<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-19720
ABAXIS, INC.
(Exact name of registrant as specified in its charter)
California 77-0213001
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization ) Identification No.)
1320 Chesapeake Terrace
Sunnyvale, California 94089
(Address of principal executive offices)
Telephone: (408) 734-0200
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15(d)
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), Yes [X] No [ ]
and
(2) has been subject to such filing requirements for the 90 days.
Yes [X] No [ ]
At February 9, 1998, 11,963,043 shares of common stock, no par value, were
outstanding.
This report on Form 10-Q, including all exhibits, contains 15 pages.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<S> <C>
Facing Sheet......................................................................... 1
Table of Contents.................................................................... 2
Part I. Financial Information
Item 1. Financial Statements:
Condensed Statements of Operations -
Three Months and Nine Months Ended December 31, 1997 and 1996... 3
Condensed Balance Sheets - December 31, 1997 and March 31, 1997.... 4
Condensed Statements of Cash Flows -
Nine Months Ended December 31, 1997 and 1996................... 5
Notes to Condensed Financial Statements............................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 8
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds.......................... 13
Item 6. Exhibits and Reports on Form 8-K................................... 13
Signatures......................................................... 14
</TABLE>
2
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PART 1-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ABAXIS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Product sales, net $ 2,995,000 $ 1,842,000 $ 8,880,000 $ 4,459,000
Development and licensing revenue 35,000 49,000 191,000 456,000
---------------------------------------------------------------------
Total revenues 3,030,000 1,891,000 9,071,000 4,915,000
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Costs and operating expenses:
Cost of product sales 2,600,000 1,860,000 8,061,000 5,471,000
Research and development 428,000 327,000 1,171,000 1,036,000
Selling, general, and administrative 1,089,000 1,088,000 3,477,000 3,682,000
---------------------------------------------------------------------
Total costs and operating expenses 4,117,000 3,275,000 12,709,000 10,189,000
---------------------------------------------------------------------
Loss from operations (1,087,000) (1,384,000) (3,638,000) (5,274,000)
Interest income, net 82,000 112,000 225,000 254,000
Other income, net 9,000 12,000 8,000 26,000
=====================================================================
Net loss $ (996,000) $ (1,260,000) $ (3,405,000) $ (4,994,000)
=====================================================================
Basic loss per share (a) $ (0.09) $ (0.23) $ (0.36) $ (0.64)
=====================================================================
Diluted loss per share (a) $ (0.09) $ (0.23) $ (0.36) $ (0.64)
=====================================================================
Common shares used in computing per
share amounts:
Basic 11,917,208 10,410,177 11,904,691 10,051,830
=====================================================================
Diluted 11,917,208 10,410,177 11,904,691 10,051,830
=====================================================================
</TABLE>
(a) Loss attributable to common shareholders used in the computation of loss per
share for the three and nine months ended December 31, 1997 was $1,080,000 and
$4,239,000, respectively. Loss attributable to common shareholders used in the
computation of loss per share for the three and nine months ended December 31,
1996 was $2,366,000 and $6,400,000, respectively (See Note 3).
See notes to condensed financial statements.
3
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ABAXIS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1997 MARCH 31, 1997
----------------------------------
(unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,222,000 $ 1,436,000
Short-term investments 5,935,000 3,885,000
Trade and other receivables, net 1,915,000 1,690,000
Interest receivable 130,000 80,000
Inventories 1,469,000 2,218,000
Prepaid expenses 202,000 135,000
------------------------------
Total current assets 10,873,000 9,444,000
Property and equipment - net 2,323,000 2,453,000
Deposits and other assets 85,000 80,000
------------------------------
Total assets $13,281,000 $11,977,000
==============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 1,550,000 $ 695,000
Accrued payroll and related expenses 749,000 604,000
Other accrued liabilities 747,000 578,000
Warranty reserve 750,000 495,000
Deferred revenue 254,000 247,000
Note payable 200,000 --
------------------------------
Total current liabilities 4,250,000 2,619,000
------------------------------
Long term liabilities--
Note payable 275,000 --
------------------------------
Shareholders' equity:
Convertible preferred stock, no par value:
5,000,000 authorized; 2,960 issued and
outstanding on December 31, 1997 and none on
March 31, 1997 3,516,000 --
Common stock, no par value: 35,000,000
authorized; 11,933,043 issued and outstanding
on December 31, 1997 and 11,886,153 on
March 31, 1997 59,905,000 59,783,000
Accumulated deficit (54,665,000) (50,425,000)
------------------------------
Total shareholders' equity 8,756,000 9,358,000
------------------------------
Total liabilities and shareholders' equity $13,281,000 $11,977,000
==============================
</TABLE>
See notes to condensed financial statements.
Note: The balance sheet at March 31, 1997 has been derived from the audited
financial statements.
4
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ABAXIS, INC
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
1997 1996
-------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (3,405,000) $ (4,994,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 533,000 701,000
Write-down of capital equipment 50,000 --
Common stock issued for services 69,000 --
Changes in assets and liabilities:
Trade and other receivables (225,000) (217,000)
Interest receivable (50,000) 33,000
Inventories 749,000 (1,042,000)
Prepaid expenses (67,000) (44,000)
Deposits and other assets (5,000) 2,000
Accounts payable 855,000 80,000
Accrued payroll and related expenses 145,000 133,000
Other accrued liabilities 169,000 100,000
Warranty reserve 255,000 214,000
Deferred revenue 7,000 25,000
Customer deposits -- (5,000)
-------------------------------
Net cash used in operating activities (920,000) (5,014,000)
-------------------------------
INVESTING ACTIVITIES:
Purchase of available-for-sale securities (10,141,000) (6,447,000)
Maturities of available-for-sale securities 7,600,000 7,700,000
Sales of available-for-sale securities 491,000 500,000
Purchase of property and equipment (453,000) (808,000)
-------------------------------
Net cash provided by (used in) investing activities (2,503,000) 945,000
-------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock 2,000 67,000
Proceeds from issuance of preferred stock 2,732,000 4,780,000
Preferred stock dividend -- (26,000)
Net proceeds from equipment financing 475,000 --
-------------------------------
Net cash provided by financing activities 3,209,000 4,821,000
-------------------------------
Increase (decrease) in cash and cash equivalents (214,000) 752,000
Cash and cash equivalents at beginning of period 1,436,000 1,591,000
-------------------------------
Cash and cash equivalents at end of period $ 1,222,000 $ 2,343,000
===============================
Supplemental disclosures of cash flow information:
Cash paid for interest $ 54,000 $ --
===============================
Noncash financing activity:
Conversion of preferred stock into common stock $ 51,000 $ 4,118,000
===============================
</TABLE>
See notes to condensed financial statements.
5
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ABAXIS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. These condensed financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report to Stockholders for the fiscal year ended March 31,
1997. The unaudited condensed financial statements included herein reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary to state fairly the results for the periods
presented. The results for such periods are not necessarily indicative of the
results to be expected for the entire fiscal year ending March 31, 1998 or for
any future period.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
During June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130), which requires that an enterprise report the change in its net assets from
nonowner sources by major components and as a single total. The Board also
issued Statements of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS 181), which establishes
annual and interim reporting standards for an enterprise's operating segments
and related disclosures about its products, services, geographic areas, and
major customers. Adoption of these statements will not impact the Company's
consolidated financial position, results of operations or cash flows, and any
effect will be limited to the form and content of its disclosures. Both
statements are effective for fiscal years beginning after December 15, 1997,
with earlier application permitted.
3. PER SHARE INFORMATION
During February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). The
Company adopted SFAS 128 in the third quarter of fiscal 1998 and restated
earnings per share (EPS) data for prior periods to conform with current
presentation.
SFAS 128 replaces current EPS reporting requirements and requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income (loss) by the weighted average number of common
shares outstanding during the period. Diluted EPS reflects the potential
dilution from securities and other contracts which are exercisable or
convertible into common shares.
Diluted EPS is computed by dividing net income (loss) by the weighted average
number of common shares that would have been outstanding during the period
assuming the issuance of common shares for all dilutive potential common shares
outstanding. As a result of operating losses, there is no difference between the
basic and diluted calculations of EPS. Loss attributable to common shareholders
includes the accretion relating to the calculated imbedded yield representing
the discount on the assumed potential conversion of the preferred stock issued
by the Company.
6
<PAGE> 7
The reconciliation of net loss to net loss attributable to common shareholders
is as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31 December 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net loss (996,000) $(1,260,000) $(3,405,000) $(4,994,000)
Cumulative preferred stock dividends -- (26,000) -- (26,000)
Value assigned to accretion of preferred stock (84,000) (1,080,000) (834,000) (1,380,000)
=================================================================
Loss attributable to common shareholders $(1,080,000) $(2,366,000) $(4,239,000) $(6,400,000)
=================================================================
</TABLE>
4. INVENTORY
Inventories are stated at the lower of cost (first-in, first-out) or market and
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 MARCH 31, 1997
----------------- --------------
<S> <C> <C>
Raw materials $ 644,000 $1,235,000
Work-in-process 599,000 723,000
Finished goods 226,000 260,000
---------- ----------
$1,469,000 $2,218,000
---------- ----------
</TABLE>
5. EQUITY FINANCING
On July 18, 1997, RGC International Investors LDC and Advantage Fund Ltd., each
of which is an accredited investor as defined in Regulation D to the best
knowledge of the Company, purchased from the Company 3,000 shares of Series B
Convertible Preferred Stock at a price per share of $1,000, with net proceeds to
the Company of approximately $2,732,000. The shares were sold in this private
offering transaction under Rule 506 and/or Section 4(2) of the Securities Act of
1933, as amended, have not been registered with the Securities and Exchange
Commission and carry a restrictive legend. The Series B Preferred Stock is
convertible to common stock on or before July 18, 2002 at the lesser of the
average closing bid price of the Company's common stock for the five trading
days prior to July 18, 1997, $2.7125, or 80% of the average closing bid prices
for the five trading days prior to the conversion date. The Company filed a
registration statement on Form S-3 on September 29, 1997 to register the resale
of the common stock issuable upon conversion of the preferred stock. The
registration was declared effective on October 30, 1997. During the quarter
ended December 31, 1997, 40 shares of the Series B Preferred Stock were
converted into 20,296 shares of common stock.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
This Management's Discussion and Analysis of Financial Condition and Results of
Operations includes a number of forward-looking statements which reflect the
Company's current views with respect to future events and financial performance.
These forward-looking statements are subject to certain risks and uncertainties,
including but not limited to those discussed below, that could cause actual
results to differ materially from historical results or those anticipated. Such
risks and uncertainties include market acceptance of the Company's products and
continuing development of its products, including obtaining required Food and
Drug Administration ("FDA") clearance and other government approvals, risks
associated with manufacturing and distributing products on a commercial scale,
including complying with Federal and state food and drug regulations and general
market conditions and competition. In this report, the words "anticipates",
"believes", "expects", "future", "intends", "plans", and similar expressions
identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof.
Abaxis develops, manufactures and markets portable blood analysis systems for
use in any patient-care setting to provide clinicians with rapid blood
constituent measurements. The Company's products consist of a compact 6.9
kilogram analyzer and a series of single-use plastic disks called reagent discs
that contain all the chemicals required to perform a panel of up to 12 tests.
The system can be operated with minimal training and performs multiple routine
tests on whole blood using either venous or fingerstick samples. The system
provides test results in less than 15 minutes with the precision and accuracy
equivalent to a clinical laboratory. The Company currently markets this system
for veterinary use under the name VetScan(R) and in the human market under the
name Piccolo(R).
During the quarter ended December 31, 1997, the Company achieved record results
in terms of unit sales, placing 282 Point-of-Care Blood Analyzers worldwide, of
which 256 were VetScan systems and 26 were Piccolo systems. Reagent disc
shipments for the quarter ended December 31, 1997 were approximately 124,000
discs. Ninety-six percent (96%) of these reagent disc shipments were for
veterinary applications. The quarter ended December 31, 1997 was the second
consecutive quarter for the Company of revenue in excess of $3,000,000. Product
sales in the US accounted for 60%, international sales accounted for 38% and
Orbos contract revenue accounted for the remaining 2% of total revenues for the
third fiscal quarter.
Domestically, 96% of the sales in the US were to the veterinary market and 4%
were to the human medical market. The change in product mix to 4% of total
revenues from Piccolo products from 42% during the second quarter of fiscal 1998
is the result of the Company completing, during the second fiscal quarter, the
initial shipments of Piccolo systems to the US Navy and Marines. Through
December 31, 1997, the Company has shipped approximately 50% of the maximum
number of analyzers covered by the March 1997 contract with the US Navy. There
can be no assurances that the US Navy will place purchase orders against the
balance of the contract.
Internationally, sales to Japan constituted 68% and sales to Europe constituted
20% of the total international shipments during the quarter. Of the total
Japanese revenue, 98% was for veterinary applications, including sales of 118
VetScan systems. The increase in Japanese veterinary sales activities relative
to prior periods is the result of the approval in July 1997 from the Japanese
Ministry of Agriculture, Forestry and Fishery to distribute VetScan systems in
Japan. There can be no assurance that the increases in Japanese sales will
continue.
The increase in reagent disc shipments in the third fiscal quarter is consistent
with the Company's belief that there will be recurring reagent disc revenue as
the Company's product lines mature. This growth is mostly attributable to the
expanded installed base of VetScan systems and higher consumption rates of
institutional users. There can be no assurance this growth will continue.
8
<PAGE> 9
Through December 31, 1997, the Company has placed a total of 1,928 units of the
Point-of-Care Blood Analyzer worldwide, of which 1,479 were VetScan systems and
449 were Piccolo systems. In the United States the Company has placed 1,025
VetScan systems and 192 Piccolo systems. Internationally, the Company has placed
454 VetScan systems and 257 Piccolo systems.
The Company continues to develop new products that the Company believes will
provide further opportunities for market penetration. The Company is working on
development of four electrolyte test methods: total carbon dioxide, chloride,
potassium and sodium. Clinical trials of these test methods are expected to
begin in the first quarter of fiscal 1999. For the human market, the Company
plans on incorporating these tests into new panels consistent with the codes in
the 1998 version of the Current Procedures Terminology manual published by the
American Medical Association. The Company intends to develop additional reagent
products utilizing these electrolyte methods for the veterinary market. While
the Company believes that its technology will allow it to develop reagent disc
products in the future to provide a variety of additional blood tests such as
the electrolyte test methods, there can be no assurance that such future
products will be developed, that such products will receive required regulatory
clearance, or that the Company will be able to manufacture or market such
products successfully.
Sales for any future periods are not predictable with a significant degree of
certainty. The Company generally operates with limited order backlog because its
products typically are shipped shortly after orders are received. As a result,
product sales in any quarter are generally dependent on orders booked and
shipped in that quarter. The Company's expense levels, which are to a large
extent fixed, are based in part on its expectations as to future revenues.
Accordingly the Company may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. As a result, any such shortfall
would have an immediate materially adverse impact on the Company's operating
results and financial condition. Until sales volume of the Company's products,
particularly its reagent discs, increases significantly so as to offset
associated fixed costs and the Company begins to realize certain manufacturing
economies of scale, sales of the Company's products may result in further losses
and adversely affect the Company's results of operations and financial
condition. The Company believes that period to period comparisons of its results
of operations are not necessarily meaningful.
The Company's periodic operating results have in the past varied and in the
future may vary significantly depending on, but not limited to, a number of
factors, including the level of competition; the size and timing of sales
orders; market acceptance of the current and new products; new product
announcements by the Company or its competitors; changes in pricing by the
Company or its competitors; the ability of the Company to develop, introduce and
market new products on a timely basis; component costs and supply constraints;
manufacturing capacities and ability to scale up production; the mix of product
sales between the analyzers and the reagent discs; the mix of product sales
between distributor and direct sales and human medical and veterinary
applications; 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 Lyophilzation Process, to other companies' products. This process
allows the production of an accurate, precise amount of active chemical
ingredients in the form of a soluble bead. The Company believes that the Orbos
process has broad applications in products where delivery of active ingredients
in a stable, pre-metered format is desired. The Company has contracts with
Becton Dickinson Immunocytometry Systems and Pharmacia Biotech, Inc. to either
supply products or license Orbos technology. The Company is currently working
with other companies to determine potential suitability of the Orbos technology
to these companies' products. As resources permit, the Company will pursue other
development, licensing or manufacturing agreement opportunities for its Orbos
technology with other companies. There can be no assurances, however, that other
applications will be identified or that additional agreements with the Company
will result.
9
<PAGE> 10
RESULTS OF OPERATIONS
REVENUE
During the three-month period ended December 31, 1997, the Company reported
total revenues of approximately $3,030,000, a $1,139,000 or 60% increase as
compared to total revenues of approximately $1,891,000 for the same period in
fiscal 1997. The increase in revenue for the quarter ended December 31, 1997
compared to the quarter ended December 31, 1996 was due primarily to increased
unit sales of VetScan systems to the Japanese market and increased reagent disc
sales in the domestic and international markets.
For the nine months ended December 31, 1997, total revenues were approximately
$9,071,000, a $4,156,000 or 85% increase as compared to total revenues of
approximately $4,915,000 for the same period in fiscal 1997. The increase in
revenue for the nine-month period ended December 31, 1997 compared to the
nine-month period ended December 31, 1996 was due to increased unit sales of
VetScan analyzers in the US, sales of Piccolo analyzers to the US military on a
direct basis without any distributor discounts, which yield higher net revenues,
increased sales of VetScan systems to the Japanese market and higher reagent
disc sales in the domestic and international markets.
Revenues from Orbos contracts during the three and nine-month periods ended
December 31, 1997 were $35,000 and $191,000 respectively. Revenues from Orbos
contracts during the three and nine-month periods ended December 31, 1996 were
$49,000 and $456,000 respectively. Orbos revenue is primarily dependent upon
sales of products using the Orbos technology by other parties, which is out of
the control of the Company and, therefore, may vary significantly from quarter
to quarter.
COST OF PRODUCT SALES
Cost of product sales during the quarter ended December 31, 1997 was
approximately $2,600,000 or 86% of total revenues, as compared to approximately
$1,860,000, or 98% of total revenues for the quarter ended December 31, 1996.
For the nine-month period ended December 31, 1997, cost of sales was $8,061,000
or 89% of total revenues as compared to $5,471,000, or 111% of total revenues
for the same period in fiscal 1997. The increase in cost of product sales for
the quarter and nine-month periods ending December 31, 1997 as compared to the
same periods ending December 31, 1996 was primarily a function of the increase
in sales volume. The decrease in cost of product sales as a percentage of total
revenues for the quarter and nine-month periods ended December 31, 1997 as
compared to the same periods ended December 31, 1996 is due to lower unit costs
resulting from better standardized manufacturing processes and economies of
scale related to increased manufacturing volume.
RESEARCH AND DEVELOPMENT
Research and development expenses during the third quarter of fiscal 1998 were
approximately $428,000, or 14% of total revenues. Third quarter fiscal 1998
research and development expenses increased $101,000 from approximately
$327,000, or 17% of total revenues, for the same period in fiscal 1997. For the
first nine months of fiscal 1998, research and development expenses were
$1,171,000, or 13% of total revenues, a $135,000 increase from $1,036,000, or
21% of total revenues, in the first nine months of fiscal 1997. The increase for
the three-month and nine-month period ended December 31, 1997 compared to the
same periods in fiscal 1997 is the result of increased spending in the
development of new test methods offset by reallocation of a portion of the
development resources to support product manufacturing activities such as
manufacturing process development. The Company expects research and development
expenses will increase as the Company continues the development of new test
methods to expand its test menus as well as other development projects.
10
<PAGE> 11
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses totaled approximately $1,089,000,
or 36% of total revenues, for the three-month period ended December 31, 1997.
This is a $1,000 increase from selling, general and administrative expenses of
approximately $1,088,000, or 58% of total revenues, for the three-month period
ended December 31, 1996. Selling, general and administrative expenses for the
first nine months of fiscal 1998 were $3,477,000, or 38% of total revenues. This
is a $205,000, or 6% decrease from selling, general and administrative expenses
of $3,682,000, or 75% of total revenues, for the first nine months of fiscal
1997. Selling, general and administrative expenses for the three-month period
ended December 31, 1997 compared to the same period ended December 31, 1996
remained relatively constant as the result of the Company's cost and spending
control programs. The Company's effective utilization of resources is reflected
in a reduction of total selling, general and administrative expenses as a
percentage of revenue in the periods in fiscal 1998 as compared with comparable
periods in fiscal 1997. The decrease in selling, general and administrative
expenses for the nine-month period ended December 31, 1997 compared to the same
period ended December 31, 1996 is primarily the result of certain non-recurring
costs associated with the launch of the Piccolo product line in fiscal 1997 and
the Company's cost containment efforts in fiscal 1998. The Company expects
selling, general and administrative expenses to remain at comparable levels for
the remainder of fiscal 1998.
NET INTEREST INCOME
Net interest income totaled approximately $82,000 or 3% of total revenues for
the quarter ended December 31, 1997, compared to $112,000 or 6% of total
revenues in the comparable quarter of fiscal 1997. The decrease in net interest
income was the result of decreased investment levels and interest expense
related to an equipment loan during the period ended December 31, 1997. The
Company incurred interest expense of approximately $21,000 on an equipment loan
during the three-month period ended December 31, 1997. The Company incurred no
interest expense during the three-month period ended December 31, 1996.
Net interest income totaled approximately $225,000 or 2% of total revenues for
the nine-month period ended December 31, 1997, compared to $254,000 or 5% of
total revenues in the comparable period of fiscal 1997. The Company incurred
interest expense of approximately $54,000 on an equipment loan during the
nine-month period ended December 31, 1997. The Company incurred no interest
expense during the nine-month period ended December 31, 1996. The increase in
interest expense was offset by an increase in interest income of approximately
$25,000 for the period ended December 31, 1997 compared to interest income for
the period ended December 31, 1996. This increase in interest income was
primarily the result of increased investment levels.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company had total cash, cash equivalents and short
term investments of $7,157,000. The Company expects to incur substantial
additional costs to support its future operations, including further
commercialization of its products and development of new test methods that will
allow the Company to further penetrate the human diagnostic market; acquisition
of capital equipment for the Company's manufacturing facilities, which includes
the ongoing costs related to continuing development of its current and future
products; development and implementation of an automated manufacturing line to
provide capacity for commercial volumes; and additional pre-clinical testing and
clinical trials for its current and future products. The Company is currently
contracting with a vendor to build an automated disc assembly line to provide
additional capacity and to improve production efficiency. The Company estimates
the cost of this new assembly line will be approximately $1,500,000 of which
approximately $992,000 was paid through December 31, 1997. The Company expects
to pay the balance upon acceptance of the equipment which is currently scheduled
to occur before the end of fiscal 1998. In April 1997, in anticipation of taking
delivery of the automated assembly line, the Company arranged for an equipment
financing loan of up to $2,000,000, with 36 monthly payments, and a final
balloon payment equal to 10% of the original principal amount. The equipment
financing loan is collateralized by the Company's equipment and bears interest
at approximately 16%. As of December 31, 1997, the Company has
11
<PAGE> 12
drawn $600,000 against this equipment financing loan of which $125,000 has been
repaid to date. The Company plans on drawing down the balance of the loan once
the new automated assembly line is delivered to its facility. Additional
manufacturing equipment will also need to be added during fiscal 1998 to provide
sufficient production capabilities. Additionally, inventories and receivables
related to increased sales levels of the VetScan and Piccolo systems could
increase significantly in future periods, which would require significant
capital resources.
Net cash used in operating activities during the nine months ended December 31,
1997 was approximately $920,000 compared to net cash used in operating
activities of approximately $5,014,000 for the same period ended December 31,
1996. The decrease in net cash used in operating activities was due to a lower
net loss, a decrease in inventories and increases in accounts payable, accrued
payroll, other accrued liabilities and warranty reserve, offset by increases in
trade and other receivables and prepaid expenses and deposits. Net inventories
at March 31, 1997, compared to the balance at December 31, 1997, were higher due
to preparation for shipment against orders from the Navy and VetSmart contracts
beginning in April 1997. The increase in accounts payable is due to the timing
of payments over the holidays and increases in payable levels associated with
revenue growth. Increases in liabilities in the first nine months of fiscal 1998
were mainly due to increased warranty reserves and an accrual of severance
payment for a former executive officer.
Net cash used in investing activities during the nine months ended December 31,
1997 was approximately $2,503,000, compared to net cash provided by investing
activities of approximately $945,000 during the nine months ended December 31,
1996. The change from net cash provided by investing activities in the nine
months ended December 31, 1996 to net cash used in investing activities in the
nine months ended December 31, 1997 was primarily the result of an increase in
purchases of short-term investments offset by a decrease in the purchase of
property and equipment.
Net cash provided by financing activities for the nine month period ended
December 31, 1997 was approximately $3,209,000 compared to net cash provided of
approximately $4,821,000 for the same period in fiscal 1997. Cash provided by
financing activities for the nine month period ended December 31, 1997 is
primarily the result of proceeds from issuance of preferred stock of $2,732,000
and net proceeds from equipment financing of $475,000. Cash provided by
financing activities for the nine month period ended December 31, 1996 is
primarily the result of proceeds from issuance of preferred stock of $4,780,000
and proceeds from employee stock option exercises of $67,000. Cash provided by
financing activities during this period was decreased by a $26,000 payment of a
preferred stock dividend.
The Company anticipates that its existing capital resources, equipment financing
loan and anticipated revenue from the sales of its products will be adequate to
satisfy its currently planned operating and financial requirements through the
next twelve months. The Company's future capital requirements will largely
depend upon the increased market acceptance of its Point-of-Care Blood Analyzer
System products. However, the Company's sales are not predictable due to its
limited market experience with its products. In the event the sales are
significantly below the anticipated level, the Company may need to obtain
additional equity or debt financing. There can be no assurance that any such
financing will be available, and any additional equity financing may be dilutive
to shareholders, while debt financing may involve restrictive covenants.
12
<PAGE> 13
PART II-OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 18, 1997, RGC International Investors LDC and Advantage Fund Ltd., each
of which is an accredited investor as defined in Regulation D to the best
knowledge of the Company, purchased from the Company 3,000 shares of Series B
Convertible Preferred Stock at a price per share of $1,000, with net proceeds to
the Company of approximately $2,732,000. The shares were sold in this private
offering transaction under Rule 506 and/or Section 4(2) of the Securities Act of
1933, as amended, have not been registered with the Securities and Exchange
Commission and carry a restrictive legend. The Series B Preferred Stock is
convertible to the Company's common stock on or before July 18, 2002 at the
lesser of the average closing bid price of the common stock for the five trading
days prior to July 18, 1997, $2.7125, or 80% of the average closing bid prices
for the five trading days prior to the conversion date. The Company filed a
registration statement on Form S-3 on September 29, 1997 to register the resale
of the common stock issuable upon conversion of the preferred stock. The
registration was declared effective on October 30, 1997. During the quarter
ended December 31, 1997, 40 shares of the Series B Preferred Stock were
converted into 20,296 shares of common stock.
In October 1997, the Company issued 24,944 shares of common stock to two
consultants in payment for services provided to the Company during 1997. The
shares were valued at $69,000. This issuance was made pursuant to Section 4(2)
under the Securities Act of 1933.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits included herein (numbered in accordance with Item 601 of Regulation
S-K)
Exhibit Number Description
-----------------------------------------------
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
13
<PAGE> 14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ABAXIS, INC.
February 13, 1998 by: /s/Clinton H. Severson
- ----------------- -------------------------------------
Date Clinton H. Severson
President and Chief Executive Officer
(Principal Executive Officer)
February 13, 1998 by: /s/ Ting W. Lu
- ---------------- -------------------------------------
Date Ting W. Lu
Vice President of Finance &
Administration and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,222,000
<SECURITIES> 5,935,000
<RECEIVABLES> 2,111,000
<ALLOWANCES> (66,000)
<INVENTORY> 1,469,000
<CURRENT-ASSETS> 10,873,000
<PP&E> 7,119,000
<DEPRECIATION> (4,796,000)
<TOTAL-ASSETS> 13,281,000
<CURRENT-LIABILITIES> 4,250,000
<BONDS> 275,000
0
3,516,0000
<COMMON> 59,905,000
<OTHER-SE> (54,665,000)
<TOTAL-LIABILITY-AND-EQUITY> 13,281,000
<SALES> 3,030,000
<TOTAL-REVENUES> 3,030,000
<CGS> 2,600,000
<TOTAL-COSTS> 4,117,000
<OTHER-EXPENSES> (9,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82,000
<INCOME-PRETAX> (996,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (996,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (996,000)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
