UNITED STATES
SECURITIES & 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 June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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
(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 August 16, 1999, 13,966,980 shares of common stock, no par value, were
outstanding.
<PAGE>
TABLE OF CONTENTS
ITEM
Facing Sheet
Table of Contents
Part I. Financial Information
Item 1. Financial Statements:
Condensed Statements of Operations -
Three Months Ended June 30, 1999 and 1998
Condensed Balance Sheets - June 30, 1999 and March 31, 1999
Condensed Statements of Cash Flows -
Three Months Ended June 30, 1999 and 1998
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART 1-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ABAXIS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenues:
Product sales, net......... $4,418,000 $3,059,000
Development and licensing
revenue.................. 17,000 220,000
------------ ------------
Total revenues 4,435,000 3,279,000
------------ ------------
Costs and operating expenses:
Cost of product sales...... 2,593,000 2,598,000
Research and development... 894,000 521,000
Selling, general, and
administrative........... 1,609,000 1,253,000
------------ ------------
Total costs and operating
expenses................. 5,096,000 4,372,000
------------ ------------
Loss from operations.......... (661,000) (1,093,000)
Interest income 45,000 37,000
Other income (expense)........ -- --
------------ ------------
Net loss...................... ($616,000) ($1,056,000)
============ ============
Basic and diluted loss
per share (a)................ ($0.04) ($0.08)
============ ============
Shares used in calculating
loss per share - basic and
diluted....................... 13,957,980 13,466,268
============ ============
</TABLE>
(a) Loss attributable to common shareholders used in computation of loss per
share for the three months ended June 30, 1999 and June 30, 1998 was
$(676,000) and $(1,067,000), respectively.
See Note 3 of Notes to condensed financial statements.
See notes to condensed financial statements.
<PAGE>
ABAXIS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, March 31,
1999 1999
------------ ------------
(unaudited) (Note 1)
<S> <C> <C>
Current assets:
Cash and cash equivalents ....................... $3,919,000 $5,426,000
Trade and other receivables (net of allowance
for doubtful accounts of $174,000 at June 30,
1999 and $174,000 at March 31, 1999).......... 3,448,000 2,731,000
Interest receivable ............................. 4,000 --
Inventories ..................................... 2,082,000 1,933,000
Prepaid expenses ................................ 227,000 233,000
------------ ------------
Total current assets ................... 9,680,000 10,323,000
Property and equipment - net ...................... 3,236,000 2,518,000
Deposits and other assets ......................... 77,000 73,000
------------ ------------
Total assets ...................................... $12,993,000 $12,914,000
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Borrowings under line of credit.................. $701,000 $683,000
Accounts payable ................................ 1,317,000 1,087,000
Dividends payable ............................... 148,000 88,000
Accrued payroll and related expenses ............ 1,058,000 573,000
Other accrued liabilities ....................... 401,000 410,000
Warranty reserve ................................ 730,000 737,000
Deferred rent ................................... 48,000 53,000
Deferred revenue ................................ 372,000 258,000
Current portion of long-term debt ............... 606,000 606,000
------------ ------------
Total current liabilities .............. 5,381,000 4,495,000
------------ ------------
Long-term debt .................................... 746,000 889,000
------------ ------------
Commitments and contingencies
Shareholders' equity:
Convertible preferred stock, no par value:
authorized shares - 5,000,000; issued and
outstanding shares - 4,000 on June 30,1999
and 4,000 on March 31, 1999 ................... 3,581,000 3,581,000
Common stock, no par value: authorized shares -
35,000,000; issued and outstanding shares -
13,966,980 on June 30, 1999 and
12,957,580 on March 31, 1999 .................. 63,954,000 63,944,000
Deferred compensation ........................... (26,000) (28,000)
Accumulated deficit ............................. (60,643,000) (59,967,000)
------------ ------------
Total shareholders' equity ............. 6,866,000 7,530,000
------------ ------------
Total liabilities and shareholders' equity ........ $12,993,000 $12,914,000
============ ============
</TABLE>
See notes to condensed financial statements.
Note 1 - Amounts are derived from audited financial statements.
<PAGE>
ABAXIS, INC
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-------------------------
1999 1998
------------ ------------
<S> <C> <C>
Operating activities:
Net loss............................................... ($616,000) ($1,056,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization........................ 138,000 172,000
Amortization of deferred compensation................ 2,000 --
Common stock issued for services..................... -- 9,000
Changes in assets and liabilities:
Trade and other receivables....................... (717,000) (243,000)
Interest receivable............................... (4,000) 95,000
Inventories....................................... (150,000) (265,000)
Prepaid expenses.................................. 6,000 25,000
Deposits and other assets......................... (3,000) 6,000
Accounts payable.................................. 320,000 (395,000)
Accrued payroll and related expenses.............. 485,000 (76,000)
Other accrued liabilities......................... (105,000) (125,000)
Warranty reserve.................................. (8,000) --
Deferred revenue and other........................ 114,000 (36,000)
------------ ------------
Net cash used in operating activities.................. (538,000) (1,889,000)
------------ ------------
Investing activities:
Purchase of available-for-sale securities.............. -- (1,474,000)
Maturities of available-for-sale securities............ -- 3,326,000
Purchase of property and equipment..................... (856,000) (406,000)
------------ ------------
Net cash provided by (used in) investing activities.... (856,000) 1,446,000
------------ ------------
Financing activities:
Proceeds from issuance of common stock................. 11,000 13,000
Proceeds from issuance of preferred stock.............. 18,000 --
Net proceeds from equipment financing.................. -- --
Repayment of equipment financing....................... (143,000) (41,000)
------------ ------------
Net cash used in financing activities.................. (114,000) (28,000)
------------ ------------
Increase (decrease) in cash and cash equivalents....... (1,508,000) (471,000)
Cash and cash equivalents at beginning of period....... 5,426,000 1,701,000
------------ ------------
Cash and cash equivalents at end of period............. $3,918,000 $1,230,000
============ ============
Supplemental disclosures of cash flow information:
Interest paid....................................... $75,000 $19,000
============ ============
Noncash financing activities:
Accrued dividends on preferred stock................ $60,000 --
============ ============
Conversion of preferred stock into common stock..... -- $2,440,000
============ ============
Accretion of preferred stock........................ -- $11,000
============ ============
</TABLE>
See notes to condensed financial statements.
<PAGE>
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 on Form 10-K
for the fiscal year ended March 31, 1999. 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 of and for the periods
presented. Certain amounts as presented in the March 31, 1999 financial
statements have been reclassified to conform to the fiscal year 2000
financial statement presentation. The results for the periods
presented are not necessarily indicative of the results to be expected
for the entire fiscal year ending March 31, 2000 or for any future
period.
2. Significant Accounting Policies
Revenue Recognition - Revenues are recognized upon shipment. Rights of
return are generally not provided and a provision for the estimated
future cost of warranty is made at the time revenue is recognized.
Revenues under extended warranty arrangements are recognized ratably
over the related warranty period. Revenues under cross distribution
agreements (where the Company and another party purchase each other's
products for sale) are recognized upon sale of the products to the end
user.
New Accounting Pronouncement - In June 1998, the Financial Accounting
Standards Board issued Statement of Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities", (SFAS
133) which establishes accounting and reporting standards for derivative
instruments and for hedging activities. SFAS 133 requires that entities
recognize all derivatives as either assets or liabilities and measure
those instruments at fair value. Adoption of this statement is not
expected to have a material impact on the Company's financial position,
results of operations or cash flows. The Company is currently required
to adopt SFAS 133 in its financial statements in the first quarter of
the fiscal year ending March 31, 2002.
3. PER SHARE INFORMATION
Basic loss per share is computed based upon the weighted average number
of shares of common stock outstanding and the net loss attributable to
common shareholders. Diluted loss per share 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 loss per share. Shares used in the calculation
of diluted loss per share for the first quarters ended June 30, 1988 and
1999 exclude 1,362,731 and 3,624,182, respectively, common equivalent
shares related to options, warrants and preferred stock. Loss
attributable to common shareholders includes accrued dividends and the
accretion relating to the calculated imbedded yield representing the
discount on the assumed potential conversion of the preferred stock
issued by the Company.
The reconciliation of net loss to net loss attributable to common
shareholders is as follows:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net loss...................... ($616,000) ($1,056,000)
Cumulative preferred
stock dividends............. (60,000) --
Value assigned to accretion
of preferred stock.......... -- (11,000)
------------ ------------
Net loss attributable to
common shareholders......... ($676,000) ($1,067,000)
============ ============
</TABLE>
4. INVENTORY
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
<TABLE>
<CAPTION>
June 30, March 31,
1999 1999
------------ ------------
<S> <C> <C>
Raw materials................ $675,000 $910,000
Work-in-process.............. 621,000 574,000
Finished goods............... 786,000 449,000
------------ ------------
$2,082,000 $1,933,000
</TABLE> ============ ============
5. CUSTOMER AND GEOGRAPHIC INFORMATION
The Company currently operates in one segment. The following is a
summary of revenues from external customers for each group of products
and services provided by the Company:
<TABLE>
<CAPTION>
Quarters Ended June 30,
-------------------------
1999 1998
------------ ------------
<S> <C> <C>
Blood chemistry analyzers.... $1,662,000 $1,363,000
Reagent discs................ 2,436,000 1,694,000
Other........................ 25,000 36,000
------------ ------------
Product sales, net......... 4,123,000 3,093,000
Development and licensing
revenue.................... 312,000 186,000
------------ ------------
Total revenues............... $4,435,000 $3,279,000
============ ============
</TABLE>
The following is a summary of revenues by geographic region based on
customer location:
<TABLE>
<CAPTION>
Quarters Ended June 30,
-------------------------
1999 1998
------------ ------------
<S> <C> <C>
United States ............... $3,567,000 $2,572,000
Europe ...................... 600,000 235,000
Asia and Latin America....... 268,000 472,000
------------ ------------
Total ....................... $4,435,000 $3,279,000
============ ============
</TABLE>
The Company's long-lived assets are located in the United States
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. In this report, the words "anticipates",
"believes", "expects", "future", "intends", "plans", and similar
expressions identify forward-looking statements. These forward-looking
statements are subject to certain risks and uncertainties, including but
not limited to those discussed below, that could cause actual results to
differ materially from historical results or those anticipated. Such
risks and uncertainties include 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. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the
date hereof.
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. The
Company currently markets this system for veterinary use under the name
VetScan and in the human medical market under the name Piccolo.
In the three months ended June 30, 1999, the Company's US revenues
accounted for 80% of its total revenues versus 79% in the three months
ended June 30, 1998, European revenues accounted for 14% versus 7% in
the three-months ended June 30, 1998 and Asian and Latin American
revenues accounted for 6% versus 14% in the three months ended June 30,
1998. The Asian and Latin American revenues declined due to adverse
currency and economic conditions. The Company does not expect the Asian
and Latin American markets to recover to previous levels in the near
future .
During the three months ended June 30, 1999, the Company placed 181
point-of-care blood chemistry analyzers worldwide, a 9% decrease from
198 instruments shipped in the three months ended June 30, 1998. During
the three-months ended June 30, 1999, the Company placed 47 point-of-
care blood hematology analyzers (the VetScan HMT). The VetScan HMT is
a new product offered for the first time in June 1999. Therefore, total
instruments shipped during the three months ended June 30, 1999 were
228. The decline in chemistry instrument sales reflects lower unit
shipments to Japan and the US military. The Company does not expect
instrument unit sales to Japan to recover in the near future, if at all.
Shipments to the military declined due to the completion of a contract
with the US Navy. The Company does not expect sales to the US military
to increase unless an additional contract is completed. Reagent discs
shipped during the three months ended June 30, 1999 were approximately
252,000, an increase of 41% compared to shipments of approximately
179,000 reagent discs during the three months ended June 30, 1998. The
increase in reagent disc shipments during the three months ended June
30, 1999 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 and Piccolo systems and higher consumption rates of
institutional users. There can be no assurance growth in revenues or
unit sales will continue or that the Company will be able to increase
production to meet increased product demand.
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 condition. Until sales volume of the Company's products,
particularly its reagent discs, increases 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 it needs to complete the
development and obtain approval for its four electrolyte disc currently
being developed, in order to make a significant impact in the human
medical market. The Company is currently preparing a submission to the
FDA for two of the electrolytes, potassium and CO2. The third
electrolyte, sodium, is currently in clinical trials and the fourth,
chloride, is in research and development. There is no assurance that
the products will be successfully developed or that the FDA will approve
the marketing application. 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 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 Discrete Lyophilization 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.
Results of Operations
Revenue
During the three months ended June 30, 1999, the Company reported total
revenues of approximately $4,435,000, a $1,156,000 or 35% increase from
total revenues of approximately $3,279,000 for the three months ended
June 30, 1998. Revenue increases in the three months ended June 30,
1999 compared to the three months ended June 30, 1998 were due to
increased analyzer and reagent disc sales in Europe and the US.
Total revenue in the US for the three months ended June 30, 1999 was
approximately $3,566,000, a $993,000 or 39% increase from revenue of
approximately $2,573,000 for the three months ended June 30, 1998.
Total revenue in Europe for the three months ended June 30, 1999 was
approximately $600,000, a $365,000 or 155% increase from revenue of
approximately $235,000 for the three months ended June 30, 1998.Total
revenue in Asia and Latin America was approximately $269,000, a $203,000
or 43% decline from revenue of approximately $472,000 for the three-
months ended June 30, 1998. The increase in revenue in the US reflects
an increase in reagent disc sales and the launch of the VetScan HMT
instrument. The increase in revenue in Europe was due to an increase in
instrument placements, the launch of the VetScan HMT and an increase in
reagent disc sales. The decline in Asia and Latin America was due to
unfavorable currency and economic conditions. The Company does not
expect revenues from Asia and Latin America to recover in fiscal year
2000, if ever.
Cost of Product Sales
Cost of product sales during the three months ended June 30, 1999 was
approximately $2,593,000 or 59% of total revenues, as compared to
approximately $2,598,000 or 79% of total revenues in the three months
ended June 30, 1998. The slight decrease in cost of product sales as a
percent of revenue for the three months ended June 30, 1999 as compared
to the same period last year was primarily a function of the increase in
sales volume of reagent discs and lower unit costs resulting from
improved manufacturing processes.
Research and Development Expense
The Company incurred research and development expenses of approximately
$894,000 in the three months ended June 30, 1999 compared with $521,000
in the three months ended June 30, 1998. The $373,000 or 72% increase in
research and development expenses in the three months ended June 30,
1999 compared to the three months ended June 30, 1998 is the result of
increased spending in the development of new test methods and process
development research for automating production.
Research and development activities accounted for 20% of total revenues
during the three months ended June 30, 1999 as compared to 16% of total
revenues during the three months ended June 30, 1998. The Company
expects the dollar amount of research and development expenses to
increase in fiscal 2000 as compared to fiscal 1999 as the Company
completes development and clinical trials of new test methods to expand
its test menus as well as research in automation 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 approximately
$1,609,000 or 36% of total revenues in the three months ended June 30,
1999 compared to $1,253,000 or 38% of total revenues in the three months
ended June 30, 1998. The increase in selling, general and
administrative expenses for the three months ended June 30, 1999 as
compared to the same period last year is primarily the result of the
launch of new products and an increase in headcount. The Company
expects the dollar amount of selling, general and administrative expense
to increase in fiscal 2000 from fiscal year 1999 but decline as a
percentage of total revenue, as a result of increased staffing and
support demands associated with increased sales.
Net Interest and Other Income (Expense)
Net interest and other income totaled approximately $45,000 in the three
months ended June 30, 1999 compared to $37,000 for the three months
ended June 30, 1998. The Company incurred interest expense of
approximately $1,000 on its capital equipment loan and its line of
credit during the three months ended June 30, 1999, net of capitalized
interest of approximately $75,000 on the purchase and installation of
the new automated disk production line. The Company expects interest
expense to increase in fiscal 2000 as additional bank financing is used
to meet working capital requirements associated with an increase in
sales.
Liquidity and Capital Resources
As of March 31, 1999, the Company had approximately $3,919,000 in cash
and cash equivalents. 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.
Net cash used in operating activities during the three months ended June
30, 1999 was $538,000 compared to $1,889,000 in the three months ended
June 30, 1998. The decrease in net cash used in operating activities in
the three months ended June 30, 1999 compared to the three months ended
June 30, 1998 was due primarily to a decrease in the net loss, an
increase in accounts payable and accrued payroll and other expenses
offset by an increase in trade receivables.
Net cash used in investing activities for the three months ended June
30, 1999 was $856,000 as compared to net cash provided of $1,446,000
for the three months ended June 30, 1998. The change from net cash used
in the three months ended June 30, 1999 to net cash provided in 1998 was
due primarily to the purchase of property and equipment in the three
months ended June 30, 1999 and net maturities of available-for-sale
securities in the three months ended June 30, 1998.
Net cash used in financing activities for the three months ended June
30, 1999 was $114,000 as compared to $28,000 for the three months ended
June 30, 1998. Cash used in financing activities for the three months
ended June 30, 1999 is primarily the result of an increase in
repayments on the equipment financing loan and the line of credit.
The Company currently has $1,799,000 available under the line of credit.
This line of credit expires in October 1999 and there can be no
assurance that the Company will be able to extend the line of credit for
another year.
The Company anticipates that its existing capital resources, debt
financing 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 chemistry analyzer 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 on terms acceptable to the
Company, if at all, and any additional equity financing may be dilutive
to shareholders, while debt financing may involve restrictive covenants.
Year 2000 Preparedness
The Year 2000 issue is the result of computer programs which were
written with two digits rather than four to signify a year (i.e., the
year 1999 is denoted as "99" and not "1999"). Computer programs
written using only two digits may recognize the year 2000 as the year
1900. This could result in a system failure or miscalculations causing
disruption of operations.
Readiness
The Company has identified the following areas where efforts are
underway to resolve year 2000 issues: (i) internal information
technology (IT) systems, (ii) the Piccolo and VetScan instruments the
Company markets, (iii) test equipment used in research and development,
and (iv) third party vendors and distributors who do business with the
Company.
The Company has upgraded the internal IT systems to the vendor's
specifications for year 2000 compliance. The IT systems will be tested
during the second and third quarters of fiscal 2000 to determine that
the IT systems are working within the specifications. The Company's
Piccolo and VetScan systems were designed for year 2000 compliance.
Tests have been completed on the systems that confirm year 2000
compliance. The Company intends to address year 2000 issues regarding
its test equipment used in research and development and third party
vendors who do business with the Company in the second and third
quarters of fiscal 2000.
Costs
Aggregate costs for year 2000 efforts in the three months ended June 30,
1999 and fiscal year 2000 currently are anticipated to be less than
$250,000, including approximately $50,000 expensed in the three months
ended June 30, 1999 and for the year 2000 preparedness since inception
for software and consulting services. . The remaining estimated costs
for year 2000 issues are expected to be for consulting services, which
will be expensed in the period they occur.
Risks
The Company is presently unable to assess the likelihood that the
Company will experience significant operational problems due to
unresolved year 2000 problems of third parties that do business with the
Company. There can be no assurance that other entities will achieve
timely year 2000 compliance; if they do not, year 2000 problems could
have a material adverse impact on the Company's operations.
Contingency Plans
The Company presently believes that the most reasonably likely worst-
case scenario that the Company might confront with respect to year 2000
issues has to do with failure at one or more of the Company's
distributors over which the Company has no control. For example, if one
or more of the Company's distributors were unable to ship product to the
end-user, the Company would have to take orders and ship direct to the
end-user customers. There are policies and procedures in place for
direct shipments to the end-user as the Company currently ships product
directly to some national accounts. Should this worst-case scenario
occur, the Company would have to increase headcount in a number of
operating areas, such as customer service, shipping and accounting.
There can be no assurance that the Company can increase the operating
capacity in a timely manner and there can be no assurance that these
additional operating expenses would not have a material adverse
financial impact on the Company.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to financial market risks with respect to
interest rates on the Company's accounts receivable line of credit and
short-term investments. The Company does not use derivative financial
instruments for speculative or trading purposes.
The accounts receivable line of credit monthly interest expense is based
on 2.5% over the prime rate. An increase in the prime rate would expose
the Company to higher interest expenses. The balance on the line of
credit was $701,000 as of June 30, 1999. For each 1% increase in the
prime rate the Company would pay approximately $1,750 of additional
interest expense each quarter.
The long-term debt monthly interest expense is based on an interest rate
of 16%. An increase in interest rates would have exposed the Company to
higher interest expenses. The balance on long-term debt was
approximately $1,352,000 as of June 30, 1999. For each 1% increase in
interest rates, the Company would have paid approximately $3,380 of
additional interest expense each quarter.
The Company at times has investments in marketable debt securities that
are subject to interest rate risks. These investments are classified as
"available for sale" securities. The Company does not attempt to
reduce or eliminate its market exposure on these investments. Although
changes in interest rates may affect the fair market value of
"available for sale" securities and cause unrealized gains or losses,
such gains or losses would not be realized unless the investments were
sold.
PART II-OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits included herein (numbered in accordance with Item 601 of Regulation
S-K)
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
27.0 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
None
<PAGE>
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.
August 16, 1999 by: /s/ Clinton H. Severson
Date Clinton H. Severson
President and Chief Executive
Officer
(Principal Executive Officer)
August 16, 1999 by: /s/ Donald J. Stewart
Date Donald J. Stewart
Vice President of Finance &
Administration and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
27.0 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM CONDENSED BALANCE SHEETS, CONDENSED
STATEMENTS OF OPERATIONS AND NOTES TO CONDENSED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,919,000
<SECURITIES> 0
<RECEIVABLES> 3,622,000
<ALLOWANCES> 174,000
<INVENTORY> 2,082,000
<CURRENT-ASSETS> 9,680,000
<PP&E> 3,236,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,993,000
<CURRENT-LIABILITIES> 5,381,000
<BONDS> 0
0
3,581,000
<COMMON> 63,954,000
<OTHER-SE> (60,669,000)
<TOTAL-LIABILITY-AND-EQUITY> 12,993,000
<SALES> 4,418,000
<TOTAL-REVENUES> 4,435,000
<CGS> 2,593,000
<TOTAL-COSTS> 2,593,000
<OTHER-EXPENSES> 2,503,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (616,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (616,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (616,000)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
