<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 March 31, 1996
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Zaxis International Inc.
(Name of Issuer as specified in its charter)
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<CAPTION>
Delaware 0-15476 68-0080601
<S> <C> <C>
(State of Incorporation) (Commission File Number) ( IRS Employer Identification No.)
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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 May 9, 1996 there were 5,377,328 shares of Common Stock outstanding.
Page 1 of 10 Pages. Exhibit Index on Page 9.
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ZAXIS INTERNATIONAL INC.
FORM 10-QSB
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<CAPTION>
Page No.
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<S> <C>
Part I - Financial Information
Item 1. Financial Statements.
Consolidated Balance Sheet 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis. 7-8
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K. 9
SIGNATURES 9
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2
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ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
------
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<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
---------------- ----------------
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash $ 340,961 $ 135,574
Accounts receivable, net 139,980 54,356
Inventory 228,511 135,845
Prepaid expenses and other 131,985 39,700
---------------- ----------------
Total current assets 841,437 365,475
PROPERTY AND EQUIPMENT:
Machinery and equipment 279,703 185,093
Office equipment 169,520 163,284
Leasehold improvements 68,457 50,847
Furniture and fixtures 18,077 14,390
---------------- ----------------
535,757 413,614
Less accumulated depreciation 115,717 96,201
---------------- ----------------
420,040 317,413
OTHER ASSETS:
Deposits 19,094 19,094
Patent costs 28,041 26,124
Organization costs 6,910 7,502
---------------- ----------------
54,045 52,720
---------------- ----------------
TOTAL ASSETS $ 1,315,522 $ 735,608
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of lease obligations $ 7,552 $ 10,334
Notes payable 10,015 25,015
Accounts payable 286,972 200,262
Accrued expenses 181,260 198,512
---------------- ----------------
Total current liabilities 485,799 434,123
STOCKHOLDERS' EQUITY:
Common stock 53,773 49,027
Additional paid-in capital 5,184,737 4,152,631
Deferred compensation (39,292) (59,375)
Accumulated deficit (4,369,495) (3,840,798)
---------------- ----------------
Total stockholders' equity 829,723 301,485
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,315,522 $ 735,608
================ ================
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See notes to consolidated financial statements.
3
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ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
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<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------------
1996 1995
----------------- -----------------
<S> <C> <C>
Net sales $ 136,165 $ 36,195
Cost of goods sold 205,639 80,882
Selling, general and administrative expenses 461,580 333,832
----------------- -----------------
Loss from operations (531,054) (378,519)
Other income (expense):
Interest income 3,263 155
Miscellaneous income 742 -
Interest expense (1,648) (1,033)
----------------- -----------------
Total other income (expense) 2,357 (878)
----------------- -----------------
Net loss $ (528,697) $ (379,397)
================= =================
Net loss per common share $ (0.1) $ (0.12)
================= =================
Weighted average number of shares outstanding 5,239,931 3,117,267
================= =================
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See notes to consolidated financial statements.
4
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ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
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<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------------
1996 1995
----------------- -----------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (528,697) $ (379,397)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 20,833 10,643
Compensation due to stock option grants (10,894) 79,080
Changes in operating assets and liabilities:
Accounts receivable (85,624) (5,727)
Inventory and prepaid expenses (184,951) (7,838)
Accounts payable and accrued expenses 69,459 7,681
----------------- -----------------
Cash used in operating activities (719,874) (295,558)
INVESTING ACTIVITIES:
Purchase of property and equipment (122,143) (43,412)
Patent cost expenditures (2,643) (595)
----------------- -----------------
Cash used in investing activities (124,786) (44,007)
FINANCING ACTIVITIES:
Proceeds from sales of common stock 1,067,829 77,739
Payments on notes payable (15,000) -
Payments on capital lease obligations (2,782) (2,307)
Advances from investors - 474,000
----------------- -----------------
Cash provided by financing activities 1,050,047 549,432
----------------- -----------------
Increase in cash 205,387 209,867
Cash at beginning of period 135,574 9,112
----------------- -----------------
Cash at end of period $ 340,961 $ 218,979
================= =================
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See notes to consolidated financial statements.
5
<PAGE> 6
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 $528,697 during the three months ended March 31, 1996,
$1,729,000 in 1995 and $686,000 in 1994. Management expects that the Company
will continue to incur losses and use cash in operations at least until the
fourth quarter of 1996. At that point, it is expected that sales of existing
products will be at a higher level, reflecting recently completed agreements
with major distributors and the distribution of the Company's product catalog,
although there can be no assurance that positive cash flow from operations will
be achieved when expected. Completion of management's plans for new product
launching, research, development, and product manufacturing and packaging
enhancements are expected to require substantial expenditures. Management
estimates that funds available will be sufficient to cover operating and capital
expenditure needs until the middle of 1996.
Management recognizes that additional financial resources must be obtained in
order to execute its plans and to fund operations until they are expected to
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.
6
<PAGE> 7
ZAXIS INTERNATIONAL INC.
Item 2. Management's Discussion and Analysis.
Results of Operations
Sales for the three months ended March 31, 1996, totaled $136,000 compared with
$36,000 for 1995's first quarter. The increase was largely due to sales to new
distributors added in late 1995. Sales to accounts established early in 1995
were also higher in 1996.
Cost of goods sold was $206,000 in 1996, exceeding sales by 51%. Cost of goods
sold for 1995 was 125% more than the related sales. Costs continued to exceed
sales because sales volume is below capacity and the automation and integration
of production and packaging processes, while proceeding, are still not complete.
Selling, general and administrative expenses of $462,000 for the first quarter
of 1996 were up $128,000 or 38% from the comparable 1995 quarter. Higher
professional and consulting fees, more advertising expense and increased travel
costs are the principal reasons for the increase.
The net loss of $529,000 for the first quarter of 1996 compares with $379,000
for the prior year's first quarter. The loss per share of $.10 for 1996 was $.02
less than 1995 due to sales of 1,650,730 shares in the last two quarters of 1995
and the first quarter of 1996.
Financial Condition and Liquidity
Since December 31, 1995, the Company received $1.1 million from the sale of
common stock resulting from the exercise of Class A warrants. The principal uses
of these funds included operating activities ($720,000) and property and
equipment purchases ($122,000). The operating activities include accounts
receivable and inventory increases of $86,000 and $98,000, respectively,
reflecting actual and anticipated increases in activity.
The Company has not been profitable to date and expects to continue experiencing
operating losses at least until the fourth quarter of 1996. Until that point,
the Company does not expect to generate cash from operations. Although there can
be no assurance that profitable levels of operations will be achieved, the
Company believes that sales volume will continue to improve with the
distribution agreements initiated in late 1995 and early 1996 and with a new
distribution arrangement with a major U.S. distributor launched in May 1996.
The Company is seeking sources of funds to provide necessary working capital
while its operations are using cash and to provide the means to carry out its
business plan. Elements of that plan include:
o Marketing of the Company's LFS lipoprotein assay system, which management
believes can be priced competitively and can produce higher gross margins
than existing Company products.
o Further automation of manufacturing and packaging operations to reduce
costs and expand capacity to meet anticipated demand.
o Research and development of a line of cholesterol and blood serum tests
based on the LFS.
o Research and development of DNA sequencing products.
7
<PAGE> 8
The Company expects that cash on hand will be sufficient to meet current
commitments for capital expenditures, which do not include the capital and
research and development costs described in the preceding paragraph, and to fund
operations until approximately the middle of 1996. In order to continue
operations at anticipated levels beyond that point, the Company will require
additional financing and fulfillment of the plans described in the preceding
paragraph will require substantial funds. The Company does not currently have
commitments for any of the funds required, but is exploring several
possibilities for interim and long-term financing. The possibilities being
explored include a public offering of equity securities, an alliance or
partnership with a firm with sufficient sources of capital, curtailment of the
scope of operations, postponement of the plans described above, or a combination
of the foregoing. Once the Company decides the course of action, it is possible
that interim financing will be required to fund operations until completion of
the implementation of that course of action. There can be no assurance that the
Company will be successful in obtaining the interim or long-term financing.
8
<PAGE> 9
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 None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27 Financial Data Schedule Page 10.
(b) Reports on Form 8-K.
Form 8-K dated March 1, 1996 reported a change in Registrant's
certifying accountants and indicted that there were no
reportable disagreements with prior certifying
accountants.
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)
May 13, 1996 /s/ C. E. Leffler
-------------------------
C. E. Leffler
President
May 13, 1996 /s/ John V. Danis
-------------------------
John V. Danis
Vice President of Finance
9
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<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 340,961
<SECURITIES> 0
<RECEIVABLES> 139,980
<ALLOWANCES> 0
<INVENTORY> 228,511
<CURRENT-ASSETS> 841,437
<PP&E> 535,757
<DEPRECIATION> 115,717
<TOTAL-ASSETS> 1,315,522
<CURRENT-LIABILITIES> 485,799
<BONDS> 0
<COMMON> 53,773
0
0
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<TOTAL-LIABILITY-AND-EQUITY> 1,315,522
<SALES> 136,165
<TOTAL-REVENUES> 136,165
<CGS> 205,639
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<INTEREST-EXPENSE> 1,648
<INCOME-PRETAX> 2,357
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<NET-INCOME> 2,357
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