<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 September 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 November 10, 1997, there were 5,717,570 shares of Common Stock
outstanding.
Page 1 of 10
<PAGE> 2
ZAXIS INTERNATIONAL INC.
FORM 10-QSB
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets 3
Consolidated Statements of Operations:
Quarter ended September 30, 1997 and 1996 4
Nine Months ended September 30, 1997 and 1996 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis 8-9
SIGNATURES 10
</TABLE>
Page 2 of 10 Pages.
<PAGE> 3
ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
------
30-SEP DECEMBER 31,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 112,635 $ 1,090
Restricted cash $ -- $ 100,000
Accounts receivable, net 36,466 42,468
Inventory 150,364 139,209
Prepaid expenses and other 18,158 43,928
----------- -----------
Total current assets 317,623 326,695
PROPERTY AND EQUIPMENT:
Machinery and equipment 352,994 276,250
Office equipment 188,748 190,369
Leasehold improvements 86,992 86,992
----------- -----------
628,734 553,611
Less accumulated depreciation 267,120 184,852
----------- -----------
361,614 368,759
OTHER ASSETS:
Patent costs 41,681 33,125
Organization costs 3,356 5,132
----------- -----------
45,037 38,257
----------- -----------
TOTAL ASSETS $ 724,274 $ 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 $ 648,010 $ 141,340
Notes payable 409,289 464,000
Accounts payable 465,273 551,623
Accrued expenses 116,513 92,593
----------- -----------
Total current liabilities 1,647,798 1,351,072
CAPITALIZED LEASE OBLIGATIONS 42,424
STOCKHOLDERS' EQUITY:
Common stock 57,039 54,380
$.01 par value, 12,000,000 shares authorized,
5,703,923 and 5,438,019 shares issued and outstanding
Additional paid-in capital 5,920,186 5,404,540
Deferred compensation (22,444) (30,868)
Accumulated deficit (6,920,729) (6,045,413)
----------- -----------
Total stockholders' equity (965,948) (617,361)
-----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 724,274 $ 733,711
=========== ===========
</TABLE>
See notes to consolidated financial statements
Page 3 of 10 Pages.
<PAGE> 4
ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net sales $ 79,620 $ 119,794
Cost of goods sold 148,647 191,560
Selling, general and administrative expenses 230,160 311,664
----------- -----------
Loss from operations (299,187) (383,430)
Other income (expense):
Interest income 407 1,319
Miscellaneous income 400 263
Interest expense (28,530) (6,528)
----------- -----------
Total other income (expense) (27,723) (4,946)
----------- -----------
Net loss $ (326,910) $ (388,376)
=========== ===========
Net loss per common share $ (0.06) $ (0.07)
=========== ===========
Weighted average number of shares outstanding 5,486,466 5,413,218
=========== ===========
</TABLE>
See notes to consolidated financial statements.
Page 4 of 10 Pages.
<PAGE> 5
ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net sales $ 222,420 $ 339,390
Cost of goods sold 314,516 715,233
Selling, general and administrative expenses 712,745 1,453,512
----------- -----------
Loss from operations (804,841) (1,829,355)
Other income (expense):
Interest income 1,694 6,196
Miscellaneous income 400 1,454
Interest expense (72,569) (9,572)
----------- -----------
Total other income (expense) (70,475) (1,922)
----------- -----------
Net loss $ (875,316) $(1,831,277)
=========== ===========
Net loss per common share $ (0.16) $ (0.34)
=========== ===========
Weighted average number of shares outstanding 5,540,317 5,346,509
=========== ===========
</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>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1997 1996
--------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(875,316) $(1,831,277)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 87,863 66,881
Compensation due to stock option grants 8,424 (5,278)
Other (Interest connection to notes) 20,638
Changes in operating assets and liabilities:
Accounts receivable 6,002 (13,956)
Inventory and prepaid expenses (3,069) 21,873
Accounts payable and accrued expenses (77,430) 275,499
--------- -----------
Cash used in operating activities (832,888) (1,486,258)
INVESTING ACTIVITIES:
Purchase of property and equipment (122,359)
Deposits (58,984)
Patent cost expenditures (11,992) (8,384)
--------- -----------
Cash used in investing activities (11,992) (189,727)
FINANCING ACTIVITIES:
Proceeds from sales of common stock 165,000 1,261,780
Payments on notes payable (330) 405,325
Proceeds from notes payable 800,000
Payments on capital lease obligations (8,245) (7,986)
--------- -----------
Cash provided by financing activities 956,425 1,659,119
---------------------------
Increase in cash 111,545 (16,866)
Cash at beginning of period 1,090 135,574
--------- -----------
Cash at end of period $ 112,635 $ 118,708
========= ===========
Non cash transactions:
Capital lease 57,866.00
Notes converted to stock 353,305.00
</TABLE>
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 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, 1996.
2. LIQUIDITY
Zaxis incurred losses of 875,316 during the nine months ended September 30,
1997, 1,831,277 in 1996, $1,729,000 in 1995. The operations of the Company have
been financed mainly by private sales of common stock and by loans of members of
the Board of Directors and private investors.
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 pursuing several possibilities for interim and
long-term financing. The Company has engaged an investment banking firm to
assist in the private placement of debt securities for interim needs and will
them pursuing long-term financing, possibly through the sale of common stock.
There can be no assurance that the Company will be successful in obtaining the
interim of long-term financing. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. No adjustments to the
amounts of 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 have not been included in the
calculation of net loss per share.
Page 7 of 10
<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 nine months ended September 30, 1997, totaled $222,420 compared
with $339,390 for 1996's first nine months. The decline was largely due to 1996
sales containing one-time stocking orders by new outside distributors. Sales for
the third quarter were $79,000, compared to $68,000 in the first quarter and
$75,000 in the second quarter.
Cost of goods sold for the nine months ended September 30, 1997, was $314,516,
exceeding sales by $92,096. Cost of goods sold for the same period in 1996 was
$715,233, exceeding sales by $375,843.
Selling, general and administrative expenses were $712,745 for the nine months
ended September 30, 1997, down from $1,453,512 for the same period in 1996.
Financial Condition and Liquidity
Sales of common stock generated $165,000 in the nine months ended September 30,
1997, and borrowings added another $800,000 to cash in that period. These funds
were used mainly in operations, which used $832,888 in cash. Since the end of
1996, the excess of current liabilities over current assets has increased by
$305,798 in the period, to $1,330,175 from $1,024,377.
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 November 15, 1997.
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 259,486 were sold for a total of $518,300
Item 3. Defaults upon Senior Securities
None
Page 8 of 10
<PAGE> 9
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:
Financial Data Schedule - Ex. 27
B. Reports on Form 8-K during the Quarter Ended September 30, 1997:
None
Page 9 of 10
<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)
November 13, 1997 BY: S/S Conaly Bedell
---------------------
Conaly Bedell, President
Chief Executive Officer
November 13, 1997 BY: S/S Sharon Killinger
---------------------
Sharon Killinger, Controller
Accounting Officer
Page 10 of 10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 112,635
<SECURITIES> 0
<RECEIVABLES> 36,466
<ALLOWANCES> 0
<INVENTORY> 150,364
<CURRENT-ASSETS> 317,623
<PP&E> 628,734
<DEPRECIATION> 267,120
<TOTAL-ASSETS> 724,274
<CURRENT-LIABILITIES> 1,647,798
<BONDS> 0
0
0
<COMMON> 57,039
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 724,274
<SALES> 222,420
<TOTAL-REVENUES> 224,514
<CGS> 314,516
<TOTAL-COSTS> 314,516
<OTHER-EXPENSES> 712,745
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72,569
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (875,316)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> 0
</TABLE>
