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,
2010
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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
(State or other jurisdiction
of incorporation or organization)
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77-0213001
(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, 2009, the last
business day of the second fiscal quarter, was $281,668,000
based upon the closing sale price reported for such date on the
NASDAQ Global Market. For purposes of this disclosure,
11,489,000 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 9, 2010, there were 22,287,000 shares of
the Registrants common stock outstanding.
Abaxis,
Inc.
Annual Report on
Form 10-K
For The Fiscal Year Ended March 31, 2010
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 increasing
practice efficiencies and throughput, as well as 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.
3
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 19%, 23% and 23% of our total
revenues for fiscal 2010, 2009 and 2008, respectively. Revenues
in the veterinary market accounted for 74%, 70% and 71% of our
total revenues for fiscal 2010, 2009 and 2008, 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.
4
We offer our blood analysis system with a total of 29 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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High-density lipoprotein cholesterol
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HDL
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Albumin
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ALB
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Lactate dehydrogenase
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LD
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Alkaline phosphatase
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ALP
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Magnesium
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MG
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Amylase
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AMY
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Phosphorous
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PHOS
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Aspartate aminotransferase
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AST
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Potassium
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K+
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Bile acids
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BA
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Sodium
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NA+
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C-reactive protein
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CRP
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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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Canine heartworm antigen
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CHW
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Total carbon dioxide
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tCO2
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Chloride
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CL-
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Total cholesterol
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CHOL
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Creatine kinase
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CK
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Total protein
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TP
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Creatinine
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CRE
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Triglycerides
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TRIG
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Direct bilirubin
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DBIL
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Urea nitrogen
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BUN
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Gamma glutamyltransferase
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GGT
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Uric acid
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UA
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Glucose
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GLU
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Twenty-one of these tests are marketed for both the medical and
veterinary markets. The tests for BA, CHW and
T4
are marketed exclusively in the veterinary market. The tests for
CRP, DBIL, HDL, LD and TRIG are marketed exclusively in the
medical market. We market our reagent products by configuring
these 29 test methods in panels that are designed to meet a
variety of clinical diagnostic needs. We offer 14 multi-test
reagent disc products in the medical market and 9 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)(1)
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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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MetLyte Plus CRP(1)
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BUN, CK, CL-, CRE, CRP, 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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(1) |
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The panel is offered only on our Piccolo Xpress. |
5
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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Canine Heartworm Antigen Test Kit including Canine Wellness
Profile(1)
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ALB, ALP, ALT, BUN, CA, CRE, CHW, GLU, GLOB, PHOS, TBIL, TP.
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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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The panel is offered only on our VetScan VS2. |
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 Coagulation, 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.
6
i-STAT
In fiscal 2010, we introduced the
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. We started marketing and sales activities of the
i-STAT cartridges in the first quarter of fiscal 2010. In the
second quarter of fiscal 2010, we started marketing and sales
activities of the i-STAT instrument. We launched an
Abaxis-branded version of the i-STAT 1 instrument as part of our
VetScan line in the third quarter of fiscal 2010. We currently
purchase the i-STAT instrument and related consumables from
Abbott Point of Care Inc. in North America.
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 various third
parties. Additionally, we have a supply contract with Becton,
Dickinson and Company for products using the Orbos process.
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.
CUSTOMERS
AND DISTRIBUTION
We market and sell our products worldwide by maintaining direct
sales forces and through independent distributors. Our 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 $30.1 million, $24.7 million
and $23.7 million, or 24%, 23% and 24% of our total
revenues, in fiscal 2010, 2009 and 2008, 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 30 reagent test results (includes four calculated
tests), 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,
outpatient and walk-in clinics (free-standing or
hospital-connected), health screening operations, home care
providers (national, regional or local), nursing homes,
ambulance companies, oncology treatment clinics, dialysis
centers, pharmacies, hospital labs and blood draw stations.
7
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 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 assist in providing 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) companies that primarily serve hospitals,
clinics and health maintenance organizations (HMOs),
(ii) companies that provide the daily supplies needed by
office-based physicians. Both segments support their customers
by using multiple warehouses and extensive transportation
systems. Large distributors with local and regional companies
can service the office-based physicians market segment as well.
In the human medical market, these national firms sell thousands
of products, including furniture, capital equipment, surgical
instruments and a myriad of consumables.
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: Henry Scheins Medical Group, McKesson
Medical-Surgical Inc., and PSS World Medical, Inc. 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 primarily regional distributors,
which includes, among others, American Veterinary Supply Corp.,
DVM Resources, IVESCO LLC, Lextron Animal Health, Merritt
Veterinary Supplies, Inc., Nelson Laboratories, Northeast
Veterinary Supply, 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 2010, 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 distributors in Canada include the following:
Associated Veterinary Purchasing, Aventix, CDMV, Distribution
Vie et Sante, Midwest Veterinary Distribution Cooperative
Limited, Vet Novations, Veterinary Purchasing Company Limited
and Western Drug Distribution Center Limited.
We intend to enter into arrangements with additional veterinary
distributors within North America as well as pursue direct
veterinary sales, where appropriate.
8
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, 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 15%, 13% and 13% of our total
revenues for fiscal 2010, 2009 and 2008, respectively. Revenues
in Asia Pacific and rest of the world accounted for 4%, 4% and
3% of our total revenues for fiscal 2010, 2009 and 2008,
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 and cartridges are
manufactured by Scandinavian Micro Biodevices APS in Farum,
Denmark and are purchased by us as completed products. The
i-STAT 1
analyzers and cartridges are manufactured by Abbott Point of
Care Inc. in North America and are purchased by us as completed
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. 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 August 2008, the FDA conducted an additional facility
inspection to verify our compliance with 21 CFR 820
Regulation.
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In October 2009 and November 2006, we received our
recertification to the ISO 13485:2003 Quality System Standard
for medical devices.
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In October 2009, we received a United States Veterinary
Biologics Establishment License from the United States
Department of Agriculture.
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For our VetScan systems, we are not required to comply with all
of the FDA government regulations applicable to the human
medical market when manufacturing the VetScan products, however,
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 single source
supplier, including components from Hamamatsu Corporation and
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
historically provided.
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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., SA Scientific Co., 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.
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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
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, 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.
Scandinavian Micro Biodevices APS. In October
2008, we entered into an OEM agreement with Scandinavian Micro
Biodevices APS (SMB) of Denmark to purchase
coagulation analyzers and coagulation cartridges. 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. These milestones have not
yet been met and we are currently purchasing coagulation
analyzers and coagulation cartridges on a purchase order basis,
but all such purchases will count towards the minimum purchase
obligations if and when they are triggered.
Inverness Medical Switzerland GmbH. Effective
January 2009, we entered into a license agreement with Inverness
Medical Switzerland GmbH (Inverness). Under our
license 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.
Abbott Point of Care Inc. In May 2009, we
entered into an exclusive 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 was
initially non-exclusive, but became 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. We are subject to
minimum purchase and minimum sales requirement if we want to
maintain as an exclusive distributor of the related products.
DVM Resources. DVM Resources, one of our
distributors of veterinary products in the United States,
accounted for 10%, 10% and 12% of our total worldwide revenues
in fiscal 2010, 2009 and 2008, 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
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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 diagnostic 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
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.
Our principal competitors in the human diagnostic market are
Alere (formerly Inverness Medical Technologies), 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. Many 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 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 medical devices subject to regulation
by the FDA, under the Federal Food, Drug, and Cosmetic Act, or
FDCA. Medical devices, to be commercially distributed in the
United States, must receive either 510(k) premarket clearance or
Premarket Approval (PMA) from the FDA pursuant to
the FDCA prior to marketing. Devices deemed to pose relatively
less risk are placed in either class I or II, which
generally requires the manufacturer to submit a premarket
notification requesting permission for commercial distribution;
this is known as 510(k) clearance. Most lower risk, or
class I, devices are exempted from this requirement.
Devices deemed by the FDA to pose the greatest risk, such as
life-sustaining, life supporting or implantable devices, or
devices deemed not substantially equivalent to a previously
510(k) cleared device or a preamendment class III device
for which PMA applications have not been called, are placed in
class III requiring PMA approval. The FDA has classified
our Piccolo products as class I or class II devices,
depending on their specific intended uses and indications for
use.
510(k) Clearance Pathway. To obtain 510(k) clearance, a
manufacturer must submit a premarket notification demonstrating
that the proposed device is substantially equivalent in intended
use, principles of operation, and technological characteristics
to a previously 510(k) cleared device or a device that was in
commercial distribution before May 28, 1976 for which the
FDA has not called for submission of PMA applications. The
FDAs 510(k) clearance pathway usually takes from three to
six months, but it can last longer.
After a device receives 510(k) clearance, any modification that
could significantly affect its safety or effectiveness, or that
would constitute a major change in its intended use, requires a
new 510(k) clearance or could require a PMA approval. The FDA
requires each manufacturer to make this determination in the
first instance, but the FDA can review any such decision. If the
FDA disagrees with a manufacturers decision not to seek a
new 510(k) clearance, the agency may retroactively require the
manufacturer to seek 510(k) clearance or PMA approval. The FDA
also can require the manufacturer to cease marketing
and/or
recall the modified device until 510(k) clearance or PMA
approval is obtained, to redesign the device or to submit new
data or information to the FDA. Products marketed following the
FDA clearance also are subject to significant postmarket
requirements.
As of March 31, 2010, we have received the FDA premarket
clearance for our Piccolo chemistry analyzer and 26 reagent
tests that we have on 14 reagent discs. We are currently
developing additional tests which we will have to clear with the
FDA through the 510(k) notification procedures. These new test
products are crucial for our continued success in the human
medical market. If we do not receive 510(k) clearance for a
particular product, we will not be
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able to market that product in the United States until we
provide additional information to the FDA and gain premarket
clearance. The inability to market a new product during this
time could harm our future sales.
APHIS
Licensure of Veterinary Biologics
On October 8, 2009, Abaxis announced it received APHIS
licensure of its canine heartworm antigen (CHW) test
utilizing a rotor-based assay system consisting of eleven other
important canine health determinations. The CHW diagnostic
product is regulated as a veterinary biologic by the Animal and
Plant Health Inspection Service (APHIS) under the
Virus, Serum, and Toxin Act of 1913. Veterinary biologics are
licensed as are their manufacturing facilities. Products are
subject to extensive testing to establish their purity, safety,
potency, and efficacy. Licensed biologics are also required to
be prepared in accordance with a filed Outline of Production,
among other requirements. Failure to comply with APHIS licensure
or post-marketing approval requirements can result in the
inability to obtain product or establishment licenses or cause
the revocation or suspension of such licenses.
We are currently developing additional tests that will be
subject to APHIS licensure as veterinary biologics. If we do not
receive licensure, we will not be able to market that product in
the United States, which could also harm our 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 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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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 optimization and
enhancement of existing products. Our research and development
expenses, which consist of salaries and benefits, consulting
expenses and materials were $10.7 million,
$8.4 million and $7.0 million, or 9%, 8% and 7% of our
total revenues, in fiscal 2010, 2009 and 2008, 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, 2010, 47 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 27 issued and active
international patents and 8 international applications pending.
EMPLOYEES
As of March 31, 2010, we employed 354 full-time
employees distributed across the following divisions: 40 in
research and development; 138 in manufacturing operations; and
176 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.
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.
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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.
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.
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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, 2010, 47 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, 2010, we had retained earnings of
$22.1 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
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 26
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 North America who
distribute our VetScan products. Our largest distributor in
North America, DVM Resources, accounted for 10% our total
worldwide revenues for both fiscal 2010 and 2009. 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: Henry Scheins Medical Group, McKesson
Medical-Surgical Inc., and PSS World Medical, Inc. 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 October 2007, following the termination of our prior
distributor agreement with T. Chatani & Co., Ltd., 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
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began the process of registering our 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, 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., SA
Scientific Co., 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 certain components from a single-source
supplier, including components from Hamamatsu Corporation and
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 Cartridges: Our coagulation
analyzers and cartridges are manufactured by Scandinavian
MicroBiodevices APS in Denmark and are purchased by us as
completed products.
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i-STAT Analyzers and Cartridges: Our i-STAT 1
analyzers and cartridges are manufactured by Abbott Point of
Care Inc. in North America and are purchased by us as completed
products.
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We primarily operate on a purchase order basis with suppliers of
our molded plastic reagent discs, reagent chemicals, blood
chemistry analyzer components and 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 perform most
of the human diagnostic 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 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 Alere (formerly Inverness Medical Technologies), 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. Many 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 expand 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
Government Regulation for Our Products
Our Piccolo products are medical devices subject to regulation
by the FDA, under the Federal Food, Drug, and Cosmetic Act, or
FDCA. Medical devices, to be commercially distributed in the
United States, must receive either 510(k) premarket clearance or
Premarket Approval (PMA) from the FDA pursuant to
the FDCA prior to marketing. Devices deemed to pose relatively
less risk are placed in either class I or II, which
generally requires the manufacturer to submit a premarket
notification requesting permission for commercial distribution;
this is known as 510(k) clearance. Most lower risk, or
class I, devices are exempted from this requirement.
Devices deemed by the FDA to pose the greatest risk, such as
life-sustaining, life supporting or implantable devices, or
devices deemed not substantially equivalent to a previously
510(k) cleared device or a preamendment class III device
for which PMA applications have not been called, are placed in
class III requiring PMA approval. The FDA has classified
our Piccolo products as class I or class II devices,
depending on their specific intended uses and indications for
use.
510(k) Clearance Pathway. To obtain 510(k) clearance, a
manufacturer must submit a premarket notification demonstrating
that the proposed device is substantially equivalent in intended
use, principles of operation, and technological characteristics
to a previously 510(k) cleared device or a device that was in
commercial distribution before May 28, 1976 for which the
FDA has not called for submission of PMA applications. The
FDAs 510(k) clearance pathway usually takes from three to
six months, but it can last longer.
After a device receives 510(k) clearance, any modification that
could significantly affect its safety or effectiveness, or that
would constitute a major change in its intended use, requires a
new 510(k) clearance or could require a PMA approval. The FDA
requires each manufacturer to make this determination in the
first instance, but the FDA can review any such decision. If the
FDA disagrees with a manufacturers decision not to seek a
new 510(k) clearance, the agency may retroactively require the
manufacturer to seek 510(k) clearance or PMA approval. The FDA
also can require the manufacturer to cease marketing
and/or
recall the modified device until 510(k) clearance or PMA
approval is obtained, to redesign the device or to submit new
data or information to the FDA. Products marketed following the
FDA clearance also are subject to significant postmarket
requirements.
As of March 31, 2010, we have received the FDA premarket
clearance for our Piccolo chemistry analyzer and 26 reagent
tests that we have on 14 reagent discs. We are currently
developing additional tests which we will have to clear with the
FDA through the 510(k) notification procedures. These new test
products are crucial for our continued 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 until we provide additional information to
the FDA and gain premarket clearance. The inability to market a
new product during this time could harm our future sales.
APHIS
Licensure of Veterinary Biologics
On October 8, 2009, Abaxis announced it has received APHIS
licensure of its canine heartworm antigen (CHW) test
utilizing a rotor-based assay system consisting of eleven other
important canine health determinations. The CHW diagnostic
product is regulated as a veterinary biologic by the Animal and
Plant Health Inspection Service (APHIS) under the
Virus, Serum, and Toxin Act of 1913. Veterinary biologics are
licensed as are their manufacturing facilities. Products are
subject to extensive testing to establish their purity, safety,
potency,
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and efficacy. Licensed biologics are also required to be
prepared in accordance with a filed Outline of Production, among
other requirements. Failure to comply with APHIS licensure or
post-marketing approval requirements can result in the inability
to obtain product or establishment licenses or cause the
revocation or suspension of such licenses.
We are currently developing additional tests that will be
subject to APHIS licensure as veterinary biologics. If we do not
receive licensure, we will not be able to market that product in
the United States, which could also harm our 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 August 2008, the FDA conducted an additional facility
inspection to verify our compliance with 21 CFR 820
Regulation.
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In October 2009 and November 2006, we received our
recertification to the ISO 13485:2003 Quality System Standard
for medical devices.
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In October 2009, we received a United States Veterinary
Biologics Establishment License from the United States
Department of Agriculture.
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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 October 2009, 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 which may adversely
affect our reported financial results.
In accordance with Accounting Standards Codification 718,
Compensation-Stock Compensation, issued by the
Financial Accounting Standards Board, we measure all share-based
payments to employees, using a fair-value-based method and we
record 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, over the corresponding requisite service
period. Since fiscal 2007, we have granted restricted stock
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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. Since we began granting
restricted stock units as part of our share-based compensation
program in fiscal 2007, share-based compensation expense related
to restricted stock units had a material impact on our earnings
per share and on our consolidated 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, 2010, 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 service period of
1.89 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 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 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
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
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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 supply 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 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, 2010 and 2009. Although we received an
unqualified opinion on our consolidated financial statements for
the fiscal years ended March 31, 2010 and 2009, and on the
effectiveness of our internal control over financial reporting
as of March 31, 2010 and 2009, we cannot predict the
outcome of our testing in future periods. In the event that our
internal control over financial reporting is 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:
|
|
|
|
|
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;
|
|
|
|
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;
|
|
|
|
research and design costs related to the continuing development
of our current and future products; and
|
|
|
|
additional pre-clinical testing and clinical trials for our
current and future products.
|
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
24
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.
Our
facilities and manufacturing operations are vulnerable to
natural disasters and other unexpected losses. Any such losses
or 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 our sales denominated in local currencies, we are
subject to fluctuations in exchange rates between the
U.S. dollar and the particular local currency. 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
25
outcome may differ from the amounts recorded in our consolidated
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, 2010, the closing sale
prices of our common stock on the NASDAQ Global Market ranged
from $22.53 to $28.38 per share and the closing sale price for
our quarter ended March 31, 2010 was $27.19 per share.
During the last eight fiscal quarters ended March 31, 2010,
our stock price closed at a high of $30.48 per share on
June 5, 2008 and a low of $10.28 per share 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;
|
|
|
|
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. Our original lease agreement
commenced in January 2001 for ten years, with an option to
extend the lease for five additional years. In March 2010, we
amended our lease by extending the lease term until February
2021. Additionally, in our amended agreement, we will lease an
additional 35,239 square feet of office space in a building
in Union City, California. The lease of these additional
premises is conditioned upon the effective termination of a
lease agreement with an existing tenant. Starting April 2009, we
also sublease
26
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 8,900 square feet of office space.
During fiscal 2010 we expanded our leased facilities in
Darmstadt, Germany and extended the lease terms to fiscal 2015.
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.
|
Removed
and Reserved
|
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,
2008 through March 31, 2010 as reported on the NASDAQ
Global Market:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices
|
|
|
|
Fiscal 2010
|
|
|
Fiscal 2009
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
Quarter ended June 30
|
|
$
|
20.73
|
|
|
$
|
13.54
|
|
|
$
|
30.62
|
|
|
$
|
22.74
|
|
Quarter ended September 30
|
|
|
29.80
|
|
|
|
18.54
|
|
|
|
24.80
|
|
|
|
17.81
|
|
Quarter ended December 31
|
|
|
27.97
|
|
|
|
21.95
|
|
|
|
20.43
|
|
|
|
10.17
|
|
Quarter ended March 31
|
|
|
28.50
|
|
|
|
22.38
|
|
|
|
19.49
|
|
|
|
13.24
|
|
As of June 9, 2010, there were 22,287,000 shares of
our common stock outstanding, held by 140 shareholders of
record.
We did not repurchase any of our equity securities during the
fourth quarter of fiscal 2010.
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.
27
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, 2010. 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, 2005
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/2005
|
|
|
3/31/2006
|
|
|
3/31/2007
|
|
|
3/31/2008
|
|
|
3/31/2009
|
|
|
3/31/2010
|
Abaxis, Inc.
|
|
|
$
|
100.00
|
|
|
|
$
|
256.27
|
|
|
|
$
|
275.37
|
|
|
|
$
|
261.81
|
|
|
|
$
|
194.80
|
|
|
|
$
|
307.23
|
|
Russell 2000
|
|
|
$
|
100.00
|
|
|
|
$
|
125.85
|
|
|
|
$
|
133.28
|
|
|
|
$
|
115.95
|
|
|
|
$
|
72.47
|
|
|
|
$
|
117.95
|
|
NASDAQ Medical Equipment Securities
|
|
|
$
|
100.00
|
|
|
|
$
|
132.59
|
|
|
|
$
|
135.15
|
|
|
|
$
|
138.94
|
|
|
|
$
|
78.15
|
|
|
|
$
|
138.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
28
|
|
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,
|
|
|
|
2010(1)
|
|
|
2009(1)
|
|
|
2008(1)
|
|
|
2007(1)
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
Consolidated Statements of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
124,557
|
|
|
$
|
105,562
|
|
|
$
|
100,551
|
|
|
$
|
86,221
|
|
|
$
|
68,928
|
|
Cost of revenues
|
|
|
52,435
|
|
|
|
46,937
|
|
|
|
45,507
|
|
|
|
39,362
|
|
|
|
30,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
72,122
|
|
|
|
58,625
|
|
|
|
55,044
|
|
|
|
46,859
|
|
|
|
38,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
10,688
|
|
|
|
8,361
|
|
|
|
6,966
|
|
|
|
6,180
|
|
|
|
6,127
|
|
Sales and marketing
|
|
|
30,138
|
|
|
|
24,712
|
|
|
|
23,689
|
|
|
|
20,569
|
|
|
|
16,219
|
|
General and administrative
|
|
|
10,521
|
|
|
|
7,757
|
|
|
|
6,681
|
|
|
|
5,735
|
|
|
|
5,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
51,347
|
|
|
|
40,830
|
|
|
|
37,336
|
|
|
|
32,484
|
|
|
|
28,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
20,775
|
|
|
|
17,795
|
|
|
|
17,708
|
|
|
|
14,375
|
|
|
|
10,732
|
|
Interest and other income (expense), net
|
|
|
630
|
|
|
|
1,271
|
|
|
|
2,096
|
|
|
|
1,774
|
|
|
|
787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
21,405
|
|
|
|
19,066
|
|
|
|
19,804
|
|
|
|
16,149
|
|
|
|
11,519
|
|
Income tax provision
|
|
|
8,382
|
|
|
|
7,053
|
|
|
|
7,301
|
|
|
|
6,076
|
|
|
|
4,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
13,023
|
|
|
$
|
12,013
|
|
|
$
|
12,503
|
|
|
$
|
10,073
|
|
|
$
|
7,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.59
|
|
|
$
|
0.55
|
|
|
$
|
0.58
|
|
|
$
|
0.49
|
|
|
$
|
0.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
0.58
|
|
|
$
|
0.54
|
|
|
$
|
0.56
|
|
|
$
|
0.46
|
|
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in the calculation of net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic
|
|
|
22,021
|
|
|
|
21,826
|
|
|
|
21,499
|
|
|
|
20,643
|
|
|
|
19,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding diluted
|
|
|
22,606
|
|
|
|
22,324
|
|
|
|
22,261
|
|
|
|
21,846
|
|
|
|
21,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes share-based compensation for employee share-based
awards in our consolidated statements of income in accordance
with ASC 718, Compensation-Stock Compensation. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Consolidated Balance Sheets Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
27,857
|
|
|
$
|
49,237
|
|
|
$
|
17,219
|
|
|
$
|
10,183
|
|
|
$
|
10,164
|
|
Short-term investments
|
|
|
32,343
|
|
|
|
20,776
|
|
|
|
6,991
|
|
|
|
35,028
|
|
|
|
20,372
|
|
Working capital
|
|
|
89,327
|
|
|
|
101,815
|
|
|
|
52,500
|
|
|
|
74,517
|
|
|
|
49,949
|
|
Long-term investments
|
|
|
36,319
|
|
|
|
4,886
|
|
|
|
35,463
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
167,816
|
|
|
|
140,711
|
|
|
|
120,903
|
|
|
|
102,715
|
|
|
|
83,078
|
|
Non-current liabilities
|
|
|
1,682
|
|
|
|
2,270
|
|
|
|
2,161
|
|
|
|
2,167
|
|
|
|
1,679
|
|
Total shareholders equity
|
|
|
147,119
|
|
|
|
126,892
|
|
|
|
104,649
|
|
|
|
87,812
|
|
|
|
71,038
|
|
29
|
|
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 Coagulation, 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 cartridges
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.
30
In May 2009, we entered into an exclusive 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 was
initially non-exclusive, but became 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. We started marketing
and sales activities of the i-STAT cartridges in the first
quarter of fiscal 2010. In the second quarter of fiscal 2010, we
started marketing and sales activities of the i-STAT instrument.
We launched an Abaxis-branded version of the
i-STAT 1
instrument as part of our VetScan line in the third quarter of
fiscal 2010.
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, 2010, 2009 and 2008, the
current portion of deferred
31
revenue balances was $1.2 million, $1.0 million and
$807,000, respectively, and the non-current portion of deferred
revenue balances was $1.4 million, $1.6 million and
$1.1 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.
We periodically offer programs to customers whereby certain
instruments are made available to customers for rent or
evaluation basis. These programs typically require customers to
purchase a minimum quantity of consumables during a specified
period for which we recognize revenue on the related consumable
according to the policies described above. Depending on the
program offered, customers may purchase the instrument during
the rental or evaluation period. Proceeds from such sale are
recorded as revenue according to the policies described above.
Rental income, if any, are also recorded as revenue according to
the policies described above.
Royalties are typically based on licensees net sales of
products that utilize our technology and are recognized as
earned in accordance with the contract terms when royalties from
licensees can be reliably measured and collectibility is
reasonably assured, such as upon the receipt of a royalty
statement from the licensee. Our royalty revenue depends on the
licensees use of our technology, and therefore, may vary
from period to period and impact our revenues during a quarter.
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 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. 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.
The following table summarizes the change in total accrued
distributor and customer rebates (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
|
|
|
Balance at
|
|
|
of Year
|
|
Provisions
|
|
Payments
|
|
End of Year
|
|
Year Ended March 31, 2010
|
|
$
|
96
|
|
|
$
|
268
|
|
|
$
|
(316
|
)
|
|
$
|
48
|
|
Year Ended March 31, 2009
|
|
$
|
140
|
|
|
$
|
294
|
|
|
$
|
(338
|
)
|
|
$
|
96
|
|
Year Ended March 31, 2008
|
|
$
|
397
|
|
|
$
|
498
|
|
|
$
|
(755
|
)
|
|
$
|
140
|
|
Sales and Other Allowances. We estimate a
provision for defective reagent discs as part of our 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. 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
32
operations. In the future, the actual defective reagent discs
may exceed our estimates, which could adversely affect our
financial results.
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. Fair value is defined
as the price that would be received to sell an asset or paid to
transfer a liability (exit price) in an orderly
transaction between market participants at the measurement date.
Accounting Standards Codification (ASC) 820,
Fair Value Measurements and Disclosure, 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 are described below:
Level 1: Quoted prices (unadjusted) in
active markets for identical assets or liabilities. As of
March 31, 2010, we used Level 1 assumptions for our
cash equivalents, 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 inputs as of the reporting date through correlation
with market data, including quoted prices for similar assets and
liabilities in active markets and quoted prices in markets that
are not active. Level 2 also includes assets and
liabilities that are valued using models or other pricing
methodologies that do not require significant judgment since the
input assumptions used in the models, such as interest rates and
volatility factors, are corroborated by readily observable data
from actively quoted markets for substantially the full term of
the financial instrument. As of March 31, 2010, 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, 2010, 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. At March 31, 2010, our short-term
investments totaled $32.3 million and our long-term
investments totaled $36.3 million, which were classified as
held-to-maturity
and carried at amortized cost.
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 one 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. Cost of revenues reflects estimated warranty expense
for instruments sold in the current period and any adjustments
in estimated warranty expense for the installed base under our
standard warranty obligation based on our quarterly evaluation
of service experience. 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 our historical experience as to product
failures, estimated product failure rates, estimated repair
costs, material usage and freight incurred in repairing the
instrument after failure and known design changes under the
warranty plan.
33
Each quarter, we reevaluate our estimate of warranty reserves,
including our assumptions. During fiscal 2010, we recorded an
adjustment to pre-existing warranties of $900,000, which reduced
our warranty reserves and our cost of revenues, based on both a
decrease in our historical experience as to product failures and
our judgment of a decrease in estimated product failure rates of
blood chemistry analyzers since we began taking steps to resolve
manufacturing problems primarily from fiscal 2008 related to
quality control for key components that we obtain from our
suppliers and to design issues of the key components required.
Our current portion of warranty reserves of $1.2 million as
of March 31, 2010 and non-current portion of warranty
reserves of $160,000 as of March 31, 2010 reflects our
estimate of warranty obligations based on the number of
instruments in standard warranty, estimated product failure
rates and estimated repair costs.
A provision for defective reagent discs is recorded when the
related sale is recognized and any additional amount is recorded
when such cost is probable and can be reasonably estimated, at
which time they are included in cost of revenues. The warranty
cost includes the replacement costs and freight of a defective
reagent disc.
We review the historical warranty cost trends and 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 estimated product failure rate, expected
costs to repair or replace the instruments and to 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. Additionally, if factors
change and we revise our assumptions on the product failure rate
of instruments or reagent discs, then our warranty reserves and
cost of revenues could be materially impacted in the quarter of
revision, as well as in following quarters.
Inventories. We state inventories at the lower
of cost or market, cost being determined using standard costs
which approximate 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. We evaluate
the carrying value of our long-lived assets, such as property
and equipment and amortized intangible assets, whenever events
or changes in business circumstances or our planned use of
long-lived assets indicate that the carrying amount of an asset
may not be fully recoverable or their useful lives are no longer
appropriate. 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 and
long-lived assets are written down to their respective fair
values.
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.
We recognize and measure benefits for uncertain tax positions
using a two-step approach. The first step is to evaluate the tax
position taken or expected to be taken in a tax return by
determining if the weight of evidence indicates that it is more
likely than not that the tax position will be sustained upon
audit, including resolution of any related appeals or litigation
processes. For tax positions that are more likely than not to be
sustained upon audit, the second step is to measure the tax
benefit as the largest amount that is more than 50 percent
likely to be realized upon settlement. Significant judgment is
required to evaluate uncertain tax positions. At March 31,
2010 and 2009, we had no uncertain tax positions. Our policy is
to include interest and penalties related to gross unrecognized
tax benefits within our provision for income taxes. For fiscal
2010, 2009 and 2008, we did not recognize any interest or
34
penalties related to uncertain tax positions in the consolidated
statements of income, and at March 31, 2010 and 2009, we
had no accrued interest or penalties.
Share-Based Compensation Expense. We account
for share-based compensation in accordance with ASC 718,
Compensation-Stock Compensation. We recognize
share-based compensation expense, net of an estimated forfeiture
rate, over the requisite service period of the award to
employees and directors.
We did not grant stock options during fiscal 2010, 2009 or 2008.
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, including risk-free interest rate,
expected stock price volatility, expected term and expected
dividends.
For restricted stock units, share-based 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 fair value provisions of share-based
compensation, 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
compensation 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.
Share-based compensation expense resulted in a material impact
on our earnings per share and on our consolidated financial
statements for fiscal 2010, 2009 and 2008. The impact of
share-based compensation expense 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.
As of March 31, 2010, 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 service period of
1.89 years. We expect that share-based compensation will
materially impact our consolidated financial statements in the
foreseeable future. Excluding forfeitures, we estimate expense
recognition of restricted stock units over the requisite service
period of the award, for awards granted and unvested as of
March 31, 2010 as follows: $5.4 million in fiscal
2011, $5.0 million in fiscal 2012, $3.8 million in
fiscal 2013 and $851,000 in fiscal 2014.
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.
35
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
2010, 2009 and 2008 were as follows (in thousands, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change 2009 to 2010
|
|
|
Change 2008 to 2009
|
|
|
|
Year Ended March 31,
|
|
|
Increase/
|
|
|
Percent
|
|
|
Increase/
|
|
|
Percent
|
|
Revenues by Geographic Region
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
Change
|
|
|
(Decrease)
|
|
|
Change
|
|
|
North America
|
|
$
|
101,391
|
|
|
$
|
87,801
|
|
|
$
|
83,830
|
|
|
$
|
13,590
|
|
|
|
15
|
%
|
|
$
|
3,971
|
|
|
|
5
|
%
|
Percentage of total revenues
|
|
|
81
|
%
|
|
|
83
|
%
|
|
|
84
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
18,547
|
|
|
|
14,045
|
|
|
|
13,472
|
|
|
|
4,502
|
|
|
|
32
|
%
|
|
|
573
|
|
|
|
4
|
%
|
Percentage of total revenues
|
|
|
15
|
%
|
|
|
13
|
%
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia Pacific and rest of the world
|
|
|
4,619
|
|
|
|
3,716
|
|
|
|
3,249
|
|
|
|
903
|
|
|
|
24
|
%
|
|
|
467
|
|
|
|
14
|
%
|
Percentage of total revenues
|
|
|
4
|
%
|
|
|
4
|
%
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
124,557
|
|
|
$
|
105,562
|
|
|
$
|
100,551
|
|
|
$
|
18,995
|
|
|
|
18
|
%
|
|
$
|
5,011
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change 2009 to 2010
|
|
|
Change 2008 to 2009
|
|
|
|
Year Ended March 31,
|
|
|
Increase/
|
|
|
Percent
|
|
|
Increase/
|
|
|
Percent
|
|
Revenues by Product Category
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
Change
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Instruments
|
|
$
|
28,787
|
|
|
$
|
28,194
|
|
|
$
|
30,011
|
|
|
$
|
593
|
|
|
|
2
|
%
|
|
$
|
(1,817
|
)
|
|
|
(6
|
)%
|
Percentage of total revenues
|
|
|
23
|
%
|
|
|
27
|
%
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumables
|
|
|
85,819
|
|
|
|
69,072
|
|
|
|
61,928
|
|
|
|
16,747
|
|
|
|
24
|
%
|
|
|
7,144
|
|
|
|
12
|
%
|
Percentage of total revenues
|
|
|
69
|
%
|
|
|
65
|
%
|
|
|
62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other products
|
|
|
6,809
|
|
|
|
5,170
|
|
|
|
6,583
|
|
|
|
1,639
|
|
|
|
32
|
%
|
|
|
(1,413
|
)
|
|
|
(21
|
)%
|
Percentage of total revenues
|
|
|
5
|
%
|
|
|
5
|
%
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales, net
|
|
|
121,415
|
|
|
|
102,436
|
|
|
|
98,522
|
|
|
|
18,979
|
|
|
|
19
|
%
|
|
|
3,914
|
|
|
|
4
|
%
|
Percentage of total revenues
|
|
|
97
|
%
|
|
|
97
|
%
|
|
|
98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development and licensing revenue
|
|
|
3,142
|
|
|
|
3,126
|
|
|
|
2,029
|
|
|
|
16
|
|
|
|
1
|
%
|
|
|
1,097
|
|
|
|
54
|
%
|
Percentage of total revenues
|
|
|
3
|
%
|
|
|
3
|
%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
124,557
|
|
|
$
|
105,562
|
|
|
$
|
100,551
|
|
|
$
|
18,995
|
|
|
|
18
|
%
|
|
$
|
5,011
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2010 Compared to Fiscal 2009
North America. During fiscal 2010,
total revenues in North America increased 15%, or
$13.6 million, as compared to fiscal 2009. The change in
total revenues in North America was attributed to the following:
|
|
|
|
|
Sales of our Piccolo chemistry analyzers in North America
(excluding the U.S. government) decreased 35%, or
$1.7 million, primarily due to inventory stock adjustments
by distributors during the first nine months of fiscal 2010.
|
|
|
|
Sales of our Piccolo chemistry analyzers to the
U.S. government decreased 45%, or $957,000, primarily due
to a decrease in the U.S. Militarys needs for our
products, primarily in the third quarter of fiscal 2010, which
were not predictable.
|
|
|
|
Medical reagent discs sales in North America (excluding the
U.S. government) increased 11%, or $1.2 million,
primarily due to an increase in units sold resulting from an
expanded installed base of our Piccolo chemistry analyzers.
|
|
|
|
Sales of our VetScan chemistry analyzers in North America
decreased 9%, or $808,000, primarily due to lower average
selling prices.
|
36
|
|
|
|
|
Veterinary reagent discs sales in North America increased 11%,
or $4.3 million, primarily due to an increase in units sold
resulting from an expanded installed base of our VetScan
chemistry analyzers and higher average selling prices.
|
|
|
|
Total sales of our VetScan hematology instruments and hematology
reagent kits in North America increased 6%, or $660,000,
primarily due to an increase in units of hematology reagent kits
sold resulting from an expanded installed base of our VetScan
hematology instruments.
|
|
|
|
Total sales from our original equipment manufacturer
(OEM) supplied products increased $9.5 million
during fiscal 2010 in North America. Our OEM supplied products
include our VetScan VSpro coagulation analyzers and
related consumables (launched in the fourth quarter of fiscal
2009), i-STAT analyzers and related consumables (launched in
fiscal 2010), and canine heartworm rapid tests (launched in the
fourth quarter of fiscal 2009).
|
|
|
|
Revenues from other products in North America increased 29%, or
$1.4 million. The net increase was primarily due to
(a) a decrease 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) an increase in demand for
products using the
Orbos®
Discrete Lyophilization Process, which is strongly affected by
customer demands.
|
Significant concentration. One distributor in
the United States, DVM Resources, accounted for 10% of our total
worldwide revenues during fiscal 2010.
Europe. During fiscal 2010, total
revenues in Europe increased 32%, or $4.5 million, as
compared to fiscal 2009. The increase in total revenues in
Europe was attributed primarily to the following:
|
|
|
|
|
Sales of our Piccolo chemistry analyzers in Europe increased
25%, or $306,000, primarily due to our promotion strategy and
increased sales to distributors.
|
|
|
|
Medical reagent discs sales in Europe increased 11%, or
$229,000, primarily due to higher average selling prices.
|
|
|
|
Sales of our VetScan chemistry analyzers in Europe increased
44%, or $1.1 million, primarily due to our promotion
strategy and increased marketing activities by our distributors.
|
|
|
|
Veterinary reagent discs sales in Europe increased 27%, or
$2.0 million, primarily due to an increase in units sold
resulting from an expanded installed base of our VetScan
chemistry analyzers.
|
|
|
|
Total sales of our VetScan hematology instruments and hematology
reagent kits in Europe increased 60%, or $426,000, primarily due
to an increase in units of hematology instruments sold resulting
from our promotion strategy for our VetScan hematology
instruments.
|
|
|
|
Total sales from our OEM supplied products increased $267,000
during fiscal 2010 in Europe. Our OEM supplied products include
our i-STAT analyzers and related consumables (launched in fiscal
2010) and canine heartworm rapid tests (launched in the
fourth quarter of fiscal 2009).
|
Asia Pacific and rest of the
world. During fiscal 2010, total revenues in
Asia Pacific and rest of the world increased 24%, or $903,000,
as compared to fiscal 2009. The increase in total revenues in
Asia Pacific and rest of the world was attributed primarily to
the following:
|
|
|
|
|
Total sales of our VetScan chemistry analyzers and veterinary
reagent discs in Asia Pacific and rest of the world increased
16%, or $398,000, primarily due to increased sales to various
distributors.
|
|
|
|
Total sales from our OEM supplied products increased $226,000
during fiscal 2010 in Asia Pacific and rest of the world. Our
OEM supplied products include our VetScan VSpro
coagulation analyzers and related consumables (launched in the
fourth quarter of fiscal 2009), i-STAT analyzers and related
consumables (launched in fiscal 2010), and canine heartworm
rapid tests (launched in the fourth quarter of fiscal 2009).
|
37
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.
(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.
38
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 the expanded installed base of our
Piccolo chemistry analyzers.
(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.
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.
39
Segment
Results
Fiscal
2010 Compared to Fiscal 2009
The following table presents revenues, cost of revenues, gross
profit and percentage of revenues by operating segments for
fiscal 2010 and 2009 (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
Change
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
Increase/
|
|
|
Percent
|
|
|
|
2010
|
|
|
Revenues(1)
|
|
|
2009
|
|
|
Revenues(1)
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
$
|
24,176
|
|
|
|
100
|
%
|
|
$
|
24,796
|
|
|
|
100
|
%
|
|
$
|
(620
|
)
|
|
|
(3
|
)%
|
Percentage of total revenues
|
|
|
19
|
%
|
|
|
|
|
|
|
23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Veterinary Market
|
|
|
92,411
|
|
|
|
100
|
%
|
|
|
74,046
|
|
|
|
100
|
%
|
|
|
18,365
|
|
|
|
25
|
%
|
Percentage of total revenues
|
|
|
74
|
%
|
|
|
|
|
|
|
70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other(2)
|
|
|
7,970
|
|
|
|
|
|
|
|
6,720
|
|
|
|
|
|
|
|
1,250
|
|
|
|
19
|
%
|
Percentage of total revenues
|
|
|
7
|
%
|
|
|
|
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
124,557
|
|
|
|
|
|
|
|
105,562
|
|
|
|
|
|
|
|
18,995
|
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
|
10,704
|
|
|
|
44
|
%
|
|
|
12,407
|
|
|
|
50
|
%
|
|
|
(1,703
|
)
|
|
|
(14
|
)%
|
Veterinary Market
|
|
|
37,785
|
|
|
|
41
|
%
|
|
|
31,052
|
|
|
|
42
|
%
|
|
|
6,733
|
|
|
|
22
|
%
|
Other(2)
|
|
|
3,946
|
|
|
|
|
|
|
|
3,478
|
|
|
|
|
|
|
|
468
|
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
52,435
|
|
|
|
|
|
|
|
46,937
|
|
|
|
|
|
|
|
5,498
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
|
13,472
|
|
|
|
56
|
%
|
|
|
12,389
|
|
|
|
50
|
%
|
|
|
1,083
|
|
|
|
9
|
%
|
Veterinary Market
|
|
|
54,626
|
|
|
|
59
|
%
|
|
|
42,994
|
|
|
|
58
|
%
|
|
|
11,632
|
|
|
|
27
|
%
|
Other(2)
|
|
|
4,024
|
|
|
|
|
|
|
|
3,242
|
|
|
|
|
|
|
|
782
|
|
|
|
24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
72,122
|
|
|
|
|
|
|
$
|
58,625
|
|
|
|
|
|
|
$
|
13,497
|
|
|
|
23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 2010, total revenues in the medical market
decreased 3%, or $620,000, as compared to fiscal 2009.
Components of the change were as follows:
Instruments. Total revenues from sales of our
Piccolo chemistry analyzers decreased 26%, or $2.3 million,
during fiscal 2010, as compared to fiscal 2009. The decrease in
revenues was primarily attributed to (a) a decrease in
revenues in North America (excluding the U.S. government)
of 35%, or $1.7 million, primarily due to inventory stock
adjustments by distributors during the first nine months of
fiscal 2010, and (b) a decrease in sales to the
U.S. government of 45%, or $957,000, primarily due to a
decrease in the U.S. Militarys needs for our
products, primarily in the third quarter of fiscal 2010, which
were not predictable. The decrease in revenues was partially
offset by an increase in sales in Europe by 25%, or $306,000,
primarily due to our promotion strategy and increased sales to
distributors.
Consumables. Total revenues from medical
reagent discs increased 10%, or $1.5 million, during fiscal
2010, as compared to fiscal 2009. The increase in revenues was
primarily attributed to (a) an increase in revenues in
North America (excluding the U.S. government) of 11%, or
$1.2 million, primarily due to an increase in units sold
40
resulting from an expanded installed base of our Piccolo
chemistry analyzers, and (b) an increase in revenues in
Europe of 11%, or $229,000, primarily due to higher average
selling prices.
Gross
Profit for Medical Market Segment
Gross profit for the medical market segment increased 9%, or
$1.1 million, during fiscal 2010, as compared to fiscal
2009. Gross profit percentages for the medical market segment
during fiscal 2010 and 2009 were 56% and 50%, respectively. In
absolute dollars, the increase in gross profit for the medical
market segment was primarily due to (a) lower manufacturing
costs on Piccolo chemistry analyzers and medical reagent discs
during fiscal 2010, and (b) an increase in units of medical
reagent discs sold during fiscal 2010. The increase was
partially offset by a decrease in units of Piccolo chemistry
analyzers sold during fiscal 2010.
Veterinary
Market
Revenues
for Veterinary Market Segment
During fiscal 2010, total revenues in the veterinary market
increased 25%, or $18.4 million, as compared to fiscal
2009. Total revenues from veterinary instruments sold increased
15%, or $2.8 million, during fiscal 2010, as compared to
fiscal 2009. Total revenues from consumables in the veterinary
market increased 28%, or $15.3 million, during fiscal 2010,
as compared to fiscal 2009. Components of the change were as
follows:
|
|
|
|
|
Sales of our VetScan chemistry analyzers increased 4%, or
$455,000, during fiscal 2010, as compared to fiscal 2009. The
changes were primarily attributed to (a) an increase in
revenues in Europe of 44%, or $1.1 million, primarily due
to our promotion strategy and increased marketing activities by
our distributors, and (b) an increase in revenues in Asia
of 33%, or $210,000, primarily due to increased sales to various
distributors. The net increase in total revenues was partially
offset by a decrease in revenues in North America by 9%, or
$808,000, primarily due to lower average selling prices.
|
|
|
|
Total revenues from veterinary reagent discs increased 13%, or
$6.5 million, during fiscal 2010, as compared to fiscal
2009. The increase in revenues was primarily attributed to
(a) an increase in revenues in North America of 11%, or
$4.3 million, primarily due to an increase in units sold
resulting from an expanded installed base of our VetScan
chemistry analyzers and higher average selling prices,
(b) an increase in revenues in Europe of 27%, or
$2.0 million, primarily due to an increase in units sold
resulting from an expanded installed base of our VetScan
chemistry analyzers, and (c) an increase in revenues in
Asia Pacific and rest of the world of 10%, or $188,000,
primarily due to increased sales to various distributors.
|
|
|
|
Total sales of our VetScan hematology instruments and hematology
reagent kits increased 10%, or $1.2 million, primarily
attributed to (a) an increase in revenues in North America
of 6%, or $660,000, primarily due to an increase in units of
hematology reagent kits sold resulting from an expanded
installed base of our VetScan hematology instruments, and
(b) an increase in revenues in Europe of 60%, or $426,000,
primarily due to an increase in units sold resulting from our
promotion strategy for our VetScan hematology instruments.
|
|
|
|
Total sales from our OEM supplied products increased
$10.0 million, during fiscal 2010, primarily in North
America. Our OEM supplied products include our VetScan VSpro
coagulation analyzers and related consumables (launched in
the fourth quarter of fiscal 2009), i-STAT analyzers and related
consumables (launched in fiscal 2010), and canine heartworm
rapid tests (launched in the fourth quarter of fiscal 2009).
|
Gross
Profit for Veterinary Market Segment
Gross profit for the veterinary market segment increased 27%, or
$11.6 million, during fiscal 2010, as compared to fiscal
2009. Gross profit percentages for the veterinary market segment
during fiscal 2010 and 2009 were 59% and 58%, respectively. In
absolute dollars, the increase in gross profit for the
veterinary market segment was primarily due to (a) an
increase in units of VetScan chemistry analyzers and veterinary
reagent discs sold during fiscal 2010, (b) higher average
selling prices of veterinary reagent discs sold during fiscal
2010, (c) an increase in units of VetScan hematology
instruments and hematology reagent kits sold during fiscal 2010,
(d) sales of our
i-STAT
analyzers and related consumables (launched in fiscal
2010) and sales of our canine heartworm rapid tests
41
(launched in the fourth quarter of fiscal 2009), and
(e) lower manufacturing costs on VetScan chemistry
analyzers and veterinary reagent discs and lower unit costs from
suppliers of our hematology instruments during fiscal 2010. The
increase was partially offset by lower average selling prices of
VetScan chemistry analyzers sold during fiscal 2010.
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
42
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.
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 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 fiscal 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
43
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.
Cost
of Revenues
The following sets forth, our cost of revenues for fiscal 2010,
2009 and 2008 (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change 2009 to 2010
|
|
Change 2008 to 2009
|
|
|
Year Ended March 31,
|
|
Increase/
|
|
Percent
|
|
Increase/
|
|
Percent
|
|
|
2010
|
|
2009
|
|
2008
|
|
(Decrease)
|
|
Change
|
|
(Decrease)
|
|
Change
|
|
Cost of revenues
|
|
$
|
52,435
|
|
|
$
|
46,937
|
|
|
$
|
45,507
|
|
|
$
|
5,498
|
|
|
|
12
|
%
|
|
$
|
1,430
|
|
|
|
3
|
%
|
Percentage of total revenues
|
|
|
42
|
%
|
|
|
44
|
%
|
|
|
45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues includes the costs associated with
manufacturing, assembly, packaging, warranty repairs, test and
quality assurance for our instruments and consumables and
manufacturing overhead, including costs of personnel and
equipment associated with manufacturing support.
Fiscal
2010 Compared to Fiscal 2009
The increase in cost of revenues, in absolute dollars, during
fiscal 2010, as compared to fiscal 2009, was primarily due to
(a) sales from our OEM supplied products, which include our
VetScan VSpro coagulation analyzers and related
consumables, i-STAT analyzers and related consumables, and
canine heartworm rapid tests during fiscal 2010, and (b) an
increase in units of medical and veterinary reagent discs sold
during fiscal 2010. The increase in cost of revenues was
partially offset by (a) a decrease in units of Piccolo
chemistry analyzers sold during fiscal 2010, (b) lower
manufacturing costs on Piccolo and VetScan chemistry analyzers
during fiscal 2010, (c) lower manufacturing costs on
medical and veterinary reagent discs during fiscal 2010, and
(d) lower unit costs from suppliers of our hematology
instruments during fiscal 2010. As a percentage of total
revenues, the decrease in cost of revenues during fiscal 2010,
as compared to fiscal 2009, was primarily due to lower
manufacturing costs on Piccolo and VetScan chemistry analyzers
and medical and veterinary reagent discs during fiscal 2010.
Lower manufacturing costs during fiscal 2010 were due to lower
material costs from our suppliers, more efficient production
lines and design changes. While we have an ongoing cost
improvement program to reduce material and component costs and
implementing design changes and process improvements, these cost
reductions may be partially offset by increases in other
manufacturing costs in subsequent periods.
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
44
(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.
Gross
Profit
The following sets forth, our gross profit for fiscal 2010, 2009
and 2008 (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change 2009 to 2010
|
|
Change 2008 to 2009
|
|
|
Year Ended March 31,
|
|
Increase/
|
|
Percent
|
|
Increase/
|
|
Percent
|
|
|
2010
|
|
2009
|
|
2008
|
|
(Decrease)
|
|
Change
|
|
(Decrease)
|
|
Change
|
|
Total gross profit
|
|
$
|
72,122
|
|
|
$
|
58,625
|
|
|
$
|
55,044
|
|
|
$
|
13,497
|
|
|
|
23
|
%
|
|
$
|
3,581
|
|
|
|
7
|
%
|
Total gross margin
|
|
|
58
|
%
|
|
|
56
|
%
|
|
|
55
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2010 Compared to Fiscal 2009
Gross profit in fiscal 2010 increased by 23%, or
$13.5 million, as compared to fiscal 2009, primarily due to
the following: (a) an increase in units of VetScan
chemistry analyzers and medical and veterinary reagent discs
sold during fiscal 2010, (b) higher average selling prices
of veterinary reagent discs sold during fiscal 2010,
(c) sales of our i-STAT analyzers and related consumables
(launched in fiscal 2010) and sales of our canine heartworm
rapid tests (launched in the fourth quarter of fiscal 2009),
(d) lower manufacturing costs on Piccolo and VetScan
chemistry analyzers during fiscal 2010, (e) lower
manufacturing costs on medical and veterinary reagent discs and
(f) lower unit cost from suppliers of our hematology
instruments during fiscal 2010. The increase was partially
offset by a decrease in units of Piccolo chemistry analyzers
sold during fiscal 2010. As a percentage, the increase in gross
margin during fiscal 2010, as compared to fiscal 2009, was
primarily due to lower manufacturing costs on Piccolo and
VetScan chemistry analyzers and medical and veterinary reagent
during fiscal 2010 discs (as described above under Cost of
Revenues).
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.
Operating
Expenses
Research
and Development
The following sets forth, our research and development expenses
for fiscal 2010, 2009 and 2008 (in thousands, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change 2009 to 2010
|
|
Change 2008 to 2009
|
|
|
Year Ended March 31,
|
|
Increase/
|
|
Percent
|
|
Increase/
|
|
Percent
|
|
|
2010
|
|
2009
|
|
2008
|
|
(Decrease)
|
|
Change
|
|
(Decrease)
|
|
Change
|
|
Research and development
|
|
$
|
10,688
|
|
|
$
|
8,361
|
|
|
$
|
6,966
|
|
|
$
|
2,327
|
|
|
|
28
|
%
|
|
$
|
1,395
|
|
|
|
20
|
%
|
Percentage of total revenues
|
|
|
9
|
%
|
|
|
8
|
%
|
|
|
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 optimization and
enhancement of existing products.
Fiscal
2010 Compared to Fiscal 2009
Research and development expenses in fiscal 2010 increased by
28%, or $2.3 million, as compared to fiscal 2009. Research
and development expenses in fiscal 2010 related primarily to new
product development and enhancement of existing products and
clinical trials. Research and development expenses are based on
the project
45
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 2010 and 2009 was
$849,000 and $240,000, respectively.
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.
We anticipate the dollar amount of research and development
expenses to increase in fiscal 2011 from fiscal 2010 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.
Sales
and Marketing
The following sets forth, our sales and marketing expenses for
fiscal 2010, 2009 and 2008 (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change 2009 to 2010
|
|
Change 2008 to 2009
|
|
|
Year Ended March 31,
|
|
Increase/
|
|
Percent
|
|
Increase/
|
|
Percent
|
|
|
2010
|
|
2009
|
|
2008
|
|
(Decrease)
|
|
Change
|
|
(Decrease)
|
|
Change
|
|
Sales and marketing expenses
|
|
$
|
30,138
|
|
|
$
|
24,712
|
|
|
$
|
23,689
|
|
|
$
|
5,426
|
|
|
|
22
|
%
|
|
$
|
1,023
|
|
|
|
4
|
%
|
Percentage of total revenues
|
|
|
24
|
%
|
|
|
23
|
%
|
|
|
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
2010 Compared to Fiscal 2009
Sales and marketing expenses in fiscal 2010 increased by 22%, or
$5.4 million, as compared to fiscal 2009. 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 2010 and 2009 was
$1.3 million and $508,000, respectively.
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.
46
General
and Administrative
The following sets forth, our general and administrative
expenses for fiscal 2010, 2009 and 2008 (in thousands, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change 2009 to 2010
|
|
Change 2008 to 2009
|
|
|
Year Ended March 31,
|
|
Increase/
|
|
Percent
|
|
Increase/
|
|
Percent
|
|
|
2010
|
|
2009
|
|
2008
|
|
(Decrease)
|
|
Change
|
|
(Decrease)
|
|
Change
|
|
General and administrative expenses
|
|
$
|
10,521
|
|
|
$
|
7,757
|
|
|
$
|
6,681
|
|
|
$
|
2,764
|
|
|
|
36
|
%
|
|
$
|
1,076
|
|
|
|
16
|
%
|
Percentage of total revenues
|
|
|
8
|
%
|
|
|
7
|
%
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
2010 Compared to Fiscal 2009
General and administrative expenses in fiscal 2010 increased by
36%, or $2.8 million, as compared to fiscal 2009, primarily
related to higher personnel-related costs, which includes
(a) an increase in share-based compensation expense, which
is based on the requisite service period of the award, and
(b) an increase in bonus expenses based on the achievement
of established goals during the fourth quarter of fiscal 2010.
The increase was partially offset by fees and costs related to
pursing strategic opportunities during fiscal 2009. Share-based
compensation expense during fiscal 2010 and 2009 was
$2.9 million and $843,000, respectively.
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.
Interest
and Other Income (Expense), Net
The following sets forth our interest and other income
(expense), net for fiscal 2010, 2009 and 2008 (in thousands,
except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change 2009 to 2010
|
|
Change 2008 to 2009
|
|
|
Year Ended March 31,
|
|
Increase/
|
|
Percent
|
|
Increase/
|
|
Percent
|
|
|
2010
|
|
2009
|
|
2008
|
|
(Decrease)
|
|
Change
|
|
(Decrease)
|
|
Change
|
|
Interest and other income (expense), net
|
|
$
|
630
|
|
|
$
|
1,271
|
|
|
$
|
2,096
|
|
|
$
|
(641
|
)
|
|
|
(50
|
)%
|
|
$
|
(825
|
)
|
|
|
(39
|
)%
|
Interest and other income (expense), net consists primarily of
interest earned on cash and cash equivalents, investments and
foreign currency exchange gains and losses.
Fiscal
2010 Compared to Fiscal 2009
Interest and other income (expense), net in fiscal 2010
decreased by 50%, or $641,000. The decrease in interest and
other income (expense), net, in fiscal 2010, as compared to
fiscal 2009, was primarily attributed to lower interest yields
in our investment portfolio during fiscal 2010.
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.
47
Income
Tax Provision
The following sets forth, our income tax provision for fiscal
2010, 2009 and 2008 (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Income tax provision
|
|
$
|
8,382
|
|
|
$
|
7,053
|
|
|
$
|
7,301
|
|
Effective tax rate
|
|
|
39
|
%
|
|
|
37
|
%
|
|
|
37
|
%
|
Fiscal
2010 Compared to Fiscal 2009
For fiscal 2010 and fiscal 2009, the income tax provisions were
$8.4 million, based on an effective tax rate of 39%, and
$7.1 million, based on an effective tax rate of 37%,
respectively.
The increase in the effective tax rate during fiscal 2010, as
compared to fiscal 2009, was primarily due to an increase in
non-deductible compensation expense and a change in our
investment portfolio, and partially offset by an increase in tax
benefits for federal qualified production activities.
We expect our effective tax rate will be approximately 39% for
federal, foreign and various state tax jurisdictions in fiscal
2011.
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 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.
LIQUIDITY
AND CAPITAL RESOURCES
Total cash, cash equivalents and short-term and long-term
investments at March 31, 2010, 2009 and 2008 were as
follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cash and cash equivalents
|
|
$
|
27,857
|
|
|
$
|
49,237
|
|
|
$
|
17,219
|
|
Short-term investments
|
|
|
32,343
|
|
|
|
20,776
|
|
|
|
6,991
|
|
Long-term investments
|
|
|
36,319
|
|
|
|
4,886
|
|
|
|
35,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and investments
|
|
$
|
96,519
|
|
|
$
|
74,899
|
|
|
$
|
59,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total assets
|
|
|
58
|
%
|
|
|
53
|
%
|
|
|
49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
Cash Flow
Changes
Cash provided by (used in) during fiscal 2010, 2009 and 2008
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net cash provided by operating activities
|
|
$
|
22,672
|
|
|
$
|
14,331
|
|
|
$
|
14,966
|
|
Net cash (used in) provided by investing activities
|
|
|
(46,624
|
)
|
|
|
10,673
|
|
|
|
(12,557
|
)
|
Net cash provided by financing activities
|
|
|
2,565
|
|
|
|
7,066
|
|
|
|
4,627
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
7
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
$
|
(21,380
|
)
|
|
$
|
32,018
|
|
|
$
|
7,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2010, we had net working capital of
$89.3 million compared to $101.8 million at
March 31, 2009. Cash and cash equivalents at March 31,
2010 were $27.9 million compared to $49.2 million at
March 31, 2009. The decrease in cash and cash equivalents
during fiscal 2010 was primarily due to purchases of investments
of $73.6 million, partially offset by net cash provided by
operating activities of $22.7 million and proceeds from
maturities and redemptions of investments of $30.4 million.
In fiscal 2010 and 2009, the effect of exchange rate changes on
cash and cash equivalents and the net gain and loss of foreign
exchange translation were presented in our consolidated
statements of cash flows, resulting from the incorporation of
our wholly-owned subsidiary, Abaxis Europe GmbH in fiscal 2009.
Abaxis Europe GmbH maintains foreign currency denominated
accounts.
Operating
Activities
During fiscal 2010, we generated $22.7 million in cash from
operating activities compared to $14.3 million in fiscal
2009. The cash provided by operating activities during fiscal
2010 was primarily the result of net income of
$13.0 million during fiscal 2010, adjusted for the effects
of non-cash adjustments including depreciation and amortization
of $4.9 million and share-based compensation expense of
$5.3 million, partially offset by a decrease of
$2.1 million related to excess tax benefits from
share-based awards.
Other changes in operating activities during fiscal 2010 were as
follows:
(i) Receivables, net increased by $2.0 million, from
$22.0 million at March 31, 2009 to $24.0 million
as of March 31, 2010, primarily due to higher sales in the
last month of the quarter ended March 31, 2010.
(ii) Inventories increased by $3.4 million, from
$15.7 million at March 31, 2009 to $19.1 million
as of March 31, 2010, primarily due to an increase in
finished goods to support future demand and new sales of
original equipment manufacturer (OEM) supplied
products. OEM supplied products in inventories include the
following: our VetScan VSpro coagulation analyzers and
related consumables (launched in the fourth quarter of fiscal
2009),
i-STAT
analyzers and related consumables (launched in fiscal 2010), and
canine heartworm rapid tests (launched in the fourth quarter of
fiscal 2009).
(iii) Prepaid expenses increased by $383,000, from $957,000
at March 31, 2009 to $1.3 million as of March 31,
2010, primarily due to the timing of payments.
(iv) Current net deferred tax assets decreased by $903,000,
from $4.7 million at March 31, 2009 to
$3.8 million as of March 31, 2010, primarily as a
result of the utilization of federal research and development
tax credits carryovers, partially offset by an increase in other
current deferred tax assets.
(v) Non-current net deferred tax assets increased by
$471,000, from $2.5 million at March 31, 2009 to
$2.9 million as of March 31, 2010, primarily as a
result of an increase in share-based compensation.
(vi) Accounts payable increased by $5.4 million, from
$4.0 million at March 31, 2009 to $9.4 million as
of March 31, 2010, primarily due to the timing and payment
of services and inventory purchases.
(vii) Accrued payroll and related expenses increased by
$1.9 million, from $3.7 million at March 31, 2009
to $5.6 million as of March 31, 2010, primarily due to
accrued bonus as of March 31, 2010, which was based on the
49
achievement of established quarterly net sales and quarterly
pre-tax income goals during the fourth quarter of fiscal 2010,
compared to March 31, 2009, for which we did not achieve
the established quarterly net sales and quarterly pre-tax income
goals during the fourth quarter of fiscal 2009.
(viii) Accrued taxes increased by $366,000, from $34,000 at
March 31, 2009 to $400,000 as of March 31, 2010,
primarily due to income taxes payable by our subsidiary in
Germany.
(ix) Total deferred revenue decreased by $58,000, resulting
from a decrease in the non-current portion of deferred revenue
of $191,000, from $1.6 million at March 31, 2009 to
$1.4 million, partially offset by an increase in the
current portion of deferred revenue of $133,000, from
$1.0 million at March 31, 2009 to $1.2 million as
of March 31, 2010. Changes in balances are based on the
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.
(x) Total warranty reserves decreased by $954,000,
resulting from a decrease in the current portion of warranty
reserves of $531,000, from $1.7 million at March 31,
2009 to $1.2 million as of March 31, 2010 and
non-current portion of warranty reserves of $423,000, from
$583,000 at March 31, 2009 to $160,000 as of March 31,
2010. The net change in warranty reserves is primarily based on
(a) the number of instruments in standard warranty,
estimated product failure rates and estimated repair costs and
(b) an estimate of defective reagent discs and replacement
costs. During fiscal 2010, total warranty reserves for
instruments decreased based on both our historical experience
and estimated product failure rates of blood chemistry analyzers
since we began taking steps to resolve manufacturing problems,
primarily related to quality control for key components that we
obtain from our suppliers and to design issues of the key
components required.
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.
Investing
Activities
Net cash used in investing activities during fiscal 2010 totaled
$46.6 million, compared to net cash provided by investing
activities of $10.7 million during fiscal 2009. Changes in
investing activities were as follows:
Investments. Cash used to purchase investments
in asset-backed securities, certificates of deposits, corporate
bonds, municipal bonds and U.S. agency securities totaled
$73.6 million during fiscal 2010. Cash provided by proceeds
from maturities and redemptions of investments in asset-backed
securities, certificates of deposits and U.S. agency
securities totaled $30.4 million during fiscal 2010.
Property and Equipment. Cash used to purchase
property and equipment totaled $3.4 million during fiscal
2010, primarily due to the following (a) support new
product introduction, (b) increased capacity requirements
in our production line and (c) increase in transfers of
instruments from inventory and held for loan or evaluation or
demonstration purposes to support our customer base. We
anticipate that we will continue to purchase property and
equipment necessary in the normal course of our business.
Financing
Activities
Net cash provided by financing activities during fiscal 2010
totaled $2.6 million, primarily consisting of
$2.1 million related to excess tax benefits from
share-based awards and $915,000 related to proceeds from stock
options exercised, partially offset by the payment of income
withholding taxes of $446,000 due upon vesting of restricted
stock units.
50
Contractual
Obligations
As of March 31, 2010, our contractual obligations for
succeeding fiscal years are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
Total
|
|
2011
|
|
2012-2013
|
|
2014-2015
|
|
After 2015
|
|
Operating leases
|
|
$
|
11,919
|
|
|
$
|
1,141
|
|
|
$
|
2,175
|
|
|
$
|
2,128
|
|
|
$
|
6,475
|
|
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 2021.
In March 2010, we amended the terms on our operating lease on
our principal facility in Union City, California from an
expiration date of December 2010 to February 2021.
Purchase Commitments. In October 2008, we
entered into an OEM agreement with Scandinavian Micro Biodevices
APS (SMB) of Denmark to purchase coagulation
analyzers and coagulation cartridges. 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. These milestones have not
yet been met and we are currently purchasing coagulation
analyzers and coagulation cartridges on a purchase order basis,
but all such purchases will count towards the minimum purchase
obligations if and when they are triggered.
Patent Licensing Agreement. Effective January
2009, we entered into a license agreement with Inverness Medical
Switzerland GmbH (Inverness). Under our license
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.
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 by Comerica Bank-California. At
March 31, 2010, there was no amount outstanding under our
line of credit. Further information on our line of credit,
including the terms and conditions with respect to our loan
covenants, is 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.
51
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
For information with respect to recent accounting pronouncements
and the impact of these pronouncements on our consolidated
financial statements, see Note 1 of the Notes to
Consolidated Financial Statements contained in this Annual
Report on
Form 10-K.
|
|
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,
2010, our short-term investments totaled $32.3 million,
consisting of certificates of deposits, corporate bonds and
municipal bonds, and our long-term investments totaled
$36.3 million, consisting of certificates of deposits,
corporate bonds, municipal bonds and U.S. agency securities.
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, 2010, we no longer hold any auction
rate securities.
We have the ability to hold the investments classified as
held-to-maturity in our investment portfolio at March 31,
2010 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, 2010
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 fiscal 2010 and 2009.
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,
2010. Consequently, an increase in the prime rate 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, 2010 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,
2010.
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 Accounting
Standards Codification 815, Derivatives and Hedging.
52
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 are 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 Messtechnik GmbH, 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 denominated account balances
of 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 our consolidated statements of income.
For our sales denominated in local currencies, we are exposed to
foreign currency exchange rate fluctuations on revenue.
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, 2010 and 2009, and the related consolidated
statements of income, shareholders equity and
comprehensive income, and cash flows for each of the three years
in the period ended March 31, 2010. 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,
2010 and 2009, and the results of their operations and their
cash flows for each of the three years in the period ended
March 31, 2010, 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, 2010, 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 14, 2010 expressed an unqualified opinion thereon.
/s/ Burr
Pilger Mayer, Inc.
San Jose, California
June 14, 2010
55
ABAXIS,
INC.
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands,
|
|
|
|
except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
27,857
|
|
|
$
|
49,237
|
|
Short-term investments
|
|
|
32,343
|
|
|
|
20,776
|
|
Receivables (net of allowances of $446 in 2010 and $388 in 2009)
|
|
|
23,962
|
|
|
|
21,983
|
|
Inventories
|
|
|
19,067
|
|
|
|
15,735
|
|
Prepaid expenses
|
|
|
1,340
|
|
|
|
957
|
|
Net deferred tax assets, current
|
|
|
3,773
|
|
|
|
4,676
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
108,342
|
|
|
|
113,364
|
|
Long-term investments
|
|
|
36,319
|
|
|
|
4,886
|
|
Property and equipment, net
|
|
|
15,544
|
|
|
|
14,798
|
|
Intangible assets, net
|
|
|
4,600
|
|
|
|
5,175
|
|
Net deferred tax assets, non-current
|
|
|
2,935
|
|
|
|
2,464
|
|
Other assets
|
|
|
76
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
167,816
|
|
|
$
|
140,711
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
9,404
|
|
|
$
|
3,963
|
|
Accrued payroll and related expenses
|
|
|
5,615
|
|
|
|
3,698
|
|
Accrued taxes
|
|
|
400
|
|
|
|
34
|
|
Other accrued liabilities
|
|
|
1,256
|
|
|
|
1,116
|
|
Deferred revenue
|
|
|
1,157
|
|
|
|
1,024
|
|
Warranty reserve
|
|
|
1,183
|
|
|
|
1,714
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
19,015
|
|
|
|
11,549
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
Deferred rent
|
|
|
163
|
|
|
|
137
|
|
Deferred revenue
|
|
|
1,359
|
|
|
|
1,550
|
|
Warranty reserve
|
|
|
160
|
|
|
|
583
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
1,682
|
|
|
|
2,270
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 9)
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, no par value: 5,000,000 shares authorized;
no shares issued and outstanding in 2010 and 2009
|
|
|
|
|
|
|
|
|
Common stock, no par value: 35,000,000 shares authorized;
22,112,000 and 21,933,000 shares issued and outstanding in
2010 and 2009, respectively
|
|
|
125,050
|
|
|
|
117,846
|
|
Retained earnings
|
|
|
22,069
|
|
|
|
9,046
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
147,119
|
|
|
|
126,892
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
167,816
|
|
|
$
|
140,711
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
56
ABAXIS,
INC.
CONSOLIDATED
STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues
|
|
$
|
124,557
|
|
|
$
|
105,562
|
|
|
$
|
100,551
|
|
Cost of revenues
|
|
|
52,435
|
|
|
|
46,937
|
|
|
|
45,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
72,122
|
|
|
|
58,625
|
|
|
|
55,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
10,688
|
|
|
|
8,361
|
|
|
|
6,966
|
|
Sales and marketing
|
|
|
30,138
|
|
|
|
24,712
|
|
|
|
23,689
|
|
General and administrative
|
|
|
10,521
|
|
|
|
7,757
|
|
|
|
6,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
51,347
|
|
|
|
40,830
|
|
|
|
37,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
20,775
|
|
|
|
17,795
|
|
|
|
17,708
|
|
Interest and other income (expense), net
|
|
|
630
|
|
|
|
1,271
|
|
|
|
2,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
21,405
|
|
|
|
19,066
|
|
|
|
19,804
|
|
Income tax provision
|
|
|
8,382
|
|
|
|
7,053
|
|
|
|
7,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
13,023
|
|
|
$
|
12,013
|
|
|
$
|
12,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.59
|
|
|
$
|
0.55
|
|
|
$
|
0.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
0.58
|
|
|
$
|
0.54
|
|
|
$
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in the calculation of net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic
|
|
|
22,021
|
|
|
|
21,826
|
|
|
|
21,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding diluted
|
|
|
22,606
|
|
|
|
22,324
|
|
|
|
22,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
57
ABAXIS,
INC.
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY AND
COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 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
|
|
|
|
|
|
Common stock issued under stock option exercises
|
|
|
128,000
|
|
|
|
915
|
|
|
|
|
|
|
|
|
|
|
|
915
|
|
|
|
|
|
Common stock issued in settlement of restricted stock units, net
of shares withheld for employee taxes
|
|
|
51,000
|
|
|
|
(446
|
)
|
|
|
|
|
|
|
|
|
|
|
(446
|
)
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
5,398
|
|
|
|
|
|
|
|
|
|
|
|
5,398
|
|
|
|
|
|
Excess tax benefits from share-based awards and other tax
adjustments
|
|
|
|
|
|
|
1,337
|
|
|
|
|
|
|
|
|
|
|
|
1,337
|
|
|
|
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
13,023
|
|
|
|
|
|
|
|
13,023
|
|
|
$
|
13,023
|
|
Change in unrealized gain (loss) on investments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2010
|
|
|
22,112,000
|
|
|
$
|
125,050
|
|
|
$
|
22,069
|
|
|
$
|
|
|
|
$
|
147,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
58
ABAXIS,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
13,023
|
|
|
$
|
12,013
|
|
|
$
|
12,503
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,935
|
|
|
|
4,492
|
|
|
|
3,497
|
|
Investment premium amortization
|
|
|
211
|
|
|
|
|
|
|
|
|
|
Loss on disposals of property and equipment
|
|
|
104
|
|
|
|
16
|
|
|
|
2
|
|
Loss on foreign exchange translation
|
|
|
60
|
|
|
|
137
|
|
|
|
|
|
Share-based compensation expense
|
|
|
5,337
|
|
|
|
1,743
|
|
|
|
1,108
|
|
Excess tax benefits from share-based awards
|
|
|
(2,096
|
)
|
|
|
(6,711
|
)
|
|
|
(1,609
|
)
|
Provision for deferred income taxes
|
|
|
1,245
|
|
|
|
4,813
|
|
|
|
6,400
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net
|
|
|
(2,035
|
)
|
|
|
(1,221
|
)
|
|
|
(3,944
|
)
|
Inventories
|
|
|
(5,068
|
)
|
|
|
1,051
|
|
|
|
(5,572
|
)
|
Prepaid expenses
|
|
|
(383
|
)
|
|
|
(295
|
)
|
|
|
894
|
|
Other assets
|
|
|
(52
|
)
|
|
|
(21
|
)
|
|
|
33
|
|
Accounts payable
|
|
|
5,436
|
|
|
|
(2,440
|
)
|
|
|
(84
|
)
|
Accrued payroll and related expenses
|
|
|
1,917
|
|
|
|
(576
|
)
|
|
|
447
|
|
Accrued taxes
|
|
|
884
|
|
|
|
30
|
|
|
|
|
|
Other accrued liabilities
|
|
|
140
|
|
|
|
479
|
|
|
|
503
|
|
Deferred rent
|
|
|
26
|
|
|
|
(149
|
)
|
|
|
(105
|
)
|
Deferred revenue
|
|
|
(58
|
)
|
|
|
621
|
|
|
|
(208
|
)
|
Warranty reserve
|
|
|
(954
|
)
|
|
|
349
|
|
|
|
1,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
22,672
|
|
|
|
14,331
|
|
|
|
14,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of
available-for-sale
investments
|
|
|
(3,030
|
)
|
|
|
|
|
|
|
(20,575
|
)
|
Purchases of
held-to-maturity
investments
|
|
|
(70,562
|
)
|
|
|
(32,950
|
)
|
|
|
(21,167
|
)
|
Proceeds from redemptions of
available-for-sale
investments
|
|
|
3,000
|
|
|
|
36,975
|
|
|
|
|
|
Proceeds from maturities and redemptions of
held-to-maturity
investments
|
|
|
27,381
|
|
|
|
14,279
|
|
|
|
32,804
|
|
Purchases of property and equipment
|
|
|
(3,413
|
)
|
|
|
(2,651
|
)
|
|
|
(3,619
|
)
|
Proceeds from disposals of property and equipment
|
|
|
|
|
|
|
20
|
|
|
|
|
|
Purchase of intangible assets
|
|
|
|
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(46,624
|
)
|
|
|
10,673
|
|
|
|
(12,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock under stock plans, net
|
|
|
469
|
|
|
|
355
|
|
|
|
3,018
|
|
Excess tax benefits from share-based awards
|
|
|
2,096
|
|
|
|
6,711
|
|
|
|
1,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
2,565
|
|
|
|
7,066
|
|
|
|
4,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
7
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(21,380
|
)
|
|
|
32,018
|
|
|
|
7,036
|
|
Cash and cash equivalents at beginning of year
|
|
|
49,237
|
|
|
|
17,219
|
|
|
|
10,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
27,857
|
|
|
$
|
49,237
|
|
|
$
|
17,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes, net of refunds
|
|
$
|
6,349
|
|
|
$
|
1,491
|
|
|
$
|
319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on investments, net of tax
|
|
$
|
|
|
|
$
|
1,415
|
|
|
$
|
(1,415
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers of equipment between inventory and property and
equipment, net
|
|
$
|
1,797
|
|
|
$
|
1,877
|
|
|
$
|
1,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in capitalized share-based compensation
|
|
$
|
61
|
|
|
$
|
6
|
|
|
$
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock withheld for employee taxes in connection with
share-based compensation
|
|
$
|
446
|
|
|
$
|
281
|
|
|
$
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
59
ABAXIS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2010, 2009 AND 2008
|
|
NOTE 1.
|
DESCRIPTION
OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
|
Description of Business. Abaxis, Inc.
(Abaxis, the Company or we),
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, our 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, our wholly-owned 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.
Principles of Consolidation. The accompanying
consolidated financial statements include the accounts of Abaxis
and our wholly-owned subsidiary, Abaxis Europe GmbH.
Intercompany transactions and balances have been eliminated in
consolidation.
Use of Estimates. The preparation of
consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America
requires our 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. Our 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. Our actual results may differ
materially from these estimates.
Certain Significant Risks and
Uncertainties. We are subject to certain risks
and uncertainties and believe that changes in any of the
following areas could have a material adverse effect on our
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 Abaxis; the adequate and timely sourcing of inventories;
and the hiring, training and retention of key employees.
Reclassification. Certain reclassifications
have been made to the consolidated financial statements of our
fiscal years ended March 31, 2009 and 2008 to conform to
current period 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 investments with original or remaining
maturities of three months or less at the time of purchase that
are readily convertible into cash. The fair value of these
investments was determined by using quoted prices for identical
investments in active markets which are measured at Level 1
inputs under Accounting Standards Codification (ASC)
820, Fair Value Measurements and Disclosures. The
carrying value of cash equivalents approximates fair value due
to their relatively short-term nature.
Investments. We hold both short-term and
long-term investments and our portfolio typically consists of
certificates of deposits, corporate bonds, municipal bonds, and
U.S. agency securities. Short-term investments have
maturities of one year or less. All other investments with
maturity dates greater than one year are classified as
long-term. Our investments are accounted for 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
60
related tax effect, in shareholders equity. Investments
classified as
held-to-maturity
are based on the Companys positive intent and ability to
hold to maturity and these investments are carried at amortized
cost.
At March 31, 2008, our short-term investments totaled
$7.0 million, consisting of certificates of deposits and
municipal bonds. At March 31, 2008, the fair value of our
long-term investments totaled $35.5 million, consisting of
auction rate securities that were not liquid. 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 by the issuer of the auction rate securities and in fiscal
2009, we adjusted an 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 and other income (expense),
net, computed using the specific identification cost
method. We assess whether an
other-than-temporary
impairment loss on our investments has occurred due to declines
in fair value or other market conditions. Declines in fair value
that are determined to be
other-than-temporary,
if any, are recorded as charges against Interest and other
income (expense), net in the consolidated statements of
income. We did not recognize any impairment loss on investments
during fiscal 2010, 2009 or 2008.
Concentration of Credit Risk. Financial
instruments that potentially subject us to a concentration of
credit risk consist primarily of cash, cash equivalents,
investments and receivables. Cash, cash equivalents and
investments are placed with high quality financial institutions
and are regularly monitored by management. These deposits are in
excess of the amount of the insurance provided by the federal
government on such deposits. To date, the Company has not
experienced any losses on such deposits.
We sell our products to distributors and direct customers
located primarily in Europe, Japan and North America. We monitor
the credit status of our distributors and direct customers on an
ongoing basis and generally do not require our customers to
provide collateral for purchases on credit. Collection of
receivables may be affected by changes in economic or other
industry conditions and may, accordingly, impact our overall
credit risk. At March 31, 2010 and 2009, one distributor in
the United States accounted for 14% and 16%, respectively, of
our total receivables balance.
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.
We consider the following in determining the level of allowance
required: the customers payment history, the age of the
receivables, the credit quality of our customers, the general
financial condition of our 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,
receivables, accounts payable and certain other accrued
liabilities. The fair value of cash, cash equivalents,
receivables, accounts payable and certain other accrued
liabilities are valued at their carrying value, which
approximates fair value due to their short maturities.
See Note 3, Fair Value Measurements for further
information on fair value measurement of our financial and
nonfinancial assets and liabilities.
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.
61
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 remaining lease term
|
Construction in progress primarily consists of purchased
material used in the development of production lines. We did not
capitalize interest on constructed assets during fiscal 2010 or
2009, due to immateriality.
Property and equipment includes instruments transferred from
inventory and held for loan or evaluation or demonstration
purposes to customers. Units held for loan, evaluation or
demonstration purposes are carried at cost and depreciated over
their estimated useful lives of three to five years.
Depreciation expense related to loan, evaluation or
demonstration units is recorded in cost of revenues or in the
respective operating expense line based on the function and
purpose for which it is being used. Proceeds from the sale of
evaluation units are recorded as revenue.
Valuation of Long-Lived Assets. We evaluate
the carrying value of our long-lived assets, such as property
and equipment and amortized intangible assets, whenever events
or changes in business circumstances or our planned use of
long-lived assets indicate that the carrying amount of an asset
may not be fully recoverable or their useful lives are no longer
appropriate. 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 and
long-lived assets are written down to their respective fair
values. We did not recognize any impairment charges on
long-lived assets in fiscal 2010, 2009 or 2008.
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, which approximates the economic
benefit.
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.
|
|
|
|
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.
|
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 recognized ratably over the life of the maintenance
contract.
62
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.
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.
We periodically offer programs to customers whereby certain
instruments are made available to customers for rent or
evaluation basis. These programs typically require customers to
purchase a minimum quantity of consumables during a specified
period for which we recognize revenue on the related consumable
according to the policies described above. Depending on the
program offered, customers may purchase the instrument during
the rental or evaluation period. Proceeds from such sale are
recorded as revenue according to the policies described above.
Rental income, if any, are also recorded as revenue according to
the policies described above.
Royalties are typically based on licensees net sales of
products that utilize our technology and are recognized as
earned in accordance with the contract terms when royalties from
licensees can be reliably measured and collectibility is
reasonably assured, such as upon the receipt of a royalty
statement from the licensee.
Distributor and Customer Rebates. We
periodically offer 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. We also
periodically offer 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 a sale transaction
we bill customers for shipping and handling costs and the
amounts billed are classified as revenue. The costs of shipping
products to customers are expensed as incurred and are 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. Our
products include certain software applications that are resident
in the product. The costs to develop such software have not been
capitalized as we believe our 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
were $2.3 million, $1.8 million and $2.2 million,
for fiscal 2010, 2009 and 2008, respectively.
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.
We recognize and measure benefits for uncertain tax positions
using a two-step approach. The first step is to evaluate the tax
position taken or expected to be taken in a tax return by
determining if the weight of evidence indicates that it is more
likely than not that the tax position will be sustained upon
audit, including resolution of any related appeals or litigation
processes. For tax positions that are more likely than not to be
sustained upon audit, the second step is to measure the tax
benefit as the largest amount that is more than 50 percent
likely to be realized upon settlement. Significant judgment is
required to evaluate uncertain tax positions. At March 31,
2010 and 2009, we had no uncertain tax positions. Our policy is
to include interest and penalties related to gross unrecognized
tax benefits within our provision for income taxes. For fiscal
2010, 2009 and 2008, we did not recognize any interest or
penalties related to uncertain tax positions in the consolidated
statements of income, and at March 31, 2010 and 2009, we
had no accrued interest or penalties.
63
Share-Based Compensation Expense. We account
for share-based compensation in accordance with ASC 718,
Compensation-Stock Compensation. We recognize
share-based compensation expense, net of an estimated forfeiture
rate, over the requisite service period of the award to
employees and directors.
We did not grant stock options during fiscal 2010, 2009 or 2008.
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, including risk-free interest rate,
expected stock price volatility, expected term and expected
dividends.
For restricted stock units, share-based compensation expense is
based on the fair value of our stock at the grant date.
As required by fair value provisions of share-based
compensation, 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
compensation 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. Comprehensive income
(loss) generally represents all changes in shareholders
equity during a period, resulting from net income and
transactions from non-owner sources. 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 Statements of Shareholders Equity and
Comprehensive Income.
Foreign Currency Translations. In July 2008,
our sales office in Darmstadt, Germany was incorporated as
Abaxis Europe GmbH, a wholly-owned subsidiary of Abaxis. The
functional currency is the U.S. dollar for our
international subsidiary. Foreign currency transactions of 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 Income and were insignificant for
fiscal 2010 and 2009. Prior to July 2008, operations from our
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.
Recent
Accounting Pronouncements
In October 2009, the Financial Accounting Standards Board (the
FASB) issued amendments to the accounting standard
addressing multiple-deliverable revenue arrangements. The
amendments provide guidance in addressing how to determine
whether an arrangement involving multiple deliverables contains
more than one unit of accounting, and how to allocate the
consideration to each unit of accounting. In an arrangement with
multiple deliverables, the delivered items shall be considered a
separate unit of accounting if the delivered items have value to
the customer on a stand-alone basis. Items have value on a
stand-alone basis if they are sold separately by any vendor or
the customer could resell the delivered items on a stand-alone
basis; and if the arrangement includes a general right of return
relative to the delivered items, delivery or performance of the
undelivered items is considered probable and substantially in
the control of the vendor. This amendment is effective for the
Company on April 1, 2011. We are currently evaluating the
impact of adopting these amendments on our consolidated
financial position, results of operations or cash flows.
In June 2009, the FASB issued the FASB Accounting
Standards Codification (the Codification) as
the single source of authoritative United States generally
accepted accounting principles (U.S. GAAP)
recognized by the FASB. The Codification does not change current
U.S. GAAP, but is intended to simplify user access to all
64
authoritative U.S. GAAP by providing all the authoritative
literature related to a particular topic in one place. All
existing accounting standard documents were superseded and all
other accounting literature not included in the Codification
were considered non-authoritative. While the adoption of the
Codification as of September 30, 2009 and for the three
month period then ended and all subsequent annual and interim
periods changes how we reference accounting standards, the
adoption did not have an impact on our consolidated financial
position, results of operations or cash flows.
In June 2009, the FASB issued the consolidation guidance for
variable-interest entities to replace the quantitative-based
risks and rewards calculation for determining which enterprise,
if any, has a controlling financial interest in a variable
interest entity with an approach focused on identifying which
enterprise has the power to direct the activities of a variable
interest entity that most significantly impact the entitys
economic performance. These new standards will be effective for
the Company in the first quarter of fiscal year 2011. We are
currently assessing the potential impact, if any, these new
standards may have on our consolidated financial position,
results of operations or cash flows.
On June 30, 2009, we adopted amendments to the accounting
standard addressing subsequent events. The amendments provide
guidance on the definition of what qualifies as a subsequent
event those events or transactions that occur
following the balance sheet date, but before the financial
statements are issued, or are available to be issued
and requires companies to disclose the date through which
subsequent events were evaluated and the basis for determining
that date. This disclosure should alert all users of financial
statements that a company has not evaluated subsequent events
after that date in the set of financial statements being
presented. In February 2010, the FASB issued Accounting
Standards Update (ASU)
No. 2010-09,
Subsequent Events Amendments to Certain
Recognition and Disclosure Requirements (ASU
2010-09).
The update removes the requirement for a Securities and Exchange
Commission (SEC) filer to disclose the date through
which subsequent events have been evaluated. The change
alleviates potential conflicts between
ASC 855-10
Subsequent Events and the SECs requirements.
ASU 2010-09
is effective upon issuance of the final update. The Company
adopted this statement upon its issuance. The adoption of this
statement did not have a material impact on our consolidated
financial position, results of operations or cash flows.
On June 30, 2009, we adopted amendments to the accounting
standard addressing debt securities. The amendments provide
guidance in determining whether impairments in debt securities
are other than temporary, and modify the presentation and
disclosures surrounding such instruments. The adoption of these
amendments did not have a material impact on our consolidated
financial position, results of operations or cash flows.
On June 30, 2009, we adopted amendments to the accounting
standard addressing fair value of financial instruments in
interim reporting periods. The amendments provide guidance on
the disclosure requirements about fair value of financial
instruments in interim reporting periods. Such disclosures were
previously required only in annual financial statements. The
adoption of these amendments did not have a material impact on
our consolidated financial position, results of operations or
cash flows.
On June 30, 2009, we adopted amendments to the accounting
standard addressing estimating fair value. The amendments
provide additional authoritative guidance to assist both issuers
and users of financial statements in determining whether a
market is active or inactive, and whether a transaction is
distressed. The adoption of these amendments did not have a
material impact on our consolidated financial position, results
of operations or cash flows.
On April 1, 2009, we adopted amendments to the accounting
standard addressing intangibles, goodwill and other assets. The
amendments provide guidance to improve the consistency between
the useful life of a recognized intangible asset and the period
of expected cash flows used to measure the fair value of the
asset under U.S. GAAP. The adoption of these amendments did
not have a material impact on our consolidated financial
position, results of operations or cash flows.
On April 1, 2009, we adopted amendments to the accounting
standard addressing derivatives and hedging. The amendments
change the disclosure requirements for derivative instruments
and hedging activities, requiring enhanced disclosures about how
and why an entity uses derivative instruments, how instruments
are accounted for under U.S. GAAP, and how derivatives and
hedging activities affect an entitys financial position,
financial
65
performance and cash flows. The adoption of these amendments
required additional disclosure only, and therefore did not have
an impact on our consolidated financial position, results of
operations or cash flows.
The following table summarizes short-term and long-term
investments by major security type at March 31, 2010 and
2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
|
Cost or
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gain (Loss)
|
|
|
Value
|
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposits
|
|
$
|
15,767
|
|
|
$
|
|
|
|
$
|
15,767
|
|
Corporate bonds
|
|
|
10,549
|
|
|
|
|
|
|
|
10,549
|
|
Municipal bonds
|
|
|
6,027
|
|
|
|
|
|
|
|
6,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments in
held-to-maturity
|
|
$
|
32,343
|
|
|
$
|
|
|
|
$
|
32,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposits
|
|
$
|
6,562
|
|
|
$
|
|
|
|
$
|
6,562
|
|
Corporate bonds
|
|
|
5,720
|
|
|
|
|
|
|
|
5,720
|
|
Municipal bonds
|
|
|
3,407
|
|
|
|
|
|
|
|
3,407
|
|
U.S. agency securities
|
|
|
20,630
|
|
|
|
|
|
|
|
20,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments in
held-to-maturity
|
|
$
|
36,319
|
|
|
$
|
|
|
|
$
|
36,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010 and 2009, we had no unrealized gain
(loss) on investments, net of related income taxes.
The contractual maturities of short-term and long-term
investments as of March 31, 2010 and 2009, are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
March 31, 2009
|
|
Investments
|
|
Fair Value
|
|
|
Fair Value
|
|
|
Due in less than one year
|
|
$
|
32,343
|
|
|
$
|
20,776
|
|
Due in 1 to 4 years
|
|
|
36,319
|
|
|
|
4,886
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
68,662
|
|
|
$
|
25,662
|
|
|
|
|
|
|
|
|
|
|
66
|
|
NOTE 3.
|
FAIR
VALUE MEASUREMENTS
|
Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability (exit
price) in an orderly transaction between market
participants at the measurement date. ASC 820, Fair
Value Measurements and Disclosures, 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 are described below:
Level 1: Quoted prices (unadjusted) in
active markets for identical assets or liabilities.
Level 2: Directly or indirectly
observable inputs as of the reporting date through correlation
with market data, including quoted prices for similar assets and
liabilities in active markets and quoted prices in markets that
are not active. Level 2 also includes assets and
liabilities that are valued using models or other pricing
methodologies that do not require significant judgment since the
input assumptions used in the models, such as interest rates and
volatility factors, are corroborated by readily observable data
from actively quoted markets for substantially the full term of
the financial instrument.
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, 2010 and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
4,618
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
4,618
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2009
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
43,322
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
43,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
43,322
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
43,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our Level 1 financial assets are cash equivalents,
comprised of money market mutual funds, which are highly liquid
instruments with original or remaining maturities of three
months or less at the time of purchase that are readily
convertible into cash. The fair value of our Level 1
financial assets is based on quoted market prices of the
underlying security. As of March 31, 2010 and 2009, we did
not have any Level 2 or Level 3 financial assets or
liabilities.
At April 1, 2008, we had Level 3 financial assets
comprised of auction rate securities. At March 31, 2008,
the par value of our 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
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
67
October 2008, we received a commitment from our bank to
repurchase all of the 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 by the issuer of
the auction rate securities.
In fiscal 2010, we did not have any Level 3 financial
assets or liabilities. 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, 2010 and 2009 were
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Raw materials
|
|
$
|
8,936
|
|
|
$
|
8,539
|
|
Work-in-process
|
|
|
3,421
|
|
|
|
2,592
|
|
Finished goods
|
|
|
6,710
|
|
|
|
4,604
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
19,067
|
|
|
$
|
15,735
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 5.
|
PROPERTY
AND EQUIPMENT, NET
|
Property and equipment, net, at March 31, 2010 and 2009
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Machinery and equipment
|
|
$
|
23,617
|
|
|
$
|
22,223
|
|
Furniture and fixtures
|
|
|
1,356
|
|
|
|
1,621
|
|
Computer equipment
|
|
|
2,179
|
|
|
|
2,353
|
|
Leasehold improvements
|
|
|
6,298
|
|
|
|
6,195
|
|
Construction in progress
|
|
|
4,840
|
|
|
|
3,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,290
|
|
|
|
35,768
|
|
Accumulated depreciation and amortization
|
|
|
(22,746
|
)
|
|
|
(20,970
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
15,544
|
|
|
$
|
14,798
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense for property and equipment
amounted to $4.4 million, $4.3 million and
$3.4 million in fiscal 2010, 2009 and 2008, respectively.
68
|
|
NOTE 6.
|
INTANGIBLE
ASSETS, NET
|
Intangible assets, net, at March 31, 2010 and 2009
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
|
Balance, March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
5,000
|
|
|
$
|
625
|
|
|
$
|
4,375
|
|
Patents
|
|
|
750
|
|
|
|
525
|
|
|
|
225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchased intangible assets
|
|
$
|
5,750
|
|
|
$
|
1,150
|
|
|
$
|
4,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
5,000
|
|
|
$
|
125
|
|
|
$
|
4,875
|
|
Patents
|
|
|
750
|
|
|
|
450
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchased intangible assets
|
|
$
|
5,750
|
|
|
$
|
575
|
|
|
$
|
5,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In January 2009, we entered into a license agreement with
Inverness Medical Switzerland GmbH (Inverness),
pursuant to which we licensed co-exclusively certain worldwide
patent rights. We paid a $5.0 million up-front license fee
to Inverness in January 2009, which was recorded as an
intangible asset on the consolidated balance sheets. See
Note 9 for additional information on our patent license
agreement with Inverness.
Amortization expense for intangible assets, included in cost of
revenues, amounted to $575,000, $200,000 and $75,000 in fiscal
2010, 2009 and 2008, respectively. Based on our intangible
assets subject to amortization as of March 31, 2010, the
estimated amortization expense for succeeding years is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Annual Amortization Expense
|
|
|
|
|
Fiscal Year Ending March 31,
|
|
|
Total
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
2015
|
|
Thereafter
|
|
Amortization expense
|
|
$
|
4,600
|
|
|
$
|
575
|
|
|
$
|
575
|
|
|
$
|
575
|
|
|
$
|
500
|
|
|
$
|
500
|
|
|
$
|
1,875
|
|
|
|
NOTE 7.
|
WARRANTY
RESERVES
|
We provide for the estimated future costs to be incurred under
our standard warranty obligation on our instruments and reagent
discs.
Instruments. Our standard warranty obligation
on instruments ranges from one 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. Cost of
revenues reflects estimated warranty expense for instruments
sold in the current period and any adjustments in estimated
warranty expense for the installed base under our standard
warranty obligation based on our quarterly evaluation of service
experience. The estimated accrual for warranty exposure is based
on historical experience as to product failures, estimated
product failure rates, estimated repair costs, material usage
and freight incurred in repairing the instrument after failure
and known design changes under the warranty plan.
During fiscal 2010, we recorded an adjustment to pre-existing
warranties of $900,000, which reduced our warranty reserves and
our cost of revenues, based on both a decrease in our historical
experience as to product failures and our judgment of a decrease
in estimated product failure rates of blood chemistry analyzers.
Reagent Discs. We record 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. For
fiscal 2010, 2009 and 2008, the provision for warranty expense
related to replacement of defective reagent discs was $192,000,
$425,000 and $507,000, respectively. The balance of accrued
warranty reserve related to replacement of defective reagent
discs at March 31, 2010, 2009 and 2008 was $349,000,
$450,000 and $418,000, respectively, which was classified as a
current liability on the consolidated balance sheets.
69
We evaluate our estimates for warranty reserves on an ongoing
basis and believe we have 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 our warranty reserve accrual in the period in
which the change was identified.
The change in our accrued warranty reserve during fiscal 2010,
2009 and 2008 is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Balance at beginning of period
|
|
$
|
2,297
|
|
|
$
|
1,948
|
|
|
$
|
847
|
|
Provision for warranty expense
|
|
|
762
|
|
|
|
1,558
|
|
|
|
2,036
|
|
Warranty costs incurred
|
|
|
(816
|
)
|
|
|
(1,209
|
)
|
|
|
(935
|
)
|
Adjustment to pre-existing warranties
|
|
|
(900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
|
1,343
|
|
|
|
2,297
|
|
|
|
1,948
|
|
Non-current portion of warranty reserve
|
|
|
160
|
|
|
|
583
|
|
|
|
729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of warranty reserve
|
|
$
|
1,183
|
|
|
$
|
1,714
|
|
|
$
|
1,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 by Comerica
Bank-California. The line of credit bears interest at the
banks prime rate minus 0.25%, which totaled 3.00% at
March 31, 2010, and is payable monthly. At March 31,
2010, of the $2.0 million of borrowings available, $97,000
was committed to secure a letter of credit for our facilities
lease. In connection with our amended facilities lease agreement
in March 2010, our obligation to provide a letter of credit on
our facility terminated in April 2010. At March 31, 2010,
there was no amount outstanding under our line of credit. The
weighted average interest rates on our line of credit during
fiscal 2010 and 2009 were 3.00% and 4.10%, respectively.
The line of credit agreement contains certain financial
covenants, which are evaluated on a quarterly basis. At
March 31, 2010, we were in compliance with each of these
covenants. Included in these financial covenants, among other
stipulations, are the following requirements:
|
|
|
|
|
We 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.
|
|
|
|
We are 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, 2009
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, 2010.
|
|
|
|
We are 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 our
net book value of assets of $147.1 million at
March 31, 2010, including our intellectual property.
70
|
|
NOTE 9.
|
COMMITMENTS
AND CONTINGENCIES
|
As of March 31, 2010, our contractual obligations for
succeeding years are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
Due in Fiscal
|
|
|
Total
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
2015
|
|
Thereafter
|
|
Operating leases
|
|
$
|
11,919
|
|
|
$
|
1,141
|
|
|
$
|
1,109
|
|
|
$
|
1,066
|
|
|
$
|
1,063
|
|
|
$
|
1,065
|
|
|
$
|
6,475
|
|
Operating Leases. Our 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 2021.
Rent expense under operating leases was $1.4 million,
$1.4 million and $1.3 million for fiscal 2010, 2009
and 2008, respectively.
Our principal facility is under a non-cancelable operating lease
agreement, which expires in fiscal 2021. In March 2010, we
amended the terms of our lease agreement related to our
principal facility in Union City, California, which includes
extending the expiration date from December 2010 to February
2021. The monthly rental payments on the facility lease increase
based on a predetermined schedule. We recognize rent expense on
a straight-line basis over the life of the lease. In connection
with our amended facilities lease agreement in March 2010, our
obligation to provide a letter of credit, which was secured by
our line of credit, on our facility terminated in April 2010.
See Notes 8 and 18 for additional information.
Purchase Commitments. In October 2008, we
entered into an original equipment manufacturing
(OEM) agreement with Scandinavian Micro Biodevices
APS (SMB) of Denmark to purchase coagulation
analyzers and coagulation cartridges. 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. These milestones have not
yet been met and we are currently purchasing coagulation
analyzers and coagulation cartridges on a purchase order basis,
but all such purchases will count towards the minimum purchase
obligations if and when they are triggered.
Patent Licensing Agreement. Effective January
2009, we entered into a license agreement with Inverness Medical
Switzerland GmbH (Inverness). Under our license
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.
Litigation. We are involved from time to time
in various litigation matters in the normal course of business.
We believe that the ultimate resolution of these matters will
not have a material effect on our financial position or results
of operations.
|
|
NOTE 10.
|
EMPLOYEE
BENEFIT PLAN
|
We have 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. We may make quarterly contributions to the
plan at the discretion of our Board of Directors either in cash
or in common stock. Our matching contributions to the tax
deferred savings plan totaled $400,000, $153,000 and $288,000 in
fiscal 2010, 2009 and 2008, respectively. In fiscal
71
2010, 2009 and 2008, our matching contributions were made in
cash. We did not have any matching contributions in the form of
common stock in fiscal 2010, 2009 or 2008.
|
|
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 ASC 718,
Compensation-Stock Compensation, for fiscal 2010,
2009 and 2008, which is included in our consolidated statements
of income (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cost of revenues
|
|
$
|
374
|
|
|
$
|
152
|
|
|
$
|
127
|
|
Research and development
|
|
|
849
|
|
|
|
240
|
|
|
|
153
|
|
Sales and marketing
|
|
|
1,255
|
|
|
|
508
|
|
|
|
325
|
|
General and administrative
|
|
|
2,859
|
|
|
|
843
|
|
|
|
503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense before income taxes
|
|
|
5,337
|
|
|
|
1,743
|
|
|
|
1,108
|
|
Income tax benefit
|
|
|
(1,741
|
)
|
|
|
(704
|
)
|
|
|
(442
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense after income taxes
|
|
$
|
3,596
|
|
|
$
|
1,039
|
|
|
$
|
666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impact of share-based compensation on:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.16
|
|
|
$
|
0.05
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
0.16
|
|
|
$
|
0.05
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation has been classified in the consolidated
statements of income or capitalized on the consolidated balance
sheets in the same manner as cash compensation paid to
employees. Capitalized share-based compensation costs at
March 31, 2010, 2009 and 2008 were $94,000, $33,000 and
$27,000, respectively, which were included in inventories on our
consolidated balance sheets.
Cash Flow
Impact
The accounting standard with respect to share-based payment
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
2010, 2009 and 2008 were $2.1 million, $6.7 million
and $1.6 million, respectively.
Equity
Compensation Plans
Our share-based compensation plans are described below.
2005 Equity Incentive Plan. Our 2005 Equity
Incentive Plan (the Equity Incentive Plan) restated
and amended our 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, our 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, 2010, the Equity
Incentive Plan provides for the issuance of a maximum of
5,386,000 shares, of which 454,000 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
72
based on monthly vesting terms and continuous service. See the
Stock Options section in this Note 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 for additional information.
1992 Outside Directors Stock Option
Plan. Under our 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, 2010, 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.
Our current practice is to issue new shares of common stock from
our authorized shares for share-based awards upon the exercise
of stock options or vesting of restricted stock units.
Stock
Options
Prior to April 1, 2006, we granted stock options to
employees, with an exercise price equal to the closing market
price of our 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, we granted stock options to non-employee directors with an
exercise price equal to the closing market price of our 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. There were no stock options
granted since the beginning of fiscal 2007 or during fiscal 2010.
We 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. We have
recognized compensation expense during the requisite service
period of the stock option. As of March 31, 2010, we had no
unrecognized compensation expense related to stock options
granted.
73
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, 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 shares exercisable at a weighted average exercise
price of $8.86 per share)
|
|
|
848,000
|
|
|
$
|
8.86
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(128,000
|
)
|
|
|
7.18
|
|
|
|
|
|
|
|
|
|
Canceled or forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2010
|
|
|
720,000
|
|
|
$
|
9.15
|
|
|
|
2.52
|
|
|
$
|
12,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at March 31, 2010
|
|
|
720,000
|
|
|
$
|
9.15
|
|
|
|
2.52
|
|
|
$
|
12,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2010
|
|
|
720,000
|
|
|
$
|
9.15
|
|
|
|
2.52
|
|
|
$
|
12,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the table above represents the
pre-tax intrinsic value, based on our closing stock price as of
March 31, 2010, 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 2010, 2009 and 2008 was $2.2 million,
$2.9 million and $9.8 million, respectively. Cash
proceeds from stock options exercised during fiscal 2010, 2009
and 2008 were $915,000, $636,000 and $3.1 million,
respectively.
74
The following table summarizes information regarding stock
options outstanding and stock options exercisable at
March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
Average
|
|
|
|
Average
|
|
|
Number
|
|
Remaining
|
|
Exercise
|
|
Number
|
|
Exercise
|
|
|
of Shares
|
|
Contractual
|
|
Price
|
|
of Shares
|
|
Price
|
Range of Exercise Prices
|
|
Outstanding
|
|
Life (Years)
|
|
per Share
|
|
Exercisable
|
|
per Share
|
|
$ 3.00 - $ 3.84
|
|
|
48,000
|
|
|
|
2.38
|
|
|
$
|
3.08
|
|
|
|
48,000
|
|
|
$
|
3.08
|
|
$ 3.85 - $ 3.85
|
|
|
139,000
|
|
|
|
3.06
|
|
|
|
3.85
|
|
|
|
139,000
|
|
|
|
3.85
|
|
$ 4.18 - $ 4.65
|
|
|
18,000
|
|
|
|
2.27
|
|
|
|
4.26
|
|
|
|
18,000
|
|
|
|
4.26
|
|
$ 4.87 - $ 4.87
|
|
|
206,000
|
|
|
|
1.07
|
|
|
|
4.87
|
|
|
|
206,000
|
|
|
|
4.87
|
|
$ 5.27 - $ 6.31
|
|
|
78,000
|
|
|
|
0.80
|
|
|
|
5.95
|
|
|
|
78,000
|
|
|
|
5.95
|
|
$ 6.33 - $18.98
|
|
|
69,000
|
|
|
|
4.33
|
|
|
|
12.77
|
|
|
|
69,000
|
|
|
|
12.77
|
|
$19.12 - $19.12
|
|
|
1,000
|
|
|
|
3.71
|
|
|
|
19.12
|
|
|
|
1,000
|
|
|
|
19.12
|
|
$19.45 - $19.45
|
|
|
2,000
|
|
|
|
4.22
|
|
|
|
19.45
|
|
|
|
2,000
|
|
|
|
19.45
|
|
$21.45 - $21.45
|
|
|
2,000
|
|
|
|
4.04
|
|
|
|
21.45
|
|
|
|
2,000
|
|
|
|
21.45
|
|
$21.65 - $21.65
|
|
|
157,000
|
|
|
|
4.05
|
|
|
|
21.65
|
|
|
|
157,000
|
|
|
|
21.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 3.00 - $21.65
|
|
|
720,000
|
|
|
|
2.52
|
|
|
$
|
9.15
|
|
|
|
720,000
|
|
|
$
|
9.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock Units
We grant restricted stock unit awards to employees and directors
as part of our 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 our 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. Our 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.
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
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, 2010, 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 1.89 years.
75
Restricted
Stock Unit Activity
The following table summarizes restricted stock unit activity
during fiscal 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value(1)
|
|
|
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
|
|
Granted
|
|
|
309,000
|
|
|
|
18.33
|
|
Vested(2)
|
|
|
(75,000
|
)
|
|
|
23.72
|
|
Canceled or forfeited
|
|
|
(60,000
|
)
|
|
|
23.56
|
|
|
|
|
|
|
|
|
|
|
Unvested at March 31, 2010
|
|
|
864,000
|
|
|
$
|
21.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 our common stock on the date of grant. |
|
(2) |
|
The number of restricted stock units vested includes shares that
we withheld on behalf of our employees to satisfy the statutory
tax withholding requirements. |
Total intrinsic value of restricted stock units vested during
fiscal 2010, 2009 and 2008 was $1.3 million,
$1.1 million and $481,000, respectively. The total grant
date fair value of restricted stock units vested during fiscal
2010, 2009 and 2008 was $1.8 million, $1.1 million and
$544,000, respectively.
Stock Purchase Rights. On April 22, 2003,
our Board of Directors 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 us one
one-thousandth of a share of our Series RP Preferred Stock,
$0.001 par value, at a price of $24.00 per share and
becomes exercisable when a person or group acquires 15% or more
of our 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 our 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 our common stock.
Common Stock Warrants. As of March 31,
2010, 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 our
Series E convertible preferred stock in fiscal 2003 and
2002. The warrants expired in April 2007.
76
|
|
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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
13,023
|
|
|
$
|
12,013
|
|
|
$
|
12,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic
|
|
|
22,021,000
|
|
|
|
21,826,000
|
|
|
|
21,499,000
|
|
Weighted average effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
399,000
|
|
|
|
467,000
|
|
|
|
701,000
|
|
Restricted stock units
|
|
|
186,000
|
|
|
|
31,000
|
|
|
|
58,000
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding diluted
|
|
|
22,606,000
|
|
|
|
22,324,000
|
|
|
|
22,261,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.59
|
|
|
$
|
0.55
|
|
|
$
|
0.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
0.58
|
|
|
$
|
0.54
|
|
|
$
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We 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 our 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,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Weighted average number of shares underlying antidilutive stock
options and warrants
|
|
|
|
|
|
|
159,000
|
|
|
|
|
|
Weighted average exercise price per share underlying
antidilutive stock options and warrants
|
|
|
N/A
|
|
|
$
|
21.65
|
|
|
|
N/A
|
|
We 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,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Weighted average number of shares underlying antidilutive
restricted stock units
|
|
|
65,000
|
|
|
|
195,000
|
|
|
|
9,000
|
|
77
The components of our income tax provision are summarized as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
5,353
|
|
|
$
|
1,000
|
|
|
$
|
368
|
|
State
|
|
|
1,448
|
|
|
|
1,204
|
|
|
|
533
|
|
Foreign
|
|
|
336
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current income tax provision
|
|
|
7,137
|
|
|
|
2,240
|
|
|
|
901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,296
|
|
|
|
4,794
|
|
|
|
5,838
|
|
State
|
|
|
(51
|
)
|
|
|
19
|
|
|
|
562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax provision
|
|
|
1,245
|
|
|
|
4,813
|
|
|
|
6,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision
|
|
$
|
8,382
|
|
|
$
|
7,053
|
|
|
$
|
7,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of our income before income tax provision are
summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
United States
|
|
$
|
20,264
|
|
|
$
|
18,941
|
|
|
$
|
19,804
|
|
Foreign
|
|
|
1,141
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
$
|
21,405
|
|
|
$
|
19,066
|
|
|
$
|
19,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Income taxes at federal income tax rate
|
|
$
|
7,492
|
|
|
$
|
6,673
|
|
|
$
|
6,931
|
|
State income taxes, net of federal benefits
|
|
|
937
|
|
|
|
920
|
|
|
|
880
|
|
Non-deductible compensation
|
|
|
358
|
|
|
|
(5
|
)
|
|
|
6
|
|
Research and development tax credits
|
|
|
(183
|
)
|
|
|
(62
|
)
|
|
|
(242
|
)
|
Tax-exempt interest income
|
|
|
(14
|
)
|
|
|
(241
|
)
|
|
|
(336
|
)
|
Qualified production activities income benefit
|
|
|
(274
|
)
|
|
|
(51
|
)
|
|
|
|
|
Other
|
|
|
66
|
|
|
|
(181
|
)
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision
|
|
$
|
8,382
|
|
|
$
|
7,053
|
|
|
$
|
7,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
Significant components of our net deferred tax assets are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development tax credit carryforwards
|
|
$
|
665
|
|
|
$
|
2,417
|
|
|
$
|
3,007
|
|
Capitalized research and development
|
|
|
272
|
|
|
|
266
|
|
|
|
|
|
Inventory reserves
|
|
|
308
|
|
|
|
297
|
|
|
|
364
|
|
Deferred revenue from extended maintenance agreements and
warranty reserves
|
|
|
1,491
|
|
|
|
1,864
|
|
|
|
1,172
|
|
Accrued payroll and other accrued expenses
|
|
|
923
|
|
|
|
704
|
|
|
|
630
|
|
Share-based compensation
|
|
|
1,673
|
|
|
|
648
|
|
|
|
378
|
|
Alternative minimum tax credits
|
|
|
23
|
|
|
|
710
|
|
|
|
675
|
|
Depreciation
|
|
|
516
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
912
|
|
|
|
385
|
|
|
|
290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
6,783
|
|
|
|
7,291
|
|
|
|
6,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
|
|
|
$
|
(51
|
)
|
|
$
|
(145
|
)
|
Other
|
|
|
(75
|
)
|
|
|
(100
|
)
|
|
|
(77
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(75
|
)
|
|
|
(151
|
)
|
|
|
(222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
6,708
|
|
|
$
|
7,140
|
|
|
$
|
6,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
2010, 2009 and 2008, we did not have a valuation allowance.
During fiscal 2010, we recognized $1.3 million of tax
deductions related to share-based compensation in excess of
recognized share-based compensation expense (excess
benefits) which was recorded to shareholders equity.
We record excess benefits to shareholders equity when the
benefits result in a reduction in cash paid for income taxes.
During fiscal 2010 we recorded an additional $806,000 of excess
tax benefits related to prior years unrecognized excess
tax benefits in shareholders equity. At March 31,
2010, there are no unrecognized excess tax benefits.
As of March 31, 2010, we had no federal or California net
operating loss (NOL) carryforwards. As of
March 31, 2010, our California research and development tax
credit carryforwards was $1.0 million. The California
research and development tax credit will carryforward
indefinitely.
Our policy is to reinvest earnings of our foreign subsidiary
unless such earnings are subject to U.S. taxation. As of
March 31, 2010, the cumulative earnings upon which
U.S. income taxes has not been provided is approximately
$315,000. The U.S. tax liability if the earnings were
repatriated is approximately $126,000.
During fiscal 2010, we did not recognize any interest and
penalties related to unrecognized tax benefits. We file income
tax returns in the U.S. federal jurisdiction, Germany and
various state jurisdictions. We are not under examination for
any of these jurisdictions. We are subject to examination by
U.S. federal and various state jurisdictions for fiscal
years 1994 through 2001 and fiscal years 2003 through 2009 and
in Germany for fiscal years 2009 through 2010.
|
|
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 our chief operating decision maker, or
decision making group, in deciding how to allocate resources and
in assessing performance.
79
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 identify our reportable segments as those
customer groups that represent more than 10% of our combined
revenue or gross profit or loss of all reported operating
segments. We manage our 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. We do not segregate
assets by segments since our chief operating decision maker does
not use assets as a basis to evaluate a segments
performance.
Medical
Market
In the medical market reportable segment, we serve a worldwide
customer group consisting of military installations (ships,
field hospitals and mobile care units), physicians office
practices across all specialties, urgent care, outpatient and
walk-in clinics (free-standing or hospital-connected), health
screening operations, home care providers (national, regional or
local), nursing homes, ambulance companies, oncology treatment
clinics, dialysis centers, pharmacies, hospital labs and blood
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, we serve 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. We also sell OEM
supplied products in this segment consisting of hematology
instruments and related reagent kits, VetScan VSpro
coagulation analyzers and related consumables, which we
launched in our fourth quarter of fiscal 2009, canine heartworm
rapid tests, which we launched in our fourth quarter of fiscal
2009, and i-STAT analyzers and related consumables, which we
launched in our fiscal 2010.
The table below summarizes revenues, cost of revenues and gross
profit from our two operating segments and from certain
unallocated items for fiscal 2010, 2009 and 2008 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
$
|
24,176
|
|
|
$
|
24,796
|
|
|
$
|
22,764
|
|
Veterinary Market
|
|
|
92,411
|
|
|
|
74,046
|
|
|
|
71,091
|
|
Other(1)
|
|
|
7,970
|
|
|
|
6,720
|
|
|
|
6,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
124,557
|
|
|
|
105,562
|
|
|
|
100,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
|
10,704
|
|
|
|
12,407
|
|
|
|
11,340
|
|
Veterinary Market
|
|
|
37,785
|
|
|
|
31,052
|
|
|
|
31,812
|
|
Other(1)
|
|
|
3,946
|
|
|
|
3,478
|
|
|
|
2,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
52,435
|
|
|
|
46,937
|
|
|
|
45,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
|
13,472
|
|
|
|
12,389
|
|
|
|
11,424
|
|
Veterinary Market
|
|
|
54,626
|
|
|
|
42,994
|
|
|
|
39,279
|
|
Other(1)
|
|
|
4,024
|
|
|
|
3,242
|
|
|
|
4,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
72,122
|
|
|
$
|
58,625
|
|
|
$
|
55,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents unallocated items, not specifically identified to any
particular business segment. |
80
|
|
NOTE 16.
|
REVENUES
BY PRODUCT CATEGORY AND GEOGRAPHIC REGION AND SIGNIFICANT
CONCENTRATIONS
|
Revenue
Information
The following is a summary of our revenues by product category
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
Revenues by Product Category
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Instruments(1)
|
|
$
|
28,787
|
|
|
$
|
28,194
|
|
|
$
|
30,011
|
|
Consumables(2)
|
|
|
85,819
|
|
|
|
69,072
|
|
|
|
61,928
|
|
Other products
|
|
|
6,809
|
|
|
|
5,170
|
|
|
|
6,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales, net
|
|
|
121,415
|
|
|
|
102,436
|
|
|
|
98,522
|
|
Development and licensing revenue
|
|
|
3,142
|
|
|
|
3,126
|
|
|
|
2,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
124,557
|
|
|
$
|
105,562
|
|
|
$
|
100,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Instruments include chemistry analyzers, hematology instruments,
coagulation analyzers and i-STAT analyzers. |
|
(2) |
|
Consumables include reagent discs, hematology reagent kits,
coagulation cartridges, i-STAT cartridges and canine heartworm
rapid tests. |
The following is a summary of our revenues by geographic region
based on customer location (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
Revenues by Geographic Region
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
North America
|
|
$
|
101,391
|
|
|
$
|
87,801
|
|
|
$
|
83,830
|
|
Europe
|
|
|
18,547
|
|
|
|
14,045
|
|
|
|
13,472
|
|
Asia Pacific and rest of the world
|
|
|
4,619
|
|
|
|
3,716
|
|
|
|
3,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
124,557
|
|
|
$
|
105,562
|
|
|
$
|
100,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
Concentrations
Revenues from significant customers as a percentage of total
revenues were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographical
|
|
Year Ended March 31,
|
Distributor
|
|
Location
|
|
2010
|
|
2009
|
|
2008
|
|
Walco International, Inc., d/b/a DVM Resources
|
|
|
United States
|
|
|
|
10
|
%
|
|
|
10
|
%
|
|
|
12
|
%
|
Substantially all of our long-lived assets are located in the
United States.
81
|
|
NOTE 17.
|
SUMMARY
OF QUARTERLY DATA (UNAUDITED)
|
The following is a summary of unaudited quarterly data for
fiscal 2010 and 2009 (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
March 31
|
|
|
Fiscal Year Ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
29,625
|
|
|
$
|
30,262
|
|
|
$
|
31,005
|
|
|
$
|
33,665
|
|
Gross profit
|
|
$
|
17,155
|
|
|
$
|
17,851
|
|
|
$
|
18,296
|
|
|
$
|
18,820
|
|
Income tax provision
|
|
$
|
2,482
|
|
|
$
|
2,081
|
|
|
$
|
1,982
|
|
|
$
|
1,837
|
|
Net income
|
|
$
|
3,756
|
|
|
$
|
3,197
|
|
|
$
|
3,430
|
|
|
$
|
2,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic
|
|
$
|
0.17
|
|
|
$
|
0.15
|
|
|
$
|
0.16
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share diluted
|
|
$
|
0.17
|
|
|
$
|
0.14
|
|
|
$
|
0.15
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Income tax provision
|
|
$
|
1,703
|
|
|
$
|
1,843
|
|
|
$
|
1,762
|
|
|
$
|
1,745
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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NOTE 18.
|
SUBSEQUENT
EVENT
|
Pursuant to the Fourth Amendment to our Lease Agreement with
Whipple Road Holdings, LLC, SFP Crossroads, LLC and Woodstock
Bowers, LLC (collectively, the Landlord), the
Landlord agreed to lease us certain expansion premises
consisting of approximately 35,239 rentable square feet in
Union City, California (the Expansion Premises). In
May 2010, our Landlord tendered possession of the Expansion
Premises to us and accordingly, the monthly base rental rate for
the Expansion Premises shall be abated for the first three
(3) months after May 2010 and thereafter increase to $0.800
per rentable square foot of the Expansion Premises ($28,191.20
per month), which Base Rent for the Expansion Premises increases
3% on each anniversary of March 1 during the term of the lease.
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
We are 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, we
conducted an evaluation of the effectiveness of our 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, our
principal executive officer and principal financial officer,
have concluded that our internal control over financial
reporting was effective as of March 31, 2010.
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, Inc., 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, 2010, 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, 2010
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, 2010, 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, 2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Abaxis, Inc. and its subsidiary
as of March 31, 2010 and 2009, and the related consolidated
statements of income, shareholders equity and
comprehensive income, and cash flows for each of the three years
in the period ended March 31, 2010 and the related
financial statement schedule and our report dated June 14,
2010 expressed an unqualified opinion thereon.
/s/ Burr
Pilger Mayer, Inc.
San Jose, California
June 14, 2010
84
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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, 2010.
|
|
|
|
|
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Name
|
|
Age
|
|
Title
|
|
Clinton H. Severson
|
|
|
62
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|
|
Chairman of the Board, President and Chief Executive Officer
|
Richard J. Bastiani, Ph.D.(1)(2)(3)
|
|
|
67
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|
|
Director
|
Henk J. Evenhuis(1)(2)(3)
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67
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|
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Director
|
Prithipal Singh, Ph.D.(1)(2)(3)
|
|
|
71
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|
|
Director
|
Ernest S. Tucker, III, M.D.(1)(2)(3)
|
|
|
77
|
|
|
Director
|
Alberto R. Santa Ines
|
|
|
63
|
|
|
Chief Financial Officer and Vice President of Finance
|
Kenneth P. Aron, Ph.D.
|
|
|
57
|
|
|
Chief Technology Officer
|
Donald P. Wood
|
|
|
58
|
|
|
Chief Operations Officer
|
Vladimir E. Ostoich, Ph.D.
|
|
|
64
|
|
|
Vice President of Government Affairs and Vice President of
Marketing for the Pacific Rim, Founder
|
Martin V. Mulroy
|
|
|
49
|
|
|
Vice President of Veterinary Sales and Marketing for North
America
|
Brenton G.A. Hanlon(4)
|
|
|
64
|
|
|
Vice President of North American Medical Sales and Marketing
|
Achim Henkel
|
|
|
52
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|
|
Managing Director of Abaxis Europe GmbH
|
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|
(1) |
|
Member of the Audit Committee |
|
(2) |
|
Member of the Compensation Committee (Mr. Evenhuis,
Dr. Singh and Dr. Tucker became a member starting in
October 2009.) |
|
(3) |
|
Member of the Nominating and Corporate Governance Committee |
|
(4) |
|
Mr. Hanlon resigned from the Board of Directors and each
committee of the Board of Directors as of August 10, 2009,
and was appointed as Vice President of North American Medical
Sales and Marketing in September 2009. |
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 2008, Mr. Severson served on the Board
of Directors of Trinity Biotech (Nasdaq: TRIB), a biotechnology
company. Since November 2006, Mr. Severson served on the
Board of Directors of CytoCore, Inc. (OTCBB: CYOE.OB), a
biotechnology company. 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. Mr. Severson was selected as a director
because of his in-depth knowledge of the Companys
operations, financial condition and strategy in his position as
the Companys President and Chief Executive Officer, as
well as his extensive senior management experience in medical
diagnostics and experience serving on the boards of various
public and private companies.
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.
85
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. Dr. Bastiani was selected as a director because
of his extensive leadership experience in biotechnology
companies and his in-depth knowledge of the Companys
business, strategy and management team, as well as his
experience serving as Chairman of the Compensation Committee and
on the boards of various public and private 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. Mr. Evenhuis was selected as a director
because his financial expertise and prior senior leadership
experience as a Chief Financial Officer at global technology
companies, as well as his experience serving on the boards of
various public companies, which provide a strong foundation to
serve as Chairman of the Audit Committee.
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. Dr. Singh was selected as a director because his
insight and experience in biotechnology companies through his
prior executive leadership and management positions.
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 Chairman of Pathology
at California Pacific Medical Center in San Francisco from
1989 to 1992. Dr. Tucker was selected as a director because
of his prior leadership and management experience and in-depth
knowledge in the medical profession and on the boards of various
hospitals, colleges and foundations.
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
86
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. 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.
Brenton G. A. Hanlon has served as the Companys
Vice President of North American Medical Sales and Marketing
since September 2009. Mr. Hanlon served on our Board of
Directors from November 1996 through August 2009. From January
2001 to August 2009, Mr. Hanlon was President and Chief
Executive Officer of Hitachi Chemical Diagnostics, a
manufacturer of in vitro allergy diagnostic products.
Concurrently, from December 1996 to August 2009, Mr. Hanlon
was also 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.
Achim Henkel has served as the Managing Director of the
Companys European subsidiary since its incorporation in
2008. Mr. Henkel joined us in January 1998 as a consultant
to build a European distribution network. From January 2000 to
June 2008, Mr. Henkel was Sales and Marketing Manager for
Europe, the Middle East and Africa. From October 1996 to
December 1997, Mr. Henkel was a self-employed consultant to
several companies. From January 1988 to September 1996,
Mr. Henkel held a number of positions with Syva Diagnostics
Germany, including as National Sales Manager from 1991 until
Syva was acquired by a subsidiary of Hoechst AG in 1995. From
1982 to 1987, Mr. Henkel was regional sales manager for
Hoechst AG, a German pharmaceutical 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 five.
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, 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
87
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, 2009 through March 31, 2010,
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 the following late
report filings: one late filing by Mr. Brenton Hanlon; four
late filings by Mr. Achim Henkel and one late filing by
Mr. Clinton Severson.
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.
|
|
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:
|
|
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|
|
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
88
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 believe 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. 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 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 by 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 2010 or fiscal 2011
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 2010 and fiscal 2011. 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
89
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
Adeza Biomedical
Angiodynamics
Aspect Medical Systems
ATS Medical
Biosite
Cholestech
|
|
Conceptus
Cutera
Digene
Intralase
Kensey Nash
Meridian Bioscience
Orasure Technologies
|
|
Palomar Medical Technologies
Surmodics
Thoratec
Vivus
VNUS Medical 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 2010
executive compensation decisions.
Compensation
Determinations
The Compensation Committee did not target executive compensation
in fiscal 2010 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 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 2010 and 2011 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 2010 and 2011
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. In
determining fiscal 2010 base salaries for our Named Executive
Officers, our
90
Compensation Committee recommended to the Board of Directors not
to increase executive base salaries for fiscal 2010 due to the
global economic downturn, except for Mr. Wood, who received
an increase of 5.3% in his base salary upon his promotion to
Chief Operations Officer. For fiscal 2011, our 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.
Based on the recommendations of the Compensation Committee, our
Board of Directors approved the following base salaries
(effective July 2009 for fiscal 2010 and July 2010 for fiscal
2011) for our Named Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010
|
|
Fiscal 2011
|
Named Executive Officer
|
|
Base Salary
|
|
Base Salary
|
|
Clinton H. Severson
|
|
$
|
360,000
|
|
|
$
|
375,000
|
|
Alberto R. Santa Ines
|
|
$
|
200,000
|
|
|
$
|
208,000
|
|
Kenneth P. Aron, Ph.D.
|
|
$
|
210,000
|
|
|
$
|
218,000
|
|
Vladimir E. Ostoich, Ph.D.
|
|
$
|
210,000
|
|
|
$
|
218,000
|
|
Donald P. Wood
|
|
$
|
200,000
|
|
|
$
|
208,000
|
|
Fiscal 2010 and 2011 base salary increases for the Named
Executive Officers were as follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010
|
|
Fiscal 2011
|
|
|
Percent Increase
|
|
Percent Increase
|
Named Executive Officer
|
|
in Base Salary
|
|
in Base Salary
|
|
Clinton H. Severson
|
|
|
|
%
|
|
|
4.2
|
%
|
Alberto R. Santa Ines
|
|
|
|
%
|
|
|
4.0
|
%
|
Kenneth P. Aron, Ph.D.
|
|
|
|
%
|
|
|
3.8
|
%
|
Vladimir E. Ostoich, Ph.D.
|
|
|
|
%
|
|
|
3.8
|
%
|
Donald P. Wood
|
|
|
5.3
|
%
|
|
|
4.0
|
%
|
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 are set to be achievable, yet are at a
level of difficulty which does not assure that the goals will be
met. The bonus targets 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,
especially given the global business environment, 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 2010 and 2011, 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. Due to the
global economic downturn, the Compensation Committee recommended
to our Board of Directors that for fiscal 2010 target bonuses,
we maintain
91
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
and the bonus amounts awarded for fiscal 2010 for our Named
Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010
|
|
Fiscal 2010
|
Named Executive Officer
|
|
Target Bonus
|
|
Bonus Awarded
|
|
Clinton H. Severson
|
|
$
|
525,000
|
|
|
$
|
611,600
|
|
Alberto R. Santa Ines
|
|
$
|
300,000
|
|
|
$
|
349,500
|
|
Kenneth P. Aron, Ph.D.
|
|
$
|
300,000
|
|
|
$
|
349,500
|
|
Vladimir E. Ostoich, Ph.D.
|
|
$
|
300,000
|
|
|
$
|
349,500
|
|
Donald P. Wood
|
|
$
|
300,000
|
|
|
$
|
349,500
|
|
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 2010,
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, the financial targets for fiscal
2010 were based on the companys total annual net sales of
$121.1 million and total annual pre-tax income goals of
$19.6 million. Based on these pre-established goals, our
Named Executive Officers received 116.5% of their target bonus
awards for fiscal 2010.
For fiscal 2011, our Compensation Committee recommended to our
Board of Directors that we maintain the target bonuses from
fiscal 2010 for the Named Executive Officers. The target bonus
level for the Named Executive Officers is designed to maintain
total compensation at an appropriately competitive level in the
industry. In April 2010, our Board of Directors approved the
fiscal 2011 target bonus levels for our executive officers. The
following table summarizes the fiscal 2011 target bonus amounts
for our Named Executive Officers:
|
|
|
|
|
|
|
Fiscal 2011
|
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
|
|
Donald P. Wood
|
|
$
|
300,000
|
|
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 2011,
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 2011. 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
92
quarters, and 35% in the fourth quarter. At the end of the
fourth quarter of fiscal 2011, 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.
Equity grants to our Named Executive Officers in fiscal 2010 and
fiscal 2011 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.
Restricted
Stock Units
Fiscal 2010 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
2010 below. The Compensation Committee approves all
restricted stock unit grants to our Named Executive Officers and
other executive officers.
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 value of these equity grants was approximately
$833,250 for our Chief Executive Officer and approximately
$378,750 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 2010 restricted stock unit awards are as follows:
|
|
|
|
|
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-
93
based vesting schedule of the restricted stock units, to
maximize retention of our Named Executive Officers without
performance-based acceleration milestones.
Fiscal 2011 Restricted Stock Unit Grants. In
April 2010, after considering an analysis of total compensation
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 2011
restricted stock unit awards vest, based on time-based vesting
terms, in the same manner as the fiscal 2010 restricted stock
unit awards discussed above. The fiscal 2011 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 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. In October
2009, our Board of Directors also designated the following
executive officers as participants in the Severance Plan:
Brenton G.A. Hanlon, our Vice President of Medical Sales and
Marketing for North America and Achim Henkel, our Managing
Director of Abaxis Europe GmbH.
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
94
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.
|
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 that 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
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.
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.
95
COMPENSATION
COMMITTEE REPORT
(1)
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, 2010.
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, 2010.
THE COMPENSATION COMMITTEE
Richard J. Bastiani, Ph.D., Chair
Henk Evenhuis
Prithipal Singh, Ph.D.
Ernest Tucker, M.D.
|
|
|
(1) |
|
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. |
96
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The following table sets forth for fiscal 2010, 2009 and 2008,
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, 2010 (collectively, the Named Executive
Officers).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
Incentive Plan
|
|
All Other
|
|
|
|
|
|
|
Salary
|
|
Bonus
|
|
Awards
|
|
Awards
|
|
Compensation
|
|
Compensation
|
|
Total
|
Name and Principal Position
|
|
Fiscal Year
|
|
($)
|
|
($)
|
|
($)(1)
|
|
($)
|
|
($)(2)
|
|
($)(3)
|
|
($)
|
|
Clinton H. Severson
|
|
|
2010
|
|
|
|
360,000
|
|
|
|
|
|
|
|
833,250
|
|
|
|
|
|
|
|
611,626
|
|
|
|
12,168
|
(4)
|
|
|
1,817,044
|
|
President, Chief
|
|
|
2009
|
|
|
|
355,770
|
|
|
|
|
|
|
|
1,250,000
|
|
|
|
|
|
|
|
226,406
|
|
|
|
9,311
|
(4)
|
|
|
1,841,487
|
|
Executive Officer and
|
|
|
2008
|
|
|
|
336,500
|
|
|
|
|
|
|
|
1,056,500
|
|
|
|
|
|
|
|
456,000
|
|
|
|
11,535
|
(4)
|
|
|
1,860,535
|
|
Chairman of the Board
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alberto R. Santa Ines
|
|
|
2010
|
|
|
|
200,000
|
|
|
|
|
|
|
|
378,750
|
|
|
|
|
|
|
|
349,500
|
|
|
|
11,456
|
(5)
|
|
|
939,706
|
|
Chief Financial Officer
|
|
|
2009
|
|
|
|
197,115
|
|
|
|
|
|
|
|
500,000
|
|
|
|
|
|
|
|
129,375
|
|
|
|
8,949
|
(5)
|
|
|
835,439
|
|
and Vice President of
|
|
|
2008
|
|
|
|
183,846
|
|
|
|
|
|
|
|
422,600
|
|
|
|
|
|
|
|
261,250
|
|
|
|
10,972
|
(5)
|
|
|
878,668
|
|
Finance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth P. Aron, Ph.D.
|
|
|
2010
|
|
|
|
210,000
|
|
|
|
|
|
|
|
378,750
|
|
|
|
|
|
|
|
349,500
|
|
|
|
22,471
|
(6)
|
|
|
960,721
|
|
Chief Technology Officer
|
|
|
2009
|
|
|
|
206,730
|
|
|
|
|
|
|
|
500,000
|
|
|
|
|
|
|
|
129,375
|
|
|
|
19,585
|
(6)
|
|
|
855,690
|
|
|
|
|
2008
|
|
|
|
192,077
|
|
|
|
|
|
|
|
422,600
|
|
|
|
|
|
|
|
261,250
|
|
|
|
20,753
|
(6)
|
|
|
896,680
|
|
Vladimir E. Ostoich, Ph.D.
|
|
|
2010
|
|
|
|
210,000
|
|
|
|
|
|
|
|
378,750
|
|
|
|
|
|
|
|
349,500
|
|
|
|
17,917
|
(7)
|
|
|
956,167
|
|
Vice President of
|
|
|
2009
|
|
|
|
208,654
|
|
|
|
|
|
|
|
500,000
|
|
|
|
|
|
|
|
129,375
|
|
|
|
14,552
|
(7)
|
|
|
852,581
|
|
Government Affairs and
|
|
|
2008
|
|
|
|
202,077
|
|
|
|
|
|
|
|
422,600
|
|
|
|
|
|
|
|
261,250
|
|
|
|
16,599
|
(7)
|
|
|
902,526
|
|
Vice President of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing for the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pacific Rim
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald P. Wood
|
|
|
2010
|
|
|
|
196,923
|
|
|
|
|
|
|
|
378,750
|
|
|
|
|
|
|
|
349,500
|
|
|
|
17,934
|
(9)
|
|
|
943,107
|
|
Chief Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Awards consist of restricted stock units granted to the Named
Executive Officer in the fiscal year specified. Amounts listed
in this column represent the grant date fair value of the awards
granted in the fiscal year indicated as computed in accordance
with Accounting Standards Codification (ASC) 718,
Compensation-Stock Compensation (ASC
718). 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). 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) |
|
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. |
|
(3) |
|
Amounts listed are based upon our actual costs expensed in
connection with such compensation. |
|
(4) |
|
In fiscal 2010, consists of $4,769 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 $6,125
in matching contributions made by us to Mr. Seversons
401(k) account. 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 |
97
|
|
|
|
|
us, $752 in disability insurance premiums paid by us and $5,625
in matching contributions made by us to Mr. Seversons
401(k) account. |
|
(5) |
|
In fiscal 2010, consists of $4,419 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 $6,125
in matching contributions made by us to Mr. Santa
Ines 401(k) account. 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. |
|
(6) |
|
In fiscal 2010, consists of $15,388 in supplemental health plan
expenses reimbursed by us, $454 in group life insurance paid by
us, $504 in disability insurance premiums paid by us and $6,125
in matching contributions made by us to Dr. Arons
401(k) account. 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 Dr. 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 Dr. Arons 401(k)
account. |
|
(7) |
|
In fiscal 2010, consists of $10,897 in supplemental health plan
expenses reimbursed by us, $454 in group life insurance paid by
us, $504 in disability insurance premiums paid by us and $6,062
in matching contributions made by us to Dr. Ostoichs
401(k) account. 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 Dr. 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 Dr. Ostoichs
401(k) account. |
|
(8) |
|
Mr. Wood was not a Named Executive Officer for fiscal 2008
or 2009. |
|
(9) |
|
In fiscal 2010, consists of $10,897 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 $6,125
in matching contributions made by us to Mr. Woods
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 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Cash
|
|
|
Base Salary
|
|
Incentive Bonus
|
|
|
As a Percentage of
|
|
As a Percentage of
|
Named Executive Officer
|
|
Total Compensation
|
|
Total Compensation
|
|
Clinton H. Severson
|
|
|
20
|
%
|
|
|
34
|
%
|
Alberto R. Santa Ines
|
|
|
21
|
%
|
|
|
37
|
%
|
Kenneth P. Aron, Ph.D.
|
|
|
22
|
%
|
|
|
36
|
%
|
Vladimir E. Ostoich, Ph.D.
|
|
|
22
|
%
|
|
|
37
|
%
|
Donald P. Wood
|
|
|
21
|
%
|
|
|
37
|
%
|
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.
98
Grants of
Plan-Based Awards in Fiscal 2010
The following table sets forth the grants of plan-based awards
to our Named Executive Officers during fiscal 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
Grant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
Fair
|
|
|
|
|
Estimated Future Payouts
|
|
Estimated Future Payouts
|
|
Number of
|
|
Value of
|
|
|
|
|
Under Non-Equity Incentive
|
|
Under Equity Incentive
|
|
Shares of
|
|
Stock and
|
|
|
|
|
Plan Awards(1)
|
|
Plan Awards
|
|
Stock or
|
|
Option
|
|
|
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Units
|
|
Awards
|
Name
|
|
Grant Date
|
|
($)
|
|
($)
|
|
($)
|
|
(#)
|
|
(#)
|
|
(#)
|
|
(#)(2)
|
|
($)(3)
|
|
Clinton H. Severson
|
|
|
5/1/2009
|
|
|
|
131,250
|
|
|
|
525,000
|
|
|
|
1,050,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,000
|
|
|
|
833,250
|
|
Alberto R. Santa Ines
|
|
|
5/1/2009
|
|
|
|
75,000
|
|
|
|
300,000
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
378,750
|
|
Kenneth P. Aron, Ph.D.
|
|
|
5/1/2009
|
|
|
|
75,000
|
|
|
|
300,000
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
378,750
|
|
Vladimir E. Ostoich, Ph.D.
|
|
|
5/1/2009
|
|
|
|
75,000
|
|
|
|
300,000
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
378,750
|
|
Donald P. Wood
|
|
|
5/1/2009
|
|
|
|
75,000
|
|
|
|
300,000
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
378,750
|
|
|
|
|
(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 2010, 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
2010 is described above in Restricted Stock Units. |
|
(3) |
|
Represents the fair value of the restricted stock unit award on
the date of grant, pursuant to ASC 718. See Note 11 of
the Notes to Consolidated Financial Statements included in this
Annual Report on
Form 10-K
for additional information. |
99
Outstanding
Equity Awards at Fiscal Year End 2010
The following table shows, for the fiscal year ended
March 31, 2010, certain information regarding outstanding
equity awards at fiscal year end for our Named Executive
Officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive
|
|
|
Equity Incentive
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
Plan Awards:
|
|
|
Plan Awards:
|
|
|
|
Securities
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Number
|
|
|
Value of
|
|
|
Number of
|
|
|
Market or Payout
|
|
|
|
Underlying
|
|
|
Securities
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
Shares or
|
|
|
Unearned Shares,
|
|
|
Value of Unearned
|
|
|
|
Unexercised
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
or Units
|
|
|
Units of
|
|
|
Units or Other
|
|
|
Shares, Units or
|
|
|
|
Options
|
|
|
Unexercised
|
|
|
Option
|
|
|
|
|
|
of Stock
|
|
|
Stock
|
|
|
Rights
|
|
|
Other Rights
|
|
|
|
(#)
|
|
|
Options
|
|
|
Exercise
|
|
|
Option
|
|
|
That Have
|
|
|
That Have
|
|
|
That Have
|
|
|
That Have
|
|
|
|
Exercisable
|
|
|
(#)
|
|
|
Price
|
|
|
Expiration
|
|
|
Not Vested
|
|
|
Not Vested
|
|
|
Not Vested
|
|
|
Not 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,000
|
(5)
|
|
|
761,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,000
|
(5)
|
|
|
951,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,500
|
(6)
|
|
|
1,155,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,500
|
(6)
|
|
|
1,291,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,000
|
(6)
|
|
|
1,495,450
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,000
|
(5)
|
|
|
380,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,000
|
(6)
|
|
|
462,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,000
|
(6)
|
|
|
516,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
(6)
|
|
|
679,750
|
|
Kenneth P. Aron, Ph.D.
|
|
|
40,625
|
|
|
|
|
|
|
|
6.31
|
|
|
|
10/31/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,500
|
|
|
|
|
|
|
|
5.47
|
|
|
|
7/24/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
(4)
|
|
|
|
|
|
|
21.65
|
|
|
|
4/20/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,000
|
(5)
|
|
|
380,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,000
|
(6)
|
|
|
462,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,000
|
(6)
|
|
|
516,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
(6)
|
|
|
679,750
|
|
Vladimir E. Ostoich, Ph.D.
|
|
|
9,500
|
|
|
|
|
|
|
|
5.47
|
|
|
|
7/24/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
|
3.85
|
|
|
|
4/22/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,000
|
(4)
|
|
|
|
|
|
|
21.65
|
|
|
|
4/20/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,000
|
(5)
|
|
|
380,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,000
|
(6)
|
|
|
462,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,000
|
(6)
|
|
|
516,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
(6)
|
|
|
679,750
|
|
Donald P. Wood
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,000
|
(6)
|
|
|
462,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,000
|
(6)
|
|
|
516,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
(6)
|
|
|
679,750
|
|
|
|
|
(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. |
|
(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 $27.19 on March 31, 2010, 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. |
100
|
|
|
(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 after the first year; ten percent of
the shares vest after the second year; 15 percent of the
shares vest after the third year; and 70 percent of the
shares vest after the fourth year. |
Option
Exercises and Stock Vested in Fiscal 2010
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 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
Number of
|
|
|
|
Number of
|
|
|
|
|
Shares
|
|
|
|
Shares
|
|
|
|
|
Acquired
|
|
Value Realized on
|
|
Acquired
|
|
Value Realized on
|
|
|
on Exercise
|
|
Exercise
|
|
on Vesting
|
|
Vesting
|
Name
|
|
(#)
|
|
($)(1)
|
|
(#)
|
|
($)(2)
|
|
Clinton H. Severson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,000
|
|
|
|
320,725
|
|
Alberto R. Santa Ines
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
|
91,930
|
|
Kenneth P. Aron, Ph.D.
|
|
|
|
|
|
|
12,484
|
|
|
|
259,103
|
|
|
|
6,000
|
|
|
|
91,930
|
|
Vladimir E. Ostoich, Ph.D.
|
|
|
|
|
|
|
16,000
|
|
|
|
288,560
|
|
|
|
6,000
|
|
|
|
91,930
|
|
Donald P. Wood
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
|
|
62,800
|
|
|
|
|
(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 Select
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
101
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 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. In October 2009, our
Board of Directors also designated the following executive
officers as participants in the Severance Plan: Brenton G.A.
Hanlon, our Vice President of Medical Sales and Marketing for
North America and Achim Henkel, our Managing Director of Abaxis
Europe GmbH.
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.
|
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
102
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, 2010, and do not include amounts in which the
Named Executive Officer had already vested as of March 31,
2010. 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.
103
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)
|
|
|
|
|
|
$
|
5,655,520
|
|
|
$
|
5,655,520
|
|
Health and welfare benefits(4)
|
|
$
|
12,086
|
|
|
|
|
|
|
$
|
12,086
|
|
Excise tax reimbursement(5)
|
|
|
|
|
|
|
|
|
|
$
|
62,436
|
|
Total
|
|
$
|
1,865,163
|
|
|
$
|
5,655,520
|
|
|
$
|
7,583,119
|
|
Alberto R. Santa Ines
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary and bonus
|
|
|
|
|
|
|
|
|
|
$
|
1,046,154
|
|
Vesting of restricted stock units(3)
|
|
|
|
|
|
$
|
2,039,250
|
|
|
$
|
2,039,250
|
|
Health and welfare benefits(4)
|
|
|
|
|
|
|
|
|
|
$
|
10,662
|
|
Excise tax reimbursement(5)
|
|
|
|
|
|
|
|
|
|
$
|
309,084
|
|
Total
|
|
|
|
|
|
$
|
2,039,250
|
|
|
$
|
3,405,150
|
|
Kenneth P. Aron, Ph.D.
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary and bonus
|
|
|
|
|
|
|
|
|
|
$
|
1,068,462
|
|
Vesting of restricted stock units(3)
|
|
|
|
|
|
$
|
2,039,250
|
|
|
$
|
2,039,250
|
|
Health and welfare benefits(4)
|
|
|
|
|
|
|
|
|
|
$
|
32,692
|
|
Excise tax reimbursement(5)
|
|
|
|
|
|
|
|
|
|
$
|
105,715
|
|
Total
|
|
|
|
|
|
$
|
2,039,250
|
|
|
$
|
3,246,119
|
|
Vladimir E. Ostoich, Ph.D.
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary and bonus
|
|
|
|
|
|
|
|
|
|
$
|
1,068,462
|
|
Vesting of restricted stock units(3)
|
|
|
|
|
|
$
|
2,039,250
|
|
|
$
|
2,039,250
|
|
Health and welfare benefits(4)
|
|
|
|
|
|
|
|
|
|
$
|
23,710
|
|
Excise tax reimbursement(5)
|
|
|
|
|
|
|
|
|
|
$
|
125,079
|
|
Total
|
|
|
|
|
|
$
|
2,039,250
|
|
|
$
|
3,256,501
|
|
Donald P. Wood
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary and bonus
|
|
|
|
|
|
|
|
|
|
$
|
1,015,045
|
|
Vesting of restricted stock units(3)
|
|
|
|
|
|
$
|
1,658,590
|
|
|
$
|
1,658,590
|
|
Health and welfare benefits(4)
|
|
|
|
|
|
|
|
|
|
$
|
23,618
|
|
Excise tax reimbursement(6)
|
|
|
|
|
|
|
|
|
|
$
|
362,570
|
|
Total
|
|
|
|
|
|
$
|
1,658,590
|
|
|
$
|
3,059,823
|
|
|
|
|
(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 $27.19 on March 31, 2010, as reported on the NASDAQ
Global Select Market. |
|
(4) |
|
Health and welfare benefits include payment of 24 months of
premiums for medical, dental, vision, disability and life
insurance benefits. |
|
(5) |
|
For purposes of computing the excise tax reimbursement payments,
base amount calculations are based on the Named Executive
Officers taxable wages for fiscal years 2006 through 2010. |
|
(6) |
|
For purposes of computing the excise tax reimbursement payments,
base amount calculations are based on Mr. Woods
taxable wages for fiscal years 2008 through 2010, when he joined
us in fiscal 2008. |
104
DIRECTOR
COMPENSATION
Director
Compensation Table
The table below summarizes the compensation paid to our
non-employee directors for fiscal 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
|
|
|
|
All Other
|
|
|
|
|
Paid in Cash
|
|
Stock Awards
|
|
Option Awards
|
|
Compensation
|
|
Total
|
Name(1)
|
|
($)
|
|
($)(2)(3)
|
|
($)(4)
|
|
($)
|
|
($)
|
|
Richard J. Bastiani, Ph.D.
|
|
|
23,000
|
|
|
|
33,330
|
|
|
|
|
|
|
|
|
|
|
|
56,330
|
|
Henk J. Evenhuis
|
|
|
27,000
|
|
|
|
33,330
|
|
|
|
|
|
|
|
|
|
|
|
60,330
|
|
Prithipal Singh, Ph.D.
|
|
|
21,000
|
|
|
|
33,330
|
|
|
|
|
|
|
|
|
|
|
|
54,330
|
|
Ernest S. Tucker, III, M.D.
|
|
|
22,000
|
|
|
|
33,330
|
|
|
|
|
|
|
|
|
|
|
|
55,330
|
|
|
|
|
(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) |
|
Each non-employee director listed in the table above was granted
an award of 2,200 restricted stock units on May 1, 2009
under our 2005 Plan. Amounts listed in this column represent the
grant date fair value of the awards in accordance with
ASC 718. Amounts shown do not reflect whether the
non-employee director has actually realized a financial benefit
from the awards (such as by vesting in a restricted stock unit
award). 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.
No stock awards were forfeited by our non-employee directors
during fiscal 2010, except for Mr. Hanlon, upon his
resignation as director in August 2009. |
|
(3) |
|
As of March 31, 2010, each of our non-employee directors
held 2,200 shares of unvested restricted stock units. |
|
(4) |
|
No options were awarded to our non-employee directors in fiscal
2010, 2009 or 2008. As of March 31, 2010, the non-employee
directors held the following number of outstanding options:
Dr. Bastiani, 20,000; Mr. Evenhuis, 18,000;
Dr. Singh, 16,000; and Dr. Tucker, 8,000 shares. |
Cash
Compensation Paid to Board Members
During fiscal 2010, 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 2010, 2009 and 2008, each non-employee director
received an annual equity award of 2,200, 1,500 and 1,500,
respectively, 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.
105
|
|
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, 2010 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) four 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
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
Shares Beneficially
|
|
Beneficially Owned
|
|
|
Name and Address of Beneficial Owner
|
|
Owned
|
|
(1)
|
|
|
|
Five Percent Holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Brown Capital Management, Inc.(3)
|
|
|
2,525,782
|
|
|
|
11.3
|
%
|
|
|
|
|
Kayne Anderson Rudnick Investment Management, LLC(4)
|
|
|
1,743,638
|
|
|
|
7.8
|
%
|
|
|
|
|
BlackRock, Inc.(5)
|
|
|
1,666,521
|
|
|
|
7.5
|
%
|
|
|
|
|
Neuberger Berman Group LLC, Neuberger Berman LLC and Neuberger
Berman Management LLC(6)
|
|
|
1,472,304
|
|
|
|
6.6
|
%
|
|
|
|
|
Executive Officers:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinton H. Severson(7)
|
|
|
710,618
|
|
|
|
3.2
|
%
|
|
|
|
|
Vladimir E. Ostoich, Ph.D.(8)
|
|
|
409,826
|
|
|
|
1.8
|
%
|
|
|
|
|
Alberto R. Santa Ines(9)
|
|
|
139,441
|
|
|
|
|
*
|
|
|
|
|
Kenneth P. Aron, Ph.D.(10)
|
|
|
80,535
|
|
|
|
|
*
|
|
|
|
|
Donald P. Wood(11)
|
|
|
4,561
|
|
|
|
|
*
|
|
|
|
|
Outside Directors:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard J. Bastiani, Ph.D.(12)
|
|
|
83,700
|
|
|
|
|
*
|
|
|
|
|
Prithipal Singh, Ph.D.(13)
|
|
|
32,700
|
|
|
|
|
*
|
|
|
|
|
Henk J. Evenhuis(14)
|
|
|
24,700
|
|
|
|
|
*
|
|
|
|
|
Ernest S. Tucker, III, M.D.(15)
|
|
|
8,000
|
|
|
|
|
*
|
|
|
|
|
Executive officers and directors as a group
(12 persons)(16)
|
|
|
1,573,706
|
|
|
|
6.9
|
%
|
|
|
|
|
|
|
|
* |
|
Less than one percent. |
|
(1) |
|
The percentages shown in this column are calculated based on
22,273,342 shares of common stock outstanding on
May 31, 2010 and includes shares of common stock that such
person or group had the right to acquire on or within
sixty 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 January 27, 2010 by Brown Capital
Management, Inc., reporting sole power to vote and dispose of
1,138,734 and 2,525,782 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/A filed
with the SEC on February 9, 2010 by Kayne Anderson Rudnick
Investment Management, LLC, reporting sole power to vote and
dispose of 1,743,638 shares. The business address for Kayne
Anderson Rudnick Investment Management, LLC is 1800 Avenue of
the Stars, Second Floor, Los Angeles, CA 90067. |
106
|
|
|
(5) |
|
Based on information set forth in a Schedule 13G filed with
the SEC on January 29, 2010 by BlackRock, Inc., reporting
sole power to vote and dispose of 1,666,521 shares. The
business address for BlackRock, Inc. is 40 East 52nd Street, New
York, NY 10022. |
|
(6) |
|
Based on information set forth in a Schedule 13G/A filed
with the SEC on May 6, 2010 by Neuberger Berman Group LLC,
reporting shared power to vote and dispose of 1,125,884 and
1,472,304 shares, respectively; by Neuberger Berman LLC,
reporting shared power to vote and dispose of 1,125,884 and
1,472,304 shares, respectively; and by Neuberger Berman
Management LLC, reporting shared power to vote and dispose of
1,117,300 shares. The business address for Neuberger Berman
Group LLC, Neuberger Berman LLC and Neuberger Berman Management
LLC is 605 Third Avenue, New York, NY 10158. |
|
(7) |
|
Includes: |
|
|
|
|
|
500,201 shares held by Mr. Severson; and
|
|
|
|
210,417 shares subject to stock options exercisable by
Mr. Severson within sixty days of May 31, 2010.
|
|
|
|
|
|
172,993 shares held by Dr. Ostoich;
|
|
|
|
26,355 shares held by Dr. Ostoichs IRA;
|
|
|
|
22,400 shares held by Mrs. Ostoichs IRA;
|
|
|
|
116,578 shares held by the Vladimir Ostoich and Liliana
Ostoich Trust Fund, for the benefit of Dr. Ostoich and
his wife; and
|
|
|
|
71,500 shares subject to stock options exercisable by
Dr. Ostoich within sixty days of May 31, 2010.
|
|
|
|
|
|
37,009 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, 2010.
|
|
|
|
|
|
26,035 shares held by Dr. Aron; and
|
|
|
|
54,500 shares subject to stock options exercisable by
Dr. Aron within sixty days of May 31, 2010.
|
|
|
|
|
|
4,561 shares held by Mr. Wood.
|
|
|
|
|
|
63,700 shares held by Dr. Bastiani; and
|
|
|
|
20,000 shares subject to stock options exercisable by
Dr. Bastiani within sixty days of May 31, 2010.
|
|
|
|
|
|
24,700 shares held by Dr. Singh; and
|
|
|
|
8,000 shares subject to stock options exercisable by
Dr. Singh within sixty days of May 31, 2010.
|
|
|
|
|
|
6,700 shares held by Mr. Evenhuis; and
|
|
|
|
18,000 shares subject to stock options exercisable by
Mr. Evenhuis within sixty days of May 31, 2010.
|
|
|
|
|
|
8,000 shares subject to stock options exercisable by
Dr. Tucker within sixty days of May 31, 2010.
|
107
|
|
|
|
|
1,054,316 shares held by all executive officers and
directors as a group; and
|
|
|
|
519,390 shares subject to stock options exercisable by all
executive officers and directors as a group within sixty days of
May 31, 2010.
|
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, 2010,
there were no warrants outstanding to purchase shares of common
stock.
The following table provides aggregate information as of
March 31, 2010 regarding outstanding options, unvested
restricted stock units and shares reserved under our equity
compensation plans.
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
Number of Securities
|
|
|
|
to be Issued Upon
|
|
|
Weighted-Average
|
|
|
Remaining Available for
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
Future Issuance Under
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
Equity Compensation
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Plans(1)
|
|
|
Equity compensation plans approved by our shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Equity Incentive Plan(2)
|
|
|
1,568,000
|
|
|
$
|
9.25
|
(3)
|
|
|
454,000
|
|
1992 Outside Directors Stock Option Plan
|
|
|
16,000
|
|
|
$
|
4.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by our
shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
1,584,000
|
|
|
$
|
9.15
|
(3)
|
|
|
454,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The shares are available for award grant purposes under the 2005
Plan and exclude 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, 2010, 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 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.
108
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 four directors are
independent directors within the meaning of the applicable
NASDAQ listing standards: Mr. Evenhuis 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
Accounting Fees and Services
|
For the fiscal years ended March 31, 2010 and 2009, our
independent registered public accounting firm, Burr Pilger
Mayer, Inc. (formerly known as 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,
|
|
|
|
2010
|
|
|
2009
|
|
|
Audit Fees(1)
|
|
$
|
670,000
|
|
|
$
|
636,000
|
|
Audit-Related Fees(2)
|
|
|
13,000
|
|
|
|
48,000
|
|
Tax Fees
|
|
|
|
|
|
|
|
|
All Other Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total All Fees
|
|
$
|
683,000
|
|
|
$
|
684,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 2010, these services
include
agreed-upon
procedures. In fiscal 2009, these services include due diligence
services pertaining to potential acquisitions. |
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, Inc. in
providing audit and audit-related services to Abaxis and has
concluded that such services are compatible with Burr Pilger
Mayer, Inc.s role as Abaxis independent registered
public accounting firm.
109
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(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 -
|
|
|
|
|
Schedule II Valuation and Qualifying Accounts
and Reserves
|
|
|
|
Other financial statement schedules are not included because
they are not required or the information is otherwise shown in
the consolidated financial statements or notes thereto.
|
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.
110
Abaxis,
Inc.
Schedule II
Valuation
and Qualifying Accounts and Reserves
Years
ended March 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
Additions
|
|
Deductions
|
|
Balance at
|
|
|
Beginning
|
|
Charged
|
|
from
|
|
End of
|
Description
|
|
of Year
|
|
to Expenses
|
|
Reserves
|
|
Year
|
|
Total Reserve for Doubtful Accounts and Sales Allowances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31, 2010
|
|
$
|
388,000
|
|
|
$
|
302,000
|
|
|
$
|
(244,000
|
)
|
|
$
|
446,000
|
|
Year ended March 31, 2009
|
|
$
|
272,000
|
|
|
$
|
236,000
|
|
|
$
|
(120,000
|
)
|
|
$
|
388,000
|
|
Year ended March 31, 2008
|
|
$
|
542,000
|
|
|
$
|
165,000
|
|
|
$
|
(435,000
|
)
|
|
$
|
272,000
|
|
111
Exhibit Index
|
|
|
|
|
Exhibit No.
|
|
Description of Document
|
|
|
3
|
.1
|
|
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.)
|
|
3
|
.2
|
|
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.)
|
|
3
|
.3
|
|
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.)
|
|
4
|
.1
|
|
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.)
|
|
4
|
.2
|
|
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.)
|
|
4
|
.3
|
|
Reference is made to Exhibit 3.1, Exhibit 3.2 and
Exhibit 3.3.
|
|
10
|
.1*
|
|
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.)
|
|
10
|
.2*
|
|
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.)
|
|
10
|
.3+
|
|
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.)
|
|
10
|
.4
|
|
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.)
|
|
10
|
.5
|
|
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.)
|
|
10
|
.6
|
|
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.)
|
|
10
|
.7
|
|
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.)
|
|
10
|
.8
|
|
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.)
|
|
10
|
.9+
|
|
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.)
|
|
10
|
.10+
|
|
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.)
|
|
10
|
.11
|
|
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.)
|
112
|
|
|
|
|
Exhibit No.
|
|
Description of Document
|
|
|
10
|
.12
|
|
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.)
|
|
10
|
.13
|
|
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.)
|
|
10
|
.14*
|
|
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.)
|
|
10
|
.15*
|
|
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.)
|
|
10
|
.16*
|
|
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.)
|
|
10
|
.17+
|
|
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.)
|
|
10
|
.18+
|
|
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.)
|
|
10
|
.19*
|
|
Fiscal 2011 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 May 4, 2010 and incorporated herein by reference.)
|
|
10
|
.20+
|
|
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.)
|
|
10
|
.21*
|
|
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.)
|
|
10
|
.22+
|
|
License Agreement by and between Inverness Medical Switzerland
GmbH and Abaxis, Inc., dated January 5, 2009 (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, 2009 and incorporated
herein by reference.)
|
|
10
|
.23
|
|
First Amendment to Lease Agreement with Principal Development
Investors, LLC, dated August 28, 2000
|
|
10
|
.24
|
|
Second Amendment to Lease Agreement with Principal Development
Investors, LLC, dated November 20, 2000
|
|
10
|
.25
|
|
Third Amendment to Lease Agreement with Crossroads Technology
Partners and Nearon Crossroads, LLC, as successors in interest
to Principal Development Investors, LLC, dated April 10,
2002
|
|
10
|
.26
|
|
Fourth Amendment to Lease Agreement with Whipple Road Holdings,
LLC, SFP Crossroads, LLC and Woodstock Bowers, LLC, dated
March 11, 2010
|
|
21
|
.1
|
|
Subsidiaries of the Company
|
|
23
|
.1
|
|
Consent of Burr Pilger Mayer, Inc., Independent Registered
Public Accounting Firm
|
|
24
|
.1
|
|
Power of Attorney. Reference is made to the Signature Page
hereto.
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
113
|
|
|
|
|
Exhibit No.
|
|
Description of Document
|
|
|
32
|
.1#
|
|
Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
32
|
.2#
|
|
Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
+ |
|
Confidential treatment of certain portions of this agreement has
been granted by 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. |
114
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 14, 2010.
ABAXIS, INC.
|
|
|
|
By:
|
/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.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Clinton
H. Severson
Clinton
H. Severson
|
|
President, Chief Executive Officer and Director (Principal
Executive Officer)
|
|
June 14, 2010
|
|
|
|
|
|
/s/ Alberto
R. Santa Ines
Alberto
R. Santa Ines
|
|
Chief Financial Officer and
Vice President of Finance
(Principal Financial and
Accounting Officer)
|
|
June 14, 2010
|
|
|
|
|
|
/s/ Richard
J. Bastiani, Ph.D.
Richard
J. Bastiani, Ph.D.
|
|
Director
|
|
June 14, 2010
|
|
|
|
|
|
/s/ Henk
J. Evenhuis
Henk
J. Evenhuis
|
|
Director
|
|
June 14, 2010
|
|
|
|
|
|
/s/ Prithipal
Singh, Ph.D.
Prithipal
Singh, Ph.D.
|
|
Director
|
|
June 14, 2010
|
|
|
|
|
|
/s/ Ernest
S. Tucker III
Ernest
S. Tucker III
|
|
Director
|
|
June 14, 2010
|
115