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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
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 February 10, 1997, 11,886,153 shares of common stock, no par
value, were outstanding.
This report on Form 10-Q, including all exhibits, contains 26 pages.
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TABLE OF CONTENTS
ITEM PAGE
Facing Sheet 1
Table of Contents 2
Part I. Financial Information
---------------------
Item 1. Financial Statements:
Condensed Statements of Operations - Three Months
and Nine Months Ended December 31, 1996 and 1995 3
Condensed Balance Sheets - December 31, 1996 and
March 31, 1996 4
Condensed Statements of Cash Flows - Nine Months Ended
December 31, 1996 and 1995 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 1. Legal Proceedings 12
Item 2. Changes in Securities 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
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PART 1-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ABAXIS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 1,842,000 $ 716,000 $ 4,459,000 $ 1,690,000
Development and licensing revenue 49,000 176,000 456,000 241,000
------------ ------------ ------------ ------------
Total revenues 1,891,000 892,000 4,915,000 1,931,000
------------ ------------ ------------ ------------
Costs and operating expenses:
Cost of product sales 1,860,000 1,334,000 5,471,000 3,514,000
Research and development 327,000 402,000 1,036,000 965,000
Selling, general, and administrative 1,088,000 859,000 3,682,000 2,417,000
------------ ------------ ------------ ------------
Total costs and operating expenses 3,275,000 2,595,000 10,189,000 6,896,000
------------ ------------ ------------ ------------
Loss from operations (1,384,000) (1,703,000) (5,274,000) (4,965,000)
Interest income, net 112,000 147,000 254,000 429,000
Other income (expense) 12,000 -- 26,000 --
------------ ------------ ------------ ------------
Net loss $ (1,260,000) $ (1,556,000) $ (4,994,000) $ (4,536,000)
============ ============ ============ ============
Net loss per share $ (0.12) $ (0.16) $ (0.50) $ (0.49)
------------ ------------ ------------ ------------
Shares used in calculating
net loss per share 10,410,177 9,803,417 10,051,830 9,339,473
============ ============ ============ ============
</TABLE>
See notes to condensed financial statements.
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ABAXIS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1996 MARCH 31, 1996
---------------------------------
(unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,343,000 $ 1,591,000
Short-term investments 4,934,000 6,187,000
Trade and other receivables 915,000 731,000
Inventories 2,498,000 1,456,000
Prepaid expenses 136,000 92,000
------------ ------------
Total current assets 10,826,000 10,057,000
Property and equipment - net 2,534,000 2,427,000
Long-term investments -- 500,000
Deposits and other assets 60,000 62,000
------------ ------------
Total assets $ 13,420,000 $ 13,046,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,097,000 $ 1,017,000
Accrued payroll and related expenses 550,000 417,000
Other accrued liabilities 378,000 225,000
Warranty reserve 463,000 249,000
Deferred rent 41,000 94,000
Deferred revenue 168,000 143,000
------------ ------------
Total current liabilities 2,697,000 2,145,000
------------ ------------
Customer deposits 170,000 175,000
------------ ------------
Shareholders' equity:
Common stock, no par value: authorized shares -
35,000,000; 11,854,153 issued and outstanding on
December 31, 1996 and 9,857,628 issued and 58,405,000 53,556,000
outstanding on March 31, 1996
Accumulated deficit (47,852,000) (42,830,000)
------------ ------------
Total shareholders' equity 10,553,000 10,726,000
------------ ------------
Total liabilities and shareholders' equity $ 13,420,000 $ 13,046,000
============ ============
</TABLE>
See notes to condensed financial statements.
Note: The balance sheet at March 31, 1996 has been derived from the audited
financial statements at that date but does not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
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ABAXIS, INC
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
1996 1995
------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (4,994,000) $ (4,536,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 701,000 720,000
Amortization of deferred compensation -- 47,000
Changes in assets and liabilities:
Trade and other receivables (184,000) (354,000)
Inventories (1,042,000) (4,000)
Prepaid expenses (44,000) (45,000)
Deposits and other assets 2,000 --
Accounts payable 80,000 267,000
Accrued payroll and related expenses 133,000 28,000
Other accrued liabilities 153,000 (55,000)
Warranty Reserve 214,000 47,000
Deferred Rent (53,000) (72,000)
Deferred Revenue 25,000 4,000
Customer deposits (5,000) (15,000)
------------ ------------
Net cash used in operating activities (5,014,000) (3,968,000)
------------ ------------
INVESTING ACTIVITIES:
Purchase of available-for-sale securities (6,447,000) (1,963,000)
Maturities of available-for-sale securities 7,700,000 1,798,000
Sales of available-for-sale securities 500,000 --
Purchase of property and equipment (808,000) (273,000)
------------ ------------
Net cash provided (used) by investing activities 945,000 (438,000)
------------ ------------
FINANCING ACTIVITIES :
Proceeds from issuance of Common Stock 67,000 6,337,000
Proceeds from issuance of Series A Preferred Stock 4,780,000 --
Preferred stock dividend (26,000) --
------------ ------------
Net cash provided by financing activities 4,821,000 6,337,000
------------ ------------
Increase in cash and cash equivalents 752,000 1,931,000
Cash and cash equivalents at beginning of period 1,591,000 3,460,000
------------ ------------
Cash and cash equivalents at end of period $ 2,343,000 $ 5,391,000
============ ============
NON CASH FINANCING ACTIVITY:
Conversion of Series A Preferred Stock to Common Stock $ 4,780,000 $ --
============ ============
</TABLE>
See notes to condensed financial statements.
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ABAXIS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed financial statements for the three and nine-months ended December
31, 1996 and 1995 are unaudited, but include all adjustments (consisting only
of normal recurring adjustments) that the management of Abaxis, Inc. believes
to be necessary for the fair presentation of the financial position, results
of operations and cash flows for the periods presented. Interim results are not
necessarily indicative of results to be expected for the full year. The
financial statements should be read in conjunction with the audited financial
statements for the year ended March 31, 1996, included in the Company's annual
report on Form 10-K filed with the Securities and Exchange Commission.
Through March 31, 1996, the Company was in the development stage and its
financial statements were presented in accordance with Statement of Financial
Accounting Standards No. 7 "Accounting and Reporting by Development Stage
Enterprises." During the quarter ended June 30, 1996, the Company completed the
launch of its Piccolo System. Based on the commercial launch of this product
combined with sales of previously offered products, management believes that it
no longer meets the definition of a development stage enterprise.
2. PER SHARE INFORMATION
Per share information for the three and nine-months ended December 31, 1996 and
1995 is 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.
3. INVENTORY
Inventories are stated at the lower of cost (first-in, first-out) or market and
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 MARCH 31, 1996
----------------- --------------
<S> <C> <C>
Raw materials $ 1,766,000 $ 829,000
Work-in-process 182,000 467,000
Finished goods 550,000 160,000
------------ ------------
$ 2,498,000 $1,456,000
------------ ------------
</TABLE>
4. PRIVATE EQUITY FINANCING
In September 1996, the Company completed a private equity financing in which it
issued 500,000 shares of its convertible Series A Preferred Stock for an
aggregate net purchase price of $4,780,000 to certain off-shore investors.
Holders of preferred stock were entitled to receive cumulative dividends of
$0.15 per share in stock or cash, at the discretion of the Board of Directors,
on each of the 90th, 180th and 270th day after the issuance date. During the
quarter ended December 31, 1996, all 500,000 shares of the convertible Series A
Preferred Stock were converted into 1,975,600 shares of common stock. Prior to
conversion, the Company paid a cash dividend of approximately $26,000 to Series
A Preferred Stock holders.
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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 include 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. In this report, the words "anticipates", "believes", expects",
"future", "intends", 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 14 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 December 31, 1996, the Company continued to increase
its customer base in both the veterinary market world wide and in the human
market outside the United States. The Company shipped a record number of its
VetScan and Piccolo Systems during the quarter. A total of 189 Piccolo and
VetScan Systems were placed world wide, of which 114 were VetScan Systems sold
in the United Sates and another 31 were VetScan Systems sold outside of the
United States. Through December 31, 1996, the Company has placed a total of
approximately 577 VetScan Systems with veterinarians in the United States and
shipped another 134 VetScans to its international distributors. The Company
continued to place VetScan units with Veterinary Centers of America ("VCA")
bringing the total installation to 79 units. The reagent disc business also
grew during the third fiscal quarter, mostly attributable to the larger
installed base of VetScan Systems, and to a lesser extent due to the higher
consumption rate of institutional users such as the veterinary hospitals in the
VCA network.
In addition to VetScan Systems, through December 31, 1996, the Company has sold
181 Piccolo Systems, mostly to its international distributors. During fiscal
1997, the Company has sold approximately 110 Piccolo Systems (under the name
Lunaspin) to its Japanese distributor. In addition, the Company sold 50
VetScan Systems to its Japanese distributor to place in the animal health
market in Japan, under the name "ABAXIS-EA". Although the Company's Piccolo
Systems received regulatory approval from the Japanese Ministry of Health and
Welfare in August 1996, the general practice in Japan is to place medical
devices with clinicians for private evaluations and sometimes these periods are
quite extensive before final sales can be concluded. The Company's future sales
to Japan will largely depend on the results of the evaluations and the
distributor's ability to close sales with end-users. There can be no assurance
that the results of such evaluations will result in sales or when any sales in
Japan will occur.
Outside of Japan, the Company is currently focused in the European veterinary
market. The Company has completed its marketing plan for the German market and
in December 1996, entered into an agreement with a German distributor. The
Company shipped 15 VetScan Systems to its German distributor in December upon
signing of the distribution agreement. The Company is engaging in similar
activities in England and France, studying the veterinary markets to prepare a
targeted plan and align with suitable distributors. The Company's approach to
developing new markets is generally to evaluate the specifically identified
market's potential based on the products the Company has or intends to offer.
The Company believes that thorough market studies prior to entering into a
market will be a key factor in its ability to succeed in such market. In
addition to signing new distributors, the Company will be reevaluating its
current international agreements to better define each market's potential and
each distributorship's ability to carry out the Company's marketing strategy.
There can be no assurance that the Company will continue all of its current
distribution arrangements, or be able to sign on any additional
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distributors, or that if it does sign additional distributors, that the
distributors can successfully place Piccolo or VetScan Systems into the
marketplace.
Within the US, the Company is currently focused on the VetScan market and is
devoting only limited resources to the Piccolo market. The Company believes
that its current Piccolo menu of 16 reagent test methods are suitable for
certain niche market segments but not broad enough to fulfill the diagnostic
needs of the general physician's office practice. The Company has identified
ten additional test methods, particularly four electrolyte methods, that are
likely to enhance its ability to penetrate the US human market. The Company
has allocated resources to immediately begin development of the four
electrolyte test methods. The Company estimates that development of these four
test methods as a group will take approximately 18 months to complete. The
Company is also engaging in discussions of joint development efforts with its
Japanese distributor, Daiichi Pure Chemical, the second largest reagent
supplier in Japan. There can be no assurance that the Company will be able to
develop these new test methods, obtain development assistance from its Japanese
partner, or if the test methods were developed, be able to place its Piccolo
Systems.
In searching for niche markets within the US for its Piccolo Systems, the
Company has identified the US military as a potential customer for the
Company's current products. The Company has been involved in an extensive
product evaluation with the US Navy. The Navy has issued evaluation reports
and accepted the Company as an approved vendor. The Company sold approximately
five Piccolo Systems to the US Navy. In early January 1997, the Company
completed a sole source solicitation for bid from the US Naval Logistic Command
which could potentially award the Company with a contract to purchase up to
several hundred Piccolo Systems over several years. There can be no assurance
that the Company will be awarded this contract from the US Navy, or that the
United States military will purchase additional products from the company.
Market acceptance of the Company's Piccolo products in the US will depend in
part on all current and future regulations affecting the conditions under which
a health care practitioner may conduct medical tests using the Company's
products. One of the regulations that affects the Piccolo Systems is the
Clinical Laboratory Improvement Amendments of 1988 ("CLIA"). Under the CLIA
regulations, the Company's Piccolo Systems are currently classified as
"moderately complex", which requires that any location using the Piccolo
products be certified as a laboratory. Even though the Company believes that
obtaining a CLIA license does not require significant resources for clinicians,
it can be a barrier to the Company's ability to place Piccolo Systems. In July
1996, the Company filed an application to the Center for Disease Control
("CDC") for its Piccolo Systems to be waived from the CLIA regulations. The
Company has a meeting scheduled with the CDC in February 1997 to review its
application. Although the review process for CLIA application could
potentially be very lengthy and costly, the Company believes that its Piccolo
products fulfill all requirements for obtaining a waived status. There can be
no assurance that the Company will be able to obtain a waived status for its
Piccolo Systems, or that if such waived status was granted, it will enhance the
Company's ability to place Piccolo Systems.
Third party payer reimbursement policies may indirectly affect the pricing or
relative attractiveness of the Company's products by regulating the maximum
amount of reimbursement for blood testing services. The Health Care Financing
Administration ("HCFA"), the government agency governing the reimbursement for
Medicare patients, has recently recommended changes to the current
reimbursement methodology. HCFA has proposed to the American Medical
Association ("AMA") that Medicare reimbursement be paid on a panel basis
instead of the current fee-per-test basis. HCFA has also recommended specific
test methods to be included in these pre-determined panels, typically targeting
diagnostic needs of specific organ function. The actual reimbursement rate and
effective date of the new panels has not been determined by HCFA and AMA. The
Company believes that this change, when effective, could allow the Company to
compete more effectively against single test products as the Company's test
methods are performed in a panel rather than a single test and the Company's
panels are typically organ specific. Out of the test methods the Company
currently offers, the Company's Hepatic Function panel matches the liver panel
recommended by HCFA. Development of the four electrolyte test methods
mentioned above will allow the Company to offer several of the currently
proposed panels. However, there can be no assurance that the new HCFA
proposals will become the governing rules for Medicare reimbursements or that
the Company will have the ability to develop tests that are consistent with
HCFA regulations.
Finally, the Company's success will depend on its ability to introduce
point-of-care systems and compete with laboratories removed from the
patient-care setting and with other companies that offer near-patient testing
for the alternate-site market. The
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imposition of more stringent government regulations or failure to achieve
success in these areas could have a materially adverse effect on the results of
operations and financial condition of the Company.
Sales for any future periods are not predictable with a significant degree of
certainty. The Company generally operates with limited order backlog because
its products typically are shipped shortly after orders are received. As a
result, product sales in any quarter are generally dependent on orders booked
and shipped in that quarter. The Company's expense levels, which are to a
large extent fixed, are based in part on its expectations as to future
revenues. Accordingly the Company may be unable to adjust spending in a timely
manner to compensate for any unexpected revenue shortfall. As a result, any
such shortfall would have an immediate materially adverse impact on operating
results and financial conditions. 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; 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 a supply
agreement with Becton Dickinson Immunocytometry Systems to provide products for
flow and image cytometry using the Company's Orbos technology. The Company
also has a licensing agreement with Pharmacia Biotech, Inc., granting Pharmacia
exclusive use of the Company's Orbos technology in the manufacture and sale of
reagents for molecular biology research. Revenues from these contracts are
primarily dependent upon sales of products using the Orbos technology by these
other parties, which is out of the control of the Company and therefore, may
vary significantly from quarter to quarter. The Company is currently working
with another company to determine potential suitability of the Orbos technology
to this company's product. As resources permit, the Company will pursue other
development, licensing or manufacturing agreement opportunities for its Orbos
technology with other companies. There can be no assurances, however, that
other applications will be identified or that additional agreements with the
Company will result.
RESULTS OF OPERATIONS
REVENUE
During the three-month period ended December 31, 1996, the Company reported
total revenues of $1,891,000 ($1,273,000 from instrument sales, $540,000 from
reagent disc sales, and $78,000 in Orbos contract and other product sales), a
$999,000 or 112% increase as compared to net revenue of $892,000 ($546,000 from
instrument sales, $170,000 from reagent disc sales, and $176,000 in Orbos
contract and other product sales) for the same period in fiscal 1996. The
increase in revenue in the quarter ended December 31, 1996, compared to the
quarter ended December 31, 1995, was due to new system sales of VetScan units
in the United States, new system sales of both Piccolo and VetScan units in the
international market, and new and repeat reagent disc sales in the domestic and
international markets.
For the nine months ended December 31, 1996, total revenue was $4,915,000
($3,119,000 from instrument sales, $1,390,000 from reagent disc sales, and
$406,000 in Orbos contract and other product sales), a $2,984,000 or 155%
increase as compared to net revenue of $1,931,000 ($1,227,000 from instrument
sales, $453,000 from reagent disc sales, and $251,000 in Orbos contract and
other product sales) for the same nine-month period in fiscal 1996. The
increase in revenue for the nine-month
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period ended December 31, 1996, compared to the nine-month period ended
December 31, 1995 was due to new system sales of VetScan units in the United
States, new system sales of both Piccolo and VetScan units in the international
market, new and repeat reagent disc sales in the domestic and international
market and an increase in revenue from Orbos contract and other product sales.
COST OF PRODUCT SALES
Cost of product sales includes the cost of all manufacturing activities for
the Company's products. Cost of product sales during the quarter ended
December 31, 1996, was $1,860,000, or 98% of total revenues, as compared to
$1,334,000, or 150% of total revenues for the quarter ended December 31, 1995.
For the nine-month period ended December 31, 1996, cost of sales was $5,471,000
or 111% of total revenues as compared to $3,514,000 or 182% for the same period
in fiscal 1996. The increase in cost of product sales in the quarter and
nine-month period ended December 31, 1996, as compared to the same quarter and
nine-month period in fiscal 1996, was primarily a function of the increase in
sales volume, partially offset by higher efficiency resulting from better
standardized manufacturing processes.
RESEARCH AND DEVELOPMENT
Research and development expense during the third quarter of fiscal 1997 was
$327,000, or 17% of total revenues. Third quarter fiscal 1997 expenses
decreased $75,000 or 19% from research and development expense of $402,000 or
45% of total revenues in the same period in fiscal 1996. The decrease during
the third quarter of fiscal 1997 from the third quarter of fiscal 1996 research
and development expenses is mainly the result of reduced development activities
and transferring research and development staff to support product
manufacturing.
For the first nine months of fiscal 1997 research and development expense was
$1,036,000, or 21% of total revenues. Fiscal 1997 through December 31, 1996,
research and development expense increased $71,000 or 7% from research and
development expenses of $965,000 or 50% of total revenues in the first nine
months of fiscal 1996. The increase in expenses during the nine-month period
ended December 31, 1996, as compared to the nine-month period ended December
31, 1995, is primarily due to increased research and development activity in
clinical trials for both human and veterinary markets.
The Company expects research and development expense to increase as the Company
plans to undertake development of new test methods to expand its test menus as
well as other development projects. There can be no assurance, however, that
such research and development projects will be undertaken or that research and
development expenses will not continue to fluctuate as a percentage of total
revenues.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses totaled $1,088,000 or 58% of
total revenues for the three-month period ended December 31, 1996. This is a
$229,000 or 27% increase from selling, general and administrative expenses of
$859,000 or 96% of total revenues for the three-month period ending December
31, 1995. The quarter to quarter increase was primarily due to costs incurred
in building administrative, sales and marketing infrastructures to support
increased sales and marketing activities both in the United States and
internationally.
Selling, general and administrative expenses for the first nine months of
fiscal 1997 were $3,682,000 or 75% of total revenues. This is a $1,265,000 or
52% increase from selling, general and administrative expenses of $2,417,000 or
125% of total revenues for the first nine months of fiscal 1996. The increase
in the nine-month period ending December 31, 1996, compared to the nine-month
period ending December 31, 1995, related primarily to launching the Piccolo
products worldwide and increases in administrative, sales and marketing
staffing. While the majority of the costs related to the Piccolo launch
activities are non-recurring, the Company expects marketing and sales
expenditures to increase in absolute dollars in future periods as the Company
expands marketing and distribution activities worldwide for both the VetScan
and Piccolo products.
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NET INTEREST INCOME
Net interest income totaled $112,000 or 6% of total revenues for the quarter
ended December 31, 1996, compared to $147,000 or 16% of total revenues in the
comparable quarter in fiscal 1996. The decrease in interest income for the
three-month period ending December 31, 1996, as compared to the three-month
period ended December 31, 1995 was primarily due to a lower rate of return on
investments. Net interest income totaled $254,000 or 5% of total revenues for
the first nine-months of fiscal 1997 and $429,000 or 22% of total revenues for
the same period in fiscal 1996. The decrease in interest income for the
nine-month period ending December 31, 1996, as compared to the nine-month
period ended December 31, 1995 was primarily the result of decreased investment
levels and a lower rate of return on investments.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company had approximately $2,343,000 in cash and
cash equivalents and $4,934,000 in short-term investments, for total cash and
investment resources of $7,277,000. The Company currently has no credit
facilities. The Company expects to incur substantial additional costs to
support its future operations, including commercialization of its Piccolo
products; development of a sales and marketing organization to support sales
and marketing activities for the Piccolo and VetScan products; acquisition of
capital equipment for the Company's manufacturing facilities, which includes
the ongoing development and implementation of an automated manufacturing line
to provide capacity for commercial volumes; costs related to continuing
development of its current and future products; additional pre-clinical testing
and clinical trials for its current and future products; and expansion of
administrative support activities. 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 currently
believes the cost of this new production line will be approximately $1,500,000
of which approximately $815,000 was paid through December 31, 1996. The
Company expects upon acceptance of the equipment that the balance will paid
during the next six months. Additional manufacturing equipment will also need
to be added during the balance of fiscal year 1997 and fiscal year 1998 to
provide sufficient production capabilities. Additionally, inventories and
receivables related to the commercialization of the VetScan and Piccolo systems
could increase significantly in future periods, which would require significant
capital resources.
Net cash used in operating activities during the nine months ended December 31,
1996, was $5,014,000, compared to $3,968,000 for the same period ended December
31, 1995. The increase in net cash used in operating activities was primarily
due to the increase in net loss, the increase in trade and other receivables
due to increased revenue, and an increase in inventory in anticipation of
expanded product demand. Net cash provided by investing activities during the
nine months ended December 31, 1996, was $945,000, compared to $438,000 of net
cash used in investing activities during the nine months ended December 31,
1995. The change from net cash used in the nine months ended December 31,
1995, to net cash provided in the nine months ended December 31, 1996, was
primarily the result of an increase in maturities and sales of short-term
investments, offset in part by purchases of short-term investments and
purchases of property and equipment. Net cash provided by financing activities
for the nine month period ended December 31, 1996, was $4,821,000, compared to
$6,337,000 for the same period in fiscal 1996. Net cash provided by financing
activities for the nine month period ended 1996 and 1995 was primarily the
result of offshore private placements of Preferred Stock and issuance of Common
Stock.
The Company anticipates that its existing capital resources and anticipated
revenue from the sales of its products will be adequate to satisfy its
currently planned operating and financial requirements through fiscal 1997.
However, the Company is uncertain that its existing capital resources and
anticipated revenue will be adequate to satisfy its financial requirements for
the next 12 months. Accordingly, the Company may need to raise additional
funds from public or private financing if it is to sustain its currently
planned level of operating expenses during the next 12 months, or in the event
that the Company is unsuccessful in raising sufficient equity funding, the
Company will have to significantly reduce its operating expenses, which could
have a material adverse impact on the Company's ability to develop, manufacture
and market products, and hence the Company's results of operations. There can
be no assurance that any financing will be available, or if available, be
available at terms acceptable to the Company. Furthermore, any additional
equity financing may be dilutive to shareholders and debt financing may involve
restrictive covenants.
11
<PAGE> 12
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Idexx Laboratories v. Abaxis, Inc., et al.
United States District Court (S.D. CA)
Case No. 96-1113 K (CM)
Plaintiff Idexx Laboratories filed a complaint on June 20, 1996, alleging
federal and state unfair competition and trade libel arising from the
distribution of a publication concerning Idexx testing equipment. The
complaint sought injunctive relief and unspecified compensatory and punitive
damages. The parties stipulated to a preliminary injunction. The Company
answered the complaint on or about July 10, 1996, denying the material
allegations and raising several affirmative defenses. The Company announced on
December 20, 1996, that it reached an agreement with Idexx Laboratories, Inc.
on the settlement of the lawsuit brought by Idexx against Abaxis. The Company
agreed that there will be no further circulation of a publication concerning
Idexx testing equipment. Other terms of the settlement are confidential;
however, there is no material adverse financial impact on either party. On
January 10, 1997, The United States District Court ordered the case dismissed
with prejudice. The matter is now fully concluded.
ITEM 2. CHANGES IN SECURITIES
On January 31, 1997, the Company issued 32,000 shares of Common Stock to a
consultant in payment for investor relations consulting services provided to
the Company during 1996. These shares were valued at $3.875 per share, the
closing market price for the Company's Common Stock as reported by Nasdaq on
January 10, 1997. This issuance was made pursuant to Section 4(2) under the
Securities Act of 1933.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's Annual Meeting was held on November 26, 1996.
(b) 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 7,107,963 83,982
Richard Bastiani, Ph.D. 7,106,463 85,482
Brenton G. A. Hanlon 7,108,963 82,982
Prithipal Singh, Ph.D. 7,086,963 104,982
Gary H. Stroy 7,106,963 84,982
Ernest S. Tucker, III, 7,089,963 101,982
M.D.
</TABLE>
12
<PAGE> 13
(c) In addition to the election of directors, the following matters were voted
upon at the meeting and received the number of affirmative votes, negative
votes, abstentions and broker non-votes indicated:
(i) Amendment of the Company's Articles of Incorporation to increase
the number of shares of Common Stock authorized for issuance to 35,000,000.
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Vote
--- ------- ------- ---------------
<S> <C> <C> <C>
6,422,295 473,057 39,250 257,343
</TABLE>
(ii) Ratify the appointment of Deloitte & Touche LLP as the Company's
independent auditors for fiscal year ending March 31, 1997.
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Vote
--- ------- ------- ---------------
<S> <C> <C> <C>
7,139,114 27,401 25,430 --
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits included herein (numbered in accordance with Item 601 of
Regulation S-K)
Exhibit Number Description Sequential
Page Number
3.3 Amendments to Articles of Incorporation 15
27 Financial Data Schedule 25
(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.
February 14, 1997 by: /s/Clinton H. Severson
- -------------------------------- --------------------------------
Date Clinton H. Severson
President and Chief Executive Officer
(Principal Executive Officer)
February 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
EXHIBIT INDEX
EX-3.3 Certificate of Determination of Preference of Series A
Preferred Stock of Abaxis, Inc.
EX-27.1 Financial Data Schedule
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF DETERMINATION
OF PREFERENCES OF
SERIES A PREFERRED STOCK OF
ABAXIS, INC.
A California corporation
Clinton H. Severson and Ting W. Lu certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of said Corporation.
2. Pursuant to authority given by said Corporation's Articles of
Incorporation, the Board of Directors of said Corporation has duly adopted the
following recitals and resolutions:
WHEREAS, the Articles of Incorporation of the Corporation provide for
a class of its authorized shares known as Preferred Stock, comprising Five
Million (5,000,000) shares issuable from time to time in one or more series;
WHEREAS, the Board of Directors of this Corporation is authorized to
fix the number of shares of any series of Preferred Stock; to determine the
designation of any such series, and to determine or alter the rights,
preferences, privileges, and restrictions granted to or imposed upon any wholly
unissued series of Preferred Stock including but not limited to the dividend
rights, dividend rate and conversion rights, and to fix, alter or reduce the
number of shares constituting any such series (but not below the number of
shares then outstanding); and
WHEREAS, it is the desire of the Board of Directors of the
Corporation, pursuant to its authority under the Articles of Incorporation, to
fix the rights, preferences, privileges, restrictions and other matters
relating to a series of Preferred Stock to be designated Series A Preferred
Stock;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does
hereby provide for the issue of a new series of Preferred Stock of the
Corporation and does hereby fix the rights, preferences, privileges,
restrictions and other matters relating to such series of Preferred Stock as
follows:
1. Designation. There shall be a series of Preferred Stock,
which shall comprise Five Hundred Thousand (500,000) shares and shall be
designated "Series A Preferred Stock." As used hereafter, the terms "Preferred
Stock" and "Preferred Shares" without designation shall refer to shares of
Series A Preferred Stock.
1
<PAGE> 2
2. Dividends. The holder of record of a share of Series A
Preferred Stock on the 90th day after the first date the Corporation issues
Series A Preferred Stock (the date of issuance hereinafter referred to as the
"Issuance Date") shall be entitled to receive, out of any assets at the time
legally available therefor, a dividend of $0.15 per share of Series A Preferred
Stock. The holder of record of a share of Series A Preferred Stock on the
180th day after the Issuance Date shall be entitled to receive, out of any
assets at the time legally available therefor, a dividend of $0.15 per share of
Series A Preferred Stock. The holder of record of a share of Series A
Preferred Stock on the 270th day after the Issuance Date shall be entitled to
receive, out of any assets at the time legally available therefor, a dividend
of $0.15 per share of Series A Preferred Stock. The right to the dividends on
the Series A Preferred Stock described in the preceding three sentences shall
be cumulative. The Corporation will pay such dividends either in cash or by
issuing shares of the Corporation's Common Stock ("Common Stock") having the
Market Value (as defined below) equal to such dividends, at the option of the
Board of Directors of the Corporation. If the Corporation elects to pay such
dividends by issuing Common Stock, the "Market Value" of such Common Stock will
be the average of the closing sale prices of the Corporation's Common Stock as
reported on the Nasdaq National Market for the five (5) trading days prior to
the record date for such dividend. A holder of Series A Preferred Stock who
would otherwise be entitled to receive a fraction of a share of Common Stock
under this Section 2 (taking into account all shares of Series A Preferred
Stock held by such holder) shall receive, in lieu thereof, an amount equal to
the product of such fractional interest multiplied by the Market Value. No
dividends or distributions shall be made with respect to the Common Stock
unless at the same time an equivalent dividend with respect to the Series A
Preferred Stock has been paid or declared and set apart for payment.
3. Conversion Rights. The holders of Series A Preferred Stock
shall have conversion rights as follows:
a. Right to Convert. Each share of Series A Preferred
shall be convertible, at the option of the holder thereof, at any time after
the 45th day after the Issuance Date, at the office of the Corporation or any
transfer agent for the Series A Preferred, into Common Stock as more fully
described below. The number of shares of fully paid and nonassessable Common
Stock into which each share of Series A Preferred may be converted shall be
determined by dividing Ten Dollars ($10.00) by the Series A Conversion Price
(as hereinafter defined) in effect at the time of conversion. The Series A
Conversion Price shall be the lesser of (i) the Purchase Date Price (as defined
below) and (ii):
A. In the event the holder converts between
forty-six (46) days and ninety (90) days after the Issuance Date, eighty
percent (80%) of the Market Price (as defined below);
B. In the event the holder converts between
ninety one (91)
2
<PAGE> 3
days and one hundred twenty (120) days after the Issuance Date, seventy-eight
percent (78%) of the Market Price;
C. In the event the holder converts between
one hundred twenty one (121) days and one hundred fifty (150) days after the
Issuance Date, seventy-six percent (76%) of the Market Price;
D. In the event the holder converts between
one hundred fifty one (151) days and one hundred eighty (180) days after the
Issuance Date, seventy-four percent (74%) of the Market Price;
E. In the event the holder converts between
one hundred eighty one (181) days and two hundred ten (210) days after the
Issuance Date, seventy-three percent (73%) of the Market Price;
F. In the event the holder converts between
two hundred eleven (211) days and two hundred forty (240) days after the
Issuance Date, seventy-two percent (72%) of the Market Price; and
G. In the event the holder converts anytime
after two hundred forty one (241) days after the Issuance Date, seventy-one
percent (71%) of the Market Price.
For purposes of this Section 3, "Purchase Date Price" shall be
the closing sales price of the Common Stock as reported on the Nasdaq National
Market on September 9, 1996. For purposes of this Section 3, "Market Price"
shall be the average of the closing bid prices of the Common Stock as reported
on the Nasdaq National Market for the five (5) trading days prior to the date
the Corporation receives written notice by telecopy from the holder of Series A
Preferred Stock that such holder elects to convert Series A Preferred Stock, as
adjusted to reflect any stock dividends on, or stock splits or stock
combinations of, the Common Stock since the Issuance Date.
b. Automatic Conversion. Each share of Series A
Preferred Stock shall be converted into Common Stock automatically upon the
earlier to occur of (i) the time the consent of at least a majority of the
outstanding Series A Preferred Stock to such conversion is obtained or (ii) on
the second anniversary of the Issuance Date.
c. No Fractional Shares. No fractional shares of common
stock or script shall be issued upon conversion of shares of Series A Preferred
Stock. If more than one share of Series A Preferred Stock shall be surrendered
for conversion at any one time by the same holder, the number of full shares of
common stock issuable upon conversion thereof shall be computed on the basis of
the aggregate number of shares of Series A Preferred Stock so surrendered.
Instead of any fractional shares of common stock which would otherwise be
issuable upon conversion of any shares of Series A Preferred Stock,
3
<PAGE> 4
the Corporation shall pay a cash adjustment in respect of such fractional
interest equal to the product of such fractional interest multiplied by the
Market Price relevant to such conversion.
d. Mechanics of Conversion. Before any holder of
Preferred Stock shall be entitled to convert the same into Common Stock, such
holder shall surrender the certificate or certificates therefor, duly endorsed
in blank or accompanied by proper instruments of transfer, at the principal
office of the Corporation or of any transfer agent for the Preferred Stock, and
shall give written notice to the Corporation at such office that such holder
elects to convert the same and shall state in writing therein the name or names
in which such holder wishes the certificate or certificates for Common Stock to
be issued. As soon as practicable thereafter, the Corporation shall issue and
deliver at such office to such holder's nominee or nominees, certificates for
the number of whole shares of Common Stock to which such holder shall be
entitled. Such conversion shall be deemed to have been made as of the date of
such surrender of the Preferred Stock to be converted, and the person or
persons entitled to receive the Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such
Common Stock on said date.
e. Capital Adjustments. In case the Corporation shall
at any time (A) subdivide the outstanding Common Stock, or (B) issue a stock
dividend on its outstanding Common Stock, the number of shares of Common Stock
issuable upon conversion of the Preferred Stock immediately prior to such
subdivision or the issuance of such stock dividend shall be proportionately
increased by the same ratio as the subdivision or dividend (with appropriate
adjustments in the Series A Conversion Price). In case the Corporation shall
at any time combine its outstanding Common Stock, the number of shares of
Common Stock issuable upon conversion of the Preferred Stock immediately prior
to such combination shall be proportionately decreased by the same ratio as the
combination (with appropriate adjustments in the Series A Conversion Price).
All such adjustments described herein shall be effective at the close of
business on the date of such subdivision, stock dividend or combination, as the
case may be.
f. Reorganization. In case of any capital
reorganization (other than in connection with a merger or other reorganization
in which the Corporation is not the continuing or surviving entity) or any
reclassification of the Common Stock of the Corporation, the Preferred Stock
shall thereafter be convertible into that number of shares of stock or other
securities or property to which a holder of the number of shares of Common
Stock of the Corporation deliverable upon conversion of the shares of Preferred
Stock immediately prior to such reorganization or recapitalization would have
been entitled upon such reorganization or reclassification. In any such case,
appropriate adjustment (as determined by the Board of Directors) shall be made
in the application of the provisions herein set forth with respect to the
rights and interests thereafter of the holders of Preferred Stock, such that
the provisions set forth herein shall thereafter be applicable, as nearly as
reasonably may be, in relation to any share of stock or other
4
<PAGE> 5
property thereafter deliverable upon the conversion.
h. Reservation of Stock. The Corporation shall at all
times reserve and keep available, out of its authorized but unissued Common
Stock, solely for the purpose of effecting the conversion of the Preferred
Stock, the full number of shares of Common Stock deliverable upon the
conversion of all Preferred Stock from time to time outstanding. The
Corporation shall from time to time (subject to obtaining necessary director
and shareholder action), in accordance with the laws of the State of
California, increase the authorized amount of its Common Stock if at any time
the authorized number of shares of Common Stock remaining unissued shall not be
sufficient to permit the conversion of all of the shares of Preferred Stock at
the time outstanding.
4. Voting Rights. Except as otherwise required by law, each
holder of shares of Series A Preferred Stock shall be entitled to the number of
votes for the Series A Preferred Stock held by him as shall be equal to the
whole number of shares of Common Stock into which all of such shares of Series
A Preferred Stock could be converted immediately after the close of business on
the record date for the vote or consent of shareholders and shall have voting
rights and powers equal to the voting rights and powers of the Common Stock.
The holder of each share of Series A Preferred Stock shall be entitled to
notice of any shareholders' meeting in accordance with the Bylaws of the
Corporation and shall vote with holders of the Common Stock upon any matter
submitted to a vote of shareholders, except those matters required by law to be
submitted to a class vote.
RESOLVED FURTHER, that the President or any Vice President, and the
Secretary or any Assistant Secretary, of the Corporation be, and hereby are,
authorized and directed to execute, acknowledge, file and record a Certificate
of Determination of preferences in accordance with the foregoing resolutions
and the provisions of California law.
3. The authorized number of shares of Series A Preferred Stock is
500,000, none of which have been issued.
THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
5
<PAGE> 6
The undersigned declare under penalty of perjury under the laws of the
State of California that the matters set forth in the foregoing Certificate are
true and correct of their own knowledge. Executed at Sunnyvale, California on
September 24, 1996.
_______________________________
Clinton H. Severson
President
_______________________________
Ting W. Lu
Secretary
6
<PAGE> 7
ARTICLE 2
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF DETERMINATION
OF PREFERENCES OF
SERIES A PREFERRED STOCK OF
ABAXIS, INC.
A California corporation
Clinton H. Severson and Ting W. Lu certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of said Corporation.
2. The Corporation filed with the Secretary of State of the State
of California on September 6, 1996 a Certificate of Determination of Series A
Preferred Stock of Abaxis, Inc. (the "Certificate of Determination").
3. The Certificate of Determination incorrectly stated the
resolution adopted by the Board of Directors of the Corporation. Specifically,
the last sentence in subsection 3(a) ("Conversion Rights") incorrectly stated
that "For purposes of this Section 3, "Market Price" shall be the average of
the closing sales prices of the Common Stock as reported on the Nasdaq National
Market for the five (5) trading days prior to the date of conversion of the
Series A Preferred Stock, as adjusted to reflect any stock dividends on, or
stock splits or stock combinations of, the Common Stock since the Issuance
Date." In fact, this sentence read as follows in the resolution adopted by the
Board of Directors of the Corporation: "For purposes of this Section 3, "Market
Price" shall be the average of the closing bid prices of the Common Stock as
reported on the Nasdaq National Market for the five (5) trading days prior to
the date of conversion of the Series A Preferred Stock, as adjusted to reflect
any stock dividends on, or stock splits or stock combinations of, the Common
Stock since the Issuance Date."
4. Accordingly, subsection 3(a) of the Certificate of
Determination is corrected to read in full as follows:
a. Right to Convert. Each share of Series A Preferred
shall be convertible, at the option of the holder thereof, at any time after
the 45th day after the Issuance Date, at the office of the Corporation or any
transfer agent for the Series A Preferred, into Common Stock as more fully
described below. The number of shares of fully paid and nonassessable Common
Stock into which each share of Series A Preferred may be converted shall be
determined by dividing Ten Dollars ($10.00) by the Series A Conversion Price
(as hereinafter defined) in effect at the time of conversion. The Series A
Conversion Price shall be the lesser of (i) the Purchase Date Price (as defined
below) and (ii):
A. In the event the holder converts between forty-six (46) days
<PAGE> 8
and ninety (90) days after the Issuance Date, eighty percent (80%) of the
Market Price (as defined below);
B. In the event the holder converts between
ninety one (91) days and one hundred twenty (120) days after the Issuance Date,
seventy-eight percent (78%) of the Market Price;
C. In the event the holder converts between
one hundred twenty one (121) days and one hundred fifty (150) days after the
Issuance Date, seventy-six percent (76%) of the Market Price;
D. In the event the holder converts between
one hundred fifty one (151) days and one hundred eighty (180) days after the
Issuance Date, seventy-four percent (74%) of the Market Price;
E. In the event the holder converts between
one hundred eighty one (181) days and two hundred ten (210) days after the
Issuance Date, seventy-three percent (73%) of the Market Price;
F. In the event the holder converts between
two hundred eleven (211) days and two hundred forty (240) days after the
Issuance Date, seventy-two percent (72%) of the Market Price; and
G. In the event the holder converts anytime
after two hundred forty one (241) days after the Issuance Date, seventy-one
percent (71%) of the Market Price.
For purposes of this Section 3, "Purchase Date Price" shall be
the closing sales price of the Common Stock as reported on the Nasdaq National
Market on September 9, 1996. For purposes of this Section 3, "Market Price"
shall be the average of the closing bid prices of the Common Stock as reported
on the Nasdaq National Market for the five (5) trading days prior to the date
of conversion of the Series A Preferred Stock, as adjusted to reflect any stock
dividends on, or stock splits or stock combinations of, the Common Stock since
the Issuance Date.
5. This Certificate of Correction does not alter the wording of
any resolution or written consent which was in fact adopted by the Board of
Directors of the Corporation.
THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
2
<PAGE> 9
The undersigned declare under penalty of perjury under the laws of the
State of California that the matters set forth in the foregoing Certificate are
true and correct of their own knowledge. Executed at Sunnyvale, California on
September 24, 1996.
_______________________________
Clinton H. Severson
President
_______________________________
Ting W. Lu
Secretary
3
<PAGE> 10
ARTICLE 3
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
ABAXIS, INC.
Clinton H. Severson and Ting W. Lu certify that:
1. They are, respectively, the President and Secretary of Abaxis,
Inc., a California corporation.
2. Paragraph (a) of Article III of the Amended and Restated
Articles of Incorporation of this corporation is amended to read as follows:
(a) The Corporation is authorized to issue two classes of
stock to be designated, respectively, "Preferred Stock" and "Common
Stock." The total number of shares of Preferred Stock the Corporation
shall have authority to issue is 5,000,000 shares and the total number
of shares of Common Stock the Corporation shall have authority to
issue is 35,000,000 shares.
3. The foregoing amendment of this corporation's Amended and
Restated Articles of Incorporation ("Amendment") has been duly approved by the
board of directors.
4. The foregoing Amendment has been duly approved by the required
vote of shareholders in accordance with Sections 902 and 903 of the California
Corporations Code. The total number of outstanding shares of capital stock of
this corporation entitled to vote with respect to the foregoing Amendment was
9,878,553 shares, all of which are Common Stock. The number of shares voting
in favor of the Amendment equaled or exceeded the vote required. The
percentage voted required was more than fifty percent (50%).
<PAGE> 11
The undersigned declare under penalty of perjury under the laws of the
State of California that the matters set forth in this certificate are true and
correct of their own knowledge.
Executed at San Jose, California on December __, 1996.
_______________________________
Clinton H. Severson, President
_______________________________
Ting W. Lu, Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED STATEMENT OF OPERATIONS AND CONDENSED BALANCE SHEET AND IS QUALIFIED
IN ITS ENTIRETY TO SUCH COMPANY'S QUARTERLY REPORT ON FORM 10Q FOR THE QUARTER
ENDED SEPTEMBER 30, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,343,000
<SECURITIES> 4,934,000
<RECEIVABLES> 970,000
<ALLOWANCES> (55,000)
<INVENTORY> 2,498,000
<CURRENT-ASSETS> 10,826,000
<PP&E> 6,612,000
<DEPRECIATION> (4,078,000)
<TOTAL-ASSETS> 13,420,000
<CURRENT-LIABILITIES> 2,697,000
<BONDS> 0
0
0
<COMMON> 58,405,000
<OTHER-SE> (47,852,000)
<TOTAL-LIABILITY-AND-EQUITY> 13,420,000
<SALES> 1,842,000
<TOTAL-REVENUES> 1,891,000
<CGS> 1,860,000
<TOTAL-COSTS> 1,860,000
<OTHER-EXPENSES> 1,403,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,260,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,260,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,260,000)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
