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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K/A

For the transition period from _____________ to _____________

Commission file number 000-19720

ABAXIS, INC.

3240 Whipple Road
Union City, CA 94587
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (510) 675-6500

Securities registered pursuant to Sections 12(b) of the Act: None

Securities registered pursuant to Sections 12(g) of the Act:
Common Stock, No par value
(Title of Class)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [  ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ]

     The aggregate market value of the voting stock held by non-affiliates of the Registrant, as of June 25, 2002 was approximately $76,597,339 based upon the closing sale price reported for such date on the NASDAQ National Market. For purposes of this disclosure, shares of common stock held by persons who hold more than 5% of the outstanding shares of common stock and shares held by officers and directors of the registrant have been excluded because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily conclusive for any other purpose.

     The number of shares of the Registrant’s common stock outstanding as of June 25, 2002, was 16,401,166.

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Purpose of Amendment of Annual Report on Form 10-K

     Abaxis, Inc. is amending its Annual Report on Form 10-K for the fiscal year ended March 31, 2002 as first filed with the Securities and Exchange Commission on July 1, 2002, to include additional disclosure regarding its business, risk factors associated therewith, commercial relationships with suppliers, intellectual property portfolio and lending agreements. In addition, Abaxis is re-filing herewith in its entirety Exhibit 10.32, a Letter Amendment to the Licensing Agreement by and between Abaxis and Pharmacia Biotech, Inc., dated June 9, 1997, as Abaxis has withdrawn from the Securities and Exchange Commission its request for confidential treatment of certain portions of the exhibit. Abaxis is also filing agreements with MELET SCHLOESING Laboratoires and Scil Animal Care Company GmbH herewith as Exhibits 10.34 and 10.35, respectively.

     The audited financial statements for the fiscal year ended March 31, 2002 have not been changed in any manner from those included with the original filing of Abaxis’ Annual Report on Form 10-K filed on July 1, 2002. In addition, the only changes to Management’s Discussion and Analysis are the disclosure of the name of Abaxis’ lender, affirmative disclosure that Abaxis remains in compliance with the financial covenants of its agreements with its lender and disclosure of the settlement of a patent infringement complaint.

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PART I

     This report contains forward-looking statements within the meaning of Sections 21E of the Securities Exchange Act of 1934 that reflect Abaxis’ current view with respect to future events and financial performance. When used in this report, the words “will”, “anticipates”, “believes”, “expects”, “intends”, “plans”, “future”, and similar expressions identify forward-looking statements. The future events described in these statements involve risks and uncertainties, among them risks and uncertainties related to the market acceptance of Abaxis’ products and continuing development of its products, including required United States Food and Drug Administration (“FDA”) clearance and other government approvals, risks associated with manufacturing and distributing its products on a commercial scale, including complying with federal and state food and drug regulations, general market conditions and competition. Actual results could differ materially from those projected in the forward-looking statements as a result of factors set forth throughout this document. Abaxis undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements, whether as a result of new information, future events or otherwise. Readers are advised to read this Annual Report on Form 10-K/A in its entirety paying careful attention to the risk factors set forth in this and other reports or documents the Company files from time to time with the Securities and Exchange Commission, particularly the Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K, copies of which may be obtained from Abaxis or from the Securities and Exchange Commission at its website at www.sec.gov.

ITEM 1. BUSINESS

General

     Abaxis, Inc. (“us” or “we”), incorporated in California in 1989, develops, manufactures and markets portable blood analysis systems for use in any patient-care setting to provide clinicians with rapid blood constituent measurements. Our primary product is a system consisting of a compact 6.9 kilogram analyzer and a Series of single-use plastic discs, called reagent discs, containing all the chemicals required to perform a panel of up to 12 tests. The system can be operated with minimal training and performs multiple routine tests on whole blood, serum or plasma using either venous or fingerstick samples. The system provides test results in less than 15 minutes with the precision and accuracy equivalent to a clinical laboratory analyzer. We sell another system which provides a complete blood count (“CBC”) including three-part white blood cell (“WBC”) differential in less than 2 minutes and requires only 12 uL (micro liter) of whole blood. It provides results for eight selectable species, plus two user configurable programs. We currently market these systems for veterinary use under the name VetScan® and VetScan HMT (combined systems referred to as VetScan DXS) and in the human medical market under the name Piccolo®. Our primary operations and all but three of our employees are in the United States; the three remaining employees work in our office in Germany. During the fiscal years ended March 31, 2002, 2001 and 2000, approximately 86%, 85% and 82% of our revenues were from the United States, respectively, 9%, 9% and 13% were from Europe, respectively, and 5%, 6% and 5% were from Asia and Latin America, respectively.

     We offer our point-of-care blood chemistry analyzer system with a total of 22 test methods. Our repertoire of test methods includes albumin (ALB), amylase (AMY), alkaline phosphatase (ALP), alanine aminotransferase (ALT), aspartate aminotransferase (AST), calcium (CA++), chloride (CL), creatinine (CRE), creatine kinase (CK), glucose (GLU), gamma glutamyl transferase (GGT), potassium (K+), total bilirubin (TBIL), total cholesterol (tCHOL), urea nitrogen (BUN), total protein (TP), uric acid (UA), thyroxine (T4), total carbon dioxide (CO2), sodium (NA+), magnesium (MG) and phosphorous (PHOS). Nineteen of these tests are marketed for both human and veterinary markets. Tests for T4, phosphorous and magnesium are marketed exclusively in the veterinary market. We market our reagent products by configuring these 22 test methods in panels that are designed to meet a variety of clinical diagnostic needs. We currently offer 7 multi-test reagent disc products in the human medical market and 9 multi-test reagent disc products in the veterinary market.

     Our focus in the fiscal year ending March 31, 2003 will continue to be in the veterinary market where we believe we can receive immediate economic rewards, while at the same time enhancing products that will allow us to aggressively expand our presence in the human blood diagnostic market in the following years. Consequently, we expect to continue to focus on growing our reach into veterinary markets. We also, however, intend to bolster our

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marketing efforts of our Piccolo systems to the US armed forces and will launch a coordinated effort to expand the sales of our Piccolo systems into the civilian human diagnostic point-of-care market. Internationally, we will continue to focus our sales effort in Europe because revenues from Asia and Latin America have been difficult to achieve due to unfavorable foreign exchange rates and poor economic conditions. We re-directed sales and marketing expenses in our fiscal years ended March 31, 2002 and 2001 from Asia and Latin America to the United States and European markets and we will continue to focus our resources on the United States and European markets.

     Sales for any future periods are not predictable with a significant degree of certainty. We generally operate with limited order backlog because our products typically are shipped shortly after orders are received. As a result, product sales in any quarter are generally dependent on orders booked and shipped in that quarter. We currently operate in one segment.

     One of our customers, Vedco, Inc., accounted for 41%, 51% and 45% of our total revenue for the years ended March 31, 2002, 2001 and 2000, respectively.

     Our research and development expenses were $3,834,000, $3,458,000 and $3,534,000 in our fiscal years ended March 31, 2002, 2001 and 2000, respectively.

Our Industry: In-vitro Diagnostic Testing

     More than 15 billion human blood tests are performed annually worldwide. These blood tests are performed mostly in commercial laboratories, hospitals, urgent care centers or physicians’ offices. Sales of in-vitro diagnostic products for use by these facilities to conduct blood testing total approximately $15 billion per year. Although over 1,000 different tests are performed on blood, fewer than 50 different tests account for approximately 75% of all blood testing. These tests are considered the “gatekeepers” of medical care as physicians routinely use them to diagnose and monitor the treatment of disease. A significant portion of the top 50 tests prescribed by physicians fall in the clinical chemistry category. In-vitro diagnostic products sold for the purpose of conducting clinical chemistry tests represent approximately 32% of the total $15 billion market, while diagnostic testing products for immunoassay represent another 33% of the market. With such a large volume of testing, centralized laboratories using automated batch testing equipment have become the norm in providing physicians the diagnostic test results they need to make medical treatment decisions.

     The current worldwide focus on reducing medical care costs while maintaining quality of care has encouraged the movement of blood testing out of the central laboratories into the patient care setting. This trend began in the early 1980s with the introduction of handheld devices that could perform one or two tests. In the mid-1980s, small desktop instruments such as the Abbott VISION and the Kodak DT60 (now marketed by Johnson and Johnson) were introduced for use in doctors’ offices and hospital satellite laboratories. While these systems allowed testing closer to the patient, they still required skilled technicians and were limited to performing one test at a time. As a result, multiple tests could not be performed economically and turnaround time was not significantly enhanced.

     In the United States, there are approximately 40,000 veterinarians who generate annual billings of almost $1 billion in diagnostic testing. In the veterinary market, blood testing has become more important to veterinarians by providing them valuable diagnostic information. Veterinarians have historically relied on the services of the centralized laboratories. The same factors affecting the human diagnostic market, however, also impact veterinary practices. Small desktop instruments such as the Dade Behring Analyst, Kodak DT60, and Idexx VetTest have been marketed to veterinarians to perform in-house blood testing. While these products have made in-house testing possible for veterinarians, they still require skilled technicians to properly use and maintain these products. As a result, based on our market research, more than half of the veterinarians in the United States do not perform in-house testing despite its cost and timing advantages.

     We believe that a key element of the patient-centered, cost-constrained health care system in the year 2002 and beyond will be the availability of blood analysis systems in the patient care setting that are easily and reliably operated by caregivers and provide accurate, real time results for making immediate clinical decisions. The optimal system uses whole blood, has built-in calibration and quality control, provides quick turnaround time, is portable and

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low cost. In addition, the optimal near-patient system should be easy to use by people with no special training and capable of transmitting test results instantly to patient information management systems.

     Abaxis has developed a blood analysis system incorporating all of these criteria into a 6.9 kilogram analyzer and a series of menu-specific, single-use reagent discs. The system is essentially a compact portable laboratory that can be easily carried to the patient. Each reagent disc is pre-configured with multiple analytes and contains all the reagents necessary to perform a fixed menu of tests. Taking the system to the patient care site instead of shipping the sample to a central laboratory makes blood testing and analysis as easy as measuring the patient’s blood pressure, temperature, and heart rate and eliminates the necessity of multiple visits to the doctor’s office. Additional advantages of near-patient testing include eliminating errors from sample handling, transcription, and transportation, which, studies have shown, may cause up to 85% of reporting errors. We have also adapted this blood analysis system to the veterinary market in order to bring the same advantages to animal healthcare professionals and patients.

Abaxis Products

Point-of-Care Blood Chemistry Analyzers

     Our point-of-care blood chemistry analyzer is a portable spectrophotometer, which is a device that measures the absorption of light at various wavelengths. A variable speed motor is used to spin a reagent disc for sample processing. The chemical reactions in the disc’s cuvettes are measured optically by detecting the light absorbance of the solutions in the cuvettes at pre-determined wavelengths. The absorbances are converted to clinically relevant units by a measurement microprocessor. Results are stored by the analyzer’s interface microprocessor, sent to an RS232 port and printed on result cards by an internal thermal printer. The features of the analyzer include a small required sample size (100 uL) of whole blood, serum or plasma, an intelligent quality control system that includes many self-test functions to ensure quality results, a built-in instrument self calibration, a built-in printer, a quick turn-around time of less than 15 minutes, minimal operational training and ease of information transmission using a computer port on the analyzer.

Hematology

     In March 1999, we signed an original equipment manufacturing (OEM) and distribution agreement with MELET SCHLOESING Laboratoires (MELET) under which we market and sell the MELET hematology instrument and reagents and MELET markets and sells the VetScan DXS and Piccolo products. We market the MELET hematology instrument as the VetScan HMT in the veterinary market. Under the agreement, we have the right to market the HMT in the United States, Canada, Mexico, the United Kingdom, Australia and Israel.

     MELET markets and sells the VetScan DXS and Piccolo products in France, Austria, Belgium, the Netherlands and the Middle East, excluding Israel. MELET launched its sales of the VetScan DXS in the first quarter of fiscal year ended March 31, 2000.

     The VetScan HMT is a hematology analyzer, which provides a complete blood count (“CBC”) including three-part white blood cell (“WBC”) differential in less than 2 minutes and requires only 12 uL of whole blood. It provides results for eight selectable species, plus two user configurable programs. We sell one type of reagent kit with the analyzer.

Reagent Discs

     The reagent discs, used with the blood chemistry analyzers, are designed to handle almost all technical steps of blood chemistry testing automatically. The discs first separate a whole blood sample into plasma and blood cells, meter the required quantity of plasma and diluent, mix the plasma and diluent, and deliver the mixture to the reagent chambers, called cuvettes, along the disc perimeter. The diluted plasma dissolves and mixes with the reagent beads initiating the chemical reactions, which are monitored by the analyzer. The discs are 8-cm diameter; single-use devices constructed from three ultrasonically welded injection-molded plastic parts. The base and the middle piece create the chambers, cuvettes and passageways for processing the whole blood and mixing plasma with

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diluent and reagents. The top piece, referred to as the bar code ring, is imprinted with bar codes that contain disc-specific calibration information. In the center of the disc is a plastic diluent container sealed with polyethylene-laminated foil. Spherical lyophilized reagent beads are placed in the cuvettes during disc manufacturing. Upon completion of the analysis, used discs may be placed back into their foil pouches to minimize human contact with blood prior to proper disposal.

     To perform a panel of tests, the operator collects a blood sample via finger puncture or venipuncture (the latter requiring a trained phlebotomist). The operator then transfers the sample into the reagent disc. The operator places the disc into the analyzer drawer, and enters patient, physician, and operator identification numbers. The analyzer spins the disc to separate cells from plasma, meters and mixes plasma with diluent, distributes diluted plasma to the cuvettes, and monitors chemical reactions. In less than 15 minutes, results are printed out on a result card with an adhesive backing for inclusion in the patient’s medical record. A computer port enables transmission of patient results to external computers for patient data management.

     We introduced our Piccolo system to the human marketplace in November 1995 with two reagent discs, General Health Panel 8 and General Health Panel 11. In November 1996, we introduced the Liver Panel Plus 9 disc, which was enabled by the 510(k) clearance of the GGT test that we received from the U.S. Food and Drug Administration (“FDA”) in September 1996. Subsequently, we have released four other differently configured reagent disc products to meet different physicians’ needs, mostly in the international markets. However, we will have limited sales in the human marketplace until the completion of the requisite analytes. As of June 2002, a total of seven reagent disc products were marketed worldwide for use with the Piccolo system, which included the Basic Metabolic and Electrolyte Panels introduced in December 2001.

     The VetScan system was introduced in the US veterinary market in July 1994. We initially launched the system with the Diagnostic Profile, a nine-test reagent product. Since then, we have added new test methods and new reagent disc products targeted to fulfill different veterinary diagnostic needs. We introduced the Diagnostic Profile II (DPII) and the Large Animal Profile (LAP) in the fourth quarter of fiscal 2001. The DPII offers phosphorous for the detection of renal disease and the LAP offers phosphorous and magnesium tests primarily used in dairy animals. The newest additions to the VetScan family of reagent products include the Avian/Reptilian Profile introduced to the market in February 2002. The Avian/Reptilian profile offers unique capabilities to diagnose illnesses and according to research is the fastest growing segment of veterinary medicine. As of June 2002, we offered a total of nine reagent disc products to our veterinary customers.

Orbos Process

     The dry reagents used in our reagent discs are produced using a proprietary technology called the Orbos® Discrete Lyophilization Process. This process allows the production of an accurate, precise amount of active chemical ingredient in the form of a soluble bead. The Orbos process involves flash-freezing a drop of liquid reagent to form a solid bead and then freeze-drying the bead to remove water. The Orbos beads are stable in dry form and dissolve rapidly in aqueous solutions. We believe that the Orbos process has broad applications in products where delivery of active ingredients in a stable, pre-metered format is desired. We have licensed the technology underlying the Orbos process to Pharmacia Biotech and we have a supply contract with Becton Dickinson Immunocytometry Systems for products using the Orbos process. We continue to explore potential applications with other companies, although there can be no assurance that we will be able to develop any new applications for the Orbos process.

VetScan Canine Heartworm Antigen Test

     In December 2001, we introduced the VetScan Canine Heartworm Antigen Test. The VetScan Canine Heartworm Antigen Test is the first of a portfolio of rapid antigen tests that we intend to introduce to the veterinary market. Future products are expected to address Feline Heartworm, Canine Parvovirus Antigen test (Parvo) and Feline Leukemia Virus Antigen test (FeL V). The test is a stand-alone lateral flow device similar in format to simple to use pregnancy tests. Results are available in a maximum of 10 minutes. Comparative clinical tests demonstrating excellent performance have already been conducted on the VetScan Canine Heartworm Antigen Test at a number of veterinary hospitals, a major teaching hospital and a state-of-art veterinary reference lab. Results at

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all clinical sites showed equivalent or superior performance to laboratory standards and other clinic-based rapid test products. We currently purchase the VetScan Canine Heartworm Antigen Test from SA Scientific, Inc., of San Antonio, Texas, a privately-held leader in the development and manufacture of a wide-range of one-step rapid tests for various diseases.

Future Products

     We continue to develop new products that we believe will provide further opportunities for growth in the human and veterinary markets. We are currently working on the development of Renal, Hepatic, Comprehensive Metabolic, T4/Cholesterol profiles and also Triglycerides and HDL for incorporation into a lipid panel rotor. These rotors are currently in pre-clinical testing or clinical trials and expected to be introduced in the fiscal year ending March 31, 2003. Additional development of test methods for other disc products will be targeted at specific applications based on fulfilling clinical needs. Our current focus of test methods development is in clinical chemistry. In addition to clinical chemistry, we have demonstrated our ability to perform immunoassay tests in our blood analysis system by successfully developing the Thyroxine (T4) test in the veterinary market. We believe other homogeneous immunoassay methods can be performed with our discs to measure a wide assortment of blood analytes, such as therapeutic drugs and controlled substances. Although there can be no assurance that we will be able to develop any of these potential products, we believe that our technology and expertise will allow us to develop reagent disc products in the future to provide a variety of additional blood tests.

Customers and Distribution

Customers

     Abaxis sells its point-of-care blood analyzer products and reagent discs either directly or through distributors depending on the needs of the customer segment. In the delivery of human or veterinary care there are many kinds of providers and a multitude of sites where Abaxis products could be used as an alternative to relying on a central laboratory for blood test information. We believe that our current Piccolo system menu of 19 reagent test methods is suitable for certain niche market segments of the human medical market. These niche market segments include military installations (ships, field hospitals and mobile care units), urgent care and walk-in clinics (free-standing or hospital-connected), home care providers (national, regional or local), nursing homes, acute care hospitals, ambulance companies, dialysis centers, hospital labs and draw stations. We believe that our veterinary reagent product offerings meet a substantial part of the clinical diagnostic needs of veterinarians. Potential customers for the VetScan DXS are primarily companion animal hospitals, animal clinics with mixed practices of small animals, birds and reptiles, equine practitioners, veterinary referral hospitals, and private toxicology laboratories and university and government toxicology research laboratories.

Distribution Within North America

     We sell our human-oriented products directly to those customers who serve large human patient populations with employed caregivers such as the military, hospitals, and managed care organizations. As a result of health care reform, we expect a consolidation of providers with more centralized purchasing of medical products based on the standardization of care and the use of patient outcome studies to influence purchase decisions. We plan to achieve our direct sales objectives by employing highly skilled sales specialists and eventually sales teams which will work closely with providers in performing studies to show that the use of the Piccolo point-of-care blood chemistry analyzer rather than laboratory alternatives can provide better outcomes at a lower cost.

     We use distributors for those customers who desire to purchase reagent discs frequently and in small quantities. These distributors also contribute to identifying potential customers and introducing the product, but often need the support of our personnel in closing the sale. Product distributors are generally of two types: large companies that primarily serve hospitals, clinics and large health maintenance organizations (HMOs) nationwide using multiple warehouses and extensive transportation systems and smaller companies that provide the daily supplies needed by office-based physicians. In the human market, national firms sell thousands of products, including furniture, capital equipment, surgical instruments and a myriad of consumables. The smaller companies generally direct their product offerings to those items a physician uses daily in caring for primarily ambulatory

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patients. These firms also may sell lower priced equipment such as diagnostic instruments, which are used in conjunction with consumable reagents.

     Veterinarians are served typically by local distributors, some with national affiliations. We currently have a non-exclusive agreement with Vedco, Inc., which is a national network of fourteen independent distributors with 23 sales offices in the US. We also have eight additional distribution agreements with regional distributors. In addition to selling through distributors, we directly supply our VetScan DXS products to Veterinary Centers of America (VCA), the nation’s largest veterinary hospital chain. We intend to enter into arrangements with additional veterinary distributors as well as pursue direct veterinary sales where appropriate.

Distribution Outside of North America

     Our international sales and marketing objectives include identifying and defining the market segments in each country by product and then focusing on specific objectives for each segment in each country. These specific objectives include modification and expansion of distribution and distributor training and monitoring to ensure the attainment of sales goals.

     We currently have distribution agreements in the following countries: Argentina, Austria, Bahrain, Belgium, China, France, Germany, Greece, Hong Kong, Israel, Italy, Japan, Korea, Mexico, New Zealand, Nigeria, Norway, Poland, Portugal, South Africa, Spain, Switzerland, United Arab Emirates, the United Kingdom and Venezuela. Each distributor agreement contains a number of requirements that must be met to retain exclusivity, including minimum order quantity commitments, trade show and promotion requirements and a specified number of demonstration analyzer requirements. In most cases, the foreign distributors need to either go through a FDA-equivalent approval process with national regulators or clinical trials/market evaluations with their local opinion leaders in the medical field. Each distributor is responsible for obtaining the required approvals. There can be no assurance that any of our distributors will be successful in obtaining proper approvals for Abaxis products in their respective countries or that these distributors will be successful in marketing Abaxis products. In August 2001, we signed a non-exclusive agreement with Scil Animal Care Company GmbH of Germany, a leading supplier of veterinary technology and supplies, to distribute VetScan in Europe. We plan to continue to enter into additional distribution agreements to enhance our international distribution base and solidify our international presence.

Competition

     Our competition includes clinical laboratories, hospitals and independent laboratories and manufacturers of bench top multi-test analyzers and other near-patient test systems. Blood analysis is a well-established field in which there are a number of competitors, which have substantially greater financial resources and larger, more established marketing, sales and service organizations than us.

     Historically, most human medical testing has been performed in the hospital or commercial laboratory setting. Clinical laboratories have traditionally been effective at processing large panels of tests using skilled technicians and complex equipment. Our products compete with the clinical laboratories with respect to range of tests offered, the immediacy of results and cost effectiveness. While Abaxis cannot provide the same range of tests, we believe that our products will provide a sufficient breadth of test menus to compete successfully with clinical laboratories on the basis of immediacy of results and cost effectiveness. Our products compete with other products in the marketplace with respect to ease-of-use, the ability to conduct tests without a skilled technician, the ability to conduct multiple test panels, breadth of tests, built-in calibration and quality control, cost effectiveness and quality of results.

     Most of our current and potential competitors have significantly greater financial and other resources than Abaxis, and we expect that competition will continue to be intense. In particular, most of these competitors have large sales forces and well-developed channels of distribution. To compete, we must develop effective channels of distribution and a focused dedicated sales force. Our principal competitor in the veterinary market is IDEXX Laboratories, Inc.

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Manufacturing

     We began manufacturing our VetScan products for the commercial market during the fiscal year that ended March 31, 1995. The VetScan HMT is manufactured by MELET in France and is purchased by us as a completed instrument. We began manufacturing Piccolo products for commercial sale in the fiscal year that ended March 31, 1996. To produce and commercially ship Piccolo products, we must have a license to manufacture medical products in the State of California, where we conduct our principal manufacturing activities, and have approval from the FDA as a medical device manufacturer. In May 1996, we received our initial license to manufacture medical products from the State of California. In September 1996, the FDA granted our manufacturing facility “in compliance” status, according to the regulations for current Good Manufacturing Practices (“cGMP”) for medical devices. Our manufacturing facility is inspected by the FDA and the State of California on a routine basis, typically once every 24 months. We received our manufacturing license for our Union City facility from the State of California in May 2001. In May 2002, we received our ISO 9001 certification, expanding our compliance with international quality standards. Although we are not required to comply with all of the government regulations applicable to the human market when manufacturing the VetScan DXS products, we have established all of our manufacturing operations to be cGMP and Quality System Regulations (“QSR”) compliant as this ensures product quality and integrity regardless of end use or patient.

     In addition to the development of standardized manufacturing processes and quality control programs for the entire manufacturing process, our manufacturing activities are concentrated in the following three primary areas:

Point-of-Care Blood Chemistry Analyzer

     The analyzer used in the Piccolo and VetScan system 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 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. The analyzer uses technologically advanced components, some of which we currently purchase from two single source vendors, PerkinElmer, Inc. and Electro-Alliance, Inc., neither of which have a written supply agreement with us and thus both of which are not contractually obligated to continue supplying us with components in the quantities or at the prices that both companies have done historically.

Reagent Disc

     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 Oregon, Inc., to mold the discs and we have eight qualified molds. We have also qualified a second manufacturing site with Nypro Orgegon, Inc. We do not have supply agreements with either C. Brewer Co. or Nypro Oregon, Inc. and neither company is under any 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, the inability of 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. In the quarter ended March 3l, 2002, we completed our development of a semi-automated disc assembly line (“semi-autoline”) to provide anticipated capacity for future demand and to improve production efficiency. This semi-autoline is expected to be in service and double our disc production in the fiscal year ending March 31, 2003.

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Reagent Beads

     The reagent discs contain diluent and all the dry reagent chemistry beads necessary to perform blood analyses. Abaxis purchases chemicals from third party suppliers and formulates 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 the following companies who are our sole source providers of one or more chemicals that we use in the reagent production process: Amano Enzyme USA Co, LTD, Beckman Instruments, Inc., Biozyme Labs International LTD, Genzyme Corporation, Kikkoman Corporation Biochemical Division, Lee Biosolutioncs, Inc., the Diagnostic Systems and Molecular Biochemicals divisions of F. Hoffman-La Roche, Ltd., Shinko American Inc., Sigma Aldrich Inc. and Worthington Biochemical Corporation. 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

     MELET SCHLOESING Laboratoires: Under our March 1999 agreement with MELET SCHLOESING Laboratoires, we acquired the non-exclusive right to distribute MELET’s veterinary hematology analyzers and reagent in the United States, Canada, the United Kingdom, Australia, New Zealand, Mexico and Japan, while MELET acquired the non-exclusive right to distribute our VetScan analyzer and rotors in France, Belgium, the Netherlands, Luxembourg, Austria, Hungary and various Middle Eastern countries (excluding Israel), as well as Taiwan and China. The agreement has a ten year term, but is also subject to certain minimum purchase quantities on both our and MELET’s parts.

     Phamacia Biotech, Inc.: Under our 1994 agreement with Pharmacia Biotech, we licensed our Orbos bead technology to Pharmacia Biotech for use in various medical tests. This agreement was amended in June 1997 to include DNA/RN and Human Leukocyte Antigen testing. We receive royalty payments equal to 5% of net sales, as defined in the agreement, of Pharmacia’s products that use our technology.

     Becton Dickinson: Under our 1994 agreement with Becton Dickinson, Becton Dickinson has agreed to purchase from us certain minimum quantities of our Orbos chemical beads in return for compensation and our agreeing not to license or otherwise use the Orbos bead process with any other party. In June 1997, Becton Dickinson failed to purchase the minimum quantities specified in the agreement and thus the exclusivity terms of the agreement have lapsed. The contract with Becton Dickinson will expire in September 2009 and, in the event that prior to that date we decide to cease manufacturing Orbos beads, we must give Becton Dickinson at least one year’s notice.

     S.A. Scientific, Inc.: In November 2001, we signed a term sheet with S.A. Scientific, Inc. of San Antonio, Texas, under which S.A. Scientific agreed to provide us with canine heartworm antigen tests that we would distribute and sell using the Abaxis brand. The term sheet did not include any reference to indemnification by S.A. Scientific in the event that Abaxis was sued for patent infringement with respect to the canine heartworm antigen test. In March 2002, Idexx Laboratories, Inc. sued both Abaxis and S.A. Scientific for infringement upon patents issued to Idexx. In May 2002, we entered into a joint defense agreement with S.A. Scientific under which we agreed to evenly share the expenses associated with the patent infringement trial and possible damages. The case was settled under the terms of an out-of-court agreement between the parties dated as of December 6, 2002. In light of the terms of the settlement, we and S.A. Scientific have mutually agreed to renegotiate the terms of our commercial relationship as we intend to develop and introduce a new canine heartworm antigen test in the future.

     Vedco: We do not have any contractual relationship with Vedco, Inc., one of our distributors that for the fiscal year ended March 31, 2002 accounted for over 41% of our revenue. Consequently, Vedco may at any time cease to purchase our products without any penalty.

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     Scil Animal Care Gmbh: In September 2001, we entered into a five-year non-exclusive distribution agreement with Scil Animal Care Company GmbH of Germany in September 2001, under which Scil will distribute our VetScan products in Belgium, Denmark, Finland, Germany, Norward, Sweden and the Netherlands.

Government Regulation

Piccolo System

     Abaxis’ Piccolo products are regulated under the 1976 Medical Device Amendments to the Food, Drug and Cosmetic Act (the “Amendment”). Our current products are Class II devices requiring the submission of a 510(k) market notification to substantiate label claims prior to marketing. In our submission, we must, among other things, establish that the product to be marketed is “substantially equivalent” to a product that was on the market prior to the Amendment or to a product that has previously been cleared under the 510(k) process. The typical time for clearance of 510(k)s can be from three months to over a year and the FDA must issue a written order finding substantial equivalence.

     To date, Abaxis has received market clearance for its portable blood analyzer and 19 test methods from the FDA for its Piccolo system. We are currently and plan to continue developing additional tests that will require clearance through the FDA. We received FDA clearance in April 2001 for the chloride test method. The Amendment also requires us to manufacture our products in accordance with the cGMP and QSR, using facilities registered to manufacture our products. Our facility is subject to periodic inspections by the FDA. In addition, the use of our facilities May be regulated by various state agencies, such as the Food and Drug Branch (FDB) of the State of California. In May 2001, we received our new state license from the FDB for our facility in Union City, California, which allows us to ship products for the human market.

     The Piccolo system is also affected by the Clinical Laboratory Improvement Amendments of 1988 (“CLIA”), which are intended to ensure the quality and reliability of all medical testing in the United States regardless of where tests are performed. Under CLIA regulations, laboratory tests are divided into three categories: “waived”, “moderately complex” and “highly complex.” Our current products, under these regulations, are classified in the “moderately complex” category, which would require that any location using these products be certified as a laboratory. Initial certification would require the laboratory to obtain a registration certificate. Within two years of registration certificate issuance, laboratories would be inspected to determine compliance with the CLIA requirements. The CLIA regulations require laboratories to meet specified standards in the areas of personnel qualification, administration, participation in proficiency testing, patient test management, quality control/assurance, laboratory information systems and inspections.

VetScan DXS

     The government regulations discussed above generally do not apply to our VetScan DXS products in the US. Internationally, among the countries where we currently have established distribution arrangements, to our knowledge, Japan is the only market where VetScan DXS products are subject to government approvals. In Japan, the Ministry of Agriculture, Forestry and Fishery regulates veterinary diagnostic devices, and thus the DXS System must be approved by such Ministry prior to being marketed in Japan.

     In order to maintain high quality standards for all products, we are using the same manufacturing facilities to manufacture all point-of-care blood chemistry analyzers whether they be for the Piccolo or VetScan system products and therefore is following the same manufacturing processes and procedures where practical.

Intellectual Property

     We have pursued the development of a patent portfolio to protect our technology. As of June 2002, we have filed 25 United States patent applications. The following 23 patents have been issued:

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     Our policy is to file patent applications to protect technology, inventions and improvements that are important to the development of our business. We also rely upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain competitive position. We have filed under the Patent Cooperation Treaty for international patent protection and we are selectively filing patent applications in countries where we expect to market our products.

Employees

     As of March 31, 2002, we had 134 full-time employees distributed across the following divisions:

     25 in research and development;

     68 in manufacturing operations;

     33 in sales and marketing; and

     8 in general and administrative.

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     We also use temporary help to assist in carrying out certain operational duties. As of March 31, 2002, we had 8 temporary employees with most of them assisting in manufacturing operations. None of our employees are covered by collective bargaining agreements and management considers its relations with employees to be good.

ITEM 2. PROPERTIES

     We occupy approximately 91,124 square feet of office, research and development and manufacturing space in a building in Union City, California. The lease agreement is for ten years commencing January 2001 with an option to extend the lease for five additional years. Our Germany office consists of approximately 900 square feet located in Darmstadt, Germany. The lease agreement for the Germany office is terminable upon three months notice. We believe that our current facilities are suitable and adequate to meet our needs for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

     We are involved in various litigation matters in the normal course of business. Except for the unknown resolution of the lawsuit discussed below, we believe that the ultimate resolution of these matters will not have a material effect on our financial position or results of operations.

     On March 28, 2002, Idexx Laboratories, Inc., our principal competitor in the veterinary diagnostic market, filed a complaint in the United States District Court for the District of Maine (Civil Action Docket No. 02-69-P-H) alleging that a canine heartworm test produced for us by a third party, S.A. Scientific, Inc., and sold using the Abaxis brand infringes on U.S. Patents Nos. 4,965,187 and 4,939,096 held by Idexx. In May 2002, we entered into an agreement with S.A. Scientific under which we have agreed to joint representation by counsel to defend against the legal action filed by Idexx. On December 6, 2002, the parties entered into a settlement agreement under which, among other terms, we will pay Idexx $249,500 in cash damages and we have agreed to cease the selling of the particular canine heartworm antigen test. We intend to develop and introduce another canine heartworm antigen test in the near future and there can be no assurance that Idexx will not claim infringement under the patents previously enforced against us or upon other grounds.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No items were submitted to a vote of security holders during the quarter ended March 31, 2002.

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ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Our initial public offering of commons stock was completed in January 1992. Since that date, our common stock has been traded on the NASDAQ National Market under the symbol “ABAX”.

     The high and low prices for our common stock during each quarter since April 1, 2000 are exhibited in the table below, as represented by the high and low daily trade closing sales prices as reported by NASDAQ:

     As of June 25, 2002, we had 219 shareholders of record.

     The terms our Series D convertible preferred stock, which we issued in October and November 2000, and our Series E convertible preferred stock, which we issued in March and April 2002, prohibit us from paying dividends on or making distributions with respect to our common stock unless at the same time an equivalent dividend with respect to the Series D or Series E convertible preferred stock is paid or declared and set apart for payment. We have never paid dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. In addition, under our debt agreements, we are restricted from paying aggregate cash dividends on our stock in excess of 25% of our net income on an annual basis.

     In March 2002 and April 2002, we sold 3,750 and 3,620 shares of Series E convertible preferred stock at $1,000 per share, respectively, resulting in aggregate net cash proceeds of $6,813,000. The Series E convertible preferred stock is non-voting and pays an annual cumulative dividend of 6.5% of the original purchase price per share, which is payable semi-annually in either cash or shares of our common stock at our election. Upon the liquidation of, dissolution of, winding-up of, or change of control in Abaxis, holders of the Series E convertible preferred stock are entitled to receive $1,000 per share, the original purchase price, as a liquidation preference prior to Abaxis making any distributions to holders of common stock. The liquidation preference is subject to adjustment for stock splits, dividends, reorganizations and the like and is in addition to any accrued but unpaid dividends.

     The Series E convertible preferred stock automatically converts into 1,133,846 shares of common stock upon the earlier of: (i) the first date following March 28, 2003 on which the closing per share price of Abaxis common stock exceeds $12.00 for twenty consecutive trading days (the “Automatic Price Conversion Date”), or (ii) March 28, 2007; provided, however, that if the closing sales price of the common stock as reported on Nasdaq National Market System is less than $6.50 for each of the twenty (20) consecutive trading days immediately prior to and including March 28, 2007, then the Series E preferred stock will convert into common stock automatically upon the earlier to occur of (A) March 28, 2008, or (B) the Automatic Price Conversion Date. The shares May also be converted at the option of the holder at any time. The number of converted shares is determined by dividing the

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gross proceeds of the Series E preferred stock by $7.00, subject to adjustment for stock dividends, stock splits, reorganizations and the like.

     Each investor in our Series E convertible preferred stock received a warrant to purchase 50 shares of our common stock for each share of Series E convertible preferred stock acquired. The common stock warrants are valid for five years and exercisable at $7.00 per share. Approximately $645,000 of the proceeds from the sale of Series E convertible preferred stock in March 2002 was attributed to the warrants and allocated to common stock. The fair value of the warrants was determined using the Black-Scholes option-pricing model with the following assumptions: contractual life of five years, volatility of 78.6%, risk free interest rate of 4.92% and no dividends during the contractual term. A portion of the proceeds from the sale of Series E shares in April 2002 was also attributed to the warrants issued therewith and allocated to common stock in the first quarter of the fiscal year ending March 31, 2003.

     We have filed a resale registration statement with the Securities and Exchange Commission covering the common stock underlying both the shares of the Series E convertible preferred stock and the warrants we issued in connection with the sale of the Series E convertible preferred stock.