<PAGE> 1
FORM 10-QSB - QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Zaxis International Inc.
(Name of Issuer as specified in its charter)
Delaware 0-15476 68-0080601
(State of Incorporation) (Commission File Number) (IRS Employer
Identification No.)
1890 Georgetown Road, Hudson, Ohio 44236
(Address of principal executive office)
(216)650-0444
(Registrant's telephone number)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months and (2) has
been subject to such filings for the past 90 days. Yes[X] No[ ]
As of August 5, 1996 there were 5,402,998 shares of Common Stock outstanding.
Page 1 of 11 Pages. Exhibit Index on Page 9.
<PAGE> 2
ZAXIS INTERNATIONAL INC.
FORM 10-QSB
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I - Financial Information
Item 1. Financial Statements.
Consolidated Balance Sheet 3
Consolidated Statements of Operations:
Quarters ended June 30, 1996 and 1995 4
Six Months ended June 30, 1996 and 1995 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis. 8-9
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K. 10
SIGNATURES 11
</TABLE>
2
<PAGE> 3
ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
------
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------------- -----------
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash $ 161,462 $ 135,574
Accounts receivable, net 66,940 54,356
Inventory 188,249 135,845
Prepaid expenses and other 50,927 39,700
----------- -----------
Total current assets 467,578 365,475
PROPERTY AND EQUIPMENT:
Machinery and equipment 244,974 185,093
Office equipment 182,291 163,284
Leasehold improvements 86,189 50,847
Furniture and fixtures 18,077 14,390
----------- -----------
531,531 413,614
Less accumulated depreciation 137,422 96,201
----------- -----------
394,109 317,413
OTHER ASSETS:
Deposits 51,778 19,094
Patent costs 29,252 26,124
Organization costs 6,317 7,502
----------- -----------
87,347 52,720
----------- -----------
TOTAL ASSETS $ 949,034 $ 735,608
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of lease obligations $ 5,623 $ 10,334
Bank loan payable 99,985 25,015
Notes payable to directors 103,340 --
Accounts payable 529,457 200,262
Accrued expenses 196,415 198,512
----------- -----------
Total current liabilities 934,820 434,123
STOCKHOLDERS' EQUITY:
Common stock 54,029 49,027
Additional paid-in capital 5,280,368 4,152,631
Deferred compensation (36,484) (59,375)
Accumulated deficit (5,283,699) (3,840,798)
----------- -----------
Total stockholders' equity 14,214 301,485
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 949,034 $ 735,608
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net sales $ 83,431 $ 47,840
Cost of goods sold 318,034 93,546
Selling, general and administrative expenses 680,268 340,936
----------- -----------
Loss from operations (914,871) (386,642)
Other income (expense):
Interest income 1,614 1,227
Miscellaneous income 449 583
Interest expense (1,396) (2,267)
----------- -----------
Total other income (expense) 667 (457)
----------- -----------
Net loss $ (914,204) $ (387,099)
=========== ===========
Net loss per common share $ (0.7) $ (0.12)
=========== ===========
Weighted average number of shares outstanding 5,386,380 3,129,984
=========== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------------------
1996 1995
----------------- -----------------
<S> <C> <C>
Net sales $ 219,596 $ 84,035
Cost of goods sold 523,673 174,428
Selling, general and administrative expenses 1,141,848 674,768
----------- -----------
Loss from operations (1,445,925) (765,161)
Other income (expense):
Interest income 4,877 1,382
Miscellaneous income 1,191 583
Interest expense (3,044) (3,300)
----------- -----------
Total other income (expense) 3,024 (1,335)
----------- -----------
Net loss $(1,442,901) $ (766,496)
=========== ===========
Net loss per common share $ (0.2) $ (0.24)
=========== ===========
Weighted average number of shares outstanding 5,394,689 3,123,625
=========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1996 1995
----------- ---------
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(1,442,901) $(766,496)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 43,858 23,216
Compensation due to stock option grants (8,086) 158,168
Changes in operating assets and liabilities:
Accounts receivable (12,584) (18,302)
Inventory and prepaid expenses (63,631) 15,812
Accounts payable and accrued expenses 327,098 73,917
----------- ---------
Cash used in operating activities (1,156,246) (513,685)
INVESTING ACTIVITIES:
Purchase of property and equipment (117,917) (63,118)
Deposits (32,684) --
Patent cost expenditures (4,580) --
----------- ---------
Cash used in investing activities (155,181) (63,118)
FINANCING ACTIVITIES:
Proceeds from sales of common stock 1,163,715 77,739
Payments on notes payable 178,310 --
Payments on capital lease obligations (4,711) (4,794)
Advances from investors -- 676,300
----------- ---------
Cash provided by financing activities 1,337,314 749,245
----------- ---------
Increase in cash 25,887 172,442
Cash at beginning of period 135,574 9,112
----------- ---------
Cash at end of period $ 161,461 $ 181,554
=========== =========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements present the consolidated financial position and results
of operations of Zaxis International Inc. (International) and Zaxis Inc. (Zaxis
or the Company), its wholly-owned subsidiary.
On August 25, 1995, Zaxis merged with a subsidiary of The InFerGene Company
(InFerGene). InFerGene was an inactive public company and neither InFerGene nor
its subsidiary had any assets or liabilities. The merger, for accounting
purposes, was a reverse acquisition in which Zaxis acquired InFerGene. The
acquisition was accounted for as a purchase with no value assigned to InFerGene.
InFerGene then changed its name to Zaxis International Inc. The financial
statements include the operations of Zaxis for all periods presented and the
operations of International since the date of acquisition. All intercompany
transactions and balances have been eliminated.
The financial statements and notes thereto do not include all of the disclosures
necessary for a full presentation of financial condition and operating results,
and should be read in conjunction with the financial statements for the year
ended December 31, 1995.
2. LIQUIDITY
Zaxis incurred losses of $1,442,901 during the six months ended June 30, 1996,
$1,729,000 in 1995 and $686,000 in 1994. The operations of the Company have been
financed mainly by private sales of common stock and, to a lesser extent, by
loans from members of the Board of Directors.
Management recognizes that additional financial resources must be obtained in
order to execute its plans and to fund operations until they can generate cash,
and is in the process of exploring several possibilities for interim and
long-term financing. The possibilities that are being explored include the sale
of additional equity securities; alliances with other entities or other
arrangements that will provide the necessary funds; postponement of plans for
product launch, research, development, and capital expenditures; curtailment of
the scope of operations; or a combination of the foregoing. There can be no
assurance that the Company will be successful in obtaining the interim or
long-long-term financing. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. No adjustments to the amounts
or classification of assets and liabilities which could result from the outcome
of this uncertainty are reflected in the financial statements.
3. NET LOSS PER COMMON SHARE
Net loss per share has been calculated giving retroactive effect to the exchange
ratio of Zaxis Inc. common stock for shares of Zaxis International Inc. in the
August 25, 1995 merger. The effects of outstanding options and warrants has not
been included in the calculation of net loss per share because their inclusion
would not be dilutive.
7
<PAGE> 8
ZAXIS INTERNATIONAL INC.
Item 2. Management's Discussion and Analysis.
Results of Operations
Sales for the six months ended June 30, 1996, totaled $220,000 compared with
$84,000 for 1995's first six months. The increase was largely due to sales in
connection with new programs launched with outside distributors in late 1995 and
early 1996. Sales in the second quarter of 1996 of $83,000 were down $53,000
from the first quarter's $136,000. The decrease was due to the impact of initial
stocking orders for outside distributors which benefited the first quarter.
Cost of goods sold amounted to $524,000 in 1996, exceeding sales by $304,000.
Cost of goods sold for 1995 of $174,000 was $90,000 more than the related sales.
Costs continued to exceed sales because sales volume is below capacity. In
addition, 1996 sales include distributor demonstration equipment and devices at
discounted prices, producing a high cost to sales ratio.
Selling, general and administrative expenses were $1,142 for the six months
ended June 30, 1996, up $467,000 or 69% from the previous year. Higher
professional and consulting fees, more advertising expense and increased travel
costs are the principal reasons for the increase. Sales, executive and
administrative salaries were also higher in 1996 than in 1995 due to added
personnel, but that increase was offset by a decline in non-cash compensation
due to stock option plans.
Financial Condition and Liquidity
Sales of common stock generated $1.2 million and borrowings added another
$178,000 to cash. These funds were mainly used in operations, which used $1.2
million in cash, net of a $327,000 increase in accounts payable. Since the end
of 1995, the excess of current liabilities over current assets has increased to
$467,000 from $68,000.
The Company needs to secure immediate financing to allow it to exploit several
opportunities from new products that are completed or are nearly out of the
development stage, afford it the time required to build sales volumes of
existing products to profitable levels, and satisfy the demands of current
creditors. The opportunities that the Company is pursuing include:
- - Joint ventures with laboratory instrument manufacturers which would
provide immediate funds and help secure the rights to patents which the
Company has options to acquire.
- - Marketing programs financed by advance payment by pharmaceutical
manufacturers of atherosclerotic therapeutic drugs for mass series of
lipoprotein assays to measure the efficacy of patient treatment.
- - Joint ventures with molecular biology companies for mass production of the
Company's new long-life DNA sequencing gel product.
- - Significant investments by private investors, venture capitalists, and/or
institutional investors in anticipation of FDA approval of the Company's
lipoprotein assay system.
8
<PAGE> 9
ZAXIS INTERNATIONAL INC.
While there have been favorable developments regarding all of the opportunities
mentioned above, none have yet been consummated and there can be no assurance
that any of them will be successfully concluded.
Part II-Other Information
Item 1. Legal Proceedings None.
Item 2. Changes in Securities None.
Item 3. Defaults Upon Senior Securities None.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders on June 13, 1996, the
following directors were elected to one year terms: Leonard A. Duval, Charles E.
Leffler, Steven Tsengas and Calvin D. Wible with 3,169,040 shares voted in favor
and 372,450 abstaining; Gregory S. Bambeck and Jon M. Roskowski with 3,145,877
in favor and 395,613 abstaining: and Vincent Tabatneck with 3,149,040 in favor
and 392,450 abstaining. In addition, Stockholders approved the Company's
Restated 1995 Long-Term Incentive Plan with 3,431,575 shares voted in favor,
24,315 against and 53,240 abstaining; approved the Company's 1996 Non-Employee
Directors' Stock Option Plan, 3,392,394 for, 85,430 against and 31,306
abstaining; and ratified the appointment of Ernst & Young LLP as independent
accountants, 3,508,158 for, 23,187 against and 10,146 abstaining.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27 Financial Data Schedule Page 11
(b) Reports on Form 8-K.
None.
9
<PAGE> 10
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Zaxis International Inc.
------------------------
(Registrant)
August 13, 1996 /s/ C. E. Leffler .
------------------------
C.E. Leffler
President
August 13, 1996 /s/ John V. Danis .
------------------------
John V. Danis
Vice President of Finance
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 161,462
<SECURITIES> 0
<RECEIVABLES> 66,940
<ALLOWANCES> 0
<INVENTORY> 188,249
<CURRENT-ASSETS> 467,578
<PP&E> 531,531
<DEPRECIATION> 137,422
<TOTAL-ASSETS> 949,034
<CURRENT-LIABILITIES> 934,820
<BONDS> 0
<COMMON> 54,029
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 949,034
<SALES> 219,596
<TOTAL-REVENUES> 219,596
<CGS> 523,673
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,044)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,442,901)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> 0
</TABLE>
