Notes to Financial Statements
December 31, 2013 and 2012
|
1.
|
Description of the Plan
|
General
The following description of the Abaxis 401(k) Plan (the “Plan”) provides only general information. Participants should refer to the Plan document for a more complete description of the Plan.
The Plan is a defined contribution plan containing a cash deferred arrangement described in Section 401(k) of the Internal Revenue Code (the “IRC”). The Plan was established on December 1, 1990 and was most recently restated effective September 9, 2013, by Abaxis, Inc. (the “Company”) to provide benefits to eligible employees in the United States, as defined in the Plan document. The Plan is currently designed to be qualified under the applicable requirements of the IRC, as amended, and the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).
Administration
The Company contracts with a third-party-administrator to process and maintain the participant accounts. Verisight, Inc. was the third-party-administrator until September 8, 2013. Starting September 9, 2013, the Company contracted JP Morgan Retirement Plan Services LLC (“JPMRPS”) as the third-party-administrator. Retirement Services Trust Company served as the trustee and custodian of Plan assets from April 1, 2011 to September 8, 2013. Reliance Trust Company (“RTC”) was appointed the trustee and custodian effective September 9, 2013. Some expenses incurred for administering the Plan are paid by the Plan.
Participant Accounts
Each participant’s account is credited with the participant’s contributions, Plan earnings and an allocation of the Company’s contributions, if any. Participant’s withdrawals, Plan losses and an allocation of administrative expenses are charged to the participant’s account. Allocation of the Company’s contribution is based on participant contributions and compensation as defined by the Plan.
Participant Contributions
Participants may elect to have the Company contribute a portion of their eligible pre-tax compensation, not to exceed the amount allowable under current income tax regulations. Participants who elect to have the Company contribute a portion of their compensation to the Plan agree to accept an equivalent reduction in taxable compensation. Contributions withheld are invested in accordance with the participant’s direction.
Participants are also allowed to make rollover contributions of amounts received from other tax-qualified employer-sponsored retirement plans. Such contributions are deposited in the appropriate investment funds in accordance with the participant’s direction and the Plan’s provision.
The Plan includes an Automatic Contribution Arrangement (“ACA”). Under the ACA provisions of the Plan, participants are automatically enrolled for a 3% payroll deferral per pay period. These contributions are defaulted into the Vanguard Target Retirement Funds based on the employee’s age, absent an investment fund election. Participants have the right to elect not to have the automatic deferrals withheld, and participants also have the right to elect to defer a different percentage.
Abaxis 401(K) Plan
Notes to Financial Statements
December 31, 2013 and 2012
|
1.
|
Description of the Plan
, continued
|
Participants in the Plan may also elect to make after-tax salary deferral contributions to Roth accounts.
Employer Contributions
The Company may make discretionary matching contributions and discretionary profit sharing contributions as defined by the Plan and as approved by the Board of Directors. In 2013, the Company matched 50% of each eligible participant’s contributions up to a maximum of 2.5% of the participant’s eligible compensation for the first, second and third quarters. No discretionary profit sharing contribution was made in 2013.
Vesting
Participants are immediately vested with respect to their contributions, plus actual earnings thereon. Participants vest in the Plan sponsor’s discretionary matching and profit sharing contributions at a rate of 25% per year, and become fully vested after four years of credited service.
Forfeitures
Forfeitures of nonvested Plan sponsor contributions are used to reinstate any former participant account balance, reduce any matching and/or profit sharing contributions, or may be used to pay Plan expenses.
During the year ended December 31, 2013, forfeitures of nonvested account balances amounted to approximately $98,000 and forfeitures amounting to approximately $11,000 were used to pay administrative expenses. At December 31, 2013 and 2012, the forfeited nonvested account balance available for use was $90,000 and $3,000, respectively.
Investments
At December 31, 2013, investments of the Plan were held by RTC, and invested based solely upon instructions received from participants. The Plan’s investments are primarily in mutual funds, the Abaxis Common Stock Fund and a collective investment fund.
Effective September 9, 2013, the Plan’s investment contract accounts with MetLife Stable Value Fund were transferred to the JPMCB Stable Asset Income Fund (“SAIF”), a bank-sponsored collective investment fund. SAIF is primarily comprised of benefit-responsive investment contracts that are issued by banks and insurance companies and are backed by fixed income portfolios that primarily consist of U.S. Treasury, agency, investment grade corporates, mortgage-backed and asset-backed securities.
Withdrawals from SAIF are permitted on any business day for participant benefit payments and to enable the plan to implement investment elections made by individual participants, provided, however, that such investment elections are not for the purpose of transferring funds out of SAIF to a competing investment option, as determined by the SAIF trustee.
Abaxis 401(K) Plan
Notes to Financial Statements
December 31, 2013 and 2012
|
1.
|
Description of the Plan
, continued
|
The Plan’s investment contract accounts with MetLife Stable Value Fund were fully benefit-responsive and, therefore, had been accounted at contract value. Contract value represented contributions made under the contracts, plus interest at a fixed rate set by MetLife, less participant withdrawals and administrative expenses. Participants may elect to direct the withdrawal or transfer of all or a portion of their investments at contract value. Certain events limit the ability of the Plan to transact at contract value with the issuer. Such events include the following: (1) amendments to the plan document (including complete or partial plan termination or merger with another plan), (2) changes to the Plan’s prohibition on competing investment options or deletion of equity wash provisions, (3) bankruptcy of the Plan sponsor or other plan sponsor events that cause a significant withdrawal from the Plan, or (4) the failure of the trust transaction exemption under ERISA. The Plan Administrative Committee does not believe that any events which would limit the Plan’s ability to transact at contract value with participants occurred. The average yield on investment contract accounts for the year ended December 31, 2012 was 5.37%. The average crediting interest rates for the year 2012 was 2.93%. The interest is credited to the contract at interest rates that reflect the performance of the underlying portfolio.
Notes Receivable from Participants
Notes receivable from participants represent participant loans that are recorded at their unpaid principal balance plus any accrued but unpaid interest. Interest income on notes receivable from participants is recorded when it is earned. No allowance for credit losses has been recorded as of December 31, 2013 and 2012. If a participant ceases to make loan repayments, a loan will be in default may be considered a distribution from the Plan. In any event, the participant’s failure to repay a loan will reduce the benefit the participant would otherwise be entitled to from the Plan.
The Plan allows participants to borrow not less than $1,000 and up to the lesser of $50,000 or 50% of their vested account balance. The loans are secured by the participant’s vested balance. Such loans bear fixed interest at prime rate and must be repaid to the Plan within a five-year period, unless the loan is used for the purchase of a principal residence, in which case the repayment period may be longer. The specific terms and conditions of such loans are established by the Plan Administrative Committee. The notes receivable from participants at December 31, 2013 carry interest rates ranging from 3.25% to 5.25%. Principal and interest are paid ratably through payroll deductions.
Payment of Benefits
The Plan provides for the payment of benefits to the participant (or, if applicable, the beneficiary) upon normal retirement (age 60), termination of service, death, or disability. Participants are entitled to the vested portion of their account balance. Participants may elect to receive their distributions in the form of a single lump-sum payment in cash or installments. Terminated participants with an account balance that does not exceed $5,000 will receive a lump-sum distribution within a reasonable time after terminated employment. In-service distributions are also available for participants who have attained age 59 1/2, or who qualify for financial hardship.
Administrative Expenses
Administrative fees in the amount of $36,118 for the year ended December 31, 2013, reflected in the Statement of Changes in Net Assets Available for Benefits, represent fees for investment advisory, management fees, and record-keeping and are paid directly by the Plan and allocated to participant accounts based upon the Plan guidelines.
Abaxis 401(K) Plan
Notes to Financial Statements
December 31, 2013 and 2012
|
1.
|
Description of the Plan
, continued
|
Plan Termination
Although the Company has not expressed any intent to do so, it has the right under the Plan to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants would become 100% vested in their account.
|
2.
|
Significant Accounting Policies
|
Basis of Accounting
The financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America and ERISA. Contributions from participants are recorded when withheld from the participant. Benefit payments are recorded when paid.
Investment contracts held by a defined-contribution plan are required to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined-contribution plan attributable to fully benefit responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the plan. The Statements of Net Assets Available for Benefits as of December 31, 2013 and 2012 present the fair value of the investment contracts. Additionally, the Statements of Net Assets Available for Benefits as of December 31, 2013 and 2012 presents the adjustment of the fully benefit-responsive investment contracts from fair value to contract value.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (“exit price”) in an orderly transaction between market participants at the measurement date. Accounting Standards Codification 820, “Fair Value Measurements and Disclosures” (ASC 820) establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
|
|
Level 1:
|
Quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
Abaxis 401(K) Plan
Notes to Financial Statements
December 31, 2013 and 2012
|
2.
|
Significant Accounting Policies
, continued
|
Level 2: Directly or indirectly observable inputs as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.
Level 3: Unobservable inputs that are supported by little or no market data and require the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.
|
3.
|
Investments and Fair Value Measurements
|
The following presents the fair values of assets held for investment purposes and those individual investments representing five percent or more of the Plan’s net assets available for benefits at December 31, 2013 and 2012:
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
Abaxis Common Stock Fund (1)
|
|
$
|
1,986,340
|
|
|
$
|
-
|
|
|
Abaxis Stock Portfolio (unitized managed account) (1)
|
|
|
-
|
|
|
|
1,911,630
|
|
|
American Funds the Growth Fund of America
|
|
|
1,196,139
|
|
|
|
956,690
|
|
|
Fidelity Spartan 500 Index
|
|
|
1,412,985
|
|
|
|
1,167,660
|
|
|
JPMCB Stable Asset Income Fund (2)
|
|
|
2,795,919
|
|
|
|
-
|
|
|
Metlife Stable Value (2)
|
|
|
-
|
|
|
|
1,766,760
|
|
|
Pimco Total Return
|
|
|
1,193,065
|
|
|
|
1,195,265
|
|
|
Vanguard Target Retirement 2030
|
|
|
1,516,997
|
|
|
|
1,031,580
|
|
|
Vanguard Target Retirement 2035
|
|
|
1,486,252
|
|
|
|
*
|
|
|
Other funds less than 5% of net assets available for benefits
|
|
|
11,194,511
|
|
|
|
9,922,348
|
|
|
Total assets held for investment purposes
|
|
$
|
22,782,208
|
|
|
$
|
17,951,933
|
|
|
|
(1)
|
In September 2013, the accounting for the Plan's investment in Abaxis Common Stock Fund was changed from unitized to share accounting.
|
|
|
(2)
|
In September 2013, the Plan's investment in Metlife Stable Value was transferred to the JPMCB Stable Asset Income Fund.
|
|
|
*
|
Less than five percent of the Plan's net assets available for benefits at December 31, 2012.
|
The Plan’s investments, including gains and losses on investments bought and sold during the year, appreciated (depreciated) in value as follows:
Abaxis 401(K) Plan
Notes to Financial Statements
December 31, 2013 and 2012
|
3.
|
Investments and Fair Value Measurements
, continued
|
|
|
|
2013
|
|
|
|
|
|
|
|
Mutual funds
|
|
$
|
2,555,189
|
|
|
Common stock fund
|
|
|
148,347
|
|
|
Collective investment fund
|
|
|
(56,022
|
)
|
|
Net increase in fair value of investments
|
|
$
|
2,647,514
|
|
The following tables set forth by level, within the fair value hierarchy, the Plan’s assets measured and recorded at fair value on a recurring basis, as of December 31, 2013 and 2012:
|
|
|
Assets at Fair Value as of December 31, 2013
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balanced funds
|
|
$
|
7,841,750
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,841,750
|
|
|
Blend funds
|
|
|
4,265,028
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,265,028
|
|
|
Fixed income funds
|
|
|
1,382,624
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,382,624
|
|
|
Growth funds
|
|
|
2,643,869
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,643,869
|
|
|
Value funds
|
|
|
1,274,690
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,274,690
|
|
|
Others
|
|
|
591,988
|
|
|
|
-
|
|
|
|
-
|
|
|
|
591,988
|
|
|
Total mutual funds
|
|
|
17,999,949
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,999,949
|
|
|
Common stock fund
|
|
|
1,986,340
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,986,340
|
|
|
Collective investment fund
|
|
|
-
|
|
|
|
2,795,919
|
|
|
|
-
|
|
|
|
2,795,919
|
|
|
Total assets held for investment at fair value
|
|
$
|
19,986,289
|
|
|
$
|
2,795,919
|
|
|
$
|
-
|
|
|
$
|
22,782,208
|
|
|
|
|
Assets at Fair Value as of December 31, 2012
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balanced funds
|
|
$
|
5,424,366
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,424,366
|
|
|
Blend funds
|
|
|
3,590,638
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,590,638
|
|
|
Fixed income funds
|
|
|
1,378,861
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,378,861
|
|
|
Growth funds
|
|
|
1,915,281
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,915,281
|
|
|
Value funds
|
|
|
1,063,707
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,063,707
|
|
|
Others
|
|
|
415,652
|
|
|
|
-
|
|
|
|
-
|
|
|
|
415,652
|
|
|
Total mutual funds
|
|
|
13,788,505
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,788,505
|
|
|
Money market funds
|
|
|
485,038
|
|
|
|
-
|
|
|
|
-
|
|
|
|
485,038
|
|
|
Unitized managed account - Cash
|
|
|
56,111
|
|
|
|
-
|
|
|
|
-
|
|
|
|
56,111
|
|
|
Unitized managed account - Abaxis common stock
|
|
|
1,855,519
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,855,519
|
|
|
Common/collective trust funds
|
|
|
-
|
|
|
|
1,766,760
|
|
|
|
-
|
|
|
|
1,766,760
|
|
|
Total assets held for investment at fair value
|
|
$
|
16,185,173
|
|
|
$
|
1,766,760
|
|
|
$
|
-
|
|
|
$
|
17,951,933
|
|
Abaxis 401(K) Plan
Notes to Financial Statements
December 31, 2013 and 2012
|
3.
|
Investments and Fair Value Measurements
, continued
|
The Plan’s valuation methodology used to measure the fair values of money market funds, mutual funds, and the Abaxis Common Stock Fund were derived from quoted market prices, as substantially all of these instruments have active markets.
The collective investment fund is valued at estimated fair value, which has been determined based on the unit value as reported by JP Morgan. The unit value is determined by dividing the collective investment fund’s net assets at fair value by its units outstanding at valuation date.
There were no Plan assets and liabilities measured and recorded at fair value on a non-recurring basis for the years ended December 31, 2013 and 2012.
|
4.
|
Related Party and Party-In-Interest Transactions
|
Certain Plan investments are managed by JP Morgan, an affiliate of the Plan’s recordkeeper, JPMRPS. Any purchases and sales of these funds were performed equivalent to those that prevail in arm’s-length transactions. Such transactions, while considered party-in-interest transactions under ERISA regulations, are permitted under the provisions of the Plan and are specifically exempt from the prohibition of party-in-interest transactions under ERISA.
The employer’s discretionary matching contribution is made either in the Company’s common stock or cash, as elected by the Company’s Board of Directors. Participants may contribute to the Abaxis Common Stock Fund (“the Stock Fund”), and may transfer funds from the Stock Fund to other Plan investment options available in the Plan. The participant investment election into the Stock Fund is limited to 20%. The value of a participant’s investment in the Stock Fund may exceed 20% of the participant’s total investment portfolio. However, once a participant’s investment in the Stock Fund exceeds 20% of the participant’s total portfolio, transfers to the Stock Fund via exchange from other investments will be prohibited.
The aggregate investment in the Company’s common stock at December 31, 2013 and 2012 was as follows:
|
|
|
Equivalent
|
|
|
|
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
49,632
|
|
|
$
|
1,986,340
|
|
|
2012
|
|
|
50,014
|
|
|
$
|
1,855,519
|
*
|
*
The fair value in the table above represents the common stock portion of the unitized managed account as of December 31, 2012. The total fair value of the unitized managed account was $1,911,630 as of December 31, 2012.
The Plan adopted a Prototype Nonstandardized 401(k) Plan, which received a favorable opinion letter from the Internal Revenue Service (“IRS”) dated March 31, 2008. Subsequent to the receipt of this opinion letter, the prototype was amended. The Plan Administrative Committee believes that the Plan as amended is currently designed and being operated in compliance with the applicable requirements of the Internal Revenue Code (“IRC”).
Abaxis 401(K) Plan
Notes to Financial Statements
December 31, 2013 and 2012
|
5.
|
Income Tax Status
, continued
|
Accounting principles generally accepted in the United States of America require plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the Internal Revenue Service. The Plan has not recorded a liability for any uncertain tax positions. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Plan Administrative Committee believes it is no longer subject to income tax examinations for years prior to 2010.
|
6.
|
Reconciliation to Form 5500
|
The following schedule is a reconciliation of net assets available for benefits and changes in net assets available for benefits per the financial statements to the Form 5500 as of December 31, 2013 and 2012:
|
|
|
2013
|
|
|
2012
|
|
|
Net assets available for benefits per the financial statements
|
|
$
|
23,246,633
|
|
|
$
|
18,419,981
|
|
|
Adjustment from contract value to fair value for fully benefit-responsive investment contracts
|
|
|
(5,861
|
)
|
|
|
91,947
|
|
|
Net assets available for benefits per the Form 5500
|
|
$
|
23,240,772
|
|
|
$
|
18,511,928
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net assets available for benefits per the financial statements
|
|
$
|
4,826,652
|
|
|
$
|
4,449,208
|
|
|
Change in adjustment from contract value to fair value for fully benefit-responsive investment contracts
|
|
|
(97,808
|
)
|
|
|
91,947
|
|
|
Change in net assets available for benefits per the Form 5500
|
|
$
|
4,728,844
|
|
|
$
|
4,541,155
|
|
|
7.
|
Risk and Uncertainties
|
The Plan provides for various investment options in any combination of investment securities. In addition, the Company’s common stock is included as an investment option in the Plan. Investment securities are exposed to various risks, such as those associated with interest rates, market conditions, and credit-worthiness of the securities’ issuers. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in market values, interest rates, or other factors will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the Statements of Net Assets Available for Benefits and the Statement of Changes in Net Assets Available for Benefits.
In accordance with accounting standards affecting disclosures of subsequent events, the Plan Administrative Committee evaluated subsequent events for recognition and disclosure through the date which these financial statements were issued. Effective June 1, 2014, JPMorgan Invest Holdings LLC (“JPMIH”) fully assumed all obligations, responsibilities and liabilities of JPMRPS as the Plan’s third-party-administrator. Effective June 25, 2014, the Plan Administrative Committee approved to change the interest rate on participant loans from prime rate to 2% above the prime rate and to amend the Plan’s eligibility requirements for part-time employees, both to be effective in 2014. The Plan Administrative Committee concluded that no other material subsequent event has occurred since December 31, 2013 that requires recognition or disclosure in the financial statements.
All investments are participant directed; therefore, cost information has not been presented.