<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, 1997
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)
(330)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 June 30, 1997, there were 5,567,745 shares of Common Stock outstanding.
Page 1 of 10 Pages.
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ZAXIS INTERNATIONAL INC.
FORM 10-QSB
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets 3
Consolidated Statements of Operations:
Quarters ended June 30, 1997 and 1996 4
Six Months ended June 30, 1997 and 1996 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K. 9
SIGNATURES 10
</TABLE>
Page 2 of 10 Pages.
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ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
------
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 23,862 $ 1,090
Restricted cash $ 100,000
Accounts receivable, net 45,493 42,468
Inventory 166,597 139,209
Prepaid expenses and other 20,558 43,928
----------- -----------
Total current assets 256,509 326,695
PROPERTY AND EQUIPMENT:
Machinery and equipment 352,994 276,250
Office equipment 188,080 190,369
Leasehold improvements 86,992 86,992
----------- -----------
628,066 553,611
Less accumulated depreciation 238,259 184,852
----------- -----------
389,807 368,759
OTHER ASSETS:
Patent costs 36,436 33,125
Organization costs 3,948 5,132
----------- -----------
40,384 38,257
----------- -----------
TOTAL ASSETS $ 686,700 $ 733,711
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of lease obligations $ 8,713 $ 1,516
Bank loan payable $ - $ 100,000
Notes Payable to directors $ 426,300 $ 141,340
Notes payable 551,400 464,000
Accounts payable 470,181 551,623
Accrued expenses 99,826 92,593
----------- -----------
Total current liabilities 1,556,421 1,351,072
CAPITALIZED LEASE OBLIGATIONS 44,482
STOCKHOLDERS' EQUITY:
Common stock 55,677 54,380
$.01 par value, 12,000,000 shares authorized,
5,567,745 and 5,438,019 shares issued and outstanding
Additional paid-in capital 5,649,191 5,404,540
Deferred compensation (25,252) (30,868)
Accumulated deficit (6,593,819) (6,045,413)
----------- -----------
Total stockholders' equity (914,203) (617,361)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 686,700 $ 733,711
=========== ===========
</TABLE>
See notes to consolidated financial statements.
Page 3 of 10 Pages.
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ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net sales $ 75,339 $ 83,431
Cost of goods sold 76,498 318,034
Selling, general and administrative expenses 244,519 680,268
----------- -----------
Loss from operations (245,678) (914,871)
Other income (expense):
Interest income 80 1,614
Miscellaneous income - 449
Interest expense (20,533) (1,396)
----------- -----------
Total other income (expense) (20,453) 667
----------- -----------
Net loss $ (266,131) $ (914,204)
=========== ===========
Net loss per common share $ (0.05) $ (0.17)
=========== ===========
Weighted average number of shares outstanding 5,452,901 5,386,380
=========== ===========
</TABLE>
See notes to consolidated financial statements.
Page 4 of 10 Pages.
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ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net sales $ 142,800 $ 219,596
Cost of goods sold 165,869 523,673
Selling, general and administrative expenses 482,585 1,141,848
----------- -----------
Loss from operations (505,654) (1,445,925)
Other income (expense):
Interest income 1,287 4,877
Miscellaneous income - 1,191
Interest expense (44,039) (3,044)
----------- -----------
Total other income (expense) (42,752) 3,024
----------- -----------
Net loss $ (548,405) $(1,442,901)
=========== ===========
Net loss per common share $ (0.10) $ (0.27)
=========== ===========
Weighted average number of shares outstanding 5,468,778 5,394,689
=========== ===========
</TABLE>
See notes to consolidated financial statements.
Page 5 of 10 Pages.
<PAGE> 6
ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (548,405) $(1,442,901)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 56,643 43,858
Compensation due to stock option grants 5,616 (8,086)
Changes in operating assets and liabilities:
Accounts receivable (3,025) (12,584)
Inventory and prepaid expenses (21,702) (63,631)
Accounts payable and accrued expenses (74,209) 327,098
----------- -----------
Cash used in operating activities (585,082) (1,156,246)
INVESTING ACTIVITIES:
Purchase of property and equipment (74,455) (117,917)
Deposits 17,684 (32,684)
Patent cost expenditures (5,363) (4,580)
----------- -----------
Cash used in investing activities (62,134) (155,181)
FINANCING ACTIVITIES:
Proceeds from sales of common stock 245,948 1,163,715
Payments on notes payable 178,310
Proceeds from notes payable 372,360
Payments on capital lease obligations 51,679 (4,711)
----------- -----------
Cash provided by financing activities 669,987 1,337,314
----------- -----------
Increase in cash 22,772 25,887
Cash at beginning of period 1,090 135,574
----------- -----------
Cash at end of period $ 23,862 $ 161,461
=========== ===========
</TABLE>
See notes to consolidated financial statements.
Page 6 of 10 Pages.
<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 liabilites. 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, 1996.
2. LIQUIDITY
Zaxis incurred losses of $548,405 during the six months ended June 30, 1997,
$1,442,901 in 1996, $1,729,000 in 1995. The operations of the Company have been
financed mainly by loans from companies associated with members of the Board of
Directors and, to a lesser extent, by private sales of common stock.
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; convertible notes; postponement of plans for
research, development, and capital expenditures; or a combination of the
foregoing. There can be no assurance that the Company will be successful in
obtaining the interim or long-term financing. These conditions raise 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
The effects of outstanding options and warrants has not been included in the
calculation of net loss per share.
Page 7 of 10 Pages.
<PAGE> 8
PART 1. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Sales for the six months ended June 30, 1997, totaled $143,000 compared with
$220,000 for 1996's first six months. The decline was largely due to 1996 sales
containing one-time stocking orders by new outside distributors. Sales in the
second quarter were $75,000, compared to $68,000 in the first quarter.
Cost of goods sold for the six months ended June 30, 1997, was $166,000,
exceeding sales by $23,000. Cost of goods sold for the same period in 1996 was
$524,000, exceeding sales by $304,000.
Selling, general and administrative expenses were $483,000 for the six months
ended June 30, 1997, down from $1,142,000 for the same period in 1996.
Financial Condition and Liquidity
Sales of common stock generated $246,000 in the six months ended June 30, 1997,
and borrowings added another $424,000 to cash in that period. These funds were
used mainly in operations, which used $585,000 in cash. Since the end of 1996,
the excess of current liabilities over current assets has increased by $276,000
in the period, to $1,300,000 from $1,024,000.
The Company needs to secure immediate financing to allow it to exploit several
opportunities from new products that are at the end of the development stage,
afford it time to build sales volumes of these new products to profitable
levels, and satisfy obligations to current creditors. Pursuant to this need, the
Company is seeking funding for an offering of $660,000 in Convertible Two-Year
Notes; the offering ends on September 26, 1997, unless extended by the Board of
Directors.
The Board voted on August 11, 1997, to extend the expiration date on Class B
Warrants to 5 p.m. EST on January 15, 1998.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None of substantial nature.
Item 2(c). Changes in Securities
Shares totaling 123,308 were sold for a total of $245,948.
Item 3. Defaults upon Senior Securities
None
Page 8 of 10 Pages.
<PAGE> 9
Item 4. Submission of Matters to a Vote of Security Holders
On June 25, 1997, the Company held its Annual Meeting of Shareholders at the
Holiday Inn in Hudson, Ohio. A slate of five Directors presented by Management
in a duly issued Proxy Statement and Form of Proxy were elected to one-year
terms. The votes for the five directors elected were: Leonard A. Duval and
Calvin D. Wible, each receiving 3,076,278 For, 54,236 Against; Alan Scott and
Craig Jones, each receiving 3,076,306 votes For, 54,208 Against; and Conaly
Bedell, receiving 3,076,286 votes For, 54,228 Against and The only other matter
to come before the Shareholders for a vote at the Annual Meeting was the
re-appointment of Ernst & Young as Independent Accountants. The vote was
3,076,229 For, 43,661 Against and 624 Abstaining.
Item 5. Other Information
On May 20, 1997, John V. Danis, who served as an interim President and Chief
Executive Officer from January, 1997, resigned. Conaly Bedell, Chairman of the
Board, was elected by the Board to the positions of President and Chief
Executive Officer, effective that date.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits:
None
B. Reports on Form 8-K during the Quarter Ended June 30, 1997:
None
Page 9 of 10 Pages.
<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 12, 1997 BY: /s/ Conaly Bedell
------------------
Conaly Bedell, President
Chief Executive Officer
August 12, 1997 BY: /s/ Sharon Alloway
-------------------
Sharon Alloway, Controller
Accounting Officer
Page 10 of 10 Pages
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 23,862
<SECURITIES> 0
<RECEIVABLES> 45,493
<ALLOWANCES> 0
<INVENTORY> 166,597
<CURRENT-ASSETS> 256,509
<PP&E> 628,066
<DEPRECIATION> 238,259
<TOTAL-ASSETS> 686,700
<CURRENT-LIABILITIES> 1,556,421
<BONDS> 0
<COMMON> 55,677
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 686,700
<SALES> 142,800
<TOTAL-REVENUES> 144,087
<CGS> 165,869
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 482,585
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (44,039)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (548,405)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> 0
</TABLE>
