<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-19720
ABAXIS, INC.
(Exact name of registrant as specified in its charter)
California 77-0213001
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1320 Chesapeake Terrace
Sunnyvale, California 94089
(Address of principal executive offices)
Telephone: (408) 734-0200
Indicate by check mark whether the registrant:
(1) has filed all reports required to be
filed by Section 13 or 15(d) Securities
Exchange Act of 1934 during the
preceding 12 months (or for such shorter
period that the registrant was required
to file such reports), Yes [X] No [ ]
and
(2) has been subject to such
filing requirements for the 90
days. Yes [X] No [ ]
At November 10, 1997, 11,912,747 shares of common stock, no par value, were
outstanding.
This report on Form 10-Q, including all exhibits, contains 16 pages.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<S> <C>
Facing Sheet.................................................................................. 1
Table of Contents............................................................................. 2
Part I. Financial Information
Item 1. Financial Statements:
Condensed Statements of Operations -
Three Months and Six Months Ended September 30, 1997 and 1996............ 3
Condensed Balance Sheets - September 30, 1997 and March 31, 1997............ 4
Condensed Statements of Cash Flows -
Six Months Ended September 30, 1997 and 1996............................ 5
Notes to Condensed Financial Statements..................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................... 7
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds................................... 12
Item 4. Submission of Matters to a Vote of Security Holders......................... 12
Item 6. Exhibits and Reports on Form 8-K............................................ 13
Signatures.................................................................. 14
</TABLE>
2
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PART 1-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ABAXIS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Product sales, net $ 3,205,000 $ 1,776,000 $ 5,885,000 $ 2,949,000
Development and licensing revenue 83,000 37,000 156,000 75,000
------------ ------------ ------------ ------------
Total revenues 3,288,000 1,813,000 6,041,000 3,024,000
------------ ------------ ------------ ------------
Costs and operating expenses:
Cost of product sales 2,866,000 1,789,000 5,461,000 3,611,000
Research and development 368,000 318,000 743,000 709,000
Selling, general, and
administrative 1,172,000 1,329,000 2,388,000 2,590,000
------------ ------------ ------------ ------------
Total costs and operating expenses 4,406,000 3,436,000 8,592,000 6,910,000
------------ ------------ ------------ ------------
Loss from operations (1,118,000) (1,623,000) (2,551,000) (3,886,000)
Interest income, net 85,000 61,000 143,000 153,000
Other income (expense) -- -- (1,000)
------------ ------------ ------------ ------------
Net loss $ (1,033,000) $ (1,562,000) $ (2,409,000) $ (3,733,000)
============ ============ ============ ============
Net loss per share (a) $ (0.15) $ (0.19) $ (0.27) $ (0.41)
============ ============ ============ ============
Shares used in calculating
loss per share 11,886,987 9,868,596 11,886,570 9,873,554
============ ============ ============ ============
</TABLE>
(a) Loss attributable to common shareholders used in the computation of loss per
share for the three and six months ended September 30, 1997 was $1,783,000 and
$3,159,000, respectively. Loss attributable to common shareholders used in the
computation of loss per share for the three and six months ended September 30,
1996 was $1,862,000 and $4,033,000, respectively (See Note 2).
See notes to condensed financial statements.
3
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ABAXIS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1997 1997
------------ ------------
(unaudited) (note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 939,000 $ 1,436,000
Short-term investments 7,605,000 3,885,000
Trade and other receivables, net 1,579,000 1,690,000
Interest receivable 96,000 80,000
Inventories 1,333,000 2,218,000
Prepaid expenses 170,000 135,000
------------ ------------
Total current assets 11,722,000 9,444,000
Property and equipment - net 2,323,000 2,453,000
Deposits and other assets 88,000 80,000
------------ ------------
Total assets $ 14,133,000 $ 11,977,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,337,000 $ 695,000
Accrued payroll and related expenses 777,000 604,000
Other accrued liabilities 869,000 578,000
Warranty reserve 692,000 495,000
Deferred revenue 262,000 247,000
Note payable 200,000 --
------------ ------------
Total current liabilities 4,137,000 2,619,000
------------ ------------
Long term liabilities--
Note payable 313,000 --
Shareholders' equity:
Convertible preferred stock, no par value:
5,000,000 authorized; 3,000 issued and
outstanding on September 30, 1997 and none on 2,732,000 --
March 31, 1997
Common stock, no par value: 35,000,000
authorized; 11,887,803 issued and outstanding
on September 30, 1997 and 11,886,153 on March 60,535,000 59,783,000
31, 1997
Accumulated deficit (53,584,000) (50,425,000)
------------ ------------
Total shareholders' equity 9,683,000 9,358,000
------------ ------------
Total liabilities and shareholders' equity $ 14,133,000 $ 11,977,000
============ ============
</TABLE>
See notes to condensed financial statements.
Note: The balance sheet at March 31, 1997 has been derived from the audited
financial statements.
4
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ABAXIS, INC
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
------------------------------
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(2,409,000) $(3,733,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 370,000 474,000
Write-down of capital equipment 50,000 --
Changes in assets and liabilities:
Trade and other receivables 111,000 (493,000)
Interest receivable (16,000) 33,000
Inventories 885,000 (77,000)
Prepaid expenses (35,000) 22,000
Deposits and other assets (8,000) --
Accounts payable 642,000 (25,000)
Accrued payroll and related expenses 173,000 103,000
Other accrued liabilities 291,000 92,000
Warranty reserve 197,000 81,000
Deferred revenue 15,000 (1,000)
Customer deposits -- (5,000)
----------- -----------
Net cash provided by (used in) operating activities 266,000 (3,529,000)
----------- -----------
INVESTING ACTIVITIES:
Purchase of available-for-sale securities (8,920,000) (5,409,000)
Maturities of available-for-sale securities 5,200,000 7,650,000
Sales of available-for-sale securities -- 500,000
Purchase of property and equipment (290,000) (379,000)
----------- -----------
Net cash provided by (used in) investing activities (4,010,000) 2,362,000
----------- -----------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock 2,000 68,000
Proceeds from issuance of preferred stock 2,732,000 4,780,000
Net proceeds from equipment financing 513,000 --
----------- -----------
Net cash provided by financing activities 3,247,000 4,848,000
----------- -----------
Increase (decrease) in cash and cash equivalents (497,000) 3,681,000
Cash and cash equivalents at beginning of period 1,436,000 1,591,000
----------- -----------
Cash and cash equivalents at end of period $ 939,000 $ 5,272,000
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid $ 32,000 $ --
</TABLE>
See notes to condensed financial statements.
5
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ABAXIS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. These condensed financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report to Stockholders for the fiscal year ended March 31,
1997. The unaudited condensed financial statements included herein reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary to state fairly the results for the periods
presented. The results for such periods are not necessarily indicative of the
results to be expected for the entire fiscal year ending March 31, 1998 or for
any future period.
2. PER SHARE INFORMATION
Shares used in calculating loss per share for the periods ended September 30,
1997 and 1996 are based solely on weighted average shares of common stock
outstanding during the period. Common equivalent shares have not been considered
in the computation since their inclusion would have an antidilutive effect. In
the computation of loss per share for the periods ended September 30, 1997 and
1996, loss attributable to common shareholders includes the accretion of
preferred stock of $750,000 and $300,000, respectively, relating to the
calculated imbedded yield representing the discount on the assumed potential
conversion of the preferred stock issued by the Company.
3. INVENTORY
Inventories are stated at the lower of cost (first-in, first-out) or market and
consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1997 1997
---------- ----------
<S> <C> <C>
Raw materials $ 492,000 $1,235,000
Work-in-process 644,000 723,000
Finished goods 197,000 260,000
---------- ----------
$1,333,000 $2,218,000
========== ==========
</TABLE>
4. EQUITY FINANCING
On July 18, 1997, RGC International Investors LDC and Advantage Fund Ltd., each
of which is an accredited investor as defined in Regulation D to the best
knowledge of the Company, purchased from the Company 3,000 shares of Series B
Convertible Preferred Stock at a price per share of $1,000, with net proceeds to
the Company of approximately $2,732,000. The shares were sold in this private
offering transaction under Rule 506 and/or Section 4(2) of the Securities Act of
1933, as amended, have not been registered with the Securities and Exchange
Commission and carry a restrictive legend. The Series B Preferred Stock is
convertible to common stock on or before July 18, 2002 at the lesser of the
average closing bid price of the common stock for the five trading days prior to
July 18, 1997, $2.7125, or 80% of the average closing bid prices for the five
trading days prior to the conversion date. The Company filed a registration
statement on Form S-3 on September 29, 1997 to register the common stock
issuable upon conversion of the preferred stock for resale by the holders of the
preferred stock. The registration was declared effective on October 30, 1997.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
This Management's Discussion and Analysis of Financial Condition and Results of
Operations includes a number of forward-looking statements which reflect the
Company's current views with respect to future events and financial performance.
These forward-looking statements are subject to certain risks and uncertainties,
including but not limited to those discussed below, that could cause actual
results to differ materially from historical results or those anticipated. Such
risks and uncertainties include market acceptance of the Company's products and
continuing development of its products, including required Food and Drug
Administration ("FDA") clearance and other government approvals, risks
associated with manufacturing and distributing products on a commercial scale,
including complying with Federal and state food and drug regulations and general
market conditions and competition. In this report, the words "anticipates",
"believes", "expects", "future", "intends", "plans", and similar expressions
identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof.
Abaxis develops, manufactures and markets portable blood analysis systems for
use in any patient-care setting to provide clinicians with rapid blood
constituent measurements. The Company's products consist of a compact 6.9
kilogram analyzer and a series of single-use plastic disks called reagent discs
that contain all the chemicals required to perform a panel of up to 12 tests.
The system can be operated with minimal training and performs multiple routine
tests on whole blood using either venous or fingerstick samples. The system
provides test results in less than 15 minutes with the precision and accuracy
equivalent to a clinical laboratory. The Company currently markets this system
for veterinary use under the name VetScan(R) and in the human market under the
name Piccolo(R).
During the quarter ended September 30, 1997, the Company achieved record results
in terms of revenues and unit sales. A total of 281 Point-of-Care Blood
Analyzers were placed worldwide, of which 156 were VetScan systems and 125 were
Piccolo systems. The Company's product sales in the US accounted for 71% of its
total revenues, international sales accounted for 26% and Orbos contract revenue
accounted for the remaining 3%. Fifty-eight percent (58%) of the sales in the US
were to the veterinary market and 42% were to the human medical market. Sales to
the US Navy and Marines pursuant to a contract awarded in March 1997 totaled 94
Piccolo systems which accounted for essentially all of the US human medical
market sales. Through September 30, 1997, the Company has shipped approximately
50% of the maximum number of analyzers covered by the contract with the US Navy
entered into in March 1997. There can be no assurance that the US Navy will
place purchase orders against the balance of the contract.
Internationally, sales to Japan constituted 57% and sales to Mexico constituted
23% of the total international shipments during the quarter ended September 30,
1997. Of the total Japanese revenue, 98% was for veterinary applications,
including 60 VetScan systems. The increase in Japanese veterinary revenue is the
result of the recent approval from the Japanese Ministry of Agriculture,
Forestry and Fishery to distributeVetScan systems in Japan. The Company expects
comparable orders from Japan for VetScan systems during the third quarter of
fiscal 1998. The Company shipped an initial order of 28 Piccolo systems for use
by the Instituto Mexicano del Securo Social (IMSS). These units are being
installed in rural clinics throughout Mexico. An additional 10 Piccolo systems
from the original purchase order are scheduled for shipment in the third
quarter. The Company expects to receive an order for reagent discs shortly after
the initial systems have been installed. There can be no assurance that the
Company will receive additional orders beyond the terms of current purchase
orders.
Since initial shipments of the Point-of-Care Blood Analyzer through September
30, 1997, the Company has placed a total of 1,646 units worldwide of which 1,223
were VetScan systems and 423 were Piccolo systems. In the United States the
Company has placed 910 VetScan systems and 185 Piccolo systems. Internationally,
the Company has placed 313 VetScan systems and 238 Piccolo systems.
7
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Reagent disc shipments for the quarter ended September 30, 1997 were
approximately 110,000 discs. Ninty-five percent (95%) of the reagent disc
shipments were for veterinary applications. The increase in reagent disc
shipments is consistent with the Company's belief that there will be recurring
reagent disc revenue as the Company's product lines mature. This growth is
mostly attributable to the expanded installed base of VetScan systems and higher
consumption rates of institutional users. There can be no assurance this growth
will continue.
The Company continues to develop new products that will provide further
opportunities for market penetration. The Company is working on development of
four electrolyte test methods: bicarbonate, chloride, potassium and sodium.
Clinical trials are expected to begin during the fourth quarter of fiscal 1998.
For the human market, the Company plans on incorporating these tests into new
panels consistent with the codes in the 1998 version of the Current Procedures
Terminology manual published by the American Medical Association. Additional
reagent products utilizing these electrolyte methods will also be developed for
the veterinary market. While the Company believes that its technology will allow
it to develop reagent disc products in the future to provide a variety of
additional blood tests, there can be no assurance that such future products will
be developed, that such products will receive required regulatory clearance, or
that the Company will be able to manufacture or market such products
successfully.
Sales for any future periods are not predictable with a significant degree of
certainty. The Company generally operates with limited order backlog because its
products typically are shipped shortly after orders are received. As a result,
product sales in any quarter are generally dependent on orders booked and
shipped in that quarter. The Company's expense levels, which are to a large
extent fixed, are based in part on its expectations as to future revenues.
Accordingly the Company may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. As a result, any such shortfall
would have an immediate materially adverse impact on the Company's operating
results and financial condition. Until sales volume of the Company's products,
particularly its reagent discs, increase significantly so as to offset
associated fixed costs and to realize certain manufacturing economies of scale,
sales of the Company's products will result in further losses and adversely
affect the Company's results of operations and financial condition. The Company
believes that period to period comparisons of its results of operations are not
necessarily meaningful.
The Company's periodic operating results have in the past varied and in the
future may vary significantly depending on, but not limited to, a number of
factors, including the level of competition; the size and timing of sales
orders; market acceptance of the current and new products; new product
announcements by the Company or its competitors; changes in pricing by the
Company or its competitors; the ability of the Company to develop, introduce and
market new products on a timely basis; component costs and supply constraints;
manufacturing capacities and ability to scale up production; the mix of product
sales between the analyzers and the reagent discs; the mix of product sales
between distributor and direct sales and human medical and veterinary
applicatons; mix in sales channels; levels of expenditure on research and
development; changes in Company strategy; personnel changes; regulatory changes;
and general economic trends.
The Company continues to explore the application of its proprietary technology
used to produce the dry reagents used in the reagent discs, called the Orbos(R)
Discrete Lypholization Process, to other companies' products. This process
allows the production of an accurate, precise amount of active chemical
ingredients in the form of a soluble bead. The Company believes that the Orbos
process has broad applications in products where delivery of active ingredients
in a stable, pre-metered format is desired. The Company has contracts with
Becton Dickinson Immunocytometry Systems and Pharmacia Biotech, Inc. to either
supply products or license Orbos technology. The Company is currently working
with other companies to determine potential suitability of the Orbos technology
to these companies' products. As resources permit, the Company will pursue other
development, licensing or manufacturing agreement opportunities for its Orbos
technology with other companies. There can be no assurances, however, that other
applications will be identified or that additional agreements with the Company
will result.
8
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RESULTS OF OPERATIONS
REVENUE
During the three-month period ended September 30, 1997, the Company reported
total revenues of approximately $3,288,000 ($3,205,000 in product revenue and
$83,000 in Orbos contract revenue), a $1,475,000 or 81% increase as compared to
net revenue of approximately $1,813,000 ($1,776,000 in product revenue and
$37,000 in Orbos contract revenue) for the same period in fiscal 1997. The
increase in revenue for the quarter ended September 30, 1997 compared to the
quarter ended September 30, 1996 was due to increased unit sales of Piccolo
analyzers to the US military on a direct basis without any distributor
discounts, which yield higher net revenues, increased unit sales of VetScan
systems to the Japanese market and new and repeat reagent disc sales in the
domestic and international markets.
For the six months ended September 30, 1997, total revenue was approximately
$6,041,000 ($5,885,000 in product revenue and $156,000 in Orbos contract
revenue), a $3,017,000 or 100% increase as compared to net revenue of
approximately $3,024,000 ($2,949,000 in product revenue and $75,000 in Orbos
contract revenue) for the same period in fiscal 1997. The increase in revenue
for the six-month period ended September 30, 1997 compared to the six-month
period ended September 30, 1996 was due to increased unit sales of VetScan
analyzers in the US, sales of Piccolo analyzers to the US military on a direct
basis without any distributor discounts, which yield higher net revenues,
increased sales of VetScan systems to the Japanese market and new and repeat
reagent disc sales in the domestic and international markets.
Revenues from Orbos contracts are primarily dependent upon sales of products
using the Orbos technology by other parties, which is out of the control of the
Company and, therefore, may vary significantly from quarter to quarter.
COST OF PRODUCT SALES
Cost of product sales during the quarter ended September 30, 1997 was
approximately $2,866,000, or 87% of total revenues, as compared to approximately
$1,789,000, or 99% of total revenues for the quarter ended September 30, 1996.
For the six-month period ended September 30, 1997, cost of sales was $5,461,000,
or 90% of total revenues as compared to $3,611,000, or 119% for the same period
in fiscal 1997. The increase in cost of product sales for the quarter and
six-month period ending September 30, 1997 as compared to the same periods
ending September 30, 1996 was primarily a function of the increase in sales
volume. The decrease in cost of product sales as a percentage of total revenue
for the quarter and six-month period ended September 30, 1997 as compared to the
same periods ended September 30, 1996 is due to higher efficiency resulting from
better standardized manufacturing processes and economies of scale related to
increased manufacturing volume.
RESEARCH AND DEVELOPMENT
Research and development expenses during the second quarter of fiscal 1998 were
approximately $368,000, or 11% of total revenues. Second quarter fiscal 1998
research and development expenses increased $50,000 from research and
development expenses of approximately $318,000, or 18% of total revenues for the
same period in fiscal 1997. For the first six months of fiscal 1998, research
and development expenses were $743,000, or 12% of total revenues, a $34,000
increase from research and development expenses of $709,000, or 23% of total
revenues in the first six months of fiscal 1997. The increase for the
three-month and six-month period ended September 30, 1997 compared to the same
periods in fiscal 1997 is the result of increased spending in the development of
new test methods offset by reallocation of a portion of the development
resources to support product manufacturing activities. The Company expects
research and development expenses will increase as the Company continues the
development of new test methods to expand its test menus as well as other
development projects.
9
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SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses totaled approximately $1,172,000,
or 36% of total revenues for the three-month period ended September 30, 1997.
This is a $157,000, or 12% decrease from selling, general and administrative
expenses of approximately $1,329,000, or 73% of total revenues for the
three-month period ended September 30, 1996. Selling, general and administrative
expenses for the first six months of fiscal 1998 were $2,388,000, or 40% of
total revenues. This is a $202,000, or 8% decrease from selling, general and
administrative expenses of $2,590,000, or 86% of total revenues for the first
six months of fiscal 1997. Decreases in selling, general and administrative
expenses for the three and six-month periods ended September 30, 1997 compared
to the same periods ended September 30, 1996 are primarily resulting from
certain non-recurring cost associated with the launch of the Piccolo product
line in fiscal 1997 and from the Company's cost containment efforts in fiscal
1998. The Company expects selling, general and administrative expenses to remain
at comparable levels for the remainder of fiscal 1998.
NET INTEREST INCOME
Net interest income totaled approximately $85,000 or 3% of total revenues for
the quarter ended September 30, 1997, compared to $61,000 or 3% of total
revenues in the comparable quarter of fiscal 1997. The increase in net interest
income was primarily the result of increased investment levels which was
partially offset by interest expense related to interest payments of
approximately $23,000 on an equipment loan during the period ended September 30,
1997. The Company incurred no interest expense during the period ended September
30, 1996.
Net interest income totaled approximately $143,000 or 2% of total revenues for
the six-month period ended September 30, 1997, compared to $153,000 or 5% of
total revenues in the comparable period of fiscal 1997. The Company incurred
interest expense related to interest payments of approximately $32,000 on an
equipment loan during the six-month period ended September 30, 1997. The Company
incurred no interest expense during the six-month period ended September 30,
1996. The increase in interest expense was offset by an increase in interest
income of approximately $22,000 for the period ended September 30, 1997 compared
to interest income for the period ended September 30, 1996. This increase in
interest income was primarily the result of increased investment levels.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company had total cash, cash equivalents and short
term investments of $8,544,000. The Company expects to incur substantial
additional costs to support its future operations, including further
commercialization of its products and development of new test methods that will
allow the Company to further penetrate the human diagnostic market; acquisition
of capital equipment for the Company's manufacturing facilities, which includes
the ongoing costs related to continuing development of its current and future
products; development and implementation of an automated manufacturing line to
provide capacity for commercial volumes; and additional pre-clinical testing and
clinical trials for its current and future products. The Company is currently
contracting with a vendor to build an automated disc assembly line to provide
anticipated capacity for future demand and to improve production efficiency. The
Company estimates the cost of this new assembly line will be approximately
$1,500,000 of which approximately $969,000 was paid through September 30, 1997.
The Company expects to pay the balance upon acceptance of the equipment which is
currently scheduled to occur before the end of fiscal 1998. In April 1997, in
anticipation of taking delivery of the automated assembly line, the Company
arranged for an equipment financing loan of up to $2,000,000, with 36 monthly
payments, and a final balloon payment equal to 10% of the original principal
amount. The equipment financing loan is collateralized by the Company's
equipment and bears interest at approximately 16%. As of September 30, 1997, the
Company has drawn $600,000 against this equipment financing loan of which
$87,000 has been repaid to date. Additional manufacturing equipment will also
need to be added during fiscal 1998 to provide sufficient production
capabilities. Additionally, inventories and receivables related to the increased
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sales levels of the VetScan and Piccolo systems could increase significantly in
future periods, which would require significant capital resources.
Net cash provided by operating activities during the six months ended September
30, 1997 was approximately $266,000 compared to net cash used of approximately
$3,529,000 for the same period ended September 30, 1996. The decrease in net
cash used in operating activities was due to a lower net loss, decreases in
trade and other receivables and inventories and increases in accounts payable,
accrued payroll and other accrued liabilities. Net inventories at the end of
fiscal 1997 were higher than normal in anticipation of shipping requirements for
the Navy and VetSmart orders scheduled for shipment beginning in April 1997. As
a result of the completion of these shipments in the first and second quarters
of fiscal 1998, the Company decreased net inventories by $623,000 during the
first quarter and $262,000 during the second quarter of the fiscal year.
Increases in accrued liabilities in the first six months of fiscal 1998 were
mainly due to an accrual of an executive officer severance payment and increased
warranty reserves.
Net cash used in investing activities during the six months ended September 30,
1997 was approximately $4,010,000, compared to net cash provided by investing
activities of approximately $2,362,000 during the six months ended September 30,
1996. The change from net cash provided by investing activities in the six
months ended September 30, 1996 to net cash used in investing activities in the
six months ended September 30, 1997 was primarily the result of a decrease in
maturities and sales of short-term investments, offset by an increase in
purchases of short-term investments.
Net cash provided by financing activities for the six month period ended
September 30, 1997 was approximately $3,247,000 compared to approximately
$4,848,000 for the same period in fiscal 1997. Cash provided by financing
activities for the six month period ended September 30, 1997 is the result of
proceeds from issuance of common stock of $2,000, proceeds from issuance of
preferred stock of $2,732,000 and net proceeds from equipment financing of
$513,000. Cash provided by financing activities for the six month period ended
September 30, 1996 is the result of proceeds from issuance of common stock of
$68,000, and proceeds from issuance of preferred stock of $4,780,000.
The Company anticipates that its existing capital resources, equipment financing
loan and anticipated revenue from the sales of its products will be adequate to
satisfy its currently planned operating and financial requirements through
fiscal 1998. The Company's future capital requirements will largely depend upon
the increased market acceptance of its Point-of-Care Blood Analyzer System
products. However, the Company's sales are not predictable due to its limited
market experience with its products. In the event the sales are significantly
below the anticipated level, the Company may need to obtain additional equity or
debt financing. There can be no assurance that any such financing will be
available, and any additional equity financing may be dilutive to shareholders,
while debt financing may involve restrictive covenants.
11
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 18, 1997, RGC International Investors LDC and Advantage Fund Ltd., each
of which is an accredited investor as defined in Regulation D to the best
knowledge of the Company, purchased from the Company 3,000 shares of Series B
Convertible Preferred Stock at a price per share of $1,000, with net proceeds to
the Company of approximately $2,732,000. The shares were sold in this private
offering transaction under Rule 506 and/or Section 4(2) of the Securities Act of
1933, as amended, have not been registered with the Securities and Exchange
Commission and carry a restrictive legend. The Series B Preferred Stock is
convertible to common stock on or before July 18, 2002 at the lesser of the
average closing bid price of the common stock for the five trading days prior to
July 18, 1997, $2.7125, or 80% of the average closing bid prices for the five
trading days prior to the conversion date. The Company filed a registration
statement on Form S-3 on September 29, 1997 to register the common stock
issuable upon conversion of the preferred stock for resale by the holders of the
preferred stock. The registration was declared effective on October 30, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on September 9, 1997.
The following individuals were elected as directors to serve for the ensuing
year. The following table indicates the number of votes in favor and votes
against:
<TABLE>
<CAPTION>
DIRECTOR VOTES IN FAVOR VOTES AGAINST
<S> <C> <C>
Clinton H. Severson 8,449,547 67,060
Richard Bastiani, Ph.D. 8,451,827 64,780
Brenton G. A. Hanlon 8,451,827 64,780
Prithipal Singh, Ph.D. 8,454,547 62,060
Gary H. Story 8,452,117 64,490
Ernest S. Tucker, III, M.D. 8,452,027 64,580
</TABLE>
In addition to the election of directors, the following matter was voted upon at
the meeting and received the number of affirmative votes, negative votes and
absentions indicated:
Ratify the appointment of Deloitte & Touche LLP as the Company's independent
auditors for fiscal year ending March 31, 1998.
FOR AGAINST ABSTAIN
8,492,993 7,579 16,035
12
<PAGE> 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits included herein (numbered in accordance with Item 601 of Regulation
S-K)
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
11.1 Computation of Earnings per Share
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
None
13
<PAGE> 14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ABAXIS, INC.
November 14, 1997 by: /s/Clinton H. Severson
- ----------------------- --------------------------------------------
Date Clinton H. Severson
President and Chief Executive Officer
(Principal Executive Officer)
November 14, 1997 by: /s/ Ting W. Lu
- ----------------------- --------------------------------------------
Date Ting W. Lu
Vice President of Finance & Administration
and Chief Financial Officer
(Principal Financial and Accounting Officer)
14
<PAGE> 15
INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
11.1 Computation of Earnings per Share
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss $ (1,033,000) $ (1,562,000) $ (2,409,000) $ (3,733,000)
Value assigned to accretion of preferred 750,000 300,000 750,000 300,000
stock
------------ ------------ ------------ ------------
Loss attributable to common shareholders $ (1,783,000) $ (1,862,000) $ (3,159,000) $ (4,033,000)
============ ============ ============ ============
Loss per share $ (0.15) $ (0.19) $ (0.27) $ (0.41)
============ ============ ============ ============
Weighted average common shares outstanding
11,886,987 9,868,596 11,886,570 9,873,554
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 939,000
<SECURITIES> 7,605,000
<RECEIVABLES> 1,736,000
<ALLOWANCES> (61,000)
<INVENTORY> 1,333,000
<CURRENT-ASSETS> 11,722,000
<PP&E> 6,994,000
<DEPRECIATION> (4,671,000)
<TOTAL-ASSETS> 14,133,000
<CURRENT-LIABILITIES> 4,137,000
<BONDS> 313,000
0
2,732,000
<COMMON> 60,535,000
<OTHER-SE> (53,584,000)
<TOTAL-LIABILITY-AND-EQUITY> 14,133,000
<SALES> 3,288,000
<TOTAL-REVENUES> 3,288,000
<CGS> 2,866,000
<TOTAL-COSTS> 4,406,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (85,000)
<INCOME-PRETAX> (1,033,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,033,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,033,000)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
