<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, 1998
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
Zaxis International Inc.
(Name of Issuer as specified in its charter)
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<S> <C> <C>
Delaware 0-15476 68-0080601
(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)
(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[ ] No [ ]
As of October 30, 1998 there were 5,800,073 shares of Common Stock outstanding
Page 1 of 10
<PAGE> 2
ZAXIS INTERNATIONAL. INC.
FORM~1O~QSB
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<CAPTION>
Page No.
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PART I. FINANCIAL INFORMATION
Item I Financial Statements.
Consolidated Balance Sheets 3
Consolidated Statements of Operations:
Quarter ended September 30, 1998 and 1997 4
Nine Months ended September 30, 1998 and 1997 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis 8-9
SIGNATURES 10
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Page 2 of 10
<PAGE> 3
ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
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<CAPTION>
ASSETS
------
30-Sep December 31,
1998 1997
------------- ------------
(Unaudited)
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CURRENT ASSETS:
Cash $ 11,526 $ 81,410
Restricted cash -- --
Accounts receivable, net 17,321 39,071
Inventory 57,772 76,320
Prepaid expenses and other 26,908 16,908
------------ ------------
Total current assets 113,528 213,709
PROPERTY AND EQUIPMENT:
Machinery and equipment 359,671 353,461
Office equipment 190,065 189,117
Leasehold improvements 86,992 86,992
------------ ------------
636,728 629,570
Less accumulated depreciation 366,619 289,610
------------ ------------
270,109 339,960
OTHER ASSETS:
Patent costs 39,469 41,853
Organization costs 987 2,764
------------ ------------
40,456 44,617
------------ ------------
TOTAL ASSETS $ 424,092 $ 598,286
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABLITIES
Current portion of lease obligations $ 10,238 $ 10,238
Bank loan payable -- --
Notes Payable to directors 375,000 92,020
Notes payable 128,000 118,000
Accounts payable 442,368 430,513
Accrued expenses 423,288 222,327
------------ ------------
Total current liabilities 1,378,894 873,098
LONG TERM DEPT:
Capitalized lease obligations 31,854 38,763
Long term notes payable 481,289 271,289
Long term notes directors 843,922 777,590
------------ ------------
Long term debt 1,357,064 1,087,642
STOCKHOLDERS' EQUITY
Common stock 57,879 57,450
$.01 par value, 12,000,000 shares authorized,
5,787,882 and 5,744,991 shares issued and outstanding
Additional paid-in capital 5,948,333 5,945,774
Deferred compensation -- --
Accumulated deficit (8,318,079) (7,365,678)
------------ ------------
Total stockholders' equity (2,311,867) (1,362,454)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 424,092 $ 598,286
============ ============
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See notes to consolidated financial statements.
3 of 10 Pages
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ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
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<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
----------------------------
1998 1997
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Net sales $ 58,130 $ 79,620
Cost of goods sold 129,098 148,647
Selling, general and administrative expenses 203,231 230,160
------------ ------------
Loss from operations (274,200) (299,187)
Other income (expense):
Interest income 64 407
Miscellaneous income 486 400
Loss on sale of asset
Interest expense (41,819) (28,530)
------------ ------------
Total other income (expense) (41,270) (27,723)
------------ ------------
Net loss $ (315,469) $ (326,910)
============ ============
Net loss per common share
Basic $ (0.05) $ (0.06)
============ ============
Diluted $ (0.05) $ (0.06)
============ ============
Weighted average number of shares outstanding
Basic 5,763,299 5,486,466
============ ============
Diluted 5,763,299 5,486,466
============ ============
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See notes to consolidated financial statements.
Page 4 of 10 Pages.
<PAGE> 5
ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
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<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1998 1997
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Net sales $ 153,518 $ 222,420
Cost of goods sold 410,398 314,516
Selling, general and administrative expenses 584,963 712,745
------------ ------------
Loss from operations (841,844) (804,841)
Other income (expense):
Interest income 430 1,694
Miscellaneous income 6,638 400
Loss on sale of asset (173)
Interest expense (117,237) (72,569)
------------ ------------
Total other income (expense) (110,342) (70,475)
------------ ------------
Net loss $ (952,186) $ (875,316)
============ ============
Net loss per common share
Basic $ (0.17) $ (0.16)
============ ============
Diluted $ (0.17) $ (0.16)
============ ============
Weighted average number of shares outstanding
Basic 5,763,299 5,540,317
============ ============
Diluted 5,763,299 5,540,317
============ ============
</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
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<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (952,186) $ (875,316)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 83,611 87,863
Compensation due to stock grants 2,773 8,424
Other (Interest connection to notes) 20,638
Changes in operating assets and liabilities:
Accounts receivable 21,750 6,002
Inventory and prepaid expenses 8,548 (3,069)
Accounts payable and accrued expenses 212,816 (77,430)
------------ ------------
Cash used in operating activities (622,688) (832,888)
INVESTING ACTIVITIES:
Purchase of property and equipment (7,356)
Deposits
Patent cost expenditures (2,243) (11,992)
------------ ------------
Cash used in investing activities (9,599) (11,992)
FINANCING ACTIVITIES:
Proceeds from sales of common stock 165,000
Payments on notes payable (12,020) (330)
Proceeds from notes payable 581,332 800,000
Payments on capital lease obligations (6,909) (8,245)
------------ ------------
Cash provided by financing activities 562,403 956,425
------------ ------------
Increase in cash (69,884) 111,545
Cash at beginning of period 81,410 1,090
------------ ------------
Cash at end of period $ 11,526 $ 112,635
============ ============
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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.
Zaxis Incorporated was founded in 1989 as a privately held Ohio corporation. 0n
August 25, 1995, Zaxis merged with a subsidiary of The InFerGene Company
(InFerGene). InFerGene was an inactive publicly traded Delaware corporation
founded in 1985. Neither lnFerGene 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 lnFerGene. 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.
As an interim report, 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, 1997.
2. LIQUIDITY
Zaxis incurred losses of $952,186 during the nine months ended September 30,
1998, and $875,316 in the nine months ended September 30, 1997. During 1998,
operations of the Company have been financed by loans from shareholders and
private investors, members of the Board of Directors, and related persons and
entities. The Company continues to reply upon these and related sources to
sustain on-going operations, research, product development and sales
development.
In the third quarter, a more than five-percent shareholder, Progen Industries,
Ltd., of Brisbane, Australia (NASDAQ: PGLAF) made a funding commitment to Zaxis
in the amount of $1,000,000 AUS, which funds were to be, and are being, provided
to the Company as a paced investment in 9 1/2% Convertible Notes. Once fully
funded, and added to owned stock, prior notes and attached warrants, Progen
would hold a fully diluted position in Zaxis of more than 10 percent. The
Company continues with other discussions regarding long-term debt and/or equity
fundings. The Company will continue to be reliant upon investor fundings until
the marketing of the Company's principal products can be brought to a level
sufficient to support the operating requirements of the Company. These
conditions cause 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 have not been included in the
calculation of net loss per share.
Page 7 of 10
<PAGE> 8
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, 1998, totaled $153,518 compared
with $222,420 for 1997's first nine months. The decline was largely due to
decrease in water sales in 1998.
Cost of goods sold for the months ended September 30, 1998 was $410,398,
exceeding sales by $256,880. Cost of goods sold for the same period in 1997 was
$314,516, exceeding sales by $92,096.
Selling. General and administrative expenses were $584,963 for the nine months
ended September 30, 1998, down from $712,745 for the same period in 1997.
Financial Condition and Liquidity
In the nine months ended September 30, 1998, borrowings added $569,312 to cash
in that period. These funds were used mainly in operations, which used $622,688
in cash.
The Company needs to secure immediate financing to allow it to explore serveral
opportunities from new products that are now available for market introduction
and to afford it time to build sales volumes of these new products to profitable
levels. In the period required for product introduction and sales growth, the
company will need to satisfy obligations to current creditors. Pursuant to this
need, the Company continues to seek interim funding.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None of substantial nature.
Item 2(c). Changes in Securities None
Item 3. Default upon Senior Securities
The company is more than 30 days past due on principal payments on four
individual C series notes totaling $25,000. The company is more than 30 days
past due on interest payments on above referenced C series notes in the amount
of $3,333 and is more than 30 days past due on interest payment on 9 1/2%
Convertible notes in the amount of $46,082.
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:
None
B. Reports on Form 8-K during the Quarter Ended September 30, 1998:
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 the undersigned, thereunto duly
authorized.
Zaxis International Inc.
------------------------
(Registrant)
November 13, 1998 BY: S/S Conaly Bedell
-----------------
Conaly Bedell, President
Chief Executive Officer
November 13, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 11,526
<SECURITIES> 0
<RECEIVABLES> 37,321
<ALLOWANCES> (20,000)
<INVENTORY> 57,772
<CURRENT-ASSETS> 113,528
<PP&E> 636,728
<DEPRECIATION> 366,619
<TOTAL-ASSETS> 424,092
<CURRENT-LIABILITIES> 1,378,894
<BONDS> 0
0
0
<COMMON> 57,879
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 424,092
<SALES> 153,518
<TOTAL-REVENUES> 160,586
<CGS> 410,398
<TOTAL-COSTS> 995,361
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 117,237
<INCOME-PRETAX> (952,186)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (952,186)
<EPS-PRIMARY> 0
<EPS-DILUTED> (.17)
</TABLE>
