in the North America market
during a promotional period. Factors used in the rebate
calculations include the identification of instruments sold
subject to a rebate during the qualifying period and the
estimated lag time between the sale and payment of a rebate. We
estimate the amount of the rebate that will be paid and record
the liability as a reduction of gross revenues when we record
the sale of the product. Settlement of the rebate accruals
31
from the date of sale ranges from one to six months after sale.
At March 31, 2008, 2007 and 2006, the accrual balances
related to customer rebates were $0, $168,000 and $36,000,
respectively. The changes in the rebate accrual were due to the
type of marketing promotions offered during the fiscal year and
timing of the rebate obligations paid to customers.
The following table is an analysis of the roll forward
activities for the distributor and customer rebate accruals (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
of Year
|
|
|
Provisions
|
|
|
Payments
|
|
|
End of Year
|
|
|
Year Ended March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributor rebates
|
|
$
|
229
|
|
|
$
|
498
|
|
|
$
|
(587
|
)
|
|
$
|
140
|
|
Customer rebates
|
|
|
168
|
|
|
|
|
|
|
|
(168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributor and customer rebates
|
|
$
|
397
|
|
|
$
|
498
|
|
|
$
|
(755
|
)
|
|
$
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributor rebates
|
|
$
|
90
|
|
|
$
|
781
|
|
|
$
|
(642
|
)
|
|
$
|
229
|
|
Customer rebates
|
|
|
36
|
|
|
|
328
|
|
|
|
(196
|
)
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributor and customer rebates
|
|
$
|
126
|
|
|
$
|
1,109
|
|
|
$
|
(838
|
)
|
|
$
|
397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributor rebates
|
|
$
|
177
|
|
|
$
|
781
|
|
|
$
|
(868
|
)
|
|
$
|
90
|
|
Customer rebates
|
|
|
|
|
|
|
578
|
|
|
|
(542
|
)
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributor and customer rebates
|
|
$
|
177
|
|
|
$
|
1,359
|
|
|
$
|
(1,410
|
)
|
|
$
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. The balances
related to sales allowance for defective reagent discs at
March 31, 2008, 2007 and 2006 were $27,000, $368,000 and
$234,000, respectively. 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 collectibility of the amounts owed to us by our customers.
In determining the amount of the allowance, we make judgments
about the creditworthiness of customers which is mostly
determined by the 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 of Investments. Various assumptions
are used in the valuation models to estimate the fair value of
our investments in auction rate securities, including a
securitys expected future cash flows, market rate of
return and its term. These assumptions, assessments and the
interpretations of relevant market data are subject to
uncertainties, are difficult to predict and require significant
judgment. The use of different assumptions, applying different
judgment to inherently subjective matters and changes in future
market conditions could result in significantly different
estimates of fair value.
32
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 is two 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 related
sales are recognized and any additional amounts are recorded
when such costs are probable and can be reasonably estimated, at
which time they are included in cost of revenues. Prior to
July 1, 2007, we primarily issued a credit to customers for
defective reagent discs and, therefore, the provision for
estimated costs for defective reagent discs, which includes the
replacement costs and freight of a defective reagent disc, was
recorded as part of sales and other allowances. Starting on
July 1, 2007, the provision for defective reagent discs is
recorded as part of warranty reserves, since we replace
defective reagent discs rather than issue a credit to customers.
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 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.
Long-Lived Assets. The carrying value of our
long-lived assets is reviewed for impairment, in accordance with
Statement of Financial Accounting Standards (SFAS)
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. 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
under the provisions of SFAS No. 109, Accounting
for Income Taxes. Under this method, 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.
Share-Based Compensation Expense. On
April 1, 2006, we adopted SFAS No. 123 (revised
2004), Share-Based Payment
(SFAS No. 123(R)) using the modified
prospective method and therefore have not restated prior
periods results. Under the fair value provisions of
SFAS No. 123(R), we recognize share-based compensation
expense, net of an estimated forfeiture rate, for those shares
expected to vest over the requisite service period of the award
to employees and directors. Prior to April 1, 2006, we
accounted for share-based awards to employees and directors
using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees and other related guidance and
therefore, no employee compensation cost had been recognized for
share-based awards in financial statements prior to
April 1, 2006 because we issued stock options with an
exercise price equal to the market value at the date of grant.
We use the Black-Scholes option pricing model to determine the
fair value of stock options granted prior to March 31,
2006. Determining the appropriate fair value model and
calculating the fair value of share-based awards requires highly
subjective assumptions, as described below.
33
|
|
|
|
|
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 SFAS No. 123(R), employee share-based
compensation expense recognized is calculated based on the
awards expected to vest and reduced for estimated forfeitures.
The forfeiture rate is estimated based on historical data of our
share-based 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.
The adoption of SFAS No. 123(R) at the beginning of
fiscal 2007 had a material impact on our earnings per share
and on our financial statements for fiscal 2008 and 2007, and we
expect that it will materially impact our financial statements
in the foreseeable future. The impact of
SFAS No. 123(R) on our financial results is disclosed
in Note 10 Share-Based Compensation in the
Notes to Financial Statement in this Annual Report on
Form 10-K.
RESULTS
OF OPERATIONS
Abaxis develops, manufactures, markets and sells portable blood
analysis systems for use in the human or veterinary patient-care
setting to provide clinicians with rapid blood constituent
measurements. We operate in two segments: (i) the medical
market and (ii) the veterinary market. See Segment
Results in this section for a detailed discussion.
Total
Revenues
Revenues by Geographic Region and by Product
Category. Revenues by geographic region based on
customer location and revenues by product category during fiscal
2008, 2007 and 2006 were as follows (in thousands, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
Change 2007 to 2008
|
|
|
Change 2006 to 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
Percent
|
|
|
Increase/
|
|
|
Percent
|
|
Revenues by Geographic Region
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
Change
|
|
|
(Decrease)
|
|
|
Change
|
|
|
North America
|
|
$
|
83,830
|
|
|
$
|
72,015
|
|
|
$
|
58,747
|
|
|
$
|
11,815
|
|
|
|
16
|
%
|
|
$
|
13,268
|
|
|
|
23
|
%
|
Percentage of total revenues
|
|
|
84
|
%
|
|
|
84
|
%
|
|
|
85
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
13,472
|
|
|
|
10,370
|
|
|
|
7,354
|
|
|
|
3,102
|
|
|
|
30
|
%
|
|
|
3,016
|
|
|
|
41
|
%
|
Percentage of total revenues
|
|
|
13
|
%
|
|
|
12
|
%
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia Pacific and rest of the world
|
|
|
3,249
|
|
|
|
3,836
|
|
|
|
2,827
|
|
|
|
(587
|
)
|
|
|
(15
|
)%
|
|
|
1,009
|
|
|
|
36
|
%
|
Percentage of total revenues
|
|
|
3
|
%
|
|
|
4
|
%
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
100,551
|
|
|
$
|
86,221
|
|
|
$
|
68,928
|
|
|
$
|
14,330
|
|
|
|
17
|
%
|
|
$
|
17,293
|
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
Change 2007 to 2008
|
|
|
Change 2006 to 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
Percent
|
|
|
Increase/
|
|
|
Percent
|
|
Revenues by Product Category
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
Change
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Instruments
|
|
$
|
30,011
|
|
|
$
|
28,899
|
|
|
$
|
21,864
|
|
|
$
|
1,112
|
|
|
|
4
|
%
|
|
$
|
7,035
|
|
|
|
32
|
%
|
Percentage of total revenues
|
|
|
30
|
%
|
|
|
34
|
%
|
|
|
32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reagent discs and kits
|
|
|
61,928
|
|
|
|
50,741
|
|
|
|
41,606
|
|
|
|
11,187
|
|
|
|
22
|
%
|
|
|
9,135
|
|
|
|
22
|
%
|
Percentage of total revenues
|
|
|
62
|
%
|
|
|
59
|
%
|
|
|
60
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other products
|
|
|
6,583
|
|
|
|
4,775
|
|
|
|
4,086
|
|
|
|
1,808
|
|
|
|
38
|
%
|
|
|
689
|
|
|
|
17
|
%
|
Percentage of total revenues
|
|
|
6
|
%
|
|
|
5
|
%
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales, net
|
|
|
98,522
|
|
|
|
84,415
|
|
|
|
67,556
|
|
|
|
14,107
|
|
|
|
17
|
%
|
|
|
16,859
|
|
|
|
25
|
%
|
Percentage of total revenues
|
|
|
98
|
%
|
|
|
98
|
%
|
|
|
98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development and licensing revenue
|
|
|
2,029
|
|
|
|
1,806
|
|
|
|
1,372
|
|
|
|
223
|
|
|
|
12
|
%
|
|
|
434
|
|
|
|
32
|
%
|
Percentage of total revenues
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
100,551
|
|
|
$
|
86,221
|
|
|
$
|
68,928
|
|
|
$
|
14,330
|
|
|
|
17
|
%
|
|
$
|
17,293
|
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2008 Compared to Fiscal 2007
North America. During fiscal 2008,
total revenues in North America increased 16%, or
$11.8 million, as compared to fiscal 2007. Components of
the change in North America were as follows:
Instruments. During fiscal 2008, total
revenues from instruments sold in North America increased 5%, or
$1.1 million, as compared to fiscal 2007. The primary
factors of the change were as follows:
(i) Sales of our Piccolo chemistry analyzers in North
America (excluding the U.S. government) increased 24%, or
$1.4 million, primarily due to increased sales to
distributors. Sales of our Piccolo chemistry analyzers to the
U.S. government increased 60%, or $469,000, primarily due
to an increase in the U.S. Militarys needs for our
products in the fourth quarter of fiscal 2008, which were not
predictable.
(ii) Sales of our VetScan chemistry analyzers in North
America decreased 22%, or $2.1 million, primarily due to a
shift in our sales and marketing focus from an instrument only
emphasis to a focus on both instrument and reagent discs as a
result of the manufacturing issues that we experienced in
previous quarters.
(iii) Sales of our hematology systems in North America
increased 19%, or $1.3 million, primarily due to the
release of our VetScan HM5 in September 2007.
Reagent discs and kits. During fiscal 2008,
total revenues from reagent discs and kits sold in
North America increased 20%, or $8.7 million, as
compared to fiscal 2007. The primary factors of the change were
as follows:
(i) Medical reagent discs sales in North America (excluding
the U.S. government) increased 37%, or $2.3 million,
primarily due to the expanded installed base of our Piccolo
chemistry analyzers. Medical reagent discs sold to the
U.S. government decreased 10%, or $239,000.
(ii) Veterinary reagent discs sales in North America
increased 21%, or $6.5 million, primarily due to the
expanded installed base of our VetScan chemistry analyzers.
(iii) Sales of hematology reagent kits in North America
increased 5%, or $161,000.
Other products. During fiscal 2008, total
revenues from other products sold in North America increased
38%, or $1.8 million, as compared to fiscal 2007. The net
increase in other products was primarily due to an increase in
demand from Becton, Dickinson and Company for products using the
Orbos Discrete Lyophilization Process (the Orbos
Process), which is based on seasonal demands.
Development and licensing. In fiscal 2008,
total revenues from development and licensing in
North America increased 12%, or $223,000, as compared to
fiscal 2007. The increase from development and licensing revenue
is primarily due to a licensing agreement to Cepheid, related to
our proprietary technology, the Orbos Process.
35
Significant concentration. One distributor in
the United States, DVM Resources, accounted for 12% of our total
worldwide revenues during fiscal 2008.
Europe. During fiscal 2008, total
revenues in Europe increased 30%, or $3.1 million, as
compared to fiscal 2007. Components of the change in Europe were
as follows:
Instruments. During fiscal 2008, total
revenues from instruments sold in Europe increased 20%, or
$796,000, as compared to fiscal 2007. The primary factors of the
change were as follows:
(i) Sales of our Piccolo chemistry analyzers in Europe
increased 83%, or $642,000, primarily due to increased sales to
distributors.
(ii) Sales of our VetScan chemistry analyzers in Europe
decreased 4%, or $123,000.
(iii) Sales of our hematology systems in Europe increased
79%, or $277,000.
Reagent discs and kits. During fiscal 2008,
total revenues from reagent discs and kits sold in Europe
increased 36%, or $2.3 million, as compared to fiscal 2007.
The primary factors of the change were as follows:
(i) Medical reagent discs sales in Europe increased 54%, or
$428,000, primarily due to the expanded installed base of our
Piccolo chemistry analyzers.
(ii) Veterinary reagent discs sales in Europe increased
35%, or $1.9 million, primarily due to the expanded
installed base of our VetScan chemistry analyzers.
(iii) Sales of hematology reagent kits in Europe were
substantially the same as in the prior year.
Other products. During fiscal 2008, total
revenues from other products sold in Europe increased 38%, or
$19,000, as compared to fiscal 2007.
Asia Pacific and rest of the world.
During fiscal 2008, total revenues in Asia Pacific and rest of
the world decreased 15%, or $587,000, as compared to fiscal
2007. Components of the change in Asia Pacific and rest of the
world were as follows:
Instruments. During fiscal 2008, total
revenues from instruments sold in Asia Pacific and rest of the
world decreased 41%, or $779,000, as compared to fiscal 2007.
The primary factors of the change were as follows:
(i) Sales of our Piccolo chemistry analyzers in Asia
Pacific and rest of the world increased 105%, or $84,000.
(ii) Sales of our VetScan chemistry analyzers in Asia
Pacific and rest of the world decreased 60%, or $729,000. The
decrease in veterinary chemistry analyzers was primarily in
Japan due to the termination of a distribution arrangement
during the first quarter of fiscal 2008.
(iii) Sales of our hematology systems in Asia Pacific and
rest of the world decreased 22%, or $134,000. The decrease in
hematology instruments was primarily in Japan due to the
termination of a distribution arrangement during the first
quarter of fiscal 2008.
Reagent discs and kits. During fiscal 2008,
total revenues from reagent discs and kits sold in Asia Pacific
and rest of the world increased 11%, or $208,000, as compared to
fiscal 2007. The primary factors of the change were as follows:
(i) Medical reagent discs sales in Asia Pacific and rest of
the world increased 43%, or $45,000.
(ii) Veterinary reagent discs sales in Asia Pacific and
rest of the world increased 15%, or $236,000, primarily due to
the expanded installed base of our VetScan chemistry analyzers.
(iii) Sales of hematology reagent kits in Asia Pacific and
rest of the world decreased 35%, or $73,000.
Other products. During fiscal 2008, total
revenues from other products sold in Asia Pacific and rest of
the world decreased 55%, or $16,000, as compared to fiscal 2007.
36
Fiscal
2007 Compared to Fiscal 2006
North America. During fiscal 2007,
total revenues in North America increased 23%, or
$13.3 million, as compared to fiscal 2006. Components of
the change in North America were as follows:
Instruments. During fiscal 2007, total
revenues from instruments sold in North America increased 30%,
or $5.3 million, as compared to fiscal 2006. The primary
factors of the change were as follows:
(i) Sales of our Piccolo chemistry analyzers in North
America (excluding the U.S. government) increased 66%, or
$2.3 million, partially due to marketing programs with two
of our national distributors in fiscal 2007, offset by a
decrease in the average selling price of Piccolo chemistry
analyzers in North America (excluding the
U.S. government). Sales of our Piccolo chemistry analyzers
to the U.S. government decreased 16%, or $144,000,
primarily due to a decrease in the U.S. Militarys
needs for our products in the second quarter of fiscal 2007,
which were not predictable.
(ii) Sales of our VetScan chemistry analyzers in North
America increased 29%, or $2.2 million, primarily due to
(a) an increase in sales personnel to promote our products
and (b) an increase in the average selling price of our
VetScan chemistry analyzers.
(iii) Sales of our hematology systems in North America
increased 16%, or $944,000, attributed primarily to a slower
market acceptance of the hematology systems in the prior fiscal
year.
Reagent discs and kits. During fiscal 2007,
total revenues from reagent discs and kits sold in
North America increased 19%, or $6.9 million, as
compared to fiscal 2006. The primary factors of the change were
as follows:
(i) Medical reagent discs sales in North America (excluding
the U.S. government) increased 89%, or $2.9 million,
primarily due to the expanded installed base of our Piccolo
chemistry analyzers. Medical reagent discs sold to the
U.S. government increased 23%, or $423,000, due to an
increase in the U.S. Militarys needs for our products
during the first and third quarters of fiscal 2007, which were
not predictable.
(ii) Veterinary reagent discs sales in North America
increased 9%, or $2.6 million, partially due to the
expanded installed base of our VetScan chemistry analyzers,
offset by a realignment of inventory in the distribution channel
primarily during the first two quarters of fiscal 2007.
(iii) Sales of hematology reagent kits in North America
increased 43%, or $968,000, primarily due to the expanded
installed base of our hematology systems.
Other products. During fiscal 2007, total
revenues from other products sold in North America increased
16%, or $643,000, as compared to fiscal 2006. The increase was
primarily due to an increase in demand from Becton, Dickinson
and Company for products using the Orbos Process, which is based
on seasonal demands, partially offset by an increase in
maintenance contracts offered to customers from time to time as
part of incentives in the form of free goods in connection with
the sale of our products.
Development and licensing. During fiscal 2007,
total revenues from development and licensing in North America
increased 32%, or $434,000, as compared to fiscal 2006. The
increase from development and licensing revenue is primarily due
to a licensing agreement to Cepheid, related to our proprietary
technology, the Orbos Process.
Significant concentration. One distributor in
the United States, DVM Resources, accounted for 15% of our total
worldwide revenues during fiscal 2007.
We had a distribution partnership with the veterinary division
of Henry Schein, Inc. from April 2004 through May 2006. In May
2006, both Abaxis and Henry Schein determined that it was in the
best interest of both companies to discontinue the distribution
agreement due to Henry Scheins acquisition of a regional
distributor of a competing company in the veterinary market. To
support those customers who were previously supplied products by
Henry Schein, we have had our current distributors supply
and service these sites, or depending on the customers
needs and geographical location, we continue to support and
service these customers on a direct basis as well.
37
Europe. During fiscal 2007, total
revenues in Europe increased 41%, or $3.0 million, as
compared to fiscal 2006. Components of the change in Europe were
as follows:
Instruments. During fiscal 2007, total
revenues from instruments sold in Europe increased 40%, or
$1.1 million, as compared to fiscal 2006. The primary
factors of the change were as follows:
(i) Sales of our Piccolo chemistry analyzers in Europe
increased 121%, or $424,000, primarily due to (a) the
fluctuation of the sales cycle of our Piccolo chemistry
analyzers and (b) an increase in demand from distributors.
(ii) Sales of our VetScan chemistry analyzers in Europe
increased 33%, or $702,000. The increase was partially offset by
a decrease in sales in the second quarter of fiscal 2007 due to
manufacturing issues associated with the introduction of the new
VetScan VS2 product line.
(iii) Sales of our hematology systems in Europe increased
4%, or $13,000.
Reagent discs and kits. During fiscal 2007,
total revenues from reagent discs and kits sold in Europe
increased 41%, or $1.8 million, as compared to fiscal 2006.
The primary factors of the change were as follows:
(i) Medical reagent discs sales in Europe increased 127%,
or $445,000, primarily due to the expanded installed base of our
Piccolo chemistry analyzers.
(ii) Veterinary reagent discs sales in Europe increased
33%, or $1.3 million, primarily due to the expanded
installed base of our VetScan chemistry analyzers.
(iii) Sales of hematology reagent kits in Europe increased
69%, or $83,000.
Other products. In fiscal 2007, total revenues
from other products sold in Europe increased 138%, or $29,000,
as compared to fiscal 2006.
Asia Pacific and rest of the
world. During fiscal 2007, total revenues in
Asia Pacific and rest of the world increased 36%, or
$1.0 million, as compared to fiscal 2006. Components of the
change in Asia Pacific and rest of the world were as follows:
Instruments. During fiscal 2007, total
revenues from instruments sold in Asia Pacific and rest of the
world increased 50%, or $631,000, as compared to fiscal 2006.
The primary factors of the change were as follows:
(i) Sales of our Piccolo chemistry analyzers in Asia
Pacific and rest of the world were substantially the same as in
the prior year.
(ii) Sales of our VetScan chemistry analyzers in Asia
Pacific and rest of the world increased 146%, or $725,000,
primarily due to increased sales by our distribution partner in
Japan. In the second quarter of fiscal 2006, our distributor in
Japan received clearance from the Japanese regulatory agency to
import and market our Piccolo and VetScan chemistry analyzers.
(iii) Sales of our hematology systems in Asia Pacific and
rest of the world decreased 14%, or $94,000.
Reagent discs and kits. During fiscal 2007,
total revenues from reagent discs and kits sold in Asia Pacific
and rest of the world increased 23%, or $361,000, as compared to
fiscal 2006. The primary factors of the change were as follows:
(i) Medical reagent discs sales in Asia Pacific and rest of
the world decreased 9%, or $10,000.
(ii) Veterinary reagent discs sales in Asia Pacific and
rest of the world increased 22%, or $287,000, primarily due to
the expanded installed base of our VetScan chemistry analyzers.
(iii) Sales of hematology reagent kits in Asia Pacific and
rest of the world increased 67%, or $84,000.
Other products. During fiscal 2007, total
revenues from other products sold in Asia Pacific and rest of
the world increased 142%, or $17,000, as compared to fiscal 2006.
38
Segment
Results
Fiscal
2008 Compared to Fiscal 2007
The following table presents revenues, cost of revenues, gross
profit and percentage of revenues by operating segments for
fiscal 2008 and 2007 (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
Change
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
Increase/
|
|
|
Percent
|
|
|
|
2008
|
|
|
Revenues(1)
|
|
|
2007
|
|
|
Revenues(1)
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
$
|
22,764
|
|
|
|
100
|
%
|
|
$
|
17,455
|
|
|
|
100
|
%
|
|
$
|
5,309
|
|
|
|
30
|
%
|
Percentage of total revenues
|
|
|
23
|
%
|
|
|
|
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Veterinary Market
|
|
|
71,091
|
|
|
|
100
|
%
|
|
|
63,851
|
|
|
|
100
|
%
|
|
|
7,240
|
|
|
|
11
|
%
|
Percentage of total revenues
|
|
|
71
|
%
|
|
|
|
|
|
|
74
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other(2)
|
|
|
6,696
|
|
|
|
|
|
|
|
4,915
|
|
|
|
|
|
|
|
1,781
|
|
|
|
36
|
%
|
Percentage of total revenues
|
|
|
6
|
%
|
|
|
|
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
100,551
|
|
|
|
|
|
|
|
86,221
|
|
|
|
|
|
|
|
14,330
|
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
|
11,340
|
|
|
|
50
|
%
|
|
|
8,549
|
|
|
|
49
|
%
|
|
|
2,791
|
|
|
|
33
|
%
|
Veterinary Market
|
|
|
31,812
|
|
|
|
45
|
%
|
|
|
29,021
|
|
|
|
45
|
%
|
|
|
2,791
|
|
|
|
10
|
%
|
Other(2)
|
|
|
2,355
|
|
|
|
|
|
|
|
1,792
|
|
|
|
|
|
|
|
563
|
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
45,507
|
|
|
|
|
|
|
|
39,362
|
|
|
|
|
|
|
|
6,145
|
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
|
11,424
|
|
|
|
50
|
%
|
|
|
8,906
|
|
|
|
51
|
%
|
|
|
2,518
|
|
|
|
28
|
%
|
Veterinary Market
|
|
|
39,279
|
|
|
|
55
|
%
|
|
|
34,830
|
|
|
|
55
|
%
|
|
|
4,449
|
|
|
|
13
|
%
|
Other(2)
|
|
|
4,341
|
|
|
|
|
|
|
|
3,123
|
|
|
|
|
|
|
|
1,218
|
|
|
|
39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
55,044
|
|
|
|
|
|
|
$
|
46,859
|
|
|
|
|
|
|
$
|
8,185
|
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The percentage reported is based on revenues by operating
segment. |
|
(2) |
|
Represents unallocated items, not specifically identified to any
particular business segment. |
Medical
Market
Revenues
for Medical Market Segment
During fiscal 2008, total revenues in the medical market
increased 30%, or $5.3 million, as compared to fiscal 2007.
Components of the change were as follows:
Instruments. Total revenues from our Piccolo
chemistry analyzers increased 35%, or $2.6 million, during
fiscal 2008, as compared to fiscal 2007. We sold a total of 811
Piccolo chemistry analyzers during fiscal 2008, as compared to
644 Piccolo chemistry analyzers sold during fiscal 2007. The
changes in revenues were attributed to (a) an increase in
revenues in North America (excluding the U.S. government)
of 24%, or $1.4 million, primarily due to increased sales
to distributors; (b) an increase in Piccolo chemistry
analyzers sold to the U.S. government of 60%, or $469,000,
primarily due to an increase in the U.S. Militarys
needs for our products in the fourth quarter of fiscal 2008,
which were not predictable; (c) an increase in revenues in
Europe of 83%, or $642,000, primarily due to increased sales to
distributors; and (d) an increase in revenues in Asia
Pacific and rest of the world of 105%, or $84,000.
Reagent discs. Total revenues from reagent
discs sold in the medical market increased 27%, or
$2.5 million, during fiscal 2008, as compared to fiscal
2007. We sold 1.3 million medical reagent discs during
fiscal 2008, as compared to 1.0 million medical reagent
discs sold during fiscal 2007. The total increase in revenues
from medical
39
reagent discs was primarily attributed to the expanded installed
base of our Piccolo chemistry analyzers and was comprised of
(a) an increase in revenues in North America (excluding the
U.S. government) of 37%, or $2.3 million; (b) an
increase in revenues in Europe of 54%, or $428,000; and
(c) an increase in revenues in Asia Pacific and rest of the
world of 43%, or $45,000. The increase in revenues was partially
offset by a decrease in medical reagent discs sold to the
U.S. government of 10%, or $239,000.
Gross
Profit for Medical Market Segment
Gross profit for the medical market segment increased 28%, or
$2.5 million, during fiscal 2008, as compared to fiscal
2007. Gross profit percentages for the medical market segment
during fiscal 2008 and 2007 were 50% and 51%, respectively. In
absolute dollars, the increase in gross profit for the medical
market segment was primarily due to (a) an increase in
Piccolo chemistry analyzers and medical reagent discs sold
during fiscal 2008 and (b) higher average selling prices of
Piccolo chemistry analyzers sold during fiscal 2008, partially
offset by (c) higher manufacturing costs on the Piccolo
xpress chemistry analyzers during fiscal 2008.
Veterinary
Market
Revenues
for Veterinary Market Segment
During fiscal 2008, total revenues in the veterinary market
increased 11%, or $7.2 million, as compared to fiscal 2007.
Components of the change were as follows:
Instruments. Total revenues from our
veterinary instruments sold decreased 7%, or $1.5 million,
during fiscal 2008, as compared to fiscal 2007. We sold a total
of 2,332 VetScan chemistry analyzers and hematology instruments
during fiscal 2008, as compared to 2,485 veterinary instruments
sold during 2007. The primary factors of the change were as
follows:
(i) Sales of our VetScan chemistry analyzers decreased 22%,
or $3.0 million, comprised of (a) a decrease in
revenues in North America of 22%, or $2.1 million,
primarily due to a shift in our sales and marketing focus from
an instrument only emphasis to a focus on both instrument and
reagent discs as a result of the manufacturing issues that we
experienced in previous quarters; (b) a decrease in
revenues in Europe of 4%, or $123,000; and (c) a decrease
in revenues in Asia Pacific and rest of the world of 60%, or
$729,000, primarily in Japan due to the termination of a
distribution arrangement during the first quarter of fiscal 2008.
(ii) Sales of our hematology instruments increased 19%, or
$1.5 million, comprised of (a) an increase in revenues
in North America of 19%, or $1.3 million, primarily due to
the release of the VetScan HM5 in September 2007 and (b) an
increase in revenues in Europe of 79%, or $277,000. The increase
in revenues was partially offset by a decrease in revenues in
Asia Pacific and rest of the world of 22%, or $134,000.
Reagent discs and kits. Total revenues from
reagent discs and hematology reagent kits sold in the veterinary
market increased 21%, or $8.6 million, during fiscal 2008,
as compared to fiscal 2007. The primary factors of the change
were as follows:
(i) Total revenues from reagent discs sold in the
veterinary market increased 23%, or $8.6 million, during
fiscal 2008, as compared to fiscal 2007. We sold
3.6 million veterinary reagent discs during fiscal 2008, as
compared to 3.1 million veterinary reagent discs sold
during fiscal 2007. The increase in revenues from veterinary
reagent discs was primarily attributed to the expanded installed
base of our VetScan chemistry analyzers and was comprised of
(a) an increase in revenues in North America of 21%, or
$6.5 million; (b) an increase in revenues in Europe of
35%, or $1.9 million; and (c) an increase in revenues
in Asia Pacific and rest of the world of 15%, or $236,000.
(ii) Total revenues from hematology reagent kits sold in
the veterinary market increased 2%, or $89,000, during fiscal
2008, as compared to fiscal 2007. The increase in revenues from
hematology reagent kits was attributed to (a) an increase
in revenues in North America of 5%, or $161,000, partially
offset by (b) a decrease in revenues in Asia Pacific and
rest of the world of 35%, or $73,000. Revenues from hematology
reagent kits in Europe were substantially the same as in the
prior year.
40
Gross
Profit for Veterinary Market Segment
Gross profit for the veterinary market segment increased 13%, or
$4.4 million, during fiscal 2008, as compared to fiscal
2007. Gross profit percentages for the veterinary market segment
during fiscal 2008 and 2007 were 55%. In absolute dollars, the
increase in gross profit for the veterinary market segment was
primarily due to (a) an increase in veterinary reagent
discs sold during fiscal 2008, partially offset by (b) a
decrease in VetScan chemistry analyzers sold during fiscal 2008;
(c) higher manufacturing costs on the VetScan VS2 chemistry
analyzers during fiscal 2008; and (d) weaker
U.S. dollar relative to the Euro currency.
Fiscal
2007 Compared to Fiscal 2006
The following table presents revenues, cost of revenues, gross
profit and percentage of revenues by operating segments for
fiscal 2007 and 2006 (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
Change
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
Increase/
|
|
|
Percent
|
|
|
|
2007
|
|
|
Revenues(1)
|
|
|
2006
|
|
|
Revenues(1)
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
$
|
17,455
|
|
|
|
100
|
%
|
|
$
|
10,888
|
|
|
|
100
|
%
|
|
$
|
6,567
|
|
|
|
60
|
%
|
Percentage of total revenues
|
|
|
20
|
%
|
|
|
|
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Veterinary Market
|
|
|
63,851
|
|
|
|
100
|
%
|
|
|
53,841
|
|
|
|
100
|
%
|
|
|
10,010
|
|
|
|
19
|
%
|
Percentage of total revenues
|
|
|
74
|
%
|
|
|
|
|
|
|
78
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other(2)
|
|
|
4,915
|
|
|
|
|
|
|
|
4,199
|
|
|
|
|
|
|
|
716
|
|
|
|
17
|
%
|
Percentage of total revenues
|
|
|
6
|
%
|
|
|
|
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
86,221
|
|
|
|
|
|
|
|
68,928
|
|
|
|
|
|
|
|
17,293
|
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
|
8,549
|
|
|
|
49
|
%
|
|
|
4,890
|
|
|
|
45
|
%
|
|
|
3,659
|
|
|
|
75
|
%
|
Veterinary Market
|
|
|
29,021
|
|
|
|
45
|
%
|
|
|
23,856
|
|
|
|
44
|
%
|
|
|
5,165
|
|
|
|
22
|
%
|
Other(2)
|
|
|
1,792
|
|
|
|
|
|
|
|
1,329
|
|
|
|
|
|
|
|
463
|
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
39,362
|
|
|
|
|
|
|
|
30,075
|
|
|
|
|
|
|
|
9,287
|
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
|
8,906
|
|
|
|
51
|
%
|
|
|
5,998
|
|
|
|
55
|
%
|
|
|
2,908
|
|
|
|
48
|
%
|
Veterinary Market
|
|
|
34,830
|
|
|
|
55
|
%
|
|
|
29,985
|
|
|
|
56
|
%
|
|
|
4,845
|
|
|
|
16
|
%
|
Other(2)
|
|
|
3,123
|
|
|
|
|
|
|
|
2,870
|
|
|
|
|
|
|
|
253
|
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
46,859
|
|
|
|
|
|
|
$
|
38,853
|
|
|
|
|
|
|
$
|
8,006
|
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The percentage reported is based on revenues by operating
segment. |
|
(2) |
|
Represents unallocated items, not specifically identified to any
particular business segment. |
Medical
Market
Revenues
for Medical Market Segment
During fiscal 2007, total revenues in the medical market
increased 60%, or $6.6 million, as compared to fiscal 2006.
Components of the change were as follows:
Instruments. Total revenues from our Piccolo
chemistry analyzers increased 53%, or $2.6 million, during
fiscal 2007, as compared to fiscal 2006. We sold a total of 644
Piccolo chemistry analyzers in fiscal 2007, as compared to 391
Piccolo chemistry analyzers sold in fiscal 2006. The change in
revenues was attributed to (a) an increase in North America
(excluding the U.S. government) of 66%, or
$2.3 million, primarily due to marketing programs with two
of our national distributors; (b) an increase in Europe of
121%, or $424,000; partially offset by (c) a decrease in
the average selling price of Piccolo chemistry analyzers in
North America (excluding the
41
U.S. government); and (d) a decrease in Piccolo
chemistry analyzers sold to the U.S. government of 16%, or
$144,000, primarily due to a decrease in the
U.S. Militarys needs for our products in the second
quarter of fiscal 2007, which were not predictable.
Reagent discs and kits. Total revenues from
reagent discs sold in the medical market increased 67%, or
$3.8 million, during fiscal 2007, as compared to fiscal
2006. We sold 1.0 million reagent discs in fiscal 2007, as
compared to 575,000 reagent discs sold in fiscal 2006. The
change in revenues was attributed to (a) an increase in
North America (excluding the U.S. government) of 89%, or
$2.9 million, primarily due to the expanded installed base
of our Piccolo chemistry analyzers; (b) an increase in
reagent discs sold to the U.S. government of 23%, or
$423,000, primarily due to an increase in the
U.S. Militarys needs for our products during the
first and third quarters of fiscal 2007, which were not
predictable; and (c) an increase in Europe of 127%, or
$445,000, primarily due to the expanded installed base of our
Piccolo chemistry analyzers. The net increase was partially
offset by a decrease in Asia Pacific and rest of the world of
9%, or $10,000.
Gross
Profit for Medical Market Segment
Gross profit for the medical market segment increased 48%, or
$2.9 million, during fiscal 2007, as compared to fiscal
2006. Gross profit percentages for the medical market segment
during fiscal 2007 and 2006 were 51% and 55%, respectively. In
absolute dollars, the increase in gross profit for the medical
market segment was due to (a) an increase in Piccolo
chemistry analyzers and medical reagent discs sold during fiscal
2007, partially offset by (b) an increase in costs
associated with manufacturing the Piccolo xpress during fiscal
2007, resulting in a decrease in gross profit percentage during
fiscal 2007.
Veterinary
Market
Revenues
for Veterinary Market Segment
During fiscal 2007, total revenues in the veterinary market
increased 19%, or $10.0 million, as compared to fiscal
2006. Components of the change were as follows:
Instruments. Total revenues from our
veterinary instruments sold increased 26%, or $4.5 million,
during fiscal 2007, as compared to fiscal 2006. We sold a total
of 2,485 VetScan chemistry analyzers and hematology systems in
fiscal 2007, as compared to 2,131 veterinary instruments sold in
fiscal 2006. The primary factors of the change were as follows:
(i) Sales of our VetScan chemistry analyzers increased 36%,
or $3.6 million, comprised of (a) an increase in North
America of 29%, or $2.2 million; (b) an increase in
Europe of 33%, or $702,000; and (c) an increase in Asia
Pacific and rest of the world of 146%, or $725,000. The increase
in VetScan chemistry analyzers was attributed primarily to the
worldwide release of the VetScan VS2 system.
(ii) Sales of our hematology systems increased 12%, or
$863,000, comprised of (a) an increase in North America of
16%, or $944,000; (b) an increase in Europe of 4%, or
$13,000, partially offset by (c) a decrease in Asia Pacific
and rest of the world of 14%, or $94,000. The net increase was
attributed primarily to a slower market acceptance of the
hematology systems in the prior period in North America.
Reagent discs and kits. Total revenues from
reagent discs and hematology reagent kits sold in the veterinary
market increased 15%, or $5.4 million, in fiscal 2007, as
compared to fiscal 2006. The primary factors of the change were
as follows:
(i) Total revenues from reagent discs sold in the
veterinary market increased 13%, or $4.2 million, during
fiscal 2007, as compared to fiscal 2006. We sold
3.1 million reagent discs in fiscal 2007, as compared to
2.8 million reagent discs sold in fiscal 2006. The increase
in revenue from reagent discs was attributed to the following:
(a) an increase in North America of 9%, or
$2.6 million, partially due to the expanded installed base
of our VetScan chemistry analyzers, offset by a realignment of
inventory in the distribution channel primarily during the first
two quarters of fiscal 2007; (b) an increase in Europe of
33%, or $1.3 million, primarily due to the expanded
installed
42
base of our VetScan chemistry analyzers; and (c) an
increase in Asia Pacific and rest of the world of 22%, or
$287,000, primarily due to the expanded installed base of our
VetScan chemistry analyzers.
(ii) Total revenues from hematology reagent kits sold in
the veterinary market increased 45%, or $1.1 million,
during fiscal 2007, as compared to fiscal 2006. We sold 17,000
hematology reagent kits in fiscal 2007, as compared to 12,000
hematology reagent kits in fiscal 2006. The increase of
hematology reagent kits sold was due to the expanded installed
base of our hematology systems, comprised of (a) an
increase in North America of 43%, or $968,000; (b) an
increase in Europe of 69%, or $83,000; and (c) an increase
in Asia Pacific and rest of the world of 67%, or $84,000.
Gross
Profit for Veterinary Market Segment
Gross profit for the veterinary market segment increased 16%, or
$4.8 million, during fiscal 2008, as compared to fiscal
2007. Gross profit percentages for the veterinary market segment
during fiscal 2007 and 2006 were 55% and 56%, respectively. In
absolute dollars, the increase in gross profit for the
veterinary market segment was due to (a) an increase in
VetScan chemistry analyzers, reagent discs and hematology
reagent kits sold during fiscal 2007, partially offset by
(b) higher manufacturing costs on the VetScan VS2 chemistry
analyzers during fiscal 2007.
Cost
of Revenues
The following sets forth, our cost of revenues for fiscal 2008,
2007 and 2006 (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
Change 2007 to 2008
|
|
Change 2006 to 2007
|
|
|
|
|
|
|
|
|
Increase/
|
|
Percent
|
|
Increase/
|
|
Percent
|
|
|
2008
|
|
2007
|
|
2006
|
|
(Decrease)
|
|
Change
|
|
(Decrease)
|
|
Change
|
|
Cost of revenues
|
|
$
|
45,507
|
|
|
$
|
39,362
|
|
|
$
|
30,075
|
|
|
$
|
6,145
|
|
|
|
16
|
%
|
|
$
|
9,287
|
|
|
|
31
|
%
|
Percentage of total revenues
|
|
|
45
|
%
|
|
|
46
|
%
|
|
|
44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues includes the costs associated with
manufacturing, assembly, packaging, warranty repairs, test and
quality assurance for our instruments, reagent discs and
hematology reagent kits and manufacturing overhead, including
costs of personnel and equipment associated with manufacturing
support.
Fiscal
2008 Compared to Fiscal 2007
Cost of revenues in fiscal 2008 increased by 16%, or
$6.1 million, as compared to fiscal 2007, primarily due to
the following: (a) an increase in the sales volume of
medical and veterinary reagent discs; (b) an increase in
costs associated with manufacturing the VetScan VS2 and Piccolo
xpress chemistry analyzers; and (c) the weaker
U.S. dollar relative to the Euro currency.
Fiscal
2007 Compared to Fiscal 2006
Cost of revenues in fiscal 2007 increased by 31%, or
$9.3 million, as compared to fiscal 2006, primarily due to
the following: (a) an increase in the sales volume of
medical and veterinary instruments and reagent discs and
hematology reagent kits; (b) an increase in costs
associated with manufacturing the VetScan VS2 and Piccolo
xpress; and (c) the weaker U.S. dollar relative to the
Euro currency. As a percentage of total revenues, cost of
43
revenues increased in fiscal 2007, as compared to fiscal 2006,
primarily due to costs associated with manufacturing the VetScan
VS2 and Piccolo xpress.
Operating
Expenses
Research
and Development
The following sets forth, our research and development expenses
for fiscal 2008, 2007 and 2006 (in thousands, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
Change 2007 to 2008
|
|
Change 2006 to 2007
|
|
|
|
|
|
|
|
|
Increase/
|
|
Percent
|
|
Increase/
|
|
Percent
|
|
|
2008
|
|
2007
|
|
2006
|
|
(Decrease)
|
|
Change
|
|
(Decrease)
|
|
Change
|
|
Research and development
|
|
$
|
6,966
|
|
|
$
|
6,180
|
|
|
$
|
6,127
|
|
|
$
|
786
|
|
|
|
13
|
%
|
|
$
|
53
|
|
|
|
1
|
%
|
Percentage of total revenues
|
|
|
7
|
%
|
|
|
7
|
%
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Fiscal
2008 Compared to Fiscal 2007
Research and development expenses in fiscal 2008 increased by
13%, or $786,000, as compared to fiscal 2007. Research and
development expenses in fiscal 2008 related primarily to new
product development and enhancement of existing products and
clinical trials. The investments in research and development
were attributed primarily 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 fiscal 2008 and 2007 was $153,000
and $117,000, respectively.
We anticipate the dollar amount of research and development
expenses to increase in fiscal 2009 from fiscal 2008 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.
Fiscal
2007 Compared to Fiscal 2006
Research and development expenses in fiscal 2007 increased by
1%, or $53,000, as compared to fiscal 2006. Research and
development expenses during fiscal 2007 related primarily to new
product development in both the medical and veterinary markets.
The investments in research and development were attributed
primarily to projects including clinical trials, developing new
immunoassay tests and preparation of submission for CLIA waived
status on new test methods. Share-based compensation expense
incurred in connection with our adoption of
SFAS No. 123(R) in fiscal 2007 was $117,000.
Sales
and Marketing
The following sets forth, our sales and marketing expenses for
fiscal 2008, 2007 and 2006 (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
Change 2007 to 2008
|
|
Change 2006 to 2007
|
|
|
|
|
|
|
|
|
Increase/
|
|
Percent
|
|
Increase/
|
|
Percent
|
|
|
2008
|
|
2007
|
|
2006
|
|
(Decrease)
|
|
Change
|
|
(Decrease)
|
|
Change
|
|
Sales and marketing expenses
|
|
$
|
23,689
|
|
|
$
|
20,569
|
|
|
$
|
16,219
|
|
|
$
|
3,120
|
|
|
|
15
|
%
|
|
$
|
4,350
|
|
|
|
27
|
%
|
Percentage of total revenues
|
|
|
24
|
%
|
|
|
24
|
%
|
|
|
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.
44
Fiscal
2008 Compared to Fiscal 2007
Sales and marketing expenses in fiscal 2008 increased by 15%, or
$3.1 million, as compared to fiscal 2007. The increase was
primarily related to personnel-related costs resulting from an
increase in headcount in sales and marketing, customer service
and technical service, to support the growth in both our medical
and veterinary markets. Share-based compensation expense during
fiscal 2008 and 2007 was $325,000 and $292,000, respectively.
Our headcount in sales and marketing (including customer
support) increased to 129 employees at March 31, 2008
from 103 employees at March 31, 2007.
Fiscal
2007 Compared to Fiscal 2006
Sales and marketing expenses in fiscal 2007 increased by 27%, or
$4.4 million, as compared to fiscal 2006. The increase was
primarily related to personnel-related costs resulting from an
increase in headcount in sales and marketing, customer service
and technical service, to support the growth in both our medical
and veterinary markets. Share-based compensation expense
incurred in connection with our adoption of
SFAS No. 123(R) in fiscal 2007 was $292,000. Our
headcount in sales and marketing (including customer support)
increased to 103 employees at March 31, 2007 from
84 employees at March 31, 2006.
General
and Administrative
The following sets forth, our general and administrative
expenses for fiscal 2008, 2007 and 2006 (in thousands, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
Change 2007 to 2008
|
|
Change 2006 to 2007
|
|
|
|
|
|
|
|
|
Increase/
|
|
Percent
|
|
Increase/
|
|
Percent
|
|
|
2008
|
|
2007
|
|
2006
|
|
(Decrease)
|
|
Change
|
|
(Decrease)
|
|
Change
|
|
General and administrative expenses
|
|
$
|
6,681
|
|
|
$
|
5,735
|
|
|
$
|
5,775
|
|
|
$
|
946
|
|
|
|
16
|
%
|
|
$
|
(40
|
)
|
|
|
(1
|
)%
|
Percentage of total revenues
|
|
|
7
|
%
|
|
|
7
|
%
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Fiscal
2008 Compared to Fiscal 2007
General and administrative expenses in fiscal 2008 increased by
16%, or $946,000, as compared to fiscal 2007, primarily related
to (a) an increase in share-based compensation expense and
(b) costs associated with our implementation of an
enterprise resource planning system during fiscal 2008.
Share-based compensation expense during fiscal 2008 and 2007 was
$503,000 and $318,000, respectively.
Fiscal
2007 Compared to Fiscal 2006
General and administrative expenses in fiscal 2007 decreased by
1%, or $40,000, as compared to fiscal 2006, primarily related to
a decrease in professional services, partially offset by
share-based compensation expense incurred in connection with our
adoption of SFAS No. 123(R) in fiscal 2007 of $318,000.
Interest
and Other Income (Expense), Net
The following sets forth our interest and other income
(expense), net for fiscal 2008, 2007 and 2006 (in thousands,
except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
Change 2007 to 2008
|
|
Change 2006 to 2007
|
|
|
|
|
|
|
|
|
Increase/
|
|
Percent
|
|
Increase/
|
|
Percent
|
|
|
2008
|
|
2007
|
|
2006
|
|
(Decrease)
|
|
Change
|
|
(Decrease)
|
|
Change
|
|
Interest and other income (expense), net
|
|
$
|
2,096
|
|
|
$
|
1,774
|
|
|
$
|
787
|
|
|
$
|
322
|
|
|
|
18
|
%
|
|
$
|
987
|
|
|
|
125
|
%
|
Interest and other income (expense), net, consists primarily of
interest earned on cash, cash equivalents and investments.
45
Fiscal
2008 Compared to Fiscal 2007
The increase in interest and other income (expense), net, in
fiscal 2008, as compared to fiscal 2007, was primarily
attributed to interest income in our investment portfolio
resulting from higher average invested balances during fiscal
2008 compared to fiscal 2007.
Fiscal
2007 Compared to Fiscal 2006
The increase in interest and other income (expense), net, in
fiscal 2007, as compared to fiscal 2006, was primarily due to
higher average invested balances and interest income related to
corporate debt securities and auction rate securities in fiscal
2007 compared to fiscal 2006.
Income
Tax Provision
The following sets forth, our income tax provision for fiscal
2008, 2007 and 2006 (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
2008
|
|
2007
|
|
2006
|
|
Income tax provision
|
|
$
|
7,301
|
|
|
$
|
6,076
|
|
|
$
|
4,044
|
|
Effective tax rate
|
|
|
37
|
%
|
|
|
38
|
%
|
|
|
35
|
%
|
Fiscal
2008 Compared to Fiscal 2007
For fiscal 2008 and fiscal 2007, the income tax provisions were
$7.3 million, based on an effective tax rate of 37%, and
$6.1 million, based on an effective tax rate of 38%,
respectively. Our effective tax rate of 37% in fiscal 2008, as
compared to our effective tax rate of 38% in fiscal 2007, was
primarily due to higher tax benefits from tax-exempt investments.
We expect our effective tax rate will be approximately 38% for
federal and various state tax jurisdictions in the near term.
Fiscal
2007 Compared to Fiscal 2006
For fiscal 2007 and fiscal 2006, the income tax provisions were
$6.1 million, based on an effective tax rate of 38%, and
$4.0 million, based on an effective tax rate of 35%,
respectively. Our effective tax rate of 38% in fiscal 2007, as
compared to our effective tax rate of 35% in fiscal 2006,
includes an increase in federal research and development tax
credits, offset by non-deductible share-based compensation
expense and a reduction in the extraterritorial income
exclusion. In fiscal 2006, our effective tax rate was reduced by
2% related to tax benefits resulting primarily from an increase
in federal and California research and development tax credits.
LIQUIDITY
AND CAPITAL RESOURCES
Total cash, cash equivalents and short-term and long-term
investments at March 31, 2008, 2007 and 2006 were as
follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Cash and cash equivalents
|
|
$
|
17,219
|
|
|
$
|
10,183
|
|
|
$
|
10,164
|
|
Short-term investments
|
|
|
6,991
|
|
|
|
35,028
|
|
|
|
20,372
|
|
Long-term investments
|
|
|
35,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and investments
|
|
$
|
59,673
|
|
|
$
|
45,211
|
|
|
$
|
30,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total assets
|
|
|
49
|
%
|
|
|
44
|
%
|
|
|
37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
Cash
Flow Changes
Cash provided (used) in fiscal 2008, 2007 and 2006 were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net cash provided by operating activities
|
|
$
|
14,966
|
|
|
$
|
11,822
|
|
|
$
|
8,768
|
|
Net cash used in investing activities
|
|
|
(12,557
|
)
|
|
|
(17,701
|
)
|
|
|
(5,702
|
)
|
Net cash provided by financing activities
|
|
|
4,627
|
|
|
|
5,898
|
|
|
|
1,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
$
|
7,036
|
|
|
$
|
19
|
|
|
$
|
4,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
During fiscal 2008, we generated $15.0 million in cash from
operating activities compared to $11.8 million in fiscal
2007. The increase was primarily the result of net income of
$12.5 million during fiscal 2008, adjusted for the effects
of non-cash adjustments including depreciation and amortization
of $3.5 million, share-based compensation expense of
$1.1 million and deferred income taxes of
$6.4 million; partially offset by a decrease of
$1.6 million related to excess tax benefits from
share-based awards.
Our net trade receivables increased by $3.9 million, from
$16.9 million at March 31, 2007 to $20.9 million
as of March 31, 2008, primarily due to higher sales during
the fourth quarter of fiscal 2008 as compared to the
fourth quarter of fiscal 2007. Net inventories increased by
$3.8 million, from $14.8 million at March 31,
2007 to $18.7 million as of March 31, 2008, primarily
due to (a) instrument manufacturing problems associated
with new chemistry analyzers during fiscal 2008 and
(b) increase in instruments in finished goods to support
future demand. Prepaid expenses decreased by $894,000, from
$1.3 million at March 31, 2007 to $427,000 as of
March 31, 2008, primarily due to the timing of payments.
Current net deferred tax asset decreased by $6.6 million,
from $9.0 million at March 31, 2007 to
$2.4 million as of March 31, 2008, primarily as a
result of the projected utilization of federal net operating
loss carryforwards and California research and development tax
credit carryforwards in future periods. Non-current net deferred
tax asset increased by $1.6 million, from $2.3 million
at March 31, 2007 to $3.9 million as of March 31,
2008, primarily as a result of the anticipated timing of the
utilization of research and development tax credits and
alternative minimum tax credits.
Accounts payable decreased by $84,000, from $6.5 million at
March 31, 2007 to $6.4 million as of March 31,
2008. Accrued payroll and related expenses increased by
$447,000, from $3.8 million at March 31, 2007 to
$4.3 million as of March 31, 2008. Total warranty
reserves increased by $1.1 million, resulting from an
increase in the current portion of warranty reserves of
$904,000, from $315,000 at March 31, 2007 to
$1.2 million as of March 31, 2008 and an increase in
the non-current portion of warranty reserves of $197,000, from
$532,000 at March 31, 2007 to $729,000 as of March 31,
2008. The increase in warranty reserves is based on (a) the
number of instruments in standard warranty and estimated repair
costs and (b) an estimate of defective reagent discs and
replacement costs. Total deferred revenue decreased by $208,000,
resulting from a decrease in the current portion of deferred
revenue of $110,000, from $917,000 at March 31, 2007 to
$807,000 as of March 31, 2008, and a decrease in the
non-current portion of deferred revenue of $98,000, from
$1.2 million at March 31, 2007 to $1.1 million as
of March 31, 2008, primarily due to the amortization of
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.
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.
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
47
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.
Investing
Activities
Net cash used in investing activities during fiscal 2008 totaled
$12.6 million. This was attributed to our investments and
property and equipment, as described below:
Investments. Cash used to purchase
available-for-sale investments, consisting of auction rate
securities, totaled $20.6 million during fiscal 2008. Cash
used to purchase held-to-maturity investments, consisting of
certificate of deposits, corporate debt securities and municipal
bonds, totaled $21.2 million during fiscal 2008. Cash
provided by proceeds from maturities of held-to-maturity
investments totaled $32.8 million during fiscal 2008.
Property and Equipment. Cash used to purchase
property and equipment totaled $3.6 million during fiscal
2008, primarily to support (a) new product introduction and
(b) more efficient production lines. We anticipate that we
will continue to purchase property and equipment necessary in
the normal course of our business.
Financing
Activities
Net cash provided by financing activities during fiscal 2008
totaled $4.6 million, primarily consisting of
$3.0 million from proceeds from stock options exercises and
$1.6 million from excess tax benefits from share-based
awards.
Contractual
Obligations
As of March 31, 2008, our contractual obligations for
succeeding years is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Due in Fiscal
|
|
|
|
Total
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Operating leases
|
|
$
|
3,609
|
|
|
$
|
1,267
|
|
|
$
|
1,247
|
|
|
$
|
973
|
|
|
$
|
86
|
|
|
$
|
36
|
|
|
$
|
|
|
Purchase commitments
|
|
|
7,290
|
|
|
|
7,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
10,899
|
|
|
$
|
8,557
|
|
|
$
|
1,247
|
|
|
$
|
973
|
|
|
$
|
86
|
|
|
$
|
36
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases. Operating lease obligations
were comprised of our principal facility and certain office
facility and office equipment under operating lease agreements,
which expire on various dates through fiscal 2013.
Purchase Commitments. In November 2003, we
entered into an original equipment manufacturing
(OEM) agreement with Diatron Messtechnik GmbH
(Diatron) of Austria to purchase Diatron hematology
instruments. The Diatron hematology instruments are currently
supplied by Diatron MI Kft. Under the terms of the OEM
agreement, we became committed to purchase a minimum number of
hematology instruments through fiscal 2009 from Diatron once the
product was qualified for sale, which occurred in May 2004. In
September 2006, the terms of the agreement, with respect to the
purchase commitments, were revised and we completed all of our
purchase commitments in the quarter ended December 31,
2007. In February 2008, the terms of the OEM agreement, with
respect to the purchase commitments, were again revised. Under
the amended OEM agreement currently in effect, we are committed
to purchase a minimum number of hematology instruments through
fiscal 2009. At March 31, 2008, the outstanding commitment
due in fiscal 2009 is approximately $7.3 million. The
commitment amount is based on the minimum number of hematology
instruments that we are required to purchase, the cost of the
instruments and the Euro exchange rate at period-end. Since the
exchange rate can fluctuate in the future, the commitment in
absolute dollars will change accordingly.
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 terminates upon
notification by either party and the outstanding balance is
payable upon demand. The line of credit bears interest at the
banks prime rate minus 0.25%, which totaled 5.00% at
48
March 31, 2008, and is payable monthly. At March 31,
2008, of the $2.0 million available, $97,000 was committed
to secure a letter of credit for our facilities lease. At
March 31, 2008, there was no amount outstanding under our
line of credit. The weighted average interest rates on the line
of credit during fiscal 2008 and 2007 were 7.29% and 7.91%,
respectively.
The line of credit agreement contains certain financial
covenants, which are evaluated on a quarterly basis. At
March 31, 2008, 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 the six month period ended
September 30, 2007 and to have net income before preferred
stock dividends and accretion on preferred stock of
$1.2 million for the fiscal year ended March 31, 2008.
|
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 $104.6 million at
March 31, 2008, including our intellectual property.
Contingencies
We are from time to time involved 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 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.
RECENT
ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 157, Fair
Value Measurements (SFAS No. 157),
which clarifies the definition of fair value, establishes
guidelines for measuring fair value and expands financial
statement disclosures regarding fair value measurements.
SFAS No. 157 became effective on April 1, 2008.
We are currently evaluating the impact of adopting
SFAS No. 157 on our financial position, cash flows and
results of operations. In February 2008, the FASB issued FASB
Staff Position
157-1,
FSP
FAS 157-1
Application of FASB Statement No. 157 to FASB Statement
No. 13 and Other Accounting Pronouncements That Address
Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13
(FSP 157-1).
In February 2008, the FASB issued FSP
FAS 157-2
Effective Date of FASB Statement No. 157
(FSP 157-2)
which delayed the effective date of SFAS No. 157 for
all nonfinancial assets and nonfinancial liabilities except
those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually).
The
FSP 157-2
partially defers the effective date of SFAS No. 157 to
fiscal years beginning after November 15, 2008, and interim
periods within those fiscal years for items within the scope of
this FSP. We adopted SFAS No. 157 and
FSP 157-1
on April 1, 2008, as required, except as it applies to
those nonfinancial assets and nonfinancial liabilities as noted
in
FSP 157-2.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities (SFAS No. 159).
SFAS No. 159 permits entities to choose, at specified
election dates, to measure
49
eligible items at fair value (the fair value
option). Unrealized gains and losses on instruments for
which the fair value option has been elected are reported in
earnings at each subsequent reporting period.
SFAS No. 159 became effective on April 1, 2008.
We are currently evaluating the impact of adopting
SFAS No. 159 on our financial position, cash flows and
results of operations.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations
(SFAS No. 141R). SFAS No. 141R
will change how business acquisitions are accounted for and will
impact financial statements both on the acquisition date and in
subsequent periods. SFAS No. 141R will become
effective on April 1, 2009. We are currently evaluating the
impact of adopting SFAS No. 141R on our financial
statements.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an Amendment of ARB No. 51
(SFAS No. 160), which establishes new
accounting and reporting standards for minority interests, which
will be recharacterized as noncontrolling interests and
classified as a component of equity. SFAS No. 160 will
become effective on April 1, 2009. We are currently
evaluating the impact of adopting SFAS No. 160 on our
financial statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities (SFAS No. 161), which is
intended to enable investors to better understand how derivative
instruments and hedging activities affect an entitys
financial position, financial performance and cash flows through
enhanced disclosure requirements. SFAS No. 161 is
effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008.
SFAS No. 161 will become effective on April 1,
2009. We are currently evaluating the impact of adopting
SFAS No. 161 on our financial statements.
|
|
Item 7A.
|
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 portfolio is comprised primarily of investments
in auction rate securities, certificate of deposits, corporate
debt securities and municipal bonds.
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 March 31,
2008, our short-term investments totaled $7.0 million and
our long-term investments totaled $35.5 million. Unrealized
losses, net of related income taxes of $1.4 million are
temporary and reported as a component of accumulated other
comprehensive loss.
The short-term investments at March 31, 2008 consisted
primarily of certificate of deposits and municipal bonds. The
long-term investments at March 31, 2008 consisted of
auction rate securities. Although auction rate securities may
have maturities beyond one year, these securities were
historically classified as short-term, based on their highly
liquid nature and due to the frequency with which the interest
rate is reset; accordingly we have had the ability to quickly
liquidate these securities in the past. The recent negative
conditions in the global credit markets have prevented some
investors from liquidating their holdings of auction rate
securities because the amount of securities submitted for sale
has exceeded the amount of purchase orders for such securities.
If the credit market does not improve, auctions for our invested
amounts may continue to fail. If an auction fails for securities
in which we have invested, we may be unable to liquidate some or
all of our auction rate securities at par, should we need or
desire to access the funds invested in those securities. In the
event we need or desire to access these funds, we will not be
able to do so until a future auction on these investments is
successful or a buyer is found outside the auction process. If a
buyer is found but is unwilling to purchase the investments at
par, we may incur a loss. The fair value of our auction rate
securities could change significantly based on market conditions
and continued uncertainties in the credit markets. If conditions
in the credit markets deteriorate further causing additional
auctions to fail, the funds associated with these auction rate
securities may not be accessible for an undetermined period of
time, and we may be required to record losses or an impairment
charge on our auction rate securities in future quarters. Based
on our ability to access our cash and other short-term
investments and our expected operating cash flows, we currently
do not anticipate these investments in auction rate securities
will affect our ability to execute our current business,
operating results or financial condition.
50
We have the ability to hold the certificate of deposits and
municipal bonds until maturity and therefore, we believe we have
no material exposure to interest rate risk. A sensitivity
analysis assuming a hypothetical 10% movement in interest rates
applied to our investment balances at March 31, 2008
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 losses on our
investment portfolio.
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 5.00% at March 31,
2008. 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 March 31, 2008 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 March 31,
2008.
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
SFAS No. 133, Accounting for Derivative
Instruments 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 for fiscal 2008 were 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 denominated in Euros. Additionally, operations from
our Germany sales office are stated in Euros and translated into
U.S. dollars at the period-end exchange rates. Such
operations have not been significant to date. 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.
51
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
ABAXIS,
INC.
INDEX TO
FINANCIAL STATEMENTS
|
|
|
|
|
Description
|
|
Page
|
|
|
|
|
53
|
|
|
|
|
54
|
|
|
|
|
55
|
|
|
|
|
56
|
|
|
|
|
57
|
|
|
|
|
58
|
|
52
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Abaxis, Inc.
We have audited the accompanying balance sheets of Abaxis, Inc.
(the Company) as of March 31, 2008 and 2007,
and the related statements of operations, shareholders
equity and comprehensive income, and cash flows for each of the
three years in the period ended March 31, 2008. Our audits
also included the financial statement schedule listed in the
Index to this Annual Report on
Form 10-K
at Part IV Item 15(a) 2. These financial statements
and financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Abaxis, Inc. as of March 31, 2008 and 2007, and the
results of its operations and its cash flows for each of the
three years in the period ended March 31, 2008, in
conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, the related
financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in
all material aspects, the information set forth therein.
As discussed in Note 1 and Note 10 to the financial
statements, the Company changed its method of accounting for
stock-based compensation as a result of adopting Statement of
Financial Accounting Standards No. 123 (revised 2004),
Share-Based Payment, as of April 1, 2006
applying the modified prospective method.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of the Companys internal control over
financial reporting as of March 31, 2008, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated June 13, 2008
expressed an unqualified opinion thereon.
/s/ Burr,
Pilger & Mayer LLP
San Jose, California
June 13, 2008
53
ABAXIS,
INC.
BALANCE
SHEETS
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands,
|
|
|
|
except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
17,219
|
|
|
$
|
10,183
|
|
Short-term investments
|
|
|
6,991
|
|
|
|
35,028
|
|
Trade receivables (net of allowances of $272 in 2008 and $542 in
2007)
|
|
|
20,873
|
|
|
|
16,929
|
|
Inventories, net
|
|
|
18,657
|
|
|
|
14,813
|
|
Prepaid expenses
|
|
|
427
|
|
|
|
1,321
|
|
Net deferred tax asset current
|
|
|
2,426
|
|
|
|
8,979
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
66,593
|
|
|
|
87,253
|
|
Long-term investments
|
|
|
35,463
|
|
|
|
|
|
Property and equipment, net
|
|
|
14,599
|
|
|
|
12,662
|
|
Intangible assets, net
|
|
|
375
|
|
|
|
450
|
|
Other assets
|
|
|
5
|
|
|
|
38
|
|
Net deferred tax asset non-current
|
|
|
3,868
|
|
|
|
2,312
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
120,903
|
|
|
$
|
102,715
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
6,421
|
|
|
$
|
6,505
|
|
Accrued payroll and related expenses
|
|
|
4,277
|
|
|
|
3,830
|
|
Other accrued liabilities
|
|
|
1,369
|
|
|
|
1,169
|
|
Deferred revenue
|
|
|
807
|
|
|
|
917
|
|
Warranty reserve
|
|
|
1,219
|
|
|
|
315
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
14,093
|
|
|
|
12,736
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
Deferred rent
|
|
|
286
|
|
|
|
391
|
|
Deferred revenue
|
|
|
1,146
|
|
|
|
1,244
|
|
Warranty reserve
|
|
|
729
|
|
|
|
532
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
2,161
|
|
|
|
2,167
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, no par value: 5,000,000 authorized shares; no
shares issued and outstanding in 2008 and 2007
|
|
|
|
|
|
|
|
|
Common stock, no par value: 35,000,000 authorized shares;
21,706,000 and 21,207,000 shares issued and outstanding in
2008 and 2007, respectively
|
|
|
109,031
|
|
|
|
103,282
|
|
Accumulated deficit
|
|
|
(2,967
|
)
|
|
|
(15,470
|
)
|
Accumulated other comprehensive loss
|
|
|
(1,415
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
104,649
|
|
|
|
87,812
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
120,903
|
|
|
$
|
102,715
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Financial Statements.
54
ABAXIS,
INC.
STATEMENTS
OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues
|
|
$
|
100,551
|
|
|
$
|
86,221
|
|
|
$
|
68,928
|
|
Cost of revenues
|
|
|
45,507
|
|
|
|
39,362
|
|
|
|
30,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
55,044
|
|
|
|
46,859
|
|
|
|
38,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
6,966
|
|
|
|
6,180
|
|
|
|
6,127
|
|
Sales and marketing
|
|
|
23,689
|
|
|
|
20,569
|
|
|
|
16,219
|
|
General and administrative
|
|
|
6,681
|
|
|
|
5,735
|
|
|
|
5,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
37,336
|
|
|
|
32,484
|
|
|
|
28,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
17,708
|
|
|
|
14,375
|
|
|
|
10,732
|
|
Interest and other income (expense), net
|
|
|
2,096
|
|
|
|
1,774
|
|
|
|
787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
19,804
|
|
|
|
16,149
|
|
|
|
11,519
|
|
Income tax provision
|
|
|
7,301
|
|
|
|
6,076
|
|
|
|
4,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
12,503
|
|
|
$
|
10,073
|
|
|
$
|
7,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.58
|
|
|
$
|
0.49
|
|
|
$
|
0.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
0.56
|
|
|
$
|
0.46
|
|
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in the calculation of net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic
|
|
|
21,499
|
|
|
|
20,643
|
|
|
|
19,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding diluted
|
|
|
22,261
|
|
|
|
21,846
|
|
|
|
21,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Financial Statements.
55
ABAXIS,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
Common Stock
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Shareholders
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
Income
|
|
|
|
(In thousands, except share data)
|
|
|
Balances at March 31, 2005
|
|
|
19,892,000
|
|
|
$
|
94,614
|
|
|
$
|
(33,018
|
)
|
|
$
|
71
|
|
|
$
|
61,667
|
|
|
|
|
|
Common stock issued for employee benefit plans
|
|
|
3,000
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
Common stock issued under stock option exercises
|
|
|
174,000
|
|
|
|
990
|
|
|
|
|
|
|
|
|
|
|
|
990
|
|
|
|
|
|
Issuance of common stock upon exercise of warrants
|
|
|
66,000
|
|
|
|
348
|
|
|
|
|
|
|
|
|
|
|
|
348
|
|
|
|
|
|
Share-based compensation expense adjustment
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
Tax benefits from stock option exercises
|
|
|
|
|
|
|
523
|
|
|
|
|
|
|
|
|
|
|
|
523
|
|
|
|
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
7,475
|
|
|
|
|
|
|
|
7,475
|
|
|
$
|
7,475
|
|
Change in unrealized gain on investments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2006
|
|
|
20,135,000
|
|
|
|
96,506
|
|
|
|
(25,543
|
)
|
|
|
75
|
|
|
|
71,038
|
|
|
|
|
|
Common stock issued for employee benefit plans
|
|
|
3,000
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
66
|
|
|
|
|
|
Common stock issued under stock option exercises
|
|
|
931,000
|
|
|
|
4,506
|
|
|
|
|
|
|
|
|
|
|
|
4,506
|
|
|
|
|
|
Issuance of common stock upon exercise of warrants
|
|
|
138,000
|
|
|
|
823
|
|
|
|
|
|
|
|
|
|
|
|
823
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
812
|
|
|
|
|
|
|
|
|
|
|
|
812
|
|
|
|
|
|
Excess tax benefits from share-based awards
|
|
|
|
|
|
|
569
|
|
|
|
|
|
|
|
|
|
|
|
569
|
|
|
|
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
10,073
|
|
|
|
|
|
|
|
10,073
|
|
|
$
|
10,073
|
|
Change in unrealized gain on investments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(75
|
)
|
|
|
(75
|
)
|
|
|
(75
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2007
|
|
|
21,207,000
|
|
|
|
103,282
|
|
|
|
(15,470
|
)
|
|
|
|
|
|
|
87,812
|
|
|
|
|
|
Common stock issued under stock option exercises
|
|
|
483,000
|
|
|
|
3,128
|
|
|
|
|
|
|
|
|
|
|
|
3,128
|
|
|
|
|
|
Common stock issued in settlement of restricted stock units, net
of shares withheld for employee taxes
|
|
|
16,000
|
|
|
|
(110
|
)
|
|
|
|
|
|
|
|
|
|
|
(110
|
)
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
1,122
|
|
|
|
|
|
|
|
|
|
|
|
1,122
|
|
|
|
|
|
Excess tax benefits from share-based awards
|
|
|
|
|
|
|
1,609
|
|
|
|
|
|
|
|
|
|
|
|
1,609
|
|
|
|
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
12,503
|
|
|
|
|
|
|
|
12,503
|
|
|
$
|
12,503
|
|
Change in unrealized gain (loss) on investments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,415
|
)
|
|
|
(1,415
|
)
|
|
|
(1,415
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2008
|
|
|
21,706,000
|
|
|
$
|
109,031
|
|
|
$
|
(2,967
|
)
|
|
$
|
(1,415
|
)
|
|
$
|
104,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Financial Statements.
56
ABAXIS,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
12,503
|
|
|
$
|
10,073
|
|
|
$
|
7,475
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,497
|
|
|
|
2,685
|
|
|
|
2,136
|
|
Loss on disposal of property and equipment
|
|
|
2
|
|
|
|
37
|
|
|
|
7
|
|
Share-based compensation expense
|
|
|
1,108
|
|
|
|
799
|
|
|
|
(12
|
)
|
Tax benefits from stock option exercises
|
|
|
|
|
|
|
|
|
|
|
523
|
|
Excess tax benefits from share-based awards
|
|
|
(1,609
|
)
|
|
|
(569
|
)
|
|
|
|
|
Deferred income taxes
|
|
|
6,400
|
|
|
|
5,178
|
|
|
|
3,240
|
|
Common stock issued for employee benefit plans
|
|
|
|
|
|
|
66
|
|
|
|
43
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables, net
|
|
|
(3,944
|
)
|
|
|
(2,291
|
)
|
|
|
(4,129
|
)
|
Inventories, net
|
|
|
(5,572
|
)
|
|
|
(6,755
|
)
|
|
|
(3,081
|
)
|
Prepaid expenses
|
|
|
894
|
|
|
|
(306
|
)
|
|
|
(164
|
)
|
Other assets
|
|
|
33
|
|
|
|
42
|
|
|
|
16
|
|
Accounts payable
|
|
|
(84
|
)
|
|
|
1,891
|
|
|
|
764
|
|
Accrued payroll and related expenses
|
|
|
447
|
|
|
|
(60
|
)
|
|
|
2,023
|
|
Other accrued liabilities
|
|
|
503
|
|
|
|
464
|
|
|
|
(123
|
)
|
Deferred rent
|
|
|
(105
|
)
|
|
|
(87
|
)
|
|
|
16
|
|
Deferred revenue
|
|
|
(208
|
)
|
|
|
284
|
|
|
|
(176
|
)
|
Warranty reserve
|
|
|
1,101
|
|
|
|
375
|
|
|
|
227
|
|
Other long-term liabilities
|
|
|
|
|
|
|
(4
|
)
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
14,966
|
|
|
|
11,822
|
|
|
|
8,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of available-for-sale investments
|
|
|
(20,575
|
)
|
|
|
(67,483
|
)
|
|
|
(58,359
|
)
|
Purchases of held-to-maturity investments
|
|
|
(21,167
|
)
|
|
|
(25,868
|
)
|
|
|
|
|
Proceeds from maturities of available-for-sale investments
|
|
|
|
|
|
|
71,330
|
|
|
|
54,899
|
|
Proceeds from maturities of held-to-maturity investments
|
|
|
32,804
|
|
|
|
7,240
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(3,619
|
)
|
|
|
(2,920
|
)
|
|
|
(2,242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(12,557
|
)
|
|
|
(17,701
|
)
|
|
|
(5,702
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock under stock plans, net
|
|
|
3,018
|
|
|
|
4,506
|
|
|
|
990
|
|
Proceeds from exercise of warrants
|
|
|
|
|
|
|
823
|
|
|
|
348
|
|
Excess tax benefits from share-based awards
|
|
|
1,609
|
|
|
|
569
|
|
|
|
|
|
Repayment of capital lease obligations
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
4,627
|
|
|
|
5,898
|
|
|
|
1,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
7,036
|
|
|
|
19
|
|
|
|
4,388
|
|
Cash and cash equivalents at beginning of year
|
|
|
10,183
|
|
|
|
10,164
|
|
|
|
5,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
17,219
|
|
|
$
|
10,183
|
|
|
$
|
10,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
4
|
|
|
$
|
15
|
|
|
$
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes, net of refunds
|
|
$
|
319
|
|
|
$
|
503
|
|
|
$
|
552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on investments, net of tax
|
|
$
|
(1,415
|
)
|
|
$
|
(75
|
)
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers of equipment between inventory and property and
equipment
|
|
$
|
1,742
|
|
|
$
|
2,351
|
|
|
$
|
1,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized share-based compensation
|
|
$
|
14
|
|
|
$
|
13
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock withheld for employee taxes in connection with
share-based compensation
|
|
$
|
110
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Financial Statements.
57
ABAXIS,
INC.
YEARS
ENDED MARCH 31, 2008, 2007 AND 2006
|
|
NOTE 1.
|
DESCRIPTION
OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
|
Description of Business. Abaxis, Inc. (the
Company), 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.
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 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 financial statements and the
reported amounts of revenues and expenses during the reporting
period. Such management estimates include allowance for doubtful
accounts, fair values of investments, sales and other
allowances, inventory reserves, income taxes, valuation
allowance for deferred tax assets, share-based compensation and
warranty reserves. Actual results may differ from these
estimates.
Certain Significant Risks and
Uncertainties. The Company is subject to certain
risks and uncertainties and believes that changes in any of the
following areas could have a material adverse effect on its
future financial position or results of operations: continued
Food and Drug Administration compliance or regulatory changes;
uncertainty regarding health care reforms; fundamental changes
in the technology underlying blood testing; the ability to
develop new products that are accepted in the marketplace; risks
associated with liquidity concerns related to auction rate
securities; competition, including, but not limited to, pricing
and products or product features and services; litigation or
other claims against the Company; the adequate and timely
sourcing of inventories; and the hiring, training and retention
of key employees.
Reclassification. Certain amounts in the
fiscal years ended March 31, 2007 and 2006 financial
statements have been reclassified to conform to the fiscal year
ended March 31, 2008 presentation. These reclassifications
did not result in any change in previously reported net income,
total assets or shareholders equity.
Cash and Cash Equivalents. Cash equivalents
consist of highly liquid instruments with original or remaining
maturities of three months or less at the time of purchase that
are readily convertible into cash.
Investments. The Companys investment
portfolio is comprised primarily of auction rate securities,
certificate of deposits, corporate debt securities and municipal
bonds. Short-term investments have maturities of one year or
less from the date of purchase. All other investments with
maturity dates greater than one year are classified as
long-term. At March 31, 2008, the Companys auction
rate securities that were not liquid were classified as
long-term investments.
As of March 31, 2008, the Company held $37.0 million
par value of investments in auction rate securities that were
structured to periodically reset through auctions ranging from
seven to 28 days. As of March 31, 2008,
$31.0 million par value of the Companys auction rate
securities were collateralized by municipal bonds and the
remaining $6.0 million par value of the Companys
auction rate securities were collateralized by a variety of
securities including real estate income trust, preferred stock,
convertible preferred stock, high yield bonds, high dividend
equities or other stock. These investments in auction rate
securities were rated AAA and the Company continued to earn
interest on its auction rate securities at the contractual rate.
In February 2008, the auctions on the Companys auction
rate securities began to fail. As a result, the Company will not
be able to access these funds until future auctions for these
securities are successful, until a secondary market is
established, or until these securities are called for
redemption. When an auction fails, the estimated fair value of
these investments no longer approximates par value. Accordingly,
the Companys auction rate securities were classified as
long-term, which were valued at $35.5 million at
March 31, 2008. Various assumptions are used in the
valuation models to estimate the auction rate securities fair
value, including a securitys expected future cash flows,
market rate of return and its term. These assumptions,
assessments and the interpretations of relevant market
58
ABAXIS,
INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
data are subject to uncertainties, are difficult to predict and
require significant judgment. The use of different assumptions,
applying different judgment to inherently subjective matters and
changes in future market conditions could result in
significantly different estimates of fair value.
The Company will continue to monitor the fair value of its
auction rate securities and relevant market conditions. If the
issuers of the auction rate securities are unable to
successfully complete future auctions and their credit ratings
deteriorate, the Company may in the future be required to record
an impairment charge on these investments.
The Companys investments are accounted for under Statement
of Financial Accounting Standard (SFAS)
No. 115, Accounting for Certain Investments in Debt
and Equity Securities as either available-for-sale or
held-to-maturity.
Investments classified as available-for-sale are reported at
fair value at the balance sheet date, and temporary differences
between cost and fair value are presented as a separate
component of accumulated other comprehensive income (loss), net
of any related tax effect, in shareholders equity. During
fiscal 2008, the Company recorded $1.4 million of
unrealized loss, net of related income taxes, on auction rate
securities, which were classified as available-for-sale.
Investments classified as held-to-maturity are reported at
amortized cost at the balance sheet date because the Company has
both the intent and ability to hold the investments until they
mature.
Interest and realized gains and losses from investments are
included in interest income, computed using the specific
identification cost method. The Company assesses whether an
other-than-temporary impairment loss on the investments has
occurred due to declines in fair value or other market
conditions. Declines in fair value that are considered
other-than-temporary, if any, are recorded as charges in the
Statements of Operations. The Company did not have any
impairment loss on investments during fiscal 2008, 2007 or 2006.
Concentration of Credit Risk. Financial
instruments that potentially subject the Company to a
concentration of credit risk consist primarily of cash, cash
equivalents, investments and trade receivables. Cash, cash
equivalents and investments are placed with high quality
financial institutions and are regularly monitored by management.
The Company sells its products to distributors and direct
customers located primarily in Europe, Japan and North America.
The Company monitors the credit status of its distributors and
direct customers on an ongoing basis and generally does not
require its customers to provide collateral for purchases on
credit. Collection of trade receivables may be affected by
changes in economic or other industry conditions and may,
accordingly, impact the Companys overall credit risk. At
March 31, 2008, one distributor accounted for 14% of trade
receivables. At March 31, 2007, two distributors accounted
for 19% and 10%, respectively, of trade receivables.
Allowance for Doubtful Accounts. The Company
maintains an allowance for doubtful accounts based on
managements assessment of the collectibility of the
amounts owed by its customers. The Company considers the
following in determining the level of allowance required: the
customers payment history, the age of the receivables, the
credit quality of its customers, the general financial condition
of its customer base and other factors that may affect the
customers ability to pay.
Inventories. Inventories include material,
labor and overhead, and are stated at the lower of cost
(first-in,
first-out method) or market. Provisions for excess, obsolete and
unusable inventories are made after managements evaluation
of future demand and market conditions.
59
ABAXIS,
INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
Property and Equipment. Property and equipment
are stated at cost, net of accumulated depreciation and
amortization. Depreciation and amortization is calculated using
the straight-line method over the following estimated useful
lives of the assets:
|
|
|
Asset Classification
|
|
Estimated Useful Life
|
|
Machinery and equipment
|
|
2-10 years
|
Furniture and fixtures
|
|
3-8 years
|
Computer equipment
|
|
2-7 years
|
Leasehold improvements
|
|
Shorter of estimated useful life or lease term, including any
lease term extensions that the Company has the right and
intention to execute
|
Construction in progress primarily consists of purchased
material used in the development of production lines. No
interest was capitalized on constructed assets during fiscal
2008 and 2007, due to immateriality.
Long-Lived Assets. The carrying value of the
Companys long-lived assets is reviewed for impairment, in
accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The Company looks 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. The Company recognized no
impairment charges on long-lived asset in fiscal 2008, 2007 or
2006.
Intangible Assets. Intangible assets,
consisting of patents, are amortized using the straight-line
method over the estimated useful life of ten years.
Fair Value of Financial Instruments. Financial
instruments include cash, cash equivalents, investments, trade
receivables, accounts payable and certain other accrued
liabilities. These financial instruments are valued at their
carrying value, which approximates fair value due to their short
maturities.
Revenue Recognition and Deferred
Revenue. Revenues from product sales, net of
estimated sales allowances and rebates, are recognized when the
following four criteria are met:
|
|
|
|
|
Evidence of an arrangement exists: Persuasive
evidence of an arrangement with a customer that reflects the
terms and conditions to deliver products must exist in order to
recognize revenue.
|
|
|
|
Upon shipment of the products to the
customer: Delivery is considered to occur at the
time of shipment of products to a distributor or direct
customer, as title and risk of loss have been transferred to the
distributor or direct customer on delivery to the common
carrier. Rights of return are not provided.
|
|
|
|
Fixed or determinable sales price: When the
sales price is fixed or determinable that amount is recognized
as revenue.
|
|
|
|
Collection is reasonably assured: Collection
is deemed probable if a customer is expected to be able to pay
amounts under the arrangement as those amounts become due.
Revenue is recognized when the resulting receivable is
reasonably assured.
|
The Company periodically offers programs at which customers can
purchase and return instruments within a specified period. As of
March 31, 2008, the programs have ended and accordingly, no
related allowance for returns was recorded.
The Company provides incentives in the form of free goods or
extended maintenance agreements to customers in connection with
the sale of its instruments. Revenues from such sales is
allocated separately to the instruments
60
ABAXIS,
INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
and incentives based on the relative fair value of each element.
Revenues allocated to incentives is deferred until the goods are
shipped to the customer or recognized ratably over the life of
the maintenance contract.
The Company periodically offers trade-in programs to customers
for trading in an existing instrument to purchase a new
instrument and either incentives in the form of free goods or a
reduction in the sales price of the instrument will be provided
to customers. These incentives are recorded according to the
policies described above.
Revenues associated with extended maintenance agreements are
recognized 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.
Distributor and Customer Rebates. The Company
periodically offers distributor pricing rebates 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 the qualifying period. The
Company also periodically offers cash rebates to customers who
purchase specific instruments during a promotional period. Cash
rebates are recorded as a reduction to gross revenues.
Shipping and Handling. In accordance with
Emerging Issues Task Force (EITF) Issue
No. 00-10,
Accounting for Shipping and Handling Fees and Costs,
amounts billed to a customer in a sale transaction related to
shipping and handling are classified as revenue. Additionally,
the cost of shipping products to customers is included in cost
of revenue.
Research and Development Costs. Research and
development costs, including internally generated software
costs, are expensed as incurred and include expenses associated
with new product research and regulatory activities. The
Companys products include certain software applications
that are resident in the product. The costs to develop such
software have not been capitalized as the Company believes its
current software development processes are completed concurrent
with the establishment of technological feasibility of the
software.
Advertising Expenses. Costs of advertising,
which are recognized as sales and marketing expenses, are
generally expensed in the period incurred. Advertising expenses
for fiscal 2008, 2007 and 2006 were $2.2 million,
$2.9 million and $1.7 million, respectively.
Income Taxes. The Company accounts for income
taxes under the provisions of SFAS No. 109,
Accounting for Income Taxes
(SFAS No. 109). Under this method,
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. Significant estimates are required in determining the
provision for income taxes. Some of these estimates are based on
interpretations of existing tax laws or regulations.
Share-Based Compensation Expense. On
April 1, 2006, the Company adopted the provisions of
SFAS No. 123 (revised 2004), Share-Based
Payment (SFAS No. 123(R)) using the
modified prospective method. SFAS No. 123(R) requires
the measurement and recognition of compensation expense for all
share-based payment awards made to employees and directors,
including stock options and restricted stock units based on
their fair values, in the Companys results of operations.
The share-based compensation expense includes expense for
unvested awards at March 31, 2006 and all awards granted
subsequent to March 31, 2006. Share-based compensation
expense for the unvested awards outstanding at March 31,
2006 is based on the grant-date fair value as used in
calculating the pro forma disclosures in prior period financial
statements in accordance with the provisions of
SFAS No. 123, Accounting for Stock-Based
Compensation.
Prior to April 1, 2006, the Company accounted for
share-based awards to employees and directors using the
intrinsic value method supplemented by pro forma disclosures in
accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB
No. 25) and other related guidance and,
61
ABAXIS,
INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
therefore, no employee compensation cost had been recognized for
share-based awards in financial statements prior to
April 1, 2006 because the Company issued stock options with
an exercise price equal to the market value at the date of grant.
The Company uses the Black-Scholes option pricing model to
determine the fair value of stock options granted prior to
March 31, 2006. Determining the appropriate fair value
model and calculating the fair value of share-based awards
require 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: The Company
estimates the volatility of its common stock at the date of
grant based on the historical volatility of its common stock.
|
|
|
|
Expected term: The Company estimates the
expected term of stock options granted based on historical
exercise and post-vesting termination patterns, which it
believes are representative of future behavior.
|
|
|
|
Expected dividends: The Company has not paid
cash dividends on its common stock and does not anticipate
paying cash dividends in the foreseeable future; consequently,
the Company uses an expected dividend yield of zero.
|
For restricted stock units, the assumptions to calculate
compensation expense is based on the fair value of the
Companys stock at the grant date.
As required by SFAS No. 123(R), employee share-based
compensation expense recognized is calculated based on the
awards expected to vest and reduced for estimated forfeitures.
The forfeiture rate is estimated based on historical data of the
Companys share-based awards that are granted and cancelled
prior to vesting and upon historical experience of employee
turnover.
Net Income Per Share. Basic net income per
share is computed by dividing the net income attributable to
common shareholders by the weighted average number of common
shares outstanding during the period. Diluted net income per
share is computed by dividing the net income attributable to
common shareholders by the weighted average number of common
shares that would have been outstanding during the period
assuming the issuance of common shares for all potential
dilutive common shares outstanding using the treasury stock
method. Dilutive potential common shares outstanding include
outstanding stock options, restricted stock units and warrants.
Comprehensive Income. In accordance with
SFAS No. 130, Reporting Comprehensive
Income, all changes in equity during a period, resulting
from net income and transactions from non-owner sources, are
reported in a financial statement for the period in which they
are recognized. Comprehensive income consists of net income and
other comprehensive income, which was comprised of the
net-of-tax amounts for unrealized gain (loss) on
available-for-sale investments (difference between the cost and
fair market value).
Components of comprehensive income consisted of the following
for fiscal 2008, 2007 and 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net income
|
|
$
|
12,503
|
|
|
$
|
10,073
|
|
|
$
|
7,475
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on investments, net of tax
|
|
|
(1,415
|
)
|
|
|
(75
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
11,088
|
|
|
$
|
9,998
|
|
|
$
|
7,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
ABAXIS,
INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
Recent
Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 157, Fair
Value Measurements (SFAS No. 157),
which clarifies the definition of fair value, establishes
guidelines for measuring fair value and expands financial
statement disclosures regarding fair value measurements.
SFAS No. 157 became effective for the Company on
April 1, 2008. The Company is currently evaluating the
impact of adopting SFAS No. 157 on its financial
position, cash flows and results of operations. In February
2008, the FASB issued FASB Staff Position
157-1,
FSP
FAS 157-1
Application of FASB Statement No. 157 to FASB Statement
No. 13 and Other Accounting Pronouncements That Address
Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13
(FSP 157-1).
In February 2008, the FASB issued FSP
FAS 157-2
Effective Date of FASB Statement No. 157
(FSP 157-2)
which delayed the effective date of SFAS No. 157 for
all nonfinancial assets and nonfinancial liabilities except
those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually).
The
FSP 157-2
partially defers the effective date of SFAS No. 157 to
fiscal years beginning after November 15, 2008, and interim
periods within those fiscal years for items within the scope of
this FSP. The Company adopted SFAS No. 157 and
FSP 157-1
on April 1, 2008, as required, except as it applies to
those nonfinancial assets and nonfinancial liabilities as noted
in
FSP 157-2.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities (SFAS No. 159).
SFAS No. 159 permits entities to choose, at specified
election dates, to measure eligible items at fair value (the
fair value option). Unrealized gains and losses on
instruments for which the fair value option has been elected are
reported in earnings at each subsequent reporting period.
SFAS No. 159 became effective for the Company on
April 1, 2008. The Company is currently evaluating the
impact of adopting SFAS No. 159 on its financial
position, cash flows and results of operations.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations
(SFAS No. 141R). SFAS No. 141R
will change how business acquisitions are accounted for and will
impact financial statements both on the acquisition date and in
subsequent periods. SFAS No. 141R will become
effective for the Company on April 1, 2009. The Company is
currently evaluating the impact of adopting
SFAS No. 141R on its financial statements.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an Amendment of ARB No. 51
(SFAS No. 160), which establishes new
accounting and reporting standards for minority interests, which
will be recharacterized as noncontrolling interests and
classified as a component of equity. SFAS No. 160 will
become effective for the Company on April 1, 2009. The
Company is currently evaluating the impact of adopting
SFAS No. 160 on its financial statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities (SFAS No. 161), which is
intended to enable investors to better understand how derivative
instruments and hedging activities affect an entitys
financial position, financial performance and cash flows through
enhanced disclosure requirements. SFAS No. 161 is
effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008.
SFAS No. 161 will become effective for the Company on
April 1, 2009. The Company is currently evaluating the
impact of adopting SFAS No. 161 on its financial
statements.
63
ABAXIS,
INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
The following table summarizes, by major security type, the cost
and fair value of investments at March 31, 2008 and 2007
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008
|
|
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gain (Loss)
|
|
|
Value
|
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificate of deposits
|
|
$
|
2,974
|
|
|
$
|
|
|
|
$
|
2,974
|
|
Municipal bonds
|
|
|
4,017
|
|
|
|
|
|
|
|
4,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments in held-to-maturity
|
|
$
|
6,991
|
|
|
$
|
|
|
|
$
|
6,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
$
|
36,975
|
|
|
$
|
(1,512
|
)
|
|
$
|
35,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments in available-for-sale
|
|
$
|
36,975
|
|
|
$
|
(1,512
|
)
|
|
$
|
35,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2007
|
|
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gain (Loss)
|
|
|
Value
|
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
$
|
16,400
|
|
|
$
|
|
|
|
$
|
16,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments in available-for-sale
|
|
|
16,400
|
|
|
|
|
|
|
|
16,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
18,628
|
|
|
|
|
|
|
|
18,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments in held-to-maturity
|
|
|
18,628
|
|
|
|
|
|
|
|
18,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
$
|
35,028
|
|
|
$
|
|
|
|
$
|
35,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2008 and 2007, unrealized gain (loss) on
investments, net of related income taxes, were $1.4 million
and $0, respectively.
At March 31, 2008, the contractual maturities for
certificate of deposits and municipal bonds were less than one
year. The Companys auction rate securities were classified
as long-term investments at March 31, 2008 even though the
stated maturity dates may be less than one year from the balance
sheet date. The Company determined that its auction rate
securities were not liquid at March 31, 2008 since several
auctions related to its auction rate securities failed.
At March 31, 2007, the contractual maturities for corporate
debt securities were less than one year. At March 31, 2007,
auction rate securities with maturities beyond one year were
classified as short-term investments, based on their highly
liquid nature and due to the frequency with which the interest
rate is reset.
64
ABAXIS,
INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
Components of inventories, net, at March 31, 2008 and 2007
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Raw materials
|
|
$
|
9,067
|
|
|
$
|
7,974
|
|
Work-in-process
|
|
|
4,315
|
|
|
|
3,203
|
|
Finished goods
|
|
|
5,275
|
|
|
|
3,636
|
|
|
|
|
|
|
|
|
|
|
Inventories, net
|
|
$
|
18,657
|
|
|
$
|
14,813
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 4.
|
PROPERTY
AND EQUIPMENT, NET
|
Property and equipment, net, at March 31, 2008 and 2007
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Machinery and equipment
|
|
$
|
19,197
|
|
|
$
|
16,877
|
|
Furniture and fixtures
|
|
|
1,446
|
|
|
|
1,406
|
|
Computer equipment
|
|
|
1,937
|
|
|
|
1,336
|
|
Leasehold improvements
|
|
|
6,179
|
|
|
|
5,924
|
|
Construction in progress
|
|
|
3,001
|
|
|
|
1,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,760
|
|
|
|
27,198
|
|
Accumulated depreciation and amortization
|
|
|
(17,161
|
)
|
|
|
(14,536
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
14,599
|
|
|
$
|
12,662
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense for property and equipment
amounted to $3.4 million, $2.6 million and
$2.1 million in fiscal 2008, 2007 and 2006, respectively.
|
|
NOTE 5.
|
INTANGIBLE
ASSETS, NET
|
Intangible assets, consisting of acquired patents, at
March 31, 2008 and 2007 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Cost
|
|
$
|
750
|
|
|
$
|
750
|
|
Accumulated amortization
|
|
|
(375
|
)
|
|
|
(300
|
)
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
375
|
|
|
$
|
450
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for intangible assets, included in cost of
revenues, amounted to $75,000 in each of fiscal 2008, 2007 and
2006. Based on the Companys intangible assets subject to
amortization as of March 31, 2008, the estimated
amortization expense for succeeding years is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Annual Amortization Expense
|
|
|
|
|
Fiscal Year Ending March 31,
|
|
|
Total
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
Thereafter
|
|
Amortization expense
|
|
$
|
375
|
|
|
$
|
75
|
|
|
$
|
75
|
|
|
$
|
75
|
|
|
$
|
75
|
|
|
$
|
75
|
|
|
$
|
|
|
65
ABAXIS,
INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
|
|
NOTE 6.
|
WARRANTY
RESERVES
|
The Company provides for the estimated future costs to be
incurred under the Companys standard warranty obligation
on its instruments. Starting on July 1, 2007, the Company
provides for the estimated future costs to be incurred under the
Companys warranty obligation on its reagent discs as part
of warranty reserves. Prior to July 1, 2007, the Company
maintained a provision for defective reagent discs as part of
sales allowances.
Instruments. Since the beginning of fiscal
2006, the Companys standard warranty obligation on
instruments is two 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. Beginning on July 1, 2007,
the Company records 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. Prior to July 1, 2007,
the Company recorded a provision for defective reagent discs as
part of sales allowances since the Company primarily issued a
credit to customers for defective reagent discs. Starting on
July 1, 2007, the provision for defective reagent discs is
recorded as part of warranty reserves, since the Company
replaces defective reagent discs rather than issue a credit to
customers. The change did not have a material impact on the
Companys financial statements. For fiscal 2008, the
provision for warranty expense related to replacement of
defective reagent discs was $507,000 and at March 31, 2008,
the balance of accrued warranty reserve related to replacement
of defective reagent discs was $418,000.
The Company evaluates its estimates for warranty reserves on an
ongoing basis and believes it has 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 the Companys warranty
reserve accrual in the period in which the change was identified.
The changes in the Companys accrued warranty reserve
during fiscal 2008 includes a provision for warranty costs and
replacement costs for reagent discs. The change in the
Companys accrued warranty reserve during fiscal 2008, 2007
and 2006 is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Balance at beginning of period
|
|
$
|
847
|
|
|
$
|
472
|
|
|
$
|
245
|
|
Provision for warranty expense
|
|
|
2,036
|
|
|
|
611
|
|
|
|
374
|
|
Warranty costs incurred
|
|
|
(935
|
)
|
|
|
(236
|
)
|
|
|
(147
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
|
1,948
|
|
|
|
847
|
|
|
|
472
|
|
Non-current portion of warranty reserve
|
|
|
729
|
|
|
|
532
|
|
|
|
259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of warranty reserve
|
|
$
|
1,219
|
|
|
$
|
315
|
|
|
$
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has a line of credit with Comerica Bank-California
which provides for borrowings of up to $2.0 million. The
line of credit terminates upon notification by either party and
the outstanding balance is payable upon demand. The line of
credit bears interest at the banks prime rate minus 0.25%,
which totaled 5.00% at March 31, 2008, and is payable
monthly. At March 31, 2008, of the $2.0 million
available, $97,000 was committed to secure a letter of credit
for the Companys facilities lease. At March 31, 2008,
there was no amount outstanding under the Companys line of
credit. The weighted average interest rates on the line of
credit during fiscal 2008 and 2007 were 7.29% and 7.91%,
respectively.
66
ABAXIS,
INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
The line of credit agreement contains certain financial
covenants, which are evaluated on a quarterly basis. At
March 31, 2008, the Company was in compliance with each of
these covenants. Included in these financial covenants, among
other stipulations, are the following requirements:
|
|
|
|
|
The Company 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.
|
|
|
|
The Company is required to be profitable, as defined, on a
fiscal year to date basis beginning with the six month period
ended September 30, 2007 and to have net income before
preferred stock dividends and accretion on preferred stock of
$1.2 million for the fiscal year ended March 31, 2008.
|
|
|
|
The Company is 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 the
Companys net book value of assets of $104.6 million
at March 31, 2008, including its intellectual property.
|
|
NOTE 8.
|
COMMITMENTS
AND CONTINGENCIES
|
As of March 31, 2008, the Companys contractual
obligations for succeeding years is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Due in Fiscal
|
|
|
|
Total
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Operating leases
|
|
$
|
3,609
|
|
|
$
|
1,267
|
|
|
$
|
1,247
|
|
|
$
|
973
|
|
|
$
|
86
|
|
|
$
|
36
|
|
|
$
|
|
|
Purchase commitments
|
|
|
7,290
|
|
|
|
7,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
10,899
|
|
|
$
|
8,557
|
|
|
$
|
1,247
|
|
|
$
|
973
|
|
|
$
|
86
|
|
|
$
|
36
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases. The Companys operating
lease obligations were comprised of its principal facility and
certain office facility and office equipment under operating
lease agreements, which expire on various dates through fiscal
2013. Rent expense under operating leases was $1.3 million,
$1.1 million and $1.1 million for fiscal 2008, 2007
and 2006, respectively.
The Companys principal facility is under a non-cancelable
operating lease agreement, which expires in fiscal 2011. The
monthly rental payments on the facility lease increases based on
a predetermined schedule. The Company recognizes rent expense on
a straight-line basis over the life of the lease. In connection
with its facility lease agreement, the Company established a
letter of credit for $97,000, which is secured by its line of
credit. See Note 7 for additional information.
Purchase Commitments. In November 2003, the
Company entered into an original equipment manufacturing
(OEM) agreement with Diatron Messtechnik GmbH
(Diatron) of Austria to purchase Diatron hematology
instruments. The Diatron hematology instruments are currently
supplied by Diatron MI Kft. Under the terms of the OEM
agreement, the Company became committed to purchase a minimum
number of hematology instruments through fiscal 2009 from
Diatron once the product was qualified for sale, which occurred
in May 2004. In September 2006, the terms of the agreement, with
respect to the purchase commitments, were revised and the
Company completed its purchase commitments in the quarter ended
December 31, 2007. In February 2008, the terms of the OEM
agreement, with respect to the purchase commitments, were again
revised. Under the amended
67
ABAXIS,
INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
OEM agreement currently in effect, the Company is committed to
purchase a minimum number of hematology instruments through
fiscal 2009. At March 31, 2008, the outstanding commitment
due in fiscal 2009 is approximately $7.3 million. The
commitment amount is based on the minimum number of hematology
instruments required to be purchased by the Company, the cost of
the instruments and the Euro exchange rate at period-end. Since
the exchange rate can fluctuate in the future, the commitment in
absolute dollars will change accordingly.
Litigation. The Company is involved from time
to time in various litigation matters in the normal course of
business. The Company believes that the ultimate resolution of
these matters will not have a material effect on its financial
position or results of operations.
|
|
NOTE 9.
|
EMPLOYEE
BENEFIT PLAN
|
The Company has a tax deferred savings plan for the benefit of
qualified employees. The plan is designed to provide employees
with an accumulation of funds at retirement. Qualified employees
may elect to have salary reduction contributions made to the
plan on a bi-weekly basis. The Company may make quarterly
contributions to the plan at the discretion of the Board of
Directors of the Company either in cash or in common stock.
Contributions to the tax deferred savings plan were $288,000,
$242,000 and $195,000 in fiscal 2008, 2007 and 2006,
respectively, of which $0, $66,000 and $43,000, respectively,
were in the form of common stock.
|
|
NOTE 10.
|
SHARE-BASED
COMPENSATION
|
Effective April 1, 2006, the Company adopted
SFAS No. 123(R), using the modified prospective method
and accordingly, the Companys financial statements for
periods ending prior to April 1, 2006 have not been
restated to reflect the impact of SFAS No. 123(R). The
following table summarizes total share-based compensation
expense, net of tax, related to stock options and restricted
stock units recorded in accordance with
SFAS No. 123(R) for fiscal 2008 and 2007, which is
included in the Companys Statements of Operations (in
thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Cost of revenues
|
|
$
|
127
|
|
|
$
|
72
|
|
Research and development
|
|
|
153
|
|
|
|
117
|
|
Sales and marketing
|
|
|
325
|
|
|
|
292
|
|
General and administrative
|
|
|
503
|
|
|
|
318
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense before income taxes
|
|
|
1,108
|
|
|
|
799
|
|
Income tax benefit
|
|
|
(442
|
)
|
|
|
(219
|
)
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense after income taxes
|
|
$
|
666
|
|
|
$
|
580
|
|
|
|
|
|
|
|
|
|
|
Net impact of share-based compensation on:
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation has been classified in the income
statement or capitalized on the balance sheet in the same manner
as cash compensation paid to employees. Capitalized share-based
compensation costs at March 31, 2008 and 2007 were $27,000
and $13,000, respectively, which were included in inventory on
the Companys Balance Sheets.
68
ABAXIS,
INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
Cash
Flow Impact
Prior to adopting SFAS No. 123(R), the Company
presented all tax benefits resulting from exercises of stock
options as cash flows from operating activities in its
Statements of Cash Flows. SFAS No. 123(R) 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 stock
options exercised 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
classified as a financing cash inflow for fiscal 2008 and 2007
were $1.6 million and $569,000, respectively.
Equity
Compensation Plans
The Companys share-based compensation plans are described
below.
2005 Equity Incentive Plan. The Companys
2005 Equity Incentive Plan (the Equity Incentive
Plan) restated and amended the Companys 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. The Equity Incentive
Plan provides for the issuance of a maximum of
4,886,000 shares, of which 442,000 shares of common
stock were available for future issuance as of March 31,
2008.
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 10 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 10 for additional information.
1992 Outside Directors Stock Option
Plan. Under the Companys 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 March 31, 2008, 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.
The Companys current practice is to issue new shares of
common stock from its authorized shares for share-based awards.
Stock
Options
The Company did not grant stock options during fiscal 2008 or
2007. Prior to April 1, 2006, the Company granted stock
options to employees, with an exercise price equal to the
closing market price of the Companys 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, the Company granted stock
options to non-employee directors with an exercise price equal
to the closing market price of the Companys common stock
on the
69
ABAXIS,
INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
date of grant and became exercisable over a period of one year
based on monthly vesting terms, conditional on continuous
service to the Company.
Valuation
and Expense Recognition Method for Stock Options
The Companys financial statements prior to April 1,
2006 do not include the impact of recording stock options using
the fair value. During fiscal 2006, in accordance with the
provisions of SFAS No. 123, the fair value of each
stock option was estimated on the date of the grant using the
Black-Scholes option pricing model, based on a multiple option
valuation approach, and forfeitures were recognized as they
occurred. For these unvested awards as of March 31, 2006,
the Company has continued to recognize compensation expense
based on the estimated grant date fair value method using the
Black-Scholes option pricing model. In accordance with the
provisions of SFAS No. 123(R), the compensation
expense is reduced for an estimate of the number of stock option
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. The
following are the weighted average assumptions used to determine
the fair value of each stock option on the date of grant for
fiscal 2006:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
March 31, 2006
|
|
|
Expected term of option
|
|
|
6 years
|
|
Risk-free interest rate
|
|
|
3.76
|
%
|
Dividend yield
|
|
|
0.00
|
%
|
Volatility
|
|
|
53
|
%
|
As of March 31, 2008, the total unrecognized compensation
expense related to stock options granted amounted to $47,000,
which is expected to be recognized over a weighted average
period of 0.44 years.
70
ABAXIS,
INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
Stock
Option Activity
Stock option activity under all stock plans is summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Price
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
per Share
|
|
|
Life (Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Outstanding at March 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,088,000 shares exercisable at a weighted average
exercise price of $4.82 per share)
|
|
|
2,763,000
|
|
|
$
|
6.76
|
|
|
|
|
|
|
|
|
|
Granted (weighted average fair value of $4.31 per share)
|
|
|
60,000
|
|
|
|
7.89
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(174,000
|
)
|
|
|
5.69
|
|
|
|
|
|
|
|
|
|
Canceled or forfeited
|
|
|
(117,000
|
)
|
|
|
8.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,317,000 shares exercisable at a weighted average
exercise price of $6.61 per share)
|
|
|
2,532,000
|
|
|
$
|
6.77
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(931,000
|
)
|
|
|
4.84
|
|
|
|
|
|
|
|
|
|
Canceled or forfeited
|
|
|
(24,000
|
)
|
|
|
12.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,522,000 shares exercisable at a weighted average
exercise price of $7.69 per share)
|
|
|
1,577,000
|
|
|
$
|
7.82
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(483,000
|
)
|
|
|
6.48
|
|
|
|
|
|
|
|
|
|
Canceled or forfeited
|
|
|
(50,000
|
)
|
|
|
20.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2008
|
|
|
1,044,000
|
|
|
$
|
7.82
|
|
|
|
3.78
|
|
|
$
|
16,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at March 31, 2008
|
|
|
1,043,000
|
|
|
$
|
7.82
|
|
|
|
3.77
|
|
|
$
|
16,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2008
|
|
|
1,026,000
|
|
|
$
|
7.75
|
|
|
|
3.72
|
|
|
$
|
15,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the table above represents the
pre-tax intrinsic value, based on the Companys closing
stock price as of March 31, 2008, 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 fiscal 2008 and 2007, was
$9.8 million and $15.7 million, respectively. Cash
proceeds from the exercise of stock options during fiscal 2008
and 2007 were $3.1 million and $4.5 million,
respectively.
71
ABAXIS,
INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
The following table summarizes information regarding stock
options outstanding and stock options exercisable at
March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Number
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Number
|
|
|
Exercise
|
|
|
|
of Shares
|
|
|
Contractual
|
|
|
Price
|
|
|
of Shares
|
|
|
Price
|
|
Range of Exercise Prices
|
|
Outstanding
|
|
|
Life (Years)
|
|
|
per Share
|
|
|
Exercisable
|
|
|
per Share
|
|
|
$ 1.50 - $ 2.00
|
|
|
107,000
|
|
|
|
0.74
|
|
|
$
|
1.67
|
|
|
|
107,000
|
|
|
$
|
1.67
|
|
$ 2.25 - $ 3.84
|
|
|
93,000
|
|
|
|
2.80
|
|
|
|
2.80
|
|
|
|
93,000
|
|
|
|
2.80
|
|
$ 3.85 - $ 3.85
|
|
|
151,000
|
|
|
|
5.06
|
|
|
|
3.85
|
|
|
|
151,000
|
|
|
|
3.85
|
|
$ 4.13 - $ 4.75
|
|
|
41,000
|
|
|
|
3.25
|
|
|
|
4.32
|
|
|
|
41,000
|
|
|
|
4.32
|
|
$ 4.87 - $ 4.87
|
|
|
222,000
|
|
|
|
3.07
|
|
|
|
4.87
|
|
|
|
222,000
|
|
|
|
4.87
|
|
$ 4.94 - $ 6.41
|
|
|
108,000
|
|
|
|
2.76
|
|
|
|
5.98
|
|
|
|
108,000
|
|
|
|
5.98
|
|
$ 6.46 - $12.99
|
|
|
108,000
|
|
|
|
3.98
|
|
|
|
8.88
|
|
|
|
96,000
|
|
|
|
8.64
|
|
$13.00 - $19.65
|
|
|
55,000
|
|
|
|
6.09
|
|
|
|
15.39
|
|
|
|
49,000
|
|
|
|
15.52
|
|
$21.45 - $21.45
|
|
|
2,000
|
|
|
|
6.04
|
|
|
|
21.45
|
|
|
|
2,000
|
|
|
|
21.45
|
|
$21.65 - $21.65
|
|
|
157,000
|
|
|
|
6.05
|
|
|
|
21.65
|
|
|
|
157,000
|
|
|
|
21.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 1.50 - $21.65
|
|
|
1,044,000
|
|
|
|
3.78
|
|
|
$
|
7.82
|
|
|
|
1,026,000
|
|
|
$
|
7.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Option Acceleration
On December 5, 2005, the Companys Board of Directors
approved full acceleration of outstanding and unvested stock
options with an exercise price of $19.12 or greater previously
granted under the Abaxis, Inc. 1998 Stock Option Plan held by
the Companys officers and employees. The primary purpose
of the acceleration of vesting was to minimize future
compensation expense the Company would otherwise recognize in
its financial statements with respect to these accelerated
options as a result of SFAS No. 123(R). The aggregate
estimated compensation expense associated with these accelerated
options that would have been recognized in its financial
statements after adoption of SFAS No. 123(R) was
approximately $1.1 million. Options to purchase
145,000 shares of the Companys common stock,
including 127,000 shares held by certain of the
Companys executive officers, became immediately
exercisable as of December 5, 2005.
Restricted
Stock Units
The Company grants restricted stock unit awards to employees and
directors as part of its 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.
|
72
ABAXIS,
INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
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 the Companys 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. The 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 will automatically accelerate in
full upon a change in control.
Valuation
and Expense Recognition Method for Restricted Stock
Unit
The fair value of restricted stock unit awards used in the
Companys expense recognition method is measured based on
the number of shares granted and the closing market price of the
Companys common stock on the date of grant. Such value is
recognized as an expense over the corresponding requisite
service period. The Companys policy is to recognize the
expense based on the vested portions of the awards. 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 March 31, 2008, the total
unrecognized compensation expense related to restricted stock
unit awards granted amounted to $9.5 million, which is
expected to be recognized over a weighted average period of
2.59 years.
Restricted
Stock Unit Activity
The following table summarizes restricted stock unit activity
during fiscal 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value(1)
|
|
|
Unvested at March 31, 2006
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
305,000
|
|
|
|
24.56
|
|
Vested
|
|
|
|
|
|
|
|
|
Canceled or forfeited
|
|
|
(10,000
|
)
|
|
|
21.43
|
|
|
|
|
|
|
|
|
|
|
Unvested at March 31, 2007
|
|
|
295,000
|
|
|
$
|
24.66
|
|
Granted
|
|
|
267,000
|
|
|
|
21.73
|
|
Vested
|
|
|
(22,000
|
)
|
|
|
25.06
|
|
Canceled or forfeited
|
|
|
(46,000
|
)
|
|
|
23.11
|
|
|
|
|
|
|
|
|
|
|
Unvested at March 31, 2008
|
|
|
494,000
|
|
|
$
|
23.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The weighted average grant date fair value of restricted stock
units is based on the number of shares granted and the closing
market price of the Companys common stock on the date of
grant. |
There were no restricted stock units granted during fiscal 2006.
Total intrinsic value of restricted stock units that vested
during fiscal 2008 was $544,000. The total grant date fair value
of restricted stock units that vested during fiscal 2008 was
$481,000. There were no restricted stock units that vested
during fiscal 2007 and 2006.
73
ABAXIS,
INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
Pro
Forma Information for Period Prior to Adoption of
SFAS No. 123(R)
The following table illustrates the effect on the Companys
pro forma net income and basic and diluted net income per share
had the Company accounted for share-based compensation in
accordance with SFAS No. 123, using the fair
value-based accounting method, rather than using the intrinsic
value method in accordance with APB No. 25 for fiscal 2006
(in thousands, except per share data):
|
|
|
|
|
|
|
Year Ended
|
|
|
|
March 31, 2006
|
|
|
Net income, as reported
|
|
$
|
7,475
|
|
Less: Pro forma share-based compensation expense determined
under the fair
value-based
accounting method for all awards, net of related tax effects
|
|
|
(2,534
|
)
|
|
|
|
|
|
Pro forma net income
|
|
$
|
4,941
|
|
|
|
|
|
|
Basic and diluted net income per share:
|
|
|
|
|
As reported basic
|
|
$
|
0.37
|
|
Pro forma basic
|
|
$
|
0.25
|
|
As reported diluted
|
|
$
|
0.35
|
|
Pro forma diluted
|
|
$
|
0.23
|
|
The pro forma information presented above for fiscal 2006
includes $1.1 million of share-based employee compensation
related to the accelerated vesting of certain options in
December 2005. See Stock Option Acceleration in this
Note 10 for additional information.
Stock Purchase Rights. On April 22, 2003,
the Board of Directors of the Company approved the adoption of a
Shareholder Rights Plan. Under the terms of the plan,
shareholders of record on May 8, 2003, received one
preferred stock purchase right for each outstanding share of
common stock held. Each right entitled the registered holder to
purchase from the Company one one-thousandth of a share of the
Companys Series RP Preferred Stock,
$0.001 par value, at a price of $24.00 per share and
becomes exercisable when a person or group acquires 15% or more
of the Companys common stock without prior approval by the
Board of Directors.
In addition, under certain conditions involving an acquisition
or proposed acquisition, the rights permit the holders (other
than the acquirer) to purchase the Companys common stock
at a 50% discount from the market price at that time, and in the
event of certain business combinations, the rights permit the
purchase of the common stock of an acquirer at a 50% discount
from the market price at that time. Under certain conditions,
the purchase rights may be redeemed by the Board of Directors in
whole, but not in part, at a price of $0.001 per right. The
rights have no voting privileges and are attached to and
automatically trade with the Companys common stock.
Common Stock Warrants. As of March 31,
2008, there were no warrants outstanding to purchase shares of
common stock. At March 31, 2007, there were warrants
outstanding to purchase 65,000 shares of common stock at a
weighted average exercise price of $7.00 per share. The warrants
were issued to purchasers of the Companys Series E
convertible preferred stock in fiscal 2002 and 2003. The
warrants expired in April 2007.
74
ABAXIS,
INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
|
|
NOTE 12.
|
NET
INCOME PER SHARE
|
The following is a reconciliation of the weighted average number
of common shares outstanding used in calculating basic and
diluted net income per share (in thousands, except share and per
share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
12,503
|
|
|
$
|
10,073
|
|
|
$
|
7,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic
|
|
|
21,499,000
|
|
|
|
20,643,000
|
|
|
|
19,985,000
|
|
Weighted average effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
701,000
|
|
|
|
1,082,000
|
|
|
|
1,374,000
|
|
Restricted stock units
|
|
|
58,000
|
|
|
|
4,000
|
|
|
|
|
|
Warrants
|
|
|
3,000
|
|
|
|
117,000
|
|
|
|
133,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding diluted
|
|
|
22,261,000
|
|
|
|
21,846,000
|
|
|
|
21,492,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.58
|
|
|
$
|
0.49
|
|
|
$
|
0.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
0.56
|
|
|
$
|
0.46
|
|
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company excluded the following stock options from the
computation of diluted weighted average shares outstanding
because the exercise price of the stock options was greater than
the average market price of the Companys common stock
during the period and, therefore, the inclusion of these stock
options would be antidilutive to net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Weighted average number of shares underlying antidilutive stock
options
|
|
|
|
|
|
|
222,000
|
|
|
|
291,000
|
|
Weighted average exercise price per share underlying
antidilutive stock options
|
|
|
N/A
|
|
|
$
|
21.65
|
|
|
$
|
20.70
|
|
The Company 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Weighted average number of shares underlying antidilutive
restricted stock units
|
|
|
9,000
|
|
|
|
199,000
|
|
|
|
N/A
|
|
75
ABAXIS,
INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
The components of the Companys income tax provision is
summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
368
|
|
|
$
|
405
|
|
|
$
|
169
|
|
State
|
|
|
533
|
|
|
|
493
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current provision for income taxes
|
|
|
901
|
|
|
|
898
|
|
|
|
279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
5,838
|
|
|
|
4,930
|
|
|
|
3,518
|
|
State
|
|
|
562
|
|
|
|
248
|
|
|
|
247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred provision for income taxes
|
|
|
6,400
|
|
|
|
5,178
|
|
|
|
3,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
7,301
|
|
|
$
|
6,076
|
|
|
$
|
4,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes differs from the amount computed
by applying the federal statutory income tax rate
(35 percent) to income before income taxes as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Income taxes at federal income tax rate
|
|
$
|
6,931
|
|
|
$
|
5,652
|
|
|
$
|
4,032
|
|
State income taxes, net of federal benefits
|
|
|
880
|
|
|
|
635
|
|
|
|
476
|
|
Share-based compensation
|
|
|
6
|
|
|
|
93
|
|
|
|
|
|
Research and development tax credits
|
|
|
(242
|
)
|
|
|
(350
|
)
|
|
|
(174
|
)
|
Extraterritorial income exclusion
|
|
|
|
|
|
|
(27
|
)
|
|
|
(80
|
)
|
Tax-exempt interest income
|
|
|
(336
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
62
|
|
|
|
73
|
|
|
|
(210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
7,301
|
|
|
$
|
6,076
|
|
|
$
|
4,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76
ABAXIS,
INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
Significant components of the Companys deferred tax assets
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
|
|
|
$
|
5,328
|
|
|
$
|
11,770
|
|
Research and development tax credit carryforwards
|
|
|
3,007
|
|
|
|
3,713
|
|
|
|
4,287
|
|
Capitalized research and development
|
|
|
|
|
|
|
86
|
|
|
|
105
|
|
Inventory reserves
|
|
|
364
|
|
|
|
140
|
|
|
|
70
|
|
Deferred revenue from extended maintenance agreements and
warranty reserves
|
|
|
1,172
|
|
|
|
864
|
|
|
|
625
|
|
Accrued vacation
|
|
|
424
|
|
|
|
383
|
|
|
|
320
|
|
Share-based compensation
|
|
|
378
|
|
|
|
192
|
|
|
|
|
|
Alternative minimum tax credits
|
|
|
675
|
|
|
|
485
|
|
|
|
351
|
|
Other
|
|
|
496
|
|
|
|
725
|
|
|
|
457
|
|
Valuation allowance for deferred tax assets
|
|
|
|
|
|
|
(352
|
)
|
|
|
(543
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
6,516
|
|
|
|
11,564
|
|
|
|
17,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
(145
|
)
|
|
$
|
(189
|
)
|
|
$
|
(935
|
)
|
Other
|
|
|
(77
|
)
|
|
|
(84
|
)
|
|
|
(88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(222
|
)
|
|
|
(273
|
)
|
|
|
(1,023
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
6,294
|
|
|
$
|
11,291
|
|
|
$
|
16,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A valuation allowance against deferred tax assets is provided
when it is more likely than not that some portion of the
deferred tax assets will not be realized. As of March 31,
2008, the Company did not have a valuation allowance. The
Companys valuation allowance as of March 31, 2007 and
2006 was attributable to expiring federal research and
development tax credits. The change in valuation allowance for
fiscal years 2008 and 2007 was due to the expiration of federal
research development tax credits for which a valuation allowance
had previously been established.
As of March 31, 2008, the Company has recognized
$22.3 million of tax deductions relating to share-based
compensation in excess of recognized compensation expense
(excess benefits). The Company recorded tax benefits
resulting from excess benefits when the benefits result in a
reduction in cash paid for income taxes. As a result of
available federal net operating loss (NOL)
carryforwards and California research and development tax credit
carryforwards, at March 31, 2007, a tax benefit of
$4.6 million will be realized in shareholders equity
in subsequent periods when the deduction reduces federal and
California taxes payable. During fiscal 2008, additional tax
benefits of $3.4 million were generated and
$1.3 million were utilized. At March 31, 2008, a tax
benefit of $6.7 million will be realized in
shareholders equity in subsequent periods upon the
realization of the federal and California carryforwards.
As of March 31, 2008, the Company had federal NOL
carryforwards of $16.8 million. There is no California net
operating loss carryforward. The federal NOL carryforwards will
expire at various dates from fiscal years 2009 through 2023, if
not utilized. As of March 31, 2008, the Company had federal
and California research and development tax credit carryforwards
of $2.8 million and $1.5 million, respectively. The
federal research and development tax credit carryforward will
expire at various dates from fiscal years 2009 through 2028, if
not utilized. The California research and development tax credit
will carryforward indefinitely. The Company had combined federal
and state alternative minimum tax credit carryforwards of
$688,000, which do not expire.
77
ABAXIS,
INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
Section 382 of the Internal Revenue Code of 1986, as
amended, places a limitation on the amount of taxable income
which can be offset by NOL carryforwards after a change in
control (generally greater than 50% change in ownership) of a
loss corporation. The State of California has similar rules.
Generally, after a change in control, a loss corporation cannot
deduct NOL carryforwards in excess of the Section 382
limitation. Due to these change in ownership
provisions, utilization of NOL and tax credit carryforwards may
be subject to an annual limitation regarding their utilization
against taxable income in future periods.
Effective April 1, 2007, the Company adopted the provisions
of FASB Interpretation 48, Accounting for Uncertainty in
Income Taxes an interpretation of FASB Statement
No. 109 (FIN 48). FIN 48
clarifies the accounting for uncertainty in income taxes
recognized in the financial statements in accordance with
SFAS No. 109 and prescribes 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. FIN 48 also provides guidance
on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. As a
result of implementing FIN 48 during fiscal 2008, the
Company did not change the amount of unrecognized tax benefits
related to tax positions taken in prior periods. The Company did
not have any unrecognized tax benefits as of April 1, 2007,
the date of adoption, or as of March 31, 2008. Upon
adoption of FIN 48, the Companys policy to include
interest and penalties related to gross unrecognized tax
benefits within its provision for income taxes did not change.
During fiscal 2008, the Company did not recognize any interest
and penalties related to unrecognized tax benefits. The Company
files income tax returns in the U.S. federal jurisdiction
and various state jurisdictions. The Company is not under
examination for any of these jurisdictions. The Company is
subject to examination by U.S. federal and various state
jurisdictions for fiscal years 1990 through 2001 and fiscal
years 2003 through 2008.
|
|
NOTE 14.
|
SEGMENT
REPORTING INFORMATION
|
Operating segments are defined as components of an enterprise
about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or
decision making group, in deciding how to allocate resources and
in assessing performance.
The Company 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. The Company identifies its reportable
segments as those customer groups that represent more than 10%
of the combined revenue or gross profit or loss of all reported
operating segments. The Company manages its 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 the chief
operating decision maker does not use it as a basis to evaluate
a segments performance.
Medical
Market
In the medical market reportable segment, the Company serves 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.
Veterinary
Market
In the veterinary market reportable segment, the Company serves
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,
78
ABAXIS,
INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
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. The Company also sells
OEM-supplied products in this segment consisting primarily of
hematology analyzers and hematology reagent kits.
The segment information for fiscal 2007 and 2006 periods has
been restated to conform to the current presentation of
reportable segments for fiscal 2008, 2007 and 2006. The table
below summarizes revenues, cost of revenues and gross profit
from the two operating segments (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
$
|
22,764
|
|
|
$
|
17,455
|
|
|
$
|
10,888
|
|
Veterinary Market
|
|
|
71,091
|
|
|
|
63,851
|
|
|
|
53,841
|
|
Other(1)
|
|
|
6,696
|
|
|
|
4,915
|
|
|
|
4,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
100,551
|
|
|
|
86,221
|
|
|
|
68,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
|
11,340
|
|
|
|
8,549
|
|
|
|
4,890
|
|
Veterinary Market
|
|
|
31,812
|
|
|
|
29,021
|
|
|
|
23,856
|
|
Other(1)
|
|
|
2,355
|
|
|
|
1,792
|
|
|
|
1,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
45,507
|
|
|
|
39,362
|
|
|
|
30,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
|
11,424
|
|
|
|
8,906
|
|
|
|
5,998
|
|
Veterinary Market
|
|
|
39,279
|
|
|
|
34,830
|
|
|
|
29,985
|
|
Other(1)
|
|
|
4,341
|
|
|
|
3,123
|
|
|
|
2,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
55,044
|
|
|
$
|
46,859
|
|
|
$
|
38,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents unallocated items, not specifically identified to any
particular business segment. |
|
|
NOTE 15.
|
REVENUES
BY PRODUCT CATEGORY AND GEOGRAPHIC REGION AND SIGNIFICANT
CONCENTRATIONS
|
Revenue
Information
The following is a summary of revenues for each group of
products and services provided by the Company (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
Revenues by Product Category
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Instruments
|
|
$
|
30,011
|
|
|
$
|
28,899
|
|
|
$
|
21,864
|
|
Reagent discs and kits
|
|
|
61,928
|
|
|
|
50,741
|
|
|
|
41,606
|
|
Other products
|
|
|
6,583
|
|
|
|
4,775
|
|
|
|
4,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales, net
|
|
|
98,522
|
|
|
|
84,415
|
|
|
|
67,556
|
|
Development and licensing revenue
|
|
|
2,029
|
|
|
|
1,806
|
|
|
|
1,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
100,551
|
|
|
$
|
86,221
|
|
|
$
|
68,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
ABAXIS,
INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
The following is a summary of revenues by geographic region
based on customer location (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
Revenues by Geographic Region
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
North America
|
|
$
|
83,830
|
|
|
$
|
72,015
|
|
|
$
|
58,747
|
|
Europe
|
|
|
13,472
|
|
|
|
10,370
|
|
|
|
7,354
|
|
Asia Pacific and rest of the world
|
|
|
3,249
|
|
|
|
3,836
|
|
|
|
2,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
100,551
|
|
|
$
|
86,221
|
|
|
$
|
68,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
Concentrations
Revenues from significant customers as a percentage of total
revenues were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographical
|
|
Year Ended March 31,
|
Distributor
|
|
Location
|
|
2008
|
|
2007
|
|
2006
|
|
Walco International, Inc., d/b/a DVM Resources
|
|
United States
|
|
|
12
|
%
|
|
|
15
|
%
|
|
|
13
|
%
|
Henry Schein, Inc.
|
|
United States
|
|
|
<10
|
%
|
|
|
<10
|
%
|
|
|
17
|
%
|
Substantially all of the Companys long-lived assets are
located in the United States.
|
|
NOTE 16.
|
QUARTERLY
RESULTS OF OPERATIONS (UNAUDITED)
|
The following is a summary of the unaudited quarterly results of
operations for fiscal 2008 and 2007 (in thousands, except per
share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
March 31
|
|
|
Fiscal Year Ended March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
22,931
|
|
|
$
|
25,192
|
|
|
$
|
25,690
|
|
|
$
|
26,738
|
|
Gross profit
|
|
$
|
13,016
|
|
|
$
|
13,857
|
|
|
$
|
13,609
|
|
|
$
|
14,562
|
|
Net income
|
|
$
|
3,098
|
|
|
$
|
2,888
|
|
|
$
|
3,205
|
|
|
$
|
3,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic
|
|
$
|
0.15
|
|
|
$
|
0.13
|
|
|
$
|
0.15
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share diluted
|
|
$
|
0.14
|
|
|
$
|
0.13
|
|
|
$
|
0.14
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
20,358
|
|
|
$
|
21,037
|
|
|
$
|
22,018
|
|
|
$
|
22,808
|
|
Gross profit
|
|
$
|
11,437
|
|
|
$
|
11,558
|
|
|
$
|
11,579
|
|
|
$
|
12,285
|
|
Net income
|
|
$
|
2,401
|
|
|
$
|
2,114
|
|
|
$
|
2,776
|
|
|
$
|
2,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic
|
|
$
|
0.12
|
|
|
$
|
0.10
|
|
|
$
|
0.13
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share diluted
|
|
$
|
0.11
|
|
|
$
|
0.10
|
|
|
$
|
0.13
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
Not applicable.
|
|
Item 9A.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
The Companys management, with the participation of the
Companys principal executive officer and principal
financial officer, has evaluated that the effectiveness of the
Companys disclosure controls and procedures, as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended, (the
Exchange Act), as of the end of the period covered
by this report. Based on such evaluation, the Companys
principal executive officer and principal financial officer have
concluded that, as of the end of such period, the Companys
disclosure controls and procedures were effective.
Managements
Report on Internal Control Over Financial Reporting
The Companys management is responsible for establishing
and maintaining adequate internal control over financial
reporting as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act. Under the supervision and with the
participation of the Companys management, including its
principal executive officer and principal financial officer, the
Company conducted an evaluation of the effectiveness of its
internal control over financial reporting based on criteria
established in the framework in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on this
evaluation, the Companys management has concluded that the
Companys internal control over financial reporting was
effective as of March 31, 2008.
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.
Attestation
Report of the Independent Registered Public Accounting
Firm
Burr, Pilger & Mayer LLP, our independent registered
public accounting firm, has issued an audit report on the
effectiveness of our internal control over financial reporting
as of March 31, 2008, which report is included elsewhere
herein.
Changes
in Internal Control over Financial Reporting
There were no changes in our internal control over financial
reporting during the fiscal quarter ended March 31, 2008
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting, as defined in
Rule 13a-15(f)
and
15d-15(f)
under the Exchange Act.
81
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL
CONTROLS OVER FINANCIAL REPORTING
To the Board of Directors and Shareholders
of Abaxis, Inc.
We have audited the internal control over financial reporting of
Abaxis, Inc. (the Company) as of March 31,
2008, based on criteria established in Internal
Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
The Companys management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying
Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
effectiveness of the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
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 risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Abaxis, Inc. maintained, in all material
respects, effective internal control over financial reporting as
of March 31, 2008, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
balance sheets of Abaxis, Inc. as of March 31, 2008 and
2007, and the related statements of operations,
shareholders equity and comprehensive income, and cash
flows for each of the three years in the period ended
March 31, 2008 and the related financial statement schedule
and our report dated June 13, 2008 expressed an unqualified
opinion on those financial statements and the related financial
statement schedule.
/s/ Burr,
Pilger & Mayer LLP
San Jose, California
June 13, 2008
82
|
|
Item 9B.
|
Other
Information
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The following table sets forth information concerning our
executive officers and directors as of May 31, 2008.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Title
|
|
Clinton H. Severson
|
|
|
60
|
|
|
Chairman of the Board, President and Chief Executive Officer
|
Richard J. Bastiani, Ph.D.(1)(2)(3)
|
|
|
65
|
|
|
Director
|
Henk J. Evenhuis(1)(3)
|
|
|
65
|
|
|
Director
|
Brenton G. A. Hanlon(1)(2)(3)
|
|
|
62
|
|
|
Director
|
Prithipal Singh, Ph.D.(1)(3)
|
|
|
69
|
|
|
Director
|
Ernest S. Tucker, III, M.D.(1)(3)
|
|
|
75
|
|
|
Director
|
Alberto R. Santa Ines
|
|
|
61
|
|
|
Chief Financial Officer and Vice President of Finance
|
Kenneth P. Aron, Ph.D.
|
|
|
55
|
|
|
Chief Technology Officer
|
Donald P. Wood
|
|
|
56
|
|
|
Vice President of Operations
|
Vladimir E. Ostoich, Ph.D.
|
|
|
62
|
|
|
Vice President of Government Affairs and Vice President of
Marketing for the Pacific Rim, Founder
|
Christopher M. Bernard
|
|
|
40
|
|
|
Vice President of Sales and Marketing for the Domestic Medical
Market
|
Martin V. Mulroy
|
|
|
47
|
|
|
Vice President of Veterinary Sales and Marketing for North
America
|
|
|
|
(1) |
|
Member of the Audit Committee |
|
(2) |
|
Member of the Compensation Committee |
|
(3) |
|
Member of the Nominating and Corporate Governance Committee |
Clinton H. Severson has served as our President, Chief
Executive Officer and one of our directors since June 1996.
He was appointed Chairman of the Board in May 1998. Since
November 2006, Mr. Severson has served on the Board of
Directors of CytoCore, Inc. (OTCBB: CYCR). From February 1989 to
May 1996, Mr. Severson served as President and Chief
Executive Officer of MAST Immunosystems, Inc., a privately-held
medical diagnostic company.
Richard J. Bastiani, Ph.D. joined our Board of
Directors in September 1995. Dr. Bastiani is currently
retired and serves as Chairman of the Board of Directors of
Response Biomedical Corporation (CDNX: RBM). From 1998 to 2005,
Dr. Bastiani served as Chairman of the Board of Directors
of ID Biomedical Corporation (NASDAQ: IDBE), after he was
appointed to the Board of Directors of ID Biomedical Corporation
in October 1996. Dr. Bastiani was President of Dendreon
(NASDAQ: DNDN), a biotechnology company, from September 1995 to
September 1998. From 1971 until 1995, Dr. Bastiani held a
number of positions with Syva Company, a diagnostic company,
including as President from 1991 until Syva was acquired by a
subsidiary of Hoechst AG of Germany in 1995. Dr. Bastiani
is also a member of the board of directors of three-privately
held companies.
Henk J. Evenhuis joined our Board of Directors in
November 2002. Mr. Evenhuis is currently retired and serves
on the Board of Directors of Credence Systems Corporation
(NASDAQ: CMOS), a semiconductor equipment manufacturer.
Mr. Evenhuis served as Executive Vice President and Chief
Financial Officer of Fair Isaac Corporation (NYSE: FIC), a
global provider of analytic software products to the financial
services, insurance and health care industries from October 1999
to October 2002. From 1987 to 1998, he was Executive Vice
President
83
and Chief Financial Officer of Lam Research Corporation (NASDAQ:
LRCX), a semiconductor equipment manufacturer.
Brenton G. A. Hanlon joined our Board of Directors in
November 1996. Since January 2001, Mr. Hanlon has been
President and Chief Executive Officer of Hitachi Chemical
Diagnostics, a manufacturer of in vitro allergy diagnostic
products. Concurrently, from December 1996 until the present,
Mr. Hanlon has served as President and Chief Operating
Officer of Tri-Continent Scientific, a subsidiary of Hitachi
Chemical, specializing in liquid-handling products and
instrument components for the medical diagnostics and
biotechnology industries. From 1989 to December 1996,
Mr. Hanlon was Vice President and General Manager of
Tri-Continent Scientific. Mr. Hanlon serves on the board of
directors of two privately-held companies.
Prithipal Singh, Ph.D. joined our Board of Directors
in June 1992. Prior to retiring, Dr. Singh was the Founder,
Chairman and Chief Executive Officer of ChemTrak Inc. (Pink
Sheets: CMTR) from 1988 to 1998. Prior to this, Dr. Singh
was an Executive Vice President of Idetec Corporation from 1985
to 1988 and a Vice President of Syva Company from 1977 to 1985.
Ernest S. Tucker, III, M.D. joined our Board of
Directors in September 1995. Dr. Tucker currently serves as
a self-employed health care consultant after having retired as
Chief Compliance Officer for Scripps Health in San Diego in
September 2000, a position which he assumed in April 1998.
Dr. Tucker was Chairman of Pathology at Scripps Clinic and
Research Foundation from 1992 to 1998 and Chair of Pathology at
California Pacific Medical Center in San Francisco from
1989 to 1992.
Alberto R. Santa Ines has served as our Chief Financial
Officer and Vice President of Finance since April 2002.
Mr. Santa Ines joined us in February 2000 as Finance
Manager. In April 2001, Mr. Santa Ines was promoted to
Interim Chief Financial Officer and Director of Finance, and in
April 2002 he was promoted to his current position. From March
1998 to January 2000, Mr. Santa Ines was a self-employed
consultant to several companies. From August 1997 to March 1998,
Mr. Santa Ines was the Controller of Unisil (Pink Sheets:
USIL), a semiconductor company. From April 1994 to August 1997,
he was a Senior Finance Manager at Lam Research Corporation
(NASDAQ: LRCX), a semiconductor equipment manufacturer.
Kenneth P. Aron, Ph.D. has served as our Chief
Technology Officer since April 2008. Dr. Aron joined us in
February 2000 as Vice President of Research and Development.
From April 1998 to November 1999, Dr. Aron was Vice
President of Engineering and Technology of Incyte
Pharmaceuticals (NASDAQ: INCY), a genomic information company.
From April 1996 to April 1998, Dr. Aron was Vice President
of Research, Development and Engineering for Cardiogenesis
Corporation (NASDAQ: CGCP), a manufacturer of laser-based
cardiology surgical products.
Donald P. Wood has served as our Vice President of
Operations since October 2007. From April 2003 to September
2007, Mr. Wood was the Vice President of Operations of
Cholestech Corporation (NASDAQ: CTEC), a medical products
manufacturing company which was subsequently acquired by
Inverness Medical Innovations, Inc. in September 2007. From July
2001 to March 2003, Mr. Wood served as Vice President of
Bone Health, a business unit of Quidel Corporation, a
manufacturing and marketer of point-of-care diagnostics, and was
responsible for Bone Health Product Operations, Device Research
and Development, and Sales and Marketing. He also served as
Quidels Vice President of Ultrasound Operations from
August 1999 to July 2001. Prior to joining Quidel, Mr. Wood
was the Director of Ultrasound Operations for Metra Biosystems
Inc., a developer and manufacturing company of point-of-care
products for osteoporosis, from July 1998 to August 1999 prior
to Quidels acquisition of Metra Biosystems Inc.
Vladimir E. Ostoich, Ph.D., one of our co-founders,
is currently our Vice President of Government Affairs and Vice
President of Marketing for the Pacific Rim. Dr. Ostoich has
served as Vice President in various capacities at Abaxis since
our inception, including as Vice President of Research and
Development, Senior Vice President of Research and Development,
Vice President of Engineering and Instrument Manufacturing and
Vice President of Marketing and Sales for the United States and
Canada.
Christopher M. Bernard joined us in November 2005 as Vice
President of Marketing and Sales for the Domestic Medical
Market. From September 2000 to October 2005, Mr. Bernard
served as Regional Business Director for Cytyc Corporation,
which is now Hologic, Inc. (NASDAQ: HOLX), a manufacturer of
medical
84
products primarily focused on womens health. From December
1995 to August 2000, Mr. Bernard held various sales and
sales management positions at Cytyc Corporation.
Martin V. Mulroy has served as Vice President of
Veterinary Sales and Marketing for North America since
May 2006. Mr. Mulroy joined us in November 1997 as the
Northeast Regional Sales Manager. He was promoted to Eastern
Area Director of Sales in December 1998 and, in January 2005 he
was promoted to National Sales Director for the Domestic
Veterinary market. From March 1996 to November 1997,
Mr. Mulroy was Regional Sales Manager for BioCircuits Inc.,
an immunoassay company in the medical market. Mr. Mulroy
was Regional Sales Manager from 1990 to 1992 and Field
Operations Manager from 1992 to 1995 for MAST Immunosystems
Inc., a privately-held medical diagnostic company.
Term and
Number of Directors
All of our directors hold office until the next annual meeting
of shareholders of Abaxis and until their successors have been
elected and qualified. Our Bylaws authorize our Board of
Directors to fix the number of directors at not less than four
or no more than seven. The number of directors of the Company is
currently six.
Each of our executive officers serves at the discretion of the
Board of Directors. There are no family relationships among any
of our directors or executive officers.
Identification
of Audit Committee and Financial Expert
The Audit Committee of the Board of Directors oversees
Abaxis corporate accounting, financial reporting process
and systems of internal control and financial controls. The
following outside directors comprise the Audit Committee:
Mr. Evenhuis, Dr. Bastiani, Mr. Hanlon,
Dr. Singh and Dr. Tucker. Mr. Evenhuis serves as
Chairman of the Audit Committee.
The Board of Directors annually reviews the Nasdaq Stock Market,
or NASDAQ, listing standards definition of independence for
Audit Committee members and has determined that all members of
our Audit Committee are independent (based on the
requirements for independence set forth in
Rule 4350(d)(2)(A)(i) and (ii) of the NASDAQ listing
standards). Securities and Exchange Commission, or SEC,
regulations require Abaxis to disclose whether a director
qualifying as an audit committee financial expert
serves on the Audit Committee. The Board of Directors has
determined that Mr. Evenhuis qualifies as an audit
committee financial expert, as defined in applicable SEC
rules. The Board of Directors made a qualitative assessment of
Mr. Evenhuiss level of knowledge and experience based
on a number of factors, including his formal education and
experience as a chief financial officer for public reporting
companies.
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our executive
officers, directors and persons who beneficially own more than
10% of our equity securities to file initial reports of
ownership and reports of changes in ownership with the SEC. Such
persons are required by SEC regulations to furnish us with
copies of all Section 16(a) forms filed by such persons.
Based solely on our review of the copies of Forms 3, 4 and
5 and amendments thereto received by us, we believe that during
the period from April 1, 2007 through March 31, 2008,
our executive officers, directors and greater than 10%
shareholders complied with all applicable filing requirements
applicable to these executive officers, directors and greater
than 10% shareholders, except with respect to one late report
filing, covering one transaction, by Mr. Donald Wood, one
of our executive officers.
Code of
Business Conduct and Ethics
Abaxis has adopted a Code of Business Conduct and Ethics that
applies to all our executive officers, directors and employees,
including without limitation our principal executive officer,
principal financial officer, principal accounting officer or
controller or persons performing similar functions. The Code of
Business Conduct and Ethics is available on our website at
www.abaxis.com under Investor Relations at
Corporate Governance. If we make any amendments to
the Code of Business Conduct and Ethics or grant any waiver from
a provision of the code to any
85
executive officer or director, we will promptly disclose the
nature of the amendment or waiver on our website. We intend to
satisfy the disclosure requirement under Item 5.05 of
Form 8-K
regarding any amendment to, or waiver of, any provision of the
Code of Business Conduct and Ethics by disclosing such
information on the same website. You may also request a copy of
our Code of Business Conduct and Ethics by contacting our
investor relations department at investors@abaxis.com.
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Item 11.
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Executive
Compensation
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COMPENSATION
DISCUSSION AND ANALYSIS
Overview
The goals of our executive compensation program are to attract,
retain, motivate and reward executive officers who contribute to
our success and to incentivize these executives on both a
short-term and long-term basis to achieve our business
objectives. This program combines cash and equity awards in the
proportions that we believe will motivate our executive officers
to increase shareholder value over the long-term.
Our executive compensation program is designed to achieve the
following objectives:
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to align our executive compensation with our strategic business
objectives;
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to align the interests of our executive officers with both
short-term and long-term shareholder interests; and
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to place a substantial portion of our executives
compensation at risk such that actual compensation depends on
both overall company performance and individual performance.
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Executive
Compensation Program Objectives and Framework
Our executive compensation program has three primary components:
(1) base salary, (2) annual cash incentive bonus and
(3) equity grants. Base salaries for our executive officers
are a minimum fixed level of compensation consistent with or
below competitive market practice. Annual cash incentive bonuses
awarded to our executive officers are intended to incentivize
and reward achievement of financial, operating and strategic
objectives during the fiscal year. Equity grants awarded to our
executive officers are designed to ensure that incentive
compensation is linked to our long-term company performance,
promote retention and to align our executives long-term
interests with shareholders long-term interests. Our
executive officers total potential cash compensation is
heavily weighted toward annual cash incentive bonuses, because
our Compensation Committee and Board of Directors believes this
weighting best aligns the interests of our executive officers
with that of shareholders generally.
Executive compensation is reviewed annually by our Compensation
Committee and Board of Directors, and adjustments are made to
reflect company objectives and competitive conditions.
Generally, base salaries are adjusted effective May 1 of each
year. We also offer our executive officers participation in our
401(k) plan, health care insurance, flexible spending accounts
and certain other benefits available generally to all full-time
employees.
Role
of Our Compensation Committee
Our Compensation Committee, which operates under a written
charter adopted by the Board of Directors, is primarily
responsible for reviewing and recommending to the Board of
Directors for approval the compensation arrangements for our
executive officers and directors. In carrying out these
responsibilities, the Compensation Committee shall review all
components of executive officer and director compensation for
consistency with the Compensation Committees compensation
philosophy as in effect from time to time. In connection with
their review and recommendations, our Compensation Committee
also considers the recommendations of our Chief Executive
Officer, Mr. Clinton Severson. Our Compensation Committee
gives considerable weight to Mr. Seversons
recommendations because of his direct knowledge of each
executive officers performance and contribution to our
financial performance. However, Mr. Severson does not
participate in the determination of his own compensation. No
other executive officers participate in the determination or
recommendation of the amount or form of executive officer
compensation, except the Companys Chief Financial Officer
as discussed below. Our Compensation Committee does not delegate
any of its functions in determining executive
and/or
director
86
compensation. To date, our Compensation Committee has not
established any formal policies or guidelines for allocating
compensation between long-term and currently paid out
compensation, cash and non-cash compensation, or among different
forms of non-cash compensation.
Our Compensation Committee may discuss with our Chief Executive
Officer or Chief Financial Officer our financial, operating and
strategic business objectives, bonus targets or performance
goals. The Compensation Committee reviews and determines the
appropriateness of the financial measures and performance goals,
as well as assesses the degree of difficulty in achieving
specific bonus targets and performance goals. The Compensation
Committee then presents its recommendation for executive
compensation to the Board of Directors for final review and
approval. Typically, these recommendations are made to our Board
of Directors during the first quarter of the ensuing fiscal year.
From time to time, our Compensation Committee may engage an
independent compensation advisor to obtain competitive
compensation data. In March 2006, we retained the independent
compensation consulting firm of Top Five Data Services, Inc.
(Top Five) to, among other things, help identify
appropriate peer group companies and to obtain and evaluate
executive compensation data for these companies, and took its
recommendations into account in setting fiscal 2007 executive
compensation. We did not engage another compensation consultant,
or request additional recommendations from Top Five, in
connection with our determination of fiscal 2008 or fiscal 2009
executive compensation because our Compensation Committee and
Board of Directors determined that many of the recommendations
made by Top Five with respect to fiscal 2007 continued to be
relevant for fiscal 2008 and fiscal 2009. Our Compensation
Committee and Board of Directors may engage compensation
consultants in the future as they deem it to be necessary or
appropriate.
Competitive
Benchmarking
In April 2006, Top Five, in consultation with our Compensation
Committee, compared our senior management compensation to the
senior management compensation at a group of 19 companies
(the Compensation Peer Group). This Compensation
Peer Group represented similarly-situated medical device and
diagnostic companies that were identified by Top Five as
companies with similar financial growth and as competitors for
executive talent. The following companies comprised the
Compensation Peer Group:
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Abiomed
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Conceptus
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Palomar Medical Technologies
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Adeza Biomedical
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Cutera
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Surmodics
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Angiodynamics
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Digene
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Thoratec
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Aspect Medical Systems
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Intralase
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Vivus
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ATS Medical
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Kensey Nash
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VNUS Medical Technologies
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Biosite
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Meridian Bioscience
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Cholestech
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Orasure Technologies
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Top Five measured our relative performance against the
Compensation Peer Group over one and three year periods based on
the following three financial metrics:
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total shareholder return;
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revenue; and
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EBITDA (earnings before income tax, depreciation and
amortization).
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The market data obtained regarding the Compensation Peer Group
was considered by the Compensation Committee in its fiscal 2008
and fiscal 2009 executive compensation decisions.
Compensation
Determinations
The Compensation Committee did not target executive compensation
in fiscal 2008 or fiscal 2009 to any specific benchmarks against
the Compensation Peer Group, but did generally target total
compensation to be competitive with companies in the
Compensation Peer Group with similar financial growth rates
based on the compensation information for the Compensation Peer
Group in fiscal 2006. However, our executive officers
total
87
potential cash compensation is more heavily weighted toward
annual cash incentive bonuses than most companies in the
Compensation Peer Group. In addition to any competitive
benchmarks the Compensation Committee deems relevant, the
Compensation Committee also considers the recommendations from
our Chief Executive Officer regarding the compensation of our
executive officers who report directly to him. These
recommendations generally include annual adjustments to
compensation levels, an assessment of each executive
officers overall individual contribution, scope of
responsibilities and level of experience.
Elements
of Compensation
Base
Salary
We provide an annual base salary to each of our executive
officers, including each of the Named Executive Officers listed
on the Summary Compensation Table beginning on page 94,
(the Named Executive Officers). Each base salary is
reviewed annually by the Compensation Committee and adjusted for
the ensuing year based on both (i) an evaluation of
individual job performance during the prior year, and
(ii) an evaluation of the compensation levels of
similarly-situated executive officers at the Compensation Peer
Group and in our industry generally. In determining fiscal 2008
and fiscal 2009 base salaries for our Named Executive Officers
our Compensation Committee generally targeted salaries to be
between the 25th and 50th percentile of the
Compensation Peer Group. Our Compensation Committee considered
this 25th and 50th percentile range as a general
guideline for the appropriate level of potential salaries, but
did not attempt to specifically match this or any other
percentile. Our Compensation Committee also considered the
recommendations of the Chief Executive Officer regarding the
compensation of each of the Named Executive Officers who
reported directly to him. However, the Compensation Committee
and our Board of Directors did not base their considerations on
any single factor but rather considered a mix of factors and
evaluated individual salaries against that mix.
Based on the recommendations of the Compensation Committee, our
Board of Directors approved the following base salaries
(effective May 1, 2007 for fiscal 2008 and April 1,
2008 for fiscal 2009) for our Named Executive Officers:
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Fiscal 2008
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Fiscal 2009
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Named Executive Officer
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Base Salary
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Base Salary
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Clinton H. Severson
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$
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338,000
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$
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360,000
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Alberto R. Santa Ines
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$
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185,000
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$
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200,000
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Kenneth P. Aron, Ph.D.
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$
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193,000
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$
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210,000
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Vladimir E. Ostoich, Ph.D.
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$
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203,000
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$
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210,000
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Christopher M. Bernard
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$
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175,000
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$
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185,000
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Our Board of Directors set such increased salaries after
considering a peer company analysis of total compensation for
executive officers prepared in April 2006 by Top Five and the
recommendations of the Compensation Committee. The Compensation
Committee recommended that we increase base salaries in amounts
designed to reward each of the Named Executive Officers for
their performance in the prior year while maintaining base
salaries at an appropriately competitive level. Our Compensation
Committee did not use any specific formula based on the factors
described above to determine the final base salary levels for
each Named Executive Officer. For fiscal 2009, Dr. Aron
received an increase of 8.8% in his base salary upon his
promotion to Chief Technology Officer. Fiscal 2008 and 2009 base
salary increases for the Named Executive Officers were as
follows:
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Fiscal 2008
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Fiscal 2009
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Percent Increase
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Percent Increase
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Named Executive Officer
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in Base Salary
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in Base Salary
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Clinton H. Severson
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4.0
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%
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6.5
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%
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Alberto R. Santa Ines
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5.7
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%
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8.1
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%
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Kenneth P. Aron, Ph.D.
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4.3
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%
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8.8
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%
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Vladimir E. Ostoich, Ph.D.
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4.1
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%
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3.5
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%
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Christopher M. Bernard
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16.7
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%
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5.7
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%
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88
Annual
Cash Incentive Bonus
Our annual cash incentive bonus program is an
at-risk compensation arrangement designed to provide
market competitive cash incentive opportunities that reward our
executive officers for the achievement of key financial
performance goals that we believe are important for us in
creating long-term shareholder value. Most importantly, the
program is structured to achieve our overall objective of tying
this element of compensation to the attainment of company
performance goals that will contribute to our financial success
and create shareholder value.
Our annual cash incentive bonus paid to each executive officer,
including each of our Named Executive Officers, is primarily
based upon Abaxis achieving two equally-weighted financial
performance goals, quarterly net sales and quarterly pre-tax
income. Additionally, the bonus targets established by the
Compensation Committee require executive officers to increase
annual corporate financial performance during the applicable
fiscal year, compared to our previous years actual
financial results. Accordingly, meeting the bonus targets is
highly challenging and requires executive officers to improve
financial performance on a year-over-year basis and, thus, a
substantial portion of our executive officers compensation
is at risk if corporate financial results are not achieved
during a particular fiscal year. In addition to meeting
financial goals, we must not exceed a certain failure rate on
our reagents discs in order for cash incentives to be paid to
our executive officers. However, our Compensation Committee has
the discretion to grant bonuses even if these performance goals
are not met.
For fiscal 2008, our Compensation Committee generally targeted
total cash compensation to be at or above the
75th percentile of the Compensation Peer Group. Our
Compensation Committee considered this 75th percentile
target as a general guideline for the appropriate level of
potential cash bonus compensation, but did not attempt to
specifically match this or any other percentile. In April 2007,
our Board of Directors approved the fiscal 2008 target bonus
levels for our executive officers. The following table
summarizes the fiscal 2008 target bonus amounts and the bonus
amounts awarded for fiscal 2008 for our Named Executive Officers:
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Fiscal 2008
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Fiscal 2008
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Named Executive Officer
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Target Bonus
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Bonus Awarded
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Clinton H. Severson
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$
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480,000
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$
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456,000
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Alberto R. Santa Ines
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$
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275,000
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$
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261,250
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Kenneth P. Aron, Ph.D.
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$
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275,000
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$
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261,250
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Vladimir E. Ostoich, Ph.D.
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$
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275,000
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$
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261,250
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Christopher M. Bernard
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$
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250,000
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$
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231,250
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Payment of the target bonus is equally weighted between
achievement of our quarterly net sales performance goal and our
quarterly pre-tax income performance goal. For fiscal 2008,
bonuses were earned only if we achieved at least 90% of one or
more of our pre-established quarterly net sales
and/or
quarterly pre-tax income goals. After the initial threshold is
met, the amount of the target bonus paid is based on a sliding
scale relative to the proportionate achievement of the
performance goals. If we achieve 90% of only one performance
goal, the payout would be limited to 25% of the aggregate target
bonus. For each 1% above 90% of that performance goal, the
payout would increase by 2.5% for the aggregate target bonus.
The target bonus will be fully earned if at least 100% of both
performance goals are achieved. For each 1% above 100% of a
performance goal, the payout would increase by 1.5% for the
aggregate target bonus. The maximum potential bonus payout is
200% of the target bonus, provided we achieve greater than 133%
of at least one of the performance goals. Assuming targets are
reached, the bonus payments are paid as follows: 15% of the
applicable bonus amount for the first quarter, 25% in the second
and third quarters, and 35% in the fourth quarter. At the end of
the fourth quarter, the final amount of the bonus earned will be
adjusted to reflect overall performance against the year. For
the Named Executive Officers, excluding Mr. Bernard, our
Vice President of Sales and Marketing for the Domestic Medical
Market, the financial targets for fiscal 2008 were based on the
companys annual net sales and pre-tax income goals. Based
on these pre-established goals, our other Named Executive
Officers received 95% of their target bonus awards for fiscal
2008. Since Mr. Bernards responsibility is to manage
the sales in the domestic medical market, his financial targets
for fiscal 2008 were based on sales for the domestic medical
market and on the companys annual pre-tax income goals.
Based on these pre-established goals, Mr. Bernard received
92.5% of his target bonus awards for fiscal 2008.
For fiscal 2009, our Compensation Committee recommended to our
Board of Directors that we increase target bonuses in amounts
designed to reward each of the Named Executive Officers for
their performance in fiscal 2008
89
while maintaining total compensation at an appropriately
competitive level. In April 2008, our Board of Directors
approved the fiscal 2009 target bonus levels for our executive
officers based on a reasonable increase of approximately
9.0-10.0% over the prior year at an appropriately competitive
level in the industry. The following table summarizes the fiscal
2009 target bonus amounts for our Named Executive Officers:
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Fiscal 2009
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Named Executive Officer
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Target Bonus
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Clinton H. Severson
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$
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525,000
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Alberto R. Santa Ines
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$
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300,000
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Kenneth P. Aron, Ph.D.
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$
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300,000
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Vladimir E. Ostoich, Ph.D.
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$
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300,000
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Christopher M. Bernard
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$
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275,000
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We expect payment of the target bonus, as identified above, to
continue to be equally weighted at 50% for achievement of our
quarterly net sales performance goal and 50% for achievement of
our quarterly pre-tax income performance goal. For fiscal 2009,
bonuses will only be earned if we achieve at least 90% of one or
more of our pre-established quarterly net sales
and/or
quarterly pre-tax income goals during fiscal 2009. After the
initial threshold is met, the amount of the target bonus paid
will be based on a sliding scale relative to the proportionate
achievement of the performance goals. If we achieve 90% of only
one performance goal, the payout would be limited to 25% of the
aggregate target bonus. For each 1% above 90% of that
performance goal, the payout would increase by 2.5% for the
aggregate target bonus. The target bonus will be fully earned if
at least 100% of both performance goals are achieved. For each
1% above 100% of a performance goal, the payout would increase
by 1.5% for the aggregate target bonus. The maximum potential
bonus payout is 200% of the target bonus, provided we achieve
greater than 133% of at least one of the performance goals.
Assuming targets are reached, we expect that the bonus payments
will be paid as follows: 15% of the applicable bonus amount for
the first quarter, 25% in the second and third quarters, and 35%
in the fourth quarter. At the end of the fourth quarter of
fiscal 2009, the final payment will be adjusted to reflect
overall performance against the year. Our Compensation Committee
and Board of Directors have the discretion to adjust the
parameters and performance goals for payment of these annual
performance bonuses.
We do not currently have a formal policy regarding adjustments
or recovery of awards or payments following a restatement of
financial performance targets. In such a circumstance, the
Compensation Committee would evaluate whether compensation
adjustments were appropriate based upon the facts and
circumstances surrounding the restatement.
Long-term
Equity Incentive Compensation
Under our 2005 Equity Incentive Plan, we are permitted to award
stock options, stock appreciation rights, restricted stock
awards, restricted stock units, performance shares, performance
units, deferred compensation awards or other share-based awards.
Beginning in fiscal 2007, we began granting restricted stock
units to our executive officers in lieu of other forms of
equity-based grants. Prior to fiscal 2007, equity-based grants
to our executive officers comprised solely of stock options.
There were no equity grants to our current Named Executive
Officers in fiscal 2006. Equity grants to our Named Executive
Officers in fiscal 2008 and fiscal 2009 are discussed below. We
do not currently have stock ownership guidelines for our
executive officers.
Stock
Options
Prior to fiscal 2007, a substantial portion of our executive
compensation arrangement consisted of long-term incentive
grants, comprising of stock options. We granted stock options
with an exercise price equal to the fair market value of our
common stock on the grant date. Accordingly, our executive
officers only realize actual compensation value if our
shareholders realize value. In addition, we believe the stock
options granted to executive officers created retention
incentives as the stock options vested over a period of four
years based on cliff-vesting terms only as long as executive
officers remained an employee with us. For the unvested stock
options granted prior to April 1, 2006, we are required to
recognize share-based compensation expense over the vesting
period in accordance with Statement of Financial Accounting
Standards No. 123 (revised 2004), Share-Based
Payment, which we adopted in fiscal 2007 using the
modified prospective method.
90
Restricted
Stock Units
Fiscal 2008 Restricted Stock Unit Grants. In
fiscal 2007, we granted restricted stock units with performance
acceleration. Our Board of Directors believed that this form of
long-term equity incentive will help ensure executive retention
and more directly link executive pay to company financial
performance. The four-year time-based vesting of the restricted
stock units granted in fiscal 2007 accelerates if certain
performance criteria are exceeded during the performance period.
For a discussion of the performance criteria, see the table
entitled Outstanding Equity Awards at Fiscal Year End
2008 below. The Compensation Committee approves all
restricted stock unit grants to our Named Executive Officers and
other executive officers.
In May 2007, after considering an analysis of total compensation
for our Named Executive Officers and upon the recommendation of
our Compensation Committee, our Board of Directors granted
50,000 restricted stock units to our Chief Executive Officer and
20,000 restricted stock units to each of our other Named
Executive Officers. The value of these equity grants was
approximately $1.1 million for our Chief Executive Officer
and approximately $423,000 for each of our other Named Executive
Officers. The Compensation Committee believed that these grants
of restricted stock units were appropriate based on our
financial performance over the prior year. The four-year
time-based vesting terms of the fiscal 2008 restricted stock
unit awards are as follows:
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|
five percent vesting after the first year of continuous
employment;
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|
additional ten percent after the second year of continuous
employment;
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|
additional 15 percent after the third year of continuous
employment; and
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|
the remaining 70 percent after the fourth year of
continuous employment.
|
Time-based vesting terms is intended to provide retention for
our executive officers as the awards vest based on continuous
employment. Unlike the fiscal 2007 restricted stock units, these
restricted stock units are not subject to performance-based
acceleration. Our Compensation Committee believed that retention
of the Named Executive Officers was key to our success and that
these additional restricted stock units would be more likely,
given the time-based vesting schedule of the restricted stock
units, to maximize retention of our Named Executive Officers
without performance-based acceleration milestones.
Fiscal 2009 Restricted Stock Unit Grants. In
April 2008, after considering an analysis of total compensation
for our Named Executive Officers and upon the recommendation of
the Compensation Committee, our Board of Directors granted
50,000 restricted stock units to our Chief Executive Officer and
20,000 restricted stock units to each of our other Named
Executive Officers. The Compensation Committee believed that
these grants of restricted stock units were appropriate based on
our financial performance over the prior year. The fiscal 2009
restricted stock unit awards vest in the same manner as the
fiscal 2008 restricted stock unit awards discussed above. The
fiscal 2009 restricted stock units are also not subject to
performance-based acceleration. Our Compensation Committee
believed that retention of the Named Executive Officers was key
to our success and that these additional restricted stock units
would be more likely, given the time-based vesting schedule of
the restricted stock units, to maximize retention of our Named
Executive Officers without performance-based acceleration
milestones.
Other
Compensation and Benefits
We do not provide any of our executive officers with any
material perquisites. Currently, all benefits offered to our
executive officers, including an opportunity to participate in
our 401(k) plan, medical, dental, vision, life insurance,
disability coverage and flexible spending accounts, are also
available on a non-discriminatory basis to other full-time
employees. We also provide vacation and other paid holidays to
all full-time employees, including our Named Executive Officers.
Employment
Agreements
In August 2005, we entered into an employment agreement with
Clinton H. Severson, our President and Chief Executive Officer,
which provides Mr. Severson with a severance payment equal
to two years of salary, bonus and benefits if his employment
with us is terminated for any reason other than cause. Certain
severance benefits provided pursuant to the Severance Plan
(described below in Change in Control Agreements)
with respect to a
91
change of control supersede those provided pursuant to the
employment agreement. None of our other executives have
employment agreements with us.
Change
in Control Agreements
In July 2006, our Board of Directors, after considering a change
of control program analysis from the Compensation Peer Group
prepared by Top Five and upon the recommendation of our
Compensation Committee, approved and adopted the Abaxis, Inc.
Executive Change of Control Severance Plan (the Severance
Plan). The Severance Plan was adopted by our Board of
Directors to reduce the distraction of executives and potential
loss of executive talent that could arise from a potential
change of control. Participants in the Severance Plan include
Abaxis senior managers who are selected by the Board of
Directors. Our Board of Directors has designated the following
executive officers as participants in the Severance Plan:
Clinton H. Severson, our Chairman, President and Chief Executive
Officer; Alberto R. Santa Ines, our Chief Financial Officer and
Vice President of Finance; Vladimir E. Ostoich, Ph.D., our
Vice President of Government Affairs and Vice President of
Marketing for the Pacific Rim; Kenneth P. Aron, Ph.D., our
Vice President of Research and Development; Christopher M.
Bernard, our Vice President of Sales and Marketing for the
Domestic Medical Market; and Martin V. Mulroy, our Vice
President of Veterinary Sales and Marketing for North America.
The Severance Plan provides that upon the occurrence of a change
of control a participants outstanding stock option(s) and
restricted stock units will accelerate in full, and any such
stock awards shall become immediately exercisable at the closing
of the change of control event.
In addition, the Severance Plan provides that, if the
participants employment is terminated by us for any reason
other than cause, death, or disability within 18 months
from the change of control date, the participant is eligible to
receive severance benefits as follows:
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a lump sum payment equal to two times the sum of the
participants annual base salary and the participants
target annual bonus amount for the year in which the change of
control occurs;
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|
a lump sum payment relating to all options or equity
instruments, which were not exercised as of the termination
date, in an amount equal to the difference between the share
price established in the change of control transaction and the
exercise price of the instrument;
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payment of 24 months of premiums for medical, dental,
disability and life insurance benefits, provided, however, that
if the participant becomes eligible to receive comparable
benefits under another employers plan, the Companys
benefits shall be secondary to those provided under such other
plan; and
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payment of an amount equal to any excise tax imposed under
Section 4999 of the Internal Revenue Code of 1986, as
amended (the Code).
|
Payment of the foregoing severance benefits is conditioned upon
the participants execution of a valid and effective
release of claims against us.
Tax
Considerations
Deductibility
of Executive Compensation
We have considered the provisions of Section 162(m) of the
Code and related Treasury Regulations which restrict
deductibility of executive compensation paid to our Named
Executive Officers and our other executive officers holding
office at the end of any year to the extent such compensation
exceeds $1.0 million for any of such officers in any year
and does not qualify for an exception under the statute or
regulations. The Compensation Committee endeavors to maximize
deductibility of compensation under Section 162(m) of the
Code to the extent practicable while maintaining a competitive,
performance-based compensation program. However, tax
consequences, including tax deductibility, are subject to many
factors (such as changes in the tax laws and regulations or
interpretations thereof and the timing of various decisions by
officers regarding stock options) which are beyond the control
of both the company and our Compensation Committee. In addition,
our Compensation Committee believes that it is important to
retain maximum flexibility in designing compensation programs
that meet its stated business objectives. For these reasons, our
Compensation Committee, while considering tax deductibility as a
factor in
92
determining compensation, will not limit compensation to those
levels or types of compensation that will be deductible. Our
Compensation Committee will continue to consider alternative
forms of compensation, consistent with its compensation goals
that preserve deductibility. The Compensation Committee does not
believe that the components of our compensation will be likely
to exceed $1.0 million by a material amount for any
affected executive officer in the near future and therefore
concluded that no further action with respect to qualifying such
compensation for deductibility was necessary at this time.
COMPENSATION
COMMITTEE
REPORT1
The Compensation Committee has reviewed and discussed with
management the disclosures contained in the Compensation
Discussion and Analysis included in this Annual Report on
Form 10-K
for the fiscal year ended March 31, 2008.
Based upon this review and discussion with management, the
Compensation Committee recommended to the Board of Directors
that the Compensation Discussion and Analysis be included in
this Annual Report on
Form 10-K
for the fiscal year ended March 31, 2008.
THE COMPENSATION COMMITTEE
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Richard J. Bastiani, Ph.D., Chair
|
Brenton G. A. Hanlon
1 The
material in this report is not soliciting material,
is not deemed filed with the SEC and is not to be
incorporated by reference into any filing of Abaxis under the
Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended, whether made before or after the date
hereof and irrespective of any general incorporation language
contained in any such filing.
93
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The following table sets forth for fiscal 2008 and 2007, the
compensation awarded or paid to, or earned by, our Chief
Executive Officer, Chief Financial Officer and the three other
most highly compensated executive officers at March 31,
2008 (collectively, the Named Executive Officers).
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Non-Equity
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Stock
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Option
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Incentive Plan
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All Other
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Fiscal
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Salary
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Bonus
|
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Awards
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Awards
|
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Compensation
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Compensation
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Total
|
Name and Principal Position
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Year
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|
($)
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($)
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($)(1)
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($)(1)
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($)(2)
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($)(3)
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($)
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Clinton H. Severson
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2008
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336,500
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|
|
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253,941
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|
1,099
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456,000
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11,535
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(4)
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1,059,075
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President, Chief Executive
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2007
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323,500
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101,040
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8,603
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500,250
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13,823
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(4)
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947,216
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Officer and Chairman of the Board
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Alberto R. Santa Ines
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2008
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183,846
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64,597
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879
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261,250
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10,972
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(5)
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521,544
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Chief Financial Officer and
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2007
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174,008
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22,453
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8,997
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|
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287,500
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|
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13,227
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(5)
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506,185
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Vice President of Finance
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Kenneth P. Aron, Ph.D.
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2008
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192,077
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64,597
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|
879
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|
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261,250
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|
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20,753
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(6)
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539,556
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Vice President of Research
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2007
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184,054
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22,453
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6,882
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287,500
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22,592
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(6)
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523,481
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and Development(7)
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Vladimir E. Ostoich, Ph.D.
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2008
|
|
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202,077
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|
|
|
|
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|
64,597
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|
|
|
879
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|
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261,250
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|
|
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16,599
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(8)
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545,402
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Vice President of Government
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2007
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194,100
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22,453
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6,882
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|
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287,500
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17,013
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(8)
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527,948
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Affairs and Vice President of Marketing for the Pacific Rim
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Christopher M. Bernard
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2008
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172,115
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64,597
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|
|
|
|
|
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|
231,250
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|
|
|
22,256
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(10)
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490,218
|
|
Vice President of Sales and Marketing for the Domestic Medical
Market(9)
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(1) |
|
Amounts listed in this column represent the compensation cost
recognized by us for financial statement reporting purposes for
fiscal 2008 and 2007 related to stock options and restricted
stock unit awards granted to the Named Executive Officers during
fiscal 2008 and 2007 and prior to fiscal 2007. These amounts
have been calculated in accordance with Statement of Financial
Accounting Standards No. 123 (revised 2004),
Share-Based Payment
(SFAS No. 123(R)). For a discussion of the
assumptions used in determining the fair value of awards of
stock options and restricted stock units in the above table, see
Note 10 of the Notes to Financial Statements included in
this Annual Report on
Form 10-K. |
|
(2) |
|
Represents aggregate cash performance bonuses earned during each
fiscal year based on achievement of corporate financial
performance goals, as described under Executive
Compensation Compensation Discussion and
Analysis above. These bonuses were paid in four quarterly
installments within one month following the end of the
applicable quarter. Amounts do not include bonuses paid during a
fiscal year, with respect to bonuses earned in a prior fiscal
year. |
|
(3) |
|
Amounts listed are based upon our actual costs expensed in
connection with such compensation. |
|
(4) |
|
In fiscal 2008, consists of $4,378 in supplemental health plan
expenses reimbursed by us, $780 in group life insurance paid by
us, $752 in disability insurance premiums paid by us and $5,625
in matching contributions made by us to Mr. Seversons
401(k) account. In fiscal 2007, consists of $4,366 in
supplemental health plan expenses reimbursed by us, $780 in
group life insurance paid by us, $812 in disability insurance
premiums paid by us and $7,865 in matching contributions made by
us to Mr. Seversons 401(k) account. |
|
(5) |
|
In fiscal 2008, consists of $4,490 in supplemental health plan
expenses reimbursed by us, $420 in group life insurance paid by
us, $437 in disability insurance premiums paid by us and $5,625
in matching contributions made by us to Mr. Santa
Ines 401(k) account. In fiscal 2007, consists of $4,505 in
supplemental health plan expenses reimbursed by us, $420 in
group life insurance paid by us, $437 in disability insurance
premiums paid by us and $7,865 in matching contributions made by
us to Mr. Santa Ines 401(k) account. |
|
(6) |
|
In fiscal 2008, consists of $14,222 in supplemental health plan
expenses reimbursed by us, $444 in group life insurance paid by
us, $462 in disability insurance premiums paid by us and $5,625
in matching contributions |
94
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made by us to Mr. Arons 401(k) account. In fiscal
2007, consists of $14,186 in supplemental health plan expenses
reimbursed by us, $444 in group life insurance paid by us, $462
in disability insurance premiums paid by us and $7,500 in
matching contributions made by us to Mr. Arons 401(k)
account. |
|
(7) |
|
Dr. Aron was promoted to Chief Technology Officer in April
2008. |
|
(8) |
|
In fiscal 2008, consists of $10,043 in supplemental health plan
expenses reimbursed by us, $444 in group life insurance paid by
us, $487 in disability insurance premiums paid by us and $5,625
in matching contributions made by us to Mr. Ostoichs
401(k) account. In fiscal 2007, consists of $10,058 in
supplemental health plan expenses reimbursed by us, $468 in
group life insurance paid by us, $487 in disability insurance
premiums paid by us and $6,000 in matching contributions made by
us to Mr. Ostoichs 401(k) account. |
|
(9) |
|
Mr. Bernard was not a Named Executive Officer for fiscal
2007. |
|
(10) |
|
In fiscal 2008, consists of $14,222 in supplemental health plan
expenses reimbursed by us, $360 in group life insurance paid by
us, $375 in disability insurance premiums paid by us and $7,299
in matching contributions made by us to Mr. Bernards
401(k) account. |
Salary and Bonus in Proportion to Total
Compensation. The following table sets forth the
percentage of base salary and annual cash incentive bonus earned
by each Named Executive Officer as a percentage of total
compensation for fiscal 2008.
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Annual Cash
|
|
|
|
Base Salary
|
|
|
Incentive Bonus
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|
As a Percentage of
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|
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As a Percentage of
|
|
Named Executive Officer
|
|
Total Compensation
|
|
|
Total Compensation
|
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|
Clinton H. Severson
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|
32
|
%
|
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|
43
|
%
|
Alberto R. Santa Ines
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|
35
|
%
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|
|
50
|
%
|
Kenneth P. Aron, Ph.D.
|
|
|
36
|
%
|
|
|
48
|
%
|
Vladimir E. Ostoich, Ph.D.
|
|
|
37
|
%
|
|
|
48
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%
|
Christopher M. Bernard
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|
35
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%
|
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47
|
%
|
CEO Employment Agreement. In August 2005, we
entered into an employment agreement with Clinton H. Severson,
our President and Chief Executive Officer, which provides
Mr. Severson with a severance payment equal to two years of
salary, bonus and benefits if his employment with us is
terminated for any reason other than cause. Certain severance
benefits provided pursuant to the Severance Plan (described
above in Change of Control Agreements) with respect
to a change of control supersede those provided pursuant to the
employment agreement. None of our other executives have
employment agreements with us.
Grants of
Plan-Based Awards in Fiscal 2008
The following table sets forth the grants of plan-based awards
to our Named Executive Officers during fiscal 2008.
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|
All Other
|
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Stock
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Awards:
|
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Grant Date
|
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|
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|
|
|
Number
|
|
Fair Value
|
|
|
|
|
Estimated Future Payouts Under
|
|
Estimated Future Payouts Under
|
|
of Shares
|
|
of Stock
|
|
|
|
|
Non-Equity Incentive Plan Awards(1)
|
|
Equity Incentive Plan Awards
|
|
of Stock
|
|
and Option
|
|
|
Grant
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
or Units
|
|
Awards
|
Name
|
|
Date
|
|
($)
|
|
($)
|
|
($)
|
|
(#)
|
|
(#)
|
|
(#)(2)
|
|
(#)
|
|
($)(3)
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|
Clinton H. Severson
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|
5/15/2007
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|
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|
50,000
|
|
|
|
|
|
|
|
1,056,500
|
|
|
|
|
|
|
|
|
120,000
|
|
|
|
480,000
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|
|
|
960,000
|
|
|
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|
|
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|
|
|
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|
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|
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|
Alberto R. Santa Ines
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5/15/2007
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|
|
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|
|
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|
|
|
|
|
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|
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20,000
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|
|
|
|
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|
422,600
|
|
|
|
|
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68,750
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|
275,000
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|
550,000
|
|
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|
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|
Kenneth P. Aron, Ph.D.
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5/15/2007
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20,000
|
|
|
|
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|
422,600
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|
|
|
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|
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|
68,750
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|
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|
275,000
|
|
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|
550,000
|
|
|
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|
|
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|
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Vladimir E. Ostoich, Ph.D.
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|
5/15/2007
|
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
|
|
422,600
|
|
|
|
|
|
|
|
|
68,750
|
|
|
|
275,000
|
|
|
|
550,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher M. Bernard
|
|
|
5/15/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
|
|
422,600
|
|
|
|
|
|
|
|
|
62,500
|
|
|
|
250,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
|
|
|
(1) |
|
Actual cash performance bonuses, which were approved by the
Board of Directors upon recommendation by the Compensation
Committee based on achievement of corporate financial
performance goals for fiscal 2008, were paid in four quarterly
installments within one month following the end of the
applicable quarter and are shown in the Non-Equity
Incentive Plan Compensation column of the Summary
Compensation Table above. |
|
(2) |
|
Each of the equity-based awards reported in the Grants of
Plan-Based Awards table was granted under, and is subject
to, the terms of our 2005 Equity Incentive Plan. The time-based
vesting schedule of restricted stock unit grants during fiscal
2008 are described above in Restricted Stock Units. |
|
(3) |
|
Represents the fair value of the restricted stock unit award on
the date of grant, pursuant to SFAS No. 123(R). See
Note 10 of the Notes to Financial Statements included in
this Annual Report on
Form 10-K
for additional information. |
Outstanding
Equity Awards at Fiscal Year End 2008
The following table shows, for the fiscal year ended
March 31, 2008, certain information regarding outstanding
equity awards at fiscal year end for our Named Executive
Officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
Plan Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Market or
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
Market
|
|
Unearned
|
|
Payout Value
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
of Shares
|
|
Value of
|
|
Shares,
|
|
of Unearned
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
or Units
|
|
Shares or
|
|
Units or
|
|
Shares, Units
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
of Stock
|
|
Units of
|
|
Other
|
|
or Other
|
|
|
Unexercised
|
|
Unexercised
|
|
Option
|
|
|
|
That
|
|
Stock That
|
|
Rights That
|
|
Rights That
|
|
|
Options
|
|
Options
|
|
Exercise
|
|
Option
|
|
Have Not
|
|
Have Not
|
|
Have Not
|
|
Have Not
|
|
|
(#)
|
|
(#)
|
|
Price
|
|
Expiration
|
|
Vested
|
|
Vested
|
|
Vested
|
|
Vested
|
Name
|
|
Exercisable(1)
|
|
Unexercisable
|
|
($)(2)
|
|
Date
|
|
(#)
|
|
($)
|
|
(#)
|
|
($)(3)
|
|
Clinton H. Severson
|
|
|
70,000
|
|
|
|
|
|
|
|
1.5625
|
|
|
|
1/26/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
|
|
|
|
|
4.87
|
|
|
|
4/24/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,417
|
|
|
|
|
|
|
|
3.85
|
|
|
|
4/22/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
(4)
|
|
|
|
|
|
|
21.65
|
|
|
|
4/20/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,000
|
(5)
|
|
|
880,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,500
|
(5)
|
|
|
1,100,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
(6)
|
|
|
1,158,500
|
|
Alberto R. Santa Ines
|
|
|
37,432
|
|
|
|
|
|
|
|
3.00
|
|
|
|
7/23/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
3.85
|
|
|
|
4/22/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
(4)
|
|
|
|
|
|
|
21.65
|
|
|
|
4/20/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,000
|
(5)
|
|
|
440,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
(6)
|
|
|
463,400
|
|
Kenneth P. Aron, Ph.D.
|
|
|
3,109
|
|
|
|
|
|
|
|
7.5625
|
|
|
|
2/7/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
6.31
|
|
|
|
10/31/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,500
|
|
|
|
|
|
|
|
5.47
|
|
|
|
7/24/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
(4)
|
|
|
|
|
|
|
21.65
|
|
|
|
4/20/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,000
|
(5)
|
|
|
440,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
(6)
|
|
|
463,400
|
|
Vladimir E. Ostoich, Ph.D.
|
|
|
25,000
|
|
|
|
|
|
|
|
1.875
|
|
|
|
10/26/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
2.25
|
|
|
|
4/27/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,000
|
|
|
|
|
|
|
|
8.125
|
|
|
|
1/25/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,500
|
|
|
|
|
|
|
|
5.47
|
|
|
|
7/24/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
|
3.85
|
|
|
|
4/22/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,000
|
(4)
|
|
|
|
|
|
|
21.65
|
|
|
|
4/20/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,000
|
(5)
|
|
|
440,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
(6)
|
|
|
463,400
|
|
Christopher M. Bernard
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,000
|
(5)
|
|
|
440,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
(6)
|
|
|
463,400
|
|
96
|
|
|
(1) |
|
Options granted to the Named Executive Officers expire ten years
after the grant date. All options vest one-fourth on the first
anniversary date of grant and vests at a rate of 1/48th for each
full month thereafter, except as otherwise noted. |
|
(2) |
|
Represents the fair value of our common stock on the grant date
of the option. |
|
(3) |
|
The value of the equity award is based on the closing price of
our common stock of $23.17 on March 31, 2008, as reported
on the NASDAQ Global Select Market. |
|
(4) |
|
These options were accelerated in full by our Board of Directors
and became fully vested on December 5, 2005. However,
pursuant to a
lock-up and
consent agreement entered into with each of our Named Executive
Officers, these options may not be exercised prior to the date
on which the exercise would have been permitted under the
vesting schedule set forth in footnote 1, or earlier upon the
Named Executive Officers last day of employment or a
change in control. On April 20, 2008, the restrictions
under the
lock-up and
consent agreements expired and 100% of these shares became
exercisable. |
|
(5) |
|
The four-year time-based vesting terms of the restricted stock
units is as follows, assuming continuous employment: five
percent of the shares vest on April 25, 2007; ten percent
of the shares vest on April 25, 2008; 15 percent of
the shares vest on April 25, 2009; and 70 percent of
the shares vest on April 25, 2010. Additionally, these
restricted stock unit awards are also subject to accelerated
vesting upon achieving the following performance-based
milestones: |
|
|
|
upon attainment of certain pre-tax income goals by
March 31, 2007, vesting will accelerate to an aggregate of
25% within one year from grant date; by March 31, 2008,
vesting will accelerate to an aggregate of 25% within two years
from grant date; by March 31, 2009, vesting will accelerate
to an aggregate of 30%, within three years of grant date; hence,
meeting pre-tax income goals in each of the fiscal years ended
March 31, 2007, 2008 and 2009 can result in a cumulative
vesting of 80% over three years;
|
|
|
|
upon attainment of certain product development
objectives prior to June 30, 2007, an additional vesting of
10% would be awarded;
|
|
|
|
upon satisfaction of certain regulatory requirements
prior to March 31, 2008, an additional vesting of 10% would
be awarded; or
|
|
|
|
upon attainment of a certain level of operating
income per share for any fiscal year during the four-year
vesting period, the restricted stock units will accelerate in
full.
|
|
|
|
To date, none of the foregoing performance-based milestones
required for acceleration has been achieved. In each case,
vesting of the equity award is conditioned upon the Named
Executive Officers continuous employment through the
applicable vesting date. |
|
(6) |
|
The four-year time-based vesting terms of the restricted stock
units is as follows, assuming continuous employment: five
percent of the shares vest on April 30, 2008; ten percent
of the shares vest on April 30, 2009; 15 percent of
the shares vest on April 30, 2010; and 70 percent of
the shares vest on April 30, 2011. |
Option
Exercises and Stock Vested in Fiscal 2008
The following table shows all shares of common stock acquired
upon exercise of stock options and value realized upon exercise,
and all stock awards vested and value realized upon vesting,
held by our Named Executive Officers during fiscal 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of Shares
|
|
|
|
|
|
Number of Shares
|
|
|
|
|
|
|
Acquired on
|
|
|
Value Realized
|
|
|
Acquired on
|
|
|
Value Realized
|
|
|
|
Exercise
|
|
|
on Exercise
|
|
|
Vesting
|
|
|
on Vesting
|
|
Name
|
|
(#)
|
|
|
($)(1)
|
|
|
(#)
|
|
|
($)(2)
|
|
|
Clinton H. Severson
|
|
|
70,000
|
|
|
|
2,200,160
|
|
|
|
4,500
|
|
|
|
102,735
|
|
Alberto R. Santa Ines
|
|
|
62,568
|
|
|
|
1,347,913
|
|
|
|
1,000
|
|
|
|
22,830
|
|
Kenneth P. Aron, Ph.D.
|
|
|
59,391
|
|
|
|
1,011,227
|
|
|
|
1,000
|
|
|
|
22,830
|
|
Vladimir E. Ostoich, Ph.D.
|
|
|
56,000
|
|
|
|
817,289
|
|
|
|
1,000
|
|
|
|
22,830
|
|
Christopher M. Bernard
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
22,830
|
|
97
|
|
|
(1) |
|
The value realized equals the difference between the option
exercise price and the fair market value of our common stock on
the date of exercise, as reported on the NASDAQ Global Market,
multiplied by the number of shares for which the option was
exercised. |
|
(2) |
|
The value realized on vesting of restricted stock units equals
the fair market value of our common stock on the settlement
date, multiplied by the number of shares that vested. |
Severance
and Change in Control Agreements
Employment
Agreement
In August 2005, we entered into an employment agreement with
Clinton H. Severson, our President and Chief Executive Officer,
which provides Mr. Severson with a severance payment equal
to two years of salary, bonus and benefits if his employment
with us is terminated for any reason other than cause. Certain
severance benefits provided pursuant to the Severance Plan
(described below in Change of Control Agreements)
with respect to a change of control supersede those provided
pursuant to the employment agreement. None of our other
executives have employment agreements with us.
Executive
Change of Control Severance Plan
In July 2006, our Board of Directors, after considering a change
of control program analysis from the Compensation Peer Group
prepared by an independent compensation expert and upon the
recommendation of the Compensation Committee, approved and
adopted the Abaxis, Inc. Executive Change of Control Severance
Plan (the Severance Plan). The Severance Plan was
adopted by the Board to reduce the distraction of executives and
potential loss of executive talent that could arise from a
potential change of control. Participants in the Severance Plan
include Abaxis senior managers who are selected by the
Board. The Board has designated the following executive officers
as participants in the Severance Plan: Clinton H. Severson, our
Chairman, President and Chief Executive Officer; Alberto R.
Santa Ines, our Chief Financial Officer and Vice President of
Finance; Kenneth P. Aron, Ph.D., our Vice President of
Research and Development; Vladimir E. Ostoich, Ph.D., our
Vice President of Government Affairs and Vice President of
Marketing for the Pacific Rim; Christopher M. Bernard, our Vice
President of Sales and Marketing for the Domestic Medical
Market; and Martin V. Mulroy, our Vice President of Veterinary
Sales and Marketing for North America.
The Severance Plan provides that upon the occurrence of a change
of control a participants outstanding stock option(s) and
restricted stock units will accelerate in full, and any such
stock awards shall become immediately exercisable at the closing
of the change of control event.
In addition, the Severance Plan provides that, if the
participants employment is terminated by us for any reason
other than cause, death, or disability within 18 months
from the change of control date, the participant is eligible to
receive severance benefits as follows:
|
|
|
|
|
a lump sum payment equal to two times the sum of the
participants annual salary and the participants
target annual bonus amount for the year in which the change of
control occurs;
|
|
|
|
a lump sum payment relating to all options or equity
instruments, which were not exercised as of the termination
date, in an amount equal to the difference between the share
price established in the change of control transaction and the
exercise price of the instrument;
|
|
|
|
payment of 24 months of premiums for medical, dental,
disability and life insurance benefits, provided, however, that
if the participant becomes eligible to receive comparable
benefits under another employers plan, the Companys
benefits shall be secondary to those provided under such other
plan; and
|
|
|
|
payment of an amount equal to any excise tax imposed under
Section 4999 of the Internal Revenue Code of 1986, as amended.
|
Payment of the foregoing severance benefits is conditioned upon
the participants execution of a valid and effective
release of claims from us.
98
Incentive
Plans
Under our 2005 Equity Incentive Plan, (the 2005 EIP)
in the event of a change in control, as such term is
defined by the 2005 EIP, the surviving, continuing, successor or
purchasing entity or its parent may, without the consent of any
participant, either assume or continue in effect any or all
outstanding options and stock appreciation rights or substitute
substantially equivalent options or rights for its stock. Any
options or stock appreciation rights which are not assumed or
continued in connection with a change in control or exercised
prior to the change in control will terminate effective as of
the time of the change in control. Our Compensation Committee
may provide for the acceleration of vesting of any or all
outstanding options or stock appreciation rights upon such terms
and to such extent as it determines. The 2005 EIP also
authorizes our Compensation Committee, in its discretion and
without the consent of any participant, to cancel each or any
outstanding option or stock appreciation right upon a change in
control in exchange for a payment to the participant with
respect to each vested share (and each unvested share if so
determined by the Compensation Committee) subject to the
cancelled award of an amount equal to the excess of the
consideration to be paid per share of common stock in the change
in control transaction over the exercise price per share under
the award. 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 any stock award, restricted stock unit award,
performance share or performance unit, cash-based award or other
share-based award held by a participant upon such conditions and
to such extent as determined by our Compensation Committee. It
is currently anticipated that awards granted to executive
officers will accelerate fully on a change of control. The
vesting of non-employee director awards granted under the 2005
EIP automatically will accelerate in full upon a change in
control.
All outstanding stock options under our 1992 Outside
Directors Stock Option Plan (the Directors
Plan) are fully vested and no additional options will be
granted under the Directors Plan. Our Directors Plan provides
that, in the event of a transfer of control of the company, the
surviving, continuing, successor or purchasing corporation or a
parent corporation thereof, as the case may be, shall either
assume our rights and obligations under stock option agreements
outstanding under our option plans or substitute options for the
acquiring corporations stock for such outstanding options.
Any options which are neither assumed by the acquiring
corporation, nor exercised as of the date of the transfer of
control, shall terminate effective as of the date of the
transfer of control.
As described above, certain additional compensation is payable
to a Named Executive Officer (i) if his employment was
involuntarily terminated without cause, (ii) upon a change
in control or (iii) if his employment was terminated
involuntarily following a change in control. The amounts shown
in the table below assume that such termination was effective as
of March 31, 2008, and do not include amounts in which the
Named Executive Officer had already vested as of March 31,
2008. The actual compensation to be paid can only be determined
at the time of the change in control
and/or a
Named Executive Officers termination of employment.
99
Potential
Payments Upon Termination or Change in Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary
|
|
|
|
Involuntary
|
|
|
|
|
|
Termination without
|
|
|
|
Termination
|
|
|
|
|
|
Cause Following a
|
|
|
|
without
|
|
|
Change in Control
|
|
|
Change in Control
|
|
Executive Benefits and Payments Upon Separation
|
|
Cause(1)
|
|
|
(No Termination)
|
|
|
(2)
|
|
|
Clinton H. Severson
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary and bonus
|
|
$
|
1,714,000
|
|
|
|
|
|
|
$
|
1,714,000
|
|
Vesting of restricted stock units(3)
|
|
$
|
3,139,535
|
|
|
$
|
3,139,535
|
|
|
$
|
3,139,535
|
|
Health and welfare benefits
|
|
$
|
11,820
|
|
|
|
|
|
|
$
|
11,820
|
|
Total
|
|
$
|
4,865,355
|
|
|
$
|
3,139,535
|
|
|
$
|
4,865,355
|
|
Alberto R. Santa Ines
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary and bonus
|
|
|
|
|
|
|
|
|
|
$
|
962,692
|
|
Vesting of restricted stock units(3)
|
|
|
|
|
|
$
|
903,630
|
|
|
$
|
903,630
|
|
Health and welfare benefits
|
|
|
|
|
|
|
|
|
|
$
|
10,694
|
|
Excise tax reimbursement(4)
|
|
|
|
|
|
|
|
|
|
$
|
79,588
|
|
Total
|
|
|
|
|
|
$
|
903,630
|
|
|
$
|
1,956,604
|
|
Kenneth P. Aron, Ph.D.
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary and bonus
|
|
|
|
|
|
|
|
|
|
$
|
980,224
|
|
Vesting of restricted stock units(3)
|
|
|
|
|
|
$
|
903,630
|
|
|
$
|
903,630
|
|
Health and welfare benefits
|
|
|
|
|
|
|
|
|
|
$
|
30,256
|
|
Total
|
|
|
|
|
|
$
|
903,630
|
|
|
$
|
1,914,110
|
|
Vladimir E. Ostoich, Ph.D.
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary and bonus
|
|
|
|
|
|
|
|
|
|
$
|
1,001,193
|
|
Vesting of restricted stock units(3)
|
|
|
|
|
|
$
|
903,630
|
|
|
$
|
903,630
|
|
Health and welfare benefits
|
|
|
|
|
|
|
|
|
|
$
|
21,948
|
|
Total
|
|
|
|
|
|
$
|
903,630
|
|
|
$
|
1,926,771
|
|
Christopher M. Bernard
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary and bonus
|
|
|
|
|
|
|
|
|
|
$
|
874,657
|
|
Vesting of restricted stock units(3)
|
|
|
|
|
|
$
|
903,630
|
|
|
$
|
903,630
|
|
Health and welfare benefits
|
|
|
|
|
|
|
|
|
|
$
|
29,914
|
|
Excise tax reimbursement(5)
|
|
|
|
|
|
|
|
|
|
$
|
158,640
|
|
Total
|
|
|
|
|
|
$
|
903,630
|
|
|
$
|
1,966,841
|
|
|
|
|
(1) |
|
Amounts relate to payments to Mr. Severson equal to two
years of salary, bonus and benefits if his employment with us is
terminated for any reason other than cause (as defined in
Mr. Seversons employment agreement). |
|
(2) |
|
Amounts assume that the Named Executive Officer was terminated
without cause or due to constructive termination during the
18-month
period following a change in control. |
|
(3) |
|
The value of the restricted stock unit assumes that the market
price per share of our common stock on the date of termination
of employment was equal to the closing price of our common stock
of $23.17 on March 31, 2008, as reported on the NASDAQ
Global Select Market. |
|
(4) |
|
For purposes of computing the excise tax reimbursement payments,
base amount calculations are based on Mr. Santa Ines
taxable wages for the fiscal years 2003 through 2008. |
|
(5) |
|
For purposes of computing the excise tax reimbursement payments,
base amount calculations are based on Mr. Bernards
taxable wages for the fiscal years 2006 through 2008, when he
joined us in fiscal 2006. |
100
DIRECTOR
COMPENSATION
Director
Compensation Table
The table below summarizes the compensation paid to our
non-employee directors for fiscal 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
Paid in Cash
|
|
|
Stock Awards
|
|
|
Option Awards
|
|
|
Compensation
|
|
|
Total
|
|
Name(1)
|
|
($)
|
|
|
($)(2)(3)(4)
|
|
|
($)(5)
|
|
|
($)(6)
|
|
|
($)
|
|
|
Richard J. Bastiani, Ph.D.
|
|
|
24,000
|
|
|
|
32,548
|
|
|
|
|
|
|
|
|
|
|
|
56,548
|
|
Henk J. Evenhuis
|
|
|
27,000
|
|
|
|
32,548
|
|
|
|
|
|
|
|
|
|
|
|
59,548
|
|
Brenton G. A. Hanlon
|
|
|
23,000
|
|
|
|
32,548
|
|
|
|
|
|
|
|
|
|
|
|
55,548
|
|
Prithipal Singh, Ph.D.
|
|
|
22,000
|
|
|
|
32,548
|
|
|
|
|
|
|
|
|
|
|
|
54,548
|
|
Ernest S. Tucker, III, M.D.
|
|
|
22,000
|
|
|
|
32,548
|
|
|
|
|
|
|
|
938
|
|
|
|
55,486
|
|
|
|
|
(1) |
|
Clinton H. Severson, our Chief Executive Officer and Director,
is not included in this table as he is an employee of the
Company and receives no compensation for his services as a
director. The compensation received by Mr. Severson as an
employee is shown in the Summary Compensation Table
above. |
|
(2) |
|
Amounts listed in this column represent our accounting expense
for these awards, over the requisite service period, in
accordance with SFAS No. 123(R). For a discussion of the
assumptions used in determining the fair value of awards of
restricted stock units in the above table, see Note 10 of
the Notes to Financial Statements in this Annual Report on
Form 10-K.
Restricted stock units were not granted to non-employee
directors prior to fiscal 2007. No stock awards were forfeited
by any of our non-employee directors during fiscal 2008. |
|
(3) |
|
Each non-employee director listed in the table above was granted
an award of 1,500 restricted stock units on May 15, 2007
under our 2005 EIP. The grant date fair value, as determined in
accordance with SFAS No. 123(R), of the restricted
stock units granted during fiscal 2008 for each of the directors
listed in the table above was $31,695. |
|
(4) |
|
As of March 31, 2008, each of our non-employee directors
held 1,500 shares of unvested restricted stock units. |
|
(5) |
|
No options were awarded to our non-employee directors in fiscal
2007 or fiscal 2008. As of March 31, 2008, the non-employee
director held the following number of outstanding options:
Dr. Bastiani, 28,000; Mr. Evenhuis, 18,000;
Mr. Hanlon, 28,000; Dr. Singh, 26,000; and
Dr. Tucker, 13,000 shares. |
|
(6) |
|
Represents the reimbursement of travel expenses. |
Cash
Compensation Paid to Board Members
During fiscal 2008, all non-employee directors received an
annual retainer of $12,000. The non-employee Chairs of our Audit
Committee and Compensation Committee received an annual
supplement of $5,000 and $2,000, respectively. Our non-employee
directors each received $1,250 per board meeting attended and
$1,000 per committee meeting attended. We also
reimburse our non-employee directors for reasonable travel
expenses incurred in connection with attending board and
committee meetings. Directors who are employees receive no
compensation for their service as directors.
Equity
Compensation Paid to Board Members
Non-employee directors are eligible to receive awards under the
2005 EIP, but such awards are discretionary and not automatic.
In fiscal 2008 and fiscal 2007, each non-employee director
received an annual equity award of 1,500 restricted stock units
granted under the 2005 EIP. Each award of restricted stock units
represents the right of the participant to receive, without
payment of monetary consideration, on the vesting date, a number
of shares of common stock equal to the number of units vesting
on such date. Subject to the directors continued service
with us through the applicable vesting date, each restricted
stock unit award will vest in full 12 months after the
grant date. Under the terms of the 2005 EIP, the vesting of each
non-employee director restricted stock unit award will also be
accelerated in full in the event of a change in
control, as defined in the 2005 EIP.
101
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The following table sets forth certain information with respect
to the beneficial ownership of our common stock as of
May 31, 2008 by (i) each of the Named Executive
Officers in the Summary Compensation Table; (ii) each of
our directors; (iii) all of our executive officers and
directors as a group and (iv) four holders of at least five
percent of our common stock. The persons named in the table have
sole or shared voting and investment power with respect to all
shares of common stock shown as beneficially owned by them,
subject to community property laws where applicable and to the
information contained in the footnotes to this table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Abaxis
|
|
|
|
Shares
|
|
|
Common Stock
|
|
|
|
Beneficially
|
|
|
Beneficially
|
|
Name and Address of Beneficial Owner
|
|
Owned
|
|
|
Owned(1)
|
|
|
Five Percent Holders:
|
|
|
|
|
|
|
|
|
Next Century Growth Investors, LLC.(3)
|
|
|
1,756,185
|
|
|
|
7.8
|
%
|
Brown Capital Management, Inc.(4)
|
|
|
1,606,215
|
|
|
|
7.1
|
%
|
Kayne Anderson Rudnick Investment Management, LLC(5)
|
|
|
1,491,156
|
|
|
|
6.6
|
%
|
Wasatch Advisors, Inc.(6)
|
|
|
1,191,183
|
|
|
|
5.3
|
%
|
Executive Officers:(2)
|
|
|
|
|
|
|
|
|
Clinton H. Severson(7)
|
|
|
658,801
|
|
|
|
2.9
|
%
|
Vladimir E. Ostoich, Ph.D.(8)
|
|
|
401,356
|
|
|
|
1.8
|
%
|
Alberto R. Santa Ines(9)
|
|
|
122,990
|
|
|
|
*
|
|
Kenneth P. Aron, Ph.D.(10)
|
|
|
109,098
|
|
|
|
*
|
|
Christopher M. Bernard(11)
|
|
|
2,569
|
|
|
|
*
|
|
Outside Directors:(2)
|
|
|
|
|
|
|
|
|
Richard J. Bastiani, Ph.D.(12)
|
|
|
78,000
|
|
|
|
*
|
|
Brenton G. A. Hanlon(13)
|
|
|
31,000
|
|
|
|
*
|
|
Prithipal Singh, Ph.D.(14)
|
|
|
29,000
|
|
|
|
*
|
|
Ernest S. Tucker, III, M.D.(15)
|
|
|
13,000
|
|
|
|
*
|
|
Henk J. Evenhuis(16)
|
|
|
21,000
|
|
|
|
*
|
|
Executive officers and directors as a group
(12 persons)(17)
|
|
|
1,483,434
|
|
|
|
6.6
|
%
|
|
|
|
(1) |
|
The percentages shown in this column are calculated based on
21,748,392 shares of common stock outstanding on
May 31, 2008 and includes shares of common stock that such
person or group had the right to acquire on or within
60 days after that date, including, but not limited to,
upon the exercise of options. |
|
(2) |
|
The business address of the beneficial owners listed is
c/o Abaxis,
Inc., 3240 Whipple Road, Union City, CA 94587. |
|
(3) |
|
Based on information set forth in a Schedule 13G filed with
the SEC on February 14, 2008 by Next Century Growth
Investors, LLC., reporting shared power to vote and dispose of
1,756,185 shares. The business address for Next Century
Growth Investors, LLC, Thomas L. Press and Donald M. Longlet is
5500 Wayzata Boulevard, Suite 1275, Minneapolis, MN 55416. |
|
(4) |
|
Based on information set forth in a Schedule 13G/A filed
with the SEC on February 12, 2008 by Brown Capital
Management, Inc., reporting sole power to vote and dispose of
728,600 and 1,606,215 shares, respectively. The business
address for Brown Capital Management, Inc. is 1201 North Calvert
Street, Baltimore, MD 21202. |
|
(5) |
|
Based on information set forth in a Schedule 13G filed with
the SEC on February 11, 2008 by Kayne Anderson Rudnick
Investment Management, LLC, reporting sole power to vote and
dispose of 1,491,156 shares. The business address for Kayne
Anderson Rudnick Investment Management, LLC is 1800 Avenue of
the Stars, 2nd Floor, Los Angeles, CA 90067. |
102
|
|
|
(6) |
|
Based on information set forth in a Schedule 13G/A filed
with the SEC on February 11, 2008 by Wasatch Advisors,
Inc., reporting sole power to vote and dispose of
1,191,183 shares. The business address for Wasatch
Advisors, Inc. is 150 Social Hall Avenue, Salt Lake City, UT
84111. |
|
(7) |
|
Includes: |
|
|
|
|
|
378,484 shares held by Mr. Severson; and
|
|
|
|
280,317 shares subject to stock options exercisable by
Mr. Severson within sixty days of May 31, 2008.
|
|
|
|
|
|
97,773 shares held by Dr. Ostoich;
|
|
|
|
26,355 shares held by Dr. Ostoichs IRA;
|
|
|
|
22,400 shares held by Mrs. Ostoichs IRA;
|
|
|
|
117,328 shares held by the Vladimir Ostoich and Liliana
Ostoich Trust Fund, for the benefit of Dr. Ostoich and
his wife; and
|
|
|
|
137,500 shares subject to stock options exercisable by
Dr. Ostoich within sixty days of May 31, 2008.
|
|
|
|
|
|
20,558 shares held by Mr. Santa Ines; and
|
|
|
|
102,432 shares subject to stock options exercisable by
Mr. Santa Ines within sixty days of May 31, 2008.
|
|
|
|
|
|
11,489 shares held by Dr. Aron; and
|
|
|
|
97,609 shares subject to stock options exercisable by
Dr. Aron within sixty days of May 31, 2008.
|
|
|
|
|
|
2,569 shares held by Mr. Bernard.
|
|
|
|
|
|
50,000 shares held by Dr. Bastiani; and
|
|
|
|
28,000 shares subject to stock options exercisable by
Dr. Bastiani within sixty days of May 31, 2008.
|
|
|
|
|
|
3,000 shares held by Mr. Hanlon; and
|
|
|
|
28,000 shares subject to stock options exercisable by
Mr. Hanlon within sixty days of May 31, 2008.
|
|
|
|
|
|
7,000 shares held by Dr. Singh; and
|
|
|
|
22,000 shares subject to stock options exercisable by
Dr. Singh within sixty days of May 31, 2008.
|
|
|
|
|
|
13,000 shares subject to stock options exercisable by
Dr. Tucker within sixty days of May 31, 2008.
|
|
|
|
|
|
3,000 shares held by Mr. Evenhuis; and
|
|
|
|
18,000 shares subject to stock options exercisable by
Mr. Evenhuis within sixty days of May 31, 2008.
|
|
|
|
|
|
743,885 shares held by all executive officers and directors
as a group; and
|
|
|
|
739,549 shares subject to stock options exercisable by all
executive officers and directors as a group within sixty days of
May 31, 2008.
|
Securities
Authorized for Issuance Under Equity Compensation
Plans
Abaxis has two equity incentive plans under which our equity
securities are or have been authorized for issuance to our
employees, directors and consultants: (i) the 2005 Equity
Incentive Plan (the Equity Incentive Plan), which
amended and restated the 1998 Stock Option Plan, and
(ii) the 1992 Outside Directors Stock Option Plan (the
Directors Plan). Both the Equity Incentive Plan and
the Directors Plan have been approved by our shareholders. In
June 2002, the time period for granting options under the
Directors Plan expired in accordance with the terms of the plan.
103
From time to time we issue warrants to purchase shares of our
common stock to non-employees, such as service providers and
purchasers of our preferred stock. As of March 31, 2008,
there were no warrants outstanding to purchase shares of common
stock.
The following table provides aggregate information as of
March 31, 2008 regarding outstanding options, unvested
restricted stock units and shares reserved under our equity
compensation plans.
Equity
Compensation Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Securities to be
|
|
|
|
|
|
Number of Securities
|
|
|
|
Issued Upon
|
|
|
|
|
|
Remaining Available
|
|
|
|
Exercise of
|
|
|
Weighted-Average
|
|
|
for Future Issuance
|
|
|
|
Outstanding
|
|
|
Exercise Price of
|
|
|
Under Equity
|
|
|
|
Options, Warrants
|
|
|
Outstanding Options,
|
|
|
Compensation
|
|
Plan Category
|
|
and Rights
|
|
|
Warrants and Rights
|
|
|
Plans(1)
|
|
|
Equity compensation plans approved by our shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Equity Incentive Plan(2)
|
|
|
1,483,000
|
|
|
$
|
8.00
|
(3)
|
|
|
442,000
|
|
1992 Outside Directors Stock Option Plan
|
|
|
55,000
|
|
|
$
|
4.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities not approved by our shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
1,538,000
|
|
|
$
|
7.82
|
(3)
|
|
|
442,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The shares are available for award grant purposes under the
Equity Incentive Plan and excludes shares listed under the
column Number of Securities to be Issued Upon Exercise of
Outstanding Options, Warrants and Rights. |
|
(2) |
|
The Equity Incentive Plan amended and restated the 1998 Stock
Option Plan in October 2005. To date, share-based awards granted
under the Equity Incentive Plan includes stock options and
restricted stock units. |
|
(3) |
|
Excludes outstanding and unvested restricted stock unit awards,
for which there is no exercise price. |
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
Certain
Relationships and Related Transactions
During the fiscal year ended March 31, 2008, there was not,
nor is there any currently proposed transaction or series of
similar transactions to which Abaxis was or is to be a party in
which the amount involved exceeds $120,000 and in which any
executive officer, director or holder of more than 5% of any
class of voting securities of Abaxis and members of that
persons immediate family had or will have a direct or
indirect material interest, other than as set forth in the
Summary Compensation Table above.
Indemnification
Agreements
We generally enter into indemnity agreements with our directors
and certain of our executive officers. These indemnity
agreements require us to indemnify these individuals to the
fullest extent permitted by law.
Related-Person
Transactions Policy and Procedures
Pursuant to the requirements set forth in the charter of our
Audit Committee, our Audit Committee is responsible for
reviewing and approving any related-party transactions, after
reviewing each such transaction for potential conflicts of
interests and other improprieties. We do not have any additional
written procedures governing the process for addressing
related-person transactions. However, in approving or rejecting
proposed transactions, our audit committee generally considers
the relevant facts and circumstances available and deemed
relevant, including, but not limited to the risks, costs and
benefits to us, the terms of the transaction, the availability
of other sources for comparable services or products, and, if
applicable, the impact on a directors independence.
104
As required under the NASDAQ listing standards, a majority of
the members of a listed companys Board of Directors must
qualify as independent, as affirmatively determined
by the Board of Directors. The Board consults with the
Companys counsel to ensure that the Boards
determinations are consistent with relevant securities and other
laws and regulations regarding the definition of
independent, including those set forth in the NASDAQ
listing standards, as in effect time to time. Consistent with
these considerations, after review of all relevant transactions
or relationships between each director, or any of his or her
family members, and the Company, its senior management, and its
independent registered public accounting firm, the Board has
affirmatively determined that the following five directors are
independent directors within the meaning of the applicable
NASDAQ listing standards: Messrs. Evenhuis and Hanlon and
Drs. Bastiani, Singh and Tucker. In making this
determination, the Board found that none of the directors had a
material or other disqualifying relationship with the Company.
Mr. Severson, the Companys Chairman, President and
Chief Executive Officer, is not an independent director by
virtue of his employment with the Company.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
For the fiscal years ended March 31, 2008 and 2007, our
independent registered public accounting firm, Burr,
Pilger & Mayer LLP billed the approximate fees set
forth below.
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Audit Fees(1)
|
|
$
|
614,000
|
|
|
$
|
580,000
|
|
Audit-Related Fees
|
|
|
|
|
|
|
|
|
Tax Fees
|
|
|
|
|
|
|
|
|
All Other Fees(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total All Fees
|
|
$
|
614,000
|
|
|
$
|
580,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Audit fees represent fees for professional services provided in
connection with the audit of our financial statements and review
of our quarterly financial statements, including attestation
services related to Section 404 of the Sarbanes-Oxley Act
of 2002. |
|
(2) |
|
All other fees consist of fees for products and services other
than the services reported above. |
Pre-Approval
Policies and Procedures
The Audit Committee has adopted a policy for the pre-approval of
all audit and non-audit services to be performed for the Company
by the independent registered public accounting firm. The Audit
Committee has considered the role of Burr, Pilger &
Mayer LLP in providing audit and audit-related services to
Abaxis and has concluded that such services are compatible with
Burr, Pilger & Mayer LLPs role as Abaxis
independent registered public accounting firm.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a) The following financial statements, schedules and
exhibits are filed as part of this report:
|
|
|
|
1.
|
Financial Statements The Financial
Statements required by this item are listed on the Index to
Financial Statements in Part II, Item 8 of this
report, which is incorporated by reference herein.
|
|
|
2.
|
Financial Statement Schedules
|
|
|
|
|
|
Schedule II Valuation and Qualifying Accounts
and Reserves
|
|
|
|
Other financial statement schedules are not included because
they are not required or the information is otherwise shown in
the financial statements or notes thereto.
|
|
|
|
|
3.
|
Exhibits The exhibits listed on the
accompanying Exhibit Index are filed as part of, or are
incorporated by reference into, this report.
|
(b) See Item 15(a)(3) above.
(c) See Item 15(a)(2) above.
105
Abaxis,
Inc.
Schedule II
Valuation and Qualifying Accounts and Reserves
Years ended March 31, 2008, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Additions
|
|
|
Deductions
|
|
|
Balance at
|
|
|
|
Beginning of
|
|
|
Charged to
|
|
|
from
|
|
|
End of
|
|
Description
|
|
Year
|
|
|
Expenses
|
|
|
Reserves
|
|
|
Year
|
|
|
Year ended March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts
|
|
$
|
174,000
|
|
|
$
|
114,000
|
|
|
$
|
42,000
|
|
|
$
|
246,000
|
|
Reserve for Sales Allowances
|
|
|
368,000
|
|
|
|
51,000
|
|
|
|
393,000
|
|
|
|
26,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Reserve for Doubtful Accounts and Sales Allowances
|
|
$
|
542,000
|
|
|
$
|
165,000
|
|
|
$
|
435,000
|
|
|
$
|
272,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts
|
|
$
|
109,000
|
|
|
$
|
78,000
|
|
|
$
|
13,000
|
|
|
$
|
174,000
|
|
Reserve for Sales Allowances
|
|
|
234,000
|
|
|
|
849,000
|
|
|
|
715,000
|
|
|
|
368,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Reserve for Doubtful Accounts and Sales Allowances
|
|
$
|
343,000
|
|
|
$
|
927,000
|
|
|
$
|
728,000
|
|
|
$
|
542,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts
|
|
$
|
204,000
|
|
|
$
|
83,000
|
|
|
$
|
178,000
|
|
|
$
|
109,000
|
|
Reserve for Sales Allowances
|
|
|
278,000
|
|
|
|
549,000
|
|
|
|
593,000
|
|
|
|
234,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Reserve for Doubtful Accounts and Sales Allowances
|
|
$
|
482,000
|
|
|
$
|
632,000
|
|
|
$
|
771,000
|
|
|
$
|
343,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106
Exhibit Index
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description of Document
|
|
|
3
|
.1
|
|
Restated Articles of Incorporation (Filed with the Securities
and Exchange Commission as an exhibit with our Annual Report on
Form 10-K for the fiscal year ended March 31, 1993 and
incorporated herein by reference.)
|
|
3
|
.2
|
|
By-laws (Filed with the Securities and Exchange Commission in
our Registration Statement No. 33-44326 on December 11, 1991 and
incorporated herein by reference.)
|
|
3
|
.3
|
|
Amendment to the By-laws (Filed with the Securities and Exchange
Commission as an exhibit with our Current Report on Form 8-K on
July 30, 2007 and incorporated herein by reference.)
|
|
4
|
.1
|
|
Registration Rights Agreement, dated as of March 29, 2002 (Filed
with the Securities and Exchange Commission as an exhibit with
our Current Report on Form 8-K on May 13, 2002 and incorporated
herein by reference.)
|
|
4
|
.2
|
|
Form of Warrant Agreement issued to purchasers of Series E
Convertible Preferred Stock (Filed with the Securities and
Exchange Commission as an exhibit with our Current Report on
Form 8-K on May 13, 2002 and incorporated herein by reference.)
|
|
4
|
.3
|
|
Abaxis, Inc. and Equiserve Trust Company, N.A. as Rights Agent,
Rights Agreement, dated as of April 23, 2003 (Filed with the
Securities and Exchange Commission as an exhibit with our
Current Report on Form 8-K on May 16, 2003 and incorporated
herein by reference.)
|
|
4
|
.4
|
|
Reference is made to Exhibit 3.1, Exhibit 3.2 and Exhibit 3.3.
|
|
10
|
.1*
|
|
1989 Stock Option Plan, as amended and restated as the 1998
Stock Option Plan (Filed with the Securities and Exchange
Commission as an exhibit with our Quarterly Report on Form 10-Q
for the quarter ended December 31, 2004 and incorporated herein
by reference.)
|
|
10
|
.2*
|
|
1992 Outside Directors Stock Option Plan and forms of agreement
(Filed with the Securities and Exchange Commission as an exhibit
with our Def 14A Proxy Statement on August 10, 1992 and
incorporated herein by reference.)
|
|
10
|
.3*
|
|
401(k) Defined Contribution Plan (Filed with the Securities and
Exchange Commission in our Registration Statement No. 33-44326
on December 11, 1991 and incorporated herein by reference.)
|
|
10
|
.4+
|
|
Licensing agreement between Abaxis, Inc. and Pharmacia Biotech,
Inc., dated October 1, 1994 (Filed with the Securities and
Exchange Commission as an exhibit with our Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994 and
incorporated herein by reference.)
|
|
10
|
.5
|
|
Lease Agreement with Principal Development Investors, LLC, dated
June 21, 2000 (Filed with the Securities and Exchange Commission
as an exhibit with our Registration Statement on Form S-3 on
January 10, 2001 and incorporated herein by reference.)
|
|
10
|
.6
|
|
Loan and Security Agreement with Comerica Bank California, dated
March 13, 2002 (Filed with the Securities and Exchange
Commission as an exhibit with our Quarterly Report on Form 10-Q
for the quarter ended June 30, 2002 and incorporated herein by
reference.)
|
|
10
|
.7
|
|
First and Second Modification to Loan and Security Agreement
with Comerica Bank California, dated March 29, 2002 (Filed with
the Securities and Exchange Commission as an exhibit with our
Quarterly Report on Form 10-Q for the quarter ended June 30,
2002 and incorporated herein by reference.)
|
|
10
|
.8
|
|
Loan Revision/Extension Agreement with Comerica Bank California,
dated March 29, 2002 (Filed with the Securities and Exchange
Commission as an exhibit with our Quarterly Report on Form 10-Q
for the quarter ended June 30, 2002 and incorporated herein by
reference.)
|
|
10
|
.9
|
|
Loan Revision/Extension Agreement with Comerica Bank California,
dated September 23, 2002 (Filed with the Securities and Exchange
Commission as an exhibit with our Quarterly Report on Form 10-Q
for the quarter ended September 30, 2002 and incorporated herein
by reference.)
|
|
10
|
.10+
|
|
Letter Setting Forth Additional Terms of Relationship Between
Abaxis, Inc. and Pharmacia Biotech, dated as of June 9, 1997
(Filed with the Securities and Exchange Commission as an exhibit
with our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2002 and incorporated herein by reference.)
|
|
10
|
.11+
|
|
Private Label Manufacturing and Supply Agreement by and between
Diatron Messtechnik GmbH and Abaxis, Inc., dated November 13,
2003 (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, 2004 and incorporated herein by reference.)
|
107
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description of Document
|
|
|
10
|
.12
|
|
Distribution Agreement by and between Scil Animal Care Company
GmbH and Abaxis, Inc., dated September 1, 2001 (Filed with the
Securities and Exchange Commission as an exhibit with Amendment
Number One to our Annual Report on Form 10-K/A for the fiscal
year ended March 31, 2002, on December 24, 2002 and incorporated
herein by reference.)
|
|
10
|
.13
|
|
Loan and Security Agreement by and between Abaxis, Inc. and
Comerica Bank California, dated as of September 8, 2003 (Filed
with the Securities and Exchange Commission as an exhibit with
our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2003 and incorporated herein by reference.)
|
|
10
|
.14
|
|
First Modification to Business Loan Agreement with Comerica Bank
California, dated September 15, 2004 (Filed with the Securities
and Exchange Commission as an exhibit with our Quarterly Report
on Form 10-Q for the quarter ended September 30, 2004 and
incorporated herein by reference.)
|
|
10
|
.15*
|
|
Employment Agreement with Mr. Clinton H. Severson, dated July
11, 2005 (Filed with the Securities and Exchange Commission as
an exhibit with our Quarterly Report on Form 10-Q for the
quarter ended June 30, 2005 and incorporated herein by
reference.)
|
|
10
|
.16*
|
|
2005 Equity Incentive Plan, including related agreements and
forms (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, 2006 and incorporated herein by reference.)
|
|
10
|
.17*
|
|
Abaxis, Inc. Executive Change of Control Severance Plan (Filed
with the Securities and Exchange Commission as an exhibit with
our Quarterly Report on Form 10-Q for the quarter ended June 30,
2006 and incorporated herein by reference.)
|
|
10
|
.18+
|
|
Amendment, dated September 21, 2006, to the Private Label
Manufacturing and Supply Agreement by and between Diatron
Messtechnik GmbH and Abaxis, Inc., dated November 13, 2003
(Filed with the Securities and Exchange Commission as an exhibit
with our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2006 and incorporated herein by reference.)
|
|
10
|
.19+
|
|
Distribution Agreement by and between Walco International, Inc.
(d/b/a DVM Resources) and Abaxis, Inc., dated April 1, 2006.
(Filed with the Securities and Exchange Commission as an exhibit
with our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2006 and incorporated herein by reference.)
|
|
10
|
.20*
|
|
Fiscal 2009 Base Salary and Target Bonus for the Named Executive
Officers (Filed with the Securities and Exchange Commission as
an exhibit with our Current Report on Form 8-K on April 29, 2008
and incorporated herein by reference.)
|
|
10
|
.21++
|
|
Addendum, dated February 28, 2008, to the Private Label
Manufacturing and Supply Agreement by and between Diatron
Messtechnik GmbH and Abaxis, Inc., dated November 13, 2003
|
|
10
|
.22*
|
|
Form of Indemnification Agreement entered into by Abaxis, Inc.
with each of its directors and executive officers
|
|
23
|
.1
|
|
Consent of Burr, Pilger & Mayer LLP, Independent Registered
Public Accounting Firm
|
|
24
|
.1
|
|
Power of Attorney. Reference is made to the Signature Page
hereto.
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
|
|
32
|
.1#
|
|
Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
|
|
32
|
.2#
|
|
Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
|
|
|
|
+ |
|
Confidential treatment of certain portions of this agreement has
been granted by the Securities and Exchange Commission. |
|
++ |
|
Confidential treatment of certain portions of this agreement has
been requested from the Securities and Exchange Commission. |
|
* |
|
Management contract or compensatory plan or arrangement. |
|
# |
|
This certification accompanies the
Form 10-K
to which it relates, is not deemed filed with the Securities and
Exchange Commission and is not to be incorporated by reference
into any filing of the Registrant 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 the
Form 10-K),
irrespective of any general incorporation language contained in
such filing. |
108
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on June 13, 2008.
ABAXIS, INC.
|
|
|
|
By:
|
/s/ Clinton
H. Severson
|
Clinton H. Severson
Chairman of the Board, President and Chief
Executive Officer
POWER
OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each person whose
signature appears below constitutes and appoints Clinton H.
Severson and Alberto R. Santa Ines, and each of them, acting
individually, as his
attorney-in-fact,
each with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to
sign any and all amendments to this Annual Report on
Form 10-K,
and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in connection therewith and about the premises, as fully
to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Clinton
H. Severson
Clinton
H. Severson
|
|
President, Chief Executive Officer and Director
(Principal Executive Officer)
|
|
June 13, 2008
|
|
|
|
|
|
/s/ Alberto
R. Santa Ines
Alberto
R. Santa Ines
|
|
Chief Financial Officer and
Vice President of Finance
(Principal Financial and Accounting Officer)
|
|
June 13, 2008
|
|
|
|
|
|
/s/ Richard
J. Bastiani, Ph.D.
Richard
J. Bastiani, Ph.D.
|
|
Director
|
|
June 13, 2008
|
|
|
|
|
|
/s/ Henk
J. Evenhuis
Henk
J. Evenhuis
|
|
Director
|
|
June 13, 2008
|
|
|
|
|
|
/s/ Brenton
G. A. Hanlon
Brenton
G. A. Hanlon
|
|
Director
|
|
June 13, 2008
|
|
|
|
|
|
/s/ Prithipal
Singh, Ph.D.
Prithipal
Singh, Ph.D.
|
|
Director
|
|
June 13, 2008
|
|
|
|
|
|
/s/ Ernest
S. Tucker III
Ernest
S. Tucker III
|
|
Director
|
|
June 13, 2008
|
109