##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES 
EXCHANGE ACT OF 1934
 For the fiscal year ended March 31, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number 000-19720
 ABAXIS, INC.
  California
    
    77-0213001(State or other jurisdiction of incorporation organization)
    
    (I.R.S. Employer Identification No.)3240 Whipple Road, Union City, California
    
    94587(Address of principal executive offices)
    
    (Zip code)
 (510) 675-6500
 Securities registered pursuant to Section 12(b) of the Act:
 Title of Class
    
    Name of Each Exchange on Which RegisteredCommon Stock, no par value
    
    The NASDAQ Stock Market, Inc.
 Securities registered pursuant to Section 12(g) of the Act: None
  o þ
  o þ
  þ o
 o
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##### 



Abaxis, Inc.
Annual Report on Form 10-K
For The Fiscal Year Ended March 31, 2007
 TABLE OF CONTENTS
 PagePART IItem 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    13Item 1B.
    
    Unresolved Staff Comments
    
    
    23Item 2.
    
    Properties
    
    
    23Item 3.
    
    Legal Proceedings
    
    
    23Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    23PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
    
    
    24Item 6.
    
    Selected Financial Data
    
    
    25Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    26Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    42Item 8.
    
    Financial Statements and Supplementary Data
    
    
    44Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
    
    
    65Item 9A.
    
    Controls and Procedures
    
    
    66Item 9B.
    
    Other Information
    
    
    67PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    67Item 11.
    
    Executive Compensation
    
    
    70Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    84Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    86Item 14.
    
    Principal Accountant Fees and Services
    
    
    87PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    87Exhibits Index
    
    
    89Signatures
    
    
    92EXHIBIT 23.1EXHIBIT 23.2EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
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##### Table of Contents



PART I
 FORWARD-LOOKING STATEMENTS
  
 
 Item 1. Business
 GENERAL
  OUR INDUSTRY: IN VITRO DIAGNOSTIC TESTING
   ABAXIS PRODUCTS
  3




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Point-of-Care Blood Chemistry Analyzer
  
    
    Medical Market: We currently market the 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 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.
 Reagent Discs
    Test MethodsAlanine aminotransferase
    
    ALT
    
    Lactate dehydrogenase
    
    LDAlbumin
    
    ALB
    
    Magnesium
    
    MGAlkaline phosphatase
    
    ALP
    
    Phosphorous
    
    PHOSAmylase
    
    AMY
    
    Potassium
    
    K+Aspartate aminotransferase
    
    AST
    
    Sodium
    
    NA+Bile acids
    
    BA
    
    Thyroxine
    
    T4Calcium
    
    CA
    
    Total bilirubin
    
    TBILChloride
    
    CL-
    
    Total carbon dioxide
    
    TCO2Creatine kinase
    
    CK
    
    Total cholesterol
    
    CHOLCreatinine
    
    CRE
    
    Total protein
    
    TPDirect bilirubin
    
    DBIL
    
    Triglycerides
    
    TRIGGamma glutamyltransferase
    
    GGT
    
    Urea nitrogen
    
    BUNGlucose
    
    GLU
    
    Uric acid
    
    UAHigh-density lipoprotein cholesterol
    
    HDL
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##### Table of Contents



Piccolo Panels
    
    Description of the Test PanelsBasic Metabolic Panel
    
    BUN, CA, CL-, CRE, GLU, K+, NA+, tCO2.Basic Metabolic Panel Plus
    
    BUN, CA, CL-, CRE, GLU, K+, LD, MG, NA+, tCO2.Comprehensive Metabolic Panel
    
    ALB, ALP, ALT, AST, BUN, CA, CL-, CRE, GLU, K+, NA+, TBIL, tCO2, TP.Electrolyte Panel
    
    CL- ,K+, NA+, tCO2.General Chemistry 6 (CLIA waived)
    
    ALT, AST, BUN, CRE, GGT, GLU.General Chemistry 13 (CLIA
waived)
    
    ALB, ALP, ALT, AMY, AST, BUN, CA, CRE, GGT, GLU, TBIL, TP, UA.Hepatic Function Panel
    
    ALB, ALP, ALT, AST, DBIL, TBIL, TP.Lipid Panel (CLIA waived)
    
    CHOL, CHOL/HDL RATIO, HDL, LDL, TRIG, VLDL.Lipid Panel Plus (CLIA waived)
    
    ALT, AST, CHOL, CHOL/HDL RATIO, GLU, HDL, LDL, TRIG, VLDL.Liver Panel Plus (CLIA waived)
    
    ALB, ALP, ALT, AMY, AST, GGT, TBIL, TP.Metlyte 8 Panel
    
    BUN, CK , CL-, CRE, GLU, K+, NA+,tCO2.Renal Function Panel
    
    ALB, BUN, CA, CL-, CRE, GLU, K+, NA+, PHOS, tCO2.
   VetScan Profile
    
    Description of the Test PanelsAvian/Reptilian Profile Plus
    
    ALB, AST, BA, CA, CK, GLOB, GLU, K+, NA+, PHOS, TP, UA.Comprehensive Diagnostic Profile
    
    ALB, ALP, ALT, AMY, BUN, CA, CRE, GLOB, GLU, K+, NA+, PHOS, TBIL, TP.Critical Care Plus
    
    ALT, BUN, CL-, CRE, GLU, K+, NA+, tCO2.Equine Profile Plus
    
    ALB, AST, BUN, CA, CK, CRE, GGT, GLOB, GLU, K+, NA+, TBIL, tCO2, TP.Large Animal Profile
    
    ALB, ALP, AST, BUN, CA, CK, GGT, GLOB, MG, PHOS, TP.Mammalian Liver Profile
    
    ALB, ALP, ALT, BA, BUN, CHOL, GGT, TBIL.Prep Profile II
    
    ALP, ALT, BUN, CRE, GLU, TP.Thyroxine (T4) / Cholesterol Profile
    
    CHOL, T4.
 Hematology
  5




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Orbos Process
 ®
 Future Products
    CUSTOMERS AND DISTRIBUTION
  Customers
  Medical Market
  Veterinary Market
  6




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Distribution Within North America
 Medical Market
    Veterinary Market
     Distribution Outside of North America
  7




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MANUFACTURING
   
    
    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.
    
    In May 2001, the State of California Food and Drug Branch granted licensing for our
manufacturing facility in Union City, California.
    
    In May 2002, we received our ISO 9001 certification, expanding our compliance with
international quality standards.
    
    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.
    
    In both September 2005 and March 2003, the FDA conducted a facility inspection and
verified our compliance with the 21 CFR 820 Regulation.
    
    In October 2006, we received our recertification to the ISO 13485:2003 Quality System
Standard for medical devices.
   
    
    Point-of-Care Blood Chemistry Analyzer:The analyzer used in the Piccolo and VetScan
systems employs a variety of components designed or specified by Abaxis, including a
variable speed motor, microprocessors, a liquid crystal display, a result card printer, a
spectrophotometer and other electronic components. These components are manufactured by
several third-party vendors that have been qualified and approved by Abaxis and then
assembled by contract manufacturers for Abaxis. The components are assembled at the Abaxis
facility 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, the
technologically advanced components are purchased from the following single source vendors:
PerkinElmer, Inc. and UDT Sensors. We do not have supply agreements with any of these
companies and they are not contractually obligated to continue supplying us with components
in the quantities or at the prices that such companies have done historically.
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
    
    Reagent Discs:The molded plastic discs used in the manufacture of the reagent disc are
manufactured to our specifications by an established injection-molding manufacturer. To
achieve the precision required for accurate test results, the discs must be molded to very
narrow 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 any 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.
    
    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.,
Shinko American Inc. and Sigma Aldrich 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.
  MATERIAL RELATIONSHIPS WITH SUPPLIERS AND OTHER THIRD PARTIES
 Diatron Messtechnik GmbH.
 DVM Resources.
 Henry Schein, Inc.
  COMPETITION
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GOVERNMENT REGULATION
 U.S. Food and Drug Administration Clearance
   Clinical Laboratory Improvements Act Regulations
   
    
    In March 2007, the FDA granted waived status under CLIA regulations for the following
analytes: calcium (CA), creatinine (CRE), urea nitrogen (BUN) and uric acid (UA).
    
    In October 2006, the FDA granted waived status under CLIA regulations for the following
analytes: albumin (ALB), alkaline phosphatase (ALP), amylase (AMY), gamma
glutamyltransferase (GGT), total bilirubin (TBIL) and total protein (TP).
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Other Regulations
  
    
    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.
    
    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.
    
    In March 2006, we received our certification to the 2003 version of the ISO 13485
quality system standard for medical devices.
   RESEARCH AND DEVELOPMENT
  PATENTS AND PROPRIETARY TECHNOLOGIES
  Patent No.
    
    Description
    
    Issue Date
    
    Expiration Date5,061,381
    
    
    Apparatus and Method for Separating Cells from
Biological Fluids
    
    October 29, 1991
    
    June 4, 20105,122,284
    
    
    Apparatus and Method for Optically Analyzing Biological
Fluids
    
    June 16, 1992
    
    June 4, 20105,173,193
    
    
    Centrifugal Rotor Having Flow Partition
    
    December 22, 1992
    
    April 1, 2011
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Patent No.
    
    Description
    
    Issue Date
    
    Expiration Date5,186,844
    
    
    Apparatus and Method for Continuous Centrifugal Blood
Cell Separation
    
    February 16, 1993
    
    Expired5,242,606
    
    
    Sample Metering Port for Analytical Rotor Having
Overflow Chamber
    
    September 7, 1993
    
    September 7, 20105,275,016
    
    
    Cryogenic Apparatus
    
    January 4, 1994
    
    April 24, 20125,304,348
    
    
    Reagent Container for Analytical Rotor
    
    April 19, 1994
    
    February 11, 20125,384,247
    
    
    Determination of Sodium Ions in Fluids
    
    January 24, 1995
    
    January 24, 20125,403,415
    
    
    Method and Device for Ultrasonic Welding
    
    April 4, 1995
    
    November 17, 20135,409,665
    
    
    Simultaneous Cuvette Filling with Means to Isolate
Cuvettes
    
    April 25, 1995
    
    September 1, 20135,409,814
    
    
    Determination of Ions in Fluids
    
    April 25, 1995
    
    April 25, 20125,413,732
    
    
    Reagent Compositions for Analytical Testing
    
    May 9, 1995
    
    May 9, 20125,457,053
    
    
    Reagent Container for Analytical Rotor
    
    October 10, 1995
    
    October 10, 20125,472,603
    
    
    Analytical Rotor with Dye Mixing Chamber
    
    December 5, 1995
    
    December 5, 20125,478,750
    
    
    Methods for Photometric Analysis
    
    December 26, 1995
    
    March 31, 20135,501,958
    
    
    Determination of Potassium Ions in Fluids
    
    March 26, 1996
    
    March 26, 20135,518,930
    
    
    Simultaneous Cuvette Filling with Means to Isolate
Cuvettes
    
    May 21, 1996
    
    September 1, 20135,590,052
    
    
    Error Checking in Blood Analyzer
    
    December 31, 1996
    
    April 14, 20145,591,643
    
    
    Simplified Inlet Channels
    
    January 7, 1997
    
    January 7, 20145,599,411
    
    
    Method and Device for Ultrasonic Welding
    
    February 4, 1997
    
    November 17, 20135,624,597
    
    
    Reagent Compositions for Analytical Testing
    
    April 29, 1997
    
    April 29, 20145,693,233
    
    
    Methods of Transporting Fluids Within An Analytical Rotor
    
    December 2, 1997
    
    April 2, 20125,776,563
    
    
    Dried Chemical Compositions
    
    July 7, 1998
    
    July 7, 20155,998,031
    
    
    Dried Chemical Compositions
    
    December 7, 1999
    
    August 19, 20116,068,971
    
    
    Process for Determination of Ions in Fluids by Masking
of Interfering Ions
    
    May 30, 2000
    
    May 30, 20176,235,531
    
    
    Modified Siphons for Improved Metering Precision
    
    May 22, 2001
    
    September 1, 20136,251,684
    
    
    Dried Chemical Compositions
    
    June 26, 2001
    
    August 18, 20116,752,961
    
    
    Modified Siphons for Improved Metering Precision
    
    June 22, 2004
    
    September 1, 20136,818,415
    
    
    Sodium Activation of Amylase
    
    November 16, 2004
    
    June 22, 20217,177,767
    
    
    Systems and Methods for the Detection of Short and Long
Samples
    
    February 13, 2007
    
    January 13, 2024
 12
    Table of Contents    EMPLOYEES
  
    
    28 in research and development;
    
    120 in manufacturing operations;
    
    103 in sales and marketing (including customer support); and
    
    14 in general and administrative.
  INFORMATION AVAILABLE TO INVESTORS
  
 Item 1A. Risk Factors
 RISK FACTORS THAT MAY AFFECT OUR PERFORMANCE
   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.
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
    
    new product announcements made by us or our competitors;
    
    changes in our pricing structures or the pricing structures of our competitors;
    
    our ability to develop, introduce and market new products on a timely basis;
    
    our manufacturing capacities and our ability to increase the scale of these capacities;
    
    the mix of product sales between our blood chemistry analyzer and our reagent disc products;
    
    the amount we spend on research and development; and
    
    changes in our strategy.
 We could fail to achieve anticipated revenue if the market does not accept our products.
    We rely on patents and other proprietary information, the loss of any would negatively affect our
business.
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We must continue to develop our marketing and distribution experience in the human diagnostic
market or our business will not grow.
  
    
    we will be able to establish and maintain effective distribution arrangements in the human diagnostic market;
    
    any distribution arrangements that we are able to establish will be successful in marketing our products; or
    
    the costs associated with marketing and distributing our products will not be excessive.
  We have only recently become profitable on a consistent basis and we must increase sales of our
Piccolo and VetScan products or we may not be able to maintain profitability.
  
    
    continue to develop our products;
    
    increase our sales and marketing activities;
    
    effectively manage our manufacturing activities; and
    
    effectively compete against current and future competitors.
  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.
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Many of our sales force have been employed by us for less than one year and we must effectively
train and integrate our sales team in order to achieve our anticipated revenue or expand our
business.
  We need to successfully manufacture and market additional reagent discs for the human diagnostic
market if we are to compete in that market.
  We rely on distributors to sell our products and we rely on sole distributor arrangements in a
number of countries. Our failure to successfully maintain these relationships could adversely
affect our ability to achieve our anticipated revenue or expand our business.
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We depend on 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 materials
to us could harm our business.
  
    
    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.
    
    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 a stand-alone product: 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., Shinko American Inc. and Sigma Aldrich Inc.
    
    Blood Analyzer Components:Our analyzer products use several technologically advanced
components that we currently purchase from the following single source vendors:
PerkinElmer, Inc. and UDT Sensors. Our analyzers
use a printer that is only made by Seiko North America Corporation. The loss of the supply
of any of these components could force us to redesign our analyzers.
    
    Hematology Instruments and Reagents:The VetScan HMII, now referred to as the VetScan
HM2, is manufactured by Diatron in Hungary and is purchased by us as a
completed instrument. To date, we have qualified two suppliers to produce the reagents for
our hematology instruments: Clinical Diagnostic Solutions, Inc. and Mallinckrodt Baker BV.
 Form 10-K.
  We are dependent upon our profitability, and if we cannot remain profitable we may need additional
funding in the future and these funds may not be available to us.
  17




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
    
    further commercialization of our products and development of new test methods to allow
us to further penetrate the human diagnostic market and the veterinary diagnostic market;
    
    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.
  We may not be able to compete effectively with larger, better established entities or their
products, or with future organizations or future products, which could cause our sales to decline.
  
    
    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.
  
    
    range of tests offered;
    
    the immediacy of results;
    
    cost effectiveness;
    
    ease of use; and
    
    reliability of results.
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Changes in third-party payor reimbursement regulations can negatively affect our business.
  We are subject to numerous governmental regulations and any regulatory changes are difficult to
predict and may be damaging to our business.
 
    
    Need for FDA Certification for Our Medical Device Products
   
    
    Need to Comply with Manufacturing Regulations
  
    
    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.
    
    In May 2001, the State of California Food and Drug Branch granted licensing for our
manufacturing facility in Union City, California.
    
    In May 2002, we received our ISO 9001 certification, expanding our compliance with
international quality standards.
    
    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.
 19




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##### Table of Contents




    
    In both September 2005 and March 2003, the FDA conducted a facility inspection and
verified our compliance with the 21 CFR 820 Regulation.
    
    In October 2006, we received our recertification to the ISO 13485:2003 Quality System
Standard for medical devices.
  
    
    Effects of the Clinical Laboratory Improvement Amendments on Our Products
   
    
    In March 2007, the FDA granted waived status under CLIA regulations for the following
analytes: calcium (CA), creatinine (CRE), urea nitrogen (BUN) and uric acid (UA).
    
    In October 2006, the FDA granted waived status under CLIA regulations for the following
analytes: albumin (ALB), alkaline phosphatase (ALP), amylase (AMY), gamma
glutamyltransferase (GGT), total bilirubin (TBIL) and total protein (TP).
   
    
    We are Subject to Various Federal, State, Local, and International Regulations
  
    
    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.
    
    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.
 20




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##### Table of Contents




    
    In March 2006, we received our certification to the 2003 version of the ISO 13485
quality system standard for medical devices.
    We depend on key members of our management and scientific staff, and we must retain and recruit
qualified individuals if we are to be competitive or our ability to execute our business strategy
and generate sales could be harmed.
  Standards for compliance with Section 404 of the Sarbanes-Oxley Act of 2002 are complex, and if we
are unable to maintain effective internal control over our financial reporting, our business could
be harmed and our stock price could decline.
   Our operating results could be materially affected by unanticipated changes in our tax provisions
or exposure to additional income tax liabilities.
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We must comply with strict and potentially costly environmental regulations or we could pay
significant fines.
  Our facilities and manufacturing operations are vulnerable to natural disasters and other
unexpected losses; system failures or delays may harm our business.
   Fluctuations in foreign exchange rates and the possible lack of financial stability in foreign
countries could prevent overseas sales growth.
  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.
  
    
    fluctuation in our operating results;
    
    announcements of technological innovations or new commercial products by us or our competitors;
    
    changes in governmental regulation;
    
    prospects and proposals for health care reform;
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
    
    governmental or third-party payors controls on prices that our customers may pay for our products;
    
    developments or disputes concerning patent or our other proprietary rights;
    
    public concern as to the safety of our devices or similar devices developed by our competitors; and
    
    general market conditions.
  Our Shareholders Rights Plan and our ability to issue preferred stock may delay or prevent a change
of control of Abaxis.
   
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
  
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  23




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##### Table of Contents



PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
 Market Information for Common Stock
  PricesFiscal 2007
    
    Fiscal 2006High
    
    Low
    
    High
    
    LowQuarter ended June 30
    
    $
    26.85
    
    
    $
    16.47
    
    
    $
    11.78
    
    
    $
    7.46Quarter ended September 30
    
    
    24.59
    
    
    
    18.81
    
    
    
    13.45
    
    
    
    10.50Quarter ended December 31
    
    
    25.45
    
    
    
    18.50
    
    
    
    18.88
    
    
    
    12.85Quarter ended March 31
    
    
    25.62
    
    
    
    16.94
    
    
    
    26.00
    
    
    
    16.23
   Dividends
  Stock Purchase Rights
   Stock Performance Graph (1)
   24




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##### Table of Contents



COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
 
 3/31/2002
    
    
    3/31/2003
    
    
    3/31/2004
    
    
    3/31/2005
    
    
    3/31/2006
    
    
    3/31/2007Abaxis, Inc.
    
    
    $
    100.00
    
    
    
    $
    59.53
    
    
    
    $
    317.50
    
    
    
    $
    138.28
    
    
    
    $
    354.38
    
    
    
    $
    380.78Russell 2000
    
    
    $
    100.00
    
    
    
    $
    73.04
    
    
    
    $
    119.66
    
    
    
    $
    126.13
    
    
    
    $
    158.73
    
    
    
    $
    168.11NASDAQ Medical
Equipment
Securities
    
    
    $
    100.00
    
    
    
    $
    91.78
    
    
    
    $
    140.83
    
    
    
    $
    149.72
    
    
    
    $
    182.27
    
    
    
    $
    190.47
 (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. 
 Item 6. Selected Financial Data
  25




---



##### Table of Contents



Year Ended March 31,Statements of Operations Data:
    
    2007
    
    2006
    
    2005
    
    2004
    
    2003Revenues
    
    $
    86,221,000
    
    
    $
    68,928,000
    
    
    $
    52,758,000
    
    
    $
    46,874,000
    
    
    $
    34,780,000Cost of revenues
    
    
    39,362,000
    
    
    
    30,075,000
    
    
    
    24,811,000
    
    
    
    22,966,000
    
    
    
    17,755,000Gross profit
    
    
    46,859,000
    
    
    
    38,853,000
    
    
    
    27,947,000
    
    
    
    23,908,000
    
    
    
    17,025,000Operating expenses:Research and development
    
    
    6,180,000
    
    
    
    6,127,000
    
    
    
    5,150,000
    
    
    
    4,757,000
    
    
    
    3,888,000Sales and marketing
    
    
    20,569,000
    
    
    
    16,219,000
    
    
    
    10,820,000
    
    
    
    10,701,000
    
    
    
    7,952,000General and administrative
    
    
    5,735,000
    
    
    
    5,775,000
    
    
    
    4,881,000
    
    
    
    3,730,000
    
    
    
    3,612,000Total operating expenses
    
    
    32,484,000
    
    
    
    28,121,000
    
    
    
    20,851,000
    
    
    
    19,188,000
    
    
    
    15,452,000Income from operations
    
    
    14,375,000
    
    
    
    10,732,000
    
    
    
    7,096,000
    
    
    
    4,720,000
    
    
    
    1,573,000Interest and other income (expense), net
    
    
    1,774,000
    
    
    
    787,000
    
    
    
    269,000
    
    
    
    105,000
    
    
    
    68,000Income before income taxes
    
    
    16,149,000
    
    
    
    11,519,000
    
    
    
    7,365,000
    
    
    
    4,825,000
    
    
    
    1,641,000Income tax provision (benefit)
    
    
    6,076,000
    
    
    
    4,044,000
    
    
    
    2,514,000
    
    
    
    (19,208,000
    )
    
    
    5,000Net income
    
    
    10,073,000
    
    
    
    7,475,000
    
    
    
    4,851,000
    
    
    
    24,033,000
    
    
    
    1,636,000Preferred dividends and accretion (a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (419,000
    )
    
    
    (1,235,000
    )Net income attributable to common shareholders
    
    $
    10,073,000
    
    
    $
    7,475,000
    
    
    $
    4,851,000
    
    
    $
    23,614,000
    
    
    $
    401,000Net income per share:Basic net income per share
    
    $
    0.49
    
    
    $
    0.37
    
    
    $
    0.25
    
    
    $
    1.30
    
    
    $
    0.02Diluted net income per share
    
    $
    0.46
    
    
    $
    0.35
    
    
    $
    0.22
    
    
    $
    1.16
    
    
    $
    0.02Shares used in the calculation of net income per share:Weighted average common shares outstanding  basic
    
    
    20,643,000
    
    
    
    19,985,000
    
    
    
    19,696,000
    
    
    
    18,128,000
    
    
    
    16,634,000Weighted average common shares outstanding  diluted
    
    
    21,846,000
    
    
    
    21,492,000
    
    
    
    21,662,000
    
    
    
    20,387,000
    
    
    
    17,014,000
 
 (a)
    
    For fiscal 2004, includes preferred dividends of $419,000. For fiscal 2003, includes preferred
dividends of $865,000 and a non-cash preferred dividend charge of $370,000 related to the beneficial conversion feature
contained in our Series E Preferred Stock issued in April 2002. As of March 31,Balance Sheet Data:
    
    2007
    
    2006
    
    2005
    
    2004
    
    2003Cash and cash equivalents
    
    $
    10,183,000
    
    
    $
    10,164,000
    
    
    $
    5,776,000
    
    
    $
    9,324,000
    
    
    $
    10,430,000Short-term investments
    
    
    35,028,000
    
    
    
    20,372,000
    
    
    
    16,858,000
    
    
    
    7,998,000
    
    
    
    Working capital
    
    
    74,517,000
    
    
    
    49,949,000
    
    
    
    38,744,000
    
    
    
    25,865,000
    
    
    
    17,855,000Total assets
    
    
    102,715,000
    
    
    
    83,078,000
    
    
    
    71,009,000
    
    
    
    61,898,000
    
    
    
    32,368,000Long-term liabilities
    
    
    2,167,000
    
    
    
    1,679,000
    
    
    
    1,629,000
    
    
    
    938,000
    
    
    
    1,218,000Convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,176,000Total shareholders equity
    
    
    87,812,000
    
    
    
    71,038,000
    
    
    
    61,667,000
    
    
    
    54,572,000
    
    
    
    22,268,000
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  BUSINESS OVERVIEW
  
    
    Medical Market: We currently market the 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 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.
 
 26




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS
   Revenue Recognition and Deferred Revenue.
   Distributor and Customer Rebates.
 27




---



##### Table of Contents



Balance atBeginning
    
    
    
    
    
    
    
    
    
    Balance atof Year
    
    Provisions
    
    Payments
    
    End of YearYear Ended March 31, 2007:Distributor rebates
    
    $
    90,000
    
    
    $
    781,000
    
    
    $
    (642,000
    )
    
    $
    229,000Customer rebates
    
    
    36,000
    
    
    
    328,000
    
    
    
    (196,000
    )
    
    
    168,000Total distributor and customer rebates
    
    $
    126,000
    
    
    $
    1,109,000
    
    
    $
    (838,000
    )
    
    $
    397,000Year Ended March 31, 2006:Distributor rebates
    
    $
    177,000
    
    
    $
    781,000
    
    
    $
    (868,000
    )
    
    $
    90,000Customer rebates
    
    
    
    
    
    
    578,000
    
    
    
    (542,000
    )
    
    
    36,000Total distributor and customer rebates
    
    $
    177,000
    
    
    $
    1,359,000
    
    
    $
    (1,410,000
    )
    
    $
    126,000Year Ended March 31, 2005:Distributor rebates
    
    $
    
    
    
    $
    549,000
    
    
    $
    (372,000
    )
    
    $
    177,000Customer rebates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total distributor and customer rebates
    
    $
    
    
    
    $
    549,000
    
    
    $
    (372,000
    )
    
    $
    177,000
 Sales and Other Allowances.
  28




---



##### Table of Contents



Allowance for Doubtful Accounts.
 Warranty Reserves.
 Inventories.
 Long-Lived Assets.
 Income Taxes.
  Share-Based Compensation Expense.
 29




---



##### Table of Contents




    
    Risk-free interest rate: The risk-free interest rate is based on U.S. Treasury yields
in effect at the time of grant for the expected term of the option.
    
    Expected stock price volatility: We estimate the volatility of our common stock at the
date of grant based on the historical volatility of our common stock over a term of one
year.
    
    Expected term: We estimate the expected term of stock options granted based on
historical exercise patterns, which we believe are representative of future behavior.
    
    Expected dividends.
    RESULTS OF OPERATIONS
 Total Revenues
  30




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##### Table of Contents



Revenues by Geographic Region and by Product Category.
 Year Ended March 31,
    
    Change 2006 to 2007
    
    Change 2005 to 2006Increase/
    
    %
    
    Increase/
    
    %Revenues by Geographic Region
    
    2007
    
    2006
    
    2005
    
    (Decrease)
    
    Change
    
    (Decrease)
    
    ChangeNorth America
    
    $
    72,015,000
    
    
    $
    58,747,000
    
    
    $
    45,059,000
    
    
    $
    13,268,000
    
    
    
    23
    %
    
    $
    13,688,000
    
    
    
    30
    %Percentage of total revenues
    
    
    84
    %
    
    
    85
    %
    
    
    86
    %Europe
    
    
    10,370,000
    
    
    
    7,354,000
    
    
    
    5,915,000
    
    
    
    3,016,000
    
    
    
    41
    %
    
    
    1,439,000
    
    
    
    24
    %Percentage of total revenues
    
    
    12
    %
    
    
    11
    %
    
    
    11
    %Asia Pacific and rest of the world
    
    
    3,836,000
    
    
    
    2,827,000
    
    
    
    1,784,000
    
    
    
    1,009,000
    
    
    
    36
    %
    
    
    1,043,000
    
    
    
    58
    %Percentage of total revenues
    
    
    4
    %
    
    
    4
    %
    
    
    3
    %Total revenues
    
    $
    86,221,000
    
    
    $
    68,928,000
    
    
    $
    52,758,000
    
    
    $
    17,293,000
    
    
    
    25
    %
    
    $
    16,170,000
    
    
    
    31
    %
 Year Ended March 31,
    
    Change 2006 to 2007
    
    Change 2005 to 2006Increase/
    
    %
    
    Increase/
    
    %Revenues by Product Category
    
    2007
    
    2006
    
    2005
    
    (Decrease)
    
    Change
    
    (Decrease)
    
    ChangeInstruments
    
    $
    28,899,000
    
    
    $
    21,864,000
    
    
    $
    17,203,000
    
    
    $
    7,035,000
    
    
    
    32
    %
    
    $
    4,661,000
    
    
    
    27
    %Percentage of total revenues
    
    
    34
    %
    
    
    32
    %
    
    
    33
    %Reagent discs and kits
    
    
    50,741,000
    
    
    
    41,606,000
    
    
    
    32,921,000
    
    
    
    9,135,000
    
    
    
    22
    %
    
    
    8,685,000
    
    
    
    26
    %Percentage of total revenues
    
    
    59
    %
    
    
    60
    %
    
    
    62
    %Other
    
    
    4,775,000
    
    
    
    4,086,000
    
    
    
    2,340,000
    
    
    
    689,000
    
    
    
    17
    %
    
    
    1,746,000
    
    
    
    75
    %Percentage of total revenues
    
    
    5
    %
    
    
    6
    %
    
    
    4
    %Product sales, net
    
    
    84,415,000
    
    
    
    67,556,000
    
    
    
    52,464,000
    
    
    
    16,859,000
    
    
    
    25
    %
    
    
    15,092,000
    
    
    
    29
    %Percentage of total revenues
    
    
    98
    %
    
    
    98
    %
    
    
    99
    %Development and licensing revenue
    
    
    1,806,000
    
    
    
    1,372,000
    
    
    
    294,000
    
    
    
    434,000
    
    
    
    32
    %
    
    
    1,078,000
    
    
    
    367
    %Percentage of total revenues
    
    
    2
    %
    
    
    2
    %
    
    
    1
    %Total revenues
    
    $
    86,221,000
    
    
    $
    68,928,000
    
    
    $
    52,758,000
    
    
    $
    17,293,000
    
    
    
    25
    %
    
    $
    16,170,000
    
    
    
    31
    %
 Fiscal 2007 Compared with Fiscal 2006
 North America.
 Instruments.
   Reagent discs and kits.
   Other products.
 31




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##### Table of Contents



Development and licensing.
 Significant concentration.
  Europe.
 Instruments.
   Reagent discs and kits.
   Other products.
 Asia Pacific and rest of the world.
 Instruments.
   Reagent discs and kits.
  32




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##### Table of Contents



Other products.
 Fiscal 2006 Compared with Fiscal 2005
 North America.
 Instruments.
   Reagent discs and kits.
   Other products.
 Development and licensing.
 Significant concentration.
 Europe.
 Instruments.
   33




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##### Table of Contents



Reagent discs and kits.
   Other products.
 Asia Pacific and rest of the world.
 Instruments.
   Reagent discs and kits.
   Other products.
 Revenues by Customer Group
 Year Ended March 31,
    
    Change 2006 to 2007
    
    Change 2005 to 2006Increase/
    
    %
    
    Increase/
    
    %2007
    
    2006
    
    2005
    
    (Decrease)
    
    Change
    
    (Decrease)
    
    ChangeMedical Market
    
    $
    17,455,000
    
    
    $
    10,888,000
    
    
    $
    8,095,000
    
    
    $
    6,567,000
    
    
    
    60
    %
    
    $
    2,793,000
    
    
    
    35
    %Percentage of total revenues
    
    
    20
    %
    
    
    16
    %
    
    
    15
    %Veterinary Market
    
    
    63,851,000
    
    
    
    53,841,000
    
    
    
    42,806,000
    
    
    
    10,010,000
    
    
    
    19
    %
    
    
    11,035,000
    
    
    
    26
    %Percentage of total revenues
    
    
    74
    %
    
    
    78
    %
    
    
    81
    %Other
    
    
    4,915,000
    
    
    
    4,199,000
    
    
    
    1,857,000
    
    
    
    716,000
    
    
    
    17
    %
    
    
    2,342,000
    
    
    
    126
    %Percentage of total revenues
    
    
    6
    %
    
    
    6
    %
    
    
    4
    %Total revenues
    
    $
    86,221,000
    
    
    $
    68,928,000
    
    
    $
    52,758,000
    
    
    $
    17,293,000
    
    
    
    25
    %
    
    $
    16,170,000
    
    
    
    31
    %
 Fiscal 2007 Compared with Fiscal 2006
 Medical Market.
 Instruments.
 34




---



##### Table of Contents



Reagent discs and kits.
 Veterinary Market.
 Instruments.
   Reagent discs and kits.
   Other.
 Fiscal 2006 Compared with Fiscal 2005
 Medical Market.
 Instruments.
 35




---



##### Table of Contents



Reagent discs and kits.
 Veterinary Market.
 Instruments.
    Reagent discs and kits.
   Other.
 Cost of Revenues
  Year Ended March 31,
    
    Change 2006 to 2007
    
    Change 2005 to 2006Increase/
    
    %
    
    Increase/
    
    %2007
    
    2006
    
    2005
    
    (Decrease)
    
    Change
    
    (Decrease)
    
    ChangeCost of revenues
    
    $
    39,362,000
    
    
    $
    30,075,000
    
    
    $
    24,811,000
    
    
    $
    9,287,000
    
    
    
    31
    %
    
    $
    5,264,000
    
    
    
    21
    %Percentage of total revenues
    
    
    46
    %
    
    
    44
    %
    
    
    47
    %
 36




---



##### Table of Contents



Fiscal 2007 Compared with Fiscal 2006
  Fiscal 2006 Compared with Fiscal 2005
  Operating Expenses
 Research and Development
  Year Ended March 31,
    
    Change 2006 to 2007
    
    Change 2005 to 2006Increase/
    
    %
    
    Increase/
    
    %2007
    
    2006
    
    2005
    
    (Decrease)
    
    Change
    
    (Decrease)
    
    ChangeResearch and development
    
    $
    6,180,000
    
    
    $
    6,127,000
    
    
    $
    5,150,000
    
    
    $
    53,000
    
    
    
    1
    %
    
    $
    977,000
    
    
    
    19
    %Percentage of total revenues
    
    
    7
    %
    
    
    9
    %
    
    
    10
    %
  Fiscal 2007 Compared with Fiscal 2006
   Fiscal 2006 Compared with Fiscal 2005
  37




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##### Table of Contents



Sales and Marketing
  Year Ended March 31,
    
    Change 2006 to 2007
    
    Change 2005 to 2006Increase/
    
    %
    
    Increase/
    
    %2007
    
    2006
    
    2005
    
    (Decrease)
    
    Change
    
    (Decrease)
    
    ChangeSales and marketing expenses
    
    $
    20,569,000
    
    
    $
    16,219,000
    
    
    $
    10,820,000
    
    
    $
    4,350,000
    
    
    
    27
    %
    
    $
    5,399,000
    
    
    
    50
    %Percentage of total revenues
    
    
    24
    %
    
    
    24
    %
    
    
    21
    %
  Fiscal 2007 Compared with Fiscal 2006
  Fiscal 2006 Compared with Fiscal 2005
  General and Administrative Expense
  Year Ended March 31,
    
    Change 2006 to 2007
    
    Change 2005 to 2006Increase/
    
    %
    
    Increase/
    
    %2007
    
    2006
    
    2005
    
    (Decrease)
    
    Change
    
    (Decrease)
    
    ChangeGeneral and administrative expenses
    
    $
    5,735,000
    
    
    $
    5,775,000
    
    
    $
    4,881,000
    
    
    $
    (40,000
    )
    
    
    (1
    )%
    
    $
    894,000
    
    
    
    18
    %Percentage of total revenues
    
    
    7
    %
    
    
    8
    %
    
    
    9
    %
  Fiscal 2007 Compared with Fiscal 2006
  Fiscal 2006 Compared with Fiscal 2005
  Interest and Other Income (Expense), Net
  Year Ended March 31,
    
    Change 2006 to 2007
    
    Change 2005 to 2006Increase/
    
    %
    
    Increase/
    
    %2007
    
    2006
    
    2005
    
    (Decrease)
    
    Change
    
    (Decrease)
    
    ChangeInterest and other income (expense), net
    
    $
    1,774,000
    
    
    $
    787,000
    
    
    $
    269,000
    
    
    $
    987,000
    
    
    
    125
    %
    
    $
    518,000
    
    
    
    193
    %
  38




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##### Table of Contents



Fiscal 2007 Compared with Fiscal 2006
  Fiscal 2006 Compared with Fiscal 2005
  Income Tax Provision
  Year Ended March 31,2007
    
    2006
    
    2005Income tax provision
    
    $
    6,076,000
    
    
    $
    4,044,000
    
    
    $
    2,514,000Effective tax rate
    
    
    38
    %
    
    
    35
    %
    
    
    34
    %
 Fiscal 2007 Compared with Fiscal 2006
  Fiscal 2006 Compared with Fiscal 2005
   LIQUIDITY AND CAPITAL RESOURCES
  March 31,2007
    
    2006
    
    2005Cash and cash equivalents
    
    $
    10,183,000
    
    
    $
    10,164,000
    
    
    $
    5,776,000Short-term investments
    
    
    35,028,000
    
    
    
    20,372,000
    
    
    
    16,858,000Total cash, cash equivalents and short-term investments
    
    $
    45,211,000
    
    
    $
    30,536,000
    
    
    $
    22,634,000Percentage of total assets
    
    
    44
    %
    
    
    37
    %
    
    
    32
    %
 Cash Flow Changes
  Year Ended March 31,2007
    
    2006
    
    2005Cash provided by operating activities
    
    $
    11,822,000
    
    
    $
    8,768,000
    
    
    $
    6,321,000Cash (used in) investing activities
    
    
    (17,701,000
    )
    
    
    (5,702,000
    )
    
    
    (11,344,000
    )Cash provided by financing activities
    
    
    5,898,000
    
    
    
    1,322,000
    
    
    
    1,475,000Net increase (decrease) in cash and cash equivalents
    
    $
    19,000
    
    
    $
    4,388,000
    
    
    $
    (3,548,000
    )
 Operating Activities
  39




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##### Table of Contents



Investing Activities
  Short-term Investments .
 Property and Equipment.
 Financing Activities
  40




---



##### Table of Contents



Contractual Obligations
  Payments Due by PeriodDue in FiscalTotal
    
    2008
    
    2009
    
    2010
    
    2011
    
    2012
    
    ThereafterOperating leases
    
    $
    4,346,000
    
    
    $
    1,136,000
    
    
    $
    1,166,000
    
    
    $
    1,153,000
    
    
    $
    882,000
    
    
    $
    6,000
    
    
    $
    3,000Purchase commitments
    
    
    4,109,000
    
    
    
    4,109,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    8,455,000
    
    
    $
    5,245,000
    
    
    $
    1,166,000
    
    
    $
    1,153,000
    
    
    $
    882,000
    
    
    $
    6,000
    
    
    $
    3,000
 Operating Leases.
 Purchase Commitments.
 Line of Credit.
   Contingencies
  Off-Balance Sheet Arrangements
  RECENT ACCOUNTING PRONOUNCEMENTS
 FIN 48
  41




---



##### Table of Contents



SFAS No. 157
  SAB No. 108
  SFAS No. 159
  
 Item 7A. Quantitative and Qualitative Disclosure About Market Risk
 Interest Rate Risk
     42




---



##### Table of Contents



Foreign Currency Rate Fluctuations
  43




---



##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 ABAXIS, INC.
 INDEX TO FINANCIAL STATEMENTS
 Description
    
    PageReports of Independent Registered Public Accounting Firms
    
    
    45Balance Sheets at March 31, 2007 and 2006
    
    
    47Statements of Operations for the Years Ended March 31, 2007, 2006 and 2005
    
    
    48Statements of Shareholders Equity and Comprehensive Income for the Years Ended March 31, 2007, 2006 and 2005
    
    
    49Statements of Cash Flows for the Years Ended March 31, 2007, 2006 and 2005
    
    
    50Notes to Financial Statements
    
    
    51
 44




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      Internal ControlIntegrated Framework
    45




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
        46




---



##### Table of Contents



ABAXIS, INC.
 
 BALANCE SHEETS
 March 31,2007
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    10,183,000
    
    
    $
    10,164,000Short-term investments
    
    
    35,028,000
    
    
    
    20,372,000Trade receivables (net of allowances of $542,000 in 2007 and $343,000 in 2006)
    
    
    16,929,000
    
    
    
    14,638,000Inventories, net
    
    
    14,813,000
    
    
    
    10,396,000Prepaid expenses
    
    
    1,321,000
    
    
    
    446,000Net deferred tax asset  current
    
    
    8,979,000
    
    
    
    4,294,000Total current assets
    
    
    87,253,000
    
    
    
    60,310,000Property and equipment, net
    
    
    12,662,000
    
    
    
    10,038,000Intangible assets, net
    
    
    450,000
    
    
    
    525,000Other assets
    
    
    38,000
    
    
    
    80,000Net deferred tax asset  non-current
    
    
    2,312,000
    
    
    
    12,125,000Total assets
    
    $
    102,715,000
    
    
    $
    83,078,000LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    6,505,000
    
    
    $
    4,614,000Accrued payroll and related expenses
    
    
    3,830,000
    
    
    
    3,890,000Other accrued liabilities
    
    
    1,169,000
    
    
    
    705,000Warranty reserve
    
    
    315,000
    
    
    
    213,000Deferred revenue
    
    
    917,000
    
    
    
    939,000Total current liabilities
    
    
    12,736,000
    
    
    
    10,361,000Non-current liabilities:Deferred rent
    
    
    391,000
    
    
    
    478,000Deferred revenue
    
    
    1,244,000
    
    
    
    938,000Warranty reserve
    
    
    532,000
    
    
    
    259,000Other long-term liabilities
    
    
    
    
    
    
    4,000Total non-current liabilities
    
    
    2,167,000
    
    
    
    1,679,000Commitments and contingencies (Note 8)Shareholders equity:Preferred stock, no par value: authorized shares - 5,000,000; no shares
issued and outstanding in 2007 and 2006
    
    
    
    
    
    
    Common stock, no par value: authorized shares - 35,000,000; issued and
outstanding shares - 21,207,000 in 2007
and 20,135,000 in 2006
    
    
    103,282,000
    
    
    
    96,506,000Accumulated deficit
    
    
    (15,470,000
    )
    
    
    (25,543,000
    )Accumulated other comprehensive income
    
    
    
    
    
    
    75,000Total shareholders equity
    
    
    87,812,000
    
    
    
    71,038,000Total liabilities and shareholders equity
    
    $
    102,715,000
    
    
    $
    83,078,000
  47




---



##### Table of Contents



ABAXIS, INC.
 
 STATEMENTS OF OPERATIONS
 Year Ended March 31,2007
    
    2006
    
    2005Revenues
    
    $
    86,221,000
    
    
    $
    68,928,000
    
    
    $
    52,758,000Cost of revenues
    
    
    39,362,000
    
    
    
    30,075,000
    
    
    
    24,811,000Gross profit
    
    
    46,859,000
    
    
    
    38,853,000
    
    
    
    27,947,000Operating expenses:Research and development
    
    
    6,180,000
    
    
    
    6,127,000
    
    
    
    5,150,000Sales and marketing
    
    
    20,569,000
    
    
    
    16,219,000
    
    
    
    10,820,000General and administrative
    
    
    5,735,000
    
    
    
    5,775,000
    
    
    
    4,881,000Total operating expenses
    
    
    32,484,000
    
    
    
    28,121,000
    
    
    
    20,851,000Income from operations
    
    
    14,375,000
    
    
    
    10,732,000
    
    
    
    7,096,000Interest and other income (expense), net
    
    
    1,774,000
    
    
    
    787,000
    
    
    
    269,000Income before income taxes
    
    
    16,149,000
    
    
    
    11,519,000
    
    
    
    7,365,000Income tax provision
    
    
    6,076,000
    
    
    
    4,044,000
    
    
    
    2,514,000Net income
    
    $
    10,073,000
    
    
    $
    7,475,000
    
    
    $
    4,851,000Net income per share:Basic net income per share
    
    $
    0.49
    
    
    $
    0.37
    
    
    $
    0.25Diluted net income per share
    
    $
    0.46
    
    
    $
    0.35
    
    
    $
    0.22Shares used in the calculation of net income per share:Weighted average common shares outstanding  basic
    
    
    20,643,000
    
    
    
    19,985,000
    
    
    
    19,696,000Weighted average common shares outstanding  diluted
    
    
    21,846,000
    
    
    
    21,492,000
    
    
    
    21,662,000
  48




---



##### Table of Contents



ABAXIS, INC.
 
 STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME
 AccumulatedOther
    
    
    TotalCommon Stock
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Shareholders
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Deficit
    
    
    Income
    
    
    Equity
    
    
    IncomeBalances at March 31, 2004
    
    
    19,520,000
    
    
    $
    92,441,000
    
    
    $
    (37,869,000
    )
    
    $
    
    
    
    $
    54,572,000
    
    
    $
    Stock option exercises
    
    
    185,000
    
    
    
    810,000
    
    
    
    
    
    
    
    
    
    
    
    810,000
    
    
    
    Issuance of common stock upon exercise of warrants
    
    
    185,000
    
    
    
    687,000
    
    
    
    
    
    
    
    
    
    
    
    687,000
    
    
    
    Common stock issued for dividends payable
    
    
    2,000
    
    
    
    28,000
    
    
    
    
    
    
    
    
    
    
    
    28,000
    
    
    
    Share-based compensation expense
    
    
    
    
    
    
    40,000
    
    
    
    
    
    
    
    
    
    
    
    40,000
    
    
    
    Tax benefits from stock option exercises
    
    
    
    
    
    
    608,000
    
    
    
    
    
    
    
    
    
    
    
    608,000
    
    
    
    Components of comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    4,851,000
    
    
    
    
    
    
    
    4,851,000
    
    
    
    4,851,000Change in unrealized gain on short-term investments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,000
    
    
    
    71,000
    
    
    
    71,000Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,922,000Balances at March 31, 2005
    
    
    19,892,000
    
    
    
    94,614,000
    
    
    
    (33,018,000
    )
    
    
    71,000
    
    
    
    61,667,000
    
    
    
    Common stock issued for employee benefit plans
    
    
    3,000
    
    
    
    43,000
    
    
    
    
    
    
    
    
    
    
    
    43,000
    
    
    
    Stock option exercises
    
    
    174,000
    
    
    
    990,000
    
    
    
    
    
    
    
    
    
    
    
    990,000
    
    
    
    Issuance of common stock upon exercise of warrants
    
    
    66,000
    
    
    
    348,000
    
    
    
    
    
    
    
    
    
    
    
    348,000
    
    
    
    Share-based compensation expense adjustment
    
    
    
    
    
    
    (12,000
    )
    
    
    
    
    
    
    
    
    
    
    (12,000
    )
    
    
    Tax benefits from stock option exercises
    
    
    
    
    
    
    523,000
    
    
    
    
    
    
    
    
    
    
    
    523,000
    
    
    
    Components of comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    7,475,000
    
    
    
    
    
    
    
    7,475,000
    
    
    
    7,475,000Change in unrealized gain on short-term investments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,000
    
    
    
    4,000
    
    
    
    4,000Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,479,000Balances at March 31, 2006
    
    
    20,135,000
    
    
    
    96,506,000
    
    
    
    (25,543,000
    )
    
    
    75,000
    
    
    
    71,038,000
    
    
    
    Common stock issued for employee benefit plans
    
    
    3,000
    
    
    
    66,000
    
    
    
    
    
    
    
    
    
    
    
    66,000
    
    
    
    Stock option exercises
    
    
    931,000
    
    
    
    4,506,000
    
    
    
    
    
    
    
    
    
    
    
    4,506,000
    
    
    
    Issuance of common stock upon exercise of warrants
    
    
    138,000
    
    
    
    823,000
    
    
    
    
    
    
    
    
    
    
    
    823,000
    
    
    
    Share-based compensation
    
    
    
    
    
    
    812,000
    
    
    
    
    
    
    
    
    
    
    
    812,000
    
    
    
    Excess tax benefits from stock option exercises
    
    
    
    
    
    
    569,000
    
    
    
    
    
    
    
    
    
    
    
    569,000
    
    
    
    Components of comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    10,073,000
    
    
    
    
    
    
    
    10,073,000
    
    
    
    10,073,000Change in unrealized gain on short-term investments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (75,000
    )
    
    
    (75,000
    )
    
    
    (75,000
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    9,998,000Balances at March 31, 2007
    
    
    21,207,000
    
    
    $
    103,282,000
    
    
    $
    (15,470,000
    )
    
    $
    
    
    
    $
    87,812,000
  49




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##### Table of Contents



ABAXIS, INC.
 
 STATEMENTS OF CASH FLOWS
 Year Ended March 31,2007
    
    2006
    
    2005Operating activities:Net income
    
    $
    10,073,000
    
    
    $
    7,475,000
    
    
    $
    4,851,000Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    2,685,000
    
    
    
    2,136,000
    
    
    
    1,896,000Loss on disposal of property and equipment
    
    
    37,000
    
    
    
    7,000
    
    
    
    14,000Common stock issued for employee benefit plans
    
    
    66,000
    
    
    
    43,000
    
    
    
    Share-based compensation expense
    
    
    799,000
    
    
    
    (12,000
    )
    
    
    40,000Tax benefits from stock option exercises
    
    
    
    
    
    
    523,000
    
    
    
    608,000Excess tax benefits from share-based awards
    
    
    (569,000
    )
    
    
    
    
    
    
    Changes in assets and liabilities:Trade receivables, net
    
    
    (2,291,000
    )
    
    
    (4,129,000
    )
    
    
    (2,307,000
    )Inventories, net
    
    
    (6,755,000
    )
    
    
    (3,081,000
    )
    
    
    (2,614,000
    )Prepaid expenses
    
    
    (306,000
    )
    
    
    (164,000
    )
    
    
    102,000Other assets
    
    
    42,000
    
    
    
    16,000
    
    
    
    59,000Net deferred tax assets
    
    
    5,178,000
    
    
    
    3,240,000
    
    
    
    1,524,000Accounts payable
    
    
    1,891,000
    
    
    
    764,000
    
    
    
    1,211,000Accrued payroll and related expenses
    
    
    (60,000
    )
    
    
    2,023,000
    
    
    
    (986,000
    )Other accrued liabilities
    
    
    464,000
    
    
    
    (123,000
    )
    
    
    509,000Warranty reserve
    
    
    375,000
    
    
    
    227,000
    
    
    
    64,000Deferred rent
    
    
    (87,000
    )
    
    
    16,000
    
    
    
    53,000Deferred revenue
    
    
    284,000
    
    
    
    (176,000
    )
    
    
    1,315,000Other long-term liabilities
    
    
    (4,000
    )
    
    
    (17,000
    )
    
    
    (18,000
    )Net cash provided by operating activities
    
    
    11,822,000
    
    
    
    8,768,000
    
    
    
    6,321,000Investing activities:Purchases of available-for-sale investments
    
    
    (67,483,000
    )
    
    
    (58,359,000
    )
    
    
    (16,787,000
    )Purchases of held-to-maturity investments
    
    
    (25,868,000
    )
    
    
    
    
    
    
    Proceeds from maturities of available-for-sale investments
    
    
    71,330,000
    
    
    
    54,899,000
    
    
    
    7,998,000Proceeds from maturities of held-to-maturity investments
    
    
    7,240,000
    
    
    
    
    
    
    
    Purchases of property and equipment
    
    
    (2,920,000
    )
    
    
    (2,242,000
    )
    
    
    (2,562,000
    )Proceeds from disposal of property and equipment
    
    
    
    
    
    
    
    
    
    
    7,000Net cash used in investing activities
    
    
    (17,701,000
    )
    
    
    (5,702,000
    )
    
    
    (11,344,000
    )Financing activities:Proceeds from the exercise of stock options
    
    
    4,506,000
    
    
    
    990,000
    
    
    
    810,000Proceeds from the exercise of warrants
    
    
    823,000
    
    
    
    348,000
    
    
    
    687,000Excess tax benefits from share-based awards
    
    
    569,000
    
    
    
    
    
    
    
    Repayment of capital lease obligations
    
    
    
    
    
    
    (16,000
    )
    
    
    (22,000
    )Net cash provided by financing activities
    
    
    5,898,000
    
    
    
    1,322,000
    
    
    
    1,475,000Net increase (decrease) in cash and cash equivalents
    
    
    19,000
    
    
    
    4,388,000
    
    
    
    (3,548,000
    )Cash and cash equivalents at beginning of year
    
    
    10,164,000
    
    
    
    5,776,000
    
    
    
    9,324,000Cash and cash equivalents at end of year
    
    $
    10,183,000
    
    
    $
    10,164,000
    
    
    $
    5,776,000Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    15,000
    
    
    $
    17,000
    
    
    $
    16,000Cash paid for income taxes, net of refunds
    
    $
    503,000
    
    
    $
    552,000
    
    
    $
    130,000Supplemental disclosure of non-cash flow information:Change in unrealized gains on short-term investments, net of tax
    
    $
    (75,000
    )
    
    $
    4,000
    
    
    $
    71,000Issuance of common stock for payment of dividends payable
    
    $
    
    
    
    $
    
    
    
    $
    28,000Transfers of equipment between inventory and property and equipment
    
    $
    2,351,000
    
    
    $
    1,049,000
    
    
    $
    
 50




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##### Table of Contents



ABAXIS, INC.
 
 NOTES TO FINANCIAL STATEMENTS
 YEARS ENDED MARCH 31, 2007, 2006 AND 2005
 NOTE 1 DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
 Description of Business.
 Use of Estimates in Preparation of Financial Statements.
 Certain Significant Risks and Uncertainties.
 Reclassification.
 Cash and Cash Equivalents.
 Short-term Investments.
    Concentration of Credit Risk.
   51




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##### Table of Contents



Allowance for Doubtful Accounts.
 Inventories.
 Property and Equipment.
 Asset Classification
    
    Estimated Useful LifeMachinery and equipment
    
    2-10 yearsFurniture and fixtures
    
    3-5 yearsComputer equipment
    
    2-3 yearsLeasehold improvements
    
    Shorter of estimated useful life or lease
term, including any lease term extensions that
the Company has the right and intention to
execute
  Long-Lived Assets.
 Intangible Assets.
 Fair Value of Financial Instruments.
 Revenue Recognition and Deferred Revenue.
 
    
    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.
 52




---



##### Table of Contents



Distributor and Customer Rebates.
 Shipping and Handling.
 Research and Development Costs.
 Advertising Expenses.
 Income Taxes.
 Share-Based Compensation Expense.
  53




---



##### Table of Contents




    
    Risk-free interest rate: The risk-free interest rate is based on U.S. Treasury yields
in effect at the time of grant for the expected term of the option.
    
    Expected stock price volatility: The Company estimates the volatility of its common
stock at the date of grant based on the historical volatility of its common stock over a
term of one year.
    
    Expected term: The Company estimates the expected term of stock options granted based
on historical exercise patterns, which it believes are representative of future behavior.
    
    Expected dividends.
   Net Income Per Share.
 Comprehensive Income.
  Year Ended March 31,2007
    
    2006
    
    2005Net income
    
    $
    10,073,000
    
    
    $
    7,475,000
    
    
    $
    4,851,000Other comprehensive income:Change in unrealized
gain on short-term
investments, net of tax
    
    
    (75,000
    )
    
    
    4,000
    
    
    
    71,000Comprehensive income
    
    $
    9,998,000
    
    
    $
    7,479,000
    
    
    $
    4,922,000
 Recent Accounting Pronouncements
 FIN 48
  54




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##### Table of Contents



SFAS No. 157
  SAB No. 108
  SFAS No. 159
  NOTE 2 SHORT-TERM INVESTMENTS
  Unrealized
    
    MarketAmortized Cost
    
    Gains
    
    ValueMarch 31, 2007Available-for-sale:Auction rate securities
    
    $
    16,400,000
    
    
    $
    
    
    
    $
    16,400,000Total available-for-sale
    
    
    16,400,000
    
    
    
    
    
    
    
    16,400,000Held-to-maturity:Corporate debt securities
    
    
    18,628,000
    
    
    
    
    
    
    
    18,628,000Total held-to-maturity
    
    
    18,628,000
    
    
    
    
    
    
    
    18,628,000Total short-term investments
    
    $
    35,028,000
    
    
    $
    
    
    
    $
    35,028,000March 31, 2006Available-for-sale:Corporate debt securities
    
    $
    11,146,000
    
    
    $
    126,000
    
    
    $
    11,272,000Auction rate securities
    
    
    9,100,000
    
    
    
    
    
    
    
    9,100,000Total available-for-sale
    
    
    20,246,000
    
    
    
    126,000
    
    
    
    20,372,000Total short-term investments
    
    $
    20,246,000
    
    
    $
    126,000
    
    
    $
    20,372,000
  NOTE 3 INVENTORIES, NET
  March 31,2007
    
    2006Raw materials
    
    $
    7,974,000
    
    
    $
    5,581,000Work-in-process
    
    
    3,203,000
    
    
    
    2,904,000Finished goods
    
    
    3,636,000
    
    
    
    1,911,000Inventories, net
    
    $
    14,813,000
    
    
    $
    10,396,000
 55




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##### Table of Contents



NOTE 4 PROPERTY AND EQUIPMENT, NET
  March 31,2007
    
    2006Machinery and equipment
    
    $
    16,877,000
    
    
    $
    13,673,000Furniture and fixtures
    
    
    1,406,000
    
    
    
    1,254,000Computer equipment
    
    
    1,336,000
    
    
    
    1,195,000Leasehold improvements
    
    
    5,924,000
    
    
    
    5,274,000Construction in progress
    
    
    1,655,000
    
    
    
    1,440,00027,198,000
    
    
    
    22,836,000Accumulated depreciation and amortization
    
    
    (14,536,000
    )
    
    
    (12,798,000
    )Property and equipment, net
    
    $
    12,662,000
    
    
    $
    10,038,000
  NOTE 5 INTANGIBLE ASSETS, NET
  March 31,2007
    
    2006Cost
    
    $
    750,000
    
    
    $
    750,000Accumulated amortization
    
    
    (300,000
    )
    
    
    (225,000
    )Intangible assets, net
    
    $
    450,000
    
    
    $
    525,000
  Estimated Future Annual Amortization ExpenseFiscal Year Ending March 31,Total
    
    2008
    
    2009
    
    2010
    
    2011
    
    2012
    
    ThereafterAmortization expense
    
    $
    450,000
    
    
    $
    75,000
    
    
    $
    75,000
    
    
    $
    75,000
    
    
    $
    75,000
    
    
    $
    75,000
    
    
    $
    75,000
 NOTE 6 WARRANTY RESERVES
   Year Ended March 31,2007
    
    2006
    
    2005Balance at beginning of period
    
    $
    472,000
    
    
    $
    245,000
    
    
    $
    181,000Provision for warranty expense
    
    
    611,000
    
    
    
    374,000
    
    
    
    227,000Warranty costs incurred
    
    
    (236,000
    )
    
    
    (147,000
    )
    
    
    (163,000
    )Balance at end of period
    
    
    847,000
    
    
    
    472,000
    
    
    
    245,000Long-term portion of warranty reserve
    
    
    532,000
    
    
    
    259,000
    
    
    
    Current portion of warranty reserve
    
    $
    315,000
    
    
    $
    213,000
    
    
    $
    245,000
 56




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##### Table of Contents



NOTE 7 LINE OF CREDIT
   
    
    The Company has a minimum net income of $25,000 before preferred stock dividends and
accretion on preferred stock in any three quarters of a fiscal year, provided that any
loss before preferred stock dividends and accretion on preferred stock incurred in the
remaining quarter is not to exceed $250,000.
    
    The Company is required to be profitable, as defined, on a fiscal year to date basis
beginning with the six months period ended September 30, 2006 and to have net income
before preferred stock dividends and accretion on preferred stock of $1,150,000 for the
fiscal year ended March 31, 2007.
    
    The Company is required to comply with certain financial covenants as follows:
 Financial Covenants
    
    RequirementsQuick ratio, as defined
    
    Not less than 2.00 to 1.00Cash flow coverage, as defined
    
    Not less than 1.25 to 1.00Debt to net worth ratio, as defined
    
    Not greater than 1.00 to 1.00Tangible effective net worth, as defined
    
    Not less than $25,731,000
  NOTE 8 COMMITMENTS AND CONTINGENCIES
  Payments Due by PeriodDue in FiscalTotal
    
    2008
    
    2009
    
    2010
    
    2011
    
    2012
    
    ThereafterOperating leases
    
    $
    4,346,000
    
    
    $
    1,136,000
    
    
    $
    1,166,000
    
    
    $
    1,153,000
    
    
    $
    882,000
    
    
    $
    6,000
    
    
    $
    3,000Purchase commitments
    
    
    4,109,000
    
    
    
    4,109,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    8,455,000
    
    
    $
    5,245,000
    
    
    $
    1,166,000
    
    
    $
    1,153,000
    
    
    $
    882,000
    
    
    $
    6,000
    
    
    $
    3,000
 Operating Leases.
  Purchase Commitments .
 57




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##### Table of Contents



Litigation.
 NOTE 9 EMPLOYEE BENEFIT PLAN
  NOTE 10 SHARE-BASED COMPENSATION
 Equity Compensation Plans
  2005 Equity Incentive Plan.
   1992 Outside Directors Stock Option Plan.
  58




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##### Table of Contents



Impact of the Adoption of SFAS No. 123(R) on Financial Results
  Year EndedMarch 31, 2007Cost of revenues
    
    $
    72,000Research and development
    
    
    117,000Sales and marketing
    
    
    292,000General and administrative
    
    
    318,000Share-based compensation expense before income taxes
    
    
    799,000Income tax benefit
    
    
    (219,000
    )Total share-based compensation expense after income taxes
    
    $
    580,000Basic net income per share
    
    $
    0.03Diluted net income per share
    
    $
    0.03
   Pro Forma Information for Periods Prior to the Adoption of SFAS No. 123(R)
   Year Ended March 31,2006
    
    2005Net income, as reported
    
    $
    7,475,000
    
    
    $
    4,851,000Less: Pro forma share-based compensation expense determined under the fair
value-based accounting method for all awards, net of related tax effects
    
    
    (2,534,000
    )
    
    
    (2,671,000
    )Pro forma net income
    
    $
    4,941,000
    
    
    $
    2,180,000Basic and diluted net income per share:As reported  basic
    
    $
    0.37
    
    
    $
    0.25Pro forma  basic
    
    $
    0.25
    
    
    $
    0.11As reported  diluted
    
    $
    0.35
    
    
    $
    0.22Pro forma  diluted
    
    $
    0.23
    
    
    $
    0.10
  Valuation and Expense Recognition Method for Stock Options.
 59




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##### Table of Contents



123(R),
  Year Ended March 31,2006
    
    2005Expected term of option
    
    6 years
    
    6 yearsRisk-free interest rate
    
    
    3.76
    %
    
    
    3.63-4.29
    %Dividend yield
    
    
    0.00
    %
    
    
    0.00
    %Volatility
    
    
    53
    %
    
    
    52-60
    %
  Valuation and Expense Recognition Method for Restricted Stock Units.
 Stock Options
   Weighted
    
    
    WeightedAverage
    
    
    AverageNumber of
    
    
    Exercise
    
    
    Remaining
    
    
    AggregateShares
    
    
    Price
    
    
    Contractual
    
    
    IntrinsicOutstanding
    
    
    Per Share
    
    
    Life (Years)
    
    
    ValueOutstanding at March 31, 2004 
(1,811,000 shares
exercisable at a weighted average exercise price of
$4.65 per share)
    
    
    2,664,000
    
    
    $
    4.88Granted (weighted average fair value of $9.89 per share)
    
    
    475,000
    
    
    
    18.09Exercised
    
    
    (185,000
    )
    
    
    4.38Canceled or forfeited
    
    
    (191,000
    )
    
    
    11.13Outstanding at March 31, 2005 
(2,088,000 shares
exercisable at a weighted average exercise price of
$4.82 per share)
    
    
    2,763,000
    
    
    $
    6.76Granted (weighted average fair value of $4.31 per share)
    
    
    60,000
    
    
    
    7.89Exercised
    
    
    (174,000
    )
    
    
    5.69Canceled or forfeited
    
    
    (117,000
    )
    
    
    8.71Outstanding at March 31, 2006 
(2,317,000 shares
exercisable at a weighted average exercise price of
$6.61 per share)
    
    
    2,532,000
    
    
    $
    6.77Granted
    
    
    
    
    
    
    Exercised
    
    
    (931,000
    )
    
    
    4.84Canceled or forfeited
    
    
    (24,000
    )
    
    
    12.93Outstanding at March 31, 2007
    
    
    1,577,000
    
    
    $
    7.82
    
    
    
    4.49
    
    
    $
    26,097,000Vested and expected to vest at March 31, 2007
    
    
    1,573,000
    
    
    $
    7.81
    
    
    
    4.48
    
    
    $
    26,054,000Exercisable at March 31, 2007
    
    
    1,522,000
    
    
    $
    7.69
    
    
    
    4.38
    
    
    $
    25,389,000
 60




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##### Table of Contents



Options Outstanding
    
    
    Options ExercisableWeighted
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    Average
    
    
    
    
    
    
    AverageNumber
    
    
    Remaining
    
    
    Exercise
    
    
    Number
    
    
    Exerciseof Shares
    
    
    Contractual
    
    
    Price
    
    
    of Shares
    
    
    PriceRange of Exercise Prices
    
    Outstanding
    
    
    Life (Years)
    
    
    Per Share
    
    
    Exercisable
    
    
    Per Share$1.50    $1.88
    
    
    176,000
    
    
    
    1.77
    
    
    $
    1.61
    
    
    
    176,000
    
    
    $
    1.61$1.94    $3.77
    
    
    159,000
    
    
    
    3.00
    
    
    
    2.68
    
    
    
    159,000
    
    
    
    2.68$3.80    $3.84
    
    
    2,000
    
    
    
    5.95
    
    
    
    3.83
    
    
    
    2,000
    
    
    
    3.83$3.85    $3.85
    
    
    182,000
    
    
    
    6.02
    
    
    
    3.85
    
    
    
    175,000
    
    
    
    3.85$3.94    $4.75
    
    
    48,000
    
    
    
    4.29
    
    
    
    4.30
    
    
    
    48,000
    
    
    
    4.30$4.87    $4.87
    
    
    291,000
    
    
    
    4.07
    
    
    
    4.87
    
    
    
    291,000
    
    
    
    4.87$4.94    $6.69
    
    
    161,000
    
    
    
    3.91
    
    
    
    5.97
    
    
    
    161,000
    
    
    
    5.97$6.88    $8.13
    
    
    194,000
    
    
    
    3.08
    
    
    
    7.80
    
    
    
    189,000
    
    
    
    7.80$8.63    $21.45
    
    
    144,000
    
    
    
    7.05
    
    
    
    14.21
    
    
    
    101,000
    
    
    
    14.64$21.65    $22.10
    
    
    220,000
    
    
    
    7.05
    
    
    
    21.66
    
    
    
    220,000
    
    
    
    21.66$1.50    $22.10
    
    
    1,577,000
    
    
    
    4.49
    
    
    $
    7.82
    
    
    
    1,522,000
    
    
    $
    7.69
 Stock Option Acceleration.
 Restricted Stock Units
  Restricted stock unit awards to employees:
 Restricted stock unit awards to non-employee directors:
  61




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##### Table of Contents



WeightedAverageNumber of
    
    
    Grant DateShares
    
    
    Fair ValueUnvested at March 31, 2006
    
    
    
    
    
    $
    Granted
    
    
    305,000
    
    
    
    24.56Vested
    
    
    
    
    
    
    Forfeited
    
    
    (10,000
    )
    
    
    21.43Unvested at March 31, 2007
    
    
    295,000
    
    
    $
    24.66
  NOTE 11 COMMON STOCK
 Stock Purchase Rights.
 Common Stock Warrants.
 NOTE 12 NET INCOME PER SHARE
  Year Ended March 31,2007
    
    2006
    
    2005Numerator:Net income
    
    $
    10,073,000
    
    
    $
    7,475,000
    
    
    $
    4,851,000Denominator:Weighted average common shares outstanding  basic
    
    
    20,643,000
    
    
    
    19,985,000
    
    
    
    19,696,000Weighted average effect of dilutive securities:Stock options
    
    
    1,082,000
    
    
    
    1,374,000
    
    
    
    1,721,000Restricted stock units
    
    
    4,000
    
    
    
    
    
    
    
    Warrants
    
    
    117,000
    
    
    
    133,000
    
    
    
    245,000Weighted average common shares outstanding  diluted
    
    
    21,846,000
    
    
    
    21,492,000
    
    
    
    21,662,000Net income per share:Basic net income per share
    
    $
    0.49
    
    
    $
    0.37
    
    
    $
    0.25Diluted net income per share
    
    $
    0.46
    
    
    $
    0.35
    
    
    $
    0.22
  Year Ended March 31,2007
    
    
    2006
    
    
    2005Weighted average number of shares underlying
antidilutive stock options and warrants
    
    
    222,000
    
    
    
    291,000
    
    
    
    318,000Weighted average exercise price per share underlying
antidilutive stock options and warrants
    
    $
    21.65
    
    
    $
    20.70
    
    
    $
    20.69
 62




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##### Table of Contents



Year Ended March 31,2007
    
    2006
    
    2005Weighted average number of shares underlying
antidilutive restricted stock units
    
    
    199,000
    
    
    
    N/A
    
    
    
    N/A
 NOTE 13 INCOME TAXES
  Year Ended March 31,2007
    
    2006
    
    2005Current:Federal
    
    $
    405,000
    
    
    $
    169,000
    
    
    $
    68,000State
    
    
    493,000
    
    
    
    110,000
    
    
    
    210,000Total current provision for income taxes
    
    
    898,000
    
    
    
    279,000
    
    
    
    278,000Deferred:Federal
    
    
    4,930,000
    
    
    
    3,518,000
    
    
    
    2,232,000State
    
    
    248,000
    
    
    
    247,000
    
    
    
    4,000Total deferred provision for income taxes
    
    
    5,178,000
    
    
    
    3,765,000
    
    
    
    2,236,000Total provision for income taxes
    
    $
    6,076,000
    
    
    $
    4,044,000
    
    
    $
    2,514,000
  Year Ended March 31,2007
    
    2006
    
    2005Income taxes at federal income tax rate
    
    $
    5,652,000
    
    
    $
    4,032,000
    
    
    $
    2,578,000State income taxes, net of federal benefits
    
    
    635,000
    
    
    
    476,000
    
    
    
    152,000Share-based compensation
    
    
    93,000
    
    
    
    
    
    
    
    Credits
    
    
    (350,000
    )
    
    
    (174,000
    )
    
    
    (215,000
    )Extraterritorial income exclusion
    
    
    (27,000
    )
    
    
    (80,000
    )
    
    
    (77,000
    )Other
    
    
    73,000
    
    
    
    (210,000
    )
    
    
    76,000Provision for income taxes
    
    $
    6,076,000
    
    
    $
    4,044,000
    
    
    $
    2,514,000
  Year Ended March 31,2007
    
    2006
    
    2005Deferred tax assets:Net operating loss carryforwards
    
    $
    5,328,000
    
    
    $
    11,770,000
    
    
    $
    15,564,000Research and development tax credit carryforwards
    
    
    3,713,000
    
    
    
    4,287,000
    
    
    
    3,454,000Capitalized research and development
    
    
    86,000
    
    
    
    105,000
    
    
    
    219,000Deferred warranty
    
    
    864,000
    
    
    
    625,000
    
    
    
    612,000Accrued vacation
    
    
    383,000
    
    
    
    320,000
    
    
    
    195,000Share-based compensation
    
    
    192,000
    
    
    
    
    
    
    
    Other
    
    
    1,350,000
    
    
    
    878,000
    
    
    
    1,022,000Valuation allowance for deferred tax assets
    
    
    (352,000
    )
    
    
    (543,000
    )
    
    
    (678,000
    )Total deferred tax assets
    
    
    11,564,000
    
    
    
    17,442,000
    
    
    
    20,388,000Deferred tax liabilities:Depreciation
    
    $
    (189,000
    )
    
    $
    (935,000
    )
    
    $
    (615,000
    )Other
    
    
    (84,000
    )
    
    
    (88,000
    )
    
    
    (64,000
    )Total deferred tax liabilities
    
    
    (273,000
    )
    
    
    (1,023,000
    )
    
    
    (679,000
    )Net deferred tax assets
    
    $
    11,291,000
    
    
    $
    16,419,000
    
    
    $
    19,709,000
  63




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##### Table of Contents



Tax Effects of Share-Based Awards
  NOTE 14 REVENUES BY PRODUCT CATEGORY, CUSTOMER GROUP AND GEOGRAPHIC REGION AND SIGNIFICANT
CONCENTRATIONS
  Revenue Information
  Year Ended March 31,Revenues by Product Category
    
    2007
    
    2006
    
    2005Instruments
    
    $
    28,899,000
    
    
    $
    21,864,000
    
    
    $
    17,203,000Reagent discs and kits
    
    
    50,741,000
    
    
    
    41,606,000
    
    
    
    32,921,000Other
    
    
    4,775,000
    
    
    
    4,086,000
    
    
    
    2,340,000Product sales, net
    
    
    84,415,000
    
    
    
    67,556,000
    
    
    
    52,464,000Development and licensing revenue
    
    
    1,806,000
    
    
    
    1,372,000
    
    
    
    294,000Total revenues
    
    $
    86,221,000
    
    
    $
    68,928,000
    
    
    $
    52,758,000
  Year Ended March 31,Revenues by Customer Group
    
    2007
    
    
    2006
    
    
    2005Medical Market
    
    $
    17,455,000
    
    
    $
    10,888,000
    
    
    $
    8,095,000Veterinary Market
    
    
    63,851,000
    
    
    
    53,841,000
    
    
    
    42,806,000Other
    
    
    4,915,000
    
    
    
    4,199,000
    
    
    
    1,857,000Total revenues
    
    $
    86,221,000
    
    
    $
    68,928,000
    
    
    $
    52,758,000
 64




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##### Table of Contents



Year Ended March 31,Revenues by Geographic Region
    
    2007
    
    
    2006
    
    
    2005North America
    
    $
    72,015,000
    
    
    $
    58,747,000
    
    
    $
    45,059,000Europe
    
    
    10,370,000
    
    
    
    7,354,000
    
    
    
    5,915,000Asia Pacific and rest of the world
    
    
    3,836,000
    
    
    
    2,827,000
    
    
    
    1,784,000Total revenues
    
    $
    86,221,000
    
    
    $
    68,928,000
    
    
    $
    52,758,000
 Significant Concentrations
  Geographical
    
    Year Ended March 31,Distributor
    
    Location
    
    2007
    
    2006
    
    2005Walco International, Inc., d/b/a DVM Resources
    
    United States
    
    
    15
    %
    
    
    13
    %
    
    
    17
    %Henry Schein, Inc.
    
    United States
    
    
    <10
    %
    
    
    17
    %
    
    
    <10
    %Vedco, Inc.
    
    United States
    
    
    0
    %
    
    
    0
    %
    
    
    14
    %
  NOTE 15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
  Quarter EndedJune 30
    
    September 30
    
    December 31
    
    March 31Fiscal Year Ended March 31, 2007:Revenues
    
    $
    20,358
    
    
    $
    21,037
    
    
    $
    22,018
    
    
    $
    22,808Gross profit
    
    $
    11,437
    
    
    $
    11,558
    
    
    $
    11,579
    
    
    $
    12,285Net income
    
    $
    2,401
    
    
    $
    2,114
    
    
    $
    2,776
    
    
    $
    2,782Net income per share  basic
    
    $
    0.12
    
    
    $
    0.10
    
    
    $
    0.13
    
    
    $
    0.13Net income per share  diluted
    
    $
    0.11
    
    
    $
    0.10
    
    
    $
    0.13
    
    
    $
    0.13Fiscal Year Ended March 31, 2006:Revenues
    
    $
    14,273
    
    
    $
    17,413
    
    
    $
    17,444
    
    
    $
    19,798Gross profit
    
    $
    7,827
    
    
    $
    10,092
    
    
    $
    9,839
    
    
    $
    11,095Net income
    
    $
    1,001
    
    
    $
    2,298
    
    
    $
    1,851
    
    
    $
    2,325Net income per share  basic
    
    $
    0.05
    
    
    $
    0.12
    
    
    $
    0.09
    
    
    $
    0.12Net income per share  diluted
    
    $
    0.05
    
    
    $
    0.11
    
    
    $
    0.09
    
    
    $
    0.11
 
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
   65




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##### Table of Contents



Item 9A. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control Over Financial Reporting
    Changes in Internal Control over Financial Reporting
  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
 
 Internal Control  Integrated Framework
  66




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Item 9B. Other Information
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
  Name
    
    Age
    
    TitleClinton H. Severson
    
    
    59
    
    
    Chairman of the Board, President and Chief Executive OfficerRichard J. Bastiani, Ph.D. (1) (2) (3)
    
    
    64
    
    
    DirectorHenk J. Evenhuis (1) (3)
    
    
    64
    
    
    DirectorBrenton G. A. Hanlon (1) (2) (3)
    
    
    61
    
    
    DirectorPrithipal Singh, Ph.D. (1) (3)
    
    
    68
    
    
    DirectorErnest S. Tucker, III, M.D. (1) (3)
    
    
    74
    
    
    DirectorAlberto R. Santa Ines
    
    
    60
    
    
    Chief Financial Officer and Vice President of FinanceRobert B. Milder
    
    
    57
    
    
    Chief Operations OfficerKenneth P. Aron, Ph.D.
    
    
    54
    
    
    Vice President of Research and DevelopmentVladimir E. Ostoich, Ph.D.
    
    
    61
    
    
    Vice President of Government Affairs and Vice President of
Marketing for the Pacific Rim, FounderChristopher M. Bernard
    
    
    39
    
    
    Vice President of Sales and Marketing for the Domestic Medical
MarketMartin V. Mulroy
    
    
    46
    
    
    Vice President of Veterinary Sales and Marketing, for North America
 
 (1)
    
    Member of the Audit Committee(2)
    
    Member of the Compensation Committee(3)
    
    Member of the Nominating and Corporate Governance Committee 67




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##### Table of Contents



Clinton H. Severson
 Richard J. Bastiani, Ph.D.
 Henk J. Evenhuis
 Brenton G. A. Hanlon
 Prithipal Singh, Ph.D.
 Ernest S. Tucker, III, M.D.
 Alberto R. Santa Ines
 Robert B. Milder
 68




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##### Table of Contents



Kenneth P. Aron, Ph.D.
 Vladimir E. Ostoich, Ph.D.
 Christopher M. Bernard
 Martin V. Mulroy
 Term and Number of Directors
   Identification of Audit Committee and Financial Expert
   Section 16(a) Beneficial Ownership Reporting Compliance
   69




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##### Table of Contents



Code of Business Conduct and Ethics
  
 Item 11. Executive Compensation
 COMPENSATION DISCUSSION AND ANALYSIS
 Overview
   
    
    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
payouts depend on both overall company performance and individual performance.
 Executive Compensation Program Objectives and Framework
   Role of Our Compensation Committee
  70




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##### Table of Contents



Competitive Benchmarking
  Abiomed
    
    Conceptus
    
    Palomar Medical TechnologiesAdeza Biomedical
    
    Cutera
    
    SurmodicsAngiodynamics
    
    Digene
    
    ThoratecAspect Medical Systems
    
    Intralase
    
    VivusATS Medical
    
    Kensey Nash
    
    VNUS Medical TechnologiesBiosite
    
    Meridian BioscienceCholestech
    
    Orasure Technologies
  
    
    total shareholder return;
    
    revenue; and
    
    EBITDA (earnings before income tax, depreciation and amortization).
  Compensation Determinations
  71




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##### Table of Contents



Elements of Compensation
 Base Salary
   Fiscal 2007
    
    Fiscal 2008Named Executive Officer
    
    Base Salary
    
    Base SalaryClinton H. Severson
    
    $
    325,000
    
    
    $
    338,000Alberto R. Santa Ines
    
    $
    175,000
    
    
    $
    185,000Robert B. Milder
    
    $
    200,000
    
    
    $
    208,000Kenneth P. Aron, Ph.D.
    
    $
    185,000
    
    
    $
    193,000Vladimir E. Ostoich, Ph.D.
    
    $
    195,000
    
    
    $
    203,000
  Annual Cash Incentive Bonus
  th
 Fiscal 2007
    
    Fiscal 2007Named Executive Officer
    
    Target Bonus
    
    Bonus AwardedClinton H. Severson
    
    $
    435,000
    
    
    $
    500,250Alberto R. Santa Ines
    
    $
    250,000
    
    
    $
    287,500Robert B. Milder
    
    $
    290,000
    
    
    $
    333,500Kenneth P. Aron, Ph.D.
    
    $
    250,000
    
    
    $
    287,500Vladimir E. Ostoich, Ph.D.
    
    $
    250,000
    
    
    $
    287,500
 72




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##### Table of Contents



Named Executive Officer
    
    Fiscal 2008 Target BonusClinton H. Severson
    
    $
    480,000Alberto R. Santa Ines
    
    $
    275,000Robert B. Milder
    
    $
    315,000Kenneth P. Aron, Ph.D.
    
    $
    275,000Vladimir E. Ostoich, Ph.D.
    
    $
    275,000
   Long-term Equity Incentive Compensation
  73




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##### Table of Contents



Stock Options
  Restricted Stock Units
 Fiscal 2007 Restricted Stock Unit Grants .
   Vesting Terms of Fiscal 2007 Restricted Stock Unit Grants .
   
    
    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;
 74




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##### Table of Contents




    
    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.
  Fiscal 2008 Restricted Stock Unit Grants.
 Other Compensation and Benefits
  Employment Agreements
  Change in Control Agreements
  75




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##### Table of Contents




    
    a lump sum payment equal to two times the sum of the participants annual salary and
the participants target annual bonus amount for the year in which the change of control
occurs;
    
    a lump sum payment relating to all options or instruments, which were not exercised
as of the termination date, in an amount equal to the difference between the share price
established in the change of control transaction and the exercise price of the
instrument;
    
    payment of 24 months of premiums for medical, dental, disability and life insurance
benefits, provided, however, that if the participant becomes eligible to receive
comparable benefits under another employers plan, the Companys benefits shall be
secondary to those provided under such other plan; and
    
    payment of an amount equal to any excise tax imposed under Section 4999 of the
Internal Revenue Code of 1986, as amended.
  Tax Considerations
 Deductibility of Executive Compensation
  COMPENSATION COMMITTEE REPORT (1)
    
 
  76




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##### Table of Contents



EXECUTIVE COMPENSATION
 Summary Compensation Table
  Non-EquityStock
    
    Option
    
    Incentive Plan
    
    All OtherFiscal
    
    Salary
    
    Bonus
    
    Awards
    
    Awards
    
    Compensation
    
    Compensation
    
    TotalName and Principal Position
    
    Year
    
    ($)
    
    ($)
    
    ($) (1)
    
    ($) (1)
    
    ($) (2)
    
    ($) (3)
    
    ($)Clinton H. Severson
President, Chief
Executive Officer and
Chairman of the Board
    
    
    2007
    
    
    
    323,500
    
    
    
    
    
    
    
    101,040
    
    
    
    8,603
    
    
    
    500,250
    
    
    
    13,823
    (4)
    
    
    947,216Alberto R. Santa Ines
Chief Financial Officer
and Vice President of
Finance
    
    
    2007
    
    
    
    174,008
    
    
    
    
    
    
    
    22,453
    
    
    
    8,997
    
    
    
    287,500
    
    
    
    13,227
    (5)
    
    
    506,185Robert B. Milder
Chief Operations Officer
    
    
    2007
    
    
    
    199,123
    
    
    
    
    
    
    
    22,453
    
    
    
    6,882
    
    
    
    333,500
    
    
    
    23,031
    (6)
    
    
    584,989Kenneth P. Aron, Ph.D.
Vice President of
Research and
Development
    
    
    2007
    
    
    
    184,054
    
    
    
    
    
    
    
    22,453
    
    
    
    6,882
    
    
    
    287,500
    
    
    
    22,592
    (7)
    
    
    523,481Vladimir E. Ostoich,
Ph.D.
Vice President of
Government Affairs and
Vice President of
Marketing for the
Pacific Rim
    
    
    2007
    
    
    
    194,100
    
    
    
    
    
    
    
    22,453
    
    
    
    6,882
    
    
    
    287,500
    
    
    
    17,013
    (8)
    
    
    527,948
 
 (1)
    
    Amounts listed in this column represent the compensation cost recognized by us for financial
statement reporting purposes for fiscal 2007 related to stock options and restricted stock unit
awards granted to the Named Executive Officers in and prior to fiscal 2007. These amounts have
been calculated in accordance with Statement of Financial Accounting Standards No. 123 (revised
2004) (SFAS No. 123(R)). For a discussion of the assumptions used in determining the fair value
of awards of stock
options and restricted stock units in the above table, see Note 10 of the Notes to Financial
Statements included in this Annual Report on Form 10-K.(2)
    
    Represents aggregate cash performance bonuses earned in fiscal 2007 based on achievement of corporate
financial performance goals for fiscal 2007, as described under Executive Compensation 
Compensation Discussion and Analysis above. These bonuses were
paid in four installments quarterly within one month
following the end of the quarter. Amounts do not include bonuses paid in fiscal 2007, with respect
to bonuses earned in fiscal 2006.(3)
    
    Amounts listed are based upon our actual costs expensed in connection with such amounts.(4)
    
    Consists of $4,366 in supplemental health plan expenses reimbursed by us, $780 in group life
insurance paid by us, $812 in disability insurance premiums paid by us and $7,865 in matching
contributions made by us to Mr. Seversons 401(k) account.(5)
    
    Consists of $4,505 in supplemental health plan expenses reimbursed by us, $420 in group life
insurance paid by us, $437 in disability insurance premiums paid by us and $7,865 in matching
contributions made by us to Mr. Santa Ines 401(k) account.(6)
    
    Consists of $14,186 in supplemental health plan expenses reimbursed by us, $480 in group life
insurance paid by us, $500 in disability insurance premiums paid by us and $7,865 in matching
contributions made by us to Mr. Milders 401(k) account.(7)
    
    Consists of $14,186 in supplemental health plan expenses reimbursed by us, $444 in group life
insurance paid by us, $462 in disability insurance premiums paid by us and $7,500 in matching
contributions made by us to Mr. Arons 401(k) account.(8)
    
    Consists of $10,058 in supplemental health plan expenses reimbursed by us, $468 in group life
insurance paid by us, $487 in disability insurance premiums paid by us and $6,000 in matching
contributions made by us to Mr. Ostoichs 401(k) account. 77




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##### Table of Contents



Salary and Bonus in Proportion to Total Compensation.
 Annual CashBase Salary
    
    Incentive Bonus AsAs a Percentage of
    
    a Percentage ofNamed Executive Officer
    
    Total Compensation
    
    Total CompensationClinton H. Severson
    
    
    34
    %
    
    
    53
    %Alberto R. Santa Ines
    
    
    34
    %
    
    
    57
    %Robert B. Milder
    
    
    34
    %
    
    
    57
    %Kenneth P. Aron, Ph.D.
    
    
    35
    %
    
    
    55
    %Vladimir E. Ostoich, Ph.D.
    
    
    37
    %
    
    
    54
    %
 CEO Employment Agreement.
 Grants of Plan-Based Awards in Fiscal 2007
  All OtherStockAwards:
    
    Grant DateNumber of
    
    Fair ValueEstimated Future Payouts Under
    
    Estimated Future Payouts Under Equity
    
    Shares of
    
    of StockNon-Equity
Incentive Plan Awards(1)
    
    Incentive Plan Awards
    
    Stock or
    
    and OptionGrant
    
    Threshold
    
    Target
    
    Maximum
    
    Threshold
    
    Target
    
    Maximum
    
    Units
    
    AwardsName
    
    Date
    
    ($)
    
    ($)
    
    ($)
    
    (#)
    
    (#)
    
    (#) (2) (3)
    
    (#)
    
    ($)(4)Clinton H. Severson
    
    
    4/25/2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,000
    
    
    
    
    
    
    
    1,031,2004/25/2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    
    
    
    
    1,289,000108,750
    
    
    
    435,000
    
    
    
    870,000Alberto R. Santa Ines
    
    
    4/25/2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,000
    
    
    
    
    
    
    
    515,60062,500
    
    
    
    250,000
    
    
    
    500,000Robert B. Milder
    
    
    4/25/2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,000
    
    
    
    
    
    
    
    515,60072,500
    
    
    
    290,000
    
    
    
    580,000Kenneth P. Aron, Ph.D.
    
    
    4/25/2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,000
    
    
    
    
    
    
    
    515,60062,500
    
    
    
    250,000
    
    
    
    500,000Vladimir E. Ostoich,
Ph.D.
    
    
    4/25/2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,000
    
    
    
    
    
    
    
    515,60062,500
    
    
    
    250,000
    
    
    
    500,000
 
 (1)
    
    Actual cash performance bonuses, which were approved by the Compensation Committee
based on achievement of corporate financial performance goals for
fiscal 2007, were paid in four installments quarterly
within one month following the end of the quarter and 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.(3)
    
    Represents full acceleration of the restricted stock unit awards granted during fiscal 2007 if
a certain level of operating income per share is achieved during the fiscal year ended March 31,
2007. These restricted stock unit awards are 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;
 78




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##### Table of Contents




    
    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.
 (4)
    
    Represents the fair value of the restricted stock unit award on the date of grant, pursuant to
SFAS No. 123(R). See Note 10 of the Notes to Financial Statements included in this Annual Report
on Form 10-K for additional information. Outstanding Equity Awards at Fiscal Year End
  Option Awards
    
    Stock AwardsEquityEquity
    
    IncentiveIncentive
    
    Plan Awards:Plan Awards:
    
    Market orNumber of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Market
    
    Number of
    
    Payout ValueSecurities
    
    Number of
    
    
    
    
    
    
    
    
    
    Number of
    
    Value of
    
    Unearned
    
    of UnearnedUnderlying
    
    Securities
    
    
    
    
    
    
    
    
    
    Shares or
    
    Shares or
    
    Shares, Units
    
    Shares, UnitsUnexercised
    
    Underlying
    
    
    
    
    
    
    
    
    
    Units of
    
    Units of
    
    or Other
    
    or OtherOptions
    
    Unexercised
    
    Option
    
    
    
    
    
    Stock That
    
    Stock That
    
    Rights That
    
    Rights That(#)
    
    Options
    
    Exercise
    
    Option
    
    Have Not
    
    Have Not
    
    Have Not
    
    Have NotExercisable
    
    (#)
    
    Price
    
    Expiration
    
    Vested
    
    Vested
    
    Vested
    
    VestedName
    
    (1)
    
    Unexercisable
    
    ($) (2)
    
    Date
    
    (#)
    
    ($)
    
    (#) (3)
    
    ($) (4)Clinton H. Severson
    
    
    140,000
    
    
    
    0
    
    
    
    1.5625
    
    
    
    1/26/2009150,000
    
    
    
    0
    
    
    
    4.87
    
    
    
    4/24/20119,375
    
    
    
    1,042
    (5)
    
    
    3.85
    
    
    
    4/22/201350,000
    (6)
    
    
    0
    
    
    
    21.65
    
    
    
    4/20/201440,000
    
    
    
    974,80050,000
    
    
    
    1,218,500Alberto R. Santa Ines
    
    
    8,000
    
    
    
    0
    
    
    
    8.625
    
    
    
    1/24/20105,000
    
    
    
    0
    
    
    
    7.875
    
    
    
    4/3/201020,000
    
    
    
    0
    
    
    
    4.87
    
    
    
    4/24/20112,000
    
    
    
    0
    
    
    
    5.47
    
    
    
    7/24/201150,000
    
    
    
    0
    
    
    
    3.00
    
    
    
    7/23/201239,167
    
    
    
    833
    (5)
    
    
    3.85
    
    
    
    4/22/201340,000
    (6)
    
    
    0
    
    
    
    21.65
    
    
    
    4/20/201420,000
    
    
    
    487,400Robert B. Milder
    
    
    50,000
    
    
    
    0
    
    
    
    8.125
    
    
    
    1/25/201012,000
    
    
    
    0
    
    
    
    5.47
    
    
    
    7/24/20111
    
    
    
    833
    (5)
    
    
    3.85
    
    
    
    4/22/201340,000
    (6)
    
    
    0
    
    
    
    21.65
    
    
    
    4/20/201420,000
    
    
    
    487,400Kenneth P. Aron, Ph.D.
    
    
    60,000
    
    
    
    0
    

    
    
    7.5625
    
    
    
    2/7/201050,000
    
    
    
    0
    
    
    
    6.31
    
    
    
    10/31/20104,500
    
    
    
    0
    
    
    
    5.47
    
    
    
    7/24/20111,667
    
    
    
    833
    (5)
    
    
    3.85
    
    
    
    4/22/201340,000
    (6)
    
    
    0
    
    
    
    21.65
    
    
    
    4/20/201420,000
    
    
    
    487,400Vladimir E. Ostoich,
Ph.D.
    
    
    25,000
    
    
    
    0
    
    
    
    1.875
    
    
    
    10/26/200825,000
    
    
    
    0
    
    
    
    2.25
    
    
    
    4/27/200916,000
    
    
    
    0
    
    
    
    8.125
    
    
    
    1/25/201038,000
    
    
    
    0
    
    
    
    4.87
    
    
    
    4/24/20119,500
    
    
    
    0
    
    
    
    5.47
    
    
    
    7/24/201139,167
    
    
    
    833
    (5)
    
    
    3.85
    
    
    
    4/22/201340,000
    (6)
    
    
    0
    
    
    
    21.65
    
    
    
    4/20/201420,000
    
    
    
    487,400
 
 (1)
    
    Options granted to the Named Executive Officers expire 10 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. 79




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##### Table of Contents



(3)
    
    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.
  (4)
    
    The value of the equity award is based on the closing price of our common stock of $24.37 on
March 30, 2007, the last trading day of our fiscal 2007, as reported on the NASDAQ Global Select
Market. (5)
    
    100% of these shares will become exercisable on April 22, 2007. (6)
    
    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 Officers last day of employment or a change in control. Option Exercises and Stock Vested in Fiscal 2007
  Option Awards
    
    Stock AwardsNumber of Shares
    
    
    
    
    
    Number of SharesAcquired on
    
    Value Realized On
    
    Acquired on
    
    Value Realized OnExercise
    
    Exercise
    
    Vesting
    
    VestingName
    
    (#)
    
    ($) (1)
    
    (#)
    
    ($) (2)Clinton H. Severson
    
    
    413,583
    
    
    
    6,264,359
    
    
    
    
    
    
    
    Alberto R. Santa Ines
    
    
    4,000
    
    
    
    55,180
    
    
    
    
    
    
    
    Robert B. Milder
    
    
    166,166
    
    
    
    3,428,147
    
    
    
    
    
    
    
    Kenneth P. Aron, Ph.D.
    
    
    87,500
    
    
    
    1,783,673
    
    
    
    
    
    
    
    Vladimir E. Ostoich, Ph.D.
    
    
    56,000
    
    
    
    885,410
    
    
    
    
    
    
    
    
 
 (1)
    
    The value realized equals the difference between the option exercise price and the
fair market value of our common stock on the date of exercise, as reported on the NASDAQ Global
Market, multiplied by the number of shares for which the option was exercised.(2)
    
    Restricted stock units were not granted prior to fiscal 2007. There were no restricted stock
units vested during fiscal 2007. 80




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##### Table of Contents



Severance and Change in Control Agreements
 Employment Agreement
  Executive Change of Control Severance Plan
    
    
    a lump sum payment equal to two times the sum of the participants annual salary and the
participants target annual bonus amount for the year in which the change of control
occurs;
    
    a lump sum payment relating to all options or instruments, which were not exercised as
of the termination date, in an amount equal to the difference between the share price
established in the change of control transaction and the exercise price of the instrument;
    
    payment of 24 months of premiums for medical, dental, disability and life insurance
benefits, provided, however, that if the participant becomes eligible to receive comparable
benefits under another employers plan, the Companys benefits shall be secondary to those
provided under such other plan; and
    
    payment of an amount equal to any excise tax imposed under Section 4999 of the Internal
Revenue Code of 1986, as amended.
  Incentive Plans
  81




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##### Table of Contents



Potential Payments Upon Termination or Change in Control
 InvoluntaryInvoluntary
    
    
    
    Termination WithoutTermination
    
    Change In Control
    
    Cause Following aExecutive Benefits and Payments Upon Separation
    
    Without Cause (1)
    
    (No Termination)
    
    Change In Control (2)Clinton H. SeversonSalary and bonus
    
    $
    1,595,000
    
    
    
    
    
    
    $
    1,595,000Vesting of stock options (3)
    
    $
    21,382
    
    
    $
    21,382
    
    
    $
    21,382Vesting of restricted stock units (4)
    
    $
    2,193,300
    
    
    $
    2,193,300
    
    
    $
    2,193,300Health and welfare benefits
    
    $
    11,916
    
    
    
    
    
    
    $
    11,916Total
    
    $
    3,821,598
    
    
    $
    2,214,682
    
    
    $
    3,821,598Alberto R. Santa InesSalary and bonus
    
    
    
    
    
    
    
    
    
    $
    884,353Vesting of stock options (3)
    
    
    
    
    
    $
    17,093
    
    
    $
    17,093Vesting of restricted stock units (4)
    
    
    
    
    
    $
    487,400
    
    
    $
    487,400Health and welfare benefits
    
    
    
    
    
    
    
    
    
    $
    10,724Total
    
    
    
    
    
    $
    504,493
    
    
    $
    1,399,570Robert B. MilderSalary and bonus
    
    
    
    
    
    
    
    
    
    $
    1,009,951Vesting of stock options (3)
    
    
    
    
    
    $
    17,093
    
    
    $
    17,093Vesting of restricted stock units (4)
    
    
    
    
    
    $
    487,400
    
    
    $
    487,400Health and welfare benefits
    
    
    
    
    
    
    
    
    
    $
    30,332Total
    
    
    
    
    
    $
    504,493
    
    
    $
    1,544,776Kenneth P. Aron, Ph.D.Salary and bonus
    
    
    
    
    
    
    
    
    
    $
    912,692Vesting of stock options (3)
    
    
    
    
    
    $
    17,093
    
    
    $
    17,093Vesting of restricted stock units (4)
    
    
    
    
    
    $
    487,400
    
    
    $
    487,400Health and welfare benefits
    
    
    
    
    
    
    
    
    
    $
    30,184Total
    
    
    
    
    
    $
    504,493
    
    
    $
    1,447,369Vladimir E. Ostoich, Ph.D.Salary and bonus
    
    
    
    
    
    
    
    
    
    $
    933,786Vesting of stock options (3)
    
    
    
    
    
    $
    17,093
    
    
    $
    17,093Vesting of restricted stock units (4)
    
    
    
    
    
    $
    487,400
    
    
    $
    487,400Health and welfare benefits
    
    
    
    
    
    
    
    
    
    $
    22,026Total
    
    
    
    
    
    $
    504,493
    
    
    $
    1,460,305
 82




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##### Table of Contents



(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 for than cause (as defined in
Mr. Seversons employment agreement).(2)
    
    Amounts assume that the Named Executive Officer was terminated without cause or due to
constructive termination during the eighteen-month period following a change in control.(3)
    
    The value of the stock option 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 $24.37
on March 30, 2007, the last trading day of our fiscal 2007, as reported on the NASDAQ Global Select
Market. The value is calculated based upon the difference between the option exercise price and
$24.37.(4)
    
    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 $24.37 on March 30, 2007, the last trading day of our fiscal 2007, as reported on the NASDAQ
Global Select Market. DIRECTOR COMPENSATION
 Director Compensation Table
  Fees Earned or
    
    
    
    
    
    
    
    
    
    All OtherPaid in Cash
    
    Stock Awards
    
    Option Awards
    
    Compensation
    
    TotalName (1)
    
    ($)
    
    ($) (2) (3) (4)
    
    ($) (5)
    
    ($) (6)
    
    ($)Richard J. Bastiani, Ph.D.
    
    
    25,000
    
    
    
    33,680
    
    
    
    
    
    
    
    
    
    
    
    58,680Henk J. Evenhuis
    
    
    27,000
    
    
    
    33,680
    
    
    
    
    
    
    
    
    
    
    
    60,680Brenton G. A. Hanlon
    
    
    23,000
    
    
    
    33,680
    
    
    
    
    
    
    
    
    
    
    
    56,680Prithipal Singh, Ph.D.
    
    
    22,000
    
    
    
    33,680
    
    
    
    
    
    
    
    
    
    
    
    55,680Ernest S. Tucker, III, M.D.
    
    
    22,000
    
    
    
    33,680
    
    
    
    
    
    
    
    1,001
    
    
    
    56,681
 
 (1)
    
    Clinton H. Severson, our Chief Executive Officer and Director, is not included in this table as
he is an employee of the Company and receives no compensation for his services as a director. The
compensation received by Mr. Severson as an employee is shown in the Summary Compensation Table
above.(2)
    
    Amounts listed in this column represent our accounting expense for these awards, over the
requisite service period, in accordance with SFAS No. 123(R). For a discussion of the assumptions
used in determining the fair value of awards of restricted stock units in the above table, see Note
10 of the Notes to Financial Statements in this Annual Report on Form 10-K. Restricted stock units
were not granted to non-employee directors prior to fiscal 2007. No stock awards were forfeited by
any of our non-employee directors during 2007.(3)
    
    Each non-employee director listed in the table above was granted an award of 1,500 restricted
stock units on April 25, 2006 under our 2005 EIP. The grant date fair value, as determined in
accordance with SFAS No. 123(R), of the restricted stock units granted during fiscal 2007 for each
of the directors listed in the table above was $38,670.(4)
    
    As of March 31, 2007, none of our non-employee directors held any outstanding and vested
restricted stock units.(5)
    
    No options were awarded to our non-employee directors in fiscal 2007. As of March 31, 2007,
each non-employee director has the following number of options outstanding: Dr. Bastiani, 28,000;
Mr. Evenhuis, 18,000; Mr. Hanlon, 28,000; Dr. Singh, 26,000; and Dr. Tucker, 22,000 shares.(6)
    
    Represents the reimbursement of travel expenses. Cash Compensation Paid to Board Members
  83




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Equity Compensation Paid to Board Members
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  Percent of AbaxisShares
    
    Common StockBeneficially
    
    BeneficiallyName and Address of Beneficial Owner
    
    Owned
    
    Owned (1)Five Percent Holders:Wasatch Advisors, Inc. (3)
    
    
    2,198,987
    
    
    
    9.8
    %FMR Corp. (4)
    
    
    2,106,675
    
    
    
    9.4
    %Lord, Abbett & Co. LLC (5)
    
    
    1,469,837
    
    
    
    6.6
    %The TCW Group, Inc. (6)
    
    
    1,162,924
    
    
    
    5.2
    %Executive Officers: (2)Clinton H. Severson (7)
    
    
    721,536
    
    
    
    3.2
    %Vladimir E. Ostoich, Ph.D. (8)
    
    
    442,380
    
    
    
    2.0
    %Alberto R. Santa Ines (9)
    
    
    169,647
    
    
    
    *Kenneth P. Aron, Ph.D. (10)
    
    
    146,980
    
    
    
    *Robert B. Milder (11)
    
    
    127,805
    
    
    
    *Outside Directors: (2)Richard J. Bastiani, Ph.D. (12)
    
    
    76,500
    
    
    
    *Brenton G. A. Hanlon (13)
    
    
    32,500
    
    
    
    *Prithipal Singh, Ph.D. (14)
    
    
    32,500
    
    
    
    *Ernest S. Tucker, III, M.D. (15)
    
    
    22,000
    
    
    
    *Henk J. Evenhuis (16)
    
    
    19,500
    
    
    
    *Executive officers and directors as a group (12 persons)(17)
    
    
    1,818,153
    
    
    
    8.1
    %
 
 *
    
    Less than one percent.(1)
    
    The percentages shown in this column are calculated based on 21,287,951 shares of common stock outstanding on
May 31, 2007 and includes shares of common stock that such person or group had the right to acquire on or within
60 days after that date, including, but not limited to, upon the exercise of options.(2)
    
    The business address of the beneficial owners listed is c/o Abaxis, Inc., 3240 Whipple Road, Union City, CA 94587.(3)
    
    Based on information set forth in a Schedule 13G/A filed with the SEC on February 15, 2007 by Wasatch Advisors,
Inc., reporting sole power to vote and dispose of 2,198,987 shares. The business address for Wasatch Advisors,
Inc. is 150 Social Hall Avenue, Salt Lake City, UT 84111.(4)
    
    Based on information set forth in a Schedule 13G filed with the SEC on May 10, 2007 by FMR Corp., reporting sole
power to vote and dispose of 545,375 and 2,106,675 shares, respectively. The business address for FMR Corp. is
82 Devonshire Street, Boston, Massachusetts, 02109. 84




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##### Table of Contents



(5)
    
    Based on information set forth in a Schedule 13G/A filed with the SEC on February 14, 2007 by Lord, Abbett & Co.
LLC, reporting sole power to vote and dispose of 1,348,337 and 1,469,837 shares, respectively. The business
address for Lord, Abbett & Co. LLC is 90 Hudson Street, Jersey City, NJ 07302.(6)
    
    Based on information set forth in a Schedule 13G filed with the SEC on February 12, 2007 by The TCW Group, Inc.,
on behalf of the TCW Business Unit, reporting shared power to vote and dispose of 633,108 and 1,162,924 shares,
respectively. The business address for The TCW Group, Inc. is 865 South Figueroa Street, Los Angeles, CA 90017.(7)
    
    Includes:
 
    
    371,119 shares held by Mr. Severson; and
    
    350,417 shares subject to stock options exercisable by Mr. Severson within sixty days of May 31, 2007.
 (8)
    
    Includes:
 
    
    94,797 shares held by Dr. Ostoich;
    
    26,355 shares held by Dr. Ostoichs IRA;
    
    22,400 shares held by Mrs. Ostoichs IRA;
    
    117,328 shares held by the Vladimir Ostoich and Liliana Ostoich Trust Fund, for the benefit of Dr.
Ostoich and his wife; and
    
    181,500 shares subject to stock options exercisable by Dr. Ostoich within sixty days of May 31, 2007.
 (9)
    
    Includes:
 
    
    18,647 shares held by Mr. Santa Ines; and
    
    151,000 shares subject to stock options exercisable by Mr. Santa Ines within sixty days of May 31, 2007.
 (10)
    
    Includes:
 
    
    9,980 shares held by Dr. Aron; and
    
    137,000 shares subject to stock options exercisable by Dr. Aron within sixty days of May 31, 2007.
 (11)
    
    Includes:
 
    
    25,805 shares held by Mr. Milder; and
    
    102,000 shares subject to stock options exercisable by Mr. Milder within sixty days of May 31, 2007.
 (12)
    
    Includes:
 
    
    48,500 shares held by Dr. Bastiani; and
    
    28,000 shares subject to stock options exercisable by Dr. Bastiani within sixty days of May 31, 2007.
 (13)
    
    Includes:
 
    
    4,500 shares held by Mr. Hanlon; and
    
    28,000 shares subject to stock options exercisable by Mr. Hanlon within sixty days of May 31, 2007.
 (14)
    
    Includes:
 
    
    6,500 shares held by Dr. Singh; and
    
    26,000 shares subject to stock options exercisable by Dr. Singh within sixty days of May 31, 2007.
 (15)
    
    Reflects:
 
    
    22,000 shares subject to stock options exercisable by Dr. Tucker within sixty days of May 31, 2007.
 (16)
    
    Includes:
 
    
    1,500 shares held by Mr. Evenhuis; and
    
    18,000 shares subject to stock options exercisable by Mr. Evenhuis within sixty days of May 31, 2007.
 (17)
    
    Includes:
 
    
    750,087 shares; and
    
    1,068,066 shares subject to stock options exercisable within sixty days of May 31, 2007.
 85




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Securities Authorized for Issuance Under Equity Compensation Plans
    Equity Compensation Information
 Number ofSecuritiesRemainingNumber of Securities
    
    
    
    
    
    Available forto be
    
    Weighted-Average Exercise
    
    Future IssuanceIssued Upon Exercise of
    
    Price of Outstanding
    
    under EquityOutstanding Options,
    
    Options, Warrants and
    
    CompensationPlan Category
    
    Warrants and Rights
    
    Rights
    
    Plans (1)Equity compensation plans approved by our shareholders:2005 Equity Incentive Plan (2)
    
    
    1,808,000
    
    
    $
    7.95
    (3)
    
    
    614,0001992 Outside Directors Stock Option Plan
    
    
    64,000
    
    
    $
    4.59
    
    
    
    Equity securities not approved by our shareholders:Warrants to
purchase common stock (4)
    
    
    65,000
    
    
    $
    7.00
    
    
    
    Total:
    
    
    1,937,000
    
    
    $
    7.78
    (3)
    
    
    614,000
 (1)
    
    The shares are available for award grant purposes under the Equity Incentive Plan and
excludes shares listed under the column Number of Securities to be Issued Upon Exercise of
Outstanding Options, Warrants and Rights.(2)
    
    The Equity Incentive Plan amended and restated the 1998 Stock Option Plan in October 2005. To
date, share-based awards granted under the plan includes stock options and restricted stock units.(3)
    
    Excludes outstanding and unvested restricted stock unit awards, for which there is no exercise
price.(4)
    
    Consists of warrants issued to purchase an aggregate of 65,000 shares of common stock that were
issued to purchasers of the Companys Series E convertible preferred stock at a per share exercise
price of $7.00. These warrants expired in April 2007.
 
 Item 13. Certain Relationships and Related Transactions, and Director Independence
 Certain Relationships and Related Transactions
  Indemnification Agreements
  86




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Related-Person Transactions Policy and Procedures
   
 Item 14. Principal Accountant Fees and Services
  Year Ended March 31,2007
    
    2006Audit Fees (1)
    
    $
    580,000
    
    
    $
    527,000Audit-Related Fees
    
    
    
    
    
    
    Tax Fees
    
    
    
    
    
    
    All Other Fees (2)
    
    
    
    
    
    
    Total All Fees
    
    $
    580,000
    
    
    $
    527,000
 
 (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. Audit fees do not include $270,000 that were billed for services in our fiscal year ended
March 31, 2006 for professional services provided by Deloitte & Touche LLP, our former independent
registered public accounting firm.(2)
    
    All other fees consist of fees for products and services other than the services reported above
and do not include $67,000 in fees for professional services provided by Deloitte & Touche LLP,
primarily related to the preparation of tax returns and various other services after their
dismissal in August 2005. Pre-Approval Policies and Procedures
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
  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.
 87




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##### Table of Contents



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 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.
 Abaxis, Inc.
Schedule II
Valuation and Qualifying Accounts and Reserves
Years ended March 31, 2007, 2006 and 2005
 Balance at
    
    AdditionsBeginning of
    
    Charged to
    
    Deductions from
    
    Balance at EndDescription
    
    Year
    
    Expenses
    
    Reserves
    
    of YearYear ended March 31, 2007:Allowance for Doubtful Accounts
    
    $
    109,000
    
    
    $
    78,000
    
    
    $
    13,000
    
    
    $
    174,000Reserve for Sales Allowances
    
    
    234,000
    
    
    
    849,000
    
    
    
    715,000
    
    
    
    368,000Total Reserve for Doubtful Accounts and Sales Allowances
    
    $
    343,000
    
    
    $
    927,000
    
    
    $
    728,000
    
    
    $
    542,000Year ended March 31, 2006:Allowance for Doubtful Accounts
    
    $
    204,000
    
    
    $
    83,000
    
    
    $
    178,000
    
    
    $
    109,000Reserve for Sales Allowances
    
    
    278,000
    
    
    
    549,000
    
    
    
    593,000
    
    
    
    234,000Total Reserve for Doubtful Accounts and Sales Allowances
    
    $
    482,000
    
    
    $
    632,000
    
    
    $
    771,000
    
    
    $
    343,000Year ended March 31, 2005:Allowance for Doubtful Accounts
    
    $
    175,000
    
    
    $
    39,000
    
    
    $
    10,000
    
    
    $
    204,000Reserve for Sales Allowances
    
    
    82,000
    
    
    
    578,000
    
    
    
    382,000
    
    
    
    278,000Total Reserve for Doubtful Accounts and Sales Allowances
    
    $
    257,000
    
    
    $
    617,000
    
    
    $
    392,000
    
    
    $
    482,000
 88




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##### Table of Contents



Exhibit Index
 Exhibit No.
    
    Description of Document3.1
    
    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.)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
    
    Form of Warrant Agreement issued to purchasers of Series E Convertible Preferred Stock (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.)4.3
    
    Reference is made to Exhibit 3.1 and Exhibit 3.2.10.1*
    
    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*
    
    401(k) Defined Contribution Plan (Filed with the Securities and Exchange Commission in our
Registration Statement No. 33-44326 on December 11, 1991 and incorporated herein by reference.)10.4+
    
    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.)10.5
    
    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.)10.6
    
    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.)10.7
    
    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.)10.8
    
    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.)10.9
    
    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.)10.10+
    
    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.)10.11+
    
    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.)
 89




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##### Table of Contents



Exhibit No.
    
    Description of Document10.12
    
    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.)10.13
    
    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.)10.14
    
    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.)10.15
    
    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.)10.16*
    
    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.)10.17*
    
    Form of Lock-up and Consent (Filed with the Securities and Exchange Commission as an exhibit with
our Current Report on Form 8-K on December 7, 2005 and incorporated herein by reference.)10.18*
    
    2005 Equity Incentive Plan, including related agreements and forms (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, 2006 and incorporated herein by reference.)10.19*
    
    Abaxis, Inc. Executive Change of Control Severance Plan (Filed with the Securities and Exchange
Commission as an exhibit with our Quarterly Report on Form 10-Q for the quarter ended June 30, 2006
and incorporated herein by reference.)10.20++
    
    Amendment, dated September 21, 2006, to the 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.)10.21++
    
    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.)10.22*
    
    Fiscal 2008 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 1, 2007
and incorporated herein by reference.)23.1
    
    Consent of Burr, Pilger & Mayer LLP, Independent Registered Public Accounting Firm23.2
    
    Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm24.1
    
    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 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1#
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2#
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 90




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+
    
    Confidential treatment of certain portions of this agreement has been granted by the
Securities and Exchange Commission.++
    
    Confidential treatment of certain portions of this agreement has been requested from the
Securities and Exchange Commission.*
    
    Management contract or compensatory plan or arrangement.#
    
    This certification accompanies the Form 10-K to which it relates, is not deemed filed with the
Securities and Exchange Commission and is not to be incorporated by reference into any filing of
the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any
general incorporation language contained in such filing. 91




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SIGNATURES
  ABAXIS, INC.By
    /s/ Clinton H. SeversonClinton H. SeversonChairman of the Board, President and Chief Executive Officer POWER OF ATTORNEY
   Signature
    
    Title
    
    Date/s/ Clinton H. Severson

Clinton H. Severson
    
    President, Chief Executive Officer and Director
(Principal Executive Officer)
    
    June 14, 2007/s/ Alberto R. Santa Ines

Alberto R. Santa Ines
    
    Chief Financial Officer and
Vice President of Finance
(Principal Financial and Accounting Officer)
    
    June 14, 2007/s/ Richard J. Bastiani, Ph.D.

Richard J. Bastiani
    
    Director
    
    June 14, 2007/s/ Henk J. Evenhuis

Henk J. Evenhuis
    
    Director
    
    June 14, 2007/s/ Brenton G. A. Hanlon

Brenton G. A. Hanlon
    
    Director
    
    June 14, 2007/s/ Prithipal Singh, Ph.D.

Prithipal Singh, Ph.D.
    
    Director
    
    June 14, 2007/s/ Ernest S. Tucker III

Ernest S. Tucker III
    
    Director
    
    June 14, 2007
 92