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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended March 31, 1997 or
Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1937 For the transition period from ______ to ______
Commission file number 000-19720
ABAXIS, INC.
(Exact name of registrant as specified in its charter)
California 77-0213001
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(State of Incorporation) (I.R.S. Employer Identification No.)
1320 Chesapeake Terrace
Sunnyvale, CA 94089
(Address of principal executive offices)
Registrant's telephone number, including area code, is (408) 734-0200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, as of June 16, 1997 was approximately $33,648,540 based upon the
closing sale price reported for such date on the NASDAQ National Market. For
purposes of this disclosure, shares of Common Stock held by persons who hold
more than 5% of the outstanding shares of Common Stock and shares held by
officers and directors of the registrant have been excluded because such persons
may be deemed to be affiliates. This determination of affiliate status is not
necessarily conclusive for other purpose.
The number of shares of the registrant's Common Stock outstanding as of
June 16, 1997, was 11,854,153.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the Annual Meeting of Shareholders of
Abaxis, Inc. tentatively scheduled to be held on September 9, 1997 are
incorporated by reference in Part III of this Report on Form 10-K.
This report, including exhibits, consists of 72 pages. The exhibit index is
located on page 44.
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TABLE OF CONTENTS
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PART I.......................................................................................... 4
ITEM 1. BUSINESS..................................................................... 4
General...................................................................... 4
In-vitro Diagnostic Testing.................................................. 5
Abaxis Products.............................................................. 6
Customer Segments and Distribution........................................... 9
Competition.................................................................. 11
Manufacturing................................................................ 11
Government Regulation........................................................ 13
Intellectual Property........................................................ 15
Employees.................................................................... 16
ITEM 2. PROPERTIES................................................................... 16
ITEM 3. LEGAL PROCEEDINGS............................................................ 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS...................................................................... 17
PART II......................................................................................... 17
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER
MATTERS...................................................................... 17
ITEM 6. SELECTED FINANCIAL DATA...................................................... 18
ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS........................................................ 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA......................................................................... 24
Report of Deloitte & Touche LLP, Independent Auditors........................ 25
Report of Ernst & Young LLP, Independent Auditors............................ 26
Balance Sheets at March 31, 1997 and 1996.................................... 27
Statements of Operations for the Years Ended March 31, 1997, 1996 and
1995......................................................................... 28
Statements of Shareholders' Equity........................................... 29
Statements of Cash Flows for the Years Ended March 31, 1997, 1996 and
1995......................................................................... 30
Notes to Financial Statements................................................ 31
PART II......................................................................................... 39
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT................................................................... 39
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ITEM 11. EXECUTIVE COMPENSATION....................................................... 41
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................................... 41
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS................................................................. 41
PART IV......................................................................................... 41
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.......................................................................... 41
(a) 1. Financial Statements..................................................... 41
2. Financial Statements Schedules........................................... 41
3. Exhibits................................................................. 42
(b) Reports on Form 8-K.......................................................... 42
SIGNATURES...................................................................................... 43
EXHIBITS INDEX.................................................................................. 44
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PART I
This report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934 that reflect the Company's current
view with respect to future events and financial performance. The future events
described in these statements involve risks and uncertainties, among them risks
and uncertainties related to the market acceptance of its products and
continuing development of its products, including required FDA clearance and
other government approvals, risks associated with manufacturing and distributing
its products on a commercial scale, including complying with Federal and State
food and drug regulations, general market conditions and competition. When used
in this report, the words "anticipates", "believes", "expects", "intends",
"plans", "future", and similar expressions identify forward-looking statements.
Actual results could differ materially from those projected in the
forward-looking statements as a result of factors set forth throughout this
document.
ITEM 1. BUSINESS
GENERAL
Abaxis, Inc. (the "Company") 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, serum or plasma 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 analyzer.
The Company currently markets this system for veterinary use under the name
VetScan(R) and in the human medical market under the name Piccolo(R).
The Company offers its point-of-care blood analyzer system with a total of 18
test methods. The Company's repertoire of test methods includes albumin,
amylase, alkaline phosphates (ALP), alanine aminotransferase (ALT), asparatate
aminotransferase (AST), direct bilirubin, calcium, creatinine, creatine kinase
(CK), glucose, glutamyl transferase (GGT), potassium, total bilirubin, total
cholesterol, urea nitrogen (BUN), total protein, uric acid, and thyroxine (T4).
Thirteen of these tests are marketed for both human and veterinary markets,
while two tests, uric acid and direct bilirubin, are marketed only in the human
market, and three tests, CK, T4 and potassium, are marketed exclusively in the
veterinary market. The Company markets its reagent products by configuring these
18 test methods in panels that are designed to meet a variety of clinical
diagnostic needs. The Company currently offers seven multi-test reagent disc
products in the human medical market and six reagent discs in the veterinary
market.
During fiscal 1997, the Company continued to be successful in the US veterinary
market. By the end of the fiscal year, the Company had installed a total of 767
VetScan systems in the US, an 83% increase from its customer base of 409 VetScan
systems a year earlier. The addition of two national institutional customers,
Veterinary Centers of America ("VCA") and VetSmart, contributed significantly to
the Company's new system placements. Both customers purchased the Company's
VetScan systems to replace systems from the Company's competitors. The Company
began selling its VetScan systems to VCA hospitals in September 1996 and through
May 1997, a total of 88 systems were installed in a number of VCA's 155
free-standing animal hospitals. In March 1997, the Company signed an agreement
with VetSmart, to provide during the next twelve months, 105 VetScan analyzers
and 80,000 reagent discs for use in VetSmart pet hospitals. Through May 1997,
the Company has installed 91 VetScan systems in VetSmart pet hospitals located
in PetSmart stores nationwide.
The Company has targeted branches of the US military as potential customers for
the Company's Piccolo Point-of-Care Blood Analyzer based on the features of the
Piccolo systems and the special requirements of the military environment. The
Company has been involved in rigorous studies with the US Navy since 1995,
evaluating the
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feasibility and clinical utility of the Piccolo systems in the often rugged
environment encountered by the Navy. In March 1997, the Company announced that
it had been awarded a contract with a potential contract value of up to $7.5
million to provide the US Navy and the Marine Corps its Piccolo Point-of-Care
Blood Analyzer and reagent disc products. The contract calls for a maximum order
of approximately 345 Piccolo systems and 250,000 reagent discs. Through May
1997, the Company has shipped 72 Piccolo analyzers under this contract and
another 43 analyzers have been ordered, but not yet shipped. There can be no
assurance that the Company will receive orders for the maximum order quantity
under the conditions of the contract.
The Company believes that its current menu of 15 reagent test methods for its
Piccolo systems are suitable for certain niche human market segments, such as
the military, but not broad enough to fulfill the diagnostic needs of
physician's office practices. One of the key factors to the Company's future
success depends on the Company's ability to identify and develop new test
methods that will allow the Company to penetrate the human diagnostic market.
During fiscal 1997, the Company received 510(k) clearance from the Food and Drug
Administration ("FDA") for its GGT test. Completion of GGT allowed the Company
to release the Liver Panel Plus reagent disc product in October 1996, which is
currently being sold to the US Navy. The Company also completed development of
CK during fiscal 1997 which allowed the Company to release a new Equine Profile
reagent disc product into the veterinary market in June 1997. This method will
be entered into clinical trials during fiscal 1998 for inclusion in new reagent
disc products for the medical market. The Company has identified ten additional
test methods that are likely candidates to enhance its ability to penetrate the
human medical market, as well as broadening its market coverage in the
veterinary market. In January 1997, the Company allocated resources to begin the
feasibility phase to develop four electrolyte test methods: bicarbonate,
chloride, potassium, and sodium. The Company expects to conclude the feasibility
phase of these four tests by the end of summer 1997 and if the results are
favorable, proceed with developing these tests into marketable products for both
the human and the veterinary markets. The Company estimates that development of
these four test methods as a group will take approximately 18 months to complete
and should be available during the second half of fiscal 1999. In addition to
investing its own resources in expanding the test menu, the Company signed a
nonbinding letter of intent with Teramecs Co., Ltd. and Daiichi Pure Chemicals
Co., Ltd. in April 1997 to jointly develop additional test methods for use on
the Piccolo analyzer. The product development collaboration will focus on
commercializing targeted methods for lipids, proteins, and enzymes. The Company
expects to sign a definitive agreement in 1997. There can be no assurance that
the Company will be able to develop these new test methods, conclude a
definitive agreement with Teramecs and Daiichi Pure Chemicals, or if the test
methods were developed, be able to successfully market these methods.
Abaxis' focus for the coming year will continue to be in markets where the
Company can receive immediate economic rewards while at the same time developing
new products that will allow the Company to expand into other market segments in
the following year. Domestically, the Company expects to continue to focus on
growing its presence in the veterinary markets, fulfilling the Company's
contract with the Navy, and expanding its marketing effort to the other military
branches. Internationally, the Company will continue to focus its sales effort
in Europe and Japan as well as explore markets in new countries in Asia and
Latin America.
IN-VITRO DIAGNOSTIC TESTING
More than 20 billion blood tests are performed annually worldwide. These blood
tests are performed mostly in commercial laboratories, hospitals, urgent care
centers or physicians' offices. Sales of in-vitro diagnostic products for use by
these facilities to conduct blood testing total approximately $15 billion per
year. Although over 1,000 different tests are performed on blood, fewer than 50
different tests account for 70% of all blood testing. These tests are considered
the "gatekeepers" of medical care as physicians routinely use them to diagnose
and monitor the treatment of disease. A significant portion of the top 50 tests
prescribed by physicians fall in the clinical chemistry category. In-vitro
diagnostic products sold for the purpose of conducting clinical chemistry tests
represent approximately 32% of the total $15 billion market, while diagnostic
testing products for immunoassay represent another 33% of the market. With such
a large volume of testing, centralized
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laboratories using automated batch testing equipment have become the norm in
providing physicians the blood test information they need to make medical
treatment decisions.
The current worldwide focus on reducing medical care costs while maintaining
quality of care has encouraged the movement of blood testing out of the central
laboratories into the patient care setting. This trend began in the early 1980s
with the introduction of handheld devices that could perform one or two tests.
In the mid-1980s, small desktop instruments such as the Abbott VISION and the
Kodak DT60 (now marketed by Johnson and Johnson) were introduced for use in
doctors' offices and hospital satellite laboratories. While these products
allowed testing nearer the patient, they still required skilled technicians and
were limited to performing one test at a time. As a result, multiple tests could
not be performed economically and turnaround time was not significantly
enhanced.
In the United States, there are approximately 40,000 veterinarians who generate
annual billings of approximately $600 million in diagnostics. In the veterinary
market in the last two decades, blood testing has gained more importance to the
veterinarian to provide them invaluable diagnostic information. Veterinarians
started out by relying on the services of the centralized laboratories. The same
factors affecting the human diagnostic market also impact veterinary practices.
Some of the small desk top instruments such as the Dupont Analyst, Kodak DT6,
and Idexx VetTest have also been marketed to veterinarians to perform in-house
blood testing. While these products have made in-house testing possible for
veterinarians, they still require skilled technicians to properly use and
maintain these products. As a result, based on the Company's marketing research,
65% of the veterinarians are still not converted to in-house testing even though
the advantages of in-house testing are clearly evident.
Abaxis believes that a key element of the patient-centered, cost-constrained
health care model in the 1990s and beyond will be the availability of blood
analysis systems in the patient care setting that are easily and reliably
operated by caregivers and provide accurate, real time results for making
immediate clinical decisions. The optimal system uses whole blood, has built-in
calibration and quality control, provides quick turn around time and is portable
and low in cost. In addition, the optimal near-patient system should be easy to
use by people with no special training and capable of transmitting test results
instantly to a patient information management system.
Abaxis has developed a blood analysis system incorporating all of these criteria
into a 6.5 kilogram analyzer and a series of menu-specific, single-use reagent
discs. The system is essentially a compact portable laboratory that can be
easily carried to the patient. Each reagent disc is pre-configured with multiple
analytes and contains all the reagents necessary to perform a fixed menu of
tests. Taking the system to the patient care site instead of shipping the sample
to a central laboratory makes blood testing and analysis as easy as measuring
the patient's blood pressure, temperature, and heart rate. Additional advantages
of near-patient testing include eliminating errors from sample handling,
transcription, and transportation, which, studies have shown, may cause up to
85% of reporting errors.
ABAXIS PRODUCTS
Point-of-Care Blood Analyzer
The Company's Point-of-Care Blood Analyzer is a portable spectrophotometer,
which is a device that measures the absorption of light at various wavelengths.
A variable speed motor is used to spin the reagent disc for sample processing.
The chemical reactions in the disc's cuvettes are measured optically by
detecting the light absorbance of the solutions in the cuvettes at
pre-determined wavelengths. The absorbances are converted to clinically relevant
units by the measurement microprocessor. Results are stored by the interface
microprocessor, sent to a RS232 port and printed on result cards by an internal
thermal printer. The features of the analyzer include small required sample size
(100 (mu)L) of whole blood, serum or plasma, intelligent quality control system
that includes many self-test functions to ensure quality results, built-in
instrument self calibration, built-in
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printer, quick turn-around time of less than 15 minutes, minimal operational
training and ease of information transmission using a computer port on the
analyzer. The Company markets this analyzer for veterinary use under the name
VetScan and for the human medical market under the name Piccolo.
Reagent Discs
The reagent discs are designed to handle almost all technical steps of blood
chemistry testing automatically. The discs first separate a whole blood sample
into plasma and blood cells, meter the required quantity of plasma and diluent,
mix the plasma and diluent, and deliver the mixture to the reagent chambers,
called cuvettes, along the disc perimeter. The diluted plasma dissolves and
mixes with the reagent beads initiating the chemical reactions which are
monitored by the analyzer. The discs are 8-cm diameter, single-use devices
constructed from three ultrasonically welded injection molded plastic parts. The
base and the middle piece create the chambers, cuvettes, and passageways for
processing the whole blood and mixing plasma with diluent and reagents. The top
piece, referred to as the bar code ring, is imprinted with bar codes that
contain disc-specific calibration information. In the center of the disc is a
plastic diluent container sealed with polyethylene-laminated foil. Spherical
lyophilized reagent beads are placed in the cuvettes during disc manufacturing.
Upon completion of the analysis, used discs may be placed back into their foil
pouches to minimize human contact with blood prior to proper disposal.
To perform a panel of tests, the operator collects a blood sample via finger
puncture or venipuncture (the latter requiring a trained phlebotomist). The
operator then transfers the sample into the reagent disc. The operator places
the disc into the analyzer drawer, and enters patient, physician, and operator
identification numbers. The analyzer spins the disc to separate cells from
plasma, meters and mixes plasma and diluent, distributes diluted plasma to the
cuvettes, and monitors chemical reactions. In less than 15 minutes, results are
printed out on a result card with an adhesive backing for inclusion in the
patient's medical record. A computer port enables transmission of patient
results to external computers for data management.
The Company introduced its Piccolo system to the marketplace in November 1995
with two reagent discs, General Health Panel 8 and General Health Panel 11. In
November 1996, the Company introduced the Liver Panel Plus 9 disc, which was
enabled by the 510(k) clearance of the GGT test received from the FDA in
September 1996. Subsequently, the Company has released four other differently
configured reagent disc products to meet different physicians' needs, mostly in
the international markets. As of June 1997, a total of seven reagent disc
products are marketed worldwide for use with the Piccolo system.
The VetScan system was introduced in the US veterinary market in July 1994. The
Company initially launched the system with the Diagnostic Profile, a nine-test
reagent product. Since then, the Company has added new test methods and new
reagent disc products targeted to fulfill different veterinary diagnostic needs.
The newest addition to the VetScan family of reagent products was the Equine
Profile introduced to the market in June 1997. The Equine Profile was optimized
with test methods useful for providing indications of the health condition of
horses, particularly in the areas of hepatic dysfunction and muscle damage. As
of June 1997, the Company offers a total of six reagent disc products to its
veterinary customers.
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The following table exhibits all the reagent disc products marketed by the
Company today in both the human medical and veterinary markets worldwide.
[REAGENT DISC PRODUCTS TABLE]
Orbos Process
The dry reagents used in the Company's reagent discs are produced using a
proprietary technology called the Orbos Discrete Lypholization Process. This
process allows the production of an accurate, precise amount of active chemical
ingredient in the form of a soluble bead. The Orbos process involves
flash-freezing a drop of liquid reagent to form a solid bead and then
freeze-drying the bead to remove water. The Orbos beads are stable in dry form
and dissolve rapidly in aqueous solutions. 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 currently has a
licensing agreement with Pharmacia Biotech and a supply contract with Becton
Dickinson and Company for products produced using the Orbos process. Abaxis is
continuing to investigate potential applications with other companies. There can
be no assurance that the Company will be able to discover and/or develop any new
applications.
Future Products
Abaxis plans to develop a series of reagent discs with various tests for use
with the Piccolo and VetScan systems. In January 1997, the Company began
feasibility studies for four electrolyte tests: bicarbonate, chloride,
potassium, and sodium. The Company expects to conclude the feasibility phase of
these four tests by the end of summer 1997 and, if the results are favorable,
proceed with developing these tests into marketable products for both the human
and the veterinary markets. For the human market, the Company plans on
incorporating these tests into new panels consistent with the codes in the 1998
version of the new Current Procedures Terminology ("CPT") manual published by
the American Medical Association ("AMA"). These new CPT codes represent a set of
tests performed in standardized panels released in late March 1997, by the
Health Care Financing Administration ("HCFA"), the federal agency that
administers the Medicare and Medicaid programs. The American Medical Association
originally proposed eight standardized panels and the HCFA adopted four of these
panels, with some modifications, effective July 1, 1997. The four fixed-test
panels are: electrolytes, comprehensive metabolic, hepatic function, and basic
metabolic. Abaxis currently has all the tests for the hepatic function panel,
and will have all required tests for the additional three panels with the
development of the four electrolyte tests.
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Additional future test methods development for other disc products will be
targeted at specific applications based on fulfilling clinical needs. The
Company's current focus of test methods development is in clinical chemistry. In
addition to clinical chemistry, the Company has demonstrated its ability to
perform immunoassay tests in its blood analysis system by successfully
developing its Thyroxine (T4) test in the veterinary market. The Company
believes other homogeneous immunoassay methods can be performed in its discs to
measure a wide assortment of low concentration blood analytes, such as
therapeutic drugs and drugs of abuse.
There can be no assurance that Abaxis will be able to develop any of these
potential products. 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.
CUSTOMER SEGMENTS AND DISTRIBUTION
The Company has been marketing its VetScan Systems products for less than three
years and has only recently begun marketing its Piccolo System products.
Accordingly, the Company has very limited marketing and distribution experience.
Further, the Company has limited resources to devote to marketing and
distribution, including building a sales and marketing organization or
establishing an extensive distribution network. There can be no assurance that
the Company can build a successful sales and marketing organization, establish
effective distribution arrangements, that such arrangements will be successful
in marketing Abaxis products, or that the costs associated with marketing and
distribution will not be excessive. Although the Company has established some
international distributors, it has limited experience and resources in marketing
and distributing its products in international markets. There can be no
assurance that the Company will be successful in marketing the Piccolo System
and VetScan System products internationally.
Customer Segments
Abaxis sells its Point-of-Care Blood Analyzer products and reagent discs either
directly or through distributors depending on the needs of the customer segment.
In the delivery of human or veterinary care there are many kinds of providers
and a multitude of sites where Abaxis products could be used as an alternative
to relying on a central laboratory for blood test information. The Company
believes that its current Piccolo System menu of 15 reagent test methods are
suitable for certain niche market segments of the human medical market. These
niche market segments include military installations (ships, field hospitals and
mobile care units), urgent care and walk-in clinics (free-standing or
hospital-connected), home care providers (national, regional or local), nursing
homes, acute care hospitals, ambulance companies, dialysis centers, hospital
labs and draw stations. The Company believes that its veterinary reagent product
offerings meet a substantial part of the clinical diagnostic needs of
veterinarians. Potential customers for the VetScan System are primarily
companion animal hospitals, animal clinics with mixed practices of small
animals, birds and reptiles, equine practitioners with mobile facilities and
private toxicology laboratories and university and government toxicology
research laboratories.
Distribution Within the US
Abaxis sells its products directly to those customers who serve large human
patient populations with employed caregivers such as the military, hospitals,
and managed care organizations. As a result of health care reform in the US, the
Company expects a consolidation of providers with more centralized purchasing of
medical products based on the standardization of care and the use of patient
outcome studies to influence purchase decision. The Company plans to achieve its
direct sales objectives by employing highly skilled sales specialists and
eventually sales teams which will need to work closely with providers in
performing studies to show that the use of the Piccolo Point-of-Care Blood
Analyzer rather than laboratory alternatives can provide better outcomes at less
cost.
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Abaxis is using distributors for those customers which desire to purchase
reagent discs frequently and in small quantities. These distributors also
contribute to identifying potential customers and introducing the product, but
often need the support of Abaxis personnel in closing the sale. In the US, human
and veterinary product distributors are generally of two types - large companies
that primarily serve hospitals, clinics and large health maintenance
organizations (HMOs) nationwide using multiple warehouses and extensive
transportation systems, and smaller companies that provide the daily supplies
needed by office-based physicians. In the human market, national firms sell
thousands of products, including furniture, capital equipment, surgical
instruments and a myriad of consumables. The smaller companies generally direct
their product offerings to those items a physician uses daily in caring for
primarily ambulatory patients. These firms also may sell lower priced equipment
such as diagnostic instruments which are used in conjunction with consumable
reagents. The Company currently has non-exclusive distribution agreements with
Allegiance Healthcare Corporation (formerly Baxter Healthcare) and Sage London
of Canada.
Veterinarians are served similarly to office-based physicians by small local
firms, some with national affiliations. The Company currently has a
non-exclusive agreement with VedCo, Inc., a national network of 14 independent
distributors with 23 sales offices in the US. The Company also has three
additional distribution agreements with regional distributors. In addition to
selling through distributors, the Company directly supplies its VetScan products
to two national institutional customers, VCA, the nation's largest veterinary
hospital chain, and VetSmart, the nation's largest chain of veterinary service
clinics.
As of March 31, 1997, the Company had limited internal resources in sales and
marketing with twelve employees involved in both domestic and international
sales activity. In order to more fully realize the market potential for Abaxis
products, the Company intends to enter into distribution arrangements with
additional distributors as well as pursue direct sales where appropriate. There
can be no assurance that any of the Company's distributors will devote the
necessary resources to be successful in their efforts to commercialize the
Company's products.
Distribution Outside the US.
The Company's international sales and marketing objectives include identifying
and defining the market segments in each country by product, and then focusing
on specific objectives for each segment in each country. These specific
objectives include modification and expansion of distribution and distributor
training and monitoring to ensure the attainment of sales goals.
The Company currently has exclusive distribution agreements in the following
countries: Argentina, Austria, France, Germany, Greece, Hong Kong, Italy, Japan,
Korea, Mexico, New Zealand, the Netherlands, Norway, Portugal, Puerto Rico,
South Africa, Spain, Switzerland, and in the United Kingdom. Each distributor
agreement contains a number of requirements that must be met to retain
exclusivity, including minimum order quantity commitments, trade show and
promotion requirements and a specified number of demonstration analyzer
requirements. In most cases, the foreign distributors need to either go through
an FDA-equivalent approval process or clinical trials/market evaluations with
their local opinion leaders in the medical field. Each distributor is
responsible for obtaining the required approvals. There can be no assurance that
any of the Company's distributors will be successful in obtaining proper
approvals for Abaxis products in their respective countries or that these
distributors will be successful in marketing Abaxis products. The Company plans
to enter into additional distribution agreements to enhance its international
distribution base and solidify its international presence. There can be no
assurance that the Company will be successful in entering into any additional
distributor agreements.
Abaxis is party to a series of agreements with Teramecs, the Company's Japanese
distributor, involving funded research, distribution and manufacturing rights
and an equity investment by Teramecs in the Company. Under these agreements
Abaxis has granted Teramecs, subject to certain restrictions, the exclusive
right to distribute Abaxis products in Japan, an option to obtain a license to
manufacture the Piccolo systems for resale only to
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Abaxis or in Japan and access to future Abaxis technology. Teramecs has
provided $1,000,000 of research funding (which was recognized as revenue by
Abaxis in fiscal 1994) and is obligated to purchase minimum quantities of
products annually commencing in June 1996 in order to maintain exclusive
distribution rights in Japan. In the event Teramecs exercises its option to
manufacture Abaxis products, it must pay the Company an additional license fee,
purchase from Abaxis the reagent beads for the products it manufactures, and pay
royalties on the sale of such products. In August 1996, with the regulatory
approval from the Japanese Ministry of Health and Welfare (Koseisho) of the
Piccolo system, Teramecs contracted with Daiichi Pure Chemical to provide more
extensive market coverage to sell and distribute the Piccolo system in the
Japanese human medical markets under the name Lunaspin. During fiscal 1997,
Teramecs also completed clinical trials of the Abaxis VetScan system and
submitted for regulatory approval to market in Japan. The Company expects
regulatory approval of the VetScan system from the Japanese Ministry of
Agriculture, Forestry and Fishery (Nosuisho) during the summer of 1997. There
can be no assurance of regulatory approval of the VetScan system, or that
Teramecs and Daiichi can be successful in marketing any Abaxis products.
COMPETITION
Abaxis' competition includes clinical laboratories, hospitals and independent
laboratories and manufacturers of bench top multi-test analyzers and other
near-patient test systems. Blood analysis is a well established field in which
there are a number of competitors which have substantially greater financial
resources and larger, more established marketing, sales and service
organizations than the Company. No assurance can be given that the Company's
products will be competitive with existing or future products or services of
such competitors.
Historically, most human medical testing has been performed in the hospital or
commercial laboratory setting. Clinical laboratories have traditionally been
effective at processing large panels of tests using skilled technicians and
complex equipment. The Company's products compete with the clinical laboratories
with respect to range of tests offered, the immediacy of results and cost
effectiveness. While Abaxis cannot provide the same range of tests, the Company
believes that its products will provide a sufficient breadth of test menus to
compete successfully with clinical laboratories on the basis of immediacy of
results and cost effectiveness. The Company's products compete with products in
the marketplace with respect to ease-of-use, the ability to conduct tests
without a skilled technician, the ability to conduct multiple test panels,
breadth of tests, built-in calibration and quality control, cost effectiveness
and quality of results.
Most of the Company's current and potential competitors have significantly
greater financial and other resources than Abaxis, and the Company expects that
competition will be intense. In particular, most of these competitors have large
sales forces and well-developed channels of distribution. To compete, the
Company must develop effective channels of distribution and a focused direct
sales force. There is no assurance that the Company will be able to compete
successfully.
MANUFACTURING
Abaxis began manufacturing its VetScan products for the commercial market during
fiscal 1995. The Company began manufacturing Piccolo products for commercial
sale in fiscal 1996. To produce and commercially ship Piccolo products, the
Company must have a license to manufacture medical products in the State of
California, where the Company conducts its principal manufacturing activities,
and have approval from the FDA as a medical device manufacturer. In May 1996,
the Company received its license to manufacture from the State of California. In
September 1996, the FDA granted the Company's manufacturing facility "in
compliance" status, according to the regulations for Good Manufacturing
Practices ("GMP") for medical devices. The Company is scheduled for inspection
by the FDA and the State of California on a routine basis, typically once every
24 months. Although the Company is not required when manufacturing the VetScan
products, to comply with some of the government regulations applicable to the
human market, the Company has tried to establish its manufacturing operations
with procedures and controls comparable to GMP to ensure the same quality
products. There can be no assurance that the Company can successfully pass a
re-inspection by the FDA or the State of
11
<PAGE> 12
California or any other future inspections. There can be no assurance that the
Company can comply with all current or future government manufacturing
requirements and regulations.
In addition to the development of standardized manufacturing processes and
quality control programs for the entire manufacturing process, the Company's
manufacturing activities are concentrated in the following three primary areas:
Point-of-Care Blood Analyzer
The analyzer used in the Piccolo and VetScan systems employs a variety of
components designed or specified by Abaxis, including a variable speed motor,
microprocessors, a liquid crystal display, a result card printer, a
spectrophotometer and other electronic components. These components are
manufactured by several third party vendors that have been qualified and
approved by Abaxis and then assembled by contract manufacturers for Abaxis. The
components are assembled at the Abaxis facility into the finished product and
completely tested to ensure that the finished product meets product
specifications. The analyzer uses technologically advanced components, many of
which are available only from single source vendors. During fiscal 1997, the
Company was successful in identifying potential alternate suppliers of some
critical components and will continue to work on qualifying additional vendors
to protect its source of supply. There can be no assurance that the Company will
not experience a material interruption of supply of components from single
source vendors.
Reagent Disc
The molded plastic disks used in the manufacture of the reagent disc are
manufactured to the Company's specification by an established injection molding
manufacturer. To achieve the precision required for accurate test results, the
disks must be molded to very narrow tolerances. The Company believes only a few
manufacturers are capable of manufacturing to such tolerances. To date, the
Company has qualified only one manufacturer to mold the disks and only has a
single mold. The Company expects to qualify a second production mold by the end
of summer 1997 to better protect its supply source. While the Company has
duplicated parts of the disk molding tools to strengthen and better protect its
line of supply, the inability of its injection molding manufacturer to supply
sufficient disks would have a material adverse impact on the Company's results
of operations.
The Company assembles the reagent discs by using the molded plastic disks,
loading the disk with reagents and then ultrasonically welding together the top
and bottom pieces. The Company has begun development of an automated disc
assembly line ("autoline") to provide anticipated capacity for future demand and
to improve production efficiency. The Company expects to have this autoline
fully operational by the end of fiscal 1998. The autoline is expected to double
the Company's capacity while improving quality and yield. The qualification of
the autoline could involve significant time and cost and could entail some
initial unforeseen production problems. There can be no assurance that the
autoline will be fully operational within fiscal 1998, the capacity will be
doubled, quality and yield will improve or that the Company will not experience
significant time requirements and additional cost with the qualification of the
autoline.
Reagent Beads
The reagent discs contain diluent and all the dry reagent chemistry beads
necessary to perform blood analyses. Abaxis purchases chemicals from third party
suppliers and formulates the raw materials, using proprietary processes, into
beads at the proper concentration and consistency to facilitate placement in the
reagent disc and provide homogeneous dissolution and mixing when contacted by
the diluted plasma. The Company is dependent on single source vendors for some
of the chemicals and the loss of any one supplier of chemicals would materially
adversely affect the results of operations. The Company is currently evaluating
additional vendor sources to better protect its lines of supplies in the future.
There can be no assurances that the Company can qualify additional vendor
sources.
12
<PAGE> 13
GOVERNMENT REGULATION
Piccolo System
Abaxis' Piccolo products are regulated under the 1976 Medical Device Amendments
to the Food, Drug and Cosmetic Act (the "Amendment"). The Company's current
products are Class II devices requiring the submission of a 510(k) FDA
pre-market notification to substantiate label claims prior to marketing. In its
submission, the Company must, among other things, establish that the product to
be marketed is "substantially equivalent" to a product that was on the market
prior to the Amendment or to a product that has previously been cleared under
the 510(k) process. The typical process for clearance of 510(k)'s can be three
months to over a year and the FDA must issue a written order finding substantial
equivalence.
To date, Abaxis has received market clearance for its portable blood analyzer
and 16 test methods from the FDA. Abaxis is currently and plans to continue
developing additional tests that will be required to be cleared through the FDA.
There can be no assurance that Abaxis will receive marketing clearance for any
of its future products.
The Amendment also requires the Company to manufacture its products in
accordance with the GMP regulations using facilities registered to manufacture
the Company's products. The Company's facility is subject to periodic
inspections by the FDA. In addition, the use of the Company's facilities may be
regulated by various state agencies. There can be no assurance that the Company
will be able to maintain facility compliance with requirements or regulations.
The Piccolo system is also affected by the Clinical Laboratory Improvement
Amendments of 1988 ("CLIA"), which is intended to ensure the quality and
reliability of all medical testing in the United States regardless of where
tests are performed. Under CLIA regulations, laboratory tests are divided into
three categories: "waived or simple", "moderately complex" and "highly complex."
The Company's current products, under these regulations, are classified in the
"moderately complex" category, which would require that any location using these
products be certified as a laboratory. Initial certification would require the
laboratory to obtain a registration certificate from HCFA, which certificate
would be issued if the laboratory (1) agrees to notify HCFA within 30 days of
any change in its ownership, name or location, (2) agrees to treat proficiency
testing samples in the same manner as patient specimens and (3) remits the
registration fee. Within two years of registration certificate issuance,
laboratories would be inspected to determine compliance with the CLIA
requirements. The CLIA regulations require laboratories to meet specified
standards in the areas of personnel qualification, administration, participation
in proficiency testing, patient test management, quality control/assurance,
laboratory information systems and inspections. There can be no assurance that
CLIA regulations will not have a materially adverse impact on the Company and
its ability to market and sell its products.
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. If
granted, users of the product can then avoid many of the burdens imposed on
users of moderately complex tests. To have the Piccolo placed in the waived
category, the Company must conduct field studies at three non-laboratory sites
using at least 20 operators each who have no medical laboratory training and can
operate the Piccolo system with directions that require no more than seventh
grade reading skills. The Company met with the CDC in February 1997 to review
its application. CDC has requested more detailed performance data, which the
Company is in the process of collecting. To date, only a few companies have
received waived category status for their tests and approval time from CDC
appears to be over a year or two. Although the review process for a CLIA license
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.
13
<PAGE> 14
Federal and state regulations regarding the manufacture and sale of health care
products and diagnostic devices are subject to future change. The Company cannot
predict what material impact, if any, such changes might have on its business.
In addition, some foreign markets require obtaining foreign regulatory
clearances of the Company's products before they can be distributed in those
countries. There can be no assurance that the Company will be able to obtain
regulatory clearances for its products in the US or in foreign markets.
Although Abaxis believes that it will be able to comply with all applicable
regulations of the FDA and of the State of California, current regulations
depend heavily on administrative interpretations, and there can be no assurance
that future interpretations made by the FDA, HCFA, CDC or other regulatory
bodies, with possible retroactive effect, will not adversely affect the Company.
Third party payers can indirectly affect the pricing or the relative
attractiveness of the Company's products by regulating the maximum amount of
reimbursement they will provide for blood testing services. For example, the
reimbursement of fees for blood testing services for Medicare beneficiaries is
set by the HCFA. If the reimbursement amounts for blood testing services are
decreased in the future, it may decrease the amount which physicians and
hospitals are able to recover for such services and consequently the price the
Company can charge for its products. If adequate coverage and reimbursement
levels are not provided by government and third-party payers for use of the
Company's products, the market acceptance of those products would be adversely
affected.
VetScan System
The government regulations discussed above generally do not apply to the
Company's VetScan products in the US. Internationally, among the countries where
the Company currently has established distribution arrangements, to the
Company's knowledge, Japan is the only market where VetScan products are subject
to government approvals. In Japan, veterinary diagnostic devices are regulated
by the Ministry of Agriculture, Forestry and Fishery, and thus the VetScan
system must be approved by such Ministry prior to being marketed in Japan.
Teramecs, the Company's Japanese distributor, has submitted its application for
distribution of the VetScan system in Japan. The Company expects to receive
approval by the end of summer 1997, however there can be no assurance that the
Ministry of Agriculture, Forestry and Fishery will approve distribution of the
VetScan system in Japan.
In order to maintain high quality standards for all its products, the Company is
using the same manufacturing facilities to manufacture all Point-of-Care Blood
Analyzers whether they be for the Piccolo or VetScan system products and
therefore is following the same manufacturing processes and procedures where
practical. The Company intends to comply with prudent development and
manufacturing practices applicable to the veterinary diagnostic industry.
14
<PAGE> 15
INTELLECTUAL PROPERTY
The Company has pursued the development of a patent portfolio to protect its
technology. As of June 16, 1997, the Company has filed 25 United States patent
applications. The following 17 patents have been issued:
<TABLE>
<CAPTION>
Patent No. Description Issue Date
- ---------- ----------- ----------
<S> <C> <C>
5,061,381 Apparatus and Method for Separating Cells from Biological Fluids October 29, 1991
5,122,284 Apparatus and Method for Optically Analyzing Biological Fluids June 16, 1992
5,173,193 Centrifugal Rotor Having Flow Partition December 22, 1992
5,242,606 Sample Metering Port for Analytical Rotor Having Overflow Chamber September 7, 1993
5,275,016 Cryogenic Apparatus January 4, 1994
5,304,348 Diluent Container for Analytical Rotor April 19, 1994
5,403,415 Method and Device for Ultrasonic Welding April 4, 1995
5,409,665 Simultaneous Cuvette Filling with Means to isolate Cuvettes April 25, 1995
5,413,762 Reagent Testing and Analytical Composition May 9, 1995
5,457,053 Reagent Container for Analytical Rotor October 10, 1995
5,472,603 Analytical Rotor with Dye Mixing Chamber December 5, 1995
5,478,750 Methods for Photometric Analysis December 26, 1995
5,518,930 Simultaneous Cuvette Filling with means to isolate Cuvettes May 21, 1996
5,590,052 Error Checking in Blood Analyzer December 31, 1996
5,591,643 Simplified Inlet Channels January 7, 1997
5,599,411 Method and Device for Ultrasonic Welding February 4, 1997
5,624,597 Reagent Compositions for Analytical Testing April 29, 1997
</TABLE>
The Company's policy is to file patent applications to protect technology,
inventions and improvements that are important to the development of its
business. The Company also relies upon trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain
its competitive position. The Company has filed under the Patent Cooperation
Treaty for international patent protection, and is selectively filing patents in
countries where the Company expects to market its product.
The patent position of any medical device manufacturer, including Abaxis, is
uncertain and may involve complex legal and factual issues. Consequently, even
though Abaxis is currently prosecuting its patent applications in the US and has
filed an international application under the Patent Cooperation Treaty, in
addition to actual foreign patents, the Company does not know whether any of its
applications will result in the
15
<PAGE> 16
issuance of any further patents, or, for any patents issued, whether they will
provide significant proprietary protection or will be circumvented or
invalidated. Since patent applications are maintained in the US in secrecy until
patents issue, and since publications of discoveries in the scientific or patent
literature tend to lag behind actual discoveries by several months, Abaxis
cannot be certain that it was the first creator of inventions covered by its
issued patent or pending patent applications or that it was the first to file
patent applications for such inventions. There can be no assurance that the
Company's patent applications will result in further patents being issued or
that if issued the patents will offer protection against competitors with
similar technology; nor can there be any assurance that others will not gain
patents that the Company would need to license or circumvent. Moreover, the
Company may have to participate in interference proceedings declared by the US
patent and Trademark Office to determine the priority of inventions, which could
result in substantial cost to the Company.
The Company also relies upon copyright, trademarks and unpatented trade secrets,
and no assurance can be given that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets or disclose such technology.
Abaxis requires its employees, consultants and advisors to execute
confidentiality agreements upon the commencement of an employment or consulting
relationship with the Company. Each agreement provides that all confidential
information developed or made known to the individual during the course of the
relationship will be kept confidential and not disclosed to third parties except
in specified circumstances. In the case of employees, the agreements provide
that all inventions conceived by an individual shall be the exclusive property
of the Company, other than inventions unrelated to the Company's business and
developed entirely on the employee's own time. There can be no assurance,
however, that these agreements will provide meaningful protection or adequate
remedies for the Company's trade secrets in the event of unauthorized use or
disclosure of such information.
EMPLOYEES
The Company's success depends upon the continued contribution of its officers
and key personnel, many of whom would be difficult to replace. If certain of
these people were to leave the Company, the Company's ability to achieve its
business objective might be impeded.
As of March 31, 1997, the Company had a total of 59 full-time employees. Fifteen
employees, including three Ph.D's, continued to further the Company's research
and development activities while also driving the manufacturing process
development. Twenty-five employees worked in manufacturing operations devoting
their time to manufacturing the VetScan and Piccolo products as well as
supporting development activities as necessary. Twelve employees including one
Ph.D, were selling and marketing the VetScan and Piccolo products. The remaining
seven employees worked in general administration to support the Company's
administrative requirements. The Company also uses temporary help to assist in
carrying out certain operational duties. As of March 31, 1997, the Company had
18 temporary employees and most of them were assisting in manufacturing
operations.
None of the employees are covered by collective bargaining agreements and
management considers its relations with employees to be good.
ITEM 2. PROPERTIES
The Company occupies approximately 38,300 square feet of office, research and
development and manufacturing space in a building in Sunnyvale, California. The
Company's lease will expire in July 2000. During fiscal 1997 the Company had
adequate space to satisfy all its needs. The Company believes that it may
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<PAGE> 17
need additional space during fiscal year 1998 for warehousing purposes. Should
the need for additional space arise, the Company believes that suitable
additional space will be available on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in litigation in the normal course of business. In the
opinion of management, the ultimate resolution of these matters will not have a
material effect on the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's initial public offering was completed in January 1992. From that
date, the Company's common stock has been traded in on the Nasdaq National
Market under the symbol ABAX.
The high and low prices for the Company's common stock during each quarter since
April 1, 1995 are exhibited in the table below, as represented by the high and
low daily trade closing sales prices.
<TABLE>
<CAPTION>
Fiscal 1996 High Low
----------- ---- ---
<S> <C> <C>
First Quarter $7.125 $4.625
Second Quarter $9.125 $6.750
Third Quarter $8.625 $5.000
Fourth Quarter $6.875 $5.625
Fiscal 1997
-----------
First Quarter $7.125 $4.125
Second Quarter $6.000 $3.375
Third Quarter $5.750 $2.625
Fourth Quarter $4.250 $2.500
Fiscal 1998
-----------
First Quarter (through June 16, 1997) $3.375 $2.750
</TABLE>
As of June 16, 1997, there were 267 shareholders of record and approximately
4,700 beneficial shareholders. Abaxis has never paid dividends on its common
stock and does not anticipate paying cash dividends in the foreseeable future.
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.
On April 30, 1997, the Company issued warrants to Transamerica Business Credit
Corporation ("Transamerica") for the purchase of 106,667 shares of common stock
at an initial exercise price of $3.00 per share. The warrants will expire April
30, 2004. The warrants were issued as part of a $2,000,000 equipment line of
credit agreement with Transamerica. The warrants and shares issuable have not
been registered under the Securities Act of 1933.
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<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of the Company are qualified by reference
to and shall be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and with the consolidated
financial statements, related notes and other financial information included
elsewhere in this report.
<TABLE>
<CAPTION>
Years Ended March 31,
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues $ 7,294,000 $ 2,948,000 $ 1,044,000 $ 1,163,000 $ --
------------ ------------ ------------ ------------ ------------
Operating expenses:
Cost of product sales 7,661,000 4,883,000 2,587,000 -- --
Research and development 1,315,000 1,326,000 4,166,000 8,540,000 7,529,000
Selling, general and administrative 4,867,000 3,482,000 3,504,000 2,175,000 1,577,000
------------ ------------ ------------ ------------ ------------
Total costs and operating expenses 13,843,000 9,691,000 10,257,000 10,715,000 9,106,000
------------ ------------ ------------ ------------ ------------
Loss from operations (6,549,000) (6,743,000) (9,213,000) (9,552,000) (9,106,000)
Interest income and other 360,000 547,000 376,000 874,000 1,197,000
Interest expense -- -- (149,000) (240,000) (131,000)
------------ ------------ ------------ ------------ ------------
Net loss $ (6,189,000) $ (6,196,000) $ (8,986,000) $ (8,918,000) $ (8,040,000)
============ ============ ============ ============ ============
Net loss per share $ (0.59) $ (0.65) $ (1.24) $ (1.43) $ (1.30)
============ ============ ============ ============ ============
Shares used in calculating
net loss per share 10,502,646 9,466,084 7,268,315 6,226,087 6,176,142
============ ============ ============ ============ ============
Years Ended March 31,
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
BALANCE SHEET DATA:
Cash, cash equivalents, and
short-term investments $ 5,321,000 $ 7,778,000 $ 7,195,000 $ 5,573,000 $ 9,801,000
Working capital 6,825,000 7,912,000 7,109,000 3,971,000 6,887,000
Long-term investments -- 500,000 700,000 4,500,000 10,943,000
Total assets 11,977,000 13,046,000 12,147,000 13,569,000 23,370,000
Long-term portion of notes payable
and capital lease obligation -- -- -- 1,089,000 1,489,000
Total shareholders' equity 9,358,000 10,726,000 10,436,000 10,003,000 18,752,000
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Abaxis, Inc. (the "Company") 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, serum or plasma using either venous or
18
<PAGE> 19
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 and in
the human medical market under the name Piccolo.
During fiscal 1997, the Company continued to increase its customer base. The
Company shipped a record number of its Point-of-Care Blood Analyzers during the
year: 703 analyzers (up 142% or 413 units from last fiscal year), with 407
analyzers placed domestically and 296 analyzers placed internationally. In the
US, the Company placed 362 VetScan systems and 45 Piccolo systems.
Internationally, the Company shipped 169 Piccolo systems and 127 VetScan
systems. Two hundred systems were shipped to Japan, 90 systems to Europe and the
balance to other various countries. In addition to the analyzer placement, the
Company shipped a total of 225,250 reagent discs, and approximately 78% of these
reagent discs (up 177% or 144,000 units from last year) were consumed by the US
veterinary market where the Company has shipped more than 700 VetScan systems.
On June 20, 1996, the Board of Directors of Abaxis announced the appointment of
Clinton H. Severson as President and Chief Executive Officer, succeeding Gary H.
Stroy. Mr. Stroy remains as Chairman of the Board. As Chairman of the Board, Mr.
Stroy's focus is on business development and strategic corporate alliances for
the Company. Mr. Severson brings to the Company an extensive background in the
medical diagnostic arena and expertise in international distribution and product
development.
During fiscal 1997, the Company continued to be successful in the US veterinary
market. By the end of the fiscal year, the Company had installed a total of 767
VetScan systems in the US, an 83% increase from its customer base of 409 VetScan
systems a year earlier. The addition of two national institutional customers,
Veterinary Centers of America ("VCA") and VetSmart, contributed significantly to
the Company's new system placements. Both customers purchased the Company's
VetScan systems to replace systems from the Company's competitors. The Company
began selling its VetScan systems to VCA hospitals in September 1996 and through
May 1997, a total of 88 systems were installed in a number of VCA's 155
free-standing animal hospitals. In March 1997, the Company signed an agreement
with VetSmart to provide during the next twelve months, 105 VetScan systems and
80,000 reagent discs for use in VetSmart pet hospitals. Through May 1997, the
Company has installed 91 VetScan systems in VetSmart pet hospitals located in
PetSmart stores nationwide. There can be no assurance that VCA or VetSmart will
place additional orders for VetScan systems or reagent discs beyond the terms of
current agreements or purchase orders.
The Company has targeted branches of the US military as potential customers for
the Company's Piccolo Point-of-Care Blood Analyzer based on the features of the
Piccolo systems and the special requirements of the military environment. The
Company has been involved in rigorous studies with the US Navy since 1995,
evaluating the feasibility and clinical utility of the Piccolo systems in the
often rugged environment encountered by the Navy. In March 1997, the Company
announced that it had been awarded a contract with a potential contract value of
up to $7.5 million to provide the US Navy and the Marine Corps its Piccolo
Point-of-Care Blood Analyzer and reagent disc products. The contract calls for a
maximum order of approximately 345 Piccolo systems and 250,000 reagent discs.
Through May 1997, the Company has shipped 72 Piccolo systems under this contract
and another 43 systems have been ordered but not yet shipped. There can be no
assurance that the Company will receive orders for the maximum order quantity
under the conditions of the contract.
The Company believes that its current menu of 15 reagent test methods for its
Piccolo systems are suitable for certain niche human market segments, such as
the military, but not broad enough to fulfill the diagnostic needs of
physician's office practices. One of the key factors to the Company's future
success depends on the Company's ability to identify and develop new test
methods that will allow the Company to penetrate the human diagnostic market.
During fiscal 1997, the Company received 510(k) clearance from the Food and Drug
Administration ("FDA") for its GGT test. Completion of GGT allowed the Company
to release the Liver Panel Plus reagent disc product in October 1996, which is
currently being sold to the US Navy. The Company also completed development of
CK during fiscal 1997 which allowed the Company to release a new Equine Profile
19
<PAGE> 20
reagent disc product into the veterinary market in June 1997. This method will
be entered into clinical trials during fiscal 1998 for inclusion in new reagent
disc products for the human medical market. The Company has identified ten
additional test methods that are likely candidates to enhance its ability to
penetrate the human medical market, as well as broadening its market coverage in
the veterinary market. In January 1997, the Company allocated resources to begin
the feasibility phase to develop four electrolyte test methods: bicarbonate,
chloride, potassium, and sodium. The Company expects to conclude the feasibility
phase of these four tests by the end of summer 1997 and if the results are
favorable, proceed with developing these tests into marketable products for both
the human and the veterinary markets. The Company estimates that development of
these four test methods as a group will take approximately 18 months to complete
and should be available during 1998. There can be no assurance that the Company
will be successful in the development of the test methods or that the methods
will be developed within the anticipated time frame.
For the human market, the Company plans on incorporating these tests into new
panels consistent with the codes in the 1998 version of the new Current
Procedures Terminology ("CPT") manual published by the American Medical
Association ("AMA"). These new CPT codes represent a set of tests performed in
standardized panels released in late March, 1997 by the Health Care Financing
Administration ("HCFA"), the federal agency that administers the Medicare and
Medicaid programs. The American Medical Association originally proposed eight
standardized panels and the HCFA adopted four of these panels, with some
modifications, effective July 1, 1997. The four fixed-test panels are:
electrolytes, comprehensive metabolic, hepatic function, and basic metabolic.
Abaxis currently has all the tests for the hepatic function panel, and will have
all required tests for the additional three panels with the development of the
four electrolyte tests.
In addition to investing its own resources in expanding the test menu, the
Company signed a nonbinding letter of intent with Teramecs Co., Ltd. and Daiichi
Pure Chemicals Co., Ltd. in April 1997 to jointly develop additional test
methods for use on the Piccolo analyzer. The product development collaboration
will focus on commercializing targeted methods for lipids, proteins, and
enzymes. The Company expects to sign a definitive agreement in 1997. There can
be no assurance that the Company will be able to develop these new test methods,
conclude a definitive agreement with Teramecs and Daiichi Pure Chemicals, or if
the test methods were developed, be able to successfully market these methods.
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 met
with the CDC in February 1997 to review its application. Although the review
process for a CLIA license 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. (See "Business-Government Regulation.")
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 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. (See "Business-Competition.")
20
<PAGE> 21
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 fiscal 1997, the Company reported revenues of $7,294,000, of which
$4,699,000 were from sales of Point-of-Care Blood Analyzers, $2,099,000 from
sales of reagent disc products, $407,000 from Orbos contracts and $89,000 from
other revenue. During fiscal 1996, the Company reported revenues of $2,948,000,
of which $1,807,000 were from sales of Point-of-Care Blood Analyzers, $789,000
from sales of reagent disc products, and $352,000 from Orbos contracts. During
fiscal 1995, the Company reported revenues of $1,044,000, $845,000 from the sale
of VetScan Analyzers and reagent discs and $199,000 from Orbos development
agreements. The $4,346,000 or 147% increase in revenues in fiscal 1997 compared
to fiscal 1996 was due to increased unit sales of Point-of-Care Blood Analyzers,
direct sales during the fourth quarter of fiscal 1997 of Piccolo systems to the
US military which yields higher revenue compared to distributor sales of VetScan
systems, and increased repeat reagent disc sales in both the US and
international markets. The $1,904,000 or 182% increase in revenues in fiscal
1996 compared to fiscal 1995 was primarily due to increased unit sales of
21
<PAGE> 22
VetScan Analyzers, increased repeat reagent disc sales from its existing VetScan
customers, shipments of its Piccolo systems and reagent discs which began in
November 1995, and an increase in revenues from its Orbos contracts.
Cost of Product Sales
Since the Company began recognizing revenue from the sale of its VetScan
products in the second quarter of fiscal 1995, all costs associated with
manufacturing and production have been included in cost of product sales. Cost
of product sales includes the cost of all manufacturing activities for the
Company's products, as well as the costs associated with the Company's
manufacturing capacity. Cost of product sales during fiscal 1997, 1996 and 1995
was $7,661,000, $4,883,000 and $2,587,000, respectively. The increase in cost of
product sales when comparing fiscal 1997 to fiscal 1996 of $2,778,000 or 57% was
primarily a function of the increase in sales volume, partially offset by
efficiencies resulting from standardized manufacturing processes. The increase
in cost of product sales in fiscal 1996 compared to fiscal 1995 of $2,296,000 or
89% was primarily due to the fact that the Company began commercial shipment in
July 1994 and hence only three quarters of a year of manufacturing and
production expenses were included in cost of sales during fiscal 1995.
Research and Development Expense
The Company incurred research and development expenses of $1,315,000 in fiscal
1997, compared with $1,326,000 in fiscal 1996 and $4,166,000 in fiscal 1995. The
$11,000 or less than 1% decrease in research and development expenses in fiscal
1997 compared to fiscal 1996 is mainly the result of allocation of some of the
development resources to support product manufacturing activities. The decrease
in research and development expenses in fiscal 1996 compared to fiscal 1995 was
primarily due to the classification of the manufacturing operating expenses to
cost of sales beginning July 1994, lower materials consumption for the
development of chemistry methods, and overall reduced spending as the Company
transitioned its primary focus from research and development to
commercialization. Research and development activities accounted for
approximately 9% of total operating expenses during fiscal 1997 as compared to
14% during fiscal 1996 and 41% during fiscal 1995. The Company expects the
dollar amount of research and development expenses to increase in fiscal 1998
from fiscal 1997, as the Company undertakes development of new test methods to
expand its test menus as well as other development projects. There can be no
assurance, however, that the Company will undertake such research and
development activities in future periods or, if it does, that such activities
will be successful.
Selling, General and Administrative Expense
Selling, general and administrative expenses were $4,867,000 in fiscal 1997,
compared to $3,482,000 in fiscal 1996 and $3,504,000 in fiscal 1995. The
increase of expense in fiscal 1997 compared to fiscal 1996 of $1,363,000 or 39%
is related primarily to launching the Piccolo products worldwide and increases
in administrative, sales and marketing staffing. The decrease in selling,
general and administrative costs for fiscal 1996 compared to fiscal 1995 was
primarily due to costs associated with launching the VetScan products in fiscal
1995 partially offset by increased marketing and sales activities in fiscal 1996
related to the preparation of launching the Piccolo products worldwide,
including signing and training international distributors.
Interest Income
Interest income totaled $332,000 for fiscal 1997, compared with $547,000 in
fiscal 1996 and $376,000 for fiscal 1995. Interest income decreased $215,000 or
39% in fiscal 1997 compared to fiscal 1996. The decrease was primarily the
result of decreased investment levels and a lower rate of return on investments
due to shorter terms of the investments. Interest income increased $171,000 or
45% from fiscal 1995 to 1996 primarily due to increased cash investment levels
in fiscal 1996. The Company incurred no interest expense during fiscal 1997 and
1996. During fiscal 1995 interest expense was $149,000, mainly for payment of
the Company's equipment loan.
22
<PAGE> 23
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities during fiscal 1997, was $6,818,000,
compared to $5,744,000 and $8,329,000 for fiscal 1996 and 1995, respectively.
The increase in net cash used in operating activities in fiscal 1997 compared to
fiscal 1996 was the result of increases in trade and other receivables due to
increased revenue in primarily the fourth quarter of fiscal 1997 from the same
period in fiscal 1996, increases in inventory necessary to meet production
demands for increased shipments and a decrease in trade accounts payable. The
increases in net cash used in operating activities in fiscal 1997 were partially
offset by increases in liabilities such as accrued payroll, other accrued
liabilities, warranty reserve and deferred revenue. The decrease in the net cash
used in operating activities in fiscal 1996 as compared to fiscal 1995 was
primarily attributable to the lower net loss in fiscal 1996, partially offset by
the increase in trade receivables as the Company's revenues increased in the
fourth quarter of fiscal 1996 from the same period of fiscal 1995.
Net cash provided by investing activities for fiscal 1997 was $1,842,000 as
compared to $2,564,000 of net cash used in fiscal 1996 and $4,454,000 of net
cash provided in fiscal 1995. The change from net cash used in fiscal 1996 to
net cash provided by investing activities for fiscal 1997 was primarily due to
total maturities of available-for-sale securities exceeding purchases of
available-for sale securities in fiscal 1997 resulting in a decrease of total
short-term investments. Cash provided by maturities and sales of
available-for-sale securities was partially offset by increased purchases of
property and equipment over fiscal 1996 levels. The change from net cash used in
fiscal 1996 as compared to the net cash provided in fiscal 1995 was primarily
due to net results of purchases of available-for-sale investments over
maturities and sales of available-for-sale investments, partially offset by
lower purchases of property and equipment during fiscal 1996 as compared to
fiscal 1995 when the Company set up its initial commercial manufacturing
capabilities.
Net cash provided by financing activities for fiscal 1997 was $4,821,000 as
compared to $6,439,000 of net cash provided in fiscal 1996 and $7,331,000 of net
cash provided in fiscal 1995. Net cash provided by financing activities in
fiscal 1997 and 1996 was primarily the result of offshore private placements of
preferred stock and issuance of common stock. Net cash provided by financing
activities for fiscal 1995 consisted primarily of a registered direct placement
of common stock, partially offset by principal payments made under capital lease
obligations.
As of March 31, 1997, the Company had approximately $1,436,000 in cash and cash
equivalents and $3,885,000 in short-term investments, for total cash resources
of $5,321,000. As of March 31, 1997, the Company had 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 estimates the cost of this new
production line will be approximately $1,500,000 of which approximately $945,000
was paid through March 31, 1997. The Company expects to pay the balance upon
acceptance of the equipment. In April 1997, in anticipation of taking delivery
of the automated assembly line, the Company arranged for a 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 bear interest at approximately
16%. As of May 31, 1997, the Company has drawn $600,000 against this
23
<PAGE> 24
equipment financing loan. Additional manufacturing equipment will also need to
be added during fiscal 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.
The Company anticipates that its existing capital resources and anticipated
revenue from the sales of its products will not be adequate to satisfy its
currently planned operating and financial requirements through fiscal 1998.
Accordingly, the Company will need to raise additional funds from public or
private financing if it is to sustain its currently planned level of operating
expenses during fiscal 1998, or in the event that the Company is unsuccessful in
raising sufficient 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Report of Deloitte & Touche LLP, Independent Auditors
Report of Ernst & Young LLP, Independent Auditors
Balance Sheets at March 31, 1997 and 1996
Statements of operations for each of the three years in the period
ended March 31, 1997
Statement of Shareholders' Equity for each of the three years in the
period ended March 31, 1997
Statements of Cash Flows for each of the three years in the period
ended March 31, 1997
Notes to Financial Statements
24
<PAGE> 25
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Abaxis, Inc.:
We have audited the accompanying balance sheets of Abaxis, Inc. as of March 31,
1997 and 1996, and the related statements of operations, shareholders' equity,
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The financial
statements of the Company for the year ended March 31, 1995 were audited by
other auditors whose report, dated April 21, 1995, expressed an unqualified
opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as of March 31, 1997 and 1996,
and the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
April 22, 1997 (April 30, 1997 as to Note 10)
25
<PAGE> 26
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Abaxis, Inc.
We have audited the accompanying statements of operations, shareholders' equity,
and cash flows of Abaxis, Inc. for the year ended March 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Abaxis, Inc.
for the year ended March 31, 1995, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
San Jose, California
April 21, 1995
26
<PAGE> 27
ABAXIS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
------------------------------
ASSETS 1997 1996
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................ $ 1,436,000 $ 1,591,000
Short-term investments ................................... 3,885,000 6,187,000
Trade and other receivables .............................. 1,690,000 690,000
Interest receivable ...................................... 80,000 41,000
Inventories .............................................. 2,218,000 1,456,000
Prepaid expenses ......................................... 135,000 92,000
----------- -----------
Total current assets ............................ 9,444,000 10,057,000
Property and equipment - net ............................... 2,453,000 2,427,000
Long-term investments ...................................... 0 500,000
Deposits and other assets .................................. 80,000 62,000
Total assets ............................................... $11,977,000 $13,046,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................... $ 695,000 $ 1,017,000
Accrued payroll and related expenses 604,000 417,000
Other accrued liabilities ................................ 554,000 225,000
Warranty reserve ......................................... 495,000 249,000
Deferred rent ............................................ 24,000 94,000
Deferred revenue ......................................... 247,000 143,000
----------- -----------
Total current liabilities ....................... 2,619,000 2,145,000
----------- -----------
Customer deposits .......................................... - 175,000
----------- -----------
Commitments and contingencies (Note 5)
Shareholders' equity:
Convertible preferred stock, no par value: authorized
shares - 5,000,000; none issued.......................... - -
Common stock, no par value: authorized shares - 35,000,000;
issued and outstanding shares - 11,886,153 in 1997 and
9,857,628 in 1996 ....................................... 58,403,000 53,556,000
Accumulated deficit ...................................... (49,045,000) (42,830,000)
----------- -----------
Total shareholders' equity ...................... 9,358,000 10,726,000
----------- -----------
Total liabilities and shareholders' equity ................. $11,977,000 $13,046,000
=========== ===========
</TABLE>
See notes to financial statements.
27
<PAGE> 28
ABAXIS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Product sales, net ................ $ 7,294,000 $ 2,948,000 $ 845,000
Other development revenue ......... - - 199,000
------------ ------------ ------------
Total revenues ...................... 7,294,000 2,948,000 1,044,000
------------ ------------ ------------
Costs and operating expenses:
Cost of product sales ............. 7,661,000 4,883,000 2,587,000
Research and development .......... 1,315,000 1,326,000 4,166,000
Selling, general and administrative 4,867,000 3,482,000 3,504,000
------------ ------------ ------------
Total costs and operating expenses .. 13,843,000 9,691,000 10,257,000
------------ ------------ ------------
Loss from operations ................ (6,549,000) (6,743,000) (9,213,000)
Interest and other income ........... 360,000 547,000 376,000
Interest expense .................... - - (149,000)
------------ ------------ ------------
Net loss ............................ $ (6,189,000) $ (6,196,000) $ (8,986,000)
============ ============ ============
Net loss per share .................. $ (0.59) $ (0.65) $ (1.24)
============ ============ ============
Weighted average shares outstanding . 10,502,646 9,466,084 7,268,315
============ ============ ============
</TABLE>
See notes to financial statements.
28
<PAGE> 29
ABAXIS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible Preferred Stock Common Stock Deferred Total
--------------------------- ------------------------- Accumulated Compen- Shareholders'
Shares Amount Shares Amount Deficit sation Equity
--------- ------------ ---------- ------------ ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at April 1, 1994 ................ - $ - 6,260,922 $37,782,000 ($27,648,000) ($131,000) $ 10,003,000
Stock option exercises ................... - - 111,752 115,000 - - 115,000
Issuance of common stock in a public
offering, net of issuance costs
of $167,000 ............................ - - 2,347,250 9,222,000 - - 9,222,000
Amortization of deferred compensation
and cancellation of stock options ...... - - - (2,000) - 84,000 82,000
Net loss ................................. - - - - (8,986,000) - (8,986,000)
--------- ------------ ---------- ------------ ------------- ---------- -------------
Balances at March 31, 1995 ............... - - 8,719,924 47,117,000 (36,634,000) (47,000) 10,436,000
Stock option exercises ................... - - 157,704 389,000 - - 389,000
Issuance of common stock in a private
placement, net of issuance costs
of $23,000 ............................. - - 980,000 6,050,000 - - 6,050,000
Amortization of deferred compensation .... - - - - - 47,000 47,000
Net loss ................................. - - - - (6,196,000) - (6,196,000)
--------- ------------ ---------- ------------ ------------- ---------- -------------
Balances at March 31, 1996 ............... - - 9,857,628 53,556,000 (42,830,000) - 10,726,000
Stock option exercises ................... - - 20,925 67,000 - - 67,000
Issuance of Series A preferred stock in a
private placement, net of issuance costs
of $220,000 ............................ 500,000 4,780,000 - - - - 4,780,000
Preferred dividends paid ................. - - - - (26,000) - (26,000)
Conversion of preferred stock into common
stock .................................. (500,000) (4,780,000) 2,007,600 4,780,000 - - -
Net loss ................................. - - - - (6,189,000) - (6,189,000)
--------- ------------ ---------- ------------ ------------- ---------- -------------
Balances at March 31, 1997 ............... - $ - 11,886,153 $58,403,000 ($49,045,000) $ - $ 9,358,000
========= ============ ========== ============ ============= ========== =============
</TABLE>
See notes to financial statements
29
<PAGE> 30
ABAXIS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Operating activities:
Net loss ............................................ $( 6,189,000) $( 6,196,000) $( 8,986,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ..................... 934,000 657,000 978,000
Amortization of deferred compensation ............. - 47,000 82,000
Changes in assets and liabilities:
Trade and other receivables ..................... (1,000,000) (405,000) (183,000)
Interest receivable ............................. (39,000) (6,000) 198,000
Inventories ..................................... (762,000) (414,000) (783,000)
Prepaid expenses ................................ (43,000) (19,000) 208,000
Deposits and other assets ....................... (18,000) (17,000) 6,000
Accounts payable ................................ (322,000) 519,000 (248,000)
Accrued payroll and related expenses ............ 187,000 99,000 (164,000)
Other accrued liabilities ....................... 505,000 (28,000) 264,000
Deferred revenue ................................ 104,000 34,000 109,000
Customer deposits ............................... (175,000) (15,000) 190,000
------------- ------------- -------------
Net cash used in operating activities ......... (6,818,000) (5,744,000) (8,329,000)
------------- ------------- -------------
Investing activities:
Purchase of available-for-sale securities ........... (27,370,000) (17,194,000) (28,026,000)
Maturities of available-for-sale securities ......... 30,172,000 15,250,000 26,337,000
Sales of available-for-sale securities .............. - - 7,323,000
Purchase of property and equipment .................. (960,000) (620,000) (1,184,000)
Capital lease deposits .............................. - - 4,000
------------- ------------- -------------
Net cash provided by (used in) investing ...... 1,842,000 (2,564,000) 4,454,000
------------- ------------- -------------
Financing activities:
Principal payments under notes payable and capital
lease obligations ................................. - - (2,006,000)
Proceeds from issuance of common and preferred ...... 4,847,000 6,439,000 9,337,000
Preferred dividends paid ............................ (26,000) - -
------------- ------------- -------------
Net cash provided by financing activities ..... 4,821,000 6,439,000 7,331,000
------------- ------------- -------------
Increase (decrease) in cash and cash equivalents ...... (155,000) (1,869,000) 3,456,000
Cash and cash equivalents at beginning of year ........ 1,591,000 3,460,000 4,000
------------- ------------- -------------
Cash and cash equivalents at end of year .............. $ 1,436,000 $ 1,591,000 $ 3,460,000
============= ============= =============
Supplemental disclosures of cash flow information -
Cash paid for interest .............................. $ - $ - $ 149,000
============= ============= =============
Noncash financing activity -
Conversion of preferred stock into common stock ..... $ 4,780,000 $ - $ -
============= ============= =============
</TABLE>
30
<PAGE> 31
ABAXIS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Abaxis, Inc. (the Company) was incorporated in California in 1989 and
develops, manufactures and markets portable blood analysis systems. The
Company was in the development stage until fiscal 1997.
FUTURE FINANCING - The Company expects to incur substantial costs in
fiscal 1998 related to the continued development and marketing of its
products. In addition, future capital requirements will include amounts
necessary to fund accounts receivable, inventories, and capital equipment
acquisitions. The Company does not believe that its existing capital
resources and anticipated revenue from VetScan and Piccolo product sales
will be adequate to satisfy its currently planned financial requirements
through fiscal 1998. Consequently, the Company will need to raise
additional funds from private or public financing if it is to sustain its
currently planned level of operating expenses during fiscal 1998, or in
the event that the Company is unsuccessful in raising sufficient funding,
the Company will have to significantly reduce its operating expenses.
CASH EQUIVALENTS AND INVESTMENTS - Cash equivalents consist of short-term
financial instruments with original maturities of less than 90 days from
the date of acquisition that are readily convertible into cash. Short-term
investments have maturities of less than one year from the balance sheet
date and long-term investments have maturities greater than one year from
the balance sheet date.
Investments consist primarily of marketable debt securities that are
classified as "available-for-sale" and are carried at amounts
approximating fair value. The fair values for marketable debt securities
are based on quoted market prices. Unrealized gains and losses, net of
tax, are reportable in shareholders' equity; however, such amounts have
not been material and therefore were not recorded. The cost basis of
investments is adjusted for the amortization of premiums and the accretion
of discounts to maturity, which is included in interest income. Realized
gains and losses are also included in interest income. The cost of
securities sold is based on the specific identification method.
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially
subject the Company to a concentration of credit risk consist primarily of
cash, cash equivalents, short- and long-term investments, as well as
accounts receivable. The Company has placed the majority of its cash and
cash equivalents and short- and long-term investments in high-credit,
high-quality corporate notes and commercial paper.
31
<PAGE> 32
The Company sells its products primarily to organizations in the United
States, Japan and Europe. The Company monitors the credit status of its
customers on an ongoing basis and generally does not require its customers
to provide collateral or other security to support accounts receivable.
While the Company maintains allowances for potential bad debt losses, such
losses to date have not been material. At March 31, 1997, three customers
accounted for 25%, 25% and 15% of accounts receivable, respectively. At
March 31, 1996, three customers accounted for 54%, 11% and 10% of accounts
receivable, respectively.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation and amortization are generally provided using the
straight-line method over the shorter of the estimated useful lives of the
assets (two to five years) or the lease term.
INVENTORIES - Inventories are stated at the lower of cost (first-in,
first-out method) or market.
REVENUE RECOGNITION - Under a distribution agreement, a veterinary
products distributor has certain rights of return for products unsold by
the distributor. The Company defers recognition of such sales and profits
until the products are resold by the distributor. For direct sales and for
distributors where significant rights of return for products unsold do not
exist, revenues are recognized upon shipment. A provision for the
estimated future cost of warranty is made at the time revenue is
recognized.
INCOME TAXES - The Company accounts for income taxes using an asset and
liability approach to recording deferred taxes.
CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES - The preparation of financial
statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Such management estimates include the allowance for doubtful accounts
receivable, the net realizable value of inventory, certain accruals and
warranty reserves. Actual results could differ from those estimates.
The Company operates in a dynamic industry, and accordingly, can be
affected by a variety of factors. For example, management of the Company
believes that changes in any of the following areas could have a negative
effect on the Company in terms of its future financial position and
results of operations: ability to obtain additional financing; regulatory
changes; uncertainty regarding health care reforms; fundamental changes in
the technology underlying blood testing; the ability to develop new
products that are accepted in the marketplace; competition, including, but
not limited to pricing and products or product features and services;
litigation or other claims against the Company; the adequate and timely
sourcing of inventories; and the hiring, training and retention of key
employees.
NET LOSS PER SHARE - Net loss per share is computed using the weighted
average number of shares of common stock outstanding. Common equivalent
shares from stock options are excluded from the computation as their
effect is antidilutive.
32
<PAGE> 33
STOCK-BASED COMPENSATION - The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with APB No. 25,
"Accounting for Stock Issued to Employees."
RECENTLY ISSUED ACCOUNTING STANDARD - In February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 128, "Earnings per Share" (SFAS 128). The Company is
required to adopt SFAS 128 in the third quarter of fiscal 1998.
SFAS 128 replaces current earnings per share (EPS) reporting requirements
and requires a dual presentation of basic and diluted EPS. Basic EPS
exclude dilution and is computed by dividing net income by the weighted
average of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts
to issue common stock were exercised or converted into common stock. The
adoption of SFAS 128 will not have an impact on the Company's historically
reported EPS.
2. INVESTMENTS
The amortized cost and the estimated fair value of available-for-sale
securities at March 31 are materially the same and are shown below by
contractual maturity:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Due in one year or less:
Commercial paper and bankers' acceptances $ - $4,987,000
Corporate debt securities ............... 3,885,000 1,200,000
---------- ----------
$3,885,000 $6,187,000
========== ==========
Due after one year through two years -
Corporate debt securities ............... $ - $ 500,000
========== ==========
</TABLE>
3. INVENTORIES
Inventories at March 31 consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Raw materials . ........................... $1,235,000 $ 829,000
Work in process ........................... 723,000 467,000
Finished goods ............................ 260,000 160,000
---------- ----------
$2,218,000 $1,456,000
========== ==========
</TABLE>
33
<PAGE> 34
4. PROPERTY AND EQUIPMENT
Property and equipment at March 31 consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Machinery and equipment ................... $3,412,000 $3,325,000
Furniture and fixtures .................... 935,000 635,000
Computers and computer equipment........... 812,000 876,000
Leasehold improvements .................... 230,000 414,000
Construction in progress .................. 1,367,000 679,000
---------- ----------
6,756,000 5,929,000
Accumulated depreciation and amortization (4,303,000) (3,502,000)
---------- ----------
Net property and equipment .............. $2,453,000 $2,427,000
========== ==========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
LEASES - The Company leases its principal facility under a noncancelable
operating lease agreement that expires in July 2000. Monthly rental
payments increase based on a predetermined schedule. The Company
recognizes rent expense on a straight-line basis over the life of the
lease. The future minimum payments under the operating lease at March 31,
1997 are as follows:
<TABLE>
<CAPTION>
Fiscal Year
- -----------
<S> <C>
1998 .................................... $ 598,000
1999 .................................... 682,000
2000 .................................... 705,000
2001 .................................... 237,000
==========
Total ...................................... $2,222,000
==========
</TABLE>
Rent expense under operating leases was approximately $390,000, $391,000
and $390,000 for the years ended March 31, 1997, 1996 and 1995,
respectively.
LITIGATION - The Company is involved in litigation in the normal course of
business. In the opinion of management, the ultimate resolution of these
matters will not have a material effect on the Company, the Company's
financial position or results of operations.
6. RETIREMENT PLAN
The Company has a tax deferred savings plan for the benefit of qualified
employees. The plan is designed to provide employees with an accumulation
of funds at retirement. Qualified employees may elect to have salary
reduction contributions made to the plan on a quarterly basis. The Company
may make annual contributions to the plan at the discretion of the Board
of Directors. The Company has made no contributions since the inception of
the plan.
34
<PAGE> 35
7. SHAREHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK - During fiscal year 1997, the Board of
Directors authorized and designated 500,000 shares of Series A convertible
preferred stock. In September 1996, the Company sold the 500,000 shares of
Series A convertible preferred stock in a private placement, resulting in
net proceeds of $4,780,000. Significant terms of the Series A convertible
preferred stock included a conversion feature such that each share was
convertible into common stock at the option of the shareholder based upon
a variable exchange ratio depending upon the timing of conversion. The
Series A convertible preferred stock was also subject to automatic
conversion into common stock upon the earlier to occur of (1) the time the
consent of at least a majority of the outstanding preferred stock to such
conversion is obtained or (2) on the second anniversary of the issuance
date. The significant terms of the Series A preferred stock also entitled
the holders to cumulative dividends of $0.15 per share of preferred stock
at fixed intervals of time subsequent to the issuance date.
In November and December 1996, the 500,000 shares of Series A convertible
preferred stock were converted into 2,007,600 shares of common stock in
accordance with the specified exchange ratios. In connection with the
conversion, a dividend of $26,000 was paid to the holders of the Series A
preferred stock in accordance with the rights of the shareholders.
STOCK OPTION PLANS - Under the Company's 1989 Stock Option Plan (the
Option Plan), options to purchase common stock may be granted to employees
and consultants of the Company. Options granted under the 1989 Stock
Option Plan may be either incentive stock options or nonqualified stock
options. Incentive stock options are granted at no less than the fair
market value of the common stock on the date of grant, and nonqualified
stock options are granted at no less than 85% of the current fair market
value of the common stock on the date of grant. The stock options
generally expire ten years from the date of grant and normally become
exercisable ratably over four years. Under the Company's Outside
Directors' Stock Option Plan (the Directors' Plan), options to purchase
common stock may be granted only to directors of the Company who are not
employees. Options under the Directors' Plan are nonqualified stock
options and are granted at the fair market value on the date of grant and
expire five years from the date of grant.
In a prior year, the Company's Board of Directors reserved 20,000 shares
of common stock of which options to purchase 15,000 shares were granted to
a non-employee director at the fair market value of the Company's common
stock on the date of grant.
35
<PAGE> 36
Information with respect to stock option activity is summarized as
follows:
<TABLE>
<CAPTION>
Options Outstanding
----------------------------
Weighted
Average
Number Exercise
of Shares Price
--------- ---------
<S> <C> <C>
Balances at April 1, 1994 .............................. 763,945 $ 3.49
Granted ................................................ 326,750 5.53
Exercised .............................................. (111,752) 1.02
Canceled ............................................... (174,069) 6.79
---------
Balances at March 31, 1995 (323,778 vested at a weighted
average price of $2.22) .............................. 804,874 3.95
Granted (weighted average fair value of $4.14 per share) 299,000 6.28
Exercised .............................................. (157,704) 2.42
Canceled ............................................... (147,565) 5.20
---------
Balances at March 31, 1996 (368,143 vested at a weighted
average price of $3.64) .............................. 798,605 4.85
Granted (weighted average fair value of $2.99 per share) 634,350 4.56
Exercised .............................................. (20,925) 3.23
Canceled ............................................... (234,981) 5.75
---------
Balances at March 31, 1997 ............................. 1,177,049 $ 4.54
=========
</TABLE>
Additional information regarding options outstanding as of March 31, 1997 is as
follows:
<TABLE>
<CAPTION>
Options Outstanding
------------------------------------------- Options Exercisable
Weighted -----------------------
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Life Exercise Number Exercise
Exercise Prices Outstanding (Years) Price Exercisable Price
--------------- ----------- ------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
$0.32 - $1.32 118,921 3.88 $0.91 118,921 $0.91
$2.50 - $2.50 149,850 9.94 $2.50 - $ -
$2.87 - $4.00 113,000 5.54 $3.74 73,585 $3.93
$4.37 - $5.00 145,875 7.85 $4.70 118,448 $4.66
$5.12 - $5.12 255,000 9.23 $5.12 - $ -
$5.25 - $5.62 154,000 8.54 $5.60 39,208 $5.54
$5.75 - $6.25 133,736 7.81 $6.00 53,120 $6.13
$6.37 - $9.11 106,667 7.02 $7.31 60,783 $7.14
--------- -------
$0.32 - $9.11 1,177,049 7.80 $4.54 464,065 $4.15
========= =======
</TABLE>
At March 31, 1997, 378,512 and 93,750 shares were available for future
grants under the Option Plan and the Directors' Plan, respectively.
36
<PAGE> 37
ADDITIONAL STOCK PLAN INFORMATION - As discussed in Note 1, the Company
continues to account for its stock-based awards using the intrinsic value
method in accordance with APB No. 25, "Accounting for Stock Issued to
Employees," and its related interpretations.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), requires the disclosure of pro forma
net income and earnings per share had the Company adopted the fair value
method as of the beginning of fiscal 1996. Under SFAS 123, the fair value
of stock-based awards to employees is calculated through the use of option
pricing models, even though such models were developed to estimate the
fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option
awards. These models also require subjective assumptions, including future
stock price volatility and expected time to exercise, which greatly affect
the calculated values. The Company's calculations were made using the
Black-Scholes option pricing method with the following weighted average
assumptions: expected life, 19 months following vesting; volatility, 91%
in 1997 and 92% in 1996; risk-free interest rates, 5.8% in 1997 and 4.9%
in 1996; and no dividends during the expected term. The Company's
calculations are based on a multiple option valuation approach, and
forfeitures are recognized as they occur. If the computed fair values of
the 1997 and 1996 awards had been amortized to expense over the vesting
period of the awards, pro forma net loss would have been $7,022,000 ($0.67
per share) in 1997 and $6,446,000 ($0.68 per share) in 1996. However, the
impact of outstanding non-vested stock options granted prior to 1996 has
been excluded from the pro forma calculation; accordingly, the 1997 and
1996 pro forma adjustments are not indicative of future period pro forma
adjustments, when the calculation will apply to all applicable stock
options.
8. INCOME TAXES
As of March 31, 1997, the Company had federal and state net operating loss
carryforwards of approximately $46,000,000 and $15,000,000, respectively.
The Company also had federal and state research and development tax credit
carryforwards of approximately $1,600,000 and $800,000, respectively. The
net operating loss and credit carryforwards will expire at various dates
from 1998 through 2011, if not utilized. Use of the Company's net
operating loss and tax credit carryforwards may be limited if a change in
ownership, as defined by the Internal Revenue Code, occurs.
37
<PAGE> 38
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards ................. $ 16,500,000 $ 14,800,000
Research and development credit and manufacturer's
investment credit carryforwards ................ 2,400,000 2,100,000
Capitalized research and development ............. 1,000,000 1,300,000
Other, net ....................................... 600,000 800,000
------------ ------------
20,500,000 19,000,000
Valuation allowance for deferred tax assets ........ (20,500,000) (19,000,000)
------------ ------------
Total deferred tax assets .......................... $ - $ -
============ ============
</TABLE>
The Company has not recorded any tax provision or credit for income taxes
due to the Company's historic losses and uncertainties surrounding the
ability to utilize its deferred tax assets in the future.
9. CUSTOMER AND GEOGRAPHIC INFORMATION
Three customers accounted for 34%, 20% and 10%, respectively, of total
revenues for the fiscal year ended March 31, 1997. In fiscal year 1996,
one customer accounted for 64%, and in fiscal year 1995, two customers
accounted for 76% and 23%, respectively, of total revenues.
The following is a summary of revenues by geographic region:
<TABLE>
<CAPTION>
Years Ended March 31,
----------------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
United States ........................ $4,995,000 $2,436,000 $1,044,000
Europe ............................... 695,000 263,000 -
Japan ................................ 1,452,000 82,000 -
Other ................................ 152,000 167,000 -
---------- ---------- ----------
Total ................................ $7,294,000 $2,948,000 $1,044,000
========== ========== ==========
</TABLE>
10. SUBSEQUENT EVENT
On April 30, 1997, the Company obtained a $2,000,000 equipment financing
loan to be used for equipment purchases and immediately borrowed $600,000
against the line. Borrowings under this new equipment financing loan are
collateralized by the Company's equipment and bear interest at
approximately 16%. In connection with this new equipment financing loan,
warrants to purchase 106,667 shares of the Company's common stock at an
exercise price of $3.00 per share were issued to the lender.
38
<PAGE> 39
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item (with respect to Directors) is
incorporated by reference from the information under the caption "ELECTION OF
DIRECTORS" contained in the Company's definitive proxy statement to be filed in
connection with the solicitation of proxies for its Annual Meeting of
Shareholders tentatively scheduled to be held on September 9, 1997 (the "Proxy
Statement").
The following table sets forth certain information concerning the directors and
executive officers of the Company as of June 16, 1997.
<TABLE>
<CAPTION>
Name Age Title
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Gary H. Stroy 54 Chairman of the Board
Clinton H. Severson 49 President, Chief Executive Officer and Director
Vladimir E. Ostoich, Ph.D. 51 Founder, Vice President of Marketing
and Sales for North America
Daniel Wong, Ph.D. 45 Vice President of Development
Ting W. Lu 39 Vice President of Finance and Administration,
Chief Financial Officer and Secretary
Paul R. Hemmes Ph.D. 52 Vice President of Operations
Prithipal Singh, Ph.D. (2) 58 Director
Richard Bastiani, Ph.D. (2) 54 Director
Brenton G. A. Hanlon (1) 50 Director
Ernest S. Tucker, III, MD (1) 63 Director
</TABLE>
- ----------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Mr. Stroy, a co-founder of the Company, has served full-time as Chairman of the
Board since September 1995. Mr. Stroy served as President and Chief Executive
Officer from March 1992 to June 1996. Mr. Stroy also served full-time as
Chairman of the Board and Secretary from the Company's incorporation until May
1992 and as Senior Vice President of Sales and Marketing from December 1991
until March 1992. From 1983 to 1989, Mr. Stroy served as President and Chief
Executive Officer of Biotrack, Inc. ("Biotrack"), a diagnostic test company
which he co-founded and which was sold to Ciba-Geigy in 1990. From 1981 to 1983,
he served as Executive Vice President of LifeScan, a diagnostic test company
which he co-founded and which was sold to Johnson & Johnson in 1986. Prior to
1981, he was employed in a variety of marketing and management positions by
divisions of SmithKline Beecham, American Hospital Supply (Baxter), Syva
(Syntex) and Miles Laboratories (Bayer). Mr. Stroy also serves as Chairman of
the Board at LXN, a privately-held medical diagnostic company.
Mr. Severson has served as President, Chief Executive Officer and Director of
the Company since June 1996. From February 1989 to May 1996, Mr. Severson served
as President and Chief Executive Officer of
39
<PAGE> 40
MAST Immunosystems, Inc., a medical diagnostic company. From 1984 to 1989, Mr.
Severson was employed by 3M Diagnostic Systems, an in-vitro allergy test system
manufacturer, last serving as General Manager. From 1978 to 1984, Mr. Severson
was employed by Syva Company, a medical diagnostic testing company, in various
sales and marketing management positions.
Dr. Ostoich, a co-founder of the Company, has served as Vice President in
various areas of the Company since its inception. Dr. Ostoich first served as
Vice President of Research and Development. Dr. Ostoich has also served as
Senior Vice President of Research and Development, Vice President of Engineering
and Instrument Manufacturing and Vice President of Research and Engineering. Dr.
Ostoich was recently appointed Vice President of Marketing and Sales for North
America. From 1988 to 1989, Dr. Ostoich was employed by Proxim, Inc., a wireless
data communication company, as Vice President of Engineering. From 1985 to 1987,
he was employed as Director of Engineering by Biotrack. From 1980 to 1984, Dr.
Ostoich was employed by Hewlett Packard Company in a variety of engineering
positions. From 1972 to 1979, Dr. Ostoich held several faculty positions at the
Technical University of Denmark.
Dr. Wong joined Abaxis in April 1993 as Methods Development Manager and was
named Vice President of Development in May 1994. From January 1995 to February
1996, Mr. Wong also served as Vice President of Development and Reagent
Manufacturing. From 1980 to 1993, Dr. Wong was employed by Miles, Inc. (Bayer),
a medical products company, in a variety of technical and management positions
in its Diagnostics Division.
Ms. Lu joined Abaxis in May 1992 as Controller and was named Vice President of
Finance in May 1994 and Secretary in July 1994. Ms. Lu was appointed Chief
Financial Officer in September 1995. From January 1995 to February 1996, Ms. Lu
also served as Vice President of Finance, Administration, and Materials. From
1991 to 1992, Ms. Lu was employed by Compression Labs, Inc., a
telecommunications equipment company, as Assistant Controller. From 1989 to
1991, Ms. Lu served as Controller at GSS Array Corp., a contract manufacturing
services company. From 1983 to 1989, Ms. Lu was employed by Xerox Corp., where
she held several financial management positions in its Information Products
Division. Ms. Lu is a Certified Public Accountant.
Dr. Hemmes joined Abaxis in February 1996 as Vice President of Operations. From
1989 to January 1996 Dr. Hemmes was employed by Environmental Test Systems,
Inc., a test device manufacturer, where he served most recently as vice
president of research, strategic planning and technology transfer. From 1988 to
1989, Dr. Hemmes was employed by Angenics, Inc., a medical diagnostic company,
where he served as vice president of manufacturing. From 1981 to 1988, Dr.
Hemmes was employed by Miles, Inc., a medical products company, where he held
various technical and management positions. From 1970 to 1981, Dr. Hemmes held
several faculty positions at Rutgers University.
Dr. Prithipal Singh joined the Company's Board of Directors in June 1992. Dr.
Singh is a founder of ChemTrak, Inc., a manufacturer of medical diagnostic
equipment, currently serving as Chairman of the Board and Chief Technical
Officer. From 1985 to August 1988, Dr. Singh was a Senior Vice President of
Idetek, Inc., a animal health care company. From April 1970 to January 1985, Dr.
Singh held a number of positions with Syva Corporation, now a division of
Behring Diagnostics, most recently as a Vice President.
Dr. Bastiani joined the Company's Board of Directors in September 1995. Since
September 1995, Dr. Bastiani has been President of Activated Cell Therapy, a
biotechnology company. Dr. Bastiani served as President of Syva Company, a
medical diagnostic testing company, from February 1991 until June 1995. From
1971 to February 1991, Dr. Bastiani held various positions with Syva Company,
including as Vice President of Marketing and Sales from 1984 until February
1991.
Dr. Tucker joined the Company's Board of Directors in September 1995. Dr. Tucker
has served as Chairman of Pathology at Scripps Clinic and Research Foundation
since 1992. From 1989 to 1992, Dr.
40
<PAGE> 41
Tucker was Chairman of Pathology at California Pacific Medical Center. From 1977
to 1988, Dr. Tucker served as the Director of Immunology Reference Lab of the
Research Institute of Scripps Clinic.
Mr. Hanlon joined the Company's Board of Directors in November 1996. Mr. Hanlon
is President and COO of Tri-Continent Scientific, a subsidiary of Hitachi
Chemical, and a manufacturer of instrumentation for diagnostic applications. Mr.
Hanlon served as Vice President and General Manager of Tri-Continent Scientific
from 1989 to 1996. From 1984 to 1989, Mr. Hanlon was President of Corus Medical,
a medical products company. From 1980 to 1984 he held various marketing
positions with Syva Company, a medical diagnostic company.
All directors hold office until the next annual meeting of shareholders of the
Company and until their successors have been elected and qualified. The
Company's Bylaws authorize the Board of Directors to fix the number of directors
at not less than four nor more than seven. The authorized number of directors of
the Company is currently six.
Each officer serves at the discretion of the Board of Directors. There are no
family relationships among any of the directors or officers of the Company.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the Company's definitive Proxy Statement to be filed for the Company's
tentatively scheduled annual meeting of shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
Company's definitive Proxy Statement to be filed for the Company's tentatively
scheduled annual meeting of shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
Company's definitive Proxy Statement to be filed for the Company's tentatively
scheduled annual meeting of shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report:
1. Financial Statements
Reference is made to the Index to Financial Statements under Item 8 of
Part II hereof, where these documents are included.
2. Financial Statement Schedules
There are no financial statement schedules filed as part of this report
because such schedules are not required to be set forth therein or the
information is shown in the financial statements or notes thereto.
41
<PAGE> 42
3. Exhibits filed with this Report on Form 10-K (numbered in accordance
with Item 601 of Regulation S-K)
<TABLE>
<CAPTION>
Sequential
Exhibit Page
Number Description Number
- ------ ----------- ------
<S> <C> <C>
10.20 Employment Agreement with Mr. Clinton H. Severson dated March
31, 1997 46
10.21 Amendment to the Lease Agreement between the Company and South
Bay/Caribbean dated March 11, 1997 50
10.22 Equipment Loan Agreement between the Company and Transamerica
Business Credit dated March 4, 1997 54
22.1 Subsidiaries of the Registrant 69
23.1 Consent of Deloitte & Touche LLP, Independent Auditors 70
23.2 Consent of Ernst & Young LLP, Independent Auditors 71
27.1 Financial Data Schedule 72
</TABLE>
(b) Reports on From 8-K
None
42
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ABAXIS, INC.
BY /s/ Clinton H. Severson
------------------------------------------
Clinton H. Severson
President and Chief Executive Officer
June 30, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Clinton H. Severson President, Chief Executive June 30, 1997
- -----------------------------
Clinton H. Severson Officer and Director (Principal
Executive Officer)
Vice President of Finance & June 30, 1997
Administration, Chief Financial Officer
/s/ Ting W. Lu and Secretary
- -----------------------------
Ting W. Lu (Principal Financial and Accounting
Officer)
/s/ Gary H. Stroy Chairman of the Board of Directors June 30, 1997
- -----------------------------
Gary H. Stroy
/s/ Richard Bastiani Director June 30, 1997
- -----------------------------
Richard Bastiani
/s/ Brenton G. A. Hanlon Director June 30, 1997
- -----------------------------
Brenton Hanlon
/s/ Prithipal Singh Director June 30, 1997
- -----------------------------
Prithipal Singh
/s/ Ernest Tucker Director June 30, 1997
- -----------------------------
Ernest Tucker
</TABLE>
43
<PAGE> 44
EXHIBITS INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description of Document
--- -----------------------
<S> <C>
3.1 Restated Articles of Incorporation, as amended (5) (10)
3.2 By-laws of the Company (1)
10.5 1989 Stock Option Plan as amended and forms of agreement (3)
10.6 1992 Outside Directors Stock Option Plan and forms of agreement (4)
10.7 401(k) Plan (1)
10.8 Lease Agreement between the Company and South Bay/Caribbean dated March 11, 1992 (3)
10.13 Exclusive Distribution Agreement dated September 20, 1991 between the Company and Teramecs
(1) (2)
10.14 Sponsored Research Agreement dated as of September 20, 1991 between the Company and Teramecs
(1) (2)
10.15 Development Agreement between the Company and Becton Dickinson and Company (through its
Becton Dickinson Immunocytometry Systems Division) dated April 9, 1993 (5) (6)
10.16 Distribution agreement between the Company and VedCo, Inc. dated June 20, 1994 (6)
10.17 Supply Agreement between the Company and Becton Dickinson and Company (through its Becton
Dickinson Immunocytometry Systems Division) dated September 16, 1994 (6) (7)
10.18 Licensing agreement between the Company and Pharmacia Biotech, Inc. dated October 1, 1994
(6) (7)
10.19 Employment Agreement with Mr. Gary H. Stroy dated March 11, 1995 (8)
10.20 Employment Agreement with Mr. Clinton H. Severson dated March 31, 1997 (Page 46)
10.21 Amendment to the Lease Agreement between the Company and South Bay/Caribbean dated March, 11,
1997 (Page 50)
10.22 Equipment Loan Agreement between the Company and Transamerica Business Credit dated March 4,
1997 (Page 54)
16.1 Letter from Ernst & Young LLP dated January 30, 1996 (9)
22.1 Subsidiaries of Registrant (Page 69)
23.1 Consent of Deloitte & Touche LLP, Independent Auditors (Page 70)
23.2 Consent of Ernst & Young LLP, Independent Auditors (Page 71)
27.1 Financial Data Schedule (Page 72)
</TABLE>
44
<PAGE> 45
(1) Incorporated by reference from Registration Statement No. 33-44326 filed
December 11, 1991.
(2) Confidential treatment of certain portions of these agreements has been
granted.
(3) Incorporated by reference to the exhibit filed with the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1992.
(4) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1992.
(5) Incorporated by reference to the exhibit filed with the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1993.
(6) Confidential treatment of certain portions of these agreements has been
granted.
(7) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1994.
(8) Incorporated by reference to the exhibit filed with the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1995.
(9) Incorporated by reference to the Company's Report on Form 8-K filed
February 1, 1996.
(10) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1996.
45
<PAGE> 1
EXHIBIT 10.20
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into by and between
ABAXIS, Inc. (the "Company") and Clinton H. Severson ("Severson").
1. POSITION AND DUTIES: You will be employed by the Company as
President and Chief Executive Officer and Director reporting to the Company's
Board of Directors (the "Board"). You accept employment with the Company on the
terms and conditions set forth in this Agreement, and you agree to devote your
full business time, energy and skill to your duties at the Company. These duties
shall include, but not be limited to, any duties consistent with your position,
as well as any other duties which may be assigned to you from time to time by
the Board.
2. TERM OF EMPLOYMENT: Your employment with the Company is for a three
year period, commencing on June 24, 1996, subject to the provisions regarding
termination set forth below. If you and the Company desire to continue your
employment beyond three years, you and the Company may extend your employment by
written agreement. Upon the termination of your employment, neither you nor the
Company shall have any further obligation or liability to the other, except as
set forth in Paragraphs 4 and 5 below.
3. COMPENSATION: You will be compensated by the Company for your
services as follows:
(a) Salary: You will be paid a monthly salary of $16,667.00,
less applicable withholding, in accordance with the Company's normal payroll
procedures. Your salary will be reviewed by the Compensation Committee of the
Board on an annual basis, and may be subject to adjustment based upon various
factors including, but not limited to, your performance and the Company's
profitability. Any adjustment to your salary shall be in the sole discretion of
the Board.
(b) Bonus: You will be eligible to participate in the
Company's executive performance bonus plan, under terms to be negotiated within
90 days of your start date.
(c) Benefits: You will have the right, on the same basis as
other executive employees of the Company, to participate in and to receive
benefits under the Company's group health, dental and disability insurance
plans, as well as under the Company's 401(k) plan. In addition, you will accrue
paid time off of 30 days per year for vacation, or sick time purposes.
(d) Stock Options: Subject to the Board's approval, you will
be granted one or more options to purchase a total of 250,000 shares of the
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Company's common stock, which will be treated as an incentive stock option to
the maximum extent permitted under the Internal Revenue Code and the Company's
Stock Option Plan, at the stock's fair market value on June 26, 1996, the date
of the grant; such option(s) will vest 25% at the end of your first year of
employment with the Company and 1/48th per month thereafter, unless the Company
is sold (in which case all unvested shares subject to the option will
immediately vest).
Your receipt of the foregoing option will be subject to your acceptance
of the Company's standard form of stock option agreement and the Company's Stock
Option Plan, which will set forth the specific terms and conditions governing
each option.
4. BENEFITS UPON VOLUNTARY TERMINATION: In the event that you resign
from your employment with the Company, or in the event that your employment
terminates as a result of your death or disability, you shall be entitled to no
compensation or benefits from the Company other than those earned under
Paragraph 3 through the date of your termination or as may be required by law.
In particular, you shall not be entitled to any bonus under subsection 3(b)
unless that bonus was earned prior to the date of your termination. You agree
that in the event you resign from your employment with the Company for any
reason, you shall provide the Company with two months' written notice of your
resignation. The Company may, in its sole discretion, elect to waive all or any
part of such notice period and accept your resignation at an earlier date.
5. BENEFITS UPON OTHER TERMINATION: Notwithstanding Paragraph 2 above,
you agree that your employment may be terminated by the Company at any time,
with or without cause. In the event your employment is terminated by the Company
for the reasons set forth below, you shall be entitled to the following:
(b) Termination for Cause: If your employment is terminated by
the Company at any time for cause, you shall be entitled to no compensation or
benefits from the Company other than those earned under Paragraph 3 through the
date of your termination. In particular, you shall not be entitled to any bonus
under subsection 3(b) unless that bonus was earned prior to the date of your
termination for cause.
For purposes of this Agreement, a termination "for cause" occurs if you
are terminated for any of the following reasons: (i) theft, dishonesty, or
falsification of any employment or Company records; (ii) improper disclosure of
the Company's confidential or proprietary information; (iii) any action by you
which has a material detrimental effect on the Company's reputation or business;
(iv) your failure or inability to perform any reasonable assigned duties
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after written notice from the Company of, and a reasonable opportunity to cure,
such failure or inability; or (v) your conviction for any criminal act which
impairs your ability to perform your duties under this Agreement.
(c) Termination for Other than Cause: If your employment is
terminated by the Company for any reason other than cause, you shall receive
severance payments at your final salary rate, less applicable withholding, for a
period of six months following such termination. Severance payments will be made
in accordance with the Company's normal payroll procedures, and will be less
applicable withholding. In addition to any severance to which you are entitled
under this subsection, you shall also be entitled to receive any compensation
and benefits which you earn under Paragraph 3 through the date of your
termination; provided, however, that you shall not be entitled to any bonus
under subsection 3(b) unless that bonus was earned prior to the date of your
termination.
6. EXCLUSIVE REMEDY: We agree that the severance payments described in
Paragraph 5(b) shall be your sole and exclusive remedy in the event that the
Company terminates your employment without cause, and you shall be entitled to
no other compensation for any damage or injury arising out of the termination of
your employment by the Company.
7. CONFIDENTIAL AND PROPRIETARY INFORMATION: As a condition of your
employment with the Company, you agree to sign its standard form of employee
confidentiality and assignment of inventions agreement at the start of your
employment.
8. DISPUTE RESOLUTION: In the event of any dispute or claim relating to
or arising out of our employment relationship, the termination of that
relationship or this Agreement (including, but not limited to, any claims of
wrongful termination or age or other discrimination), we agree that all such
disputes shall be fully and finally resolved by binding arbitration conducted by
the American Arbitration Association in Santa Clara County, California. We
hereby agree to waive our respective rights to have any such disputes tried by a
judge or jury. Provided, however, that this arbitration provision shall not
apply to any disputes or claims relating to or arising out of the actual or
alleged misuse or misappropriation of the Company's trade secrets or proprietary
information.
9. ATTORNEYS' FEES: The prevailing party shall be entitled to recover
from the losing party its attorneys' fees and costs incurred in any action
brought to enforce any right arising out of this Agreement.
10. INTERPRETATION: This Agreement shall be interpreted in accordance
with and governed by the laws of the State of California.
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11. ASSIGNMENT: In view of the personal nature of the services to be
performed under this Agreement by you, you shall not have the right to assign or
transfer any of your obligations under this Agreement.
12. ENTIRE AGREEMENT: This letter, along with any agreements relating
to proprietary rights or stock options referred to herein, constitute the entire
agreement between you and the Company regarding the terms and conditions of your
employment, and they supersede all prior negotiations, representations or
agreements between you and the Company regarding your employment, whether
written or oral.
13. MODIFICATION: This Agreement may only be modified or amended by a
supplemental written agreement signed by you and an authorized member of the
Board.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year written below.
Sincerely,
ABAXIS, INC.
Date: ___________________________ By: ___________________________
Its: ___________________________
Date: ___________________________ ________________________________
Clinton H. Severson
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SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE ("Amendment") is executed as of this 11
day of March, 1997 by and between MP CARIBBEAN, INC., a Delaware corporation
("Landlord"), and ABAXIS, INC., a California corporation ("Tenant"), with
reference to the following:
R E C I T A L S
A. Tenant and Landlord are presently parties to that certain Lease
Agreement dated as of March 11, 1992, as amended pursuant to that certain First
Amendment to Lease of even date therewith (collectively, the "Lease"). Pursuant
to the Lease, Landlord has leased to Tenant approximately 38,304 square feet of
industrial space located in the Caribbean Corporate Center, Sunnyvale,
California as more particularly described in the Lease (the "Premises").
B. The Lease expires by its express terms on July 17, 1997.
C. Landlord and Tenant now desire to provide for the early renewal of
the Lease, upon the terms and conditions contained herein.
A G R E E M E N T
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Landlord and Tenant agree as
follows:
1. Recitals; Definitions. Landlord and Tenant agree that each of the
foregoing recitals is true and correct and incorporated herein by this
reference. All words and phrases having their initial letters capitalized in
this Amendment and not otherwise defined herein shall have the meanings set
forth in the Lease.
2. Term. Landlord and Tenant hereby acknowledge and agree that the
expiration date of the Lease Term is hereby extended from July 17, 1997 to July
17, 2000.
3. Monthly Installment of Rent. Notwithstanding anything to the
contrary contained in Section 4.B. of the Lease, the Monthly Installment of rent
for the Premises shall as follows:
(a) From July 18, 1997 through and including July 17, 1998,
the Monthly Installment of rent shall be $55,541.00.
(b) From July 18, 1998 through and including July 17, 1999,
the Monthly Installment of rent shall be $57,456.00.
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(c) From July 18, 1999 through and including July 17, 2000,
the Monthly Installment of rent shall be $59,371.00.
4. Security Deposit. Concurrently with the execution of this Amendment,
Tenant shall pay to Landlord the further sum of $24,897.40 which sum shall be
and remain a part of the Security Deposit held by Landlord pursuant to the
Lease. Upon Landlord's receipt of such sum, the total aggregate Security Deposit
held by Landlord shall be $59,371.00.
5. Inapplicable Provisions. Landlord and Tenant acknowledge and agree
that Sections 40, 41 and 42 of the Lease are no longer applicable and that
Sections 40, 41 and 42 of the Lease are hereby deleted in their entirety and
shall be of no further force or effect.
6. Personal Liability. Notwithstanding anything to the contrary
contained in the Lease, the liability of Landlord, any agent of Landlord, or any
of their respective officers, directors, shareholders, or employees to Tenant
for or in respect of any default by Landlord under the terms of the Lease, as
amended by this Amendment, or in respect of any other claim or cause of action
shall be limited to the interest of Landlord in the Project, and Tenant agrees
to look solely to Landlord's interest in the Project for the recovery and
satisfaction of any judgment against Landlord, any agent of Landlord, or any of
their respective officers, directors, shareholders, and employees.
7. Insurance and Indemnification. The word "gross" is hereby inserted
into line 12 of Section 8.A. of the Lease immediately between the word "the" and
the word "negligence".
8. Hazardous Materials. Exhibit F to the Lease is hereby deleted in its
entirety and a revised Exhibit F in form attached to this Amendment as Exhibit
F-1 is hereby substituted in its place and stead.
9. Waiver of Jury Trial. LANDLORD AND TENANT HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED ON THE LEASE, AS AMENDED HEREBY, ARISING OUT OF, UNDER OR
IN CONNECTION WITH THE LEASE, THIS AMENDMENT OR ANY DOCUMENTS CONTEMPLATED TO BE
EXECUTED IN CONNECTION THEREWITH OR HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF
DEALINGS, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF EITHER PARTY
ARISING OUT OF OR RELATED IN ANY MANNER WITH THE PREMISES (INCLUDING WITHOUT
LIMITATION, ANY ACTION TO RESCIND OR CANCEL THE LEASE, AS AMENDED BY THIS
AMENDMENT, OR ANY CLAIMS OR DEFENSES ASSERTING THAT THE LEASE, AS AMENDED BY
THIS AMENDMENT, WAS FRAUDULENTLY INDUCED OR IS OTHERWISE VOID OR VOIDABLE). THIS
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WAIVER IS A MATERIAL INDUCEMENT FOR LANDLORD TO ENTER AND ACCEPT THIS AMENDMENT.
10. Representations and Warranties. Tenant hereby represents, warrants
and agrees that: (i) there exists no Event of Default under the Lease, as
amended by this Amendment, or any event or condition which, with notice or
passage of time or both, would constitute an Event of Default on the part of
Tenant under the Lease, as amended by this Amendment; (ii) the Lease, as amended
by this Amendment, continues to be a legal, valid and binding agreement and
obligation of Tenant; (iii) Landlord is not in default under the Lease, as
amended by this Amendment; and (iv) Tenant has no offset or defense to
performance of its obligations under the Lease, as amended by this Amendment.
11. Brokers. Tenant represents and warrants that Tenant has had no
dealing with any broker in connection with the negotiation or execution of this
Amendment, and Tenant agrees to indemnify Landlord and hold Landlord harmless
from any and all costs, expenses or liabilities for commissions or other
compensation claimed by any broker or agent.
12. Additional Provisions.
(a) Time of the Essence. Time is of the essence of this Amendment and
each and every provision hereof.
(b) Entire Agreement. This Amendment constitutes the entire agreement
between Landlord and Tenant with respect to the extension and modification of
the Lease, and all prior or contemporaneous negotiations and agreements relating
thereto, whether oral or written, are merged herein and shall be of no further
force or effect.
(c) No Other Changes. Except to the limited extent specifically
provided herein, the Lease remains unmodified and in full force and effect on
the terms, covenants and conditions set forth therein.
(d) Conflict Among Documents. In the event of any conflict between the
terms and conditions contained in this Amendment and the terms and conditions
contained in the Lease, the terms and conditions of this Amendment shall prevail
and be controlling.
(e) Headings. Paragraph headings contained in this Amendment are for
reference purposes only, and shall not affect in any way the meaning or
interpretations of this Agreement.
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as
of the day and year first above written.
Landlord:
MP CARIBBEAN, INC.,
a Delaware corporation
By: GE CAPITAL INVESTMENT ADVISORS, INC.,
its agent
/s/ Jerry D. Binkley
- ---------------------------------------
Chief Operating Officer
Tenant:
ABAXIS, INC.,
a California corporation
/s/ Paul Hemmes
- ---------------------------------------
Vice President of Operations
EXHIBIT F-1
UPDATED SCHEDULE OF PERMITTED HAZARDOUS MATERIALS
[TO BE PROVIDED BY TENANT AND APPROVED BY LANDLORD]
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EXHIBIT 10.22
SECURITY AGREEMENT
THIS SECURITY AGREEMENT dated as of March 31, 1997. is made by
Abaxis, Inc. (the "Borrower"), a California corporation having its own principal
place of business and chief executive office at 1320 Chesapeake Terrace,
Sunnyvale, CA 94089, in favor of Transamerica Business Credit Corporation, a
Delaware corporation (the "Lender"), having its principal office at Riverway II,
West Office Tower, 9399 West Higgins Road, Rosemont, Illinois 60018.
WHEREAS, the Borrower has requested that the Lender make Loans
to it from time to time; and Security Agreement.
WHEREAS, the Lender has agreed to make such Loans on the terms
and conditions of this Security Agreement.
NOW, THEREFORE, in consideration of the premises and to induce
the Lender to extend credit, the Borrower hereby agrees with the Lender as
follows:
1. DEFINITIONS.
As used herein, the following terms shall have the following
meanings, and shall be equally applicable to both the singular and plural forms
of the terms defined:
Applicable Law shall mean the laws of the State of Illinois (or any other
jurisdiction whose laws are mandatorily applicable notwithstanding the parties'
choice of Illinois law) or the laws of the United States of America, whichever
laws allow the greater interest, as such laws now exist or may be changed or
amended or come into effect in the future.
Business Day shall mean any day other than Saturday, Sunday or public holiday or
the equivalent for banks in New York City.
Code shall have the meaning specified in Section 8(d).
Collateral shall have the meaning specified in Section 2.
Collateral Access Agreement shall mean any landlord waiver, mortgage waiver,
bailee letter or similar acknowledgment of any warehouseman or processor in
possession of any Equipment, in each case substantially in the form of Exhibit
A.
Effective Date shall mean the date on which all of the conditions specified in
Section 3.3 shall have been satisfied.
Equipment shall have the meaning specified in Section 2.
Event of Default shall mean any event specified in Section 7.
Financial Statements shall have the meaning specified in Section 6.1.
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GAAP shall mean generally accepted accounting principles in the United States of
America, as in effect from time to time.
Loans shall mean the loans and financial accommodations made by the Lender to
the Borrower in accordance with the terms of this Security Agreement and the
Notes.
Loan Documents shall mean, collectively, this Security Agreement, the Notes and
all other documents, agreements, certificates, instruments and opinions executed
and delivered in connection herewith and therewith, as the same may be modified,
extended, restated or supplemented from time to time.
Material Adverse Change shall mean, with respect to any Person, a material
adverse change in the business, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise) of such Person taken
as a whole.
Material Adverse Effect shall mean, with respect to any Person, a material
adverse effect on the business, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise) of such Person taken
as a whole.
Note shall mean each Promissory Note made by the Borrower in favor of the
Lender, as amended, supplemented or otherwise modified from time to time, in
each case substantially in the form of Exhibit B.
Obligations shall mean all indebtedness, obligations and liabilities of the
Borrower under the Notes and under this Security Agreement, whether on account
of principal, interest, indemnities, fees (including without limitation,
attorney's fees, remarketing fees, origination fees, collection fees and all
other professionals' fees), costs, expenses, taxes or otherwise.
Permitted Liens shall mean such of the following as to which no enforcement,
collection, execution, levy or foreclosure proceeding shall have been commenced:
(a) liens for taxes, assessments and other governmental charges or levies or the
claims or demands of landlords, carriers, warehousemen, mechanics, laborers,
materialmen and other like Persons arising by operation of law in the ordinary
course of business for sums which are not yet due and payable, or liens which
are being contested in good faith by appropriate proceedings diligently
conducted and with respect to which adequate reserves are maintained to the
extent required by GAAP; (b) deposits or pledges to secure the payment of
workmen's compensation, unemployment insurance or other social security benefits
or obligations, public or statutory obligations, surety or appeal bonds, bid or
performance bonds, or other obligations of a like nature incurred in the
ordinary course of business; (c) licenses, restrictions or covenants for or on
the use of the Equipment which do not materially impair either the use of the
Equipment in the operation of the business of the Borrower or the value of the
Equipment; and (d) attachment or judgment liens that do not constitute an Event
of Default.
Person shall mean any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
institution, entity, party or government (including any division, agency or
department thereof), and the successors, heirs and assigns of each.
Schedule shall mean each Schedule in the form of Schedule A hereto delivered by
the Borrower to the Lender from time to time.
Security Agreement shall mean this Security Agreement together with all
schedules and exhibits hereto, as amended, supplemented or otherwise modified
from time to time.
Solvent means, with respect to any Person, that as of the date as to which such
Person's solvency is measured:
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(a) the fair saleable value of its assets is in excess of the
total amount of its liabilities (including contingent liabilities as valued in
accordance with GAAP) as they become absolute and matured:
(b) it has sufficient capital to conduct its business; and
(c) it is able generally to meet its debts as they mature.
Taxes shall have the meaning specified in Section 5.5.
2. CREATION OF SECURITY INTEREST; COLLATERAL. The Borrower
hereby assigns and grants to the Lender a continuing general, first priority
lien on any security interest in, all the Borrower's right, title and interest
in and to the collateral described in the next sentence (the "Collateral") to
secure the payment and performance of all the Obligations. The Collateral
consists of all equipment set forth on all the Schedules delivered from time to
time under the terms of this Security Agreement (the "Equipment"), together with
all present and future additions, parts, accessories, attachments,
substitutions, repairs, improvements and replacements thereof or thereto, and
any and all proceeds thereof, including without limitation, proceeds of
insurance and all manuals, blueprints, know-how, warranties and records in
connection therewith, all rights against suppliers, warrantors, manufacturers,
sellers or others in connection therewith, and together with all substitutes for
any of the foregoing.
3. THE CREDIT FACILITY.
3.1 BORROWINGS. Each Loan shall be in an amount not less
than $50,000.00, and in no event shall the sum of the aggregate Loans made
exceed the amount of the Lender's written commitment to the Borrower in effect
from time to time. Notwithstanding anything herein to the contrary, the Lender
shall be obligated to make the initial Loan and each other Loan only after the
Lender, in its sole discretion, determines that the applicable conditions for
borrowing contained in Section 3.3 and 3.4 are satisfied.
3.2 APPLICATION OF PROCEEDS. The Borrower shall not
directly or indirectly use any proceeds of the Loans, or cause, assist, suffer
or permit the use of any proceeds of the Loans, for any purpose other than for
the purchase, acquisition, installation or upgrading of Equipment or the
reimbursement of the Borrower for its purchase, acquisition, installation or
upgrading of Equipment.
3.3 CONDITIONS OF INITIAL LOAN.
(a) The obligation of the Lender to make the initial Loan is subject to
the Lender's receipt of the following, each dated the date of the initial Loan
or as of an earlier date acceptable to the Lender, in form and substance
satisfactory to the Lender and its counsel:
(i) completed requests for information (Form UCC-11)
listing all effective Uniform Commercial Code financing statements naming the
Borrower as debtor and all tax lien, judgment and litigation searches for the
Borrower as the Lender shall deem necessary or desirable;
(ii) Uniform Commercial Code financing statements (Form
UCC-1) duly executed by the Borrower (naming the Lender as secured party and the
Borrower as debtor and in form acceptable for filing in all jurisdictions that
the Lender deems necessary or desirable to perfect the security interests
granted to it hereunder) and, if applicable, termination statements or other
releases duly filed in all jurisdictions that the Lender deems necessary or
desirable to perfect and protect the priority of the security interests granted
to it hereunder in the Equipment related to such initial Loan;
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(iii) a Note duly executed by the Borrower evidencing the
amount of such Loan;
(iv) a Collateral Access Agreement duly executed by the
lessor or mortgage, as the case may be, of each premises where the Equipment is
located;
(v) certificates of insurance required under Section 5.4
of this Security Agreement together with loss payee endorsements for all such
policies naming the Lender as lender loss payee and as an additional insured;
(vi) a copy of the resolutions of the Board of Directors
of the Borrower (or a unanimous consent of directors in lieu thereof)
authorizing the execution, delivery and performance of this Security Agreement,
the other Loan Documents, and the transactions contemplated hereby and thereby,
attached to which is a certificate of the Secretary or an Assistant Secretary of
the Borrower certifying (A) that the copy of the resolutions is true, complete
and accurate, that such resolutions have not been amended or modified since the
date of such certification and are in full force and effect and (B) the
incumbency, names and true signatures of the officers of the Borrower authorized
to sign the Loan Documents to which it is a party;
(vii) a duly executed warrant made by the Borrower in
favor of the Lender issued as of April 30, 1997; and
(viii) such other agreements and instruments as the
Lender deems necessary in its sole and absolute discretion in connection with
the transaction contemplated hereby.
(b) There shall be no pending or, to the knowledge of the Borrower
after due inquiry, threatened litigation, proceeding, inquiry or other action
(i) seeking an injunction or other restraining order, damages or other relief
with respect to the transactions contemplated by this Security Agreement or the
other Loan Documents or thereby or (ii) which affects or could affect the
business, prospects, operations, assets, liabilities or condition (financial or
otherwise) of the Borrower, except, in the case of clause (ii), where such
litigation, proceeding, inquiry or other action could not be expected to have a
Material Adverse Effect in the judgment of the Lender.
(c) The Borrower shall have paid all fees and expenses required to be
paid by it to the Lender as of such date.
(d) The security interests granted in favor of the Lender under this
Security Agreement in the Equipment related to the initial Loan shall have been
duly perfected and shall constitute first priority liens;
3.4 CONDITIONS PRECEDENT TO EACH LOAN. The obligation of
the Lender to make each Loan is subject to the satisfaction of the following
conditions precedent:
(a) the Lender shall have received the documents, agreements and
instruments set forth in Section 3.3(a)(i) through (v) applicable to such Loan,
each in form and substance satisfactory to the Lender and its counsel and each
dated the date of such Loan or as of any earlier date acceptable to the Lender;
(b) the security interests granted in favor of the Lender under this
Security Agreement in the Equipment related to such Loan shall have been duly
perfected and shall constitute first priority liens;
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(c) all representations and warranties contained in this Security
Agreement and the other Loan Documents shall be true and correct on and as of
the date of such Loan as if then made, other than representations and warranties
that expressly relate solely to an earlier date, in which case they shall have
been true and correct as of such earlier date;
(d) no Event of Default or event which with the giving of notice or the
passage of time, or both, would constitute an Event of Default shall have
occurred and be continuing or would result from the making of the requested Loan
as of the date of such request; and
(e) the Borrower shall be deemed to have hereby reaffirmed and ratified
all security interests, liens and other encumbrances heretofore granted by the
Borrower to the Lender.
4. THE BORROWER'S REPRESENTATIONS AND WARRANTIES.
4.1 GOOD STANDING; QUALIFIED TO DO BUSINESS. The Borrower
(a) is duly organized, validly existing and in good standing under the laws of
the State of its organization, (b) has the power and authority to own its
properties and assets and to transact the businesses in which it is presently,
or proposes to be, engaged and (c) is duly qualified and authorized to do
business and is in good standing in every jurisdiction in which the failure to
be so qualified could have a Material Adverse Effect on (i) the Borrower, (ii)
the Borrower's ability to perform its obligations under the Loan Documents or
(iii) the rights of the Lender hereunder.
4.2 DUE EXECUTION, ETC. The execution , delivery and
performance by the Borrower of each of the Loan Documents to which it is a party
are within the powers of the Borrower, do not contravene the organizational
documents, if any, of the Borrower, and do not (a) violate any law or
regulation, or any order or decree of any court or governmental authority, (b)
conflict with or result in a breach of, or constitute a default under, any
material indenture, mortgage or deed of trust or any material lease, agreement
or other instrument binding on the Borrower or any of its properties, or (c)
require the consent, authorization by or approval of or notice to or filing or
registration with any governmental authority or other Person. This Security
Agreement is, and each of the other Loan Documents to which the Borrower is or
will be a party, when delivered hereunder or thereunder, will be, the legal,
valid and binding obligation of the Borrower enforceable against the Borrower in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights generally and
by general principles of equity.
4.3 SOLVENCY; NO LIENS. The Borrower is Solvent and will
be Solvent upon the completion of all transactions contemplated to occur
hereunder (including. without limitation, the Loan to be made on the Effective
Date); the security interests granted herein constitute and shall at all times
constitute the first and only liens on the Collateral other than Permitted Liens
and the security interests of Silicon Valley Bank ("SVB") which are junior to
the security interests of the Lender as more particularly described in the
Subordination Letter between SVB and the Lender; and the Borrower is, or will be
at the time additional Collateral is acquired by it, the absolute owner of the
Collateral with full right to pledge, sell, consign, transfer and create a
security interest therein, free and clear of any and all claims or liens in
favor of any other Person other than Permitted Liens and the security interests
of SVB which are junior to the security interests of the Lender.
4.4 NO JUDGMENTS, LITIGATION. No judgments are
outstanding against the Borrower nor is there now pending or, to the best of the
Borrower's knowledge after diligent inquiry, threatened any litigation,
contested claim, or governmental proceedings by or against the Borrower except
judgments and pending or threatened litigation, contested claims and
governmental proceedings which would not, in the aggregate, have a Material
Adverse Effect on the Borrower.
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4.5 NO DEFAULTS. The Borrower is not in default or has
not received a notice of default under any contract, least, or commitment to
which it is a party or by which it is bound and which could have a Material
Adverse Effect on the Borrower. The Borrower knows of no dispute regarding any
contract, lease, or commitment which could have a Material Adverse Effect on the
Borrower.
4.6 COLLATERAL LOCATIONS. On the date hereof, each item
of the Collateral is located at the place of business specified in the
applicable Schedule.
4.7 NO EVENT OF DEFAULT. No Event of Default has occurred
and is continuing nor has any event occurred which, with the giving of notice or
the passage of time, or both, would constitute an Event of Default.
4.8 NO LIMITATION ON LENDER'S RIGHTS. Except as permitted
herein and as set forth on Schedule B hereto as supplemented from time to time,
none of the Collateral is subject to contractual obligations that may restrict
or inhibit the Lender's rights or abilities to sell or dispose of the Collateral
or any part thereof after the occurrence of an Event of Default.
4.9 PERFECTION AND PRIORITY OF SECURITY INTEREST. This
Security Agreement creates a valid and, upon completion of all required filings
of financing statements, perfected first priority and exclusive security
interest in the Collateral (other than the security interest of SVB which are
junior to the security interests of the Lender), securing the payment of all the
Obligations.
4.10. MODEL AND SERIAL NUMBERS. The Schedules set forth
the true and correct model number and serial number of each item of Equipment
that constitutes Collateral.
4.11 ACCURACY AND COMPLETENESS OF INFORMATION. All data,
reports and information heretofore, contemporaneously or hereafter furnished by
or on behalf of the Borrower in writing to the Lender or for purposes of or in
connection with this Security Agreement or any other Loan Document, or any
transaction contemplated hereby or thereby, are or will be true and accurate in
all material respects on the date as of which such data, reports and information
are dated or certified and not incomplete by omitting to state any material fact
the Borrower which individually or in aggregate would reasonably be expected to
have a Material Adverse Effect and which have not been specified herein, in the
Financial Statements, or in any certificate, opinion or other written statement
previously furnished by the Borrower to the Lender.
5. COVENANTS OF THE BORROWER.
5.1 EXISTENCE, ETC. The Borrower will maintain its
existence, its current yearly accounting cycle, and shall maintain in full force
and effect all licenses, bonds, franchises, leases, trademarks, patents,
contracts and other rights necessary or desirable to the profitable conduct of
its business unless the failure to do so could not reasonably be expected to
have a Material Adverse Effect on the Borrower, shall continue in, and limit its
operations to, the same general lines of business as those presently conducted
by it and shall comply with all applicable laws and regulations of any federal,
state or local governmental authority, except for such laws and regulations the
violations of which would not, in the aggregate, have a Material Adverse Effect
on the Borrower.
5.2 NOTICE TO THE LENDER. As soon as possible, and in any
event within five days after the Borrower learns of the following, the Borrower
will give written notice to the Lender of (a) any proceeding instituted or
threatened to be instituted by or against the Borrower in any federal, state,
local or foreign court or before any commission or other regulatory body
(federal, state, local or foreign) involving a sum, together with the sum
involved in all other similar proceedings, in excess of $50,000 in the
aggregate, (b) any contract that is terminated or amended and which has had or
could reasonably be expected to have a Material Adverse Effect on the Borrower,
(c) the occurrence of any Material Adverse
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Change with respect to the Borrower and (d) the occurrence of any Event of
Default or event or condition which, with notice or lapse of time or both, would
constitute an Event of Default, together with a statement of the action which
the Borrower has taken or proposes to take with respect thereto.
5.3 MAINTENANCE OF BOOKS AND RECORDS. The Borrower will
maintain books and records pertaining to the Collateral in such detail, form and
scope as the Lender shall require in its commercially reasonable judgment. The
Borrower agrees that the Lender or its agents may enter upon the Borrower's
premises at any time and from time to time during normal business hours, and at
any time upon the occurrence and continuance of an Event of Default, for the
purpose of inspecting the Collateral and any and all records pertaining thereto.
5.4 INSURANCE. The Borrower will maintain insurance on
the Collateral under such policies of insurance, with such insurance companies,
in such amounts and covering such risks as are at all times satisfactory to the
Lender. All such policies shall be made payable to the Lender, in case of loss,
under a standard non-contributory "lender" or "secured party" clause and are to
contain such other provisions as the Lender may reasonably require to protect
the Lender's interests in the Collateral and to any payments to be made under
such policies. Certificates of insurance policies are to be delivered to the
Lender, premium prepaid, with the loss payable endorsement in the Lender's
favor, and shall provide for not less than thirty days' prior written notice to
the Lender, of any alteration or cancellation of coverage. If the Borrower fails
to maintain such insurance, the Lender may arrange for (at the Borrower's
expense and without any responsibility on the Lender's part for) obtaining the
insurance. Unless the Lender shall otherwise agree with the Borrower in writing,
the Lender shall have the sole right, in the name of the Lender or the Borrower,
to file claims under any insurance policies, to receive and give acquittance for
any payments that may be payable thereunder, and to execute any endorsements ,
receipts, releases, assignments, reassignments or other documents that may be
necessary to effect the collection, compromise or settlement of any claims under
any such insurance policies.
5.5 TAXES. The Borrower will pay, when due, all taxes,
assessments, claims and other charges ("Taxes") lawfully levied or assessed
against the Borrower or the Collateral other than taxes that are being
diligently contested in good faith by the Borrower by appropriate proceedings
promptly instituted and for which an adequate reserve is being maintained by the
Borrower in accordance with GAAP. If any Taxes remain unpaid after the date
fixed for the payment thereof, or if any lien shall be claimed therefor, then,
without notice to the Borrower, but on the Borrower's behalf, the Lender may pay
such Taxes, and the amount thereof shall be included in the Obligations.
5.6 BORROWER TO DEFEND COLLATERAL AGAINST CLAIMS; FEES ON
COLLATERAL. The Borrower will defend the Collateral against all claims and
demands of all Persons at any time claiming the same or any interest therein.
The Borrower will not permit any notice creating or otherwise relating to liens
on the Collateral or any portion thereof to exist or be on file in any public
office other than Permitted Liens and the security interests of SVB which are
junior to the security interests of the Lender. The Borrower shall promptly pay,
when payable, all transportation, storage and warehousing charges and license
fees, registration fees, assessments, charges, permit fees and taxes (municipal,
state and federal) which may now or hereafter be imposed upon the ownership,
leasing, renting, possession, sale or use of the Collateral, other than taxes on
or measured by the Lender's income and fees, assessments, charges and taxes
which are being contested in good faith by appropriate proceedings diligently
conducted and with respect to which adequate reserves are maintained to the
extent required by GAAP.
5.7 NO CHANGE OF LOCATION, STRUCTURE OR IDENTITY. The
Borrower will not (a) change the location of its chief executive office or
establish any place of business other than those specified herein or (b) move or
permit the movement of any item of Collateral from the location specified in the
applicable Schedule, except that the Borrower may change its chief executive
office and keep Collateral at other locations within the United States provided
that the Borrower has delivered to the Lender (i) prior written notice thereof
and (ii) duly executed financing statements and other agreements
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and instruments (all in form and substance satisfactory to the Lender) necessary
or, in the opinion of the Lender, desirable to perfect and maintain in favor of
the Lender a first priority security interest in the Collateral. Notwithstanding
anything to the contrary in the immediately preceding sentence, the Borrower may
keep any Collateral consisting of motor vehicles or rolling stock at any
location in the United States provided that the Lender's security interest in
any such Collateral is conspicuously marked on the certificate of title thereof
and the Borrower has complied with the provision of Section 5.9.
5.8 USE OF COLLATERAL; LICENSES; REPAIR. The Collateral
shall be operated by competent, qualified personnel in connection with the
Borrower's business purposes, for the purpose for which the Collateral was
designed and in accordance with applicable operating instructions, laws and
governmental regulations, and the Borrower shall use every reasonable precaution
to prevent loss or damage to the Collateral from fire and other hazards. The
Collateral shall not be used or operated for personal, family or household
purposes. The Borrower shall procure and maintain in effect all orders,
licenses, certificates, permits, approvals and consents required by federal,
state or local laws or by any governmental body, agency or authority in
connection with the delivery, installation, use and operation of the Collateral.
The Borrower shall keep all of the Equipment in a satisfactory state of repair
and satisfactory operating condition in accordance with industry standards, and
will make all repairs and replacements when and where necessary and practical.
The Borrower will not waste or destroy the Equipment or any part thereof, and
will not be negligent in the care or use thereof. The Equipment shall not be
annexed or affixed to or become part of any realty without the Lender's prior
written consent.
5.9 FURTHER ASSURANCES. The Borrower will, promptly upon
request by the Lender, execute and deliver or use its best efforts to obtain any
document required by the Lender (including, without limitation, warehouseman or
processor disclaimers, mortgage waivers, landlord disclaimers, or subordination
agreements with respect to the Obligations and the Collateral), give any
notices, execute and file any financing statements, mortgages or other documents
(all in form and substance satisfactory to the Lender), mark any chattel paper,
deliver any chattel paper or instruments to the Lender, and take any other
actions that are necessary or, in the opinion of the Lender, desirable to
perfect or continue the perfection and the first priority of the Lender's
security interest in the Collateral, to protect the Collateral against the
rights, claims, or interests of any Persons, or to effect the purposes of this
Security Agreement. The Borrower hereby authorizes the Lender to file one or
more financing or continuation statements, and amendments thereto, relating to
all or any part of the Collateral without the signature of the Borrower where
permitted by law. A carbon, photographic or other reproduction of this Security
Agreement or any financing statement covering the Collateral or any part thereof
shall be sufficient as a financing statement where permitted by law. To the
extent required under this Security Agreement, the Borrower will pay all costs
incurred in connection with any of the foregoing.
5.10 NO DISPOSITION OF COLLATERAL. The Borrower will not
in any way hypothecate or create or permit to exist any lien, security interest,
charge or encumbrance on or other interest in any of the Collateral, except for
the lien and security interest granted hereby, the security interests of SVB and
Permitted Liens which, in the case of SVB and Permitted Liens, are junior to the
lien and security interest of the Lender and judgments which have been stayed,
vacated, bonded, or discharged, and the Borrower will not sell, transfer,
assign, pledge, collaterally assign, exchange or otherwise dispose of any
Collateral. In the event the Collateral, or any part thereof, is sold,
transferred, assigned, exchanged, or otherwise disposed of in violation of these
provisions, the security interest of the Lender shall continue in such
Collateral or part thereof notwithstanding such sale, transfer, assignment,
exchange or other disposition, and the Borrower will hold the proceeds thereof
in a separate account for the benefit of the Lender. Following such a sale, the
Borrower will transfer such proceeds to the Lender in kind.
5.11 NO LIMITATION ON LENDER'S RIGHTS. The Borrower will
not enter into any contractual obligations which may restrict or inhibit the
Lender's rights or ability to sell or otherwise dispose of the Collateral or any
part thereof.
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5.12 PROTECTION OF COLLATERAL. Upon notice to the
Borrower (provided that if no Event of Default has occurred and is continuing
the Lender need not give any notice), the Lender shall have the right at any
time to make any payments and do any other acts the Lender may deem necessary to
protect its security interests in the Collateral, including, without limitation,
the rights to satisfy, purchase, contest or compromise any encumbrance, charge
or lien which, in the reasonable judgment of the Lender, appears to be prior to
or superior to the security interests granted hereunder, and appear in and
defend any action or proceeding purporting to affect its security interests in,
or the value of, any of the Collateral. The Borrower hereby agrees to reimburse
the Lender for all payments made and expenses incurred under this Security
Agreement including fees, expenses and disbursements of attorneys and paralegals
(including the allocated costs of in-house counsel) acting for the Lender,
including any of the foregoing payments under, or acts taken to protect its
security interests in, any of the Collateral, which amounts shall be secured
under this Security Agreement, and agrees it shall be bound by any payment made
or act taken by the Lender hereunder absent the Lender's gross negligence or
willful misconduct. The Lender shall have no obligation to make any of the
foregoing payments or perform any of the foregoing acts.
5.13 DELIVERY OF ITEMS. The Borrower will promptly (but
in no event later than one Business Day) after its receipt thereof, deliver to
the Lender any documents or certificates of title issued with respect to any
property included in the Collateral, and any promissory notes, letters of credit
or instruments related to or otherwise in connection with any property included
in the Collateral, which in any such case come into the possession of the
Borrower, or shall cause the issuer thereof to deliver any of the same directly
to the Lender, in each case with any necessary endorsements in favor of the
Lender.
5.14. SOLVENCY. The Borrower shall be and remain Solvent
at all times.
5.15. FUNDAMENTAL CHANGES. Without prior written consent
of the Lender, the Borrower shall not: (a) merge of consolidate into any other
person unless (i) the Borrower is the survivor of such merger of consolidation
and remains in compliance with all the terms and conditions of the Loan
Documents or any other survivor of such merger of consolidation assumes all the
Obligations, including without limitation, all of the Borrower's payment
obligations, pursuant to assignment documentation acceptable to the Lender in
its sole discretion, (ii) in the reasonable judgment of the Lender, the ability
of such surviving entity to perform its obligations hereunder is no worse than
that of the Borrower immediately before such merger or consolidation, and (iii)
such surviving entity delivers Uniform Commercial Code financing statements
(Form UCC-1) duly executed by the surviving entity (naming the Lender as secured
party and the surviving entity as debtor and in form acceptable for filing in
all jurisdictions that the Lender deems necessary or advisable to perfect the
security interests granted to it hereunder) and, if applicable, termination
statements, or other releases duly filed in all jurisdictions that the Lender
deems necessary or advisable to perfect and protect the priority of the security
interests granted by the Borrower hereunder), (b) amend or modify its name
(unless the Borrower delivers to the Lender thirty days prior to any such
proposed amendment or modification written notice of such proposal and within
ten days following such amendment or modification delivers executed Uniform
Commercial Code financing statements (in form and substance satisfactory to the
Lender) reflecting such amendment or modification), or (c) sell or otherwise
dispose of all or substantially all of its assets (unless the transferee
complies with all requirements imposed on the surviving entity in subsection (a)
of this Section 5.15).
5.16. ADDITIONAL REQUIREMENTS. The Borrower shall take
all such further actions and execute all such further documents and instruments
as the Lender may reasonably request.
6. FINANCIAL STATEMENTS. Until the payment and satisfaction
in full of all Obligations, the Borrower shall deliver to the Lender the
following financial information:
6.1. ANNUAL FINANCIAL STATEMENTS. As soon as available,
but not later than 120 days after the end of each fiscal year of the Borrower
and its consolidated subsidiaries, the consolidated balance sheet, income
statement and statements of cash flows and shareholders equity for the Borrower
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and its consolidated subsidiaries (the "Financial Statements") for such year,
reported on by independent certified public accountants without an adverse
qualification; and
6.2. QUARTERLY FINANCIAL STATEMENTS. As soon as
available, but not later than 60 days after the end of each of the first three
fiscal quarters in any fiscal year of the Borrower and its consolidated
subsidiaries, the Financial Statements for such fiscal quarter, together with a
certification duly executed by a responsible officer of the Borrower that such
Financial Statements have been prepared in accordance with GAAP and are fairly
stated in all material respects (subject to normal year-end audit adjustments).
7. EVENTS OF DEFAULT. The occurrence of any of the
following events shall constitute an Event of Default hereunder:
(a) the Borrower shall fail to pay within five days of
when due any amount required to be paid by the Borrower under or in connection
with any Note and this Security Agreement;
(b) any representation or warranty made or deemed made
by the Borrower under or in connection with any Loan Document or any Financial
Statement shall prove to have been false or incorrect in any material respect
when made;
(c) the Borrower shall fail to perform or observe (i)
any of the terms, covenants or agreements contained in Section 5.4, 5.7, 5.10,
5.14 or 5.15 hereof or (ii) any other term, covenant or agreement contained in
any Loan Document (other than the other Events of Default specified in this
Section 7) and such failure remains unremedied for the later of thirty days from
(A) the date on which the Lender has given the Borrower written notice of such
failure and (B) the date on which the Borrower knew or should have known of such
failure;
(d) any provision of any Loan Document to which the
Borrower is a party shall for any reason cease to be valid and binding on the
Borrower and the invalidity or such provision may, in the sole opinion of the
Lender having Material Adverse Effect on the Borrower, or the Borrower shall
state that any provision of any Loan Document to which it is a party is no valid
of binding on the Borrower;
(e) dissolution, liquidation, winding up or cessation
of the Borrower's business, or the failure of the Borrower generally to pay its
debts as they mature; or the admission in writing by the Borrower of its
inability generally to pay its debts as they mature; or the calling of a meeting
of the Borrower's creditors for purposes of compromising any of the Borrower's
debts;
(f) the commencement by or against the Borrower of any
bankruptcy, insolvency, arrangement, reorganization, receivership or similar
proceedings under any federal or state law and, in the case of any such
involuntary proceeding, such proceeding remains undismissed or unstayed for
forty-five days following the commencement thereof, or any action by the
Borrower is taken authorizing any such proceedings;
(g) an assignment for the benefit of creditors is made
by the Borrower, whether voluntary or involuntary, or the appointment of a
trustee, custodian, receiver or similar official for the Borrower or for any
substantial property of the Borrower; or any action by the Borrower authorizing
any such proceeding;
(h) the Borrower shall (i) default in the payment of
principal or interest on any indebtedness in excess of $50,000 (other than the
Obligations) beyond the period of grace, if any, provided in the instrument or
agreement under which such indebtedness was created; or (ii) default in the
observance or performance of any other agreement or condition relating to any
such indebtedness or contained in any instrument or agreement relating thereto,
or any other event shall occur or condition
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exist, the effect of which default or other event or condition is to cause, or
to permit the holder of such indebtedness to cause, with the giving of notice if
required, such indebtedness to become due prior to its stated maturity;
(i) the Borrower suffers or sustains a Material
Adverse Change;
(j) any tax lien, other than a Permitted Lien, is
filed of record against the Borrower and is not bonded or discharged within
twenty Business Days;
(k) any judgment which has had or could reasonably be
expected to have a material Adverse Effect on the Borrower and such judgment
shall not be stayed, vacated, bonded or discharged within sixty days; or
(l) any material covenant, agreement or obligation, as
determined in the sole discretion of the Lender, made by the Borrower and
contained in or evidenced by any of the Loan Documents shall cease to be
enforceable, or shall be determined to be unenforceable, in accordance with its
terms; the Borrower shall deny or disaffirm the Obligations under any of the
Loan Documents or any liens granted in connection therewith; or any liens
granted on any of the Collateral in favor of the Lender shall be determined to
be void, voidable or invalid, or are not given the priority contemplated by this
Security Agreement.
8. REMEDIES. If any Event of Default shall have occurred and
be continuing:
(a) The Lender may, without prejudice to any of its
other rights under any Loan Document or Applicable Law, declare all Obligations
to be immediately due and payable (except with respect to any Event of Default
set forth in Section 7(f) hereof, in which case all Obligations shall
automatically become immediately due and payable without necessity of any
declaration) without presentment, representation, demand of payment or protest,
which are hereby expressly waived.
(b) The Lender may take possession of the Collateral
and, for that purpose may enter, with the aid and assistance of any person or
persons, any premises where the Collateral or any part hereof is, or may be
placed, and remove the same. The Lender agrees that prior to the disposition of
any Equipment the Borrower shall have a reasonable time, as determined solely by
the Lender, to remove software or information (so long as such software or
information does not constitute Collateral) stored on such Equipment. If the
Borrower fails to take such action in the time allotted by the Lender, in its
sole discretion, the Lender, either directly or through third parties and in any
case at the expense of the Borrower, may undertake such removal action. This
paragraph shall not limit in any manner the Lender's rights hereunder or under
Applicable Law to take possession of any Collateral, including, without
limitation, the Equipment.
(c) The obligation of the Lender, if any, to make
additional Loans or financial accommodations of any kind to the Borrower shall
immediately terminate.
(d) The Lender may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein (or in
any Loan Document) or otherwise available to it, all the rights and remedies of
a secured party under the applicable Uniform Commercial Code (the "Code")
whether or not the Code applies to the affected Collateral and also may (i)
require the Borrower to, and the Borrower hereby agrees that it will at its
expense and upon request of the Lender forthwith, assemble all or part of the
Collateral as directed by the Lender and make it available to the Lender at a
place to be designated by the Lender that is reasonably convenient to both
parties and (ii) without notice except as specified below, sell the Collateral
or any part thereof in one or more parcels at public or private sale, at any of
the Lender's offices or elsewhere, for cash, on credit or for future delivery,
and upon such other terms as the Lender may deem commercially reasonable. The
Borrower agrees that, to the extent notice of sale shall be
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required by law, at least ten days' notice to the Borrower of the time and place
of any public sale or the time after which any private sale is to be made shall
constitute reasonable notification. The Lender shall not be obligated to make
any sale of Collateral regardless of notice of sale having been given. The
Lender may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it is adjourned.
(e) All cash proceeds received by the Lender in
respect of any sale of, collection from, or other realization upon all or any
part of the Collateral may, in the discretion of the Lender, be held by the
Lender as collateral for, or then or at any time thereafter applied in whole or
in part by the Lender against, all or any part of the Obligations in such order
as the Lender shall elect. Any surplus of such cash or cash proceeds held by the
Lender and remaining after the full and final payment of all the Obligations
shall be paid over to the Borrower or to such other Person to which the Lender
may be required under applicable law, or directed by a court of competent
jurisdiction, to make payment of such surplus.
9. MISCELLANEOUS PROVISIONS.
9.1 CONFIDENTIALITY. The Lender agrees to hold in
confidence any confidential information it receives from the Borrower pursuant
hereto, except for disclosure; (a) to legal counsel, accountants or any other
agent of the Lender or any assignee; (b) to regulatory officials having
jurisdiction over the Lender or any assignee; (d) as required by law or legal
process or in connection with any legal or administrative proceeding to which
the Lender (or any assignee) and the Borrower are adverse parties; and (e) in
connection with a disposition or proposed disposition in any or all of the
Lender's (or any assignee's) rights and benefits hereunder. For purposes of this
section, "confidential information" shall mean any information respecting the
Borrower and Person for whom Borrower has received information which is a trade
secret and is proprietary to the Borrower and shall not include, without
limitation, (x) information which is or becomes general available to the public
other than a result of a disclosure by the Lender or any assignee in violation
of this section; (y) information which becomes available to the Lender or any
assignee from any other source (other than the Borrower) which is not known by
the Lender or such assignee to be bound by a confidentiality agreement with or
other contractual, legal or fiduciary obligations or confidentiality to the
Borrower with respect to the information made available; and (z) information
known by the Lender or any assuage on a non-confidential basis prior to its
disclosure to the Lender or the assignee by the Borrower. In no event the Lender
be obligated or required to return any materials furnished to it by the
Borrower.
9.2 NOTICES. Except as otherwise provided herein, all
notices, approvals, consents, correspondence or other communications required or
desired to be given hereunder shall be given in writing and shall be delivered
by overnight courier, hand delivery or certified or registered mail, postage
prepaid, if to the Lender, then to Technology Finance Division 76 Batterson Park
Road, Farmington, Connecticut 06032, Attention: Assistant Vice President, Lease
Administration, with a copy to the Lender at Riverway II, West Office Tower,
9399 West Higgins Road, Rosemont, Illinois 60018, Attention: Legal Department or
such other address as shall be designated by the Lender to the Borrower in
accordance herewith, and if to the Borrower, then to Abaxis, Inc., 1320
Chesapeake Terrace, Sunnyvale, CA 94089, Attention: Ms. Ting Lu, Chief Financial
Officer, or such other address as shall be designated by the Borrower to the
Lender in accordance herewith. All such notices and correspondence shall be
effective when received.
9.3 HEADINGS. The headings in the Security Agreement are
for purposes of reference only and shall not affect the meaning or construction
of any provision of this Security Agreement.
9.4 ASSIGNMENTS. The Borrower shall not have the right to
assign any Note or this Security Agreement or any interest therein unless the
Lender shall have given the Borrower prior written
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consent and the Borrower and its assignee shall have delivered assignment
documentation in form and substance satisfactory to the Lender in its sole
discretion. The Lender may assign its rights and delegate its obligations under
any Note or this Security Agreement.
9.5 AMENDMENTS, WAIVERS AND CONSENTS. Any amendment or
waiver of any provision of this Security Agreement and any consent to any
departure by the Borrower from any provision of this Security Agreement shall be
effective only by a writing signed by the Lender and shall bind and benefit the
Borrower and the Lender and their respective successors and assigns, subject, in
the case of the Borrower, to the first sentence of Section 9.4.
9.6 INTERPRETATION OF AGREEMENT. Time is of the essence
in each provision of this Security Agreement of which time is an element. All
terms not defined herein or in a Note shall have the meaning set forth in the
applicable Code, except where the context otherwise requires. To the extent a
term of provision of this Security Agreement conflicts with any Note, or any
term or provision thereof, and is not dealt with herein with more specificity,
this Security Agreement shall control with respect to the subject matter of such
term or provision. Acceptance of or acquiescence is a course or performance
rendered under this Security Agreement shall not be relevant in determining the
meaning of this Security Agreement even though the accepting or acquiescing
party had knowledge of the nature of the performance and opportunity for
objection.
9.7 CONTINUING SECURITY INTEREST. This Security Agreement
shall create a continuing security interest in the Collateral and shall (i)
remain in full force and effect until the indefeasible payment in full of the
Obligations, (ii) be binding upon the Borrower and its successors and assigns
and (iii) insure, together with the rights and remedies of the Lender hereunder,
to the benefit of the Lender and its successors, transferees and assigns.
9.8 REINSTATEMENT. To the extent permitted by law, this
Security Agreement and the rights and powers granted to the Lender hereunder and
under the Loan Documents shall continue to be effective or be reinstated if at
any time any amount received by the Lender in respect of the Obligations is
rescinded or must otherwise be restored or returned by the Lender upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of the
Borrower or upon the appointment of any receiver, intervenor, conservator,
trustee or similar official for the Borrower or any substantial part of its
assets, or otherwise, all as though such payments had not been made.
9.9 SURVIVAL OF PROVISIONS. All representations,
warranties and covenants of the Borrower contained herein shall survive the
execution and delivery of this Security Agreement, and shall terminate only upon
the full and final payment and performance by the Borrower of the Obligations
secured hereby.
9.10 INDEMNIFICATION. The Borrower agrees to indemnify
and hold harmless the Lender and its directors, officers, agents, employees and
counsel from and against any and all costs, expenses, claims, or liability
incurred by the Lender or such person hereunder and under any other Loan
Document or in connection herewith or therewith, unless such claim or liability
shall be due to willful misconduct or gross negligence on the part of the Lender
or such Person.
9.11. COUNTERPARTS; TELECOPIED SIGNATURES. This Security
Agreement may be executed in counterparts, each of which when so executed and
delivered shall be an original, but both of which shall together constitute one
and the same instrument. This Security Agreement and each of the other Loan
Documents and any notices given in connection herewith or therewith may be
executed and delivered by telecopier or other facsimile transmission all with
the same effect as of the same was fully executed and delivered original manual
counterpart.
9.12. SEVERABILITY. In case any provision in or
obligation under this Security Agreement or any Note or any other Loan Document
shall be invalid, illegal or unenforceable in any
66
<PAGE> 14
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
9.13. DELAYS; PARTIAL EXERCISE OF REMEDIES. No delay or
omission of the Lender to exercise any right or remedy hereunder, whether before
or after the happening of any Event of Default, shall impair any such right or
shall operate as a waiver thereof or as a waiver of any such Event of Default.
No single or partial exercise by the Lender of any right or remedy shall
preclude any other or further exercise thereof, or preclude any other right or
remedy.
9.14. ENTIRE AGREEMENT. The Borrower and the Lender agree
that this Security Agreement, the Schedule hereto, and the Lender's written
commitment to the Borrower and the Commitment Letter between the Lender and the
Borrower dated as of February 25, 1997, as amended, supplemented or otherwise
modified from time to time, are the complete and exclusive statements between
the parties with respect to the subject matter hereof, superseding all proposals
and prior agreements, oral or written, and all other communications between the
parties with respect to the subject matter hereof and constitute the entire
agreement between the parties.
9.15. SETOFF. In addition to and not in limitation of all
rights of offset that the Lender may have under Applicable Law, and whether or
not the Lender has made any demand or the Obligations of the Borrower have
matured, the Lender shall have the right to appropriate and apply to the payment
of the Obligations of the Borrower all deposits and other obligations then or
thereafter owing by the Lender to or for the credit or the account of the
Borrower.
9.16. WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER
IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT, ANY OTHER
LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
9.17. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND
ENFORCEMENT OF THIS SECURITY AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO THE
CONFLICT OF LAW PRINCIPLES THEREOF.
9.18 VENUE; SERVICE OF PROCESS. ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT
MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS SITUATED IN COOK COUNTY,
OR OF THE UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF ILLINOIS, AND,
BY EXECUTION AND DELIVERY OF THIS SECURITY AGREEMENT, THE BORROWER HEREBY
ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE BORROWER HEREBY
IRREVOCABLY WAIVES, IN CONNECTION WITH ANY SUCH ACTION OR PROCEEDING, (a) ANY
OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, THAT IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE
JURISDICTIONS AND (b) THE RIGHT TO INTERPOSE ANY NONCOMPULSORY SETOFF,
COUNTERCLAIM OR CROSS-CLAIM. THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY
THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID,
TO THE BORROWER AT THE ADDRESS FOR IT SPECIFIED IN SECTION 9.2 HEREOF. NOTHING
HEREIN SHALL AFFECT THE RIGHT OF THE LENDER TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE
67
<PAGE> 15
PROCEED AGAINST THE BORROWER IN ANY OTHER JURISDICTION, SUBJECT IN EACH INSTANCE
TO THE PROVISIONS HEREOF WITH RESPECT TO RIGHTS AND REMEDIES.
IN WITNESS WHEREOF, the undersigned Borrower has caused
this Security Agreement to be duly executed and delivered by its proper and duly
authorized officer as of the date first set forth above.
ABAXIS, INC.
By: /S/Ting Lu
------------------------------
Name: Ting W. Lu
Title: VP Finance & Admin. & CFO
Federal Tax ID Number: 77-0213001
Accepted as of 4/30/97
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /S/Gary O. Moro
----------------------------
Name: Gary P. Moro
Title: Vice President
<PAGE> 1
EXHIBIT 22.1
SUBSIDIARIES OF THE REGISTRANT
None
69
<PAGE> 1
EXHIBIT 23.1
CONSENT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statements Nos.
33-49758, 33-85744 and 333-07541 of Abaxis, Inc. on Form S-8 of our report dated
April 22, 1997, appearing in this Annual Report on Form 10-K of Abaxis, Inc. for
the year ended March 31, 1997.
DELOITTE & TOUCHE LLP
San Jose, California
June 27, 1997
70
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-49758) pertaining to the 1989 Stock Option Plan, the Outside
Directors Stock Option Plan and the Individual Written Compensation Agreement
and the Registration Statements (Form S-8 Nos. 33-85744 and 333-07541)
pertaining to the 1989 Stock Option Plan of our report dated April 21, 1995,
with respect to the financial statements of Abaxis, Inc. included in this Annual
Report (Form 10-K) for the year ended March 31, 1997.
ERNST & YOUNG LLP
San Jose, California
June 27, 1997
71
<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 YEARLY REPORT ON FORM 10-K FOR
THE YEAR ENDED MARCH 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,436,000
<SECURITIES> 3,885,000
<RECEIVABLES> 1,830,000
<ALLOWANCES> (61,000)
<INVENTORY> 2,218,000
<CURRENT-ASSETS> 9,444,000
<PP&E> 6,756,000
<DEPRECIATION> (4,303,000)
<TOTAL-ASSETS> 11,977,000
<CURRENT-LIABILITIES> 2,619,000
<BONDS> 0
0
0
<COMMON> 58,403,000
<OTHER-SE> (49,045,000)
<TOTAL-LIABILITY-AND-EQUITY> 11,977,000
<SALES> 7,294,000
<TOTAL-REVENUES> 7,294,000
<CGS> 7,661,000
<TOTAL-COSTS> 7,661,000
<OTHER-EXPENSES> 6,182,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,189,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,189,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,189,000)
<EPS-PRIMARY> (0.59)
<EPS-DILUTED> (0.59)
</TABLE>
