e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
March 31, 2009
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission File Number
000-19720
ABAXIS, INC.
(Exact name of registrant as
specified in its charter)
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California
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77-0213001
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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3240 Whipple Road, Union City, California
(Address of principal
executive offices)
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94587
(Zip code)
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Registrants telephone number, including area code:
(510) 675-6500
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Class
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Name of Each Exchange on Which Registered
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Common Stock, no par value
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The NASDAQ Stock Market, Inc.
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
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 registrants 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. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the voting stock held by
non-affiliates of Abaxis as of September 30, 2008, the last
business day of the second fiscal quarter, was $295,480,000
based upon the closing sale price reported for such date on the
NASDAQ Global Market. For purposes of this disclosure,
6,792,000 shares of common stock held by persons who hold
more than 5% of the outstanding shares of registrants
common stock and shares held by executive 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 any other purpose and
exclusion of such shares should not be construed to indicate
that any such person possesses the power, direct or indirect, to
direct or cause the direction of the management or policies of
the registrant or that such person is controlled by or under
common control with the registrant.
As of June 8, 2009, there were 21,985,000 shares of
the Registrants common stock outstanding.
Abaxis,
Inc.
Annual Report on
Form 10-K
For The Fiscal Year Ended March 31, 2009
TABLE OF
CONTENTS
2
PART I
FORWARD-LOOKING
STATEMENTS
This report contains forward-looking statements within the
meaning of Sections 21E of the Securities Exchange Act of
1934, as amended that reflect Abaxis current view with
respect to future events and financial performance. In this
report, the words will, anticipates,
believes, expects, intends,
plans, future, projects,
estimates, would, may,
could, should, might, 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, but are not limited to, the market
acceptance of our products and the continuing development of our
products, regulatory clearance and approvals required by the
U.S. Food and Drug Administration (FDA) and
other government approvals, risks associated with manufacturing
and distributing our products on a commercial scale, free of
defects, risks related to the introduction of new instruments
manufactured by third parties, risks associated with entering
the human diagnostic market on a larger scale, risks related to
the protection of Abaxis intellectual property or claims
of infringement of intellectual property asserted by third
parties, risks involved in carrying of inventory, risks
associated with the ability to attract, train and retain
competent sales personnel, 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 assumes no obligation to update any
forward-looking statements as circumstances change. Readers are
advised to read this Annual Report on
Form 10-K
in its entirety, paying careful attention to the risk factors
set forth in this and other reports or documents filed by Abaxis
from time to time with the Securities and Exchange Commission
(SEC), particularly the quarterly reports on
Form 10-Q
and any current reports on
Form 8-K,
copies of which may be obtained from Abaxis or from the SEC at
its website at www.sec.gov.
GENERAL
Abaxis, Inc. (Abaxis, us or
we) develops, manufactures, markets and sells
portable blood analysis systems for use in the human or
veterinary patient-care setting to provide clinicians with rapid
blood constituent measurements. Abaxis was incorporated in
California in 1989. Our principal offices are located at 3240
Whipple Road, Union City, California 94587. Our telephone number
is
(510) 675-6500
and our Internet address is www.abaxis.com. Our common stock
trades on the NASDAQ Global Market under the symbol
ABAX.
OUR
INDUSTRY: IN VITRO DIAGNOSTIC TESTING
We believe that a key element of the patient-centered,
cost-constrained health care system in the current year and
beyond will be the availability of blood analysis systems in the
patient care setting that are easily and reliably operated by
caregivers and that provide accurate, real time results to
enable rapid clinical decisions. The optimal system uses whole
blood, has built-in calibration and quality control, provides
quick turnaround time, is portable and is low 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 caregivers and patient information
management systems.
We have developed a blood analysis system incorporating all of
these criteria into a 5.1 kilogram (11.2 pounds) portable
analyzer and a series of menu-specific, multi-test single-use
reagent discs. The system is essentially a compact portable
laboratory that can be easily located near 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 patients blood
pressure, temperature, and heart rate and eliminates the
necessity of multiple visits to the doctors office.
Additional advantages of near-patient testing include
eliminating errors from sample handling, transcription and
transportation. We have adapted this blood analysis system in
both the human medical and veterinary markets in order to bring
the same advantages to all health care professionals and
patients.
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ABAXIS
PRODUCTS
We manage our business in two operating segments, based on the
products sold by market and customer group: (i) the medical
market and (ii) the veterinary market. Revenues in the
medical market accounted for 23%, 23% and 20% of our total
revenues for fiscal 2009, 2008 and 2007, respectively. Revenues
in the veterinary market accounted for 70%, 71% and 74% of our
total revenues for fiscal 2009, 2008 and 2007, respectively. See
Note 15, Segment Reporting Information, of the
Notes to Consolidated Financial Statements for additional
financial information about our segments.
Point-of-Care
Blood Chemistry Analyzer
Our primary product is a blood analysis system, consisting of a
compact portable analyzer and a series of single-use plastic
discs, called reagent discs, containing all the chemicals
required to perform a panel of up to 14 tests on human patients
and 13 tests on veterinary patients. The system can be operated
with minimal training and performs multiple routine tests on
whole blood, serum or plasma samples. The system provides test
results in approximately 12 minutes with the precision and
accuracy equivalent to a clinical laboratory analyzer. We
manufacture the system in our manufacturing facility in Union
City, California and we market our blood chemistry analyzers in
both the medical market and in the veterinary market, as
described below.
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Medical Market: We currently market the blood
analysis system in the medical market under the name
Piccolo®
xpress. Through October 2006, we marketed the blood analysis
system in the medical market as the
Piccolo®,
now referred to as the Piccolo Classic. We continue to support
and service our current population of Piccolo xpress and Piccolo
Classic chemistry analyzers.
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Veterinary Market: We currently market the
blood analysis system in the veterinary market under the name
VetScan
VS2®.
Through March 2006, we marketed the blood analysis system in the
veterinary market as the
VetScan®,
now referred to as the VetScan Classic. We continue to support
and service our current population of VetScan VS2 and VetScan
Classic chemistry analyzers.
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Reagent
Discs
The reagent discs used with the blood chemistry analyzers 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, then transfers the sample into the reagent disc. The
operator places the disc into the analyzer drawer, and enters
patient, physician, and operator information. The analyzer spins
the disc to separate cells from plasma, meters and mixes plasma
with diluent, distributes diluted plasma to the cuvettes, and
monitors chemical reactions. In approximately 12 minutes,
results are printed or can be transmitted to a patient data
management system for inclusion in the patients medical
record. A computer port enables transmission of patient results
to external computers for patient data management.
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We offer our blood analysis system with a total of 27 diagnostic
tests. Our test methods are as follows:
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Test Methods
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Test Methods
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Alanine aminotransferase
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ALT
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Lactate dehydrogenase
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LD
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Albumin
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ALB
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Magnesium
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MG
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Alkaline phosphatase
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ALP
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Phosphorous
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PHOS
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Amylase
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AMY
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Potassium
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K+
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Aspartate aminotransferase
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AST
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Sodium
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NA+
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Bile acids
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BA
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Thyroxine
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T4
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Calcium
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CA
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Total bilirubin
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TBIL
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Chloride
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CL-
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Total carbon dioxide
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tCO2
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Creatine kinase
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CK
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Total cholesterol
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CHOL
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Creatinine
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CRE
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Total protein
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TP
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Direct bilirubin
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DBIL
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Triglycerides
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TRIG
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Gamma glutamyltransferase
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GGT
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Urea nitrogen
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BUN
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Glucose
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GLU
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Uric acid
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UA
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High-density lipoprotein cholesterol
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HDL
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Twenty-one of these tests are marketed for both the medical and
veterinary markets. The tests for BA and
T4
are marketed exclusively in the veterinary market. The tests for
DBIL, HDL, LD and TRIG are marketed exclusively in the medical
market. We market our reagent products by configuring these 27
test methods in panels that are designed to meet a variety of
clinical diagnostic needs. We offer 13 multi-test reagent disc
products in the medical market and 8 multi-test reagent disc
products in the veterinary market.
The reagent discs offered with our Piccolo chemistry analyzers
are as follows:
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Piccolo Panels
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Description of the Test Panels
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Basic Metabolic Panel (CLIA waived)
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BUN, CA, CL-, CRE, GLU, K+, NA+,
tCO2.
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Basic Metabolic Panel Plus
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BUN, CA, CL-, CRE, GLU, K+, LD, MG, NA+,
tCO2.
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Comprehensive Metabolic Panel (CLIA waived)
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ALB, ALP, ALT, AST, BUN, CA, CL-, CRE, GLU, K+, NA+, TBIL,
tCO2,
TP.
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Electrolyte Panel (CLIA waived)
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CL-, K+, NA+,
tCO2.
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General Chemistry 6 (CLIA waived)
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ALT, AST, BUN, CRE, GGT, GLU.
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General Chemistry 13 (CLIA waived)
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ALB, ALP, ALT, AMY, AST, BUN, CA, CRE, GGT, GLU, TBIL, TP, UA.
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Hepatic Function Panel
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ALB, ALP, ALT, AST, DBIL, TBIL, TP.
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Kidney Check (CLIA waived)
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BUN, CRE.
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Lipid Panel (CLIA waived)
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CHOL, CHOL/HDL RATIO, HDL, LDL, TRIG, VLDL.
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Lipid Panel Plus (CLIA waived)
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ALT, AST, CHOL, CHOL/HDL RATIO, GLU, HDL, LDL, TRIG, VLDL.
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Liver Panel Plus (CLIA waived)
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ALB, ALP, ALT, AMY, AST, GGT, TBIL, TP.
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Metlyte 8 Panel (CLIA waived)
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BUN, CK, CL-, CRE, GLU, K+, NA+,
tCO2.
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Renal Function Panel (CLIA waived)
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ALB, BUN, CA, CL-, CRE, GLU, K+, NA+, PHOS,
tCO2.
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CLIA waived means the FDA has granted our
application to classify the product as having waived status with
respect to the Clinical Laboratory Improvement Amendments
(CLIA) of 1988. See Government
Regulation in this section for additional information on
CLIA.
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The reagent discs offered with our VetScan chemistry analyzers
are as follows:
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VetScan Profile
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Description of the Test Panels
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Avian/Reptilian Profile Plus
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ALB, AST, BA, CA, CK, GLOB, GLU, K+, NA+, PHOS, TP, UA.
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Comprehensive Diagnostic Profile
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ALB, ALP, ALT, AMY, BUN, CA, CRE, GLOB, GLU, K+, NA+, PHOS,
TBIL, TP.
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Critical Care Plus
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ALT, BUN, CL-, CRE, GLU, K+, NA+,
tCO2.
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Equine Profile Plus
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ALB, AST, BUN, CA, CK, CRE, GGT, GLOB, GLU, K+, NA+, TBIL,
tCO2,
TP.
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Large Animal Profile
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ALB, ALP, AST, BUN, CA, CK, GGT, GLOB, MG, PHOS, TP.
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Mammalian Liver Profile
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ALB, ALP, ALT, BA, BUN, CHOL, GGT, TBIL.
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Prep Profile II
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ALP, ALT, BUN, CRE, GLU, TP.
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Thyroxine
(T4)/Cholesterol
Profile
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CHOL,
T4.
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Hematology
In September 2007, we introduced a veterinary hematology
instrument under the name VetScan HM5. The VetScan HM5 offers a
22-parameter complete blood count (CBC) analysis, including a
five-part differential cell counter specifically designed for
veterinary applications. In May 2004, we introduced a veterinary
hematology instrument that offers an 18-parameter CBC analysis,
including a three-part white blood cell differential, marketed
originally as the VetScan HMII, and is now referred to as the
VetScan HM2. We currently purchase the hematology instruments
from Diatron Medical Instruments PLC. of Budapest, Hungary.
Through April 2004, we marketed a veterinary hematology
instrument under the name VetScan HMT. We continue to support
and service our current population of VetScan HM5, VetScan HM2,
VetScan HMII and VetScan HMT hematology instruments. We also
market reagent kits to be used with our hematology instruments
which we currently purchase from three suppliers: Clinical
Diagnostic Solutions, Inc., Diatron Medical Instruments PLC. and
Mallinckrodt Baker BV.
Coagulation
In January 2009, we introduced a veterinary coagulation analyzer
under the name VetScan VSpro. The VetScan VSpro
assists in the diagnosis and evaluation of suspected
bleeding disorders, toxicity/poisoning, evaluation of
Disseminated Intravascular Disease, hepatic disease and
monitoring therapy and progression of disease states. The
point-of-care
coagulation analyzer is offered with a combination assay
(PT/aPTT test cartridge) for canine testing. We currently
purchase the coagulation analyzers and coagulation reagents from
Scandinavian Micro Biodevices APS of Farum, Denmark.
Canine
Heartworm Rapid Test
In January 2009, we introduced a canine heartworm rapid test
under the name VetScan Canine Heartworm Rapid Test. The VetScan
Canine Heartworm Rapid Test is a highly sensitive and specific
test for the detection of Dirofilaria immitis in canine
whole blood, serum or plasma. The lateral flow immunoassay
technology in the canine heartworm rapid tests provides
immediate results.
Orbos
Process
The dry reagents used in our reagent discs are produced using a
proprietary technology called the
Orbos®
Discrete Lyophilization Process (the Orbos process).
This process allows the production of a 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. We believe that the Orbos process has broad
applications in products where delivery of active ingredients in
a stable, pre-metered format is desired. We have licensed the
technology underlying the Orbos process to bioMerieux, Inc.,
Cepheid and GE Healthcare (formerly Amersham
Bioscience Corp.). Additionally, we have a supply contract
with Becton, Dickinson and Company for products using the Orbos
process.
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Revenues from these arrangements, however, are unpredictable. We
continue to explore potential applications with other companies,
although there can be no assurance that we will be able to
develop any new applications for the Orbos process.
Future
Products
We continue to develop new products that we believe will provide
further opportunities for growth in the human medical and
veterinary markets. Development of tests for other disc products
will be targeted at specific applications based on fulfilling
clinical needs.
In April 2009, we submitted an assay for C-Reactive Protein
(CRP) to the FDA for 510(k) clearance. See
Government Regulation in this section for additional
information on 510(k) clearance. We have included this assay on
a new reagent, MetLyte Plus CRP, which is currently offered for
sale and distribution only outside the United States. CRP is
used to identify the presence of inflammation and to monitor
response to treatment for such inflammatory disorders with
respect to certain types of arthritis, autoimmune disorders and
inflammatory bowel disease, or to check for the presence of
infection (especially after surgery).
In May 2009, we entered into an exclusive license agreement with
Abbott Point of Care Inc., granting us the right to sell and
distribute Abbotts i-STAT 1 handheld instrument
(i-STAT®
1 analyzer) and associated consumables (for blood gas,
electrolyte, basic blood chemistry and immunoassay testing) in
the animal health care market worldwide. Our right to sell and
distribute these products is initially non-exclusive, but
becomes exclusive in all countries of the world, except for
Japan, on November 1, 2009. Our rights in Japan remain
non-exclusive for the term of the agreement. The initial term of
the agreement ends on December 31, 2014, and after this
initial term, our agreement continues automatically for
successive one-year periods unless terminated by either party.
CUSTOMERS
AND DISTRIBUTION
We market and sell our products worldwide by maintaining direct
sales forces and through independent distributors. Our direct
sales force is primarily located in the United States. In July
2008, our sales office in Darmstadt, Germany was incorporated as
our wholly-owned subsidiary, Abaxis Europe GmbH, to market,
promote and distribute diagnostic systems for medical and
veterinary uses. Abaxis Europe GmbH provides customer support in
a timely manner in response to the growing and increasingly
diverse services needs of customers in the European market.
Sales and marketing expenses were $24.7 million,
$23.7 million and $20.6 million, or 23%, 24% and 24%
of our total revenues, in fiscal 2009, 2008 and 2007,
respectively. See Note 16, Revenues by Product
Category and Geographic Region and Significant
Concentrations, of the Notes to Consolidated Financial
Statements for additional financial information by geographic
area.
Customers
Depending on the needs of a customer segment, we sell our
point-of-care
blood analyzer products and reagent discs either directly or
through distributors. 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, as described
below.
Medical
Market
We believe that our Piccolo chemistry analyzer, consisting of a
menu of 25 reagent test results, is suitable for a wide variety
of the human medical market segments. These market segments
include military installations (ships, field hospitals and
mobile care units), physicians office practices across all
specialties, urgent care and walk-in clinics (free-standing or
hospital-connected), home care providers (national, regional or
local), nursing homes, ambulance companies, oncology treatment
clinics, hospital labs and draw stations.
Veterinary
Market
We believe that our veterinary reagent product offerings meet a
substantial part of the clinical diagnostic needs of
veterinarians and the research marketplace. Potential customers
for our VetScan products include companion
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animal hospitals, animal clinics with mixed practices of small
animals, birds and reptiles, equine and bovine practitioners,
veterinary emergency clinics, veterinary referral hospitals,
universities, government, pharmaceutical companies,
biotechnology companies and private research laboratories.
Distribution
Within North America
Medical
Market
We sell our human-oriented 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, we anticipate
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 decisions.
We plan to achieve our direct sales objectives by employing
highly skilled sales specialists and sales teams to work closely
with providers in performing studies to show that the use of the
Piccolo blood chemistry analyzer, rather than laboratory
alternatives, can provide better outcomes at a lower cost.
Distribution alternatives in the human medical market can
contribute to identifying potential customers and introducing
the product, but often need the support of our personnel in
completing the sale. Product distributors are generally of two
types: (i) large companies that primarily serve hospitals,
clinics and large health maintenance organizations (HMOs)
nationwide using multiple warehouses and extensive
transportation systems, and (ii) smaller companies that
provide the daily supplies needed by office-based physicians.
Large distributors with local and regional companies can service
the office-based physicians market segment as well. In the human
medical 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.
We are currently exploring distribution alternatives and may
enter into arrangements, where appropriate. We entered into
formal distribution agreements with the following distributors
to sell and market Piccolo chemistry analyzers and medical
reagent discs: National Distribution & Contracting,
Inc. in our third quarter of fiscal 2008, McKesson
Medical-Surgical Inc. in our first quarter of fiscal 2008,
Cardinal Health in our fourth quarter of fiscal 2007, Henry
Scheins Medical Group in our first quarter of fiscal 2007
and PSS World Medical, Inc. in our third quarter of fiscal 2006.
We are also currently pursuing direct medical sales, where
appropriate.
Veterinary
Market
Veterinarians are served typically by local distributors, some
with national affiliations. We work with various independent
distributors to sell our instruments and consumable products. In
the United States, we have both regional and national based
distributors, which includes, among others, American Veterinary
Supply Corp., DVM Resources, IVESCO LLC, Lextron Animal Health,
Merritt Veterinary Supplies, Inc., Nelson Laboratories, Penn
Veterinary Supply, Inc., TW Medical Veterinary Supply and
Western Medical Supply, Inc. In addition to selling through
distributors, we directly supply our VetScan products to
Veterinary Centers of America (VCA), a large veterinary hospital
chain. In fiscal 2009, one distributor in the United States
veterinary market, DVM Resources, accounted for 10% of our total
worldwide revenues. We depend on our distributors to assist us
in promoting our products in the veterinary market, and
accordingly, if one or more of our distributors were to stop
selling our products in the future, we may experience a
temporary sharp decline or delay in our sales revenue until our
customers identify another distributor or purchase products
directly from us.
We also sell our veterinary products to distributors located in
Canada. Our veterinary reagents are sold to various distributors
in Canada, which includes Associated Veterinary Purchase, CDMV,
Distribution Vie et Sante, Midwest Veterinary Distribution
Cooperative Limited, Veterinary Purchasing Company Limited and
Western Drug Distribution Center Limited. Currently, we sell our
VetScan chemistry analyzers, hematology instruments and
coagulation analyzers to one distributor in Canada, Vet
Novations.
We intend to enter into arrangements with additional veterinary
distributors within North America as well as pursue direct
veterinary sales, where appropriate.
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Distribution
Outside of North America
Our 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.
We currently have distributors for our products in the following
foreign countries: Afghanistan, Australia, Austria, Bahrain,
Belgium, Czech Republic, Denmark, France, Germany, Hong Kong,
India, Ireland, Israel, Italy, Japan, Korea, Macao, the
Netherlands, New Zealand, the Philippines, Portugal, Romania,
Russia, Singapore, South Africa, Spain, Sweden, Switzerland,
Turkey, Ukraine, United Arab Emirates and the United Kingdom.
Our distributor in each of these countries is responsible for
obtaining the necessary approvals to sell our new and existing
products.
Revenues in Europe accounted for 13%, 13% and 12% of our total
revenues for fiscal 2009, 2008 and 2007, respectively. Revenues
in Asia Pacific and rest of the world accounted for 4%, 3% and
4% of our total revenues for fiscal 2009, 2008 and 2007,
respectively.
We plan to continue to enter into additional distributor
relationships to expand our international distribution base and
solidify our international presence.
MANUFACTURING
We manufacture our Piccolo and VetScan chemistry analyzers from
our facility located in Union City, California. The VetScan HM2
and HM5 are manufactured by Diatron Medical Instruments PLC. in
Budapest, Hungary and are purchased by us as a completed
instrument. The VetScan VSpro is manufactured by
Scandinavian Micro Biodevices APS in Farum, Denmark and is
purchased by us as a completed instrument.
Our Piccolo products are regulated under the 1976 Medical Device
Amendments to the Food, Drug and Cosmetic Act, which is
administered by the FDA. To produce and commercially ship
Piccolo products, we must have a license to manufacture medical
products in the State of California, where we conduct our
principal manufacturing activities, and be registered by the FDA
as a medical device manufacturer. Current Good Manufacturing
Practice requirements are set forth in the 21 CFR 820
Quality System Regulation. These requirements regulate the
methods used in, and the facilities and controls used for the
design, manufacture, packaging, storage, installation and
servicing of our medical devices intended for human use. Our
manufacturing facility is subject to periodic inspections. In
addition, various state regulatory agencies may regulate the
manufacture of our products. To date, we have complied with the
following federal, state, local and international regulatory
requirements:
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In April 2001, the State of California Food and Drug Branch
granted our manufacturing facility in compliance
status, based on the regulations for Good Manufacturing
Practices for medical devices.
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In May 2001, the State of California Food and Drug Branch
granted licensing for our manufacturing facility in Union City,
California.
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In May 2002, we received our ISO 9001 certification, expanding
our compliance with international quality standards.
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In December 2003, we received ISO 13485 Quality System
certification as required by the 2003 European In Vitro Device
Directive. This certified our quality system specifically to
medical devices.
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In both March 2003 and September 2005, the FDA conducted a
facility inspection and verified our compliance with the
21 CFR 820 Regulation.
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In November 2006, we received our recertification to the ISO
13485:2003 Quality System Standard for medical devices.
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In August 2008, the FDA conducted an additional facility
inspection to verify our compliance with 21 CFR 820
Regulation.
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Although we are not required to comply with all of the
government regulations applicable to the human medical market
when manufacturing the VetScan products, we intend that all of
our manufacturing operations will be compliant with the Quality
System Regulation to help ensure product quality and integrity
regardless of end use or patient.
In addition to the development of standardized manufacturing
processes and quality control programs for the entire
manufacturing process, our manufacturing activities are
concentrated in the following three primary areas:
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Point-of-Care
Blood Chemistry Analyzer: The analyzer used in
the Piccolo and VetScan systems employs a variety of components
designed or specified by us, including a variable speed motor,
microprocessors, a liquid crystal display, a printer, a
spectrophotometer and other electronic components. These
components are manufactured by several third-party vendors that
have been qualified and approved by us and then assembled by our
contract manufacturers. The components are assembled at our
facility in Union City 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. Currently, we purchase technologically advanced
components from a limited number of vendors, including
components from Hamamatsu Corporation and PerkinElmer, Inc. and
components from a single-source supplier, UDT Sensors (a
division of OSI Optoelectronics). We do not have supply
agreements with any of these companies and they are not
contractually obligated to continue supplying us with components
in the quantities or at the prices that such companies have done
historically.
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Reagent Discs: The molded plastic discs used
in the manufacture of the reagent disc are manufactured to our
specifications by established injection-molding manufacturers.
To achieve the precision required for accurate test results, the
discs must be molded to very strict tolerances. To date, we have
only qualified two manufacturers, C. Brewer & Co. and
Nypro, Inc. to mold the discs. We do not have supply agreements
with either of these companies and they are under no contractual
obligation to continue supplying us with discs either in the
quantities or at the prices that such companies have done
historically. We are also working with our suppliers to improve
yields and increase capacity on the existing production molds.
While we have increased the number of disc molding tools to
strengthen and better protect our line of supply, an inability
by our injection-molding manufacturers to supply sufficient
discs would have a material adverse impact on our results of
operations. We assemble the reagent discs by using the molded
plastic discs, loading the disc with reagents and then
ultrasonically welding together the top and bottom pieces.
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Reagent Beads: The reagent discs contain
diluent and all the dry reagent chemistry beads necessary to
perform blood analyses. We purchase chemicals from third-party
suppliers and formulate 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. We are dependent on the following companies who
are our single source providers of one or more chemicals that we
use in the reagent production process: Amano Enzyme USA Co.,
Ltd., Genzyme Corporation, Kikkoman Corporation Biochemical
Division, Microgenics Corporation, Roche Molecular Biochemicals
of Roche Diagnostics Corporation, a division of F.
Hoffmann-La Roche, Ltd., Sigma Aldrich Inc. and Toyobo
Specialties (formerly Shinko American Inc.). We do not have
supply agreements with any of these companies and they are under
no contractual obligation to continue supplying us in the
quantities or at the price such companies have done
historically. Although we believe all of the chemicals provided
by these companies would be readily available elsewhere and we
continue to evaluate vendor sources to protect and improve our
lines of supply, the loss of any of these companies as a
supplier could materially adversely affect our manufacturing
activities and results of operations.
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We generally operate with a limited order backlog because our
products are typically 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.
MATERIAL
RELATIONSHIPS WITH SUPPLIERS AND OTHER THIRD PARTIES
Diatron Messtechnik GmbH. In our November 2003
original equipment manufacturing (OEM) agreement
with Diatron Messtechnik GmbH (Diatron), we acquired
the exclusive right to distribute Diatrons veterinary
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hematology instruments in Australia, Canada, Japan, New Zealand
and the United States. The Diatron hematology instruments are
currently supplied by Diatron Medical Instruments PLC. Following
a prior amendment, in February 2008, the terms of the OEM
agreement, with respect to the purchase commitments, were
revised. Under the amended OEM agreement, we committed to
purchase a minimum number of hematology instruments through
fiscal 2009. In August 2008, the Company entered into a purchase
order with scheduled shipping terms through January 2009 for the
remaining number of hematology instruments to be purchased under
the amended OEM agreement. Since August 2008, we have operated
entirely on a purchase order basis with Diatron.
Scandinavian Micro Biodevices APS. In October
2008, we entered into an OEM agreement with Scandinavian Micro
Biodevices APS (SMB) to purchase coagulation
analyzers and coagulation reagents. In the fourth quarter of
fiscal 2009, we started marketing the products and, upon
achievement of certain milestones by SMB outlined in our
agreement, we will be subject to minimum purchase commitments
under the OEM agreement.
Inverness Medical Switzerland GmbH. Effective
January 2009, we entered into a license agreement with Inverness
Medical Switzerland GmbH (Inverness). In our
agreement, we licensed co-exclusively certain worldwide patent
rights related to lateral flow immunoassay technology in the
field of animal health diagnostics in the professional
marketplace. The license agreement provides that Inverness shall
not grant any future rights, to any third parties under its
current lateral flow patent rights in the animal health
diagnostics field in the professional marketplace. The license
agreement enables us to develop and market products under rights
from Inverness to address animal health and laboratory animal
research markets.
In exchange for the license rights, we (i) paid an up-front
license fee of $5.0 million to Inverness in January 2009,
(ii) agreed to pay royalties during the term of the
agreement, based solely on sales of products in a jurisdiction
country covered by valid and unexpired claims in that
jurisdiction under the licensed Inverness patent rights, and
(iii) agreed to pay a yearly minimum license fee of between
$500,000 to $1.0 million per year, which fee will be
creditable against any royalties due during such calendar year.
The royalties, if any, are payable through the date of the
expiration of the last valid patent licensed under the agreement
that includes at least one claim in a jurisdiction covering
products we sell in that jurisdiction. The yearly minimum fees
are payable starting in fiscal 2011 for so long as we desire to
maintain exclusivity under the agreement.
DVM Resources. DVM Resources, one of our
distributors of veterinary products in the United States,
accounted for 10%, 12% and 15% of our total worldwide revenue in
fiscal 2009, 2008 and 2007, respectively.
COMPETITION
Competition in the human and veterinary diagnostic markets is
intense. Blood analysis is a well-established field in which
there are a number of competitors that have substantially
greater financial resources and larger, more established
marketing, sales and service organizations than we do. We
compete primarily with the following organizations: commercial
clinical laboratories, hospitals clinical laboratories and
manufacturers of bench top multi-test blood analyzers and other
testing systems that health care providers can use
on-site.
Historically, hospitals and commercial laboratories perform most
of the human medical testing, and veterinary specialized
commercial laboratories perform most of the veterinary medical
testing. We have identified five principal factors that we
believe customers typically use to evaluate our products and
those of our competitors. These factors are as follows:
(i) range of tests offered; (ii) the immediacy of
results; (iii) cost effectiveness; (iv) ease of use
and (v) reliability of results. We believe that we compete
effectively on each of these factors except for the range of
tests offered. Clinical laboratories are effective at processing
both a wide range and high volumes of discrete tests using
skilled technicians and complex equipment. While our current
offering of reagent discs cannot provide the same broad range of
tests, we believe that in our targeted market segments, our
products provide a sufficient breadth of test menus to compete
successfully with clinical laboratories given the advantages of
our products with respect to the other four factors.
Our principal competitors in the human diagnostic market are
Alfa Wassermann S.P.A., i-STAT Corporation (which was purchased
by Abbott Laboratories), Johnson & Johnson (including
its subsidiary, Ortho-Clinical Diagnostics, Inc.), Kodak (DT60
analyzer), Polymedco, Inc. and F. Hoffmann-La Roche Ltd.
(Reflotron system). Our principal competitors in the veterinary
diagnostic market are Idexx Laboratories, Inc. and Heska
Corporation.
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Most of our competitors have significantly greater financial,
marketing, sales and technical and other resources than we do.
In particular, many of our competitors have large sales forces
and well-established distribution channels. Consequently, we are
developing our distribution network and expanding our direct
sales force in order to compete in these markets.
GOVERNMENT
REGULATION
U.S.
Food and Drug Administration Clearance
Our Piccolo products are regulated under the 1976 Medical Device
Amendment to the Food, Drug and Cosmetic Act, which is
administered by the FDA. The FDA has classified our Piccolo
products as Class I and
Class II devices. These classifications require
us to submit to the FDA a pre-market notification form or
510(k). The FDA uses the 510(k) to substantiate product claims
that are made by medical device manufacturers prior to
marketing. In our 510(k) notification, we must, among other
things, establish that the product we plan to market is
substantially equivalent to (1) a product that
was on the market prior to the adoption of the 1976 Medical
Device Amendment or (2) a product that the FDA has
previously cleared under the 510(k) process.
The FDA review process of a 510(k) notification can last
anywhere from three to six months, and the FDA must issue a
written order finding substantial equivalence before
a company can market a medical device. As of March 31,
2009, we have received market clearance from the FDA for our
Piccolo system and 25 reagent tests that we have on 13 reagent
discs. We are currently developing additional tests that we will
have to clear with the FDA through the 510(k) notification
procedures. These new test products are crucial for our success
in the human medical market. If we do not receive 510(k)
clearance for a particular product, we will not be able to
market that product in the United States, which could harm our
future sales.
Clinical
Laboratory Improvements Act Regulations
Our Piccolo products are also affected by the CLIA of 1988. The
CLIA are intended to insure the quality and reliability of all
medical testing in the United States regardless of where the
tests are performed. The current CLIA regulations divide
laboratory tests into three categories: waived,
moderately complex and highly complex.
Many of the tests performed using the Piccolo system are in the
moderately complex category. This category requires
that any location in which testing is performed be certified as
a laboratory. Hence, we can only sell some Piccolo products to
customers who meet the standards of a laboratory. To receive
laboratory certification, a testing facility must be
certified by the Centers for Medicare and Medicaid Services.
After the testing facility receives a laboratory
certification, it must then meet the CLIA regulations. Because
we can only sell some Piccolo products to testing facilities
that are certified laboratories, the market for some
products is correspondingly constrained.
We can currently offer the following Piccolo reagent discs as
waived tests to the medical market: Basic Metabolic Panel,
Comprehensive Metabolic Panel, Electrolyte Panel, General
Chemistry 6, General Chemistry 13, Kidney Check, Lipid Panel,
Lipid Panel Plus, Liver Panel Plus, MetLyte 8 Panel and Renal
Function Panel. Waived status permits untrained personnel to run
the Piccolo chemistry analyzer using these tests; thus,
extending the sites (doctors offices and other
point-of-care
environments) that can use the Piccolo chemistry analyzer.
Although we are engaged in an active program to test and apply
for CLIA waivers for additional analytes, we cannot assure you
that we will successfully receive CLIA waived status from the
FDA for other products. Consequently, for the reagent discs that
have not received CLIA waived status, the market for our Piccolo
products may be confined to those testing facilities that are
certified as laboratories and our growth can be
limited accordingly.
Other
Regulations
We are subject to a variety of federal, state, local and
international regulations regarding the manufacture and sale of
our diagnostic products. In addition, as we continue to sell in
foreign markets, we may have to obtain
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additional governmental clearances in those markets. Foreign
certifications that we have received include the following,
among others:
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In December 2003, we received certification from the British
Standards Institute to the ISO 13485:1996 Quality System
standard for medical devices. This quality system certification,
along with successful completion of product testing to 2003
European standards and the translation of Piccolo product
documentation into the required languages, enabled us to meet
the compliance requirements of the CE Mark and the 2003 European
In Vitro Device Directive.
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In September 2005, we received the Canadian Medical Device
Conformity Assessment System stamp on our ISO 13485 certificate
to signify compliance with Health Canada regulations.
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In March 2006, we received our certification to the 2003 version
of the ISO 13485 Quality System standard for medical devices.
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In November 2006, we received our recertification to the ISO
13485:2003 Quality System Standard for medical devices.
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As we continue to sell in foreign markets, we may have to obtain
additional governmental clearances in those markets. The
government regulations for our medical and veterinary products
vary. We cannot predict what impact, if any, such current or
future regulatory changes would have on our business.
RESEARCH
AND DEVELOPMENT
Research and development activities are focused on the
following: developing new immunoassay tests, clinical trials,
preparation of submission for CLIA waived status on new test
methods and product improvements and enhancement of existing
products. Our research and development expenses, which consist
of salaries and benefits, consulting expenses and materials were
$8.4 million, $7.0 million and $6.2 million, or
8%, 7% and 7% of our total revenues, in fiscal 2009, 2008 and
2007, respectively.
PATENTS
AND PROPRIETARY TECHNOLOGIES
We have pursued the development of a patent portfolio to protect
our proprietary technology. Our policy is to file patent
applications to protect technology, inventions and improvements
that are important to the development of our business. We also
rely upon trade secrets, know-how, continuing technological
innovations and licensing opportunities to develop and maintain
competitive position. As of March 31, 2009, 41 patent
applications have been filed on our behalf with the United
States Patent and Trademark Office, of which 30 patents have
been issued and 29 patents are currently active. Our active
U.S. patents have expiration dates ranging from June 2010
to January 2024. In addition, we have 81 issued and active
international patents and 15 international applications pending.
EMPLOYEES
As of March 31, 2009, we employed 339 full-time
employees distributed across the following divisions: 47 in
research and development; 139 in manufacturing operations; and
153 in sales, general and administrative. None of our employees
are covered by a collective bargaining agreement and we consider
our relations with our employees to be good.
INFORMATION
AVAILABLE TO INVESTORS
We make available, free of charge on or through our Internet
address located at www.abaxis.com our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and all amendments to those reports as soon as reasonably
practicable after such material is electronically filed with or
furnished to the SEC. In addition, copies of our reports, proxy
statements and other information filed electronically with the
SEC may be accessed at
http://www.sec.gov.
The public may also read and copy any materials filed with the
SEC at the SECs Public Reference Room at
100 F Street, NE, Washington, DC 20549. This
information may also be obtained by calling the SEC at
1-800-SEC-0330,
by sending an electronic message to the SEC at
publicinfo@sec.gov or by sending a fax to the SEC at
1-202-777-1027.
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RISK
FACTORS THAT MAY AFFECT OUR PERFORMANCE
Our future performance is subject to a number of risks. If any
of the following risks actually occur, our business could be
harmed and the trading price of our common stock could decline.
In evaluating our business, you should carefully consider the
following risks in addition to the other information in this
Annual Report on
Form 10-K.
We note these factors for investors as permitted by the Private
Securities Litigation Reform Act of 1995. It is not possible to
predict or identify all such factors and, therefore, you should
not consider the following risks to be a complete statement of
all the potential risks or uncertainties that we face.
We are
not able to predict sales in future quarters and a number of
factors affect our periodic results, which makes our quarterly
operating results less predictable.
We are not able to accurately predict our sales in future
quarters. Our revenue in the medical and veterinary markets is
derived primarily by selling to distributors who resell our
products to the ultimate user. While we are better able to
predict sales of our reagent discs, as we sell these discs
primarily for use with blood chemistry analyzers that we sold in
prior periods, we generally are unable to predict with much
certainty sales of our blood chemistry analyzers, as we
typically sell our blood chemistry analyzers to new users.
Accordingly, our sales in any one quarter are not indicative of
our sales in any future period.
We generally operate with a limited order backlog, because we
ship our products shortly after we receive the orders from our
customers. As a result, our product sales in any quarter are
generally dependent on orders that we receive and ship in that
quarter. We base our expense levels, which are to a large extent
fixed, in part on our expectations as to future revenues. We may
be unable to reduce our spending in a timely manner to
compensate for any unexpected revenue shortfall. As a result,
any such shortfall would immediately materially and adversely
impact our operating results and financial condition.
The sales cycle for our products can fluctuate, which may cause
revenue and operating results to vary significantly from period
to period. We believe this fluctuation is due primarily to
(i) seasonal patterns in the decision making processes by
our independent distributors and direct customers,
(ii) inventory or timing considerations by our distributors
and (iii) on the purchasing requirements of the
U.S. Military to acquire our products. Accordingly, we
believe that period to period comparisons of our results of
operations are not necessarily meaningful.
In the future, our periodic operating results may vary
significantly depending on, but not limited to, a number of
factors, including:
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new product announcements made by us or our competitors;
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changes in our pricing structures or the pricing structures of
our competitors;
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our ability to develop, introduce and market new products on a
timely basis;
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our manufacturing capacities and our ability to increase the
scale of these capacities;
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the mix of product sales between our blood chemistry analyzers
and our reagent disc products;
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the amount we spend on research and development; and
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changes in our strategy.
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We
would fail to achieve anticipated revenue if the market does not
accept our products.
We believe that our core compact blood chemistry analyzer
product differs substantially from current blood chemistry
analyzers on the market. Our primary competition is from
centralized laboratories that offer a greater number of tests
than our products, but do so at a greater overall cost and
require more time. We also compete with other
point-of-care
analyzers that cost more, require more maintenance and offer a
narrower range of tests. However, these
point-of-care
analyzers are generally marketed by larger companies which have
greater resources for sales and marketing, in addition to a
recognized brand name and established distribution relationships.
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In the human medical market, we have relatively limited
experience in large-scale sales of our Piccolo blood chemistry
analyzers. Although we believe that our blood chemistry
analyzers offer consumers many advantages, including substantial
cost savings according to our analyses, in terms of
implementation of the actual product, these advantages involve
changes to current standard practices, such as using large
clinical laboratories that will require changes in both the
procedures and mindset of care providers. The human medical
market in particular is highly regulated, structured, difficult
to penetrate and often slow to adopt new product offerings. If
we are unable to convince large numbers of medical clinics,
hospitals and other
point-of-care
environments of the benefits of our Piccolo blood chemistry
analyzers and our other products, we will suffer lost sales and
could fail to achieve anticipated revenue.
Historically, in the veterinary market, we have marketed our
VetScan systems through both direct sales and distribution
channels to veterinarians. We continue to develop new animal
blood tests to expand our product offerings and we cannot be
assured that these tests will be accepted by the veterinary
market.
We
rely on patents and other proprietary information, the loss of
which would negatively affect our business.
As of March 31, 2009, 41 patent applications have been
filed on our behalf with the United States Patent and Trademark
Office (USPTO), of which 30 patents have been issued
and 29 patents are currently active. Additionally, we have filed
several international patent applications covering the same
subject matter as our domestic applications. The patent position
of any medical device manufacturer, including us, is uncertain
and may involve complex legal and factual issues. Consequently,
we may not be issued any additional patents, either domestically
or internationally. Furthermore, our patents may not provide
significant proprietary protection because there is a chance
that they will be circumvented or invalidated. We cannot be
certain that we were the first creator of the inventions covered
by our issued patents or pending patent applications, or that we
were the first to file patent applications for these inventions,
because (1) the USPTO maintains all patent applications
that are not filed in any foreign jurisdictions in secrecy until
it issues the patents (unless a patent application owner files a
request for publication) and (2) publications of
discoveries in the scientific or patent literature tend to lag
behind actual discoveries by several months. We may have to
participate in interference proceedings, which are proceedings
in front of the USPTO, to determine who will be issued a patent.
These proceedings could be costly and could be decided against
us.
We also rely upon copyrights, trademarks and unpatented trade
secrets. Others may independently develop substantially
equivalent proprietary information and techniques that would
undermine our proprietary technologies. Further, others may gain
access to our trade secrets or disclose such technology.
Although we require our employees, consultants and advisors to
execute agreements that require that our corporate information
be kept confidential and that any inventions by these
individuals are property of Abaxis, there can be no assurance
that these agreements will provide meaningful protection or
adequate remedies for our trade secrets in the event of
unauthorized use or disclosure of such information. The
unauthorized dissemination of our confidential information would
negatively impact our business.
We
must increase sales of our Piccolo and VetScan products or we
may not be able to increase profitability.
As of March 31, 2009, we had retained earnings of
$9.0 million. Our ability to continue to be profitable and
to increase profitability will depend, in part, on our ability
to increase our sales volumes of our Piccolo and VetScan
products. Increasing the sales volume of our products will
depend upon, among other things, our ability to:
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continue to improve our existing products and develop new and
innovative products;
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increase our sales and marketing activities;
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effectively manage our manufacturing activities; and
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effectively compete against current and future competitors.
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We cannot assure you that we will be able to successfully
increase our sales volumes of our products to sustain or
increase profitability.
We
must continue to develop our sales, marketing and distribution
experience in the human diagnostic market or our business will
not grow.
Although we have gained experience marketing our VetScan
products in the veterinary diagnostic market, we have limited
sales, marketing and distribution experience with our Piccolo
chemistry analyzers in the human diagnostic market. Accordingly,
we cannot assure you that:
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we will be able to establish and maintain effective distribution
arrangements in the human diagnostic market;
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any distribution arrangements that we are able to establish will
be successful in marketing our products; or
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the costs associated with sales, marketing and distributing our
products will not be excessive.
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Should we fail to effectively develop our sales, marketing and
distribution efforts, our growth will be limited and our results
of operations will be adversely affected.
We
could fail to achieve anticipated revenue if we experience
problems related to the manufacture of our blood chemistry
analyzers.
We manufacture our blood chemistry analyzers at our
manufacturing facility in Union City, California. During fiscal
2008, we experienced problems related to the manufacture of our
new blood chemistry analyzer, which were primarily related to
difficulties and delays in obtaining certain key components that
we purchase from various suppliers. These manufacturing problems
were primarily related to quality control issues for key
components that we obtain from our suppliers and to design
issues of the key components required in our blood chemistry
analyzer. Our difficulties in obtaining an adequate amount of
quality components for the manufacture of our blood chemistry
analyzer had a materially adverse impact on our sales of VetScan
chemistry analyzers in fiscal 2008. We believe that we have
taken appropriate steps to resolve these issues, including
securing quality parts from our suppliers, but there can be no
assurance that our efforts to resolve these manufacturing
difficulties will continue to prove to be successful or that
similar manufacturing problems will not arise in the future. If
we are unable to prevent similar problems from occurring in the
future, we may not be able to manufacture sufficient quantities
to meet anticipated demand and, therefore, will not be able to
effectively market and sell our blood chemistry analyzers;
accordingly, our revenue and business would be materially
adversely affected.
We may
inadvertently produce defective products, which may subject us
to significant warranty liabilities or product liability claims
and we may have insufficient product liability insurance to pay
material uninsured claims.
Our business exposes us to potential warranty and product
liability risks which are inherent in the testing, manufacturing
and marketing of human and veterinary medical products. We
strive to apply sophisticated methods to raw materials and
produce defect-free medical test equipment. Although we have
established procedures for quality control on both the raw
materials that we receive from suppliers and our manufactured
final products, these procedures may prove inadequate to detect
a defect that occurs in limited quantities, that we have not
anticipated or otherwise. Our Piccolo and VetScan chemistry
analyzers may be unable to detect all errors which could result
in the misdiagnosis of human or veterinary patients.
Should we inadvertently manufacture and ship defective products,
we may be subject to substantial claims under our warranty
policy or product liability laws. In addition, our policy is to
credit medical providers for any defective product that we
produce, including those reagent discs that are rejected by our
Piccolo and VetScan chemistry analyzers. Therefore, even if a
mass defect within a lot or lots of reagent discs were detected
by our Piccolo and VetScan chemistry analyzers, the replacement
of such reagent discs free of charge would be costly and could
materially harm our financial condition. Further, in the event
that a product defect is not detected in our Piccolo chemistry
analyzer, our relatively recent expansion into the human medical
market greatly increases the risk that the amount of damages
involved with just one product defect would be material to our
operations. We currently maintain limited product liability
insurance that we believe is adequate for our current needs,
taking into
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account the risks involved and cost of coverage. However, our
product liability insurance and cash may be insufficient to
cover potential liabilities. In addition, in the future the
coverage that we require may be unavailable on commercially
reasonable terms, if at all. Even with our current insurance
coverage, a mass product defect, product liability claim or
recall could subject us to claims above the amount of our
coverage and would materially adversely affect our business and
our financial condition.
We
must effectively train and integrate the members of our sales
team in order to achieve our anticipated revenue or expand our
business.
Many of our sales personnel directly involved in the sales and
marketing activities of our products have been employed by us
for a limited period of time. In addition, we experience
significant turnover in our sales and marketing personnel. If we
are to increase our direct sales, particularly in the human
medical market, we will need to train new sales personnel and
supervise our sales team closely. We also will continue hiring
additional sales personnel. If we are unable to retain our
existing personnel, or attract and train additional qualified
personnel, our growth in the medical market may be limited due
to our lack of resources to market our products.
We
need to successfully manufacture and market additional reagent
discs for the human diagnostic market if we are to compete in
that market.
We have developed a blood analysis system that consists of a
portable blood analyzer and single-use reagent discs. Each
reagent disc performs a series of standard blood tests. We
believe that it is necessary to develop additional series of
reagent discs with various tests for use with the Piccolo and
VetScan chemistry analyzers. Historically, we have developed
reagent discs suitable for the human medical and veterinary
diagnostic markets. We have received 510(k) clearances from the
U.S. Food and Drug Administration (FDA) for 25
test methods in the human medical market. These tests are
included in standard tests for which the medical community
receives reimbursements from third-party payors such as health
maintenance organizations (HMOs) and Medicare. We
may not be able to successfully manufacture or market these
reagent discs. Our failure to meet these challenges will
materially adversely affect our operating results and financial
condition.
We
rely primarily on distributors to sell our products and we rely
on sole distributor arrangements in a number of countries. Our
failure to successfully develop and maintain these relationships
could adversely affect our business.
We sell our medical and veterinary products primarily through a
limited number of distributors. As a result, we are dependent
upon these distributors to sell our products and to assist us in
promoting and creating a demand for our products. We operate on
a purchase order basis with the distributors and the
distributors are under no contractual obligation to continue
carrying our products. Further, many of our distributors may
carry our competitors products, and may promote our
competitors products over our own products.
We depend on a number of distributors in the United States who
distribute our VetScan products. Our largest distributor in the
United States, DVM Resources, accounted for 10% and 12% of our
total worldwide revenues for fiscal 2009 and 2008, respectively.
We depend on our distributors to assist us in promoting our
products in the veterinary market, and accordingly, if one or
more of our distributors were to stop selling our products in
the future, we may experience a temporary sharp decline or delay
in our sales revenue until our customers identify another
distributor or purchase products directly from us.
In the United States medical market, we depend on a few
distributors for our Piccolo products. We entered into formal
distribution agreements with the following distributors to sell
and market Piccolo chemistry analyzers and medical reagent
discs: National Distribution & Contracting, Inc. in
our third quarter of fiscal 2008, McKesson Medical-Surgical Inc.
in our first quarter of fiscal 2008, Cardinal Health in our
fourth quarter of fiscal 2007, Henry Scheins Medical Group
in our first quarter of fiscal 2007 and PSS World Medical, Inc.
in our third quarter of fiscal 2006. We depend on these
distributors to assist us in promoting market acceptance of our
Piccolo chemistry analyzers.
Internationally, we rely on only a few distributors for our
products in both the medical and veterinary diagnostic markets.
In the first quarter of fiscal 2008 we terminated our
distributor agreement with T. Chatani & Co.,
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Ltd. (T. Chatani) in Japan. T. Chatani had agreed to
continue to service Abaxis customers, which included selling our
reagent discs and hematology reagent kits, for a limited period,
which ended during the fourth quarter of fiscal 2008. In October
2007, we signed an exclusive distribution agreement with Central
Scientific Commerce, Inc. (CSC) to distribute the
complete line of our medical and veterinary products in Japan.
In the third quarter of fiscal 2008, CSC began the process of
registering our new instruments, the VetScan VS2, VetScan HM5
and Piccolo xpress in Japan. The registration process was
completed in the first quarter of fiscal 2009, and consequently,
CSC can begin to import and market our instruments along with
our reagent discs and kits. However, we cannot assure you that
our new distribution relationship with CSC will be as successful
as our prior distribution arrangement, or at all. Furthermore,
an inability of, or any delays by, our distributor in receiving
the necessary approvals for our new or other products can
adversely impact our revenues in Japan.
We currently rely on distributors that carry either our medical
or veterinary products in the following countries: Afghanistan,
Australia, Austria, Bahrain, Belgium, Canada, Czech Republic,
Denmark, France, Germany, Hong Kong, India, Ireland,
Israel, Italy, Japan, Korea, Macao, the Netherlands, New
Zealand, the Philippines, Portugal, Romania, Russia, Singapore,
South Africa, Spain, Sweden, Switzerland, Turkey, Ukraine, the
United Arab Emirates, the United Kingdom and the United States.
Our distributors in each of these countries are responsible for
obtaining the necessary approvals to sell our new and existing
products. These distributors may not be successful in obtaining
proper approvals for our new and existing products in their
respective countries, and they may not be successful in
marketing our products. We plan to continue to enter into
additional distributor relationships to expand our international
distribution base and solidify our international presence.
However, we may not be successful in entering into additional
distributor relationships on favorable terms, or at all. In
addition, our distributors may terminate their relationship with
us at any time. Historically, we have experienced a high degree
of turnover among our international distributors. This turnover
makes it difficult for us to establish a steady distribution
network overseas. Consequently, we may not be successful in
marketing our Piccolo and VetScan products internationally.
We
depend on limited or sole suppliers for several key components
in our products, many of whom we have not entered into
contractual relationships with and failure of our suppliers to
provide the components to us could harm our
business.
We use several key components that are currently available from
limited or sole sources as discussed below:
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Reagent Discs: Two injection-molding
manufacturers, C. Brewer & Co. and Nypro, Inc.,
currently make the molded plastic discs which, when loaded with
reagents and welded together, form our reagent disc products. We
believe that only a few manufacturers are capable of producing
these discs to the narrow tolerances that we require. To date,
we have only qualified these two manufacturers to manufacture
the molded plastic discs.
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Reagent Chemicals: We currently depend on the
following single source vendors for some of the chemicals that
we use to produce the dry reagent chemistry beads that are
either inserted in our reagent discs or sold as stand-alone
products: Amano Enzyme USA Co., Ltd., Genzyme Corporation,
Kikkoman Corporation Biochemical Division, Microgenics
Corporation, Roche Molecular Biochemicals of Roche Diagnostics
Corporation, a division of F. Hoffmann-La Roche, Ltd.,
Sigma Aldrich Inc. and Toyobo Specialties (formerly Shinko
American Inc.).
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Blood Chemistry Analyzer Components: Our blood
analyzer products use several technologically-advanced
components that we currently purchase from a limited number of
vendors, including components from Hamamatsu Corporation and
PerkinElmer, Inc. and components from a single-source supplier,
UDT Sensors (a division of OSI Optoelectronics). Our analyzers
also use a printer that is primarily made by Seiko North America
Corporation. The loss of the supply of any of these components
could force us to redesign our blood chemistry analyzers.
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Hematology Instruments and Reagents: Our
hematology instruments are manufactured by Diatron Medical
Instruments PLC. in Hungary and are purchased by us as a
completed instrument. In addition, to date, we have qualified
only three suppliers to produce the reagents for our hematology
instruments: Clinical Diagnostic Solutions, Inc., Diatron
Medical Instruments PLC. and Mallinckrodt Baker BV.
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Coagulation Analyzers and Reagents: Our
coagulation analyzers and reagents are manufactured by
Scandinavian MicroBiodevices APS in Denmark and are purchased by
us as completed products.
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We operate on a purchase order basis with all of the suppliers
of our molded plastic reagent discs, reagent chemicals, blood
chemistry analyzer components, hematology instruments and
hematology reagents and, therefore, these suppliers are under no
contractual obligation to supply us with their products or to do
so at specified prices. Although we believe that there may be
potential alternate suppliers available for these critical
components, to date we have not qualified additional vendors
beyond those referenced above and cannot assure you we would be
able to enter into arrangements with additional vendors on
favorable terms, or at all.
Because we are dependent on a limited number of suppliers and
manufacturers for critical components to our products, we are
particularly susceptible to any interruption in the supply of
these products or the viability of our assembly arrangements.
The loss of any one of these suppliers or a disruption in our
manufacturing arrangements could materially adversely affect our
business and financial condition.
We may
not be able to compete effectively with larger, more established
entities or their products, or with future organizations or
future products, which could cause our sales to
decline.
Blood analysis is a well-established field in which there are a
number of competitors that have substantially greater financial
resources and larger, more established marketing, sales and
service organizations than we do. We compete with the following
organizations:
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commercial clinical laboratories;
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hospitals clinical laboratories; and
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manufacturers of bench top multi-test blood analyzers and other
testing systems that health care providers can use
on-site
(a listing of our competitors is listed below).
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Historically, hospitals and commercial laboratories performed
most human diagnostic testing, and commercial laboratories
performed most veterinary medical testing. We have identified
five principal factors that we believe customers typically use
to evaluate our products and those of our competitors. These
factors include:
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range of tests offered;
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immediacy of results;
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cost effectiveness;
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ease of use; and
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reliability of results.
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We believe that we compete effectively on each of these factors
except for the range of tests offered. Clinical laboratories are
effective at processing large panels of tests using skilled
technicians and complex equipment. While our current offering of
reagent discs cannot provide the same broad range of tests, we
believe that in certain markets our products provide a
sufficient breadth of test menus to compete successfully with
clinical laboratories given the advantages of our products with
respect to the other four factors. In addition, we cannot assure
you that we will continue to be able to compete effectively on
cost effectiveness, ease of use, immediacy of results or
reliability of results. We also cannot assure you that we will
ever be able to compete effectively on the basis of range of
tests offered.
Competition in the human and veterinary diagnostic markets is
intense. Our principal competitors in the human diagnostic
market are Alfa Wassermann S.P.A., i-STAT Corporation (which was
purchased by Abbott Laboratories), Johnson & Johnson
(including its subsidiary, Ortho-Clinical Diagnostics, Inc.),
Kodak (DT60 analyzer), Polymedco, Inc. and F.
Hoffman-La Roche (Reflotron system). Our principal
competitors in the veterinary diagnostic market are Idexx
Laboratories, Inc. and Heska Corporation. Most of our
competitors have significantly larger product lines to offer and
greater financial and other resources than we do. In particular,
many of our competitors have large sales forces and
well-established distribution channels. Consequently, we must
develop our distribution channels and significantly improve our
direct sales force in order to compete in these markets.
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Changes
in third-party payor reimbursement regulations can negatively
affect our business.
By regulating the maximum amount of reimbursement they will
provide for blood testing services, third-party payors, such as
HMOs,
pay-per-service
insurance plans, Medicare and Medicaid, can indirectly affect
the pricing or the relative attractiveness of our human testing
products. For example, the Centers for Medicare and Medicaid
Services (the CMS) set the level of reimbursement of
fees for blood testing services for Medicare beneficiaries. If
third-party payors decrease the reimbursement amounts for blood
testing services, it may decrease the amount that physicians and
hospitals are able to charge patients for such services.
Consequently, we would need to charge less for our products. If
the government and third-party payors do not provide for
adequate coverage and reimbursement levels to allow health care
providers to use our products, the demand for our products will
decrease.
We are
subject to numerous governmental regulations and regulatory
changes are difficult to predict and may be damaging to our
business.
Need for
FDA Certification for Our Medical Device Products
Our Piccolo products are regulated under the 1976 Medical Device
Amendments to the Food, Drug and Cosmetic Act, which is
administered by the FDA. The FDA has classified our Piccolo
products as Class I and
Class II devices. These classifications require
us to submit to the FDA a pre-market notification form or
510(k). The FDA uses the 510(k) to substantiate product claims
that are made by medical device manufacturers prior to
marketing. In our 510(k) notification, we must, among other
things, establish that the product we plan to market is
substantially equivalent to (1) a product that
was on the market prior to the adoption of the 1976 Medical
Device Amendment or (2) a product that the FDA has
previously cleared under the 510(k) process.
The FDA review process of a 510(k) notification can last
anywhere from three to six months, and the FDA must issue a
written order finding substantial equivalence before
a company can market a medical device. As of March 31,
2009, we have received market clearance from the FDA for our
Piccolo chemistry analyzer and 25 reagent tests that we have on
13 reagent discs. We are currently developing additional tests
that we will have to clear with the FDA through the 510(k)
notification procedures. These new test products are crucial for
our success in the human medical market. If we do not receive
510(k) clearance for a particular product, we will not be able
to market that product in the United States, which could harm
our future sales.
Need to
Comply with Manufacturing Regulations
The 1976 Medical Device Amendment also requires us to
manufacture our Piccolo products in accordance with Good
Manufacturing Practices guidelines. Current Good Manufacturing
Practice requirements are set forth in the 21 CFR 820
Quality System Regulation. These requirements regulate the
methods used in, and the facilities and controls used for the
design, manufacture, packaging, storage, installation and
servicing of our medical devices intended for human use. Our
manufacturing facility is subject to periodic inspections. In
addition, various state regulatory agencies may regulate the
manufacture of our products. To date, we have complied with the
following federal, state, local and international regulatory
requirements:
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In April 2001, the State of California Food and Drug Branch
granted our manufacturing facility in compliance
status, based on the regulations for Good Manufacturing
Practices for medical devices.
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In May 2001, the State of California Food and Drug Branch
granted licensing for our manufacturing facility in Union City,
California.
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In May 2002, we received our ISO 9001 certification, expanding
our compliance with international quality standards.
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In December 2003, we received ISO 13485 Quality System
certification as required by the 2003 European In Vitro Device
Directive. This certified our quality system specifically to
medical devices.
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In both March 2003 and September 2005, the FDA conducted a
facility inspection and verified our compliance with the
21 CFR 820 Regulation.
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In November 2006, we received our recertification to the ISO
13485:2003 Quality System Standard for medical devices.
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In August 2008, the FDA conducted an additional facility
inspection to verify our compliance with 21 CFR 820
Regulation.
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We cannot assure you that we will successfully pass the latest
FDA inspection or any re-inspection by the FDA or the State of
California. In addition, we cannot assure you that we can comply
with all current or future government manufacturing requirements
and regulations. If we are unable to comply with the
regulations, or if we do not pass routine inspections, our
business and results of operations will be materially adversely
affected.
Effects
of the Clinical Laboratory Improvement Amendments on Our
Products
Our Piccolo products are also affected by the Clinical
Laboratory Improvement Amendments (the CLIA) of
1988. The CLIA are intended to insure the quality and
reliability of all medical testing in the United States
regardless of where the tests are performed. The current CLIA
regulations divide laboratory tests into the following three
categories:
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waived;
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moderately complex; and
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highly complex.
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Many of the tests performed using the Piccolo chemistry analyzer
are in the moderately complex category. This
category requires that any location in which testing is
performed be certified as a laboratory. Hence, we can only sell
some Piccolo products to customers who meet the standards of a
laboratory. To receive laboratory certification, a
testing facility must be certified by the CMS. After the testing
facility receives a laboratory certification, it
must then meet the CLIA regulations. Because we can only sell
some Piccolo products to testing facilities that are certified
laboratories, the market for some products is
correspondingly constrained.
We can currently offer the following Piccolo reagent discs as
waived tests to the medical market: Basic Metabolic Panel,
Comprehensive Metabolic Panel, Electrolyte Panel, General
Chemistry 6, General Chemistry 13, Kidney Check, Lipid Panel,
Lipid Panel Plus, Liver Panel Plus, MetLyte 8 Panel and Renal
Function Panel. Waived status permits untrained personnel to run
the Piccolo chemistry analyzer using these tests; thus,
extending the sites (doctors offices and other
point-of-care
environments) that can use the Piccolo chemistry analyzer.
Although we are engaged in an active program to test and apply
for CLIA waivers for additional analytes, we cannot assure you
that we will successfully receive CLIA waived status from the
FDA for other products. Consequently, for the reagent discs that
have not received CLIA waived status, the market for our Piccolo
products may be confined to those testing facilities that are
certified as laboratories and our growth can be
limited accordingly.
Need to
Comply with Various Federal, State, Local and International
Regulations
Federal, state, local and international regulations regarding
the manufacture and sale of health care products and diagnostic
devices may change. In addition, as we continue to sell in
foreign markets, we may have to obtain additional governmental
clearances in those markets. Foreign certifications that we have
received include the following, among others:
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In December 2003, we received certification from the British
Standards Institute to the ISO 13485:1996 Quality System
standard for medical devices. This quality system certification,
along with successful completion of product testing to 2003
European standards and the translation of Piccolo product
documentation into the required languages, enabled us to meet
the compliance requirements of the CE Mark and the 2003 European
In Vitro Device Directive.
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In September 2005, we received the Canadian Medical Device
Conformity Assessment System stamp on our ISO 13485 certificate
to signify compliance with Health Canada regulations.
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In March 2006, we received our certification to the 2003 version
of the ISO 13485 Quality System Standard for medical devices.
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In November 2006, we received our recertification to the ISO
13485:2003 Quality System Standard for medical devices.
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We cannot predict what impact, if any, such current or future
regulatory changes would have on our business. We may not be
able to obtain regulatory clearances for our products in the
United States or in foreign markets, and the failure to obtain
these regulatory clearances will materially adversely affect our
business and results of operations.
Although we believe that we will be able to comply with all
applicable regulations of the FDA and of the State of
California, including the Quality System Regulation, current
regulations depend on administrative interpretations. Future
interpretations made by the FDA, CMS or other regulatory bodies
may adversely affect our business.
We
have incurred and may continue to incur, in future periods,
significant share-based compensation charges under
SFAS No. 123(R), which may adversely affect our
reported financial results.
Effective April 1, 2006, we adopted Statement of Financial
Accounting Standards No. 123 (revised 2004),
Share-Based Payment
(SFAS No. 123(R)), issued by the Financial
Accounting Standards Board, which requires the measurement of
all share-based payments to employees, using a fair-value-based
method and the recording of such expense in our results of
operations. The fair value of restricted stock unit awards used
in our expense recognition method is measured based on the
number of shares granted and the closing market price of our
common stock on the date of grant. Such value is recognized as
an expense, net of an estimated forfeiture rate, for those
shares over the corresponding requisite service period. Since
fiscal 2007, we granted restricted stock unit awards annually to
employees based on the following time-based vesting schedule
over a four-year period: five percent vesting after the first
year; additional ten percent after the second year; additional
15 percent after the third year; and the remaining
70 percent after the fourth year of continuous employment.
During fiscal 2007, 2008 and 2009, share-based compensation
expense related to restricted stock units had a material impact
on our earnings per share and on our financial statements and we
expect that it will continue to adversely impact our reported
results of operations, particularly in the fourth year of
vesting for the restricted stock unit awarded to employees. As
of March 31, 2009, our unrecognized compensation expense
related to restricted stock unit awards granted to employees and
directors to date totaled $12.9 million, which is expected
to be recognized over a weighted average period of
2.16 years.
We
depend on key members of our management and scientific staff
and, if we fail to retain and recruit qualified individuals, our
ability to execute our business strategy and generate sales
would be harmed.
We are highly dependent on the principal members of our
management and scientific staff. The loss of any of these key
personnel, including in particular Clinton H. Severson, our
President, Chief Executive Officer and Chairman of our Board of
Directors, might impede the achievement of our business
objectives. We may not be able to continue to attract and retain
skilled and experienced marketing, sales and manufacturing
personnel on acceptable terms in the future because numerous
medical products and other high technology companies compete for
the services of these qualified individuals. We currently do not
maintain key man life insurance on any of our employees.
We are
subject to increasingly complex requirements from recent
legislation requiring companies to evaluate internal control
over financial reporting.
Rules adopted by the Securities and Exchange Commission pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002 require an
assessment of internal control over financial reporting by our
management and an attestation of the effectiveness of our
internal controls over financial reporting by an independent
registered public accounting firm. We have an ongoing program to
perform the assessment, testing and evaluation to comply with
these requirements and we expect to continue to incur
significant expenses for Section 404 compliance on an
ongoing basis.
Our management assessed the effectiveness of our internal
control over financial reporting as of our fiscal years ended
March 31, 2009 and 2008. Although we received an
unqualified opinion on our consolidated financial statements for
the fiscal years ended March 31, 2009 and 2008, and on the
effectiveness of our internal control over
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financial reporting as of March 31, 2009 and 2008, we
cannot predict the outcome of our testing in future periods. In
the event that our internal controls over financial reporting
are not effective as defined under Section 404, or any
failure to implement required new or improved controls, or
difficulties encountered in implementation could harm operating
results or prevent us from accurately reporting financial
results or cause a failure to meet our reporting obligations in
the future. If management cannot assess internal control over
financial reporting is effective, or our independent registered
public accounting firm is unable to provide an unqualified
attestation report on such assessment, investor confidence and
our share value may be negatively impacted.
We may
need additional funding in the future and these funds may not be
available to us.
We believe that our existing capital resources, available line
of credit and anticipated revenue from the sales of our products
will be adequate to satisfy our currently planned operating and
financial requirements through the next 12 months, although
no assurances can be given. The terms of our line of credit
contain a number of covenants concerning financial tests that we
must meet, and these tests are more fully explained in
Note 8 of the Notes to Consolidated Financial Statements
contained in this Annual Report on
Form 10-K.
Further, we expect to incur incremental additional costs to
support our future operations, including:
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further commercialization of our products and development of new
test methods to allow us to further penetrate the human
diagnostic market and the veterinary diagnostic market;
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our need to acquire capital equipment for our manufacturing
facilities, which includes the ongoing costs related to the
continuing development of our current and future products;
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research and design costs related to the continuing development
of our current and future products; and
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additional pre-clinical testing and clinical trials for our
current and future products.
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To the extent that our existing resources and anticipated
revenue from the sale of our products are insufficient to fund
our activities or if we are unable to meet the financial
covenants of our line of credit, we may have to raise additional
funds from the issuance of public or private securities. In the
event that we cannot maintain compliance with these financial
covenants, we may also be subject to increased interest rate
expenses. We may not be able to raise additional funding, or if
we are able to, we may not be able to raise funding on
acceptable terms. We may also dilute then-existing shareholders
if we raise additional funds by issuing new equity securities.
Alternately, we may have to relinquish rights to certain of our
technologies, products
and/or sales
territories if we are required to obtain funds through
arrangements with collaborative partners. If we are unable to
raise needed funds, we may be required to curtail our operations
significantly. This would materially adversely affect our
operating results and financial condition.
We
must comply with strict and potentially costly environmental
regulations or we could pay significant fines.
We are subject to stringent federal, state and local laws,
rules, regulations and policies that govern the use, generation,
manufacture, storage, air emission, effluent discharge, handling
and disposal of certain materials and wastes. In particular, we
are subject to laws, rules and regulations governing the
handling and disposal of biohazardous materials used in the
development and testing of our products. Our costs to comply
with applicable environmental regulations consist primarily of
handling and disposing of human and veterinary blood samples for
testing (whole blood, plasma, serum). Although we believe that
we have complied with applicable laws and regulations in all
material respects and have not been required to take any action
to correct any noncompliance, we may have to incur significant
costs to comply with environmental regulations if our
manufacturing to commercial levels continues to increase. In
addition, if a government agency determines that we have not
complied with these laws, rules and regulations, we may have to
pay significant fines
and/or take
remedial action that would be expensive and we do not carry
environmental-related insurance coverage.
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Our
facilities and manufacturing operations are vulnerable to
natural disasters and other unexpected losses; system failures
or delays may harm our business.
Our success depends on the efficient and uninterrupted operation
of our manufacturing operations, which are co-located with our
corporate headquarters in Union City, California. A failure of
manufacturing operations, be it in the development and
manufacturing of our Piccolo or VetScan blood chemistry
analyzers or the reagent discs used in the blood chemistry
analyzers, could result in our inability to supply customer
demand.
We do not have a backup facility to provide redundant
manufacturing capacity in the event of a system failure.
Accordingly, if our location in Union City, California
experienced a system failure or regulatory problem that
temporarily shuts down our manufacturing facility, our
manufacturing ability would become unavailable until we were
able to bring an alternative facility online, a process which
could take several weeks or even months. These manufacturing
operations are also vulnerable to damage from earthquakes, fire,
floods, power loss, telecommunications failures, break-ins and
similar events. Although we carry property and business
interruption insurance, our coverage may not be adequate to
compensate us for all losses that may occur. Additionally, our
computer servers may be vulnerable to computer viruses, physical
or electronic break-ins and similar disruptions.
Fluctuations
in foreign exchange rates and the possible lack of financial
stability in foreign countries could prevent overseas sales
growth.
Our international sales are currently primarily
U.S. dollar-denominated. As a result, an increase in the
value of the U.S. dollar relative to foreign currencies
could make our products less competitive in international
markets. For the limited amount of our sales denominated in
local currencies, we are subject to fluctuations in exchange
rates between the U.S. dollar and the particular local
currency. A strong U.S. dollar, when compared to local
currencies in Asia, excluding the Japanese yen, may negatively
impact our revenue. Our operating results could also be
adversely affected by the seasonality of international sales and
the economic conditions of our overseas markets.
Our
operating results could be materially affected by unanticipated
changes in our tax provisions or exposure to additional income
tax liabilities.
Our determination of our tax liability (like any companys
determination of its tax liability) is subject to review by
applicable tax authorities. Any adverse outcome of such a review
could have an adverse effect on our operating results and
financial condition. In addition, the determination of our
provision for income taxes and other tax liabilities requires
significant judgment including our determination of whether a
valuation allowance against deferred tax assets is required.
Although we believe our estimates and judgments are reasonable,
the ultimate tax outcome may differ from the amounts recorded in
our financial statements and may materially affect our financial
results in the period or periods for which such determination is
made.
Our
stock price is highly volatile and investing in our stock
involves a high degree of risk, which could result in
substantial losses for investors.
The market price of our common stock, like the securities of
many other medical products companies, fluctuates over a wide
range, and will continue to be highly volatile in the future.
During the quarter ended March 31, 2009, the closing sale
prices of our common stock on the NASDAQ Global Market ranged
from $13.50 to $18.85 per share and the closing sale price for
our quarter ended March 31, 2009 was $17.24 per share.
During the last eight fiscal quarters ended March 31, 2009,
our stock price closed at a high of $39.74 on December 24,
2007 and a low of $10.28 on October 27, 2008. Many factors
may affect the market price of our common stock, including:
|
|
|
|
|
fluctuation in our operating results;
|
|
|
|
announcements of technological innovations or new commercial
products by us or our competitors;
|
|
|
|
changes in governmental regulation in the United States and
internationally;
|
|
|
|
prospects and proposals for health care reform;
|
|
|
|
governmental or third-party payors controls on prices that
our customers may pay for our products;
|
24
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|
|
|
|
developments or disputes concerning our patents or our other
proprietary rights;
|
|
|
|
product liability claims and public concern as to the safety of
our devices or similar devices developed by our
competitors; and
|
|
|
|
general market conditions.
|
Because our stock price is so volatile, investing in our common
stock is highly risky. A potential investor must be able to
withstand the loss of his entire investment in our common stock.
Our
shareholders rights plan and our ability to issue preferred
stock may delay or prevent a change of control of
Abaxis.
Our shareholder rights plan, adopted by our board of directors
on April 22, 2003, may make it more difficult for a third
party to acquire, or discourage a third party from attempting to
acquire control of, Abaxis. The shareholder rights plan could
limit the price that investors might be willing to pay in the
future for shares of our common stock.
In addition, our board of directors has the authority to issue
up to 5,000,000 shares of preferred stock and to determine
the price, rights, preferences, privileges and restrictions,
including voting rights, of those shares without any further
vote or action by the shareholders, except to the extent
required by NASDAQ rules. The issuance of preferred stock, while
providing flexibility in connection with possible financings or
acquisitions or other corporate purposes, could have the effect
of making it more difficult for a third party to acquire a
majority of our outstanding voting stock.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
Not applicable.
We occupy approximately 91,124 square feet of office,
research and development and manufacturing space in a building
in Union City, California. The lease agreement is for ten years
and commenced in January 2001. We have an option to extend the
lease for five additional years. Starting April 2009, we also
sublease approximately 25,705 square feet in Union City,
California to support warehousing and distribution efforts
pursuant to a sublease that expires in fiscal 2012. In
Darmstadt, Germany, we lease approximately 5,800 square
feet of office space, under a lease that commenced in September
2007 and expires in fiscal 2013. We believe that our existing
facilities are adequate to meet our current requirements, and
that we will be able to obtain additional facilities space on
commercially reasonable terms, if and when they are required.
|
|
Item 3.
|
Legal
Proceedings
|
We are involved from time to time in various litigation matters
in the normal course of business. While the outcome of these
proceedings and claims cannot be predicted with certainty, we
believe that the ultimate resolution of these matters will not
have a material effect on our financial position or results of
operations.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
No matters were submitted to a vote of our security holders
during the quarter ended March 31, 2009.
25
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Market
Information for Common Stock
Our common stock is traded on the NASDAQ Global Market under the
symbol ABAX. The following table sets forth the
quarterly high and low
intra-day
per share sales prices for the common stock from April 1,
2007 through March 31, 2009 as reported on the NASDAQ
Global Market:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices
|
|
|
|
Fiscal 2009
|
|
|
Fiscal 2008
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
Quarter ended June 30
|
|
$
|
30.62
|
|
|
$
|
22.74
|
|
|
$
|
27.00
|
|
|
$
|
20.50
|
|
Quarter ended September 30
|
|
|
24.80
|
|
|
|
17.81
|
|
|
|
22.89
|
|
|
|
17.54
|
|
Quarter ended December 31
|
|
|
20.43
|
|
|
|
10.17
|
|
|
|
40.00
|
|
|
|
22.07
|
|
Quarter ended March 31
|
|
|
19.49
|
|
|
|
13.24
|
|
|
|
38.09
|
|
|
|
20.83
|
|
As of June 8, 2009, there were 21,985,000 shares of
our common stock outstanding, held by 145 shareholders of
record.
We did not repurchase any of our equity securities during the
fourth quarter of fiscal 2009.
Dividends
Under our debt agreements, we are restricted from paying
aggregate cash dividends on our capital stock in excess of 50%
of our net income on an annual basis. We have not paid cash
dividends on our common stock and do not anticipate paying cash
dividends in the foreseeable future.
26
Stock
Performance
Graph1
The graph below compares the cumulative total shareholder return
on an investment in our common stock, the Russell 2000 Index and
the NASDAQ Medical Equipment Securities Index over the past five
year period ended March 31, 2009. The shareholder return
shown on the graph below is not necessarily indicative of future
performance, and we do not make or endorse any predictions as to
future shareholder returns.
The graph assumes the investment of $100 on March 31, 2004
in our common stock, the Russell 2000 Index and the NASDAQ
Medical Equipment Securities Index and assumes dividends, if
any, are reinvested. No dividends have been declared on our
common stock to date.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Abaxis, Inc., the Russell 2000 Index
and the NASDAQ Medical Equipment Securities Index
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/2004
|
|
|
3/31/2005
|
|
|
3/31/2006
|
|
|
3/31/2007
|
|
|
3/31/2008
|
|
|
3/31/2009
|
Abaxis, Inc.
|
|
|
$
|
100.00
|
|
|
|
$
|
43.55
|
|
|
|
$
|
111.61
|
|
|
|
$
|
119.93
|
|
|
|
$
|
114.03
|
|
|
|
$
|
84.84
|
|
Russell 2000
|
|
|
$
|
100.00
|
|
|
|
$
|
105.41
|
|
|
|
$
|
132.66
|
|
|
|
$
|
140.50
|
|
|
|
$
|
122.23
|
|
|
|
$
|
70.13
|
|
NASDAQ Medical Equipment Securities
|
|
|
$
|
100.00
|
|
|
|
$
|
103.84
|
|
|
|
$
|
135.67
|
|
|
|
$
|
138.07
|
|
|
|
$
|
139.82
|
|
|
|
$
|
79.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 This
section is not soliciting material, is not deemed
filed with the Securities and Exchange Commission
and is not to be incorporated by reference in any filing of
Abaxis under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, whether made before
or after the date hereof and irrespective of any general
incorporation language contained in any such filing.
27
|
|
Item 6.
|
Selected
Financial Data
|
The following selected consolidated financial data is qualified
by reference to and should be read in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and with the
consolidated financial statements, related notes thereto and
other financial information included elsewhere in this Annual
Report on
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2009(1)
|
|
|
2008(1)
|
|
|
2007(1)
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share data)
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
105,562
|
|
|
$
|
100,551
|
|
|
$
|
86,221
|
|
|
$
|
68,928
|
|
|
$
|
52,758
|
|
Cost of revenues
|
|
|
46,937
|
|
|
|
45,507
|
|
|
|
39,362
|
|
|
|
30,075
|
|
|
|
24,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
58,625
|
|
|
|
55,044
|
|
|
|
46,859
|
|
|
|
38,853
|
|
|
|
27,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
8,361
|
|
|
|
6,966
|
|
|
|
6,180
|
|
|
|
6,127
|
|
|
|
5,150
|
|
Sales and marketing
|
|
|
24,712
|
|
|
|
23,689
|
|
|
|
20,569
|
|
|
|
16,219
|
|
|
|
10,820
|
|
General and administrative
|
|
|
7,757
|
|
|
|
6,681
|
|
|
|
5,735
|
|
|
|
5,775
|
|
|
|
4,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
40,830
|
|
|
|
37,336
|
|
|
|
32,484
|
|
|
|
28,121
|
|
|
|
20,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
17,795
|
|
|
|
17,708
|
|
|
|
14,375
|
|
|
|
10,732
|
|
|
|
7,096
|
|
Interest and other income (expense), net
|
|
|
1,271
|
|
|
|
2,096
|
|
|
|
1,774
|
|
|
|
787
|
|
|
|
269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
19,066
|
|
|
|
19,804
|
|
|
|
16,149
|
|
|
|
11,519
|
|
|
|
7,365
|
|
Income tax provision
|
|
|
7,053
|
|
|
|
7,301
|
|
|
|
6,076
|
|
|
|
4,044
|
|
|
|
2,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
12,013
|
|
|
$
|
12,503
|
|
|
$
|
10,073
|
|
|
$
|
7,475
|
|
|
$
|
4,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.55
|
|
|
$
|
0.58
|
|
|
$
|
0.49
|
|
|
$
|
0.37
|
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
0.54
|
|
|
$
|
0.56
|
|
|
$
|
0.46
|
|
|
$
|
0.35
|
|
|
$
|
0.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in the calculation of net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic
|
|
|
21,826
|
|
|
|
21,499
|
|
|
|
20,643
|
|
|
|
19,985
|
|
|
|
19,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding diluted
|
|
|
22,324
|
|
|
|
22,261
|
|
|
|
21,846
|
|
|
|
21,492
|
|
|
|
21,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On April 1, 2006, we adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), Share-Based
Payment and included share-based compensation for employee
share-based awards in our consolidated statements of operations. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
49,237
|
|
|
$
|
17,219
|
|
|
$
|
10,183
|
|
|
$
|
10,164
|
|
|
$
|
5,776
|
|
Short-term investments
|
|
|
20,776
|
|
|
|
6,991
|
|
|
|
35,028
|
|
|
|
20,372
|
|
|
|
16,858
|
|
Working capital
|
|
|
101,815
|
|
|
|
52,500
|
|
|
|
74,517
|
|
|
|
49,949
|
|
|
|
38,744
|
|
Long-term investments
|
|
|
4,886
|
|
|
|
35,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
140,711
|
|
|
|
120,903
|
|
|
|
102,715
|
|
|
|
83,078
|
|
|
|
71,009
|
|
Long-term liabilities
|
|
|
2,270
|
|
|
|
2,161
|
|
|
|
2,167
|
|
|
|
1,679
|
|
|
|
1,629
|
|
Total shareholders equity
|
|
|
126,892
|
|
|
|
104,649
|
|
|
|
87,812
|
|
|
|
71,038
|
|
|
|
61,667
|
|
28
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion and analysis should be read in
conjunction with our consolidated financial statements and
related notes thereto included elsewhere in this Annual Report
on
Form 10-K.
This discussion may contain forward-looking statements based
upon current expectations that involve risks and uncertainties.
Our actual results and the timing of selected events could
differ materially from those anticipated in these
forward-looking statements as a result of several factors,
including those set forth under Item 1A. Risk
Factors and elsewhere in this Annual Report on
Form 10-K.
BUSINESS
OVERVIEW
Abaxis, Inc. develops, manufactures, markets and sells portable
blood analysis systems for use in the human or veterinary
patient-care setting to provide clinicians with rapid blood
constituent measurements. Our primary product is a blood
analysis system, consisting of a compact portable analyzer and a
series of single-use plastic discs, called reagent discs,
containing all the chemicals required to perform a panel of up
to 14 tests on human patients and 13 tests on veterinary
patients. We manufacture the system in our manufacturing
facility in Union City, California and we market our blood
chemistry analyzers in both the medical market and in the
veterinary market, as described below.
|
|
|
|
|
Medical Market: We currently market the blood
analysis system in the medical market under the name
Piccolo®
xpress. Through October 2006, we marketed the blood analysis
system in the medical market as the
Piccolo®,
now referred to as the Piccolo Classic. We continue to support
and service our current population of Piccolo xpress and Piccolo
Classic chemistry analyzers.
|
|
|
|
Veterinary Market: We currently market the
blood analysis system in the veterinary market under the name
VetScan
VS2®.
Through March 2006, we marketed the blood analysis system in the
veterinary market as the
VetScan®,
now referred to as the VetScan Classic. We continue to support
and service our current population of VetScan VS2 and VetScan
Classic chemistry analyzers.
|
In September 2007, we introduced a veterinary hematology
instrument under the name VetScan HM5. The VetScan HM5 offers a
22-parameter complete blood count (CBC) analysis, including a
five-part differential cell counter specifically designed for
veterinary applications. In May 2004, we introduced a veterinary
hematology instrument that offers an 18-parameter CBC analysis,
including a three-part white blood cell differential, marketed
originally as the VetScan HMII, and is now referred to as the
VetScan HM2. We currently purchase the hematology instruments
from Diatron Medical Instruments PLC. of Budapest, Hungary.
Through April 2004, we marketed a veterinary hematology
instrument under the name VetScan HMT. We continue to support
and service our current population of VetScan HM5, VetScan HM2,
VetScan HMII and VetScan HMT hematology instruments. We also
market reagent kits to be used with our hematology instruments
which we currently purchase from three suppliers: Clinical
Diagnostic Solutions, Inc., Diatron Medical Instruments PLC. and
Mallinckrodt Baker BV.
In July 2008, our sales office in Darmstadt, Germany was
incorporated as Abaxis Europe GmbH to market, promote and
distribute diagnostic systems for medical and veterinary uses.
As a result, Abaxis Europe GmbH became a wholly-owned subsidiary
of Abaxis. The subsidiary was formed to provide customer support
in a timely manner in response to the growing and increasingly
diverse services needs of customers in the European market.
In January 2009, we introduced a veterinary coagulation analyzer
under the name VetScan VSpro. The VetScan VSpro
assists in the diagnosis and evaluation of suspected
bleeding disorders, toxicity/poisoning, evaluation of
Disseminated Intravascular Disease, hepatic disease and
monitoring therapy and progression of disease states. The
point-of-care
coagulation analyzer is offered with a combination assay
(PT/aPTT test cartridge) for canine testing. We currently
purchase the coagulation analyzers and coagulation reagents from
Scandinavian Micro Biodevices APS of Farum, Denmark.
In January 2009, we introduced a canine heartworm rapid test
under the name VetScan Canine Heartworm Rapid Test. The VetScan
Canine Heartworm Rapid Test is a highly sensitive and specific
test for the detection of Dirofilaria immitis in canine
whole blood, serum or plasma. The lateral flow immunoassay
technology in the canine heartworm rapid tests provides
immediate results.
29
Our sales for any future periods are not predictable with a
significant degree of certainty, and may depend on a number of
factors outside of our control, including but not limited to
inventory or timing considerations by our distributors. We
generally operate with a limited order backlog because our
products are typically 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. Our expense levels, which are to a large extent fixed,
are based in part on our expectations of future revenues.
Accordingly, we may be unable to adjust spending in a timely
manner to compensate for any unexpected revenue shortfall. As a
result, any such shortfall would negatively affect our operating
results and financial condition. In addition, our sales may be
adversely impacted by pricing pressure from competitors. Our
ability to be consistently profitable will depend, in part, on
our ability to increase the sales volumes of our Piccolo and
VetScan products and to successfully compete with other
competitors. We believe that period to period comparisons of our
results of operations are not necessarily meaningful indicators
of future results.
CRITICAL
ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS
Our consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United
States and pursuant to the rules and regulations of the
Securities and Exchange Commission. The preparation of these
financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and revenues
and expenses during the reporting period. On an on-going basis,
we evaluate our estimates and the sensitivity of these estimates
to deviations in the assumptions used in making them. We base
our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the
circumstances. However, there can be no assurance that our
actual results will not differ from these estimates.
We have identified the policies below as critical because they
are not only important to understanding our financial condition
and results of operations, but also because application and
interpretation of these policies requires both judgment and
estimates of matters that are inherently uncertain and unknown.
Accordingly, actual results may differ materially from our
estimates. The impact and any associated risks related to these
policies on our business operations are discussed below. For a
more detailed discussion on the application of these and other
accounting policies, see the Notes to Consolidated Financial
Statements included in this Annual Report on
Form 10-K.
Revenue Recognition and Deferred Revenue. Our
primary customers are distributors and direct customers in both
the medical and veterinary markets. Revenues from product sales,
net of estimated sales allowances and rebates, are recognized
when (i) evidence of an arrangement exists, (ii) upon
shipment of the products to the customer, (iii) the sales
price is fixed or determinable and (iv) collection of the
resulting receivable is reasonably assured. Rights of return are
not provided.
We recognize revenue associated with extended maintenance
agreements ratably over the life of the contract. Amounts
collected in advance of revenue recognition are recorded as a
current or non-current liability based on the time from the
balance sheet date to the future date of revenue recognition. We
provide incentives in the form of free goods or extended
maintenance agreements to customers in connection with the sale
of our instruments. Revenues from such sales are allocated
separately to the instruments and incentives based on the
relative fair value of each element. Revenues allocated to
incentives are deferred until the goods are shipped to the
customer or are recognized ratably over the life of the
maintenance contract. At March 31, 2009, 2008 and 2007, the
current portion of deferred revenue balances was
$1.0 million, $807,000 and $917,000, respectively, and the
non-current portion of deferred revenue balances was
$1.6 million, $1.1 million and $1.2 million,
respectively. The fluctuation in balances is due to the types of
customer incentives programs offered during the period and
depends on when the free goods are shipped to the customer and
the maintenance period of the maintenance agreements.
We periodically offer trade-in programs to customers for trading
in an existing instrument to purchase a new instrument and we
will either provide incentives in the form of free goods or
reduce the sales price of the instrument. These incentives in
the form of free goods are recorded according to the policies
described above.
Distributor and Customer Rebates. We offer
distributor pricing rebates and customer incentives from time to
time. The distributor pricing rebates are offered to
distributors upon meeting the sales volume requirements during a
qualifying period. The distributor pricing rebates are recorded
as a reduction to gross revenues during a qualifying
30
period. Cash rebates are offered to distributors or customers
who purchase certain products or instruments during a
promotional period. Cash rebates are recorded as a reduction to
gross revenues.
The distributor pricing rebate program is offered to
distributors in the North America veterinary market, upon
meeting the sales volume requirements of veterinary products
during the qualifying period. Factors used in the rebate
calculations include the identification of products sold subject
to a rebate during the qualifying period and which rebate
percentage applies. Based on these factors and using historical
trends, adjusted for current changes, we estimate the amount of
the rebate that will be paid and record the liability as a
reduction to gross revenues when we record the sale of the
product. Settlement of the rebate accruals from the date of sale
ranges from one to three months after sale. At March 31,
2009, 2008 and 2007, the accrual balances related to distributor
pricing rebates were $74,000, $140,000 and $229,000,
respectively. The changes in the rebate accrual at each fiscal
year end are based upon distributors meeting the purchase
requirements during the quarter.
Other rebate programs offered to distributors or customers vary
from period to period in the medical and veterinary markets.
Generally, the rebate program relates to the sale of certain
products during a specified promotional period. As part of the
rebate program, a distributor or customer receives a cash rebate
upon purchasing the products in the North America market during
a promotional period. Factors used in the rebate calculations
include the identification of products sold subject to a rebate
during the qualifying period and the estimated lag time between
the sale and payment of a rebate. We estimate the amount of the
rebate that will be paid and record the liability as a reduction
of gross revenues when we record the sale of the product.
Settlement of the rebate accruals from the date of sale ranges
from one to six months after sale. At March 31, 2009, 2008
and 2007, the accrual balances related to rebates were $22,000,
$0 and $168,000, respectively. The changes in the rebate accrual
were due to the type of marketing promotions offered during the
fiscal year and timing of the rebate obligations paid to
customers.
The following table is an analysis of the roll forward
activities for the distributor and customer rebate accruals (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
of Year
|
|
|
Provisions
|
|
|
Payments
|
|
|
End of Year
|
|
|
Year Ended March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributor rebates
|
|
$
|
140
|
|
|
$
|
264
|
|
|
$
|
(330
|
)
|
|
$
|
74
|
|
Customer rebates
|
|
|
|
|
|
|
30
|
|
|
|
(8
|
)
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributor and customer rebates
|
|
$
|
140
|
|
|
$
|
294
|
|
|
$
|
(338
|
)
|
|
$
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributor rebates
|
|
$
|
229
|
|
|
$
|
498
|
|
|
$
|
(587
|
)
|
|
$
|
140
|
|
Customer rebates
|
|
|
168
|
|
|
|
|
|
|
|
(168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributor and customer rebates
|
|
$
|
397
|
|
|
$
|
498
|
|
|
$
|
(755
|
)
|
|
$
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributor rebates
|
|
$
|
90
|
|
|
$
|
781
|
|
|
$
|
(642
|
)
|
|
$
|
229
|
|
Customer rebates
|
|
|
36
|
|
|
|
328
|
|
|
|
(196
|
)
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributor and customer rebates
|
|
$
|
126
|
|
|
$
|
1,109
|
|
|
$
|
(838
|
)
|
|
$
|
397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Other Allowances. We estimate a
provision for defective reagent discs as part of sales
allowances when we issue credits to customers for defective
reagent discs. We also establish, upon shipment of our products
to distributors, a provision for potentially defective reagent
discs, based on estimates derived from historical experience.
The provision for potentially defective reagent discs was
recorded in sales allowances, using internal data available to
estimate the level of inventory in the distribution channel, the
lag time for customers to report defective reagent discs and the
historical rates of defective reagent discs. The balances
related to sales allowance for defective reagent discs at
March 31, 2009, 2008 and 2007 were $27,000, $26,000 and
$368,000, respectively. Starting on July 1, 2007, the
provision for potentially defective reagent discs is recorded as
part of warranty reserves, instead of sales allowances, since we
replace defective reagent discs rather than issue a credit to
customers. Changes in our estimates for accruals related to
provisions for defective reagent discs have not been material to
our financial position or results of operations. In the future,
the actual defective reagent discs may exceed our estimates,
which could adversely affect our financial results.
31
Allowance for Doubtful Accounts. We maintain
an allowance for doubtful accounts based on our assessment of
the collectibility of the amounts owed to us by our customers.
In determining the amount of the allowance, we make judgments
about the creditworthiness of customers which is mostly
determined by the customers payment history and the
outstanding period of accounts. We specifically identify amounts
that we believe to be uncollectible and the allowance for
doubtful accounts is adjusted accordingly. An additional
allowance is recorded based on certain percentages of our aged
receivables, using historical experience to estimate the
potential uncollectible and our assessment of the general
financial condition of our customer base. If our actual
collections experience changes, revisions to our allowances may
be required, which could adversely affect our operating income.
Fair Value Measurements. Effective
April 1, 2008, we adopted Statement of Financial Accounting
Standards (SFAS) No. 157, Fair Value
Measurements (SFAS No. 157) to
measure the fair value of our financial assets and financial
liabilities. SFAS No. 157 defines fair value as the
price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants at the measurement date. SFAS No. 157
establishes a fair value hierarchy that distinguishes between
(1) market participant assumptions developed based on
market data obtained from independent sources (observable
inputs) and (2) an entitys own assumptions about
market participant assumptions developed based on the best
information available in the circumstances (unobservable
inputs). The fair value hierarchy consists of three broad
levels, which gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable
inputs (Level 3). The three levels of the fair value
hierarchy under SFAS No. 157 are described below:
Level 1: Quoted prices (unadjusted) in
active markets for identical assets or liabilities. As of
March 31, 2009, we used Level 1 assumptions for our
cash, cash equivalents, certificates of deposits and corporate
bonds, which are traded in an active market. The valuations are
based on quoted prices of the underlying security that are
readily and regularly available in an active market, and
accordingly, a significant degree of judgment is not required.
Level 2: Directly or indirectly
observable market based inputs used in models or other valuation
methodologies. As of March 31, 2009, we did not have any
Level 2 financial assets or liabilities.
Level 3: Unobservable inputs that are
supported by little or no market data and require the use of
significant management judgment. These values are generally
determined using pricing models for which the assumptions
utilize managements estimates of market participant
assumptions. As of March 31, 2009, we did not have any
Level 3 financial assets or liabilities.
Fair value is a market-based measure considered from the
perspective of a market participant who holds the asset or owes
the liability rather than an entity-specific measure. Therefore,
even when market assumptions are not readily available, our own
assumptions are developed to reflect those that market
participants would use in pricing the asset or liability at the
measurement date.
Warranty Reserves. We provide for the
estimated future costs to be incurred under our standard
warranty obligation on our instruments. Our standard warranty
obligation on instruments ranges from two to three years. The
estimated contractual warranty obligation is recorded when the
related revenue is recognized and any additional amount is
recorded when such cost is probable and can be reasonably
estimated. While we engage in product quality programs and
processes, including monitoring and evaluating the quality of
our suppliers, our estimated accrual for warranty exposure is
based on historical experience, estimated product failure rates,
material usage and freight incurred in repairing the instrument
after failure and known design changes.
A provision for defective reagent discs is recorded when related
sales are recognized and any additional amounts are recorded
when such costs are probable and can be reasonably estimated, at
which time they are included in cost of revenues. Prior to
July 1, 2007, we primarily issued a credit to customers for
defective reagent discs and, therefore, the provision for
estimated costs for defective reagent discs, which includes the
replacement costs and freight of a defective reagent disc, was
recorded as part of sales and other allowances. Starting on
July 1, 2007, the provision for defective reagent discs is
recorded as part of warranty reserves, since we replace
defective reagent discs rather than issue a credit to customers.
We analyze the adequacy of the ending accrual balance of
warranty reserves each quarter. The determination of warranty
reserves requires us to make estimates of the expected costs to
repair or replace the instruments and to
32
replace defective reagent discs under warranty. If actual repair
or replacement costs of instruments or replacement costs of
reagent discs differ significantly from our estimates,
adjustments to cost of revenues may be required.
Inventories. We state inventories at the lower
of cost or market, cost being determined using standard costs
which approximates actual costs using the
first-in,
first-out (FIFO) method. Inventories include material, labor and
overhead. We establish provisions for excess, obsolete and
unusable inventories after evaluation of future demand and
market conditions. If future demand or actual market conditions
are less favorable than those estimated by management or if a
significant amount of the material were to become unusable,
additional inventory write-downs may be required, which would
have a negative effect on our operating income.
Valuation of Long-Lived Assets. The carrying
value of our long-lived assets, such as property and equipment
and amortized intangible assets, are reviewed for impairment, in
accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. We look to current
and future profitability, as well as current and future
undiscounted cash flows, excluding financing costs, as primary
indicators of recoverability. An impairment loss would be
recognized when the sum of the undiscounted future net cash
flows expected to result from the use of the asset and its
eventual disposal is less than the carrying amount. If
impairment is determined to exist, any related impairment loss
is calculated based on fair value.
Income Taxes. We account for income taxes
using the liability method under which deferred tax assets and
liabilities are determined based on the differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Valuation
allowances are established, when necessary, to reduce deferred
tax assets to the amounts to be recovered.
Effective April 1, 2007, we adopted the provisions of
Financial Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109
(FIN 48). FIN 48 clarifies the accounting
for uncertainty in income taxes recognized in the consolidated
financial statements in accordance with SFAS No. 109,
Accounting for Income Taxes and prescribes a
recognition threshold and measurement attribute for the
financial statement recognition and measurement of tax positions
taken or expected to be taken in a tax return. FIN 48 also
provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and
transition. Our policy to include interest and penalties related
to gross unrecognized tax benefits within our provision for
income taxes did not change despite the adoption of FIN 48.
Share-Based Compensation Expense. Effective
April 1, 2006, we adopted SFAS No. 123 (revised
2004), Share-Based Payment
(SFAS No. 123(R)) using the modified
prospective method. Under the fair value provisions of
SFAS No. 123(R), we recognize share-based compensation
expense, net of an estimated forfeiture rate, for those shares
over the requisite service period of the award to employees and
directors.
We did not grant stock options during fiscal 2009, 2008 or 2007.
For stock options granted prior to March 31, 2006, we use
the Black-Scholes option pricing model to determine the fair
value. Determining the appropriate fair value model and
calculating the fair value of share-based awards requires highly
subjective assumptions, as described below.
|
|
|
|
|
Risk-free interest rate: The risk-free
interest rate is based on U.S. Treasury yields in effect at
the time of grant for the expected term of the option.
|
|
|
|
Expected stock price volatility: We estimate
the volatility of our common stock at the date of grant based on
the historical volatility of our common stock.
|
|
|
|
Expected term: We estimate the expected term
of stock options granted based on historical exercise and
post-vesting termination patterns, which we believe are
representative of future behavior.
|
|
|
|
Expected dividends: We have not paid cash
dividends on our common stock and we do not anticipate paying
cash dividends in the foreseeable future; consequently, we use
an expected dividend yield of zero.
|
33
For restricted stock units, the assumptions to calculate
compensation expense is based on the fair value of our stock at
the grant date. As a result, if factors change and we use
different assumptions, our share-based compensation expense
could be materially different in the future.
As required by SFAS No. 123(R), employee share-based
compensation expense recognized is calculated over the requisite
service period of the awards and reduced for estimated
forfeitures. The forfeiture rate is estimated based on
historical data of our share-based awards that are granted and
cancelled prior to vesting and upon historical experience of
employee turnover. Changes in estimated forfeiture rates and
differences between estimated forfeiture rates and actual
experience may result in significant, unanticipated increases or
decreases in share-based compensation expense from period to
period. To the extent we revise our estimate of the forfeiture
rate in the future, our share-based compensation expense could
be materially impacted in the quarter of revision, as well as in
following quarters.
The adoption of SFAS No. 123(R) at the beginning of
fiscal 2007 had a material impact on our earnings per share and
on our consolidated financial statements for fiscal 2009, 2008
and 2007, and we expect that it will materially impact our
consolidated financial statements in the foreseeable future. The
impact of SFAS No. 123(R) on our consolidated
financial results is disclosed in Note 11,
Share-Based Compensation in the Notes to
Consolidated Financial Statement in this Annual Report on
Form 10-K.
RESULTS
OF OPERATIONS
Abaxis develops, manufactures, markets and sells portable blood
analysis systems for use in the human or veterinary
patient-care
setting to provide clinicians with rapid blood constituent
measurements. We operate in two segments: (i) the medical
market and (ii) the veterinary market. See Segment
Results in this section for a detailed discussion.
Total
Revenues
Revenues by Geographic Region and by Product
Category. Revenues by geographic region based on
customer location and revenues by product category during fiscal
2009, 2008 and 2007 were as follows (in thousands, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
Change 2008 to 2009
|
|
|
Change 2007 to 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
Percent
|
|
|
Increase/
|
|
|
Percent
|
|
Revenues by Geographic Region
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
Change
|
|
|
(Decrease)
|
|
|
Change
|
|
|
North America
|
|
$
|
87,801
|
|
|
$
|
83,830
|
|
|
$
|
72,015
|
|
|
$
|
3,971
|
|
|
|
5
|
%
|
|
$
|
11,815
|
|
|
|
16
|
%
|
Percentage of total revenues
|
|
|
83
|
%
|
|
|
84
|
%
|
|
|
84
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
14,045
|
|
|
|
13,472
|
|
|
|
10,370
|
|
|
|
573
|
|
|
|
4
|
%
|
|
|
3,102
|
|
|
|
30
|
%
|
Percentage of total revenues
|
|
|
13
|
%
|
|
|
13
|
%
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia Pacific and rest of the world
|
|
|
3,716
|
|
|
|
3,249
|
|
|
|
3,836
|
|
|
|
467
|
|
|
|
14
|
%
|
|
|
(587
|
)
|
|
|
(15
|
)%
|
Percentage of total revenues
|
|
|
4
|
%
|
|
|
3
|
%
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
105,562
|
|
|
$
|
100,551
|
|
|
$
|
86,221
|
|
|
$
|
5,011
|
|
|
|
5
|
%
|
|
$
|
14,330
|
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
Change 2008 to 2009
|
|
|
Change 2007 to 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
Percent
|
|
|
Increase/
|
|
|
Percent
|
|
Revenues by Product Category
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
Change
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Instruments
|
|
$
|
28,194
|
|
|
$
|
30,011
|
|
|
$
|
28,899
|
|
|
$
|
(1,817
|
)
|
|
|
(6
|
)%
|
|
$
|
1,112
|
|
|
|
4
|
%
|
Percentage of total revenues
|
|
|
27
|
%
|
|
|
30
|
%
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumables
|
|
|
69,072
|
|
|
|
61,928
|
|
|
|
50,741
|
|
|
|
7,144
|
|
|
|
12
|
%
|
|
|
11,187
|
|
|
|
22
|
%
|
Percentage of total revenues
|
|
|
65
|
%
|
|
|
62
|
%
|
|
|
59
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other products
|
|
|
5,170
|
|
|
|
6,583
|
|
|
|
4,775
|
|
|
|
(1,413
|
)
|
|
|
(21
|
)%
|
|
|
1,808
|
|
|
|
38
|
%
|
Percentage of total revenues
|
|
|
5
|
%
|
|
|
6
|
%
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales, net
|
|
|
102,436
|
|
|
|
98,522
|
|
|
|
84,415
|
|
|
|
3,914
|
|
|
|
4
|
%
|
|
|
14,107
|
|
|
|
17
|
%
|
Percentage of total revenues
|
|
|
97
|
%
|
|
|
98
|
%
|
|
|
98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development and licensing revenue
|
|
|
3,126
|
|
|
|
2,029
|
|
|
|
1,806
|
|
|
|
1,097
|
|
|
|
54
|
%
|
|
|
223
|
|
|
|
12
|
%
|
Percentage of total revenues
|
|
|
3
|
%
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
105,562
|
|
|
$
|
100,551
|
|
|
$
|
86,221
|
|
|
$
|
5,011
|
|
|
|
5
|
%
|
|
$
|
14,330
|
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2009 Compared to Fiscal 2008
North America. During fiscal 2009,
total revenues in North America increased 5%, or
$4.0 million, as compared to fiscal 2008. Components of the
change in North America were as follows:
Instruments. During fiscal 2009, total
revenues from instruments, comprised of chemistry analyzers,
hematology instruments and coagulation analyzers, sold in North
America decreased 6%, or $1.4 million, as compared to
fiscal 2008. The primary factors of the change were as follows:
(i) Sales of our Piccolo chemistry analyzers in North
America (excluding the U.S. government) decreased 32%, or
$2.3 million, primarily due to economic conditions and the
resulting impact of reduced capital spending at the physician
office level in the third and fourth quarters of fiscal 2009.
The decrease was partially offset by an increase in sales of our
Piccolo chemistry analyzers to the U.S. government of 71%,
or $893,000, primarily due to an increase in the
U.S. Militarys needs for these products in the first
and third quarters of fiscal 2009, which were not predictable.
(ii) Sales of our VetScan chemistry analyzers in North
America increased 21%, or $1.5 million, primarily due to
(a) quality and reliability improvements on our VetScan
chemistry analyzers and (b) a shift in our sales and
marketing focus to our VetScan chemistry analyzers and reagent
discs during fiscal 2009.
(iii) Sales of our hematology instruments in North America
decreased 22%, or $1.8 million, primarily due to a shift in
our sales and marketing focus to our VetScan chemistry analyzers
and reagent discs during fiscal 2009.
(iv) Sales of our coagulation analyzers in North America
during fiscal 2009 were $251,000. In the fourth quarter of
fiscal 2009, we launched the release of our VetScan VSpro.
Consumables. During fiscal 2009, total
revenues from consumables, comprised of reagent discs,
hematology reagent kits, coagulation reagents and canine
heartworm rapid tests, sold in North America increased 12%, or
$5.9 million, as compared to fiscal 2008. The primary
factors of the change were as follows:
(i) Medical reagent discs sales in North America (excluding
the U.S. government) increased 35%, or $3.0 million,
primarily due to the expanded installed base of our Piccolo
chemistry analyzers. The increase was partially offset by a
decrease in medical reagent discs sold to the
U.S. government of 11%, or $215,000, primarily due to the
U.S. Militarys decreased needs for these products,
which were not predictable.
(ii) Veterinary reagent discs sales in North America
increased 5%, or $2.0 million, primarily due to higher
average selling prices during fiscal 2009.
35
(iii) Sales of hematology reagent kits in North America
increased 21%, or $722,000, primarily due to an expanded
installed base of our hematology instruments.
(iv) Sales of our canine heartworm rapid tests in North
America during fiscal 2009 were $441,000. In the fourth quarter
of fiscal 2009, we launched the release of our canine heartworm
rapid tests.
Other products. During fiscal 2009, total
revenues from other products sold in North America decreased
24%, or $1.6 million, as compared to fiscal 2008. The net
decrease in other products was primarily due to (a) an
increase in maintenance contracts offered to customers from time
to time as incentives in the form of free goods in connection
with the sale of our products, for which revenue is deferred and
recognized ratably over the life of the maintenance contract and
(b) a decrease in demand from Becton, Dickinson and Company
for products using the Orbos Discrete Lyophilization Process
(the Orbos Process), which is seasonal.
Development and licensing. In fiscal 2009,
total revenues from development and licensing in
North America increased 54%, or $1.1 million, as
compared to fiscal 2008. The increase from development and
licensing revenue is primarily due to a licensing agreement to
Cepheid, related to our proprietary technology, the Orbos
Process.
Significant concentration. One distributor in
the United States, DVM Resources, accounted for 10% of our total
worldwide revenues during fiscal 2009.
Europe. During fiscal 2009, total
revenues in Europe increased 4%, or $573,000, as compared to
fiscal 2008. Components of the change in Europe were as follows:
Instruments. During fiscal 2009, total
revenues from instruments, comprised of chemistry analyzers,
hematology instruments and coagulation analyzers, sold in Europe
decreased 14%, or $664,000, as compared to fiscal 2008. The
primary factors of the change were as follows:
(i) Sales of our Piccolo chemistry analyzers in Europe
decreased 12%, or $170,000, primarily due to requirements that
we must meet to comply with local regulations of foreign
countries and the strength of the U.S. dollar against the
Euro currency.
(ii) Sales of our VetScan chemistry analyzers in Europe
decreased 12%, or $334,000, primarily due to currency volatility.
(iii) Sales of our hematology instruments in Europe
decreased 26%, or $163,000.
Consumables. During fiscal 2009, total
revenues from consumables, comprised of reagent discs,
hematology reagent kits, coagulation reagents and canine
heartworm rapid tests, sold in Europe increased 12%, or
$1.1 million, as compared to fiscal 2008. The primary
factors of the change were as follows:
(i) Medical reagent discs sales in Europe increased 66%, or
$804,000, primarily due to (a) the expanded installed base
of our Piccolo chemistry analyzers and (b) sales to a new
distributor in Europe to supply medical reagent discs into local
government hospitals in the third quarter of fiscal 2009.
(ii) Veterinary reagent discs sales in Europe increased 3%,
or $239,000, primarily due to higher average selling prices
during fiscal 2009.
(iii) Sales of hematology reagent kits in Europe increased
18%, or $36,000.
Other products. During fiscal 2009, total
revenues from other products sold in Europe increased 229%, or
$158,000, as compared to fiscal 2008.
36
Asia Pacific and rest of the
world. During fiscal 2009, total revenues in
Asia Pacific and rest of the world increased 14%, or $467,000,
as compared to fiscal 2008. Components of the change in Asia
Pacific and rest of the world were as follows:
Instruments. During fiscal 2009, total
revenues from instruments, comprised of chemistry analyzers and
hematology instruments, sold in Asia Pacific and rest of the
world increased 25%, or $280,000, as compared to fiscal 2008.
The primary factors of the change were as follows:
(i) Sales of our Piccolo chemistry analyzers in Asia
Pacific and rest of the world increased 98%, or $161,000,
primarily due to increased sales to various distributors.
(ii) Sales of our VetScan chemistry analyzers in Asia
Pacific and rest of the world increased 27%, or $134,000,
primarily due to renewed distributor sales in Japan in fiscal
2009.
(iii) Sales of our hematology instruments in Asia Pacific
and rest of the world during fiscal 2009 were substantially the
same as in fiscal 2008.
Consumables. During fiscal 2009, total
revenues from consumables, comprised of reagent discs,
hematology reagent kits, coagulation reagents and canine
heartworm rapid tests, sold in Asia Pacific and rest of the
world increased 8%, or $175,000, as compared to fiscal 2008. The
primary factors of the change were as follows:
(i) Medical reagent discs sales in Asia Pacific and rest of
the world during fiscal 2009 were substantially the same as in
fiscal 2008.
(ii) Veterinary reagent discs sales in Asia Pacific and
rest of the world increased 5%, or $90,000.
(iii) Sales of hematology reagent kits in Asia Pacific and
rest of the world increased 56%, or $76,000.
Other products. During fiscal 2009, total
revenues from other products sold in Asia Pacific and rest of
the world were substantially the same as in fiscal 2008.
Fiscal
2008 Compared to Fiscal 2007
North America. During fiscal 2008,
total revenues in North America increased 16%, or
$11.8 million, as compared to fiscal 2007. Components of
the change in North America were as follows:
Instruments. During fiscal 2008, total
revenues from instruments, comprised of chemistry analyzers and
hematology instruments, sold in North America increased 5%, or
$1.1 million, as compared to fiscal 2007. The primary
factors of the change were as follows:
(i) Sales of our Piccolo chemistry analyzers in North
America (excluding the U.S. government) increased 24%, or
$1.4 million, primarily due to increased sales to
distributors. Sales of our Piccolo chemistry analyzers to the
U.S. government increased 60%, or $469,000, primarily due
to an increase in the U.S. Militarys needs for our
products in the fourth quarter of fiscal 2008, which were not
predictable.
(ii) Sales of our VetScan chemistry analyzers in North
America decreased 22%, or $2.1 million, primarily due to a
shift in our sales and marketing focus from an instrument only
emphasis to a focus on both instrument and reagent discs as a
result of the manufacturing issues that we experienced in
previous quarters.
(iii) Sales of our hematology instruments in North America
increased 19%, or $1.3 million, primarily due to the
release of our VetScan HM5 in September 2007.
37
Consumables. During fiscal 2008, total
revenues from consumables, comprised of reagent discs and
hematology reagent kits, sold in North America increased 20%, or
$8.7 million, as compared to fiscal 2007. The primary
factors of the change were as follows:
(i) Medical reagent discs sales in North America (excluding
the U.S. government) increased 37%, or $2.3 million,
primarily due to the expanded installed base of our Piccolo
chemistry analyzers. Medical reagent discs sold to the
U.S. government decreased 10%, or $239,000.
(ii) Veterinary reagent discs sales in North America
increased 21%, or $6.5 million, primarily due to the
expanded installed base of our VetScan chemistry analyzers.
(iii) Sales of hematology reagent kits in North America
increased 5%, or $161,000.
Other products. During fiscal 2008, total
revenues from other products sold in North America increased
38%, or $1.8 million, as compared to fiscal 2007. The net
increase in other products was primarily due to an increase in
demand from Becton, Dickinson and Company for products using the
Orbos Process, which is based on seasonal demands.
Development and licensing. In fiscal 2008,
total revenues from development and licensing in
North America increased 12%, or $223,000, as compared to
fiscal 2007. The increase from development and licensing revenue
is primarily due to a licensing agreement to Cepheid, related to
our proprietary technology, the Orbos Process.
Significant concentration. One distributor in
the United States, DVM Resources, accounted for 12% of our total
worldwide revenues during fiscal 2008.
Europe. During fiscal 2008, total
revenues in Europe increased 30%, or $3.1 million, as
compared to fiscal 2007. Components of the change in Europe were
as follows:
Instruments. During fiscal 2008, total
revenues from instruments, comprised of chemistry analyzers and
hematology instruments, sold in Europe increased 20%, or
$796,000, as compared to fiscal 2007. The primary factors of the
change were as follows:
(i) Sales of our Piccolo chemistry analyzers in Europe
increased 83%, or $642,000, primarily due to increased sales to
distributors.
(ii) Sales of our VetScan chemistry analyzers in Europe
decreased 4%, or $123,000.
(iii) Sales of our hematology instruments in Europe
increased 79%, or $277,000.
Consumables. During fiscal 2008, total
revenues from consumables, comprised of reagent discs and
hematology reagent kits, sold in Europe increased 36%, or
$2.3 million, as compared to fiscal 2007. The primary
factors of the change were as follows:
(i) Medical reagent discs sales in Europe increased 54%, or
$428,000, primarily due to the expanded installed base of our
Piccolo chemistry analyzers.
(ii) Veterinary reagent discs sales in Europe increased
35%, or $1.9 million, primarily due to the expanded
installed base of our VetScan chemistry analyzers.
(iii) Sales of hematology reagent kits in Europe were
substantially the same as in the prior year.
Other products. During fiscal 2008, total
revenues from other products sold in Europe increased 38%, or
$19,000, as compared to fiscal 2007.
38
Asia Pacific and rest of the
world. During fiscal 2008, total revenues in
Asia Pacific and rest of the world decreased 15%, or $587,000,
as compared to fiscal 2007. Components of the change in Asia
Pacific and rest of the world were as follows:
Instruments. During fiscal 2008, total
revenues from instruments sold in Asia Pacific and rest of the
world decreased 41%, or $779,000, as compared to fiscal 2007.
The primary factors of the change were as follows:
(i) Sales of our Piccolo chemistry analyzers in Asia
Pacific and rest of the world increased 105%, or $84,000.
(ii) Sales of our VetScan chemistry analyzers in Asia
Pacific and rest of the world decreased 60%, or $729,000. The
decrease in veterinary chemistry analyzers was primarily in
Japan due to the termination of a distribution arrangement
during the first quarter of fiscal 2008.
(iii) Sales of our hematology instruments in Asia Pacific
and rest of the world decreased 22%, or $134,000. The decrease
in hematology instruments was primarily in Japan due to the
termination of a distribution arrangement during the first
quarter of fiscal 2008.
Consumables. During fiscal 2008, total
revenues from consumables, comprised of reagent discs and
hematology reagent kits, sold in Asia Pacific and rest of the
world increased 11%, or $208,000, as compared to fiscal 2007.
The primary factors of the change were as follows:
(i) Medical reagent discs sales in Asia Pacific and rest of
the world increased 43%, or $45,000.
(ii) Veterinary reagent discs sales in Asia Pacific and
rest of the world increased 15%, or $236,000, primarily due to
the expanded installed base of our VetScan chemistry analyzers.
(iii) Sales of hematology reagent kits in Asia Pacific and
rest of the world decreased 35%, or $73,000.
Other products. During fiscal 2008, total
revenues from other products sold in Asia Pacific and rest of
the world decreased 55%, or $16,000, as compared to fiscal 2007.
39
Segment
Results
Fiscal
2009 Compared to Fiscal 2008
The following table presents revenues, cost of revenues, gross
profit and percentage of revenues by operating segments for
fiscal 2009 and 2008 (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
Change
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
Increase/
|
|
|
Percent
|
|
|
|
2009
|
|
|
Revenues(1)
|
|
|
2008
|
|
|
Revenues(1)
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
$
|
24,796
|
|
|
|
100
|
%
|
|
$
|
22,764
|
|
|
|
100
|
%
|
|
$
|
2,032
|
|
|
|
9
|
%
|
Percentage of total revenues
|
|
|
23
|
%
|
|
|
|
|
|
|
23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Veterinary Market
|
|
|
74,046
|
|
|
|
100
|
%
|
|
|
71,091
|
|
|
|
100
|
%
|
|
|
2,955
|
|
|
|
4
|
%
|
Percentage of total revenues
|
|
|
70
|
%
|
|
|
|
|
|
|
71
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other(2)
|
|
|
6,720
|
|
|
|
|
|
|
|
6,696
|
|
|
|
|
|
|
|
24
|
|
|
|
<1
|
%
|
Percentage of total revenues
|
|
|
7
|
%
|
|
|
|
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
105,562
|
|
|
|
|
|
|
|
100,551
|
|
|
|
|
|
|
|
5,011
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
|
12,407
|
|
|
|
50
|
%
|
|
|
11,340
|
|
|
|
50
|
%
|
|
|
1,067
|
|
|
|
9
|
%
|
Veterinary Market
|
|
|
31,052
|
|
|
|
42
|
%
|
|
|
31,812
|
|
|
|
45
|
%
|
|
|
(760
|
)
|
|
|
(2
|
)%
|
Other(2)
|
|
|
3,478
|
|
|
|
|
|
|
|
2,355
|
|
|
|
|
|
|
|
1,123
|
|
|
|
48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
46,937
|
|
|
|
|
|
|
|
45,507
|
|
|
|
|
|
|
|
1,430
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
|
12,389
|
|
|
|
50
|
%
|
|
|
11,424
|
|
|
|
50
|
%
|
|
|
965
|
|
|
|
8
|
%
|
Veterinary Market
|
|
|
42,994
|
|
|
|
58
|
%
|
|
|
39,279
|
|
|
|
55
|
%
|
|
|
3,715
|
|
|
|
9
|
%
|
Other(2)
|
|
|
3,242
|
|
|
|
|
|
|
|
4,341
|
|
|
|
|
|
|
|
(1,099
|
)
|
|
|
(25
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
58,625
|
|
|
|
|
|
|
$
|
55,044
|
|
|
|
|
|
|
$
|
3,581
|
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The percentage reported is based on revenues by operating
segment. |
|
(2) |
|
Represents unallocated items, not specifically identified to any
particular business segment. |
Medical
Market
Revenues
for Medical Market Segment
During fiscal 2009, total revenues in the medical market
increased 9%, or $2.0 million, as compared to fiscal 2008.
Components of the change were as follows:
Instruments. Total revenues from our Piccolo
chemistry analyzers decreased 14%, or $1.4 million, during
fiscal 2009, as compared to fiscal 2008. We sold a total of 713
Piccolo chemistry analyzers during fiscal 2009, as compared to
811 Piccolo chemistry analyzers sold during fiscal 2008. The
changes in revenues were attributed to (a) a decrease in
revenues in North America (excluding the U.S. government)
of 32%, or $2.3 million, primarily due to economic
conditions and the resulting impact of reduced capital spending
at the physician office in the third and fourth quarters of
fiscal 2009 and (b) a decrease in revenues in Europe of
12%, or $170,000, primarily due to requirements that we must
meet to comply with local regulations of foreign countries and
the strength of the U.S. dollar against the Euro currency.
The decrease in revenues was partially offset by (a) an
increase in Piccolo chemistry analyzers sold to the
U.S. government of 71%, or $893,000, primarily due to an
increase in the U.S. Militarys needs for these
products in the first and third quarters of fiscal 2009, which
were not predictable, and (b) an increase in revenues in
Asia Pacific and rest of the world of 98%, or $161,000,
primarily due to increased sales to various distributors.
40
Consumables. Total revenues from reagent discs
sold in the medical market increased 30%, or $3.6 million,
during fiscal 2009, as compared to fiscal 2008. We sold
1.7 million medical reagent discs during fiscal 2009, as
compared to 1.3 million medical reagent discs sold during
fiscal 2008. The total increase in revenues from medical reagent
discs was primarily attributed to the expanded installed base of
our Piccolo chemistry analyzers and was comprised of (a) an
increase in revenues in North America (excluding the
U.S. government) of 35%, or $3.0 million, and
(b) an increase in revenues in Europe of 66%, or $804,000.
The increase in revenues in Europe was also attributed to sales
to a new distributor in Europe to supply medical reagent discs
into local government hospitals in the third quarter of fiscal
2009. The increase in revenues was partially offset by a
decrease in medical reagent discs sold to the
U.S. government of 11%, or $215,000, primarily due to the
U.S. Militarys decreased needs for these products,
which were not predictable. Medical reagent discs sales in Asia
Pacific and rest of the world during fiscal 2009 were
substantially the same as in fiscal 2008.
Gross
Profit for Medical Market Segment
Gross profit for the medical market segment increased 8%, or
$965,000, during fiscal 2009, as compared to fiscal 2008. Gross
profit percentages for the medical market segment during fiscal
2009 and 2008 were 50%, respectively. In absolute dollars, the
increase in gross profit for the medical market segment was
primarily due to an increase in the sales volume of medical
reagent discs in fiscal 2009, partially offset by a decrease in
the sales volume of Piccolo chemistry analyzers in fiscal 2009.
Veterinary
Market
Revenues
for Veterinary Market Segment
During fiscal 2009, total revenues in the veterinary market
increased 4%, or $3.0 million, as compared to fiscal 2008.
Components of the change were as follows:
Instruments. Total revenues from our
veterinary instruments sold decreased 2%, or $429,000, during
fiscal 2009, as compared to fiscal 2008. We sold a total of
2,426 veterinary instruments, comprising of VetScan chemistry
analyzers, hematology instruments and coagulation analyzers,
during fiscal 2009, as compared to 2,332 veterinary instruments
sold during 2008. The primary factors of the change were as
follows:
(i) Sales of our VetScan chemistry analyzers increased 13%,
or $1.3 million, comprised of (a) an increase in
revenues in North America of 21%, or $1.5 million,
primarily due to (1) quality and reliability improvements
on our VetScan chemistry analyzers and (2) a shift in our
sales and marketing focus to our VetScan chemistry analyzers and
reagent discs during fiscal 2009; (b) an increase in
revenues in Asia Pacific and rest of the world of 27%, or
$134,000, primarily due to renewed distributor sales in Japan.
The increase in revenues was partially offset by a decrease in
revenues in Europe of 12%, or $334,000, primarily due to
currency volatility.
(ii) Sales of our hematology instruments decreased 21%, or
$2.0 million, comprised of (a) a decrease in revenues
in North America of 22%, or $1.8 million, primarily due to
a shift in our sales and marketing focus to our VetScan
chemistry analyzers and reagent discs during fiscal 2009, and
(b) a decrease in revenues in Europe of 26%, or $163,000.
Sales of our hematology instruments in Asia Pacific and rest of
the world during fiscal 2009 were substantially the same as in
fiscal 2008.
(iii) Sales of our coagulation analyzers during fiscal 2009
were $254,000. In the fourth quarter of fiscal 2009, we launched
the release of our VetScan VSpro.
Consumables. Total revenues from consumables,
comprised of reagent discs, hematology reagent kits, coagulation
reagents and canine heartworm rapid tests, sold in the
veterinary market increased 7%, or $3.6 million, during
fiscal 2009, as compared to fiscal 2008. The primary factors of
the change were as follows:
(i) Total revenues from reagent discs sold in the
veterinary market increased 5%, or $2.3 million, during
fiscal 2009, as compared to fiscal 2008. We sold
3.6 million veterinary reagent discs during both fiscal
2009 and fiscal 2008, respectively. The increase in revenues
from veterinary reagent discs was primarily attributed to higher
average selling prices during fiscal 2009. The increase in
revenues was comprised of (a) an increase in revenues in
41
North America of 5%, or $2.0 million, (b) an increase
in revenues in Europe of 3%, or $239,000, and (c) an
increase in revenues in Asia Pacific and rest of the world of
5%, or $90,000.
(ii) Total revenues from hematology reagent kits sold in
the veterinary market increased 22%, or $834,000, during fiscal
2009, as compared to fiscal 2008. The increase in revenues from
hematology reagent kits was attributed to (a) an increase
in revenues in North America of 21%, or $722,000, primarily due
to an expanded installed base of our hematology instruments,
(b) an increase in revenues in Europe of 18%, or $36,000,
and (c) an increase in revenues in Asia Pacific and rest of
the world of 56%, or $76,000.
(iii) Sales of our canine heartworm rapid tests during
fiscal 2009 were $443,000, primarily due to the release of our
canine heartworm rapid tests in the fourth quarter of fiscal
2009.
Gross
Profit for Veterinary Market Segment
Gross profit for the veterinary market segment increased 9%, or
$3.7 million, during fiscal 2009, as compared to fiscal
2008. Gross profit percentages for the veterinary market segment
during fiscal 2009 and 2008 were 58% and 55%, respectively. In
absolute dollars, the increase in gross profit for the
veterinary market segment was primarily due to (a) higher
average selling prices and lower unit costs on veterinary
reagent discs sold during fiscal 2009 and (b) an increase
in the sales volume of hematology reagents in fiscal 2009.
Fiscal
2008 Compared to Fiscal 2007
The following table presents revenues, cost of revenues, gross
profit and percentage of revenues by operating segments for
fiscal 2008 and 2007 (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
Change
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
Increase/
|
|
|
Percent
|
|
|
|
2008
|
|
|
Revenues(1)
|
|
|
2007
|
|
|
Revenues(1)
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
$
|
22,764
|
|
|
|
100
|
%
|
|
$
|
17,455
|
|
|
|
100
|
%
|
|
$
|
5,309
|
|
|
|
30
|
%
|
Percentage of total revenues
|
|
|
23
|
%
|
|
|
|
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Veterinary Market
|
|
|
71,091
|
|
|
|
100
|
%
|
|
|
63,851
|
|
|
|
100
|
%
|
|
|
7,240
|
|
|
|
11
|
%
|
Percentage of total revenues
|
|
|
71
|
%
|
|
|
|
|
|
|
74
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other(2)
|
|
|
6,696
|
|
|
|
|
|
|
|
4,915
|
|
|
|
|
|
|
|
1,781
|
|
|
|
36
|
%
|
Percentage of total revenues
|
|
|
6
|
%
|
|
|
|
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
100,551
|
|
|
|
|
|
|
|
86,221
|
|
|
|
|
|
|
|
14,330
|
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
|
11,340
|
|
|
|
50
|
%
|
|
|
8,549
|
|
|
|
49
|
%
|
|
|
2,791
|
|
|
|
33
|
%
|
Veterinary Market
|
|
|
31,812
|
|
|
|
45
|
%
|
|
|
29,021
|
|
|
|
45
|
%
|
|
|
2,791
|
|
|
|
10
|
%
|
Other(2)
|
|
|
2,355
|
|
|
|
|
|
|
|
1,792
|
|
|
|
|
|
|
|
563
|
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
45,507
|
|
|
|
|
|
|
|
39,362
|
|
|
|
|
|
|
|
6,145
|
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
|
11,424
|
|
|
|
50
|
%
|
|
|
8,906
|
|
|
|
51
|
%
|
|
|
2,518
|
|
|
|
28
|
%
|
Veterinary Market
|
|
|
39,279
|
|
|
|
55
|
%
|
|
|
34,830
|
|
|
|
55
|
%
|
|
|
4,449
|
|
|
|
13
|
%
|
Other(2)
|
|
|
4,341
|
|
|
|
|
|
|
|
3,123
|
|
|
|
|
|
|
|
1,218
|
|
|
|
39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
55,044
|
|
|
|
|
|
|
$
|
46,859
|
|
|
|
|
|
|
$
|
8,185
|
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The percentage reported is based on revenues by operating
segment. |
|
(2) |
|
Represents unallocated items, not specifically identified to any
particular business segment. |
42
Medical
Market
Revenues
for Medical Market Segment
During fiscal 2008, total revenues in the medical market
increased 30%, or $5.3 million, as compared to fiscal 2007.
Components of the change were as follows:
Instruments. Total revenues from our Piccolo
chemistry analyzers increased 35%, or $2.6 million, during
fiscal 2008, as compared to fiscal 2007. We sold a total of 811
Piccolo chemistry analyzers during fiscal 2008, as compared to
644 Piccolo chemistry analyzers sold during fiscal 2007. The
changes in revenues were attributed to (a) an increase in
revenues in North America (excluding the U.S. government)
of 24%, or $1.4 million, primarily due to increased sales
to distributors; (b) an increase in Piccolo chemistry
analyzers sold to the U.S. government of 60%, or $469,000,
primarily due to an increase in the U.S. Militarys
needs for our products in the fourth quarter of fiscal 2008,
which were not predictable; (c) an increase in revenues in
Europe of 83%, or $642,000, primarily due to increased sales to
distributors; and (d) an increase in revenues in Asia
Pacific and rest of the world of 105%, or $84,000.
Consumables. Total revenues from consumables,
comprised of reagent discs sold in the medical market increased
27%, or $2.5 million, during fiscal 2008, as compared to
fiscal 2007. We sold 1.3 million medical reagent discs
during fiscal 2008, as compared to 1.0 million medical
reagent discs sold during fiscal 2007. The total increase in
revenues from medical reagent discs was primarily attributed to
the expanded installed base of our Piccolo chemistry analyzers
and was comprised of (a) an increase in revenues in North
America (excluding the U.S. government) of 37%, or
$2.3 million; (b) an increase in revenues in Europe of
54%, or $428,000; and (c) an increase in revenues in Asia
Pacific and rest of the world of 43%, or $45,000. The increase
in revenues was partially offset by a decrease in medical
reagent discs sold to the U.S. government of 10%, or
$239,000.
Gross
Profit for Medical Market Segment
Gross profit for the medical market segment increased 28%, or
$2.5 million, during fiscal 2008, as compared to fiscal
2007. Gross profit percentages for the medical market segment
during fiscal 2008 and 2007 were 50% and 51%, respectively. In
absolute dollars, the increase in gross profit for the medical
market segment was primarily due to (a) an increase in
Piccolo chemistry analyzers and medical reagent discs sold
during fiscal 2008 and (b) higher average selling prices of
Piccolo chemistry analyzers sold during fiscal 2008, partially
offset by (c) higher manufacturing costs on the Piccolo
xpress chemistry analyzers during fiscal 2008.
Veterinary
Market
Revenues
for Veterinary Market Segment
During fiscal 2008, total revenues in the veterinary market
increased 11%, or $7.2 million, as compared to fiscal 2007.
Components of the change were as follows:
Instruments. Total revenues from our
veterinary instruments sold decreased 7%, or $1.5 million,
during fiscal 2008, as compared to fiscal 2007. We sold a total
of 2,332 VetScan chemistry analyzers and hematology instruments
during fiscal 2008, as compared to 2,485 veterinary instruments
sold during fiscal 2007. The primary factors of the change were
as follows:
(i) Sales of our VetScan chemistry analyzers decreased 22%,
or $3.0 million, comprised of (a) a decrease in
revenues in North America of 22%, or $2.1 million,
primarily due to a shift in our sales and marketing focus from
an instrument only emphasis to a focus on both instrument and
reagent discs as a result of the manufacturing issues that we
experienced in previous quarters; (b) a decrease in
revenues in Europe of 4%, or $123,000, and (c) a decrease
in revenues in Asia Pacific and rest of the world of 60%, or
$729,000, primarily in Japan due to the termination of a
distribution arrangement during the first quarter of fiscal 2008.
(ii) Sales of our hematology instruments increased 19%, or
$1.5 million, comprised of (a) an increase in revenues
in North America of 19%, or $1.3 million, primarily due to
the release of the VetScan HM5 in September 2007 and (b) an
increase in revenues in Europe of 79%, or $277,000. The increase
in revenues was partially offset by a decrease in revenues in
Asia Pacific and rest of the world of 22%, or $134,000.
43
Consumables. Total revenues from consumables,
comprised of reagent discs and hematology reagent kits sold in
the veterinary market increased 21%, or $8.6 million,
during fiscal 2008, as compared to fiscal 2007. The primary
factors of the change were as follows:
(i) Total revenues from reagent discs sold in the
veterinary market increased 23%, or $8.6 million, during
fiscal 2008, as compared to fiscal 2007. We sold
3.6 million veterinary reagent discs during fiscal 2008, as
compared to 3.1 million veterinary reagent discs sold
during fiscal 2007. The increase in revenues from veterinary
reagent discs was primarily attributed to the expanded installed
base of our VetScan chemistry analyzers and was comprised of
(a) an increase in revenues in North America of 21%, or
$6.5 million, (b) an increase in revenues in Europe of
35%, or $1.9 million, and (c) an increase in revenues
in Asia Pacific and rest of the world of 15%, or $236,000.
(ii) Total revenues from hematology reagent kits sold in
the veterinary market increased 2%, or $89,000, during fiscal
2008, as compared to fiscal 2007. The increase in revenues from
hematology reagent kits was attributed to (a) an increase
in revenues in North America of 5%, or $161,000, partially
offset by (b) a decrease in revenues in Asia Pacific and
rest of the world of 35%, or $73,000. Revenues from hematology
reagent kits in Europe were substantially the same as in the
prior year.
Gross
Profit for Veterinary Market Segment
Gross profit for the veterinary market segment increased 13%, or
$4.4 million, during fiscal 2008, as compared to fiscal
2007. Gross profit percentages for the veterinary market segment
during fiscal 2008 and 2007 were 55%. In absolute dollars, the
increase in gross profit for the veterinary market segment was
primarily due to (a) an increase in veterinary reagent
discs sold during fiscal 2008, partially offset by (b) a
decrease in VetScan chemistry analyzers sold during fiscal 2008,
(c) higher manufacturing costs on the VetScan VS2 chemistry
analyzers during fiscal 2008 and (d) the weaker
U.S. dollar relative to the Euro currency.
Cost
of Revenues
The following sets forth, our cost of revenues for fiscal 2009,
2008 and 2007 (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
Change 2008 to 2009
|
|
|
Change 2007 to 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
Percent
|
|
|
Increase/
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
Change
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Cost of revenues
|
|
$
|
46,937
|
|
|
$
|
45,507
|
|
|
$
|
39,362
|
|
|
$
|
1,430
|
|
|
|
3
|
%
|
|
$
|
6,145
|
|
|
|
16
|
%
|
Percentage of total revenues
|
|
|
44
|
%
|
|
|
45
|
%
|
|
|
46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues includes the costs associated with
manufacturing, assembly, packaging, warranty repairs, test and
quality assurance for our instruments, reagent discs, hematology
reagent kits, coagulation reagents, canine heartworm rapid tests
and manufacturing overhead, including costs of personnel and
equipment associated with manufacturing support.
Fiscal
2009 Compared to Fiscal 2008
Cost of revenues in fiscal 2009 increased by 3%, or
$1.4 million, as compared to fiscal 2008, primarily due to
the following: an increase in the sales volume of
(a) VetScan chemistry analyzers, (b) medical reagent
discs and (c) hematology reagent kits during fiscal 2009.
The increase in cost of revenues was partially offset by a
decrease in the sales volume of (a) Piccolo chemistry
analyzers and (b) hematology instruments during fiscal 2009.
Fiscal
2008 Compared to Fiscal 2007
Cost of revenues in fiscal 2008 increased by 16%, or
$6.1 million, as compared to fiscal 2007, primarily due to
the following: (a) an increase in the sales volume of
medical and veterinary reagent discs during fiscal 2008,
(b) an
44
increase in costs associated with manufacturing the VetScan VS2
and Piccolo xpress chemistry analyzers during fiscal 2008 and
(c) the weaker U.S. dollar relative to the Euro
currency during fiscal 2008.
Gross
Profit
The following sets forth, our gross profit for fiscal 2009, 2008
and 2007 (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
Change 2008 to 2009
|
|
|
Change 2007 to 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
Percent
|
|
|
Increase/
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
Change
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Total gross profit
|
|
$
|
58,625
|
|
|
$
|
55,044
|
|
|
$
|
46,859
|
|
|
$
|
3,581
|
|
|
|
7
|
%
|
|
$
|
8,185
|
|
|
|
17
|
%
|
Total gross margin
|
|
|
56
|
%
|
|
|
55
|
%
|
|
|
54
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2009 Compared to Fiscal 2008
Gross profit in fiscal 2009 increased by 7%, or
$3.6 million, as compared to fiscal 2008, primarily due to
the following: (a) an increase in the sales volume of
medical reagent discs in fiscal 2009, (b) higher average
selling prices and lower unit costs on veterinary reagent discs
sold during fiscal 2009, and (c) an increase in the sales
volume of hematology reagents in fiscal 2009. The increase in
gross profit was partially offset by a decrease in the sales
volume of Piccolo chemistry analyzers during fiscal 2009.
Fiscal
2008 Compared to Fiscal 2007
Gross profit in fiscal 2008 increased by 17%, or
$8.2 million, as compared to fiscal 2007, primarily due to
the following: (a) an increase in Piccolo chemistry
analyzers and medical reagent discs sold during fiscal 2008,
(b) higher average selling prices of Piccolo chemistry
analyzers sold during fiscal 2008 and (c) an increase in
veterinary reagent discs sold during fiscal 2008. The increase
was partially offset by (a) higher manufacturing costs on
the VetScan VS2 and Piccolo xpress chemistry analyzers sold
during fiscal 2008, (b) a decrease in VetScan chemistry
analyzers sold during fiscal 2008 and (c) the weaker
U.S. dollar relative to the Euro currency.
Operating
Expenses
Research
and Development
The following sets forth, our research and development expenses
for fiscal 2009, 2008 and 2007 (in thousands, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
Change 2008 to 2009
|
|
|
Change 2007 to 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
Percent
|
|
|
Increase/
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
Change
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Research and development
|
|
$
|
8,361
|
|
|
$
|
6,966
|
|
|
$
|
6,180
|
|
|
$
|
1,395
|
|
|
|
20
|
%
|
|
$
|
786
|
|
|
|
13
|
%
|
Percentage of total revenues
|
|
|
8
|
%
|
|
|
7
|
%
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses consist of personnel costs
(including salaries, benefits and share-based compensation
expense), consulting expenses and materials and related expenses
associated with the development of new tests and test methods,
clinical trials, product improvements and enhancement of
existing products.
Fiscal
2009 Compared to Fiscal 2008
Research and development expenses in fiscal 2009 increased by
20%, or $1.4 million, as compared to fiscal 2008. Research
and development expenses in fiscal 2009 related primarily to new
product development and enhancement of existing products and
clinical trials. Research and development expenses are based on
the project activities planned and the level of spending depends
on budgeted expenditures. The projects primarily relate to new
product development in both the medical and veterinary markets
and costs related to compliance with FDA regulations and
clinical trials. Share-based compensation expense during fiscal
2009 and 2008 was $240,000 and $153,000, respectively.
45
We anticipate the dollar amount of research and development
expenses to increase in fiscal 2010 from fiscal 2009 but remain
consistent as a percentage of total revenues, as we complete new
products for both the medical and veterinary markets. There can
be no assurance, however, that we will undertake such research
and development activities in future periods or, if we do, that
such activities will be successful.
Fiscal
2008 Compared to Fiscal 2007
Research and development expenses in fiscal 2008 increased by
13%, or $786,000, as compared to fiscal 2007. Research and
development expenses in fiscal 2008 related primarily to new
product development and enhancement of existing products and
clinical trials. The investments in research and development
were attributed primarily to new product development in both the
medical and veterinary markets and costs related to compliance
with FDA regulations and clinical trials. Share-based
compensation expense during fiscal 2008 and 2007 was $153,000
and $117,000, respectively.
Sales
and Marketing
The following sets forth, our sales and marketing expenses for
fiscal 2009, 2008 and 2007 (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
Change 2008 to 2009
|
|
|
Change 2007 to 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
Percent
|
|
|
Increase/
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
Change
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Sales and marketing expenses
|
|
$
|
24,712
|
|
|
$
|
23,689
|
|
|
$
|
20,569
|
|
|
$
|
1,023
|
|
|
|
4
|
%
|
|
$
|
3,120
|
|
|
|
15
|
%
|
Percentage of total revenues
|
|
|
23
|
%
|
|
|
24
|
%
|
|
|
24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses consist of personnel costs
(including salaries, benefits and share-based compensation
expense), commissions and travel-related expenses for personnel
engaged in selling, costs associated with advertising, lead
generation, marketing programs, trade shows and services related
to customer and technical support.
Fiscal
2009 Compared to Fiscal 2008
Sales and marketing expenses in fiscal 2009 increased by 4%, or
$1.0 million, as compared to fiscal 2008. The increase was
primarily related to higher personnel-related costs to support
the growth in both our medical and veterinary markets.
Share-based compensation expense during fiscal 2009 and 2008 was
$508,000 and $325,000, respectively.
Fiscal
2008 Compared to Fiscal 2007
Sales and marketing expenses in fiscal 2008 increased by 15%, or
$3.1 million, as compared to fiscal 2007. The increase was
primarily related to personnel-related costs resulting from an
increase in headcount in sales and marketing, customer service
and technical service, to support the growth in both our medical
and veterinary markets. Share-based compensation expense during
fiscal 2008 and 2007 was $325,000 and $292,000, respectively.
Our headcount in sales and marketing (including customer
support) increased to 129 employees at March 31, 2008
from 103 employees at March 31, 2007.
General
and Administrative
The following sets forth, our general and administrative
expenses for fiscal 2009, 2008 and 2007 (in thousands, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
Change 2008 to 2009
|
|
|
Change 2007 to 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
Percent
|
|
|
Increase/
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
Change
|
|
|
(Decrease)
|
|
|
Change
|
|
|
General and administrative expenses
|
|
$
|
7,757
|
|
|
$
|
6,681
|
|
|
$
|
5,735
|
|
|
$
|
1,076
|
|
|
|
16
|
%
|
|
$
|
946
|
|
|
|
16
|
%
|
Percentage of total revenues
|
|
|
7
|
%
|
|
|
7
|
%
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
General and administrative expenses consist of personnel costs
(including salaries, benefits and share-based compensation
expense), and expenses for outside professional services related
to general corporate functions, including accounting, human
resources and legal.
Fiscal
2009 Compared to Fiscal 2008
General and administrative expenses in fiscal 2009 increased by
16%, or $1.1 million, as compared to fiscal 2008, primarily
related to (a) an increase in personnel-related costs,
which includes share-based compensation expense and
(b) fees and costs related to pursuing strategic
opportunities in fiscal 2009. Share-based compensation expense
during fiscal 2009 and 2008 was $843,000 and $503,000,
respectively.
Fiscal
2008 Compared to Fiscal 2007
General and administrative expenses in fiscal 2008 increased by
16%, or $946,000, as compared to fiscal 2007, primarily related
to (a) an increase in share-based compensation expense and
(b) costs associated with our implementation of an
enterprise resource planning system during fiscal 2008.
Share-based compensation expense during fiscal 2008 and 2007 was
$503,000 and $318,000, respectively.
Interest
and Other Income (Expense), Net
The following sets forth our interest and other income
(expense), net for fiscal 2009, 2008 and 2007 (in thousands,
except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
Change 2008 to 2009
|
|
|
Change 2007 to 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
Percent
|
|
|
Increase/
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
Change
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Interest and other income (expense), net
|
|
$
|
1,271
|
|
|
$
|
2,096
|
|
|
$
|
1,774
|
|
|
$
|
(825
|
)
|
|
|
(39
|
)%
|
|
$
|
322
|
|
|
|
18
|
%
|
Interest and other income (expense), net consists primarily of
interest earned on cash, cash equivalents, short-term and
long-term investments and foreign currency exchange gains and
losses.
Fiscal
2009 Compared to Fiscal 2008
Interest and other income (expense), net in fiscal 2009
decreased by 39%, or $825,000. The decrease in interest and
other income (expense), net, in fiscal 2009, as compared to
fiscal 2008, was primarily attributed to lower interest yields
in our investment portfolio during fiscal 2009.
Fiscal
2008 Compared to Fiscal 2007
Interest and other income (expense), net in fiscal 2008
increased by 18%, or $322,000. The increase in interest and
other income (expense), net, in fiscal 2008, as compared to
fiscal 2007, was primarily attributed to interest income in our
investment portfolio resulting from higher average invested
balances during fiscal 2008.
Income
Tax Provision
The following sets forth, our income tax provision for fiscal
2009, 2008 and 2007 (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Income tax provision
|
|
$
|
7,053
|
|
|
$
|
7,301
|
|
|
$
|
6,076
|
|
Effective tax rate
|
|
|
37
|
%
|
|
|
37
|
%
|
|
|
38
|
%
|
Fiscal
2009 Compared to Fiscal 2008
For fiscal 2009 and fiscal 2008, the income tax provisions were
$7.1 million, based on an effective tax rate of 37%, and
$7.3 million, based on an effective tax rate of 37%,
respectively. During fiscal 2009 and 2008, the
47
effective tax rate included a tax benefit for tax-exempt
investments and included a tax benefit for the federal research
and development tax credit. During fiscal 2009, the effective
tax rate also included a benefit for federal qualified
production activities. Our effective tax rate of 37% in fiscal
2009, as compared to our effective tax rate of 37% in fiscal
2008, includes tax benefits from qualified production
activities, partially offset by lower tax benefits from
tax-exempt investments and from the federal research and
development tax credit.
We expect our effective tax rate will be approximately 38% for
federal and various state tax jurisdictions in the near term.
Fiscal
2008 Compared to Fiscal 2007
For fiscal 2008 and fiscal 2007, the income tax provisions were
$7.3 million, based on an effective tax rate of 37%, and
$6.1 million, based on an effective tax rate of 38%,
respectively. Our effective tax rate of 37% in fiscal 2008, as
compared to our effective tax rate of 38% in fiscal 2007, was
primarily due to higher tax benefits from tax-exempt investments.
LIQUIDITY
AND CAPITAL RESOURCES
Total cash, cash equivalents and short-term and long-term
investments at March 31, 2009, 2008 and 2007 were as
follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash and cash equivalents
|
|
$
|
49,237
|
|
|
$
|
17,219
|
|
|
$
|
10,183
|
|
Short-term investments
|
|
|
20,776
|
|
|
|
6,991
|
|
|
|
35,028
|
|
Long-term investments
|
|
|
4,886
|
|
|
|
35,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and investments
|
|
$
|
74,899
|
|
|
$
|
59,673
|
|
|
$
|
45,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total assets
|
|
|
53
|
%
|
|
|
49
|
%
|
|
|
44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow Changes
Cash provided by (used in) in fiscal 2009, 2008 and 2007 were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net cash provided by operating activities
|
|
$
|
14,331
|
|
|
$
|
14,966
|
|
|
$
|
11,822
|
|
Net cash provided by (used in) investing activities
|
|
|
10,673
|
|
|
|
(12,557
|
)
|
|
|
(17,701
|
)
|
Net cash provided by financing activities
|
|
|
7,066
|
|
|
|
4,627
|
|
|
|
5,898
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
$
|
32,018
|
|
|
$
|
7,036
|
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2009, we had net working capital of
$101.8 million compared to $52.5 million at
March 31, 2008. Cash and cash equivalents at March 31,
2009 were $49.2 million compared to $17.2 million at
March 31, 2008. The increase in cash and cash equivalents
during fiscal 2009 was primarily due to net cash provided by
operating activities of $14.3 million and proceeds from
redemptions of investments in auction rate securities of
$37.0 million, partially offset by purchases of property
and equipment of $2.7 million and intangible assets of
$5.0 million during fiscal 2009. For additional information
regarding redemptions of investments in auction rate securities
during fiscal 2009, see Notes 1 and 3 of the Notes to
Consolidated Financial Statements contained in this Annual
Report on
Form 10-K.
In fiscal 2009, the effect of exchange rate changes on cash and
cash equivalents and the net loss of foreign exchange
translation were presented in our consolidated statement of cash
flows, resulting from the incorporation of our wholly-owned
subsidiary, Abaxis Europe GmbH, which maintains foreign currency
denominated accounts.
48
Operating
Activities
During fiscal 2009, we generated $14.3 million in cash from
operating activities compared to $15.0 million in fiscal
2008. The cash provided by operating activities during fiscal
2009 was primarily the result of net income of
$12.0 million during fiscal 2009, adjusted for the effects
of non-cash adjustments including depreciation and amortization
of $4.5 million, share-based compensation expense of
$1.7 million and deferred income taxes of
$4.8 million, partially offset by a decrease of
$6.7 million related to excess tax benefits from
share-based awards.
Other changes in operating activities during fiscal 2009 were as
follows:
(i) Net trade receivables increased by $1.1 million,
from $20.9 million at March 31, 2008 to
$22.0 million as of March 31, 2009, primarily due to
slower collections and extended payment terms.
(ii) Net inventories decreased by $3.0 million, from
$18.7 million at March 31, 2008 to $15.7 million
as of March 31, 2009, primarily due to improvements in the
quality of the parts from suppliers.
(iii) Prepaid expenses increased by $530,000, from $427,000
at March 31, 2008 to $957,000 as of March 31, 2009.
(iv) Current net deferred tax asset increased by
$2.3 million, from $2.4 million at March 31, 2008
to $4.7 million as of March 31, 2009, primarily as a
result of an increase in the amount of federal research and
development tax credits carryovers classified as current
deferred tax assets.
(v) Non-current net deferred tax asset decreased by
$1.4 million, from $3.9 million at March 31, 2008
to $2.5 million as of March 31, 2009, primarily as a
result of an increase in the amount of federal research and
development tax credits carryovers classified as current
deferred tax assets.
(vi) Accounts payable decreased by $2.4 million, from
$6.4 million at March 31, 2008 to $4.0 million as
of March 31, 2009, primarily due to the timing and payment
of services and inventory purchases.
(vii) Accrued payroll and related expenses decreased by
$579,000, from $4.3 million at March 31, 2008 to
$3.7 million as of March 31, 2009, primarily due to a
decrease in accrued bonus as of March 31, 2009 because the
Company did not achieve the established quarterly net sales and
quarterly pre-tax income goals during the fourth quarter of
fiscal 2009.
(viii) Total deferred revenue increased by $621,000,
resulting from an increase in the current portion of deferred
revenue of $217,000, from $807,000 at March 31, 2008 to
$1.0 million as of March 31, 2009, and an increase in
the non-current portion of deferred revenue of $404,000, from
$1.1 million at March 31, 2008 to $1.6 million as
of March 31, 2009, primarily due to an increase in
maintenance contracts offered to customers from time to time as
incentives in the form of free goods in connection with the sale
of our products, for which revenue is deferred and recognized
ratably over the life of the maintenance contract.
(ix) Total warranty reserves increased by $349,000,
resulting from an increase in the current portion of warranty
reserves of $495,000, from $1.2 million at March 31,
2008 to $1.7 million as of March 31, 2009, partially
offset by a decrease in the non-current portion of warranty
reserves of $146,000, from $729,000 at March 31, 2008 to
$583,000 as of March 31, 2009. The net change in warranty
reserves is based on (a) the number of instruments in
standard warranty and estimated repair costs and (b) an
estimate of defective reagent discs and replacement costs.
We anticipate that we will incur incremental additional costs to
support our future operations, including further additional
pre-clinical testing and clinical trials for our current and
future products; research and design costs related to the
continuing development of our current and future products; and
acquisition of capital equipment for our manufacturing facility,
which includes the ongoing costs related to the continuing
development of our current and future products.
49
Investing
Activities
Net cash provided by investing activities during fiscal 2009
totaled $10.7 million. Changes in investing activities were
as follows:
Investments. Cash provided by proceeds from
(a) maturities of certificates of deposits and municipal
bonds totaled $14.3 million and (b) redemptions of
auction rate securities totaled $37.0 million during fiscal
2009. For a discussion regarding the redemption of our auction
rate securities, see Notes 1 and 3 of the Notes to
Consolidated Financial Statements. Cash used to purchase
held-to-maturity investments, consisting of certificate of
deposits and corporate bonds, totaled $33.0 million during
fiscal 2009.
Property and Equipment. Cash used to purchase
property and equipment totaled $2.7 million during fiscal
2009, primarily to support (a) new product introduction and
(b) more efficient production lines. We anticipate that we
will continue to purchase property and equipment necessary in
the normal course of our business.
Intangible Assets. Cash used to purchase
intangible assets totaled $5.0 million during fiscal 2009,
primarily related to a license agreement entered into with
Inverness Medical Switzerland GmbH, to license co-exclusively
certain worldwide patent rights related to lateral flow
immunoassay technology in the field of animal health diagnostics.
Financing
Activities
Net cash provided by financing activities during fiscal 2009
totaled $7.1 million, primarily consisting of
$6.7 million related to excess tax benefits from
share-based awards and $636,000 related to proceeds from stock
options exercised, partially offset by the payment of income
withholding taxes of $281,000 due upon vesting of restricted
stock units.
Contractual
Obligations
As of March 31, 2009, our contractual obligations for
succeeding years is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Due in Fiscal
|
|
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Operating leases
|
|
$
|
2,672
|
|
|
$
|
1,363
|
|
|
$
|
1,112
|
|
|
$
|
166
|
|
|
$
|
31
|
|
|
$
|
|
|
|
$
|
|
|
Operating Leases. Operating lease obligations
were comprised of our principal facility and various leased
facilities and office equipment under operating lease
agreements, which expire on various dates through fiscal 2013.
Purchase Commitments. In November 2003, we
entered into an original equipment manufacturing
(OEM) agreement with Diatron Messtechnik GmbH
(Diatron) of Austria to purchase Diatron hematology
instruments. The Diatron hematology instruments are currently
supplied by Diatron Medical Instruments PLC. Under the terms of
the original OEM agreement, we committed to purchase a minimum
number of hematology instruments from Diatron once the product
was qualified for sale, which occurred in May 2004. Following a
prior amendment, in February 2008, the terms of the OEM
agreement, with respect to the purchase commitments, were
revised. Under the amended OEM agreement, we committed to
purchase a minimum number of hematology instruments through
fiscal 2009. In August 2008, we entered into a purchase order
with scheduled shipping terms through January 2009 for the
remaining number of hematology instruments to be purchased under
the amended OEM agreement. Since August 2008, we have operated
entirely on a purchase order basis with Diatron.
In October 2008, we entered into an OEM agreement with
Scandinavian Micro Biodevices APS (SMB) of Denmark
to purchase coagulation analyzers and coagulation reagents. In
the fourth quarter of fiscal 2009, we started marketing the
products and, upon achievement of certain milestones by SMB
outlined in the agreement, we will be subject to the minimum
purchase commitments under the OEM agreement.
Patent Licensing Agreement. Effective January
2009, we entered into a license agreement with Inverness Medical
Switzerland GmbH (Inverness). Under our agreement,
we licensed co-exclusively certain worldwide patent rights
related to lateral flow immunoassay technology in the field of
animal health diagnostics in the
50
professional marketplace. The license agreement provides that
Inverness shall not grant any future rights to any third parties
under its current lateral flow patent rights in the animal
health diagnostics field in the professional marketplace. The
license agreement enables us to develop and market products
under rights from Inverness to address animal health and
laboratory animal research markets.
In exchange for the license rights, we (i) paid an up-front
license fee of $5.0 million to Inverness in January 2009,
(ii) agreed to pay royalties during the term of the
agreement, based solely on sales of products in a jurisdiction
country covered by valid and unexpired claims in that
jurisdiction under the licensed Inverness patent rights, and
(iii) agreed to pay a yearly minimum license fee of between
$500,000 to $1.0 million per year, which fee will be
creditable against any royalties due during such calendar year.
The royalties, if any, are payable through the date of the
expiration of the last valid patent licensed under the agreement
that includes at least one claim in a jurisdiction covering
products we sell in that jurisdiction. The yearly minimum fees
are payable starting in fiscal 2011 for so long as we desire to
maintain exclusivity under the agreement.
Line of Credit. We have a line of credit with
Comerica Bank-California which provides for borrowings of up to
$2.0 million. The line of credit may be terminated upon
notification by either party and any outstanding balance is
payable upon demand. At March 31, 2009, there was no amount
outstanding under our line of credit. The terms and conditions
with respect to our loan covenants are set forth in Note 8
of the Notes to Consolidated Financial Statements contained in
this Annual Report on
Form 10-K.
Contingencies
We are involved from time to time in various litigation matters
in the normal course of business. While the outcome of these
proceedings and claims cannot be predicted with certainty, we do
not believe that the ultimate resolution of these matters will
have a material effect on our financial position or results of
operations.
Off-Balance
Sheet Arrangements
We have no off-balance sheet arrangements.
Financial
Condition
We anticipate that our existing capital resources, available
line of credit and anticipated revenues from the sales of our
products will be adequate to satisfy our currently planned
operating and financial requirements through at least the next
12 months. Our future capital requirements will largely
depend upon the increased market acceptance of our point-of-care
blood analyzer products. However, our sales for any future
periods are not predictable with a significant degree of
certainty. Regardless, we may seek to raise additional funds to
pursue strategic opportunities.
RECENT
ACCOUNTING PRONOUNCEMENTS
In October 2008, the Financial Accounting Standards Board (the
FASB) issued FASB Staff Position
(FSP) FAS No. 157-3,
Determining the Fair Value of a Financial Asset When the
Market For That Asset Is Not Active (FSP FAS
No. 157-3).
FSP FAS No. 157-3
clarifies the application of Statement of Financial Accounting
Standards (SFAS) No. 157, Fair Value
Measurements, in a market that is not active and provides
an example to illustrate key considerations in determining the
fair value of a financial asset when the market for that
financial asset is not active.
FSP FAS No. 157-3
became effective upon issuance, including with respect to prior
periods for which financial statements have not been issued. The
adoption of FSP
FAS No. 157-3
did not have a material impact on our consolidated financial
position or results of operations during fiscal 2009.
In April 2008, the FASB issued FSP
FAS No. 142-3,
Determination of the Useful Life of Intangible
Assets (FSP
FAS No. 142-3).
FSP
FAS No. 142-3
amends SFAS No. 142, Goodwill and Other
Intangible Assets, to improve the consistency between the
useful life of a recognized intangible asset under
SFAS No. 142 and the period of expected cash flows
used to measure the fair value of the asset under
SFAS No. 141 and other U.S. generally accepted
accounting principles. FSP
FAS No. 142-3
is effective for fiscal years beginning after December 15,
2008,
51
as well as interim periods within those fiscal years. We are
currently in the process of evaluating the impact of adopting
this pronouncement.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities (SFAS No. 161), which is
intended to enable investors to better understand how derivative
instruments and hedging activities affect an entitys
financial position, financial performance and cash flows through
enhanced disclosure requirements. SFAS No. 161 will be
effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008.
SFAS No. 161 is effective for us on April 1,
2009. We do not expect that the adoption of
SFAS No. 161 will have an impact on our consolidated
financial statements.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(SFAS No. 141(R)).
SFAS No. 141(R) will change how business acquisitions
are accounted for and will impact financial statements both on
the acquisition date and in subsequent periods.
SFAS No. 141(R) is effective for us on April 1,
2009. We will assess the impact of SFAS No. 141(R) if
and when future acquisitions occur.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS No. 160), which establishes new
accounting and reporting standards for minority interests, which
will be recharacterized as noncontrolling interests and
classified as a component of equity. SFAS No. 160 is
effective for us on April 1, 2009. We do not expect that
the adoption of SFAS No. 160 will have an impact on
our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities (SFAS No. 159).
SFAS No. 159 permits entities to choose, at specified
election dates, to measure eligible items at fair value (the
fair value option). Unrealized gains and losses on
instruments for which the fair value option has been elected are
reported in earnings at each subsequent reporting period.
SFAS No. 159 is applied prospectively upon adoption.
We adopted SFAS No. 159 effective April 1, 2008.
To date, we have not elected the fair value option for any of
our financial assets or financial liabilities.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Interest
Rate Risk
We are exposed to the impact of interest rate changes with
respect to our short-term and long-term investments and line of
credit.
Our investment objective is to invest excess cash in cash
equivalents and in various types of investments to maximize
yields without significantly increased risk. At March 31,
2009, our short-term investments totaled $20.8 million,
consisting of certificates of deposits and our long-term
investments totaled $4.9 million, consisting of
certificates of deposits and corporate bonds.
Historically, our investment portfolio had included auction rate
securities, which became illiquid as a result of the negative
condition in the global credit markets. In September 2008, the
bank where our auction rate securities were held, reached
agreements with the Financial Industry Regulatory Authority, the
State of Michigan Attorney General and the Michigan Office of
Financial and Insurance Regulation regarding the repurchase of
auction rate securities. In October 2008, we received a
commitment from our bank to repurchase all of our remaining
auction rate securities, which repurchases were completed in the
third quarter of fiscal 2009. During fiscal 2009, we redeemed
$37.0 million of our auction rate securities at 100% of par
value. As of March 31, 2009, we no longer hold any auction
rate securities.
We have the ability to hold the certificates of deposits and
corporate bonds in our investment portfolio at March 31,
2009 until maturity and therefore, we believe we have no
material exposure to interest rate risk. A sensitivity analysis
assuming a hypothetical 10% movement in interest rates applied
to our total investment balances at March 31, 2009
indicated that such market movement would not have a material
effect on our business, operating results or financial
condition. We have not experienced any significant loss on our
investment portfolio during either fiscal 2009 or fiscal 2008.
For our line of credit, which provides for borrowings of up to
$2.0 million, the interest rate is equal to the banks
prime rate minus 0.25%, which totaled 3.00% at March 31,
2009. Consequently, an increase in the prime rate
52
would expose us to higher interest expenses. A sensitivity
analysis assuming a hypothetical 10% movement in the prime rate
applied to our line of credit balance at March 31, 2009
indicated that such market movement would not have a material
effect on our business, operating results or financial
condition, as there was no amount outstanding on our line of
credit at March 31, 2009.
As a matter of management policy, we do not currently enter into
transactions involving derivative financial instruments. In the
event we do enter into such transactions in the future, such
items will be accounted for in accordance with Statement of
Financial Accounting Standards No. 133, Accounting
for Derivative Instruments and Hedging Activities.
Foreign
Currency Rate Fluctuations
We operate primarily in the United States and a majority of our
revenues, cost of revenues, operating expenses and capital
purchasing activities for fiscal 2009 were transacted in
U.S. dollars. However, we are exposed to foreign currency
exchange rate fluctuations on the hematology instruments and
hematology reagent kits purchased from Diatron Medical
Instruments PLC., which are primarily denominated in Euros.
In the first quarter of fiscal 2009, operations from our sales
office in Darmstadt, Germany were stated in Euros and translated
into U.S. dollars at the period-end exchange rates. In July
2008, the Germany sales office was incorporated as our
wholly-owned subsidiary, Abaxis Europe GmbH, to market, promote
and distribute diagnostic systems for medical and veterinary
uses. Abaxis Europe GmbHs functional currency is in
U.S. dollars. Foreign currency transactions of the our
subsidiary are remeasured into U.S. dollars at the
end-of-period exchange rates for monetary assets and
liabilities, and historical exchange rates for nonmonetary
assets. Accordingly, the effects of foreign currency
transactions, and of remeasuring the financial condition into
the functional currency resulted in foreign currency gains and
losses, which were included in Interest and other income
(expense), net on the Consolidated Statements of
Operations.
To the extent the U.S. dollar strengthens against the Euro
currency, the translation of the foreign currency denominated
transactions may result in reduced cost of revenues and
operating expenses. Similarly, our cost of revenues and
operating expenses will increase if the U.S. dollar weakens
against the Euro currency.
53
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
ABAXIS,
INC.
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
Description
|
|
Page
|
|
|
|
|
55
|
|
|
|
|
56
|
|
|
|
|
57
|
|
|
|
|
58
|
|
|
|
|
59
|
|
|
|
|
60
|
|
54
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Abaxis, Inc.
We have audited the accompanying consolidated balance sheets of
Abaxis, Inc. and its subsidiary (the Company) as of
March 31, 2009 and 2008, and the related consolidated
statements of operations, shareholders equity and
comprehensive income, and cash flows for each of the three years
in the period ended March 31, 2009. Our audits also
included the financial statement schedule listed in the Index to
this Annual Report on
Form 10-K
at Part IV Item 15(a) 2. These consolidated financial
statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). 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, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Abaxis, Inc. and its subsidiary as of March 31,
2009 and 2008, and the results of their operations and their
cash flows for each of the three years in the period ended
March 31, 2009, in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly, in all material aspects, the
information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of the Companys internal control over
financial reporting as of March 31, 2009, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated
June 12, 2009 expressed an unqualified opinion thereon.
/s/ Burr,
Pilger & Mayer LLP
San Jose, California
June 12, 2009
55
ABAXIS,
INC.
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
49,237
|
|
|
$
|
17,219
|
|
Short-term investments
|
|
|
20,776
|
|
|
|
6,991
|
|
Trade receivables (net of allowances of $388 and $272 in 2009
and 2008, respectively)
|
|
|
21,983
|
|
|
|
20,873
|
|
Inventories
|
|
|
15,735
|
|
|
|
18,657
|
|
Prepaid expenses
|
|
|
957
|
|
|
|
427
|
|
Net deferred tax asset, current
|
|
|
4,676
|
|
|
|
2,426
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
113,364
|
|
|
|
66,593
|
|
Long-term investments
|
|
|
4,886
|
|
|
|
35,463
|
|
Property and equipment, net
|
|
|
14,798
|
|
|
|
14,599
|
|
Intangible assets, net
|
|
|
5,175
|
|
|
|
375
|
|
Other assets
|
|
|
24
|
|
|
|
5
|
|
Net deferred tax asset, non-current
|
|
|
2,464
|
|
|
|
3,868
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
140,711
|
|
|
$
|
120,903
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,963
|
|
|
$
|
6,421
|
|
Accrued payroll and related expenses
|
|
|
3,698
|
|
|
|
4,277
|
|
Other accrued liabilities
|
|
|
1,150
|
|
|
|
1,369
|
|
Deferred revenue
|
|
|
1,024
|
|
|
|
807
|
|
Warranty reserve
|
|
|
1,714
|
|
|
|
1,219
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
11,549
|
|
|
|
14,093
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
Deferred rent
|
|
|
137
|
|
|
|
286
|
|
Deferred revenue
|
|
|
1,550
|
|
|
|
1,146
|
|
Warranty reserve
|
|
|
583
|
|
|
|
729
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
2,270
|
|
|
|
2,161
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 9)
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, no par value: 5,000,000 shares authorized;
no shares issued and outstanding in 2009 and 2008
|
|
|
|
|
|
|
|
|
Common stock, no par value: 35,000,000 shares authorized;
21,933,000 and 21,706,000 shares issued and outstanding in
2009 and 2008, respectively
|
|
|
117,846
|
|
|
|
109,031
|
|
Retained earnings (accumulated deficit)
|
|
|
9,046
|
|
|
|
(2,967
|
)
|
Accumulated other comprehensive loss
|
|
|
|
|
|
|
(1,415
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
126,892
|
|
|
|
104,649
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
140,711
|
|
|
$
|
120,903
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
56
ABAXIS,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues
|
|
$
|
105,562
|
|
|
$
|
100,551
|
|
|
$
|
86,221
|
|
Cost of revenues
|
|
|
46,937
|
|
|
|
45,507
|
|
|
|
39,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
58,625
|
|
|
|
55,044
|
|
|
|
46,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
8,361
|
|
|
|
6,966
|
|
|
|
6,180
|
|
Sales and marketing
|
|
|
24,712
|
|
|
|
23,689
|
|
|
|
20,569
|
|
General and administrative
|
|
|
7,757
|
|
|
|
6,681
|
|
|
|
5,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
40,830
|
|
|
|
37,336
|
|
|
|
32,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
17,795
|
|
|
|
17,708
|
|
|
|
14,375
|
|
Interest and other income (expense), net
|
|
|
1,271
|
|
|
|
2,096
|
|
|
|
1,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
19,066
|
|
|
|
19,804
|
|
|
|
16,149
|
|
Income tax provision
|
|
|
7,053
|
|
|
|
7,301
|
|
|
|
6,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
12,013
|
|
|
$
|
12,503
|
|
|
$
|
10,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.55
|
|
|
$
|
0.58
|
|
|
$
|
0.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
0.54
|
|
|
$
|
0.56
|
|
|
$
|
0.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in the calculation of net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic
|
|
|
21,826
|
|
|
|
21,499
|
|
|
|
20,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding diluted
|
|
|
22,324
|
|
|
|
22,261
|
|
|
|
21,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
57
ABAXIS,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
Common Stock
|
|
|
(Accumulated
|
|
|
Comprehensive
|
|
|
Shareholders
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit)
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
Income
|
|
|
|
(In thousands, except share data)
|
|
|
Balances at March 31, 2006
|
|
|
20,135,000
|
|
|
$
|
96,506
|
|
|
$
|
(25,543
|
)
|
|
$
|
75
|
|
|
$
|
71,038
|
|
|
|
|
|
Common stock issued for employee benefit plans
|
|
|
3,000
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
66
|
|
|
|
|
|
Common stock issued under stock option exercises
|
|
|
931,000
|
|
|
|
4,506
|
|
|
|
|
|
|
|
|
|
|
|
4,506
|
|
|
|
|
|
Issuance of common stock upon exercise of warrants
|
|
|
138,000
|
|
|
|
823
|
|
|
|
|
|
|
|
|
|
|
|
823
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
812
|
|
|
|
|
|
|
|
|
|
|
|
812
|
|
|
|
|
|
Excess tax benefits from share-based awards
|
|
|
|
|
|
|
569
|
|
|
|
|
|
|
|
|
|
|
|
569
|
|
|
|
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
10,073
|
|
|
|
|
|
|
|
10,073
|
|
|
$
|
10,073
|
|
Change in unrealized gain (loss) on investments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(75
|
)
|
|
|
(75
|
)
|
|
|
(75
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2007
|
|
|
21,207,000
|
|
|
|
103,282
|
|
|
|
(15,470
|
)
|
|
|
|
|
|
|
87,812
|
|
|
|
|
|
Common stock issued under stock option exercises
|
|
|
483,000
|
|
|
|
3,128
|
|
|
|
|
|
|
|
|
|
|
|
3,128
|
|
|
|
|
|
Common stock issued in settlement of restricted stock units, net
of shares withheld for employee taxes
|
|
|
16,000
|
|
|
|
(110
|
)
|
|
|
|
|
|
|
|
|
|
|
(110
|
)
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
1,122
|
|
|
|
|
|
|
|
|
|
|
|
1,122
|
|
|
|
|
|
Excess tax benefits from share-based awards
|
|
|
|
|
|
|
1,609
|
|
|
|
|
|
|
|
|
|
|
|
1,609
|
|
|
|
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
12,503
|
|
|
|
|
|
|
|
12,503
|
|
|
$
|
12,503
|
|
Change in unrealized gain (loss) on investments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,415
|
)
|
|
|
(1,415
|
)
|
|
|
(1,415
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2008
|
|
|
21,706,000
|
|
|
|
109,031
|
|
|
|
(2,967
|
)
|
|
|
(1,415
|
)
|
|
|
104,649
|
|
|
|
|
|
Common stock issued under stock option exercises
|
|
|
194,000
|
|
|
|
636
|
|
|
|
|
|
|
|
|
|
|
|
636
|
|
|
|
|
|
Common stock issued in settlement of restricted stock units, net
of shares withheld for employee taxes
|
|
|
33,000
|
|
|
|
(281
|
)
|
|
|
|
|
|
|
|
|
|
|
(281
|
)
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
1,749
|
|
|
|
|
|
|
|
|
|
|
|
1,749
|
|
|
|
|
|
Excess tax benefits from share-based awards
|
|
|
|
|
|
|
6,711
|
|
|
|
|
|
|
|
|
|
|
|
6,711
|
|
|
|
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
12,013
|
|
|
|
|
|
|
|
12,013
|
|
|
$
|
12,013
|
|
Change in unrealized gain (loss) on investments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,415
|
|
|
|
1,415
|
|
|
|
1,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2009
|
|
|
21,933,000
|
|
|
$
|
117,846
|
|
|
$
|
9,046
|
|
|
$
|
|
|
|
$
|
126,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
58
ABAXIS,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
12,013
|
|
|
$
|
12,503
|
|
|
$
|
10,073
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,492
|
|
|
|
3,497
|
|
|
|
2,685
|
|
Loss on disposal of property and equipment
|
|
|
16
|
|
|
|
2
|
|
|
|
37
|
|
Loss on foreign exchange translation
|
|
|
137
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
1,743
|
|
|
|
1,108
|
|
|
|
799
|
|
Excess tax benefits from share-based awards
|
|
|
(6,711
|
)
|
|
|
(1,609
|
)
|
|
|
(569
|
)
|
Provision for deferred income taxes
|
|
|
4,813
|
|
|
|
6,400
|
|
|
|
5,178
|
|
Common stock issued for employee benefit plans
|
|
|
|
|
|
|
|
|
|
|
66
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables, net
|
|
|
(1,221
|
)
|
|
|
(3,944
|
)
|
|
|
(2,291
|
)
|
Inventories
|
|
|
1,051
|
|
|
|
(5,572
|
)
|
|
|
(6,755
|
)
|
Prepaid expenses
|
|
|
(295
|
)
|
|
|
894
|
|
|
|
(306
|
)
|
Other assets
|
|
|
(21
|
)
|
|
|
33
|
|
|
|
42
|
|
Accounts payable
|
|
|
(2,440
|
)
|
|
|
(84
|
)
|
|
|
1,891
|
|
Accrued payroll and related expenses
|
|
|
(576
|
)
|
|
|
447
|
|
|
|
(60
|
)
|
Other accrued liabilities
|
|
|
509
|
|
|
|
503
|
|
|
|
464
|
|
Deferred rent
|
|
|
(149
|
)
|
|
|
(105
|
)
|
|
|
(87
|
)
|
Deferred revenue
|
|
|
621
|
|
|
|
(208
|
)
|
|
|
284
|
|
Warranty reserve
|
|
|
349
|
|
|
|
1,101
|
|
|
|
375
|
|
Other long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
14,331
|
|
|
|
14,966
|
|
|
|
11,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of
available-for-sale
investments
|
|
|
|
|
|
|
(20,575
|
)
|
|
|
(67,483
|
)
|
Purchases of
held-to-maturity
investments
|
|
|
(32,950
|
)
|
|
|
(21,167
|
)
|
|
|
(25,868
|
)
|
Proceeds from maturities of
available-for-sale
investments
|
|
|
36,975
|
|
|
|
|
|
|
|
71,330
|
|
Proceeds from maturities of
held-to-maturity
investments
|
|
|
14,279
|
|
|
|
32,804
|
|
|
|
7,240
|
|
Purchases of property and equipment
|
|
|
(2,651
|
)
|
|
|
(3,619
|
)
|
|
|
(2,920
|
)
|
Proceeds from disposal of property and equipment
|
|
|
20
|
|
|
|
|
|
|
|
|
|
Purchase of intangible assets
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
10,673
|
|
|
|
(12,557
|
)
|
|
|
(17,701
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock under stock plans, net
|
|
|
355
|
|
|
|
3,018
|
|
|
|
4,506
|
|
Proceeds from exercise of warrants
|
|
|
|
|
|
|
|
|
|
|
823
|
|
Excess tax benefits from share-based awards
|
|
|
6,711
|
|
|
|
1,609
|
|
|
|
569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
7,066
|
|
|
|
4,627
|
|
|
|
5,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
32,018
|
|
|
|
7,036
|
|
|
|
19
|
|
Cash and cash equivalents at beginning of year
|
|
|
17,219
|
|
|
|
10,183
|
|
|
|
10,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
49,237
|
|
|
$
|
17,219
|
|
|
$
|
10,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
7
|
|
|
$
|
4
|
|
|
$
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes, net of refunds
|
|
$
|
1,491
|
|
|
$
|
319
|
|
|
$
|
503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on investments, net of tax
|
|
$
|
1,415
|
|
|
$
|
(1,415
|
)
|
|
$
|
(75
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers of equipment between inventory and property and
equipment
|
|
$
|
1,877
|
|
|
$
|
1,742
|
|
|
$
|
2,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in capitalized share-based compensation
|
|
$
|
6
|
|
|
$
|
14
|
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock withheld for employee taxes in connection with
share-based compensation
|
|
$
|
281
|
|
|
$
|
110
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
59
ABAXIS,
INC.
YEARS ENDED MARCH 31, 2009, 2008 AND 2007
|
|
NOTE 1.
|
DESCRIPTION
OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
|
Description of Business. Abaxis, Inc. (the
Company), incorporated in California in 1989,
develops, manufactures, markets and sells portable blood
analysis systems for use in the human or veterinary patient-care
setting to provide clinicians with rapid blood constituent
measurements.
On July 1, 2008, the Companys sales office in
Darmstadt, Germany was incorporated as Abaxis Europe GmbH to
market, promote and distribute diagnostic systems for medical
and veterinary uses. Abaxis Europe GmbH, a wholly-owned
subsidiary of the Company, was formed to provide customer
support in a timely manner in response to the growing and
increasingly diverse services needs of customers in the European
market.
Principles of Consolidation. The accompanying
consolidated financial statements as of and for the fiscal year
ended March 31, 2009 include the accounts of the Company
and its wholly-owned subsidiary, Abaxis Europe GmbH. All
intercompany transactions and balances have been eliminated in
consolidation.
Use of Estimates in Preparation of Financial
Statements. The preparation of financial
statements in accordance with accounting principles generally
accepted in the United States of America 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 consolidated financial
statements and the reported amounts of revenues and expenses
during the reporting period. Such management estimates include
allowance for doubtful accounts, fair values of investments,
sales and other allowances, valuation of inventory, fair values
of purchased intangible assets, useful lives of intangible
assets, income taxes, valuation allowance for deferred tax
assets, share-based compensation and warranty reserves.
Management bases their estimates on historical experience and on
various other assumptions that are believed to be reasonable,
the results of which form the basis for making judgments about
the carrying values of assets and liabilities. Actual results
that the Company experiences may differ materially from these
estimates.
Certain Significant Risks and
Uncertainties. The Company is subject to certain
risks and uncertainties and believes that changes in any of the
following areas could have a material adverse effect on its
future financial position or results of operations: continued
Food and Drug Administration compliance or 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.
Reclassification. Certain amounts in the
fiscal years ended March 31, 2008 and 2007 financial
statements have been reclassified to conform to the fiscal year
ended March 31, 2009 presentation. These reclassifications
did not result in any change in previously reported net income,
total assets or shareholders equity.
Cash and Cash Equivalents. Cash equivalents
consist of highly liquid instruments with original or remaining
maturities of three months or less at the time of purchase that
are readily convertible into cash.
Investments. The Companys investments
are accounted for under Statement of Financial Accounting
Standard (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities as
either
available-for-sale
or
held-to-maturity.
Investments classified as
available-for-sale
are reported at fair value at the balance sheet date, and
temporary differences between cost and fair value are presented
as a separate component of accumulated other comprehensive
income (loss), net of any related tax effect, in
shareholders equity. Short-term investments have
maturities of one year or less from the date of purchase. All
other investments with maturity dates greater than one year are
classified as long-term.
At March 31, 2009, the Companys short-term
investments totaled $20.8 million, consisting of
certificates of deposits, and long-term investments totaled
$4.9 million, consisting of certificates of deposits and
corporate bonds.
60
ABAXIS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At March 31, 2008, the Companys short-term
investments totaled $7.0 million, consisting of
certificates of deposits and municipal bonds. At March 31,
2008, the Companys fair value of long-term investments
were $35.5 million, consisting of auction rate securities.
At March 31, 2008, the Companys auction rate
securities that were not liquid were classified as long-term
investments. Beginning in February 2008, since several auctions
related to its auction rate securities failed, the Company
determined that its auction rate securities were not liquid. At
March 31, 2008, the Company held $37.0 million par
value of long-term investments in auction rate securities that
were structured to periodically reset through auctions ranging
from seven to 28 days. As of March 31, 2008,
$31.0 million par value of the Companys auction rate
securities were collateralized by municipal bonds and the
remaining $6.0 million par value of the Companys
auction rate securities were collateralized by a variety of
securities including real estate income trust, preferred stock,
convertible preferred stock, high yield bonds, high dividend
equities or other stock. These investments in auction rate
securities were rated AAA and the Company continued to earn
interest on its auction rate securities at the contractual rate.
In September 2008, the Companys bank where its auction
rate securities were held, reached agreements with the Financial
Industry Regulatory Authority, the State of Michigan Attorney
General and the Michigan Office of Financial and Insurance
Regulation regarding the repurchase of auction rate securities.
In October 2008, the Company received a commitment from its bank
to repurchase all of its remaining auction rate securities,
which repurchases were completed in the third quarter of fiscal
2009. During fiscal 2009 the Company redeemed $37.0 million
of its auction rate securities at 100% of par value by the
issuer of the auction rate securities and in fiscal 2009, the
Company adjusted unrealized loss of $1.4 million, net of
related income taxes, that was recorded in other comprehensive
income in fiscal 2008. Such adjustment in fiscal 2009 did not
affect net income for the applicable accounting period.
Interest and realized gains and losses from investments are
included in interest income, computed using the specific
identification cost method. The Company assesses whether an
other-than-temporary
impairment loss on the investments has occurred due to declines
in fair value or other market conditions. Declines in fair value
that are considered
other-than-temporary,
if any, are recorded as charges in the Consolidated Statements
of Operations. The Company did not recognize any impairment loss
on investments during fiscal 2009, 2008 or 2007.
Concentration of Credit Risk. Financial
instruments that potentially subject the Company to a
concentration of credit risk consist primarily of cash, cash
equivalents, investments and trade receivables. Cash, cash
equivalents and investments are placed with high quality
financial institutions and are regularly monitored by management.
The Company sells its products to distributors and direct
customers located primarily in Europe, Japan and North America.
The Company monitors the credit status of its distributors and
direct customers on an ongoing basis and generally does not
require its customers to provide collateral for purchases on
credit. Collection of trade receivables may be affected by
changes in economic or other industry conditions and may,
accordingly, impact the Companys overall credit risk. At
March 31, 2009 and 2008, one distributor accounted for 16%
and 14%, respectively, of trade receivables.
Allowance for Doubtful Accounts. The Company
maintains an allowance for doubtful accounts based on
managements assessment of the collectibility of the
amounts owed by its customers. The Company considers the
following in determining the level of allowance required: the
customers payment history, the age of the receivables, the
credit quality of its customers, the general financial condition
of its customer base and other factors that may affect the
customers ability to pay.
Fair Value of Financial Instruments. Financial
instruments include cash, cash equivalents, investments, trade
receivables, accounts payable and certain other accrued
liabilities. The fair value of cash, cash equivalents, trade
receivables, accounts payable and certain other accrued
liabilities are valued at their carrying value, which
approximates fair value due to their short maturities.
The fair values of cash, cash equivalents and investments are
assessed using guidance from SFAS No. 157, Fair
Value Measurements, based on the observability of the
inputs used in the valuation of such assets and
61
ABAXIS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
liabilities, and are ranked according to the fair value
hierarchy. The fair value hierarchy ranks the quality and
reliability of the information used to determine fair values.
Financial assets and liabilities carried at fair value will be
classified and disclosed in one of the following three
categories:
Level 1: Quoted prices (unadjusted) in
active markets for identical assets or liabilities.
Level 2: Directly or indirectly
observable market based inputs used in models or other valuation
methodologies.
Level 3: Unobservable inputs that are
supported by little or no market data and require the use of
significant management judgment. These values are generally
determined using pricing models for which the assumptions
utilize managements estimates of market participant
assumptions.
Inventories. Inventories include material,
labor and overhead, and are stated at the lower of standard cost
(which approximates actual cost using the
first-in,
first-out method) or market. Provisions for excess, obsolete and
unusable inventories are made after managements evaluation
of future demand and market conditions.
Property and Equipment. Property and equipment
are stated at cost, net of accumulated depreciation and
amortization. Depreciation and amortization is calculated using
the straight-line method over the following estimated useful
lives of the assets:
|
|
|
Asset Classification
|
|
Estimated Useful Life
|
|
Machinery and equipment
|
|
2-10 years
|
Furniture and fixtures
|
|
3-8 years
|
Computer equipment
|
|
2-7 years
|
Leasehold improvements
|
|
Shorter of estimated useful life or lease term, including any
lease term extensions that the Company has the right and
intention to execute
|
Construction in progress primarily consists of purchased
material used in the development of production lines. The
Company did not capitalize interest on constructed assets during
fiscal 2009 or 2008, due to immateriality.
Valuation of Long-Lived Assets. The carrying
value of the Companys long-lived assets, such as property
and equipment and amortized intangible assets, are reviewed for
impairment, in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets, whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. The Company looks to current and future
profitability, as well as current and future undiscounted cash
flows, excluding financing costs, as primary indicators of
recoverability. An impairment loss would be recognized when the
sum of the undiscounted future net cash flows expected to result
from the use of the asset and its eventual disposal is less than
the carrying amount. If impairment is determined to exist, any
related impairment loss is calculated based on fair value. The
Company recognized no impairment charges on long-lived assets in
fiscal 2009, 2008 or 2007.
Intangible Assets. Intangible assets,
consisting of purchased patents and licenses, are presented at
cost, net of accumulated amortization. The intangible assets are
amortized using the straight-line method over their estimated
useful life of ten years.
Revenue Recognition and Deferred
Revenue. Revenues from product sales, net of
estimated sales allowances and rebates, are recognized when the
following four criteria are met:
|
|
|
|
|
Evidence of an arrangement exists: Persuasive
evidence of an arrangement with a customer that reflects the
terms and conditions to deliver products must exist in order to
recognize revenue.
|
|
|
|
Upon shipment of the products to the
customer: Delivery is considered to occur at the
time of shipment of products to a distributor or direct
customer, as title and risk of loss have been transferred to the
distributor or direct customer on delivery to the common
carrier. Rights of return are not provided.
|
62
ABAXIS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Fixed or determinable sales price: When the
sales price is fixed or determinable that amount is recognized
as revenue.
|
|
|
|
Collection is reasonably assured: Collection
is deemed probable if a customer is expected to be able to pay
amounts under the arrangement as those amounts become due.
Revenue is recognized when the resulting receivable is
reasonably assured.
|
The Company provides incentives in the form of free goods or
extended maintenance agreements to customers in connection with
the sale of its instruments. Revenues from such sales are
allocated separately to the instruments and incentives based on
the relative fair value of each element. Revenues allocated to
incentives are deferred until the goods are shipped to the
customer or recognized ratably over the life of the maintenance
contract.
The Company periodically offers trade-in programs to customers
for trading in an existing instrument to purchase a new
instrument and either provides incentives in the form of free
goods or reduce the sales price of the instrument. These
incentives are recorded according to the policies described
above.
Revenues associated with extended maintenance agreements are
recognized ratably over the life of the contract. Amounts
collected in advance of revenue recognition are recorded as a
current or non-current liability based on the time from the
balance sheet date to the future date of revenue recognition.
Distributor and Customer Rebates. The Company
periodically offers distributor pricing rebates to distributors
upon meeting the sales volume requirements during a qualifying
period. The distributor pricing rebates are recorded as a
reduction to gross revenues during a qualifying period. The
Company also periodically offers rebate programs to distributors
or customers who purchase certain products or instruments during
a promotional period. Cash rebates are recorded as a reduction
to gross revenues.
Shipping and Handling. In accordance with
Emerging Issues Task Force (EITF) Issue
No. 00-10,
Accounting for Shipping and Handling Fees and Costs,
amounts billed to a customer in a sale transaction related to
shipping and handling are classified as revenue. Additionally,
the cost of shipping products to customers is included in cost
of revenues.
Research and Development Costs. Research and
development costs, including internally generated software
costs, are expensed as incurred and include expenses associated
with new product research and regulatory activities. The
Companys products include certain software applications
that are resident in the product. The costs to develop such
software have not been capitalized as the Company believes its
current software development processes are completed concurrent
with the establishment of technological feasibility of the
software.
Advertising Expenses. Costs of advertising,
which are recognized as sales and marketing expenses, are
generally expensed in the period incurred. Advertising expenses
for fiscal 2009, 2008 and 2007 were $1.8 million,
$2.2 million and $2.9 million, respectively.
Income Taxes. The Company accounts for income
taxes using the liability method under which deferred tax assets
and liabilities are determined based on the differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Valuation
allowances are established, when necessary, to reduce deferred
tax assets to the amounts to be recovered.
Effective April 1, 2007, the Company adopted the provisions
of Financial Accounting Standards Board (the FASB)
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes an interpretation of FASB Statement
No. 109 (FIN 48). FIN 48
clarifies the accounting for uncertainty in income taxes
recognized in the consolidated financial statements in
accordance with SFAS No. 109, Accounting for
Income Taxes and prescribes a recognition threshold and
measurement attribute for the financial statement recognition
and measurement of tax positions taken or expected to be taken
in a tax return. FIN 48 also provides guidance on
derecognition,
63
ABAXIS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
classification, interest and penalties, accounting in interim
periods, disclosure and transition. The Companys policy to
include interest and penalties related to gross unrecognized tax
benefits within its provision for income taxes did not change
despite the adoption of FIN 48.
Share-Based Compensation Expense. Effective
April 1, 2006, the Company adopted SFAS No. 123
(revised 2004), Share-Based Payment
(SFAS No. 123(R)) using the modified
prospective method. Under the fair value provisions of
SFAS No. 123(R), the Company recognizes share-based
compensation expense, net of an estimated forfeiture rate, for
those shares over the requisite service period of the award to
employees and directors.
The Company did not grant stock options during fiscal 2009, 2008
or 2007. For stock options granted prior to March 31, 2006,
the Company uses the Black-Scholes option pricing model to
determine the fair value. Determining the appropriate fair value
model and calculating the fair value of share-based awards
require highly subjective assumptions, as described below.
|
|
|
|
|
Risk-free interest rate: The risk-free
interest rate is based on U.S. Treasury yields in effect at
the time of grant for the expected term of the option.
|
|
|
|
Expected stock price volatility: The Company
estimates the volatility of its common stock at the date of
grant based on the historical volatility of its common stock.
|
|
|
|
Expected term: The Company estimates the
expected term of stock options granted based on historical
exercise and post-vesting termination patterns, which it
believes are representative of future behavior.
|
|
|
|
Expected dividends: The Company has not paid
cash dividends on its common stock and does not anticipate
paying cash dividends in the foreseeable future; consequently,
the Company uses an expected dividend yield of zero.
|
For restricted stock units, the assumptions to calculate
compensation expense are based on the fair value of the
Companys stock at the grant date.
As required by SFAS No. 123(R), employee share-based
compensation expense recognized is calculated over the requisite
service period and reduced for estimated forfeitures. The
forfeiture rate is estimated based on historical data of the
Companys share-based awards that are granted and cancelled
prior to vesting and upon historical experience of employee
turnover.
Net Income Per Share. Basic net income per
share is computed by dividing the net income attributable to
common shareholders by the weighted average number of common
shares outstanding during the period. Diluted net income per
share is computed by dividing the net income attributable to
common shareholders by the weighted average number of common
shares that would have been outstanding during the period
assuming the issuance of common shares for all potential
dilutive common shares outstanding using the treasury stock
method. Dilutive potential common shares outstanding include
outstanding stock options, restricted stock units and warrants.
Comprehensive Income. In accordance with
SFAS No. 130, Reporting Comprehensive
Income, all changes in equity during a period, resulting
from net income and transactions from non-owner sources, are
reported in a financial statement for the period in which they
are recognized. Comprehensive income consists of net income and
the
net-of-tax
amounts for unrealized gain (loss) on
available-for-sale
investments (difference between the cost and fair market value).
Comprehensive income and its components are reported in the
Consolidated Statement of Shareholders Equity and
Comprehensive Income.
Foreign Currency Translations. In July 2008,
the Companys sales office in Darmstadt, Germany was
incorporated as Abaxis Europe GmbH, a wholly-owned subsidiary of
the Company. The Companys functional currency is the
U.S. dollar for its international subsidiary. Foreign
currency transactions of the Companys subsidiary are
remeasured into U.S. dollars at the
end-of-period
exchange rates for monetary assets and liabilities, and
historical exchange rates for nonmonetary assets. Accordingly,
the effects of foreign currency transactions, and of remeasuring
the financial condition into the functional currency resulted in
foreign currency gains and losses,
64
ABAXIS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
which were included in Interest and other income
(expense), net on the Consolidated Statements of
Operations and were insignificant for fiscal 2009. Prior to July
2008, operations from the Companys Germany sales office
were stated in Euros and translated into U.S. dollars at
the period-end exchange rates and foreign exchange translations
were insignificant for fiscal 2008 and 2007. The effect of
exchange rate changes on cash and cash equivalents was
insignificant for fiscal 2009, 2008 and 2007.
Recent
Accounting Pronouncements
In October 2008, the Financial Accounting Standards Board (the
FASB) issued FASB Staff Position
(FSP) FAS
No. 157-3,
Determining the Fair Value of a Financial Asset When the
Market For That Asset Is Not Active (FSP FAS
No. 157-3).
FSP FAS
No. 157-3
clarifies the application of Statement of Financial Accounting
Standards (SFAS) No. 157, Fair Value
Measurements, in a market that is not active and provides
an example to illustrate key considerations in determining the
fair value of a financial asset when the market for that
financial asset is not active. FSP FAS
No. 157-3
became effective upon issuance, including with respect to prior
periods for which financial statements have not been issued. The
Companys adoption of FSP FAS
No. 157-3
did not have a material impact on its consolidated financial
position or results of operations during fiscal 2009.
In April 2008, the FASB issued FSP
FAS No. 142-3,
Determination of the Useful Life of Intangible
Assets (FSP
FAS No. 142-3).
FSP
FAS No. 142-3
amends SFAS No. 142, Goodwill and Other
Intangible Assets, to improve the consistency between the
useful life of a recognized intangible asset under
SFAS No. 142 and the period of expected cash flows
used to measure the fair value of the asset under
SFAS No. 141 and other U.S. generally accepted
accounting principles. FSP
FAS No. 142-3
is effective for fiscal years beginning after December 15,
2008, as well as interim periods within those fiscal years. The
Company is currently in the process of evaluating the impact of
adopting this pronouncement.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities (SFAS No. 161), which is
intended to enable investors to better understand how derivative
instruments and hedging activities affect an entitys
financial position, financial performance and cash flows through
enhanced disclosure requirements. SFAS No. 161 will be
effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008.
SFAS No. 161 is effective for the Company on
April 1, 2009. The Company does not expect that the
adoption of SFAS No. 161 will have an impact on its
consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(SFAS No. 141(R)).
SFAS No. 141(R) will change how business acquisitions
are accounted for and will impact financial statements both on
the acquisition date and in subsequent periods.
SFAS No. 141(R) is effective for the Company on
April 1, 2009. The Company will assess the impact of
SFAS No. 141(R) if and when future acquisitions occur.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS No. 160), which establishes new
accounting and reporting standards for minority interests, which
will be recharacterized as noncontrolling interests and
classified as a component of equity. SFAS No. 160 is
effective for the Company on April 1, 2009. The Company
does not expect that the adoption of SFAS No. 160 will
have an impact on its consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities (SFAS No. 159).
SFAS No. 159 permits entities to choose, at specified
election dates, to measure eligible items at fair value (the
fair value option). Unrealized gains and losses on
instruments for which the fair value option has been elected are
reported in earnings at each subsequent reporting period.
SFAS No. 159 is applied prospectively upon adoption.
The Company adopted SFAS No. 159 effective
April 1, 2008. To date, the Company has not elected the
fair value option for any of its financial assets or financial
liabilities.
65
ABAXIS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes short-term and long-term
investments by major security type at March 31, 2009 and
2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
|
|
Cost or
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gain (Loss)
|
|
|
Value
|
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposits
|
|
$
|
20,776
|
|
|
$
|
|
|
|
$
|
20,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments in
held-to-maturity
|
|
$
|
20,776
|
|
|
$
|
|
|
|
$
|
20,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposits
|
|
$
|
2,376
|
|
|
$
|
|
|
|
$
|
2,376
|
|
Corporate bonds
|
|
|
2,510
|
|
|
|
|
|
|
|
2,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments in
held-to-maturity
|
|
$
|
4,886
|
|
|
$
|
|
|
|
$
|
4,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008
|
|
|
|
Cost or
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gain (Loss)
|
|
|
Value
|
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposits
|
|
$
|
2,974
|
|
|
$
|
|
|
|
$
|
2,974
|
|
Municipal bonds
|
|
|
4,017
|
|
|
|
|
|
|
|
4,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments in
held-to-maturity
|
|
$
|
6,991
|
|
|
$
|
|
|
|
$
|
6,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
$
|
36,975
|
|
|
$
|
(1,512
|
)
|
|
$
|
35,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments in
available-for-sale
|
|
$
|
36,975
|
|
|
$
|
(1,512
|
)
|
|
$
|
35,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2009 and 2008, unrealized gain (loss) on
investments, net of related income taxes, were $0 and
($1.4 million), respectively.
The contractual maturities of short-term and long-term
investments as of March 31, 2009, are as follows
(in thousands):
|
|
|
|
|
March 31, 2009
|
|
Fair Value
|
|
|
Due in less than one year (fiscal year 2010)
|
|
$
|
20,776
|
|
Due in 1 to 2 years (fiscal year 2011)
|
|
|
4,886
|
|
|
|
|
|
|
|
|
$
|
25,662
|
|
|
|
|
|
|
At March 31, 2008, the contractual maturities for
certificate of deposits and municipal bonds were less than one
year. The Companys auction rate securities were classified
as long-term investments at March 31, 2008 even though the
stated maturity dates may be less than one year from the balance
sheet date. The Company determined
66
ABAXIS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
that its auction rate securities were not liquid at
March 31, 2008 since several auctions related to its
auction rate securities failed. For a discussion regarding the
redemption of the Companys auction rate securities during
fiscal 2009, see Notes 1 and 3.
|
|
NOTE 3.
|
FAIR
VALUE MEASUREMENTS
|
On April 1, 2008, the Company adopted
SFAS No. 157, Fair Value Measurements
(SFAS No. 157) to measure the fair value
of its financial assets and financial liabilities. In February
2008, the FASB issued FSP
FAS No. 157-2
Effective Date of FASB Statement No. 157 which
delayed the effective date of SFAS No. 157 for all
nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually) to fiscal
years beginning after November 15, 2008. The adoption of
SFAS No. 157 for financial assets and liabilities did
not have a material impact on the Companys financial
position, cash flows or results of operations.
SFAS No. 157 defines fair value as the price that
would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
at the measurement date. SFAS No. 157 establishes a
fair value hierarchy that distinguishes between (1) market
participant assumptions developed based on market data obtained
from independent sources (observable inputs) and (2) an
entitys own assumptions about market participant
assumptions developed based on the best information available in
the circumstances (unobservable inputs). The fair value
hierarchy consists of three broad levels, which gives the
highest priority to unadjusted quoted prices in active markets
for identical assets or liabilities (Level 1) and the
lowest priority to unobservable inputs (Level 3). The three
levels of the fair value hierarchy under SFAS No. 157
are described below:
Level 1: Quoted prices (unadjusted) in
active markets for identical assets or liabilities.
Level 2: Directly or indirectly
observable market based inputs used in models or other valuation
methodologies.
Level 3: Unobservable inputs that are
supported by little or no market data and require the use of
significant management judgment. These values are generally
determined using pricing models for which the assumptions
utilize managements estimates of market participant
assumptions.
The following table summarizes financial assets, measured at
fair value on a recurring basis, by level within the fair value
hierarchy as of March 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2009
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
|
|
Assets
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Cash and cash equivalents(1)
|
|
$
|
49,237
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
49,237
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposits
|
|
|
20,776
|
|
|
|
|
|
|
|
|
|
|
|
20,776
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposits
|
|
|
2,376
|
|
|
|
|
|
|
|
|
|
|
|
2,376
|
|
Corporate bonds
|
|
|
2,510
|
|
|
|
|
|
|
|
|
|
|
|
2,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
74,899
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
74,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Cash and cash equivalents as of March 31, 2009 consisted of
$18.8 million in cash and $30.4 million in cash
equivalents, consisting of money market mutual funds. |
The fair value of the Companys Level 1 financial
assets is based on quoted market prices of the underlying
security. As of March 31, 2009, the Company did not have
any Level 2 or 3 financial assets or liabilities.
67
ABAXIS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At April 1, 2008, the Company had Level 3 financial
assets comprised of auction rate securities. At March 31,
2008, the par value of the Companys investments in auction
rate securities totaled $37.0 million and the fair value of
these auction rate securities was $35.5 million. In
September 2008, the Companys bank where its auction rate
securities were held, reached agreements with the Financial
Industry Regulatory Authority, the State of Michigan Attorney
General and the Michigan Office of Financial and Insurance
Regulation regarding the repurchase of auction rate securities.
In October 2008, the Company received a commitment from its bank
to repurchase all of its remaining auction rate securities,
which repurchases were completed in the third quarter of fiscal
2009. During the fiscal year ended March 31, 2009, the
Company redeemed $37.0 million of its auction rate
securities at 100% of par value by the issuer of the auction
rate securities.
The following table summarizes the changes in the beginning and
ending balances in the carrying value associated with
Level 3 financial assets for the fiscal year ended
March 31, 2009 (in thousands):
|
|
|
|
|
|
|
Auction Rate
|
|
|
|
Securities
|
|
|
Balance at April 1, 2008
|
|
$
|
35,463
|
|
Redemptions during the period
|
|
|
(36,975
|
)
|
Transfers
|
|
|
|
|
Total gain or loss (realized or unrealized):
|
|
|
|
|
Included in earnings (loss)
|
|
|
|
|
Included in other comprehensive income (loss)
|
|
|
1,512
|
|
|
|
|
|
|
Balance at March 31, 2009
|
|
$
|
|
|
|
|
|
|
|
Components of inventories at March 31, 2009 and 2008 were
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Raw materials
|
|
$
|
8,539
|
|
|
$
|
9,067
|
|
Work-in-process
|
|
|
2,592
|
|
|
|
4,315
|
|
Finished goods
|
|
|
4,604
|
|
|
|
5,275
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
15,735
|
|
|
$
|
18,657
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 5.
|
PROPERTY
AND EQUIPMENT, NET
|
Property and equipment, net, at March 31, 2009 and 2008
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Machinery and equipment
|
|
$
|
22,223
|
|
|
$
|
19,197
|
|
Furniture and fixtures
|
|
|
1,621
|
|
|
|
1,446
|
|
Computer equipment
|
|
|
2,353
|
|
|
|
1,937
|
|
Leasehold improvements
|
|
|
6,195
|
|
|
|
6,179
|
|
Construction in progress
|
|
|
3,376
|
|
|
|
3,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,768
|
|
|
|
31,760
|
|
Accumulated depreciation and amortization
|
|
|
(20,970
|
)
|
|
|
(17,161
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
14,798
|
|
|
$
|
14,599
|
|
|
|
|
|
|
|
|
|
|
68
ABAXIS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Depreciation and amortization expense for property and equipment
amounted to $4.3 million, $3.4 million and
$2.6 million in fiscal 2009, 2008 and 2007, respectively.
|
|
NOTE 6.
|
INTANGIBLE
ASSETS, NET
|
Intangible assets, net, at March 31, 2009 and 2008
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
|
Balance, March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
5,000
|
|
|
$
|
125
|
|
|
$
|
4,875
|
|
Patents
|
|
|
750
|
|
|
|
450
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchased intangible assets
|
|
$
|
5,750
|
|
|
$
|
575
|
|
|
$
|
5,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
750
|
|
|
$
|
375
|
|
|
$
|
375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchased intangible assets
|
|
$
|
750
|
|
|
$
|
375
|
|
|
$
|
375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In January 2009, the Company entered into a license agreement
with Inverness Medical Switzerland GmbH (Inverness),
pursuant to which the Company licensed co-exclusively certain
worldwide patent rights. The Company paid a $5.0 million
up-front license fee to Inverness in January 2009, which was
recorded as an intangible asset on the balance sheet. See
Note 9 for additional information on the Companys
patent license agreement with Inverness.
Amortization expense for intangible assets, included in cost of
revenues, amounted to $200,000, $75,000 and $75,000 in fiscal
2009, 2008 and 2007, respectively. Based on the Companys
intangible assets subject to amortization as of March 31,
2009, the estimated amortization expense for succeeding years is
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Annual Amortization Expense
|
|
|
|
|
|
|
Fiscal Year Ending March 31,
|
|
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Amortization expense
|
|
$
|
5,175
|
|
|
$
|
575
|
|
|
$
|
575
|
|
|
$
|
575
|
|
|
$
|
575
|
|
|
$
|
500
|
|
|
$
|
2,375
|
|
|
|
NOTE 7.
|
WARRANTY
RESERVES
|
The Company provides for the estimated future costs to be
incurred under the Companys standard warranty obligation
on its instruments. Starting on July 1, 2007, the Company
provides for the estimated future costs to be incurred under the
Companys warranty obligation on its reagent discs as part
of warranty reserves. Prior to July 1, 2007, the Company
maintained a provision for defective reagent discs as part of
sales allowances.
Instruments. The Companys standard
warranty obligation on instruments ranges from two to three
years. The estimated contractual warranty obligation is recorded
when the related revenue is recognized and any additional amount
is recorded when such cost is probable and can be reasonably
estimated. The estimated accrual for warranty exposure is based
on historical experience, estimated product failure rates,
material usage, freight incurred in repairing the instrument
after failure and known design changes.
Reagent Discs. Beginning on July 1, 2007,
the Company records a provision for defective reagent discs when
the related sale is recognized and any additional amount is
recorded when such cost is probable and can be reasonably
estimated. The warranty cost includes the replacement costs and
freight of a defective reagent disc. Prior to July 1, 2007,
the Company recorded a provision for defective reagent discs as
part of sales allowances since the Company primarily issued a
credit to customers for defective reagent discs. Starting on
July 1, 2007, the provision
69
ABAXIS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
for defective reagent discs is recorded as part of warranty
reserves, since the Company replaces defective reagent discs
rather than issue a credit to customers. The change did not have
a material impact on the Companys financial statements.
For fiscal 2009 and 2008, the provision for warranty expense
related to replacement of defective reagent discs was $425,000
and $507,000, respectively. The balance of accrued warranty
reserve related to replacement of defective reagent discs at
March 31, 2009 and 2008 was $450,000 and $418,000,
respectively, which was classified as a current liability on the
balance sheet.
The Company evaluates its estimates for warranty reserves on an
ongoing basis and believes it has the ability to reasonably
estimate warranty costs. However, unforeseeable changes in
factors may impact the estimate for warranty and such changes
could cause a material change in the Companys warranty
reserve accrual in the period in which the change was identified.
The change in the Companys accrued warranty reserve during
fiscal 2009, 2008 and 2007 is summarized as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Balance at beginning of period
|
|
$
|
1,948
|
|
|
$
|
847
|
|
|
$
|
472
|
|
Provision for warranty expense(1)
|
|
|
1,558
|
|
|
|
2,036
|
|
|
|
611
|
|
Warranty costs incurred(1)
|
|
|
(1,209
|
)
|
|
|
(935
|
)
|
|
|
(236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
|
2,297
|
|
|
|
1,948
|
|
|
|
847
|
|
Non-current portion of warranty reserve
|
|
|
583
|
|
|
|
729
|
|
|
|
532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of warranty reserve
|
|
$
|
1,714
|
|
|
$
|
1,219
|
|
|
$
|
315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The change in the Companys accrued warranty reserve during
fiscal 2009 and 2008 includes a provision for warranty expense
and warranty costs incurred for replacement costs of reagent
discs. |
The Company has a line of credit with Comerica Bank-California
which provides for borrowings of up to $2.0 million. The
line of credit may be terminated upon notification by either
party and any outstanding balance is payable upon demand. The
line of credit bears interest at the banks prime rate
minus 0.25%, which totaled 3.00% at March 31, 2009, and is
payable monthly. At March 31, 2009, of the
$2.0 million available, $97,000 was committed to secure a
letter of credit for the Companys facility lease. At
March 31, 2009, there was no amount outstanding under the
Companys line of credit. The weighted average interest
rates on the line of credit during fiscal 2009 and 2008 were
4.10% and 7.29%, respectively.
The line of credit agreement contains certain financial
covenants, which are evaluated on a quarterly basis. At
March 31, 2009, the Company was in compliance with each of
these covenants. Included in these financial covenants, among
other stipulations, are the following requirements:
|
|
|
|
|
The Company must have a minimum net income of $25,000 before
preferred stock dividends and accretion on preferred stock in
any three quarters of a fiscal year, provided that any loss
before preferred stock dividends and accretion on preferred
stock incurred in the remaining quarter is not to exceed
$250,000.
|
|
|
|
The Company is required to be profitable, as defined, on a
fiscal year to date basis beginning, with respect to the current
fiscal year, with the six month period ended September 30,
2008 and to have net income before preferred stock dividends and
accretion on preferred stock of at least $1.2 million for
the fiscal year ended March 31, 2009.
|
70
ABAXIS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
The Company is required to comply with certain financial
covenants as follows:
|
|
|
|
Financial Covenants
|
|
Requirements
|
|
Quick ratio, as defined
|
|
Not less than 2.00 to 1.00
|
Cash flow coverage, as defined
|
|
Not less than 1.25 to 1.00
|
Debt to net worth ratio, as defined
|
|
Not greater than 1.00 to 1.00
|
Tangible effective net worth, as defined
|
|
Not less than $25.7 million
|
Borrowings under the line of credit are collateralized by the
Companys net book value of assets of $126.9 million
at March 31, 2009, including its intellectual property.
|
|
NOTE 9.
|
COMMITMENTS
AND CONTINGENCIES
|
As of March 31, 2009, the Companys contractual
obligations for succeeding years is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Due in Fiscal
|
|
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Operating leases
|
|
$
|
2,672
|
|
|
$
|
1,363
|
|
|
$
|
1,112
|
|
|
$
|
166
|
|
|
$
|
31
|
|
|
$
|
|
|
|
$
|
|
|
Operating Leases. The Companys operating
lease obligations were comprised of its principal facility and
various leased facilities and office equipment under operating
lease agreements, which expire on various dates through fiscal
2013. Rent expense under operating leases was $1.4 million,
$1.3 million and $1.1 million for fiscal 2009, 2008
and 2007, respectively.
The Companys principal facility is under a non-cancelable
operating lease agreement, which expires in fiscal 2011. The
monthly rental payments on the facility lease increase based on
a predetermined schedule. The Company recognizes rent expense on
a straight-line basis over the life of the lease. In connection
with its facility lease agreement, the Company established a
letter of credit for $97,000, which is secured by its line of
credit. See Note 8 for additional information.
Purchase Commitments. In November 2003, the
Company entered into an original equipment manufacturing
(OEM) agreement with Diatron Messtechnik GmbH
(Diatron) of Austria to purchase Diatron hematology
instruments. The Diatron hematology instruments are currently
supplied by Diatron Medical Instruments PLC. Under the terms of
the original OEM agreement, the Company committed to purchase a
minimum number of hematology instruments from Diatron once the
product was qualified for sale, which occurred in May 2004.
Following a prior amendment, in February 2008, the terms of the
OEM agreement, with respect to the purchase commitments, were
revised. Under the amended OEM agreement, the Company committed
to purchase a minimum number of hematology instruments through
fiscal 2009. In August 2008, the Company entered into a purchase
order with scheduled shipping terms through January 2009 for the
remaining number of hematology instruments to be purchased under
the amended OEM agreement. Since August 2008, the Company has
operated entirely on a purchase order basis with Diatron.
In October 2008, the Company entered into an OEM agreement with
Scandinavian Micro Biodevices APS (SMB) to purchase
coagulation analyzers and coagulation reagents. In the fourth
quarter of fiscal 2009, the Company started marketing the
products and, upon achievement of certain milestones by SMB
outlined in the agreement, the Company will be subject to the
minimum purchase commitments under the OEM agreement.
Patent Licensing Agreement. Effective January
2009, the Company entered into a license agreement with
Inverness Medical Switzerland GmbH (Inverness).
Under the agreement, the Company licensed co-exclusively certain
worldwide patent rights related to lateral flow immunoassay
technology in the field of animal health diagnostics in the
professional marketplace. The license agreement provides that
Inverness shall not grant any future rights to any third parties
under its current lateral flow patent rights in the animal
health diagnostics field in
71
ABAXIS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the professional marketplace. The license agreement enables the
Company to develop and market products under rights from
Inverness to address animal health and laboratory animal
research markets.
In exchange for the license rights, the Company (i) paid an
up-front license fee of $5.0 million to Inverness in
January 2009, (ii) agreed to pay royalties during the term
of the agreement, based solely on sales of products in a
jurisdiction country covered by valid and unexpired claims in
that jurisdiction under the licensed Inverness patent rights,
and (iii) agreed to pay a yearly minimum license fee of
between $500,000 to $1.0 million per year, which fee will
be creditable against any royalties due during such calendar
year. The royalties, if any, are payable through the date of the
expiration of the last valid patent licensed under the agreement
that includes at least one claim in a jurisdiction covering
products we sell in that jurisdiction. The yearly minimum fees
are payable starting in fiscal 2011 for so long as the Company
desires to maintain exclusivity under the agreement.
Litigation. The Company is involved from time
to time in various litigation matters in the normal course of
business. The Company believes that the ultimate resolution of
these matters will not have a material effect on its financial
position or results of operations.
|
|
NOTE 10.
|
EMPLOYEE
BENEFIT 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 bi-weekly basis. The Company may make quarterly
contributions to the plan at the discretion of the Board of
Directors of the Company either in cash or in common stock. The
Companys matching contributions to the tax deferred
savings plan were $153,000, $288,000, and $242,000 in fiscal
2009, 2008 and 2007, respectively, of which $0, $0 and $66,000,
respectively, were in the form of common stock.
|
|
NOTE 11.
|
SHARE-BASED
COMPENSATION
|
The following table summarizes total share-based compensation
expense, net of tax, related to stock options and restricted
stock units recorded in accordance with
SFAS No. 123(R) for fiscal 2009, 2008 and 2007, which
is included in the Companys Consolidated Statements of
Operations (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cost of revenues
|
|
$
|
152
|
|
|
$
|
127
|
|
|
$
|
72
|
|
Research and development
|
|
|
240
|
|
|
|
153
|
|
|
|
117
|
|
Sales and marketing
|
|
|
508
|
|
|
|
325
|
|
|
|
292
|
|
General and administrative
|
|
|
843
|
|
|
|
503
|
|
|
|
318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense before income taxes
|
|
|
1,743
|
|
|
|
1,108
|
|
|
|
799
|
|
Income tax benefit
|
|
|
(704
|
)
|
|
|
(442
|
)
|
|
|
(219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense after income taxes
|
|
$
|
1,039
|
|
|
$
|
666
|
|
|
$
|
580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impact of share-based compensation on:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.05
|
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
0.05
|
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation has been classified in the statements
of operations or capitalized on the balance sheets in the same
manner as cash compensation paid to employees. Capitalized
share-based compensation costs at March 31, 2009, 2008 and
2007 were $33,000, $27,000 and $13,000, respectively, which were
included in inventories on the Companys Consolidated
Balance Sheets.
72
ABAXIS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Cash
Flow Impact
SFAS No. 123(R) requires cash flows resulting from
excess tax benefits to be classified as a part of cash flows
from financing activities. Excess tax benefits are realized tax
benefits from tax deductions for exercised stock options and
vested restricted stock units in excess of the deferred tax
asset attributable to share-based compensation expense for such
share-based awards. Excess tax benefits are considered realized
when the tax deductions reduce taxes that otherwise would be
payable. Excess tax benefits classified as a financing cash
inflow for fiscal 2009, 2008 and 2007 were $6.7 million,
$1.6 million and $569,000, respectively.
Equity
Compensation Plans
The Companys share-based compensation plans are described
below.
2005 Equity Incentive Plan. The Companys
2005 Equity Incentive Plan (the Equity Incentive
Plan) restated and amended the Companys 1998 Stock
Option Plan. The Equity Incentive Plan allows for the awards of
stock options, stock appreciation rights, restricted stock
awards, restricted stock units, performance shares, performance
units, deferred compensation awards or other share-based awards
to employees, directors and consultants. On October 28,
2008, the Companys shareholders approved an amendment to
the Equity Incentive Plan to increase the shares reserved for
issuance under the Equity Incentive Plan by 500,000 shares.
As of March 31, 2009, the Equity Incentive Plan provides
for the issuance of a maximum of 5,386,000 shares, of which
703,000 shares of common stock were then available for
future issuance.
Options granted to employees and directors generally expire ten
years from the grant date. Options granted to employees
generally become exercisable over a period of four years based
on cliff-vesting terms and continuous employment. Options
granted to non-employee directors generally become exercisable
over a period of one year based on monthly vesting terms and
continuous service. See the Stock Options section in
this Note 11 for additional information.
Restricted stock units awarded to employees generally vest over
a period of four years and the awards may also be subject to
accelerated vesting upon achieving certain performance-based
milestones and continuous employment during the vesting period.
Restricted stock units awarded to non-employee directors
generally vest in full one year after the grant date based on
continuous service. See the Restricted Stock Units
section in this Note 11 for additional information.
1992 Outside Directors Stock Option
Plan. Under the Companys 1992 Outside
Directors Stock Option Plan (the Directors
Plan), options to purchase shares of common stock were
automatically granted, annually, to non-employee directors.
Options under the Directors Plan were nonqualified stock options
and were granted at the fair market value on the date of grant
and expired ten years from the date of grant. Options granted to
non-employee directors generally become exercisable over a
period of one year based on monthly vesting terms and continuous
service. The Directors Plan provided for the issuance of a
maximum of 250,000 shares. As of March 31, 2009, all
outstanding options under the Directors Plan were fully vested
and fully exercisable and no shares of common stock were
available for future issuance because the time period for
granting options expired in accordance with the terms of the
Directors Plan in June 2002.
The Companys current practice is to issue new shares of
common stock from its authorized shares for share-based awards
upon the exercise of stock options or vesting of restricted
stock units.
Stock
Options
The Company did not grant stock options during fiscal 2009, 2008
or 2007. Prior to April 1, 2006, the Company granted stock
options to employees, with an exercise price equal to the
closing market price of the Companys common stock on the
date of grant and with cliff-vesting terms over four years,
conditional on continuous employment with the Company. In
addition, prior to April 1, 2006, the Company granted stock
options
73
ABAXIS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
to non-employee directors with an exercise price equal to the
closing market price of the Companys common stock on the
date of grant and became exercisable over a period of one year
based on monthly vesting terms, conditional on continuous
service to the Company.
Valuation
and Expense Recognition Method for Stock Options
The Company used the Black-Scholes option pricing model to
determine the fair value of stock options granted prior to
March 31, 2006. The fair value of each stock option granted
was estimated on the date of the grant using the Black-Scholes
option pricing model, based on a multiple option valuation
approach, and forfeitures were recognized as they occurred. As
of March 31, 2009, the total unrecognized compensation
expense related to stock options granted was not significant and
is expected to be recognized over a weighted average period of
0.07 years.
Stock
Option Activity
Stock option activity under all stock plans is summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Number of
|
|
|
Price
|
|
|
Contractual
|
|
|
Value
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
Life (Years)
|
|
|
(In thousands)
|
|
|
Outstanding at March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,317,000 shares exercisable at a weighted average
exercise price of $6.61 per share)
|
|
|
2,532,000
|
|
|
$
|
6.77
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(931,000
|
)
|
|
|
4.84
|
|
|
|
|
|
|
|
|
|
Canceled or forfeited
|
|
|
(24,000
|
)
|
|
|
12.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,522,000 shares exercisable at a weighted average
exercise price of $7.69 per share)
|
|
|
1,577,000
|
|
|
$
|
7.82
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(483,000
|
)
|
|
|
6.48
|
|
|
|
|
|
|
|
|
|
Canceled or forfeited
|
|
|
(50,000
|
)
|
|
|
20.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,026,000 shares exercisable at a weighted average
exercise price of $7.75 per share)
|
|
|
1,044,000
|
|
|
$
|
7.82
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(194,000
|
)
|
|
|
3.27
|
|
|
|
|
|
|
|
|
|
Canceled or forfeited
|
|
|
(2,000
|
)
|
|
|
11.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2009
|
|
|
848,000
|
|
|
$
|
8.86
|
|
|
|
3.24
|
|
|
$
|
7,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at March 31, 2009
|
|
|
848,000
|
|
|
$
|
8.86
|
|
|
|
3.24
|
|
|
$
|
7,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2009
|
|
|
848,000
|
|
|
$
|
8.86
|
|
|
|
3.24
|
|
|
$
|
7,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the table above represents the
pre-tax intrinsic value, based on the Companys closing
stock price as of March 31, 2009, that would have been
received by the option holders had all option holders exercised
their stock options as of that date. Total intrinsic value of
stock options exercised during fiscal 2009, 2008
74
ABAXIS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and 2007 was $2.9 million, $9.8 million and
$15.7 million, respectively. Cash proceeds from the
exercise of stock options during fiscal 2009, 2008 and 2007 were
$636,000, $3.1 million and $4.5 million, respectively.
The following table summarizes information regarding stock
options outstanding and stock options exercisable at
March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Number of
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Contractual
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
Range of Exercise Prices
|
|
Outstanding
|
|
|
Life (Years)
|
|
|
Per Share
|
|
|
Exercisable
|
|
|
Per Share
|
|
|
$ 3.00 - $ 3.84
|
|
|
59,000
|
|
|
|
2.85
|
|
|
$
|
3.06
|
|
|
|
59,000
|
|
|
$
|
3.06
|
|
$ 3.85 - $ 3.85
|
|
|
144,000
|
|
|
|
4.06
|
|
|
|
3.85
|
|
|
|
144,000
|
|
|
|
3.85
|
|
$ 4.13 - $ 4.75
|
|
|
30,000
|
|
|
|
2.18
|
|
|
|
4.31
|
|
|
|
30,000
|
|
|
|
4.31
|
|
$ 4.87 - $ 4.87
|
|
|
211,000
|
|
|
|
2.07
|
|
|
|
4.87
|
|
|
|
211,000
|
|
|
|
4.87
|
|
$ 4.94 - $ 6.31
|
|
|
103,000
|
|
|
|
1.73
|
|
|
|
5.95
|
|
|
|
103,000
|
|
|
|
5.95
|
|
$ 6.33 - $12.68
|
|
|
85,000
|
|
|
|
2.56
|
|
|
|
8.23
|
|
|
|
85,000
|
|
|
|
8.23
|
|
$12.75 - $19.45
|
|
|
53,000
|
|
|
|
5.20
|
|
|
|
14.76
|
|
|
|
53,000
|
|
|
|
14.76
|
|
$19.65 - $19.65
|
|
|
4,000
|
|
|
|
4.66
|
|
|
|
19.65
|
|
|
|
4,000
|
|
|
|
19.65
|
|
$21.45 - $21.45
|
|
|
2,000
|
|
|
|
5.04
|
|
|
|
21.45
|
|
|
|
2,000
|
|
|
|
21.45
|
|
$21.65 - $21.65
|
|
|
157,000
|
|
|
|
5.05
|
|
|
|
21.65
|
|
|
|
157,000
|
|
|
|
21.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 3.00 - $21.65
|
|
|
848,000
|
|
|
|
3.24
|
|
|
$
|
8.86
|
|
|
|
848,000
|
|
|
$
|
8.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock Units
The Company grants restricted stock unit awards to employees and
directors as part of its share-based compensation program which
began in fiscal 2007. The restricted stock unit awards entitle
holders to receive shares of common stock at the end of a
specified period of time. Vesting for restricted stock unit
awards is based on continuous employment or service of the
holder. Upon vesting, the equivalent number of common shares are
typically issued net of tax withholdings. If the vesting
conditions are not met, unvested restricted stock unit awards
will be forfeited. Generally, the restricted stock unit awards
vest according to one of the following time-based vesting
schedules:
|
|
|
|
|
Restricted stock unit awards to
employees: Four-year time-based vesting as
follows: five percent vesting after the first year; additional
ten percent after the second year; additional 15 percent
after the third year; and the remaining 70 percent after
the fourth year of continuous employment with the Company.
|
|
|
|
Restricted stock unit awards to non-employee
directors: 100 percent vesting after one
year of continuous service to the Company.
|
Certain restricted stock unit awards granted to employees in
fiscal 2007 may also be subject to accelerated vesting upon
achieving certain performance-based milestones. Additionally,
the Compensation Committee of the Companys Board of
Directors (the Compensation Committee), in its
discretion, may provide in the event of a change in control for
the acceleration of vesting
and/or
settlement of the restricted stock unit held by a participant
upon such conditions and to such extent as determined by the
Compensation Committee. The Companys Board of Directors
has adopted an executive change in control severance plan, which
it may terminate or amend at any time, that provides that awards
granted to executive officers will accelerate fully on a change
of control. The vesting of non-employee director awards granted
under the Equity Incentive Plan automatically will also
accelerate in full upon a change in control.
75
ABAXIS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Valuation
and Expense Recognition Method for Restricted Stock
Unit
The fair value of restricted stock unit awards used in the
Companys expense recognition method is measured based on
the number of shares granted and the closing market price of the
Companys common stock on the date of grant. Such value is
recognized as an expense over the corresponding requisite
service period. The share-based compensation expense is reduced
for an estimate of the restricted stock unit awards that are
expected to be forfeited. The forfeiture estimate is based on
historical data and other factors, and compensation expense is
adjusted for actual results. As of March 31, 2009, the
total unrecognized compensation expense related to restricted
stock unit awards granted amounted to $12.9 million, which
is expected to be recognized over a weighted average period of
2.16 years.
Restricted
Stock Unit Activity
The following table summarizes restricted stock unit activity
during fiscal 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value(1)
|
|
|
Unvested at March 31, 2006
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
305,000
|
|
|
|
24.56
|
|
Vested(2)
|
|
|
|
|
|
|
|
|
Canceled or forfeited
|
|
|
(10,000
|
)
|
|
|
21.43
|
|
|
|
|
|
|
|
|
|
|
Unvested at March 31, 2007
|
|
|
295,000
|
|
|
$
|
24.66
|
|
Granted
|
|
|
267,000
|
|
|
|
21.73
|
|
Vested(2)
|
|
|
(22,000
|
)
|
|
|
25.06
|
|
Canceled or forfeited
|
|
|
(46,000
|
)
|
|
|
23.11
|
|
|
|
|
|
|
|
|
|
|
Unvested at March 31, 2008
|
|
|
494,000
|
|
|
$
|
23.21
|
|
Granted
|
|
|
254,000
|
|
|
|
23.68
|
|
Vested(2)
|
|
|
(45,000
|
)
|
|
|
23.34
|
|
Canceled or forfeited
|
|
|
(13,000
|
)
|
|
|
20.09
|
|
|
|
|
|
|
|
|
|
|
Unvested at March 31, 2009
|
|
|
690,000
|
|
|
$
|
23.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The weighted average grant date fair value of restricted stock
units is based on the number of shares and the closing market
price of the Companys common stock on the date of grant. |
|
(2) |
|
The number of restricted stock units vested includes shares that
the Company withheld on behalf of the employees to satisfy the
statutory tax withholding requirements. |
There were no restricted stock units granted during fiscal 2006
or prior to March 31, 2006. Total intrinsic value of
restricted stock units vested during fiscal 2009 and 2008 was
$1.1 million and $481,000, respectively. The total grant
date fair value of restricted stock units vested during fiscal
2009 and 2008 was $1.1 million and $544,000, respectively.
There were no restricted stock units vested during fiscal 2007.
Stock Purchase Rights. On April 22, 2003,
the Board of Directors of the Company approved the adoption of a
Shareholder Rights Plan. Under the terms of the plan,
shareholders of record on May 8, 2003, received one
preferred stock purchase right for each outstanding share of
common stock held. Each right entitled the registered holder to
purchase from the Company one one-thousandth of a share of the
Companys Series RP Preferred Stock, $0.001 par
76
ABAXIS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
value, at a price of $24.00 per share and becomes exercisable
when a person or group acquires 15% or more of the
Companys common stock without prior approval by the Board
of Directors.
In addition, under certain conditions involving an acquisition
or proposed acquisition, the rights permit the holders (other
than the acquirer) to purchase the Companys common stock
at a 50% discount from the market price at that time, and in the
event of certain business combinations, the rights permit the
purchase of the common stock of an acquirer at a 50% discount
from the market price at that time. Under certain conditions,
the purchase rights may be redeemed by the Board of Directors in
whole, but not in part, at a price of $0.001 per right. The
rights have no voting privileges and are attached to and
automatically trade with the Companys common stock.
Common Stock Warrants. As of March 31,
2009 and 2008, there were no warrants outstanding to purchase
shares of common stock. At March 31, 2007, there were
warrants outstanding to purchase 65,000 shares of common
stock at a weighted average exercise price of $7.00 per share.
The warrants were issued to purchasers of the Companys
Series E convertible preferred stock in fiscal 2003 and
2002. The warrants expired in April 2007.
|
|
NOTE 13.
|
NET
INCOME PER SHARE
|
The following is a reconciliation of the weighted average number
of common shares outstanding used in calculating basic and
diluted net income per share (in thousands, except share and per
share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
12,013
|
|
|
$
|
12,503
|
|
|
$
|
10,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic
|
|
|
21,826,000
|
|
|
|
21,499,000
|
|
|
|
20,643,000
|
|
Weighted average effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
467,000
|
|
|
|
701,000
|
|
|
|
1,082,000
|
|
Restricted stock units
|
|
|
31,000
|
|
|
|
58,000
|
|
|
|
4,000
|
|
Warrants
|
|
|
|
|
|
|
3,000
|
|
|
|
117,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding diluted
|
|
|
22,324,000
|
|
|
|
22,261,000
|
|
|
|
21,846,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.55
|
|
|
$
|
0.58
|
|
|
$
|
0.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
0.54
|
|
|
$
|
0.56
|
|
|
$
|
0.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company excluded the following stock options and warrants
from the computation of diluted weighted average shares
outstanding because the exercise price of the stock options and
warrants is greater than the average market price of the
Companys common stock during the period and, therefore,
the inclusion of these stock options and warrants would be
antidilutive to net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Weighted average number of shares underlying antidilutive stock
options and warrants
|
|
|
159,000
|
|
|
|
|
|
|
|
222,000
|
|
Weighted average exercise price per share underlying
antidilutive stock options and warrants
|
|
$
|
21.65
|
|
|
|
N/A
|
|
|
$
|
21.65
|
|
77
ABAXIS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company excluded the following restricted stock units from
the computation of diluted weighted average shares outstanding
because the inclusion of these awards would be antidilutive to
net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Weighted average number of shares underlying antidilutive
restricted stock units
|
|
|
195,000
|
|
|
|
9,000
|
|
|
|
199,000
|
|
The components of the Companys income tax provision are
summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
1,000
|
|
|
$
|
368
|
|
|
$
|
405
|
|
State
|
|
|
1,204
|
|
|
|
533
|
|
|
|
493
|
|
Foreign
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current income tax provision
|
|
|
2,240
|
|
|
|
901
|
|
|
|
898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
4,794
|
|
|
|
5,838
|
|
|
|
4,930
|
|
State
|
|
|
19
|
|
|
|
562
|
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax provision
|
|
|
4,813
|
|
|
|
6,400
|
|
|
|
5,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision
|
|
$
|
7,053
|
|
|
$
|
7,301
|
|
|
$
|
6,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the Companys income before income tax
provision are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
United States
|
|
$
|
18,941
|
|
|
$
|
19,804
|
|
|
$
|
16,149
|
|
Foreign
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
$
|
19,066
|
|
|
$
|
19,804
|
|
|
$
|
16,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The income tax provision differs from the amount computed by
applying the federal statutory income tax rate (35 percent)
to income before income tax provision as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Income taxes at federal income tax rate
|
|
$
|
6,673
|
|
|
$
|
6,931
|
|
|
$
|
5,652
|
|
State income taxes, net of federal benefits
|
|
|
920
|
|
|
|
880
|
|
|
|
635
|
|
Share-based compensation
|
|
|
(5
|
)
|
|
|
6
|
|
|
|
93
|
|
Research and development tax credits
|
|
|
(62
|
)
|
|
|
(242
|
)
|
|
|
(350
|
)
|
Extraterritorial income exclusion
|
|
|
|
|
|
|
|
|
|
|
(27
|
)
|
Tax-exempt interest income
|
|
|
(241
|
)
|
|
|
(336
|
)
|
|
|
|
|
Qualified production activities income benefit
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
(181
|
)
|
|
|
62
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
7,053
|
|
|
$
|
7,301
|
|
|
$
|
6,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
ABAXIS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Significant components of the Companys deferred tax assets
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,328
|
|
Research and development tax credit carryforwards
|
|
|
2,417
|
|
|
|
3,007
|
|
|
|
3,713
|
|
Capitalized research and development
|
|
|
266
|
|
|
|
|
|
|
|
86
|
|
Inventory reserves
|
|
|
297
|
|
|
|
364
|
|
|
|
140
|
|
Deferred revenue from extended maintenance agreements and
warranty reserves
|
|
|
1,864
|
|
|
|
1,172
|
|
|
|
864
|
|
Accrued vacation
|
|
|
506
|
|
|
|
424
|
|
|
|
383
|
|
Share-based compensation
|
|
|
648
|
|
|
|
378
|
|
|
|
192
|
|
Alternative minimum tax credits
|
|
|
710
|
|
|
|
675
|
|
|
|
485
|
|
Other
|
|
|
583
|
|
|
|
496
|
|
|
|
725
|
|
Valuation allowance for deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
(352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
7,291
|
|
|
|
6,516
|
|
|
|
11,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
(51
|
)
|
|
$
|
(145
|
)
|
|
$
|
(189
|
)
|
Other
|
|
|
(100
|
)
|
|
|
(77
|
)
|
|
|
(84
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(151
|
)
|
|
|
(222
|
)
|
|
|
(273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
7,140
|
|
|
$
|
6,294
|
|
|
$
|
11,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A valuation allowance against deferred tax assets is provided
when it is more likely than not that some portion of the
deferred tax assets will not be realized. As of March 31,
2009, the Company did not have a valuation allowance. The
Companys valuation allowance as of March 31, 2007 was
attributable to expiring federal research and development tax
credits. The change in valuation allowance for fiscal years 2008
and 2007 was due to the expiration of federal research
development tax credits for which a valuation allowance had
previously been established.
As of March 31, 2009, the Company has recognized
$24.3 million of tax deductions relating to share-based
compensation in excess of recognized compensation expense
(excess benefits). The Company recorded tax benefits
resulting from excess benefits when the benefits result in a
reduction in cash paid for income taxes. As a result of
available federal net operating loss (NOL)
carryforwards and California research and development tax credit
carryforwards, at March 31, 2008, a tax benefit of
$6.7 million will be realized in shareholders equity
in subsequent periods when the deduction reduces federal and
California taxes payable. During fiscal 2009, additional tax
benefits of $816,000 were generated and $6.7 million were
utilized. At March 31, 2009, a tax benefit of $806,000 will
be realized in shareholders equity in subsequent periods
upon the realization of the California carryforwards.
As of March 31, 2009, the Company had no federal or
California NOL carryforwards. As of March 31, 2009, the
Company had federal and California research and development tax
credit carryforwards of $2.3 million and $1.4 million,
respectively. The federal research and development tax credit
carryforward will expire at various dates from fiscal years 2010
through 2029, if not utilized. The California research and
development tax credit will carryforward indefinitely. The
Company had combined federal and state alternative minimum tax
credit carryforwards of $723,000, which do not expire.
79
ABAXIS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys policy is to reinvest earnings of its foreign
subsidiary unless such earnings are subject to
U.S. taxation. As of March 31, 2009, there were no
earnings for which U.S. taxes had not been provided.
As a result of implementing FIN 48 during fiscal 2008, as
discussed in Note 1, the Company did not change the amount
of unrecognized tax benefits related to tax positions taken in
prior periods. The Company did not have any unrecognized tax
benefits as of April 1, 2007, the date of adoption, or as
of March 31, 2009. During fiscal 2009, the Company did not
recognize any interest and penalties related to unrecognized tax
benefits. The Company files income tax returns in the
U.S. federal jurisdiction and various state jurisdictions.
The Company is not under examination for any of these
jurisdictions. The Company is subject to examination by
U.S. federal and various state jurisdictions for fiscal
years 1992 through 2001 and fiscal years 2003 through 2009.
|
|
NOTE 15.
|
SEGMENT
REPORTING INFORMATION
|
Operating segments are defined as components of an enterprise
about which separate financial information is available that is
evaluated regularly by the Companys chief operating
decision maker, or decision making group, in deciding how to
allocate resources and in assessing performance.
The Company develops, manufactures, markets and sells portable
blood analysis systems for use in the human or veterinary
patient-care setting to provide clinicians with rapid blood
constituent measurements. The Company identifies its reportable
segments as those customer groups that represent more than 10%
of the combined revenue or gross profit or loss of all reported
operating segments. The Company manages its business on the
basis of the following two reportable segments: (i) the
medical market and (ii) the veterinary market, which are
based on the products sold by market and customer group. Each
reportable segment has similar manufacturing processes,
technology and shared infrastructures. The accounting policies
for segment reporting are the same as for the Company as a
whole. Assets are not segregated by segments since the
Companys chief operating decision maker does not use
assets as a basis to evaluate a segments performance.
Medical
Market
In the medical market reportable segment, the Company serves a
worldwide customer group consisting of military installations
(ships, field hospitals and mobile care units), physicians
office practices across all specialties, urgent care and walk-in
clinics (free-standing or hospital-connected), home care
providers (national, regional or local), nursing homes,
ambulance companies, oncology treatment clinics, hospital labs
and draw stations. The products manufactured and sold in this
segment primarily consist of Piccolo chemistry analyzers and
medical reagent discs.
Veterinary
Market
In the veterinary market reportable segment, the Company serves
a worldwide customer group consisting of companion animal
hospitals, animal clinics with mixed practices of small animals,
birds and reptiles, equine and bovine practitioners, veterinary
emergency clinics, veterinary referral hospitals, universities,
government, pharmaceutical companies, biotechnology companies
and private research laboratories. The products manufactured and
sold in this segment primarily consist of VetScan chemistry
analyzers and veterinary reagent discs. The Company also sells
OEM-supplied products in this segment consisting primarily of
hematology instruments and hematology reagent kits. Starting in
fiscal 2009, OEM-supplied products also included coagulation
analyzers, coagulation reagents and canine heartworm rapid tests.
80
ABAXIS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The table below summarizes revenues, cost of revenues and gross
profit from the Companys two operating segments and from
certain unallocated items for fiscal 2009, 2008 and 2007 (in
thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
$
|
24,796
|
|
|
$
|
22,764
|
|
|
$
|
17,455
|
|
Veterinary Market
|
|
|
74,046
|
|
|
|
71,091
|
|
|
|
63,851
|
|
Other(1)
|
|
|
6,720
|
|
|
|
6,696
|
|
|
|
4,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
105,562
|
|
|
|
100,551
|
|
|
|
86,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
|
12,407
|
|
|
|
11,340
|
|
|
|
8,549
|
|
Veterinary Market
|
|
|
31,052
|
|
|
|
31,812
|
|
|
|
29,021
|
|
Other(1)
|
|
|
3,478
|
|
|
|
2,355
|
|
|
|
1,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
46,937
|
|
|
|
45,507
|
|
|
|
39,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
|
12,389
|
|
|
|
11,424
|
|
|
|
8,906
|
|
Veterinary Market
|
|
|
42,994
|
|
|
|
39,279
|
|
|
|
34,830
|
|
Other(1)
|
|
|
3,242
|
|
|
|
4,341
|
|
|
|
3,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
58,625
|
|
|
$
|
55,044
|
|
|
$
|
46,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents unallocated items, not specifically identified to any
particular business segment. |
|
|
NOTE 16.
|
REVENUES
BY PRODUCT CATEGORY AND GEOGRAPHIC REGION AND SIGNIFICANT
CONCENTRATIONS
|
Revenue
Information
The following is a summary of revenues for each group of
products provided by the Company (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues by Product Category
|
|
|
|
|
|
|
|
|
|
|
|
|
Instruments(1)
|
|
$
|
28,194
|
|
|
$
|
30,011
|
|
|
$
|
28,899
|
|
Consumables(2)
|
|
|
69,072
|
|
|
|
61,928
|
|
|
|
50,741
|
|
Other products
|
|
|
5,170
|
|
|
|
6,583
|
|
|
|
4,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales, net
|
|
|
102,436
|
|
|
|
98,522
|
|
|
|
84,415
|
|
Development and licensing revenue
|
|
|
3,126
|
|
|
|
2,029
|
|
|
|
1,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
105,562
|
|
|
$
|
100,551
|
|
|
$
|
86,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Instruments include chemistry analyzers, hematology instruments
and coagulation analyzers. |
|
(2) |
|
Consumables include reagent discs, hematology reagent kits,
coagulation reagents and canine heartworm rapid tests. |
The following is a summary of revenues by geographic region
based on customer location (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues by Geographic Region
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
87,801
|
|
|
$
|
83,830
|
|
|
$
|
72,015
|
|
Europe
|
|
|
14,045
|
|
|
|
13,472
|
|
|
|
10,370
|
|
Asia Pacific and rest of the world
|
|
|
3,716
|
|
|
|
3,249
|
|
|
|
3,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
105,562
|
|
|
$
|
100,551
|
|
|
$
|
86,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
ABAXIS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Significant
Concentrations
Revenues from significant customers as a percentage of total
revenues were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographical
|
|
|
Year Ended March 31,
|
|
Distributor
|
|
Location
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Walco International, Inc., d/b/a DVM Resources
|
|
|
United States
|
|
|
|
10
|
%
|
|
|
12
|
%
|
|
|
15
|
%
|
Substantially all of the Companys long-lived assets are
located in the United States.
|
|
NOTE 17.
|
QUARTERLY
RESULTS OF OPERATIONS (UNAUDITED)
|
The following is a summary of the unaudited quarterly results of
operations for fiscal 2009 and 2008 (in thousands, except per
share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
March 31
|
|
|
Fiscal Year Ended March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
24,572
|
|
|
$
|
27,688
|
|
|
$
|
26,964
|
|
|
$
|
26,338
|
|
Gross profit
|
|
$
|
13,503
|
|
|
$
|
15,342
|
|
|
$
|
15,105
|
|
|
$
|
14,675
|
|
Net income
|
|
$
|
2,776
|
|
|
$
|
3,297
|
|
|
$
|
3,356
|
|
|
$
|
2,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic
|
|
$
|
0.13
|
|
|
$
|
0.15
|
|
|
$
|
0.15
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share diluted
|
|
$
|
0.12
|
|
|
$
|
0.15
|
|
|
$
|
0.15
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
22,931
|
|
|
$
|
25,192
|
|
|
$
|
25,690
|
|
|
$
|
26,738
|
|
Gross profit
|
|
$
|
13,016
|
|
|
$
|
13,857
|
|
|
$
|
13,609
|
|
|
$
|
14,562
|
|
Net income
|
|
$
|
3,098
|
|
|
$
|
2,888
|
|
|
$
|
3,205
|
|
|
$
|
3,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic
|
|
$
|
0.15
|
|
|
$
|
0.13
|
|
|
$
|
0.15
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share diluted
|
|
$
|
0.14
|
|
|
$
|
0.13
|
|
|
$
|
0.14
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 18.
|
SUBSEQUENT
EVENT
|
In May 2009, the Company entered into an Exclusive Agreement
(the Agreement) with Abbott Point of Care Inc.
(Abbott). Pursuant to the Agreement, Abbott granted
to the Company the right to sell and distribute Abbotts
i-STAT 1 handheld instrument
(i-STAT®
1 analyzer) and associated consumables (for blood gas,
electrolyte, basic blood chemistry and immunoassay testing) in
the animal health care market worldwide.
The Companys right to sell and distribute these products
is initially non-exclusive, but becomes exclusive in all
countries of the world, except for Japan, on November 1,
2009. The Companys rights in Japan remain non-exclusive
for the term of the Agreement. The initial term of the Agreement
ends on December 31, 2014, and after this initial term, the
Agreement continues automatically for successive one-year
periods unless terminated by either party.
Under the Agreement, the Company will be responsible for
marketing and promoting the i-STAT 1 products and providing
customer service and technical support. Additionally, the
Agreement imposes on the Company certain minimum purchase and
sales requirements in order to retain exclusivity or maintain
the contract. The Company anticipates that its i-STAT cartridge
marketing and sales activities will commence in June 2009, and
that it will launch an Abaxis-branded version of the i-STAT 1
instrument as part of its VetScan line in August 2009.
82
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
Not applicable.
|
|
Item 9A.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
The Companys management, with the participation of the
Companys principal executive officer and principal
financial officer, has evaluated that the effectiveness of the
Companys disclosure controls and procedures, as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended, (the
Exchange Act), as of the end of the period covered
by this report. Based on such evaluation, the Companys
principal executive officer and principal financial officer have
concluded that, as of the end of such period, the Companys
disclosure controls and procedures were effective.
Managements
Report on Internal Control Over Financial Reporting
The Companys management is responsible for establishing
and maintaining adequate internal control over financial
reporting as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act. Under the supervision and with the
participation of the Companys management, including its
principal executive officer and principal financial officer, the
Company conducted an evaluation of the effectiveness of its
internal control over financial reporting based on criteria
established in the framework in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on this
evaluation, the Companys management has concluded that the
Companys internal control over financial reporting was
effective as of March 31, 2009.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risks that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Accordingly, even an effective system of internal control will
provide only reasonable assurance that the objectives of the
internal control system are met.
Attestation
Report of the Independent Registered Public Accounting
Firm
Burr, Pilger & Mayer LLP, our independent registered
public accounting firm, has issued an audit report on the
effectiveness of our internal control over financial reporting
as of March 31, 2009, which report is included elsewhere
herein.
Changes
in Internal Control over Financial Reporting
There were no changes in our internal control over financial
reporting during the fiscal quarter ended March 31, 2009
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting, as defined in
Rule 13a-15(f)
and
15d-15(f)
under the Exchange Act.
83
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL
CONTROLS OVER FINANCIAL REPORTING
To the Board of Directors and Shareholders of
Abaxis, Inc.
We have audited the internal control over financial reporting of
Abaxis, Inc. and its subsidiary (the Company) as of
March 31, 2009, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Companys management is responsible
for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting included in the
accompanying Managements Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion
on the effectiveness of the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Abaxis, Inc. and its subsidiary maintained, in
all material respects, effective internal control over financial
reporting as of March 31, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
balance sheets of Abaxis, Inc. and its subsidiary as of
March 31, 2009 and 2008, and the related statements of
operations, shareholders equity and comprehensive income,
and cash flows for each of the three years in the period ended
March 31, 2009 and the related financial statement schedule
and our report dated June 12, 2009 expressed an unqualified
opinion thereon.
/s/ Burr,
Pilger & Mayer LLP
San Jose, California
June 12, 2009
84
|
|
Item 9B.
|
Other
Information
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The following table sets forth information concerning the
Companys executive officers and directors as of
May 31, 2009.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Title
|
|
Clinton H. Severson
|
|
|
61
|
|
|
Chairman of the Board, President and Chief Executive Officer
|
Richard J. Bastiani, Ph.D.(1)(2)(3)
|
|
|
66
|
|
|
Director
|
Henk J. Evenhuis(1)(3)
|
|
|
66
|
|
|
Director
|
Brenton G. A. Hanlon(1)(2)(3)
|
|
|
63
|
|
|
Director
|
Prithipal Singh, Ph.D.(1)(3)
|
|
|
70
|
|
|
Director
|
Ernest S. Tucker, III, M.D.(1)(3)
|
|
|
76
|
|
|
Director
|
Alberto R. Santa Ines
|
|
|
62
|
|
|
Chief Financial Officer and Vice President of Finance
|
Kenneth P. Aron, Ph.D.
|
|
|
56
|
|
|
Chief Technology Officer
|
Donald P. Wood
|
|
|
57
|
|
|
Chief Operations Officer
|
Vladimir E. Ostoich, Ph.D.
|
|
|
63
|
|
|
Vice President of Government Affairs and Vice President of
Marketing for the Pacific Rim, Founder
|
Martin V. Mulroy
|
|
|
48
|
|
|
Vice President of Veterinary Sales and Marketing for North
America
|
|
|
|
(1) |
|
Member of the Audit Committee |
|
(2) |
|
Member of the Compensation Committee |
|
(3) |
|
Member of the Nominating and Corporate Governance Committee |
Clinton H. Severson has served as the Companys
President, Chief Executive Officer and one of our directors
since June 1996. He was appointed Chairman of the Board in May
1998. Since November 2006, Mr. Severson served on the Board
of Directors of CytoCore, Inc. (OTCBB: CYCR). From February 1989
to May 1996, Mr. Severson served as President and Chief
Executive Officer of MAST Immunosystems, Inc., a privately-held
medical diagnostic company.
Richard J. Bastiani, Ph.D. joined the Board of
Directors in September 1995. Dr. Bastiani is currently
retired and serves as Chairman of the Board of Directors of
Response Biomedical Corporation (CDNX: RBM). From 1998 to 2005,
Dr. Bastiani served as Chairman of the Board of Directors
of ID Biomedical Corporation (Nasdaq: IDBE), after he was
appointed to the Board of Directors of ID Biomedical Corporation
in October 1996. Dr. Bastiani was President of Dendreon
(Nasdaq: DNDN), a biotechnology company, from September 1995 to
September 1998. From 1971 until 1995, Dr. Bastiani held a
number of positions with Syva Company, a diagnostic company,
including as President from 1991 until Syva was acquired by a
subsidiary of Hoechst AG of Germany in 1995. Dr. Bastiani
is also a member of the board of directors of three
privately-held companies.
Henk J. Evenhuis joined the Board of Directors in
November 2002. Mr. Evenhuis is currently retired. He served
on the Board of Directors of Credence Systems Corporation
(Nasdaq: CMOS), a semiconductor equipment manufacturer from 1993
to 2008. Mr. Evenhuis served as Executive Vice President
and Chief Financial Officer of Fair Isaac Corporation (NYSE:
FIC), a global provider of analytic software products to the
financial services, insurance and health care industries from
October 1999 to October 2002. From 1987 to 1998, he was
Executive Vice President and Chief Financial Officer of Lam
Research Corporation (Nasdaq: LRCX), a semiconductor equipment
manufacturer.
85
Brenton G. A. Hanlon joined the Board of Directors in
November 1996. Since January 2001, Mr. Hanlon has been
President and Chief Executive Officer of Hitachi Chemical
Diagnostics, a manufacturer of in vitro allergy diagnostic
products. Concurrently, from December 1996 until the present,
Mr. Hanlon has served as President and Chief Operating
Officer of Tri-Continent Scientific, a subsidiary of Hitachi
Chemical, specializing in liquid-handling products and
instrument components for the medical diagnostics and
biotechnology industries. From 1989 to December 1996,
Mr. Hanlon was Vice President and General Manager of
Tri-Continent Scientific. Mr. Hanlon serves on the board of
directors of two privately-held companies.
Prithipal Singh, Ph.D. joined the Board of Directors
in June 1992. Prior to retiring, Dr. Singh was the Founder,
Chairman and Chief Executive Officer of ChemTrak Inc. (Pink
Sheets: CMTR) from 1988 to 1998. Prior to this, Dr. Singh
was an Executive Vice President of Idetec Corporation from 1985
to 1988 and a Vice President of Syva Corporation from 1977 to
1985.
Ernest S. Tucker, III, M.D. joined the Board of
Directors in September 1995. Dr. Tucker currently serves as
a self-employed healthcare consultant after having retired as
Chief Compliance Officer for Scripps Health in San Diego in
September 2000, a position which he assumed in April 1998.
Dr. Tucker was Chairman of Pathology at Scripps Clinic and
Research Foundation from 1992 to 1998 and Chair of Pathology at
California Pacific Medical Center in San Francisco from
1989 to 1992.
Alberto R. Santa Ines has served as the Companys
Chief Financial Officer and Vice President of Finance since
April 2002. Mr. Santa Ines joined us in February 2000 as
Finance Manager. In April 2001, Mr. Santa Ines was promoted
to Interim Chief Financial Officer and Director of Finance, and
in April 2002 he was promoted to his current position. From
March 1998 to January 2000, Mr. Santa Ines was a
self-employed consultant to several companies. From August 1997
to March 1998, Mr. Santa Ines was the Controller of Unisil
(Pink Sheets: USIL), a semiconductor company. From April 1994 to
August 1997, he was a Senior Finance Manager at Lam Research
Corporation (Nasdaq: LRCX), a semiconductor equipment
manufacturer.
Kenneth P. Aron, Ph.D. has served as the
Companys Chief Technology Officer since April 2008.
Dr. Aron joined us in February 2000 as Vice President of
Research and Development. From April 1998 to November 1999,
Dr. Aron was Vice President of Engineering and Technology
of Incyte Pharmaceuticals (Nasdaq: INCY), a genomic information
company. From April 1996 to April 1998, Dr. Aron was Vice
President of Research, Development and Engineering for
Cardiogenesis Corporation (Nasdaq: CGCP), a manufacturer of
laser-based cardiology surgical products.
Donald P. Wood has served as the Companys Chief
Operations Officer since April 2009. Mr. Wood joined us in
October 2007 as Vice President of Operations. From April 2003 to
September 2007, Mr. Wood was the Vice President of
Operations of Cholestech Corporation (Nasdaq: CTEC), a medical
products manufacturing company which was subsequently acquired
by Inverness Medical Innovations, Inc. in September 2007. From
July 2001 to March 2003, Mr. Wood served as Vice President
of Bone Health, a business unit of Quidel Corporation, a
manufacturing and marketer of point-of-care diagnostics, and was
responsible for Bone Health Product Operations, Device Research
and Development, and Sales and Marketing. He also served as
Quidels Vice President of Ultrasound Operations from
August 1999 to July 2001. Prior to joining Quidel, Mr. Wood
was the Director of Ultrasound Operations for Metra Biosystems
Inc., a developer and manufacturing company of point-of-care
products for osteoporosis, from July 1998 to August 1999 prior
to Quidels acquisition of Metra Biosystems Inc.
Vladimir E. Ostoich, Ph.D., one of the
Companys co-founders, is currently the Vice President of
Government Affairs and Vice President of Marketing for the
Pacific Rim. Dr. Ostoich has served as Vice President in
various capacities at Abaxis since inception, including as Vice
President of Research and Development, Senior Vice President of
Research and Development, Vice President of Engineering and
Instrument Manufacturing and Vice President of Marketing and
Sales for the United States and Canada.
Martin V. Mulroy has served as the Companys Vice
President of Veterinary Sales and Marketing for
North America since May 2006. Mr. Mulroy joined us in
November 1997 as the Northeast Regional Sales Manager. He was
promoted to Eastern Area Director of Sales in December 1998 and,
in January 2005, he was promoted to National Sales Director for
the Domestic Veterinary market. From March 1996 to November
1997, Mr. Mulroy was Regional Sales Manager for BioCircuits
Inc., an immunoassay company in the medical market.
86
Mr. Mulroy was Regional Sales Manager from 1990 to 1992 and
Field Operations Manager from 1992 to 1995 for MAST
Immunosystems Inc., a privately-held medical diagnostic company.
Term and
Number of Directors
All of our directors hold office until the next annual meeting
of shareholders of Abaxis and until their successors have been
elected and qualified. Our Bylaws authorize our Board of
Directors to fix the number of directors at not less than four
or no more than seven. The number of directors of the Company is
currently six.
Each of our executive officers serves at the discretion of the
Board of Directors. There are no family relationships among any
of our directors or executive officers.
Identification
of Audit Committee and Financial Expert
The Audit Committee of the Board of Directors oversees
Abaxis corporate accounting, financial reporting process
and systems of internal control and financial controls. The
following outside directors comprise the Audit Committee:
Mr. Evenhuis, Dr. Bastiani, Mr. Hanlon,
Dr. Singh and Dr. Tucker. Mr. Evenhuis serves as
Chairman of the Audit Committee.
The Board of Directors annually reviews the Nasdaq Stock Market,
or NASDAQ, listing standards definition of independence for
Audit Committee members and has determined that all members of
our Audit Committee are independent (based on the
requirements for independence set forth in
Rule 4350(d)(2)(A)(i) and (ii) of the NASDAQ listing
standards). Securities and Exchange Commission, or SEC,
regulations require Abaxis to disclose whether a director
qualifying as an audit committee financial expert
serves on the Audit Committee. The Board of Directors has
determined that Mr. Evenhuis qualifies as an audit
committee financial expert, as defined in applicable SEC
rules. The Board of Directors made a qualitative assessment of
Mr. Evenhuiss level of knowledge and experience based
on a number of factors, including his formal education and
experience as a chief financial officer for public reporting
companies.
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our executive
officers, directors and persons who beneficially own more than
10% of our equity securities to file initial reports of
ownership and reports of changes in ownership with the SEC. Such
persons are required by SEC regulations to furnish us with
copies of all Section 16(a) forms filed by such persons.
Based solely on our review of the copies of Forms 3, 4 and
5 and amendments thereto received by us, we believe that during
the period from April 1, 2008 through March 31, 2009,
our executive officers, directors and greater than 10%
shareholders complied with all applicable filing requirements
applicable to these executive officers, directors and greater
than 10% shareholders, except with respect to one late report
filing, covering one transaction, by Mr. Brenton Hanlon,
one of our directors.
Code of
Business Conduct and Ethics
Abaxis has adopted a Code of Business Conduct and Ethics that
applies to all our executive officers, directors and employees,
including without limitation our principal executive officer,
principal financial officer, principal accounting officer or
controller or persons performing similar functions. The Code of
Business Conduct and Ethics is available on our website at
www.abaxis.com under Investor Relations at
Corporate Governance. If we make any amendments to
the Code of Business Conduct and Ethics or grant any waiver from
a provision of the code to any executive officer or director, we
will promptly disclose the nature of the amendment or waiver on
our website. We intend to satisfy the disclosure requirement
under Item 5.05 of
Form 8-K
regarding any amendment to, or waiver of, any provision of the
Code of Business Conduct and Ethics by disclosing such
information on the same website. You may also request a copy of
our Code of Business Conduct and Ethics by contacting our
investor relations department at investors@abaxis.com.
87
|
|
Item 11.
|
Executive
Compensation
|
COMPENSATION
DISCUSSION AND ANALYSIS
Overview
The goals of our executive compensation program are to attract,
retain, motivate and reward executive officers who contribute to
our success and to incentivize these executives on both a
short-term and long-term basis to achieve our business
objectives. This program combines cash and equity awards in the
proportions that we believe will motivate our executive officers
to increase shareholder value over the long-term.
Our executive compensation program is designed to achieve the
following objectives:
|
|
|
|
|
to align our executive compensation with our strategic business
objectives;
|
|
|
|
to align the interests of our executive officers with both
short-term and long-term shareholder interests; and
|
|
|
|
to place a substantial portion of our executives
compensation at risk such that actual compensation depends on
both overall company performance and individual performance.
|
Executive
Compensation Program Objectives and Framework
Our executive compensation program has three primary components:
(1) base salary, (2) annual cash incentive bonus and
(3) equity grants. Base salaries for our executive officers
are a minimum fixed level of compensation consistent with or
below competitive market practice. Annual cash incentive bonuses
awarded to our executive officers are intended to incentivize
and reward achievement of financial, operating and strategic
objectives during the fiscal year. Equity grants awarded to our
executive officers are designed to ensure that incentive
compensation is linked to our long-term company performance,
promote retention and to align our executives long-term
interests with shareholders long-term interests. Our
executive officers total potential cash compensation is
heavily weighted toward annual cash incentive bonuses, because
our Compensation Committee and Board of Directors believes this
weighting best aligns the interests of our executive officers
with that of shareholders generally.
Executive compensation is reviewed annually by our Compensation
Committee and Board of Directors, and adjustments are made to
reflect company objectives and competitive conditions.
Generally, base salaries are adjusted effective May 1 of each
year. We also offer our executive officers participation in our
401(k) plan, health care insurance, flexible spending accounts
and certain other benefits available generally to all full-time
employees.
Role of
Our Compensation Committee
Our Compensation Committee, which operates under a written
charter adopted by the Board of Directors, is primarily
responsible for reviewing and recommending to the Board of
Directors for approval the compensation arrangements for our
executive officers and directors. In carrying out these
responsibilities, the Compensation Committee shall review all
components of executive officer and director compensation for
consistency with the Compensation Committees compensation
philosophy as in effect from time to time. In connection with
their review and recommendations, our Compensation Committee
also considers the recommendations of our Chief Executive
Officer, Mr. Clinton Severson. Our Compensation Committee
gives considerable weight to Mr. Seversons
recommendations because of his direct knowledge of each
executive officers performance and contribution to our
financial performance. However, Mr. Severson does not
participate in the determination of his own compensation. No
other executive officers participate in the determination or
recommendation of the amount or form of executive officer
compensation, except the Companys Chief Financial Officer
as discussed below. Our Compensation Committee does not delegate
any of its functions in determining executive
and/or
director compensation. To date, our Compensation Committee has
not established any formal policies or guidelines for allocating
compensation between long-term and currently paid out
compensation, cash and non-cash compensation, or among different
forms of non-cash compensation.
Our Compensation Committee may discuss with our Chief Executive
Officer or Chief Financial Officer our financial, operating and
strategic business objectives, bonus targets or performance
goals. The Compensation
88
Committee reviews and determines the appropriateness of the
financial measures and performance goals, as well as assesses
the degree of difficulty in achieving specific bonus targets and
performance goals. The Compensation Committee then presents its
recommendation for executive compensation to the Board of
Directors for final review and approval. Typically, these
recommendations are made to our Board of Directors during the
first quarter of the ensuing fiscal year.
From time to time, our Compensation Committee may engage an
independent compensation advisor to obtain competitive
compensation data. In March 2006, we retained the independent
compensation consulting firm of Top Five Data Services, Inc.
(Top Five) to, among other things, help identify
appropriate peer group companies and to obtain and evaluate
executive compensation data for these companies, and took its
recommendations into account in setting fiscal 2007 executive
compensation. We did not engage another compensation consultant,
or request additional recommendations from Top Five, in
connection with our determination of fiscal 2008 or fiscal 2009
executive compensation because our Compensation Committee and
Board of Directors determined that many of the recommendations
made by Top Five with respect to fiscal 2007 continued to be
relevant for fiscal 2008 and fiscal 2009. In May 2008, our
Compensation Committee engaged an independent compensation
consulting firm, Watson Wyatt, to prepare competitive
benchmarking studies as to, and advise the Compensation
Committee on long-term equity compensation for executives in
similarly-situated companies. Our Compensation Committee and
Board of Directors may engage compensation consultants in the
future as they deem it to be necessary or appropriate.
Competitive
Benchmarking
In April 2006, Top Five, in consultation with our Compensation
Committee, compared our senior management compensation to the
senior management compensation at a group of 19 companies
(the Compensation Peer Group). This Compensation
Peer Group represented similarly-situated medical device and
diagnostic companies that were identified by Top Five as
companies with similar financial growth and as competitors for
executive talent. The following companies comprised the
Compensation Peer Group:
|
|
|
|
|
Abiomed
|
|
Conceptus
|
|
Palomar Medical Technologies
|
Adeza Biomedical
|
|
Cutera
|
|
Surmodics
|
Angiodynamics
|
|
Digene
|
|
Thoratec
|
Aspect Medical Systems
|
|
Intralase
|
|
Vivus
|
ATS Medical
|
|
Kensey Nash
|
|
VNUS Medical Technologies
|
Biosite
|
|
Meridian Bioscience
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|
|
Cholestech
|
|
Orasure Technologies
|
|
|
Top Five measured our relative performance against the
Compensation Peer Group over one and three year periods based on
the following three financial metrics:
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total shareholder return;
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revenue; and
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|
|
EBITDA (earnings before income tax, depreciation and
amortization).
|
The market data obtained regarding the Compensation Peer Group
was considered by the Compensation Committee in its fiscal 2009
executive compensation decisions.
Compensation
Determinations
The Compensation Committee did not target executive compensation
in fiscal 2009 to any specific benchmarks against the
Compensation Peer Group, but did generally target total
compensation to be competitive with companies in the
Compensation Peer Group with similar financial growth rates
based on the compensation information for the Compensation Peer
Group in fiscal 2006. However, our executive officers
total potential cash compensation is more heavily weighted
toward annual cash incentive bonuses than most companies in the
Compensation Peer Group. In addition to any competitive
benchmarks the Compensation Committee deems relevant, the
Compensation Committee also considers the recommendations from
our Chief Executive Officer regarding the compensation of our
executive officers who report directly to him. These
recommendations generally
89
include annual adjustments to compensation levels, an assessment
of each executive officers overall individual
contribution, scope of responsibilities and level of experience.
Elements
of Compensation
Base
Salary
We provide an annual base salary to each of our executive
officers, including each of the named executive officers listed
on the Summary Compensation Table below (the Named
Executive Officers). Each base salary is reviewed annually
by the Compensation Committee and adjusted for the ensuing year
based on both (i) an evaluation of individual job
performance during the prior year, and (ii) an evaluation
of the compensation levels of similarly-situated executive
officers at the Compensation Peer Group and in our industry
generally.
In determining fiscal 2009 base salaries for our Named Executive
Officers, our Compensation Committee generally targeted salaries
to be between the 25th and 50th percentile of the
Compensation Peer Group. Our Compensation Committee considered
this 25th and 50th percentile range as a general
guideline for the appropriate level of potential salaries, but
did not attempt to specifically match this or any other
percentile. Our Compensation Committee also considered the
recommendations of the Chief Executive Officer regarding the
compensation of each of the Named Executive Officers who
reported directly to him. However, the Compensation Committee
and our Board of Directors did not base their considerations on
any single factor but rather considered a mix of factors and
evaluated individual salaries against that mix.
Our Board of Directors set salaries for fiscal 2009 after
considering a peer company analysis of total compensation for
executive officers prepared in April 2006 by Top Five and the
recommendations of the Compensation Committee. For fiscal 2009,
the Compensation Committee recommended that we increase base
salaries in amounts designed to reward each of the Named
Executive Officers for their performance in the prior year while
maintaining base salaries at an appropriately competitive level.
Our Compensation Committee did not use any specific formula
based on the factors described above to determine the final base
salary levels for each Named Executive Officer. For fiscal 2009,
Dr. Aron received an increase of 8.8% in his base salary
upon his promotion to Chief Technology Officer.
In determining fiscal 2010 base salaries for our Named Executive
Officers, our Compensation Committee recommended to the Board of
Directors not to increase executive base salaries for fiscal
2010 due to the global economic downturn.
Based on the recommendations of the Compensation Committee, our
Board of Directors approved the following base salaries
(effective May 1, 2008 for fiscal 2009 and July 1,
2009 for fiscal 2010) for our Named Executive Officers:
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Fiscal 2009
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|
|
Fiscal 2010
|
|
Named Executive Officer
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|
Base Salary
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|
|
Base Salary
|
|
|
Clinton H. Severson
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|
$
|
360,000
|
|
|
$
|
360,000
|
|
Alberto R. Santa Ines
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|
$
|
200,000
|
|
|
$
|
200,000
|
|
Kenneth P. Aron, Ph.D.
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|
$
|
210,000
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|
|
$
|
210,000
|
|
Vladimir E. Ostoich, Ph.D.
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|
$
|
210,000
|
|
|
$
|
210,000
|
|
Martin V. Mulroy
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|
$
|
185,000
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|
|
$
|
185,000
|
|
Fiscal 2009 and 2010 base salary increases for the Named
Executive Officers were as follows:
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|
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|
Fiscal 2009
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|
|
Fiscal 2010
|
|
|
|
Percent Increase
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|
|
Percent Increase
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|
Named Executive Officer
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|
In Base Salary
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|
|
In Base Salary
|
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|
Clinton H. Severson
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|
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6.5
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%
|
|
|
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%
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Alberto R. Santa Ines
|
|
|
8.1
|
%
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|
|
|
%
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Kenneth P. Aron, Ph.D.
|
|
|
8.8
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%
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|
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%
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Vladimir E. Ostoich, Ph.D.
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|
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3.5
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%
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|
|
|
%
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Martin V. Mulroy
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|
|
5.7
|
%
|
|
|
|
%
|
90
Annual
Cash Incentive Bonus
Our annual cash incentive bonus program is an
at-risk compensation arrangement designed to provide
market competitive cash incentive opportunities that reward our
executive officers for the achievement of key financial
performance goals that we believe are important for us in
creating long-term shareholder value. Most importantly, the
program is structured to achieve our overall objective of tying
this element of compensation to the attainment of company
performance goals that will contribute to our financial success
and create shareholder value.
Our annual cash incentive bonus paid to each executive officer,
including each of our Named Executive Officers, is primarily
based upon Abaxis achieving two equally-weighted financial
performance goals, quarterly net sales and quarterly pre-tax
income. Additionally, the bonus targets established by the
Compensation Committee require executive officers to increase
annual corporate financial performance during the applicable
fiscal year, compared to our previous years actual
financial results. Accordingly, meeting the bonus targets is
highly challenging and requires executive officers to improve
financial performance on a
year-over-year
basis and, thus, a substantial portion of our executive
officers compensation is at risk if corporate financial
results are not achieved during a particular fiscal year. In
addition to meeting financial goals, we must not exceed a
certain failure rate on our reagents discs in order for cash
incentives to be paid to our executive officers. However, our
Compensation Committee has the discretion to grant bonuses even
if these performance goals are not met.
For fiscal 2009, our Compensation Committee generally targeted
total cash compensation to be at or above the
75th percentile of the Compensation Peer Group. Our
Compensation Committee considered this 75th percentile
target as a general guideline for the appropriate level of
potential cash bonus compensation, but did not attempt to
specifically match this or any other percentile. In April 2008,
our Board of Directors approved the fiscal 2009 target bonus
levels for our executive officers. The following table
summarizes the fiscal 2009 target bonus amounts and the bonus
amounts awarded for fiscal 2009 for our Named Executive Officers:
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Fiscal 2009
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|
|
Fiscal 2009
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|
Named Executive Officer
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|
Target Bonus
|
|
|
Bonus Awarded
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|
|
Clinton H. Severson
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|
$
|
525,000
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|
|
$
|
226,406
|
|
Alberto R. Santa Ines
|
|
$
|
300,000
|
|
|
$
|
129,375
|
|
Kenneth P. Aron, Ph.D.
|
|
$
|
300,000
|
|
|
$
|
129,375
|
|
Vladimir E. Ostoich, Ph.D.
|
|
$
|
300,000
|
|
|
$
|
129,375
|
|
Martin V. Mulroy
|
|
$
|
275,000
|
|
|
$
|
139,219
|
|
Payment of the target bonus is equally weighted between
achievement of our quarterly net sales performance goal and our
quarterly pre-tax income performance goal. For fiscal 2009,
bonuses were earned only if we achieved at least 90% of one or
more of our pre-established quarterly net sales
and/or
quarterly pre-tax income goals. After the initial threshold is
met, the amount of the target bonus paid is based on a sliding
scale relative to the proportionate achievement of the
performance goals. If we achieve 90% of only one performance
goal, the payout would be limited to 25% of the aggregate target
bonus. For each 1% above 90% of that performance goal, the
payout would increase by 2.5% for the aggregate target bonus.
The target bonus will be fully earned if at least 100% of both
performance goals are achieved. For each 1% above 100% of a
performance goal, the payout would increase by 1.5% for the
aggregate target bonus. The maximum potential bonus payout is
200% of the target bonus, provided we achieve greater than 133%
of at least one of the performance goals. Assuming targets are
reached, the bonus payments are paid as follows: 15% of the
applicable bonus amount for the first quarter, 25% in the second
and third quarters, and 35% in the fourth quarter. At the end of
the fourth quarter, the final amount of the bonus earned will be
adjusted to reflect overall performance against the year. For
the Named Executive Officers, excluding Mr. Mulroy, our
Vice President of Veterinary Sales and Marketing for North
America, the financial targets for fiscal 2009 were based on the
companys annual net sales and pre-tax income goals. Based
on these pre-established goals, our other Named Executive
Officers received 43.1% of their target bonus awards for fiscal
2009. Since Mr. Mulroys responsibility is to manage
the veterinary sales in North America, his financial targets for
fiscal 2009 were based on sales for the veterinary market for
North America and on the companys annual pre-tax income
goals. Based on these pre-established goals, Mr. Mulroy
received 50.6% of his target bonus awards for fiscal 2009.
91
Due to the global economic downturn, the Compensation Committee
recommended to our Board of Directors that for fiscal 2010
target bonuses, we maintain the target bonuses from fiscal 2009
for the Named Executive Officers. In April 2009, our Board of
Directors approved the fiscal 2010 target bonus levels for our
executive officers. The following table summarizes the fiscal
2010 target bonus amounts for our Named Executive Officers:
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|
|
|
|
|
|
Fiscal 2010
|
|
Named Executive Officer
|
|
Target Bonus
|
|
|
Clinton H. Severson
|
|
$
|
525,000
|
|
Alberto R. Santa Ines
|
|
$
|
300,000
|
|
Kenneth P. Aron, Ph.D.
|
|
$
|
300,000
|
|
Vladimir E. Ostoich, Ph.D.
|
|
$
|
300,000
|
|
Martin V. Mulroy
|
|
$
|
275,000
|
|
We expect payment of the target bonus, as identified above, to
continue to be equally weighted at 50% for achievement of our
quarterly net sales performance goal and 50% for achievement of
our quarterly pre-tax income performance goal. For fiscal 2010,
bonuses will only be earned if we achieve at least 90% of one or
more of our pre-established quarterly net sales
and/or
quarterly pre-tax income goals during fiscal 2010. After the
initial threshold is met, the amount of the target bonus paid
will be based on a sliding scale relative to the proportionate
achievement of the performance goals. If we achieve 90% of only
one performance goal, the payout would be limited to 25% of the
aggregate target bonus. For each 1% above 90% of that
performance goal, the payout would increase by 2.5% for the
aggregate target bonus. The target bonus will be fully earned if
at least 100% of both performance goals are achieved. For each
1% above 100% of a performance goal, the payout would increase
by 1.5% for the aggregate target bonus. The maximum potential
bonus payout is 200% of the target bonus, provided we achieve
greater than 133% of at least one of the performance goals.
Assuming targets are reached, we expect that the bonus payments
will be paid as follows: 15% of the applicable bonus amount for
the first quarter, 25% in the second and third quarters, and 35%
in the fourth quarter. At the end of the fourth quarter of
fiscal 2010, the final payment will be adjusted to reflect
overall performance against the year. Our Compensation Committee
and Board of Directors have the discretion to adjust the
parameters and performance goals for payment of these annual
performance bonuses.
We do not currently have a formal policy regarding adjustments
or recovery of awards or payments following a restatement of
financial performance targets. In such a circumstance, the
Compensation Committee would evaluate whether compensation
adjustments were appropriate based upon the facts and
circumstances surrounding the restatement.
Long-term
Equity Incentive Compensation
Under our 2005 Equity Incentive Plan, we are permitted to award
stock options, stock appreciation rights, restricted stock
awards, restricted stock units, performance shares, performance
units, deferred compensation awards or other share-based awards.
Beginning in fiscal 2007, we began granting restricted stock
units to our executive officers in lieu of other forms of
equity-based grants. Prior to fiscal 2007, equity-based grants
to our executive officers comprised solely of stock options.
There were no equity grants to our current Named Executive
Officers in fiscal 2006. Equity grants to our Named Executive
Officers in fiscal 2009 and fiscal 2010 are discussed below. We
do not currently have stock ownership guidelines for our
executive officers.
Stock
Options
Prior to fiscal 2007, a substantial portion of our executive
compensation arrangement consisted of long-term incentive
grants, comprising of stock options. We granted stock options
with an exercise price equal to the fair market value of our
common stock on the grant date. Accordingly, our executive
officers only realize actual compensation value if our
shareholders realize value. In addition, we believe the stock
options granted to executive officers created retention
incentives as the stock options vested over a period of four
years based on cliff-vesting terms only as long as executive
officers remained an employee with us. For the unvested stock
options granted prior to April 1, 2006, we are required to
recognize share-based compensation expense over the vesting
period in accordance with Statement of Financial Accounting
Standards No. 123 (revised 2004), Share-Based
Payment, which we adopted in fiscal 2007 using the
modified prospective method.
92
Restricted
Stock Units
Fiscal 2009 Restricted Stock Unit Grants. In
fiscal 2007, we granted restricted stock units with performance
acceleration. Our Board of Directors believed that this form of
long-term equity incentive will help ensure executive retention
and more directly link executive pay to company financial
performance. The four-year time-based vesting of the restricted
stock units granted in fiscal 2007 accelerates if certain
performance criteria are exceeded during the performance period.
For a discussion of the performance criteria, see the table
entitled Outstanding Equity Awards at Fiscal Year End
2009 below. The Compensation Committee approves all
restricted stock unit grants to our Named Executive Officers and
other executive officers.
In April 2008, after considering an analysis of total
compensation for our Named Executive Officers and upon the
recommendation of our Compensation Committee, our Board of
Directors granted 50,000 restricted stock units to our Chief
Executive Officer and 20,000 restricted stock units to each of
our other Named Executive Officers. The value of these equity
grants was approximately $1.3 million for our Chief
Executive Officer and approximately $500,000 for each of our
other Named Executive Officers. The Compensation Committee
believed that these grants of restricted stock units were
appropriate based on our financial performance over the prior
year. The four-year time-based vesting terms of the fiscal 2009
restricted stock unit awards are as follows:
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|
|
|
|
five percent vesting after the first year of continuous
employment;
|
|
|
|
additional ten percent after the second year of continuous
employment;
|
|
|
|
additional 15 percent after the third year of continuous
employment; and
|
|
|
|
the remaining 70 percent after the fourth year of
continuous employment.
|
Time-based vesting terms is intended to provide retention for
our executive officers as the awards vest based on continuous
employment. Unlike the fiscal 2007 restricted stock units, these
restricted stock units are not subject to performance-based
acceleration. Our Compensation Committee believed that retention
of the Named Executive Officers was key to our success and that
these additional restricted stock units would be more likely,
given the time-based vesting schedule of the restricted stock
units, to maximize retention of our Named Executive Officers
without performance-based acceleration milestones.
Fiscal 2010 Restricted Stock Unit Grants. In
April 2009, after considering an analysis of long-term equity
incentives conducted by Watson Wyatt in fiscal 2009, for our
Named Executive Officers and upon the recommendation of the
Compensation Committee, our Board of Directors granted 55,000
restricted stock units to our Chief Executive Officer and 25,000
restricted stock units to each of our other Named Executive
Officers. The Compensation Committee believed that these grants
of restricted stock units were appropriate based on our
financial performance over the prior year. The fiscal 2010
restricted stock unit awards vest, based on time-based vesting
terms, in the same manner as the fiscal 2009 restricted stock
unit awards discussed above. The fiscal 2010 restricted stock
units are also not subject to performance-based acceleration.
Our Compensation Committee believed that retention of the Named
Executive Officers was key to our success and that these
additional restricted stock units would be more likely, given
the time-based vesting schedule of the restricted stock units,
to maximize retention of our Named Executive Officers without
performance-based acceleration milestones.
Other
Compensation and Benefits
We do not provide any of our executive officers with any
material perquisites. Currently, all benefits offered to our
executive officers, including an opportunity to participate in
our 401(k) plan, medical, dental, vision, life insurance,
disability coverage and flexible spending accounts, are also
available on a non-discriminatory basis to other full-time
employees. We also provide vacation and other paid holidays to
all full-time employees, including our Named Executive Officers.
Employment
Agreements
In August 2005, we entered into an employment agreement with
Clinton H. Severson, our President and Chief Executive Officer,
which provides Mr. Severson with a severance payment equal
to two years of salary, bonus and benefits if his employment
with us is terminated for any reason other than cause. Certain
severance benefits
93
provided pursuant to the Severance Plan (described below in
Change in Control Agreements) with respect to a
change of control supersede those provided pursuant to the
employment agreement. None of our other executives have
employment agreements with us.
Change in
Control Agreements
In July 2006, our Board of Directors, after considering a change
of control program analysis from the Compensation Peer Group
prepared by Top Five and upon the recommendation of our
Compensation Committee, approved and adopted the Abaxis, Inc.
Executive Change of Control Severance Plan (the Severance
Plan). The Severance Plan was adopted by our Board of
Directors to reduce the distraction of executives and potential
loss of executive talent that could arise from a potential
change of control. Participants in the Severance Plan include
Abaxis senior managers who are selected by the Board of
Directors. In December 2008, our Board of Directors amended the
Severance Plan to ensure its compliance with Section 409A
of the Internal Revenue Code of 1986, as amended (the
Code) and designated the following current executive
officers as participants in the Severance Plan: Clinton H.
Severson, our Chairman, President and Chief Executive Officer;
Alberto R. Santa Ines, our Chief Financial Officer and Vice
President of Finance; Kenneth P. Aron, Ph.D., our Chief
Technology Officer; Vladimir E. Ostoich, Ph.D., our Vice
President of Government Affairs and Vice President of Marketing
for the Pacific Rim; Donald P. Wood, our Chief Operations
Officer; and Martin V. Mulroy, our Vice President of Veterinary
Sales and Marketing for North America.
The Severance Plan provides that upon the occurrence of a change
of control a participants outstanding stock option(s) and
other unvested equity-based instruments will accelerate in full,
and any such stock awards shall become immediately exercisable.
In addition, the Severance Plan provides that, if the
participants employment is terminated by us (or any
successor of Abaxis) for any reason other than cause, death, or
disability within 18 months following the change of control
date and such termination constitutes a separation in service,
the participant is eligible to receive severance benefits as
follows:
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|
on the 60th day after the termination date, a lump sum cash
payment equal to two times the sum of the participants
annual base salary and the participants target annual
bonus amount for the year in which the change of control occurs;
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|
payment of up to 24 months of premiums for medical, dental
and vision benefits, provided, however, that if the participant
becomes eligible to receive comparable benefits under another
employers plan, the Companys benefits shall be
secondary to those provided under such other plan;
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|
reimbursement, on a monthly basis, of up to 24 months of
premiums for disability and life insurance benefits if the
participant elects to convert his or her disability
and/or life
insurance benefits under the Companys plans into
individual policies following termination; and
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|
payment of an amount equal to any excise tax imposed under
Section 4999 of the Code, provided, however, that payment
of such amount is capped at $1,000,000 per participant.
|
Payment of the foregoing severance benefits is conditioned upon
the participants execution of a valid and effective
release of claims against us.
Tax
Considerations
Deductibility
of Executive Compensation
We have considered the provisions of Section 162(m) of the
Code and related Treasury Regulations which restrict
deductibility of executive compensation paid to our Named
Executive Officers and our other executive officers holding
office at the end of any year to the extent such compensation
exceeds $1,000,000 for any of such officers in any year and does
not qualify for an exception under the statute or regulations.
The Compensation Committee endeavors to maximize deductibility
of compensation under Section 162(m) of the Code to the
extent practicable while maintaining a competitive,
performance-based compensation program. However, tax
consequences, including tax deductibility, are subject to many
factors (such as changes in the tax laws and regulations or
94
interpretations thereof and the timing of various decisions by
officers regarding stock options) which are beyond the control
of both the Company and our Compensation Committee. In addition,
our Compensation Committee believes that it is important to
retain maximum flexibility in designing compensation programs
that meet its stated business objectives. For these reasons, our
Compensation Committee, while considering tax deductibility as a
factor in determining compensation, will not limit compensation
to those levels or types of compensation that will be
deductible. Our Compensation Committee will continue to consider
alternative forms of compensation, consistent with its
compensation goals that preserve deductibility. The Compensation
Committee does not believe that the components of our
compensation will be likely to exceed $1,000,000 by a material
amount for any affected executive officer in the near future and
therefore concluded that no further action with respect to
qualifying such compensation for deductibility was necessary at
this time.
Compensation
Committee Interlocks and Insider Participation
No member of the Compensation Committee has ever been an
executive officer or employee of the Company. None of the
Companys executive officers currently serves, or has
served during the last completed fiscal year, on the
Compensation Committee or board of directors of any other entity
that has one or more executive officers serving as a member of
the Companys board of directors or compensation committee.
For information with respect to related-person transactions
involving members of the Compensation Committee, see
Item 13. Certain Relationships and Related Transactions,
and Director Independence of this
Form 10-K.
COMPENSATION
COMMITTEE
REPORT2
The Compensation Committee has reviewed and discussed with
management the disclosures contained in the Compensation
Discussion and Analysis included in this Annual Report on
Form 10-K
for the fiscal year ended March 31, 2009.
Based upon this review and discussion with management, the
Compensation Committee recommended to the Board of Directors
that the Compensation Discussion and Analysis be included in
this Annual Report on
Form 10-K
for the fiscal year ended March 31, 2009.
THE COMPENSATION COMMITTEE
Richard J. Bastiani, Ph.D., Chair
Brenton G. A. Hanlon
2 The
material in this report is not soliciting material,
is not deemed filed with the SEC and is not to be
incorporated by reference into any filing of Abaxis under the
Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended, whether made before or after the date
hereof and irrespective of any general incorporation language
contained in any such filing.
95
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The following table sets forth for fiscal 2009, 2008 and 2007,
the compensation awarded or paid to, or earned by, Abaxis
Chief Executive Officer, Chief Financial Officer and the three
other most highly compensated executive officers at
March 31, 2009 (collectively, the Named Executive
Officers).
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Non-Equity
|
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Stock
|
|
|
Option
|
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|
Incentive Plan
|
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All Other
|
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Fiscal
|
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Salary
|
|
|
Bonus
|
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|
Awards
|
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Awards
|
|
|
Compensation
|
|
|
Compensation
|
|
|
Total
|
|
Name and Principal Position
|
|
Year
|
|
|
($)
|
|
|
($)
|
|
|
($)(1)
|
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|
($)(2)
|
|
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($)(3)
|
|
|
($)(4)
|
|
|
($)
|
|
|
Clinton H. Severson
|
|
|
2009
|
|
|
|
355,770
|
|
|
|
|
|
|
|
465,214
|
|
|
|
|
|
|
|
226,406
|
|
|
|
9,311
|
(5)
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|
|
1,056,701
|
|
President, Chief Executive Officer and
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|
|
2008
|
|
|
|
336,500
|
|
|
|
|
|
|
|
253,941
|
|
|
|
1,099
|
|
|
|
456,000
|
|
|
|
11,535
|
(5)
|
|
|
1,059,075
|
|
Chairman of the Board
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|
|
2007
|
|
|
|
323,500
|
|
|
|
|
|
|
|
101,040
|
|
|
|
8,603
|
|
|
|
500,250
|
|
|
|
13,823
|
(5)
|
|
|
947,216
|
|
Alberto R. Santa Ines
|
|
|
2009
|
|
|
|
197,115
|
|
|
|
|
|
|
|
129,741
|
|
|
|
|
|
|
|
129,375
|
|
|
|
8,949
|
(6)
|
|
|
465,180
|
|
Chief Financial Officer and
|
|
|
2008
|
|
|
|
183,846
|
|
|
|
|
|
|
|
64,597
|
|
|
|
879
|
|
|
|
261,250
|
|
|
|
10,972
|
(6)
|
|
|
521,544
|
|
Vice President of Finance
|
|
|
2007
|
|
|
|
174,008
|
|
|
|
|
|
|
|
22,453
|
|
|
|
8,997
|
|
|
|
287,500
|
|
|
|
13,227
|
(6)
|
|
|
506,185
|
|
Kenneth P. Aron, Ph.D.
|
|
|
2009
|
|
|
|
206,730
|
|
|
|
|
|
|
|
129,741
|
|
|
|
|
|
|
|
129,375
|
|
|
|
19,585
|
(7)
|
|
|
485,431
|
|
Chief Technology Officer
|
|
|
2008
|
|
|
|
192,077
|
|
|
|
|
|
|
|
64,597
|
|
|
|
879
|
|
|
|
261,250
|
|
|
|
20,753
|
(7)
|
|
|
539,556
|
|
|
|
|
2007
|
|
|
|
184,054
|
|
|
|
|
|
|
|
22,453
|
|
|
|
6,882
|
|
|
|
287,500
|
|
|
|
22,592
|
(7)
|
|
|
523,481
|
|
Vladimir E. Ostoich, Ph.D.
|
|
|
2009
|
|
|
|
208,654
|
|
|
|
|
|
|
|
129,741
|
|
|
|
|
|
|
|
129,375
|
|
|
|
14,552
|
(8)
|
|
|
482,322
|
|
Vice President of Government Affairs
|
|
|
2008
|
|
|
|
202,077
|
|
|
|
|
|
|
|
64,597
|
|
|
|
879
|
|
|
|
261,250
|
|
|
|
16,599
|
(8)
|
|
|
545,402
|
|
and Vice President of Marketing
for the Pacific Rim
|
|
|
2007
|
|
|
|
194,100
|
|
|
|
|
|
|
|
22,453
|
|
|
|
6,882
|
|
|
|
287,500
|
|
|
|
17,013
|
(8)
|
|
|
527,948
|
|
Martin V. Mulroy
|
|
|
2009
|
|
|
|
183,077
|
|
|
|
|
|
|
|
129,741
|
|
|
|
6,218
|
|
|
|
139,219
|
|
|
|
7,896
|
(10)
|
|
|
466,151
|
|
Vice President of Veterinary Sales and Marketing for North
America(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Awards consist of restricted stock units granted to the Named
Executive Officer in the fiscal year specified as well as prior
fiscal years. Amounts shown do not reflect whether the Named
Executive Officer has actually realized a financial benefit from
the awards (such as by vesting in a restricted stock unit
award). Amounts listed in this column represent the compensation
cost recognized by us for financial statement reporting
purposes. These amounts have been calculated in accordance with
Statement of Financial Accounting Standards No. 123
(revised 2004), Share-Based Payment
(SFAS No. 123(R)). For a discussion of the
assumptions used in determining the fair value of awards of
restricted stock units in the above table, see Note 11 of
the Notes to Consolidated Financial Statements included in this
Annual Report on
Form 10-K. |
|
(2) |
|
Awards consist of stock options granted to the Named Executive
Officer in the fiscal year specified as well as prior fiscal
years. Amounts shown do not reflect whether the Named Executive
Officer has actually realized a financial benefit from the
awards (such as by exercising stock options). Amounts listed in
this column represent the compensation cost recognized by us for
financial statement reporting purposes. These amounts have been
calculated in accordance with SFAS No. 123(R). For a
discussion of the assumptions used in determining the fair value
of awards of stock options in the above table, see Note 11
of the Notes to Consolidated Financial Statements included in
this Annual Report on
Form 10-K. |
|
(3) |
|
Represents aggregate cash performance bonuses earned during each
fiscal year based on achievement of corporate financial
performance goals, as described under Executive
Compensation Compensation Discussion and
Analysis above. These bonuses were paid in four quarterly
installments within one month following the end of the
applicable quarter upon achieving the established quarterly net
sales and quarterly pre-tax income goals for that quarter.
Amounts do not include bonuses paid during a fiscal year, with
respect to bonuses earned in a prior fiscal year. |
|
(4) |
|
Amounts listed are based upon our actual costs expensed in
connection with such compensation. |
|
(5) |
|
In fiscal 2009, consists of $4,652 in supplemental health plan
expenses reimbursed by us, $648 in group life insurance paid by
us, $626 in disability insurance premiums paid by us and $3,385
in matching contributions made by us to Mr. Seversons
401(k) account. In fiscal 2008, consists of $4,378 in
supplemental health plan expenses reimbursed by us, $780 in
group life insurance paid by us, $752 in disability insurance
premiums paid by us and $5,625 in matching contributions made by
us to Mr. Seversons 401(k) account. In fiscal 2007,
consists of $4,366 in supplemental health plan expenses
reimbursed by us, $780 in group life insurance paid by |
96
|
|
|
|
|
us, $812 in disability insurance premiums paid by us and $7,865
in matching contributions made by us to Mr. Seversons
401(k) account. |
|
(6) |
|
In fiscal 2009, consists of $4,652 in supplemental health plan
expenses reimbursed by us, $432 in group life insurance paid by
us, $480 in disability insurance premiums paid by us and $3,385
in matching contributions made by us to Mr. Santa
Ines 401(k) account. In fiscal 2008, consists of $4,490 in
supplemental health plan expenses reimbursed by us, $420 in
group life insurance paid by us, $437 in disability insurance
premiums paid by us and $5,625 in matching contributions made by
us to Mr. Santa Ines 401(k) account. In fiscal 2007,
consists of $4,505 in supplemental health plan expenses
reimbursed by us, $420 in group life insurance paid by us, $437
in disability insurance premiums paid by us and $7,865 in
matching contributions made by us to Mr. Santa Ines
401(k) account. |
|
(7) |
|
In fiscal 2009, consists of $14,959 in supplemental health plan
expenses reimbursed by us, $451 in group life insurance paid by
us, $502 in disability insurance premiums paid by us and $3,673
in matching contributions made by us to Mr. Arons
401(k) account. In fiscal 2008, consists of $14,222 in
supplemental health plan expenses reimbursed by us, $444 in
group life insurance paid by us, $462 in disability insurance
premiums paid by us and $5,625 in matching contributions made by
us to Mr. Arons 401(k) account. In fiscal 2007,
consists of $14,186 in supplemental health plan expenses
reimbursed by us, $444 in group life insurance paid by us, $462
in disability insurance premiums paid by us and $7,500 in
matching contributions made by us to Mr. Arons 401(k)
account. |
|
(8) |
|
In fiscal 2009, consists of $10,599 in supplemental health plan
expenses reimbursed by us, $451 in group life insurance paid by
us, $502 in disability insurance premiums paid by us and $3,000
in matching contributions made by us to Mr. Ostoichs
401(k) account. In fiscal 2008, consists of $10,043 in
supplemental health plan expenses reimbursed by us, $444 in
group life insurance paid by us, $487 in disability insurance
premiums paid by us and $5,625 in matching contributions made by
us to Mr. Ostoichs 401(k) account. In fiscal 2007,
consists of $10,058 in supplemental health plan expenses
reimbursed by us, $468 in group life insurance paid by us, $487
in disability insurance premiums paid by us and $6,000 in
matching contributions made by us to Mr. Ostoichs
401(k) account. |
|
(9) |
|
Mr. Mulroy was not a Named Executive Officer for fiscal
2008 or 2007. |
|
(10) |
|
In fiscal 2009, consists of $4,652 in supplemental health plan
expenses reimbursed by us, $400 in group life insurance paid by
us, $444 in disability insurance premiums paid by us and $2,400
in matching contributions made by us to Mr. Mulroys
401(k) account. |
Salary and Bonus in Proportion to Total
Compensation. The following table sets forth the
percentage of base salary and annual cash incentive bonus earned
by each Named Executive Officer as a percentage of total
compensation for fiscal 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Cash
|
|
|
|
Base Salary As a
|
|
|
Incentive Bonus As a
|
|
|
|
Percentage of
|
|
|
Percentage of
|
|
Named Executive Officer
|
|
Total Compensation
|
|
|
Total Compensation
|
|
|
Clinton H. Severson
|
|
|
34
|
%
|
|
|
21
|
%
|
Alberto R. Santa Ines
|
|
|
42
|
%
|
|
|
28
|
%
|
Kenneth P. Aron, Ph.D.
|
|
|
43
|
%
|
|
|
27
|
%
|
Vladimir E. Ostoich, Ph.D.
|
|
|
43
|
%
|
|
|
27
|
%
|
Martin V. Mulroy
|
|
|
39
|
%
|
|
|
30
|
%
|
CEO Employment Agreement. In August 2005, we
entered into an employment agreement with Clinton H. Severson,
our President and Chief Executive Officer, which provides
Mr. Severson with a severance payment equal to two years of
salary, bonus and benefits if his employment with us is
terminated for any reason other than cause. Certain severance
benefits provided pursuant to the Severance Plan (described
above in Change of Control Agreements) with respect
to a change of control supersede those provided pursuant to the
employment agreement. None of our other executives have
employment agreements with us.
97
Grants of
Plan-Based Awards in Fiscal 2009
The following table sets forth the grants of plan-based awards
to our Named Executive Officers during fiscal 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
Grant Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Fair Value of
|
|
|
|
|
|
|
Estimated Future Payouts Under
|
|
|
|
|
|
|
|
|
|
|
|
Shares of
|
|
|
Stock and
|
|
|
|
|
|
|
Non-Equity Incentive Plan Awards(1)
|
|
|
Estimated Future Payouts Under Equity Incentive Plan
Awards
|
|
|
Stock or
|
|
|
Option
|
|
|
|
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Units
|
|
|
Awards
|
|
Name
|
|
Grant Date
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)(2)
|
|
|
(#)
|
|
|
($)(3)
|
|
|
Clinton H. Severson
|
|
|
5/5/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
1,250,000
|
|
|
|
|
|
|
|
|
131,250
|
|
|
|
525,000
|
|
|
|
1,050,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alberto R. Santa Ines
|
|
|
5/5/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
300,000
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth P. Aron, Ph.D.
|
|
|
5/5/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
300,000
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vladimir E. Ostoich, Ph.D.
|
|
|
5/5/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
300,000
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin V. Mulroy
|
|
|
5/5/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
68,750
|
|
|
|
275,000
|
|
|
|
550,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Actual cash performance bonuses, which were approved by the
Board of Directors upon recommendation by the Compensation
Committee based on achievement of corporate financial
performance goals for fiscal 2009, were paid in four quarterly
installments within one month following the end of the
applicable quarter upon achieving the established quarterly net
sales and quarterly pre-tax income goals. Actual cash
performance bonuses are shown in the Non-Equity Incentive
Plan Compensation column of the Summary Compensation
Table above. |
|
(2) |
|
Each of the equity-based awards reported in the Grants of
Plan-Based Awards table was granted under, and is subject
to, the terms of our 2005 Equity Incentive Plan. The time-based
vesting schedule of restricted stock unit grants during fiscal
2009 are described above in Restricted Stock Units. |
|
(3) |
|
Represents the fair value of the restricted stock unit award on
the date of grant, pursuant to SFAS No. 123(R). See
Note 11 of the Notes to Consolidated Financial Statements
included in this Annual Report on
Form 10-K
for additional information. |
98
Outstanding
Equity Awards at Fiscal Year End 2009
The following table shows, for the fiscal year ended
March 31, 2009, certain information regarding outstanding
equity awards at fiscal year end for our Named Executive
Officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
Plan Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Market or
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
Unearned
|
|
|
Payout Value
|
|
|
|
Securities
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Value of
|
|
|
Shares,
|
|
|
of Unearned
|
|
|
|
Underlying
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Shares or
|
|
|
Shares or
|
|
|
Units or
|
|
|
Shares, Units
|
|
|
|
Unexercised
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
Units of
|
|
|
Units of
|
|
|
Other
|
|
|
or Other
|
|
|
|
Options
|
|
|
Unexercised
|
|
|
Option
|
|
|
|
|
|
Stock That
|
|
|
Stock That
|
|
|
Rights That
|
|
|
Rights That
|
|
|
|
(#)
|
|
|
Options
|
|
|
Exercise
|
|
|
Option
|
|
|
Have Not
|
|
|
Have Not
|
|
|
Have Not
|
|
|
Have Not
|
|
|
|
Exercisable
|
|
|
(#)
|
|
|
Price
|
|
|
Expiration
|
|
|
Vested
|
|
|
Vested
|
|
|
Vested
|
|
|
Vested
|
|
Name
|
|
(1)
|
|
|
Unexercisable
|
|
|
($)(2)
|
|
|
Date
|
|
|
(#)
|
|
|
($)
|
|
|
(#)
|
|
|
($)(3)
|
|
|
Clinton H. Severson
|
|
|
150,000
|
|
|
|
|
|
|
|
4.87
|
|
|
|
4/24/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,417
|
|
|
|
|
|
|
|
3.85
|
|
|
|
4/22/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
(4)
|
|
|
|
|
|
|
21.65
|
|
|
|
4/20/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,000
|
(5)
|
|
|
586,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,500
|
(5)
|
|
|
732,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,500
|
(6)
|
|
|
818,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
(7)
|
|
|
862,000
|
|
Alberto R. Santa Ines
|
|
|
37,432
|
|
|
|
|
|
|
|
3.00
|
|
|
|
7/23/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
3.85
|
|
|
|
4/22/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
(4)
|
|
|
|
|
|
|
21.65
|
|
|
|
4/20/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,000
|
(5)
|
|
|
293,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,000
|
(6)
|
|
|
327,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
(7)
|
|
|
344,800
|
|
Kenneth P. Aron, Ph.D.
|
|
|
3,109
|
|
|
|
|
|
|
|
7.5625
|
|
|
|
2/7/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
6.31
|
|
|
|
10/31/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,500
|
|
|
|
|
|
|
|
5.47
|
|
|
|
7/24/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
(4)
|
|
|
|
|
|
|
21.65
|
|
|
|
4/20/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,000
|
(5)
|
|
|
293,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,000
|
(6)
|
|
|
327,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
(7)
|
|
|
344,800
|
|
Vladimir E. Ostoich, Ph.D.
|
|
|
16,000
|
|
|
|
|
|
|
|
8.125
|
|
|
|
1/25/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,500
|
|
|
|
|
|
|
|
5.47
|
|
|
|
7/24/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
|
3.85
|
|
|
|
4/22/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,000
|
(4)
|
|
|
|
|
|
|
21.65
|
|
|
|
4/20/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,000
|
(5)
|
|
|
293,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,000
|
(6)
|
|
|
327,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
(7)
|
|
|
344,800
|
|
Martin V. Mulroy
|
|
|
437
|
|
|
|
|
|
|
|
6.0625
|
|
|
|
1/2/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,812
|
|
|
|
|
|
|
|
4.87
|
|
|
|
4/24/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
|
|
|
|
|
|
3.85
|
|
|
|
4/22/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,292
|
|
|
|
|
|
|
|
14.05
|
|
|
|
1/3/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,000
|
(5)
|
|
|
293,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,000
|
(6)
|
|
|
327,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
(7)
|
|
|
344,800
|
|
|
|
|
(1) |
|
Options granted to the Named Executive Officers expire ten years
after the grant date. All options vest one-fourth on the first
anniversary date of grant and vests at a rate of 1/48th for each
full month thereafter, except as otherwise noted. |
99
|
|
|
(2) |
|
Represents the fair value of our common stock on the grant date
of the option. |
|
(3) |
|
The value of the equity award is based on the closing price of
our common stock of $17.24 on March 31, 2009, as reported
on the NASDAQ Global Select Market. |
|
(4) |
|
These options were accelerated in full by our Board of Directors
and became fully vested on December 5, 2005. However,
pursuant to a
lock-up and
consent agreement entered into with each of our Named Executive
Officers, these options may not be exercised prior to the date
on which the exercise would have been permitted under the
vesting schedule set forth in footnote 1, or earlier upon the
Named Executive Officers last day of employment or a
change in control. On April 20, 2008, the restrictions
under the
lock-up and
consent agreements expired and 100% of these shares became
exercisable. |
|
(5) |
|
The four-year time-based vesting terms of the restricted stock
units is as follows, assuming continuous employment: five
percent of the shares vest on April 25, 2007; ten percent
of the shares vest on April 25, 2008; 15 percent of
the shares vest on April 25, 2009; and 70 percent of
the shares vest on April 25, 2010. Additionally, these
restricted stock unit awards are also subject to accelerated
vesting upon achieving the following performance-based
milestones: |
|
|
|
|
|
upon attainment of certain pre-tax income goals by
March 31, 2007, vesting will accelerate to an aggregate of
25% within one year from grant date; by March 31, 2008,
vesting will accelerate to an aggregate of 25% within two years
from grant date; by March 31, 2009, vesting will accelerate
to an aggregate of 30%, within three years of grant date; hence,
meeting pre-tax income goals in each of the fiscal years ended
March 31, 2007, 2008 and 2009 can result in a cumulative
vesting of 80% over three years;
|
|
|
|
upon attainment of certain product development objectives prior
to June 30, 2007, an additional vesting of 10% would be
awarded;
|
|
|
|
upon satisfaction of certain regulatory requirements prior to
March 31, 2008, an additional vesting of 10% would be
awarded; or
|
|
|
|
upon attainment of a certain level of operating income per share
for any fiscal year during the four-year vesting period, the
restricted stock units will accelerate in full.
|
|
|
|
|
|
To date, none of the foregoing performance-based milestones
required for acceleration has been achieved. In each case,
vesting of the equity award is conditioned upon the Named
Executive Officers continuous employment through the
applicable vesting date. |
|
(6) |
|
The four-year time-based vesting terms of the restricted stock
units is as follows, assuming continuous employment: five
percent of the shares vest on April 30, 2008; ten percent
of the shares vest on April 30, 2009; 15 percent of
the shares vest on April 30, 2010; and 70 percent of
the shares vest on April 30, 2011. |
|
(7) |
|
The four-year time-based vesting terms of the restricted stock
units is as follows, assuming continuous employment: five
percent of the shares vest on May 5, 2009; ten percent of
the shares vest on May 5, 2010; 15 percent of the
shares vest on May 5, 2011; and 70 percent of the
shares vest on May 5, 2012. |
Option
Exercises and Stock Vested in Fiscal 2009
The following table shows all shares of common stock acquired
upon exercise of stock options and value realized upon exercise,
and all stock awards vested and value realized upon vesting,
held by our Named Executive Officers during fiscal 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
|
Acquired on
|
|
|
Realized on
|
|
|
Acquired on
|
|
|
Realized on
|
|
|
|
Exercise
|
|
|
Exercise
|
|
|
Vesting
|
|
|
Vesting
|
|
Name
|
|
(#)
|
|
|
($)(1)
|
|
|
(#)
|
|
|
($)(2)
|
|
|
Clinton H. Severson
|
|
|
70,000
|
|
|
|
893,394
|
|
|
|
11,500
|
|
|
|
287,500
|
|
Alberto R. Santa Ines
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
|
|
75,000
|
|
Kenneth P. Aron, Ph.D.
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
|
|
75,000
|
|
Vladimir E. Ostoich, Ph.D.
|
|
|
50,000
|
|
|
|
723,625
|
|
|
|
3,000
|
|
|
|
75,000
|
|
Martin V. Mulroy
|
|
|
400
|
|
|
|
5,233
|
|
|
|
3,000
|
|
|
|
75,000
|
|
100
|
|
|
(1) |
|
The value realized equals the difference between the option
exercise price and the fair market value of our common stock on
the date of exercise, as reported on the NASDAQ Global Market,
multiplied by the number of shares for which the option was
exercised. |
|
(2) |
|
The value realized on vesting of restricted stock units equals
the fair market value of our common stock on the settlement
date, multiplied by the number of shares that vested. |
Severance
and Change in Control Agreements
Employment
Agreement
In August 2005, we entered into an employment agreement with
Clinton H. Severson, our President and Chief Executive Officer,
which provides Mr. Severson with a severance payment equal
to two years of salary, bonus and benefits if his employment
with us is terminated for any reason other than cause. Certain
severance benefits provided pursuant to the Severance Plan
(described below in Executive Change of Control Severance
Plan) with respect to a change of control supersede those
provided pursuant to the employment agreement. None of our other
executives have employment agreements with us.
Executive
Change of Control Severance Plan
In July 2006, our Board of Directors, after considering a change
of control program analysis from the Compensation Peer Group
prepared by Top Five and upon the recommendation of our
Compensation Committee, approved and adopted the Abaxis, Inc.
Executive Change of Control Severance Plan (the Severance
Plan). The Severance Plan was adopted by our Board of
Directors to reduce the distraction of executives and potential
loss of executive talent that could arise from a potential
change of control. Participants in the Severance Plan include
Abaxis senior managers who are selected by the Board of
Directors. In December 2008, our Board of Directors amended the
Severance Plan to ensure its compliance with Section 409A
of the Internal Revenue Code of 1986, as amended (the
Code) and designated the following current executive
officers as participants in the Severance Plan: Clinton H.
Severson, our Chairman, President and Chief Executive Officer;
Alberto R. Santa Ines, our Chief Financial Officer and Vice
President of Finance; Kenneth P. Aron, Ph.D., our Chief
Technology Officer; Vladimir E. Ostoich, Ph.D.,
our Vice President of Government Affairs and Vice President of
Marketing for the Pacific Rim; Donald P. Wood, our Chief
Operations Officer; and Martin V. Mulroy, our Vice President of
Veterinary Sales and Marketing for North America.
The Severance Plan provides that upon the occurrence of a change
of control a participants outstanding stock option(s) and
other unvested equity-based instruments will accelerate in full,
and any such stock awards shall become immediately exercisable.
In addition, the Severance Plan provides that, if the
participants employment is terminated by us (or any
successor of Abaxis) for any reason other than cause, death, or
disability within 18 months following the change of control
date and such termination constitutes a separation in service,
the participant is eligible to receive severance benefits as
follows:
|
|
|
|
|
on the 60th day after the termination date, a lump sum cash
payment equal to two times the sum of the participants
annual base salary and the participants target annual
bonus amount for the year in which the change of control occurs;
|
|
|
|
payment of up to 24 months of premiums for medical, dental
and vision benefits, provided, however, that if the participant
becomes eligible to receive comparable benefits under another
employers plan, the Companys benefits shall be
secondary to those provided under such other plan;
|
|
|
|
reimbursement, on a monthly basis, of up to 24 months of
premiums for disability and life insurance benefits if the
participant elects to convert his or her disability
and/or life
insurance benefits under the Companys plans into
individual policies following termination; and
|
|
|
|
payment of an amount equal to any excise tax imposed under
Section 4999 of the Code, provided, however, that payment
of such amount is capped at $1,000,000 per participant.
|
101
Payment of the foregoing severance benefits is conditioned upon
the participants execution of a valid and effective
release of claims against us.
Incentive
Plans
Under our 2005 Equity Incentive Plan, (the 2005
Plan), in the event of a change in control, as
such term is defined by the 2005 Plan, the surviving,
continuing, successor or purchasing entity or its parent may,
without the consent of any participant, either assume or
continue in effect any or all outstanding options and stock
appreciation rights or substitute substantially equivalent
options or rights for its stock. Any options or stock
appreciation rights which are not assumed or continued in
connection with a change in control or exercised prior to the
change in control will terminate effective as of the time of the
change in control. Our Compensation Committee may provide for
the acceleration of vesting of any or all outstanding options or
stock appreciation rights upon such terms and to such extent as
it determines. The 2005 Plan also authorizes our Compensation
Committee, in its discretion and without the consent of any
participant, to cancel each or any outstanding option or stock
appreciation right upon a change in control in exchange for a
payment to the participant with respect to each vested share
(and each unvested share if so determined by our Compensation
Committee) subject to the cancelled award of an amount equal to
the excess of the consideration to be paid per share of common
stock in the change in control transaction over the exercise
price per share under the award. The Compensation Committee, in
its discretion, may provide in the event of a change in control
for the acceleration of vesting
and/or
settlement of any stock award, restricted stock unit award,
performance share or performance unit, cash-based award or other
share-based award held by a participant upon such conditions and
to such extent as determined by our Compensation Committee. It
is currently anticipated that awards granted to executive
officers will accelerate fully on a change of control. The
vesting of non-employee director awards granted under the 2005
Plan automatically will accelerate in full upon a change in
control.
All outstanding stock options under our 1992 Outside
Directors Stock Option Plan (the Directors
Plan) are fully vested and no additional options will be
granted under the Directors Plan. Our Directors Plan provides
that, in the event of a transfer of control of the company, the
surviving, continuing, successor or purchasing corporation or a
parent corporation thereof, as the case may be, shall either
assume our rights and obligations under stock option agreements
outstanding under our option plans or substitute options for the
acquiring corporations stock for such outstanding options.
Any options which are neither assumed by the acquiring
corporation, nor exercised as of the date of the transfer of
control, shall terminate effective as of the date of the
transfer of control.
As described above, certain additional compensation is payable
to a Named Executive Officer (i) if his employment was
involuntarily terminated without cause, (ii) upon a change
in control or (iii) if his employment was terminated
involuntarily following a change in control. The amounts shown
in the table below assume that such termination was effective as
of March 31, 2009, and do not include amounts in which the
Named Executive Officer had already vested as of March 31,
2009. The actual compensation to be paid can only be determined
at the time of the change in control
and/or a
Named Executive Officers termination of employment.
102
Potential
Payments Upon Termination or Change in Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary
|
|
|
|
Involuntary
|
|
|
|
|
|
Termination Without
|
|
|
|
Termination Without
|
|
|
Change In Control
|
|
|
Cause Following a
|
|
Executive Benefits and Payments Upon Separation
|
|
Cause(1)
|
|
|
(No Termination)
|
|
|
Change In Control(2)
|
|
|
Clinton H. Severson
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary and bonus
|
|
$
|
1,853,077
|
|
|
|
|
|
|
$
|
1,853,077
|
|
Vesting of restricted stock units(3)
|
|
$
|
2,999,760
|
|
|
$
|
2,999,760
|
|
|
$
|
2,999,760
|
|
Health and welfare benefits(4)
|
|
$
|
11,852
|
|
|
|
|
|
|
$
|
11,852
|
|
Total
|
|
$
|
4,864,689
|
|
|
$
|
2,999,760
|
|
|
$
|
4,864,689
|
|
Alberto R. Santa Ines
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary and bonus
|
|
|
|
|
|
|
|
|
|
$
|
1,046,154
|
|
Vesting of restricted stock units(3)
|
|
|
|
|
|
$
|
965,440
|
|
|
$
|
965,440
|
|
Health and welfare benefits(4)
|
|
|
|
|
|
|
|
|
|
$
|
11,128
|
|
Excise tax reimbursement(5)
|
|
|
|
|
|
|
|
|
|
$
|
101,339
|
|
Total
|
|
|
|
|
|
$
|
965,440
|
|
|
$
|
2,124,061
|
|
Kenneth P. Aron, Ph.D.
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary and bonus
|
|
|
|
|
|
|
|
|
|
$
|
1,068,462
|
|
Vesting of restricted stock units(3)
|
|
|
|
|
|
$
|
965,440
|
|
|
$
|
965,440
|
|
Health and welfare benefits(4)
|
|
|
|
|
|
|
|
|
|
$
|
31,824
|
|
Total
|
|
|
|
|
|
$
|
965,440
|
|
|
$
|
2,065,726
|
|
Vladimir E. Ostoich, Ph.D.
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary and bonus
|
|
|
|
|
|
|
|
|
|
$
|
1,068,462
|
|
Vesting of restricted stock units(3)
|
|
|
|
|
|
$
|
965,440
|
|
|
$
|
965,440
|
|
Health and welfare benefits(4)
|
|
|
|
|
|
|
|
|
|
$
|
23,104
|
|
Total
|
|
|
|
|
|
$
|
965,440
|
|
|
$
|
2,057,006
|
|
Martin V. Mulroy
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary and bonus
|
|
|
|
|
|
|
|
|
|
$
|
962,692
|
|
Vesting of restricted stock units(3)
|
|
|
|
|
|
$
|
965,440
|
|
|
$
|
965,440
|
|
Health and welfare benefits(4)
|
|
|
|
|
|
|
|
|
|
$
|
10,992
|
|
Excise tax reimbursement(5)
|
|
|
|
|
|
|
|
|
|
$
|
189,652
|
|
Total
|
|
|
|
|
|
$
|
965,440
|
|
|
$
|
2,128,776
|
|
|
|
|
(1) |
|
Amounts relate to payments to Mr. Severson equal to two
years of salary, bonus and benefits if his employment with us is
terminated for any reason other than cause (as defined in
Mr. Seversons employment agreement). |
|
(2) |
|
Amounts assume that the Named Executive Officer was terminated
without cause or due to constructive termination during the
18-month
period following a change in control. |
|
(3) |
|
The value of the restricted stock unit assumes that the market
price per share of our common stock on the date of termination
of employment was equal to the closing price of our common stock
of $17.24 on March 31, 2009, as reported on the NASDAQ
Global Select Market. |
|
(4) |
|
Health and welfare benefits includes payment of 24 months
of premiums for medical, dental, vision, disability and life
insurance benefits. |
|
(5) |
|
For purposes of computing the excise tax reimbursement payments,
base amount calculations are based on the Named Executive
Officers taxable wages for the fiscal years 2004 through
2009. |
103
DIRECTOR
COMPENSATION
Director
Compensation Table
The table below summarizes the compensation paid to our
non-employee directors for fiscal 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
Paid in Cash
|
|
|
Stock Awards
|
|
|
Option Awards
|
|
|
Compensation
|
|
|
Total
|
|
Name(1)
|
|
($)
|
|
|
($)(2)(3)(4)
|
|
|
($)(5)
|
|
|
($)
|
|
|
($)
|
|
|
Richard J. Bastiani, Ph.D.
|
|
|
24,000
|
|
|
|
36,346
|
|
|
|
|
|
|
|
|
|
|
|
60,346
|
|
Henk J. Evenhuis
|
|
|
28,250
|
|
|
|
36,346
|
|
|
|
|
|
|
|
|
|
|
|
64,596
|
|
Brenton G. A. Hanlon
|
|
|
24,000
|
|
|
|
36,346
|
|
|
|
|
|
|
|
|
|
|
|
60,346
|
|
Prithipal Singh, Ph.D.
|
|
|
21,250
|
|
|
|
36,346
|
|
|
|
|
|
|
|
|
|
|
|
57,596
|
|
Ernest S. Tucker, III, M.D.
|
|
|
23,250
|
|
|
|
36,346
|
|
|
|
|
|
|
|
|
|
|
|
59,596
|
|
|
|
|
(1) |
|
Clinton H. Severson, our Chief Executive Officer and Director,
is not included in this table as he is an employee of the
Company and receives no compensation for his services as a
director. The compensation received by Mr. Severson as an
employee is shown in the Summary Compensation Table
above. |
|
(2) |
|
Amounts listed in this column represent our accounting expense
for these awards, over the requisite service period, in
accordance with SFAS No. 123(R). For a discussion of
the assumptions used in determining the fair value of awards of
restricted stock units in the above table, see Note 11 of
the Notes to Consolidated Financial Statements in this Annual
Report on
Form 10-K.
Restricted stock units were granted to non-employee directors
starting in fiscal 2007. No stock awards were forfeited by any
of our non-employee directors during fiscal 2009. |
|
(3) |
|
Each non-employee director listed in the table above was granted
an award of 1,500 restricted stock units on May 5, 2008
under our 2005 Plan. The grant date fair value, as determined in
accordance with SFAS No. 123(R), of the restricted
stock units granted during fiscal 2009 for each of the directors
listed in the table above was $37,500. |
|
(4) |
|
As of March 31, 2009, each of our non-employee directors
held 1,500 shares of unvested restricted stock units. |
|
(5) |
|
No options were awarded to our non-employee directors in fiscal
2009, 2008 or 2007. As of March 31, 2009, the non-employee
directors held the following number of outstanding options:
Dr. Bastiani, 24,000; Mr. Evenhuis, 18,000;
Mr. Hanlon, 16,000; Dr. Singh, 22,000; and
Dr. Tucker, 13,000 shares. |
Cash
Compensation Paid to Board Members
During fiscal 2009, all non-employee directors received an
annual retainer of $12,000. The non-employee Chairs of our Audit
Committee and Compensation Committee received an annual
supplement of $5,000 and $2,000, respectively. Our non-employee
directors each received $1,250 per board meeting attended and
$1,000 per committee meeting attended. We also reimburse our
non-employee directors for reasonable travel expenses incurred
in connection with attending board and committee meetings.
Directors who are employees receive no compensation for their
service as directors.
Equity
Compensation Paid to Board Members
Non-employee directors are eligible to receive awards under the
2005 Plan, but such awards are discretionary and not automatic.
In fiscal 2009, 2008 and 2007, each non-employee director
received an annual equity award of 1,500 restricted stock units
granted under the 2005 Plan. Each award of restricted stock
units represents the right of the participant to receive,
without payment of monetary consideration, on the vesting date,
a number of shares of common stock equal to the number of units
vesting on such date. Subject to the directors continued
service with us through the applicable vesting date, each
restricted stock unit award will vest in full 12 months
after the grant date. Under the terms of the 2005 Plan, the
vesting of each non-employee director restricted stock unit
award will also be accelerated in full in the event of a
change in control, as defined in the 2005 Plan.
104
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The following table sets forth certain information with respect
to the beneficial ownership of our common stock as of
May 31, 2009 by (i) each of the Named Executive
Officers in the Summary Compensation Table; (ii) each of
our directors; (iii) all of our executive officers and
directors as a group and (iv) six holders of at least five
percent of our common stock. The persons named in the table have
sole or shared voting and investment power with respect to all
shares of common stock shown as beneficially owned by them,
subject to community property laws where applicable and to the
information contained in the footnotes to this table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Abaxis
|
|
|
|
Shares
|
|
|
Common Stock
|
|
|
|
Beneficially
|
|
|
Beneficially
|
|
Name and Address of Beneficial Owner
|
|
Owned
|
|
|
Owned(1)
|
|
|
Five Percent Holders:
|
|
|
|
|
|
|
|
|
Brown Capital Management, Inc.(3)
|
|
|
2,371,380
|
|
|
|
10.8
|
%
|
Capital World Investors(4)
|
|
|
1,486,800
|
|
|
|
6.8
|
%
|
Wasatch Advisors, Inc.(5)
|
|
|
1,448,354
|
|
|
|
6.6
|
%
|
Neuberger Berman Inc. and Neuberger Berman, LLC(6)
|
|
|
1,430,245
|
|
|
|
6.5
|
%
|
Kayne Anderson Rudnick Investment Management, LLC(7)
|
|
|
1,275,646
|
|
|
|
5.8
|
%
|
FMR LLC(8)
|
|
|
1,139,400
|
|
|
|
5.2
|
%
|
Executive Officers:(2)
|
|
|
|
|
|
|
|
|
Clinton H. Severson(9)
|
|
|
672,170
|
|
|
|
3.0
|
%
|
Vladimir E. Ostoich, Ph.D.(10)
|
|
|
405,662
|
|
|
|
1.8
|
%
|
Alberto R. Santa Ines(11)
|
|
|
126,681
|
|
|
|
*
|
|
Kenneth P. Aron, Ph.D.(12)
|
|
|
110,893
|
|
|
|
*
|
|
Martin V. Mulroy(13)
|
|
|
21,701
|
|
|
|
*
|
|
Outside Directors:(2)
|
|
|
|
|
|
|
|
|
Richard J. Bastiani, Ph.D.(14)
|
|
|
81,500
|
|
|
|
*
|
|
Brenton G. A. Hanlon(15)
|
|
|
25,400
|
|
|
|
*
|
|
Prithipal Singh, Ph.D.(16)
|
|
|
30,500
|
|
|
|
*
|
|
Ernest S. Tucker, III, M.D.(17)
|
|
|
13,000
|
|
|
|
*
|
|
Henk J. Evenhuis(18)
|
|
|
22,500
|
|
|
|
*
|
|
Executive officers and directors as a group
(11 persons)(19)
|
|
|
1,511,226
|
|
|
|
6.7
|
%
|
|
|
|
* |
|
Less than one percent. |
|
(1) |
|
The percentages shown in this column are calculated based on
21,984,832 shares of common stock outstanding on
May 31, 2009 and includes shares of common stock that such
person or group had the right to acquire on or within
60 days after that date, including, but not limited to,
upon the exercise of options. |
|
(2) |
|
The business address of the beneficial owners listed is
c/o Abaxis,
Inc., 3240 Whipple Road, Union City, CA 94587. |
|
(3) |
|
Based on information set forth in a Schedule 13G/A filed
with the SEC on May 13, 2009 by Brown Capital Management,
Inc., reporting sole power to vote and dispose of 1,125,215 and
2,371,380 shares, respectively. The business address for
Brown Capital Management, Inc. is 1201 North Calvert Street,
Baltimore, MD 21202. |
|
(4) |
|
Based on information set forth in a Schedule 13G filed with
the SEC on February 13, 2009 by Capital World Investors,
reporting sole power to vote and dispose of
1,486,800 shares. The business address for Capital World
Investors is 333 South Hope Street, Los Angeles, CA 90071. |
|
(5) |
|
Based on information set forth in a Schedule 13G/A filed
with the SEC on February 17, 2009 by Wasatch Advisors,
Inc., reporting sole power to vote and dispose of
1,448,354 shares. The business address for Wasatch
Advisors, Inc. is 150 Social Hall Avenue, Salt Lake City, UT
84111. |
105
|
|
|
(6) |
|
Based on information set forth in a Schedule 13G filed with
the SEC on February 12, 2009 by both Neuberger Berman Inc.
and Neuberger Berman, LLC reporting sole power to vote and
dispose of 3,320 and 0 shares, respectively, and shared
power to vote and dispose of 1,065,900 and
1,430,245 shares, respectively. The business address for
both Neuberger Berman Inc. and Neuberger Berman, LLC is 605
Third Avenue, New York, NY 10158. |
|
(7) |
|
Based on information set forth in a Schedule 13G/A filed
with the SEC on February 10, 2009 by Kayne Anderson
Rudnick Investment Management, LLC, reporting sole power to vote
and dispose of 1,275,646 shares. The business address for
Kayne Anderson Rudnick Investment Management, LLC is 1800 Avenue
of the Stars, 2nd Floor, Los Angeles, CA 90067. |
|
(8) |
|
Based on information set forth in a Schedule 13G filed with
the SEC on February 17, 2009 by FMR LLC, reporting sole
power to vote and dispose of 0 and 1,139,400 shares,
respectively. The business address for FMR LLC is 82 Devonshire
Street, Boston, MA 02109. |
|
(9) |
|
Includes: |
|
|
|
|
|
461,753 shares held by Mr. Severson; and
|
|
|
|
210,417 shares subject to stock options exercisable by
Mr. Severson within sixty days of May 31, 2009.
|
|
|
|
|
|
152,079 shares held by Dr. Ostoich;
|
|
|
|
26,355 shares held by Dr. Ostoichs IRA;
|
|
|
|
22,400 shares held by Mrs. Ostoichs IRA;
|
|
|
|
117,328 shares held by the Vladimir Ostoich and Liliana
Ostoich Trust Fund, for the benefit of Dr. Ostoich and
his wife; and
|
|
|
|
87,500 shares subject to stock options exercisable by
Dr. Ostoich within sixty days of May 31, 2009.
|
|
|
|
|
|
24,249 shares held by Mr. Santa Ines; and
|
|
|
|
102,432 shares subject to stock options exercisable by
Mr. Santa Ines within sixty days of May 31, 2009.
|
|
|
|
|
|
13,284 shares held by Dr. Aron; and
|
|
|
|
97,609 shares subject to stock options exercisable by
Dr. Aron within sixty days of May 31, 2009.
|
|
|
|
|
|
8,160 shares held by Mr. Mulroy; and
|
|
|
|
13,541 shares subject to stock options exercisable by
Mr. Mulroy within sixty days of May 31, 2009.
|
|
|
|
|
|
57,500 shares held by Dr. Bastiani; and
|
|
|
|
24,000 shares subject to stock options exercisable by
Dr. Bastiani within sixty days of May 31, 2009.
|
|
|
|
|
|
9,400 shares held by Mr. Hanlon; and
|
|
|
|
16,000 shares subject to stock options exercisable by
Mr. Hanlon within sixty days of May 31, 2009.
|
|
|
|
|
|
8,500 shares held by Dr. Singh; and
|
|
|
|
22,000 shares subject to stock options exercisable by
Dr. Singh within sixty days of May 31, 2009.
|
106
|
|
|
|
|
13,000 shares subject to stock options exercisable by
Dr. Tucker within sixty days of May 31, 2009.
|
|
|
|
|
|
4,500 shares held by Mr. Evenhuis; and
|
|
|
|
18,000 shares subject to stock options exercisable by
Mr. Evenhuis within sixty days of May 31, 2009.
|
|
|
|
|
|
906,727 shares held by all executive officers and directors
as a group; and
|
|
|
|
604,499 shares subject to stock options exercisable by all
executive officers and directors as a group within sixty days of
May 31, 2009.
|
Securities
Authorized for Issuance Under Equity Compensation
Plans
Abaxis has two equity incentive plans under which our equity
securities are or have been authorized for issuance to our
employees, directors and consultants: (i) the 2005 Equity
Incentive Plan (the 2005 Plan), which amended and
restated the 1998 Stock Option Plan, and (ii) the 1992
Outside Directors Stock Option Plan (the Directors
Plan). Both the 2005 Plan and the Directors Plan have been
approved by our shareholders. In June 2002, the time period for
granting options under the Directors Plan expired in accordance
with the terms of the plan.
From time to time we issue warrants to purchase shares of our
common stock to non-employees, such as service providers and
purchasers of our preferred stock. As of March 31, 2009,
there were no warrants outstanding to purchase shares of common
stock.
The following table provides aggregate information as of
March 31, 2009 regarding outstanding options, unvested
restricted stock units and shares reserved under our equity
compensation plans.
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities to
|
|
|
Weighted-Average
|
|
|
Number of Securities Remaining
|
|
|
|
be Issued Upon Exercise
|
|
|
Exercise Price of
|
|
|
Available for Future Issuance
|
|
|
|
of Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
Under Equity Compensation
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Plans(1)
|
|
|
Equity compensation plans approved by our shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Equity Incentive Plan(2)
|
|
|
1,499,000
|
|
|
$
|
9.03
|
(3)
|
|
|
703,000
|
|
1992 Outside Directors Stock Option Plan
|
|
|
39,000
|
|
|
$
|
5.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by our
shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
1,538,000
|
|
|
$
|
8.86
|
(3)
|
|
|
703,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The shares are available for award grant purposes under the 2005
Plan and excludes shares listed under the column Number of
Securities to be Issued Upon Exercise of Outstanding Options,
Warrants and Rights. |
|
(2) |
|
The 2005 Plan amended and restated the 1998 Stock Option Plan in
October 2005. To date, share-based awards granted under the 2005
Plan includes stock options and restricted stock units. |
|
(3) |
|
Excludes outstanding and unvested restricted stock unit awards,
for which there is no exercise price. |
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
Certain
Relationships and Related Transactions
During the fiscal year ended March 31, 2009, there was not,
nor is there any currently proposed transaction or series of
similar transactions to which Abaxis was or is to be a party in
which the amount involved exceeds $120,000
107
and in which any executive officer, director or holder of more
than 5% of any class of voting securities of Abaxis and members
of that persons immediate family had or will have a direct
or indirect material interest, other than as set forth in the
Summary Compensation Table above.
Indemnification
Agreements
We generally enter into indemnity agreements with our directors
and certain of our executive officers. These indemnity
agreements require us to indemnify these individuals to the
fullest extent permitted by law.
Related-Person
Transactions Policy and Procedures
Pursuant to the requirements set forth in the charter of our
Audit Committee, our Audit Committee is responsible for
reviewing and approving any related-party transactions, after
reviewing each such transaction for potential conflicts of
interests and other improprieties. We do not have any additional
written procedures governing the process for addressing
related-person transactions. However, in approving or rejecting
proposed transactions, our audit committee generally considers
the relevant facts and circumstances available and deemed
relevant, including, but not limited to the risks, costs and
benefits to us, the terms of the transaction, the availability
of other sources for comparable services or products, and, if
applicable, the impact on a directors independence.
As required under the NASDAQ listing standards, a majority of
the members of a listed companys Board of Directors must
qualify as independent, as affirmatively determined
by the Board of Directors. The Board consults with the
Companys counsel to ensure that the Boards
determinations are consistent with relevant securities and other
laws and regulations regarding the definition of
independent, including those set forth in the NASDAQ
listing standards, as in effect time to time. Consistent with
these considerations, after review of all relevant transactions
or relationships between each director, or any of his or her
family members, and the Company, its senior management, and its
independent registered public accounting firm, the Board has
affirmatively determined that the following five directors are
independent directors within the meaning of the applicable
NASDAQ listing standards: Messrs. Evenhuis and Hanlon and
Drs. Bastiani, Singh and Tucker. In making this
determination, the Board found that none of the directors had a
material or other disqualifying relationship with the Company.
Mr. Severson, the Companys Chairman, President and
Chief Executive Officer, is not an independent director by
virtue of his employment with the Company.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
For the fiscal years ended March 31, 2009 and 2008, our
independent registered public accounting firm, Burr,
Pilger & Mayer LLP billed the approximate fees set
forth below. All fees included below were approved by the Audit
Committee.
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Audit Fees(1)
|
|
$
|
636,000
|
|
|
$
|
614,000
|
|
Audit-Related Fees(2)
|
|
|
48,000
|
|
|
|
|
|
Tax Fees
|
|
|
|
|
|
|
|
|
All Other Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total All Fees
|
|
$
|
684,000
|
|
|
$
|
614,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Audit fees represent fees for professional services provided in
connection with the audit of our financial statements and review
of our quarterly financial statements, including attestation
services related to Section 404 of the Sarbanes-Oxley Act
of 2002 and Abaxis tax deferral savings plan. |
|
(2) |
|
Audit-related fees represent fees for assurance and related
services that are reasonably related to the performance of the
audit or review of our financial statements and are not reported
under Audit Fees. In fiscal 2009, these services
include due diligence services pertaining to potential
acquisitions. |
108
Pre-Approval
Policies and Procedures
The Audit Committee has adopted a policy for the pre-approval of
all audit and non-audit services to be performed for the Company
by the independent registered public accounting firm. The Audit
Committee has considered the role of Burr, Pilger &
Mayer LLP in providing audit and audit-related services to
Abaxis and has concluded that such services are compatible with
Burr, Pilger & Mayer LLPs role as Abaxis
independent registered public accounting firm.
PART IV
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Item 15.
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Exhibits
and Financial Statement Schedules
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(a) The following financial statements, schedules and
exhibits are filed as part of this report:
1. Financial Statements The
Financial Statements required by this item are listed on the
Index to Financial Statements in Part II, Item 8 of
this report, which is incorporated by reference herein.
2. Financial Statement Schedules
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Schedule II Valuation and Qualifying Accounts
and Reserves
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Other financial statement schedules are not included because
they are not required or the information is otherwise shown in
the financial statements or notes thereto.
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3. Exhibits The exhibits listed
on the accompanying Exhibit Index are filed as part of, or
are incorporated by reference into, this report.
(b) See Item 15(a)(3) above.
(c) See Item 15(a)(2) above.
109
Abaxis,
Inc.
Schedule II
Valuation
and Qualifying Accounts and Reserves
Years
ended March 31, 2009, 2008 and 2007
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Balance at
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Additions
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Beginning of
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Charged to
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Deductions from
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Balance at
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Description
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Year
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Expenses
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Reserves
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End of Year
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Year ended March 31, 2009:
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Allowance for Doubtful Accounts
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$
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246,000
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$
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115,000
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$
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$
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361,000
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Reserve for Sales Allowances
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26,000
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121,000
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120,000
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27,000
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Total Reserve for Doubtful Accounts and Sales Allowances
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$
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272,000
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$
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236,000
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$
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120,000
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$
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388,000
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Year ended March 31, 2008:
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Allowance for Doubtful Accounts
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$
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174,000
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$
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114,000
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$
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42,000
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$
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246,000
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Reserve for Sales Allowances
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368,000
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51,000
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393,000
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26,000
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Total Reserve for Doubtful Accounts and Sales Allowances
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$
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542,000
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$
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165,000
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$
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435,000
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$
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272,000
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Year ended March 31, 2007:
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Allowance for Doubtful Accounts
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$
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109,000
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$
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78,000
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$
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13,000
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$
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174,000
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Reserve for Sales Allowances
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234,000
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849,000
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715,000
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368,000
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Total Reserve for Doubtful Accounts and Sales Allowances
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$
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343,000
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$
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927,000
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$
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728,000
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$
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542,000
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110
Exhibit Index
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Exhibit
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No.
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Description of Document
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3
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.1
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Restated Articles of Incorporation (Filed with the Securities
and Exchange Commission as an exhibit with our Annual Report on
Form 10-K
for the fiscal year ended March 31, 1993 and incorporated
herein by reference.)
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3
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.2
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By-laws (Filed with the Securities and Exchange Commission in
our Registration Statement
No. 33-44326
on December 11, 1991 and incorporated herein by reference.)
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3
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.3
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Amendment to the By-laws (Filed with the Securities and Exchange
Commission as an exhibit with our Current Report on
Form 8-K
on July 30, 2007 and incorporated herein by reference.)
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4
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.1
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Registration Rights Agreement, dated as of March 29, 2002
(Filed with the Securities and Exchange Commission as an exhibit
with our Current Report on
Form 8-K
on May 13, 2002 and incorporated herein by reference.)
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4
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.2
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Abaxis, Inc. and Equiserve Trust Company, N.A. as Rights
Agent, Rights Agreement, dated as of April 23, 2003 (Filed
with the Securities and Exchange Commission as an exhibit with
our Current Report on
Form 8-K
on May 16, 2003 and incorporated herein by reference.)
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4
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.3
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Reference is made to Exhibit 3.1, Exhibit 3.2 and
Exhibit 3.3.
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10
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.1*
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1989 Stock Option Plan, as amended and restated as the 1998
Stock Option Plan (Filed with the Securities and Exchange
Commission as an exhibit with our Quarterly Report on
Form 10-Q
for the quarter ended December 31, 2004 and incorporated
herein by reference.)
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10
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.2*
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1992 Outside Directors Stock Option Plan and forms of agreement
(Filed with the Securities and Exchange Commission as an exhibit
with our Def 14A Proxy Statement on August 10, 1992 and
incorporated herein by reference.)
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10
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.3+
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Licensing agreement between Abaxis, Inc. and Pharmacia Biotech,
Inc., dated October 1, 1994 (Filed with the Securities and
Exchange Commission as an exhibit with our Quarterly Report on
Form 10-Q
for the quarter ended September 30, 1994 and incorporated
herein by reference.)
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10
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.4
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Lease Agreement with Principal Development Investors, LLC, dated
June 21, 2000 (Filed with the Securities and Exchange
Commission as an exhibit with our Registration Statement on
Form S-3
on January 10, 2001 and incorporated herein by reference.)
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10
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.5
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Loan and Security Agreement with Comerica Bank California, dated
March 13, 2002 (Filed with the Securities and Exchange
Commission as an exhibit with our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2002 and incorporated herein
by reference.)
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10
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.6
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First and Second Modification to Loan and Security Agreement
with Comerica Bank California, dated March 29, 2002 (Filed
with the Securities and Exchange Commission as an exhibit with
our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2002 and incorporated herein
by reference.)
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10
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.7
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Loan Revision/Extension Agreement with Comerica Bank California,
dated March 29, 2002 (Filed with the Securities and
Exchange Commission as an exhibit with our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2002 and incorporated herein
by reference.)
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10
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.8
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Loan Revision/Extension Agreement with Comerica Bank California,
dated September 23, 2002 (Filed with the Securities and
Exchange Commission as an exhibit with our Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2002 and incorporated
herein by reference.)
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10
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.9+
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Letter Setting Forth Additional Terms of Relationship Between
Abaxis, Inc. and Pharmacia Biotech, dated as of June 9,
1997 (Filed with the Securities and Exchange Commission as an
exhibit with our Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2002 and incorporated
herein by reference.)
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10
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.10+
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Private Label Manufacturing and Supply Agreement by and between
Diatron Messtechnik GmbH and Abaxis, Inc., dated
November 13, 2003 (Filed with the Securities and Exchange
Commission as an exhibit with our Annual Report on
Form 10-K
for the fiscal year ended March 31, 2004 and incorporated
herein by reference.)
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10
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.11
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Distribution Agreement by and between Scil Animal Care Company
GmbH and Abaxis, Inc., dated September 1, 2001 (Filed with
the Securities and Exchange Commission as an exhibit with
Amendment Number One to our Annual Report on
Form 10-K/A
for the fiscal year ended March 31, 2002, on
December 24, 2002 and incorporated herein by reference.)
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10
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.12
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Loan and Security Agreement by and between Abaxis, Inc. and
Comerica Bank California, dated as of September 8, 2003
(Filed with the Securities and Exchange Commission as an exhibit
with our Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2003 and incorporated
herein by reference.)
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111
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Exhibit
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No.
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Description of Document
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|
10
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.13
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First Modification to Business Loan Agreement with Comerica Bank
California, dated September 15, 2004 (Filed with the
Securities and Exchange Commission as an exhibit with our
Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2004 and incorporated
herein by reference.)
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10
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.14*
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Employment Agreement with Mr. Clinton H. Severson, dated
July 11, 2005 (Filed with the Securities and Exchange
Commission as an exhibit with our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2005 and incorporated herein
by reference.)
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10
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.15*
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2005 Equity Incentive Plan, as amended as of October 28,
2008 (Filed with the Securities and Exchange Commission as an
exhibit with our Current Report on
Form 8-K
on November 3, 2008 and incorporated herein by reference.)
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10
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.16*
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Abaxis, Inc. Executive Change of Control Severance Plan, as
amended as of December 23, 2008 (Filed with the Securities
and Exchange Commission as an exhibit with our Quarterly Report
on
Form 10-Q
for the quarter ended December 31, 2008 and incorporated
herein by reference.)
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10
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.17+
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Amendment, dated September 21, 2006, to the Private Label
Manufacturing and Supply Agreement by and between Diatron
Messtechnik GmbH and Abaxis, Inc., dated November 13, 2003
(Filed with the Securities and Exchange Commission as an exhibit
with our Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2006 and incorporated
herein by reference.)
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10
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.18+
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Distribution Agreement by and between Walco International, Inc.
(d/b/a DVM Resources) and Abaxis, Inc., dated April 1, 2006
(Filed with the Securities and Exchange Commission as an exhibit
with our Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2006 and incorporated
herein by reference.)
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10
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.19*
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Fiscal 2010 Base Salary and Target Bonus for the Named Executive
Officers (Filed with the Securities and Exchange Commission as
an exhibit with our Current Report on
Form 8-K
on April 28, 2009 and incorporated herein by reference.)
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10
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.20+
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Addendum, dated February 28, 2008, to the Private Label
Manufacturing and Supply Agreement by and between Diatron
Messtechnik GmbH and Abaxis, Inc., dated November 13, 2003
(Filed with the Securities and Exchange Commission as an exhibit
with our Annual Report on
Form 10-K
for the fiscal year ended March 31, 2008 and incorporated
herein by reference.)
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10
|
.21*
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Form of Indemnification Agreement entered into by Abaxis, Inc.
with each of its directors and executive officers (Filed with
the Securities and Exchange Commission as an exhibit with our
Annual Report on
Form 10-K
for the fiscal year ended March 31, 2008 and incorporated
herein by reference.)
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10
|
.22++
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License Agreement by and between Inverness Medical Switzerland
GmbH and Abaxis, Inc., dated January 5, 2009.
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21
|
.1
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|
Subsidiaries of the Company.
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23
|
.1
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|
Consent of Burr, Pilger & Mayer LLP, Independent
Registered Public Accounting Firm
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24
|
.1
|
|
Power of Attorney. Reference is made to the Signature Page
hereto.
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31
|
.1
|
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Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
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31
|
.2
|
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Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32
|
.1#
|
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Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
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32
|
.2#
|
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Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
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|
+ |
|
Confidential treatment of certain portions of this agreement has
been granted by the Securities and Exchange Commission. |
|
++ |
|
Confidential treatment of certain portions of this agreement has
been requested from the Securities and Exchange Commission. |
|
* |
|
Management contract or compensatory plan or arrangement. |
|
# |
|
This certification accompanies the
Form 10-K
to which it relates, is not deemed filed with the Securities and
Exchange Commission and is not to be incorporated by reference
into any filing of the Registrant under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as
amended (whether made before or after the date of the
Form 10-K),
irrespective of any general incorporation language contained in
such filing. |
112
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, on June 12, 2009.
ABAXIS, INC.
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By:
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/s/ Clinton
H. Severson
|
Clinton H. Severson
Chairman of the Board, President and
Chief Executive Officer
POWER
OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each person whose
signature appears below constitutes and appoints Clinton H.
Severson and Alberto R. Santa Ines, and each of them, acting
individually, as his attorney-in-fact, each with full power of
substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all
amendments to this Annual Report on
Form 10-K,
and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in connection therewith and about the premises, as fully
to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue
hereof.
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.
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Signature
|
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Title
|
|
Date
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|
|
|
|
|
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/s/ Clinton
H. Severson
Clinton
H. Severson
|
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President, Chief Executive Officer
and Director
(Principal Executive Officer)
|
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June 12, 2009
|
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|
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|
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/s/ Alberto
R. Santa Ines
Alberto
R. Santa Ines
|
|
Chief Financial Officer and
Vice President of Finance
(Principal Financial and Accounting Officer)
|
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June 12, 2009
|
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|
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/s/ Richard
J. Bastiani, Ph.D.
Richard
J. Bastiani, Ph.D.
|
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Director
|
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June 12, 2009
|
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/s/ Henk
J. Evenhuis
Henk
J. Evenhuis
|
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Director
|
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June 12, 2009
|
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/s/ Brenton
G. A. Hanlon
Brenton
G. A. Hanlon
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Director
|
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June 12, 2009
|
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/s/ Prithipal
Singh, Ph.D.
Prithipal
Singh, Ph.D.
|
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Director
|
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June 12, 2009
|
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/s/ Ernest
S. Tucker III
Ernest
S. Tucker III
|
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Director
|
|
June 12, 2009
|
113