<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1997
ZAXIS INTERNATIONAL INC.
(Name of Small Business Issuer in Its Charter)
Delaware 0-15476 68-0080601
(State of Incorporation) (Commission (IRS Employer Identification No.)
File Number)
1890 Georgetown Road, Hudson, Ohio 44236
(Address of principal executive office)
(330) 650-0444
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
$.01 par value.
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[ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $276,923.
The aggregate market value of the voting stock held by non-affiliates was
$4,151,694 based on the average of the bid and asked prices on April 13, 1998
($.72). Officers and directors are considered affiliates for purposes of this
calculation. The bid and asked prices are based on a small volume of infrequent
trading in the stock.
As of March 31, 1998, there were 5,766,242 shares of common stock outstanding.
Transitional Small Business Disclosure Format. Yes[ ] No[X]
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of Issuer's definitive proxy statement for its 1998 Annual Meeting of
Stockholders, which the Issuer has filed, are incorporated by reference into
Part III.
Page 1 of 20 pages. Exhibit index is located on page 8.
<PAGE> 2
PART 1
ITEM 1. DESCRIPTION OF BUSINESS.
BUSINESS DEVELOPMENT
Zaxis International Inc. ("International") is a holding company which operates
its business through its wholly-owned subsidiary, Zaxis Inc. ("Zaxis"). Zaxis
was incorporated in Ohio in 1989. On August 25, 1995, Zaxis merged with a
subsidiary of The InFerGene Company ("InFerGene") and InFerGene changed its name
to Zaxis International Inc. InFerGene and its subsidiary were inactive and had
no assets or liabilities at the time of the merger. InFerGene was incorporated
in Delaware in 1985. For accounting and tax purposes, the merger was treated as
a reverse acquisition in which Zaxis acquired International.
Zaxis was founded by Raymond Gesinski, Ph.D., (deceased), and Gregory Bambeck,
Ph.D., Director of Research, to develop products for use in life sciences
research. Each had backgrounds in genetic research, cardiovascular diagnostic
developments, and polymer technology in gene separation applications. In 1994
and 1995, Zaxis implemented a program to develop, manufacture and market a
complete product line based on the research of Drs. Gesinski and Bambeck and to
continue research and development of related products. During that period, the
Company moved into new manufacturing and office facilities, installed automated
and computer controlled production equipment, added key management personnel,
prepared its lipoprotein testing system for FDA approval, and began establishing
marketing arrangements with domestic and foreign distributors. A private
placement of common stock and warrants to purchase common stock was completed in
the third quarter of 1995, adding capital funds of $1.4 million. In 1996,
holders exercised 465,743 Class A Warrants, providing $1,048,000 in additional
capital funds and International sold approximately $605,000 in notes with
warrants attached in private sales. Of those notes, in 1997, $391,410 were
converted to stock. In 1997, renewals and new notes issued under a 9-1/2% and
10% Convertible Note offering totaled $1,213,879. Equity capital in the amount
of $170,000 was provided through issuance of common stock.
BUSINESS OF ISSUER
Zaxis manufactures and sells products used in an electrochemical process known
as electrophoresis which is used in more than 55,000 laboratories world wide in
applications for the separation and identification of genes (e.g., DNA) and gene
products (e.g., RNA, proteins). A variety of techniques, formats, materials,
compounds, equipment and devices are employed in electrophoresis, and Zaxis'
catalog includes products for virtually all of these needs. Zaxis' research and
marketing direction is focused on the consumables segment of the electrophoresis
market, predominately on pre-cast gels.
Electrophoresis has been in use for over fifty years. Laboratory applications
cover a broad spectrum, including medical diagnostics, immunology, agriculture,
criminology, forensics, pharmaceuticals, quality assurance and DNA and RNA
research. A simplified explanation of the process describes it as the
application of specimens, such as bacteria, blood serum, body tissue or plant
tissue, to a gel substance which is then subjected to electric current while
submerged in a liquid filled chamber. The sample material breaks down and its
molecules are deposited on the gel substance in a unique pattern which can be
compared to other samples to determine similarities or differences. The pattern
of molecules is popularly referred to as a "bar code" of living matter.
The usefulness of the information from electrophoresis depends on the clarity
and consistency of the results (or resolution) which is dependent upon a variety
of factors, including consistency of manufacturing materials and methods for the
devices, chemicals and gels. Gels can be compounded
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and polymerized in the end user's laboratory by technicians or supplied in
precast form in plastic or glass cassettes. Generally, gels are made from one of
two materials: a natural plant-based substance called agarose or an
acrylamide-based substance. Agarose gels are generally limited to use with
proteins of larger molecular size and have not been available in pre-cast form
until 1997. Polyacrylamide gels are available in precast cassettes or may be
prepared by the technician from compounds or premixed preparations. The precast
cassette offers the advantages of convenience, efficiency, and reliability and
are being used by a growing number of users.
Zaxis' core product is a precast polyacrylamide gel cassette based upon its
in-house research utilizing proprietary polymer chain length control ("PCL")
technology. The gel cassettes can be used with Zaxis' proprietary
electrophoresis devices or with devices of other manufacturers. Zaxis' product
line includes electrophoresis systems and components, chemicals, compounds,
stains, reagents, chambers, power supplies, computers, scanners, and accessories
in addition to gel cassettes. The gel cassettes, chemical compounds and many of
the acrylic components are manufactured or assembled by Zaxis in its facility,
while the microprocessor components, scanners, power supplies and other system
components are manufactured to Zaxis' specifications by other companies.
In its initial pre-cast gel product line introduction in 1995, the Company was
not able to gain any significant market share due to production quality
variances and a novel application method proprietary to Zaxis' products, which
was thought to be a selling advantage, but proved not to be. In March 1997,
under the direction of a new management team, the poly-acrylamide product line
was removed from market except for continued shipments to existing customers,
and an extensive re-design of the product was undertaken. An advanced
formulation of the basic product line was introduced to Beta-site testing in
December 1997, and test-user responses have been encouraging. In several
instances, testers have started placing orders on a repeat basis, and all of the
Company's existing distribution sources for the product have accepted the
re-designed product into their inventory to replace the prior version. Based on
the re-designed product line, discussions are being conducted with additional
potential distributors for the line.
Zaxis developed and sells a lipoprotein assay system, consisting of a
poly-gradient electrophoresis gel, electrophoresis processing equipment,
reagents, gel scanner, computer software and hardware. The system measures the
relative percentages of High Density and Low Density Lipoproteins (HDL and LDL)
in human blood serum in a single test from single samples. Within the general
categories of HDL and LDL are subfractions variously designated as Very Low
Density Lipoprotein, LDL 1, 2 and 3 and HDL 1,2 and 3. The Zaxis system obtains
its measurement by separating the subfractions and then programatically
computing the totals of the components, rather than simply measuring the two
masses of LDL and HDL, as competing systems do. The system was granted FDA
marketing approval in September 1996 on the basis that it provided measurements
in terms of total LDL and HDL equivalent to other systems already approved. The
lipoprotein subfractions measurements unique to the Zaxis system were not part
of the FDA clearance for clinical marketing purposes, but are the subject of
ongoing research by the Zaxis research and development staff and by outside
researchers who have purchased the Zaxis system. In December 1996, the Company
was granted a patent for the poly-gradient gel component of the system
The Company has been marketing the lipoprotein assay system to researchers since
March 1996. In late 1996, the Company began selling lipoprotein gels and reagent
kits separately, to researchers who had not purchased the systems. The Company
has not actively pursued the clinical market yet because it does not currently
possess the staff and marketing resources to do so. Sales of the system and
supplies of lipoprotein gels for use in the system continue to be made to
researchers who learn of the product through researcher channels of information.
The Company has successfully designed and produced a long-life, full-sized
pre-cast gel for use in DNA sequencing and has received satisfactory reports on
prototype gels placed for Beta-testing with
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several companies that manufacture or market DNA sequencing instruments and
supplies. Based on the performance of the new product line, discussions are
being conducted with potential distributors for the line. The Company believes
that at this time its pre-cast DNA sequencing gel will be the only marketed gel
to meet all the parameters as required by researchers and fulfilling
specifications needed in the DNA sequencing market.
SUPPLIERS
The raw materials and system components that Zaxis uses in its products are
readily available from several reliable sources.
CUSTOMERS AND DISTRIBUTION METHODS
Three customers accounted for 69% of sales and seven customers accounted for 84%
of sales in 1997. Two customers accounted for 46% of sales in 1996. The three
largest customers in 1997 were OEM accounts. Three of the seven largest
customers sell Zaxis products under the Zaxis brand label. The Company sells
directly to research, educational and medical institutions under the Zaxis
brand.
PATENTS, TRADEMARKS, AGREEMENTS
In addition to the December 1996 patent on the poly-gradient gel, the Company
has patents on its electrophoresis device, a cassette and a cassette component.
The Company has three patent- applications pending, including one on the DNA
product that is slated for market introduction in 1998. The Company has U.S.
trademarks covering "Zaxis - A New Dimension In Technology" and the term
"Z-Gel." In addition, Zaxis relies on trade secrets and proprietary knowledge.
There can be no assurance that patents will not be challenged or breached or
that confidentiality agreements will not be breached.
Zaxis owns the software for its Lipoprotein Fractionation System, LFS, and
grants limited, non-exclusive rights to the use of the software by its customers
who purchase the Lipoprotein Fractionation System.
GOVERNMENTAL REGULATIONS
The Zaxis manufacturing plant is a registered FDA facility and is subject to FDA
regulation, including audit and review for compliance with agency rules. The
Company believes it is in compliance with the FDA regulations. The facility has
not been audited and the Company has not received notice of any planned or
pending audits. As a result of the award of a Governmental Services Agency
contract, which became effective April 1, 1998, the Company is subject to
routine audits of GSA vendors.
RESEARCH AND DEVELOPMENT
Research and development costs were approximately $126,940 in 1997 and $167,328
in 1996. None of the expenses were borne by customers.
ENVIRONMENTAL LAWS
Zaxis has not incurred any costs specifically for compliance with environmental
laws and does not anticipate any material costs solely for this purpose. The
Company is subject to routine hazardous materials handling rules of the
Environmental Protection Agency, if and when such materials are employed in a
manufacturing process.
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EMPLOYEES
Zaxis has 18 full time employees. In addition, the Company utilizes outside
consultants and, on occasion, temporary help on a contract basis.
The Company believes it has good relations with its employees and has
experienced no strikes or work stoppages.
ITEM 2. DESCRIPTION OF PROPERTY.
Zaxis' operations are conducted in a facility consisting of a 19,800-square-foot
building in Hudson, Ohio, which is rented under a lease expiring October 31,
1998. The building is approximately seven years old, is in good condition and is
sufficient for currently anticipated needs of the Company for at least three
years. The building has been offered to the Company by an agent for the owner
for purchase by the Company but no decision has been made concerning whether to
pursue this offer.
ITEM 3. LEGAL PROCEEDINGS.
None other than routine litigation incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of 1997.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no established public trading market at present in the United States or
elsewhere for International's common stock. Over-the-counter trading volume is
reported by NASD through its "Bulletin Board" system. Trading was light during
1997 but increased gradually as the year progressed. There were some more than
2,500 holders of record of International common stock at the end of the first
quarter 1998, including holders of InFerGene and Zaxis shares who have yet to
exchange their shares for International shares. No cash dividends have been
declared on the common stock and none are currently anticipated. The high and
low bid prices quoted for each quarter during the last two fiscal years are
presented below. The quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.
<TABLE>
<CAPTION>
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
March 31, 1996 $ 6.00 $ 3.00
June 30, 1996 6.00 4.75
September 30, 1996 3.75 1.75
December 31, 1996 5.50 1.75
March 31, 1997 3.25 1.50
June 30, 1997 1.75 1.375
September 30, 1997 2.00 1.50
December 31, 1997 1.875 .56
</TABLE>
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
RESULTS OF OPERATIONS
Net sales were $274,539 in 1997, down $176,026 from $451,000, or 39 percent from
1996. New distributors added in late 1995 and early 1996, with initial stocking
orders, accounted for an $180,000 sales increase in 1996. Due to the withdrawal
of the pre-cast protein gel line from the new sales market in March of 1997, as
discussed in Item 1, Business of the Issuer, no new distribution sources were
developed in 1997, and sales through existing distribution sources were flat or
declining. The first sale of the DNA Sequencing pre-cast gel occurred in January
1997 at a testing-quantity level.
Cost of goods sold exceeded sales in both 1997 and 1996. Production capacity,
built in 1996 in anticipation of rapid sales growth, is greater than sales
volumes achieved, causing inefficient application of labor and overhead. In
March of 1997, the Company took delivery on a custom-designed automated product
packaging system for protein gels. In addition, the Company incurred significant
additional costs through a regimented in-house product-testing protocol designed
to perfect the re-designed protein gel before it was offered for sale or even
offered to Beta-site testers.
Total operating expenses after cost of goods sold were reduced by $846,072 or
51%, to $815,866 in 1997 from $1,661,938 in 1996. General and Administrative
expenses were reduced by $397,154, or 43%, to $517,992 in 1997 from $915,146 in
1996. Reductions in general and administrative staff accounted for $275,975, or
68%, of the decrease. Selling expenses, including sales salaries, advertising,
promotion and travel expenses were reduced by $408,530, or 70%, to $170,934 in
1997 compared to $579,465 in 1996. Research and Development expenses decreased
by $40,388, or 24%, to $126,940 in 1997 compared to $167,328 in 1996.
FINANCIAL CONDITION AND LIQUIDITY
The Company used $992,009 in operations in 1997 compared with $1,902,247 in
1996, and $31,834 for equipment and patent expenditures in 1997 compared with
$153,266 in 1996. Proceeds from sales of common stock of $561,410 and notes
payable (mainly notes with common stock warrants) of $553,559 provided the cash
for these uses. At December 31, 1997, current liabilities exceeded current
assets by $1,199,389, and total liabilities exceeded total assets by $1,362,454.
The Company is reliant upon investors to provide funds for operations and is
working to maintain in 1998 steady relations with creditors while it strives to
improve sales volume and demonstrate that the Company can be successful.
To achieve this, the Company in 1997 re-designed its core market-entry product,
the pre-cast poly-acrylamide protein gel, as discussed above, and completed
research and development on its long-lived, pre-cast DNA sequencing gel. The
Company also continues to acquire additional research customers for its
lipoprotein assay system or components at a slow, word-of-mouth rate.
Management believes that the core product and the DNA sequencing product can
provide sufficient sales revenue to bring the Company to profitability if firm
contracts can be negotiated during 1998. Management also believes that the
lipoprotein assay system represents a significant technological improvement over
existing cardiac disease diagnostic systems and can be a profitable future
source of revenues. There can be no assurance, however, that the Company will be
successful in obtaining the necessary contracts and commitments from
distributors and potential partners to achieve profitable operations. If the
Company is successful in obtaining the necessary contracts, then the Company
will require additional capital investment for production capacity and
additional production staff.
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During 1997, the Company relied upon investor financing to sustain on-going
operations, research and development. Sources of these investments were largely
directors of the corporation, and their affiliated business interests, and prior
investors who made additional commitments of funds through two-year convertible
notes. The Company continues to rely upon these sources of funding. Discussions
have been conducted with potential new investors for long-term debt or equity
funding, but to date no transaction has been completed. The Company will
necessarily be reliant upon such sources of funding until the marketing of the
principal products can be brought to a level sufficient to support the operating
requirements of the Company.
YEAR 2000 TECHNOLOGY
The company currently is analyzing its proprietary computer programming to
determine whether it will experience a Year 2000 technology problem. The
Company's general operating programs that are known to be date-sensitive are
off-the-shelf software for which the originators, all of whom are major
suppliers, can reasonably be expected to provide updated programming and for
which the Company is committed to upgrade. Most of the general programs now in
use by the Company already run in a Year 2000 acceptable mode.
ITEM 7. FINANCIAL STATEMENTS.
Financial statements of the Registrant and the reports of independent auditors
thereon are included on the following pages.
Pages
-----
Reports of Independent Auditors 10
Balance Sheets 11
Statements of Operations 12
Statement of Changes in Stockholders' Equity 13
Statements of Cash Flows 14
Notes to Financial Statements 15 - 20
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None. At the 1997 Shareholder meeting, shareholders affirmed the re-appointment
of Ernst & Young L.P. as auditors for the year ended December 31, 1997.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required by this item is incorporated by reference from the
Registrant's definitive proxy statement that has been filed as an amendment to
this Form 10-KSB under cover of Form 8.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
Registrant's definitive proxy statement that has been filed as an amendment to
this Form 10-KSB under cover of Form 8.
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
Registrant's definitive proxy statement that has been filed as an amendment to
this Form 10-KSB under cover of Form 8.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
Registrant's definitive proxy statement that has been filed as an amendment to
this Form 10-KSB under cover of Form 8.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
- ------ -----------
3(i) Certificate of Incorporation (Exhibit 3(i) to the
Company's Annual Report on Form 10-KSB for the year
ended December 31, 1995, File Number 0-15476,
incorporated herein by reference).
3(ii) By-laws Certificate of Incorporation (Exhibit 3(ii)
to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1995, File Number 0-15476,
incorporated herein by reference).
4 Instruments defining the rights of security holders,
including debentures.
(a) Promissory Notes to Directors and Other Investors
(Exhibit 10 to the Company's Quarterly Report on Form
10-QSB for the period ended September 30, 1996, File
Number 0-15476, incorporated herein by
Reference).
(b) Financing and Shareholder Agreement (Exhibit 10 to
the Company's Current Report on Form 8-K dated
February 5, 1997, file number 0-15746, Incorporated
herein by reference).
(c) 9 1/2% Convertible Note issued to directors and other
investors and related Class Z1 and Class Z2 Warrants
21 List of Subsidiaries (Exhibit 21 to the Company's
Annual Report on Form 10 KSB for the year ended
December 31, 1996, File No. 0-15476, incorporated
herein by reference.)
27 Financial Data Schedule
(b) Reports on Form 8-K
None
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: June 5, 1998 Zaxis International Inc.
By:/S/ CONALY BEDELL
---------------------------
Conaly Wm. Bedell, President
and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
date indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/S/CONALY BEDELL
- --------------------------
Conaly Bedell Director, Chairman of the Board June 5, 1998
/S/LEONARD DUVAL
- --------------------------
Leonard Duval Director June 5, 1998
/S/CRAIG JONES
- --------------------------
Craig Jones Director June 5, 1998
/S/ALAN SCOTT
- --------------------------
Alan Scott Director June 5, 1998
/S/CALVIN D. WIBLE
- --------------------------
Calvin D. Wible Director June 5, 1998
/S/SHARON KILLINGER
- -------------------------- Accounting Department Manager June 5, 1998
Sharon Killinger (Principal Accounting Officer)
</TABLE>
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Report of Independent Auditors
The Board of Directors and Stockholders
Zaxis International Inc.
We have audited the accompanying consolidated balance sheets of Zaxis
International Inc. and Subsidiary as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' deficiency and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Zaxis
International Inc. and Subsidiary at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations,
has liabilities in excess of total assets and has a working capital deficiency.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Cleveland, Ohio
May 11, 1998
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ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
------
DECEMBER 31 DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 81,410 $ 1,090
Restricted cash - 100,000
Accounts receivable, net 39,071 42,468
Inventory 76,320 139,209
Prepaid expenses and other 16,908 43,928
----------- -----------
Total current assets 213,709 326,695
PROPERTY AND EQUIPMENT:
Machinery and equipment 353,461 276,250
Office equipment 189,117 190,369
Leasehold improvements 86,992 86,992
----------- -----------
629,570 553,611
Less accumulated depreciation 289,610 184,852
----------- -----------
339,960 368,759
OTHER ASSETS:
Patent costs 41,853 33,125
Organization costs 2,764 5,132
----------- -----------
44,617 38,257
----------- -----------
TOTAL ASSETS $ 598,285 $ 733,711
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
CURRENT LIABILITIES:
Current portion of lease obligations $ 10,238 $ 1,516
Bank loan payable - 100,000
Notes Payable to directors 92,020 141,340
Notes payable 118,000 464,000
Accounts payable 430,513 551,623
Accrued expenses 222,327 92,593
----------- -----------
Total current liabilities 873,098 1,351,072
LONG TERM LIABILITIES:
Capitalized lease obligations 38,763
Notes Payable 271,289
Notes Payable to directors 777,590
-----------
Total long term liabilities 1,087,642
STOCKHOLDERS' DEFICIENCY:
Common stock 57,450 54,380
$.01 par value, 12,000,000 shares authorized,
5,744,991 and 5,438,019 shares issued and outstanding
Additional paid-in capital 5,945,774 5,404,540
Deferred compensation - (30,868)
Accumulated deficit (7,365,678) (6,045,413)
----------- -----------
Total stockholders' deficiency (1,362,455) (617,361)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 598,285 $ 733,711
=========== ===========
</TABLE>
See notes to consolidated financial statements.
Page 11
<PAGE> 12
ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net sales $ 274,539 $ 450,566
Cost of goods sold 686,892 805,918
Selling, general and administrative expenses 815,866 1,831,751
----------- -----------
Loss from operations (1,228,219) (2,187,103)
Other income (expense):
Interest income 1,984 7,572
Miscellaneous income 400 1,317
Interest expense (94,429) (26,401)
----------- -----------
Total other income (expense) (92,045) (17,512)
----------- -----------
Net loss $(1,320,265) $(2,204,615)
=========== ===========
Net loss per common share
Basic $ (0.23) $ (0.41)
=========== ===========
Diluted $ (0.23) $ (0.41)
=========== ===========
Weighted average number of shares outstanding
Basic 5,619,814 5,368,898
=========== ===========
Diluted 5,619,814 5,368,898
=========== ===========
</TABLE>
See notes to consolidated financial statements.
Page 12
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ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------- ADDITIONAL
NUMBER OF STATED OR PAID-IN DEFERRED ACCUMULATED
SHARES PAR VALUE CAPITAL COMPENSATION DEFICIT
-------------- ------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 4,902,746 $ 49,027 $ 4,152,631 $ (59,375) $ (3,840,798)
Shares issued upon exercise of
Class A warrants 465,743 4,657 1,043,267
Sales of shares 69,530 696 225,917
Amortization of deferred compensation 11,232
Forfeiture of unvested stock grants (17,275) 17,275
Net loss - 1996 (2,204,615)
-------------- ------------- ------------- -------------- --------------
Balance at December 31, 1996 5,438,019 54,380 5,404,540 (30,868) (6,045,413)
Sales of shares 108,918 1,089 177,932
Shares issued on conversion of notes 198,054 1,981 388,554
Amortization of deferred compensation 5,616
Forfeiture of unvested stock grants (25,252) 25,252
Net loss - 1997 (1,320,265)
-------------- ------------- ------------- -------------- --------------
Balance at December 31, 1997 5,744,991 $ 57,450 $ 5,945,774 $ - $ (7,357,532)
============== ============= ============= ============== ==============
</TABLE>
Page 13
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ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31,
--------------------------------
1997 1996
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(1,312,119) $(2,204,615)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 112,523 97,289
Compensation due to stock option grants 5,616 11,232
Changes in operating assets and liabilities:
Restricted cash 100,000 (74,985)
Accounts receivable 3,397 11,888
Inventory and prepaid expenses 89,950 11,502
Accounts payable and accrued expenses 8,624 245,442
----------- -----------
Cash used in operating activities (992,009) (1,902,247)
INVESTING ACTIVITIES:
Purchase of property and equipment (18,092) (142,770)
Patent cost expenditures (13,742) (10,496)
----------- -----------
Cash used in investing activities (31,834) (153,266)
FINANCING ACTIVITIES:
Proceeds from sales of common stock 170,000 1,274,537
Proceeds from notes payable and bank loan payable 944,969 680,325
Payments on capital lease obligations (10,806) (8,818)
----------- -----------
Cash provided by financing activities 1,104,163 1,946,044
----------- -----------
Increase in cash 80,320 (109,469)
Cash at beginning of period 1,090 110,559
----------- -----------
Cash at end of period $ 81,410 $ 1,090
=========== ===========
Non cash transactions:
Capital lease 57,867
Notes converted to stock 390,535
Supplemental Information
Interest paid on notes 17,574 12,687
</TABLE>
Page 14
<PAGE> 15
ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND LIQUIDITY
Zaxis manufactures and sells products for use in electrophoresis, an
electrochemical process used to analyze genetic material and its components such
as proteins and DNA. The products include testing media, primarily in the form
of precast poly-achrylamide gel cassettes, electrophoresis chambers, chemical
compounds and reagents. The Company also sells equipment manufactured to its
specifications for use in performing electrophoresis, such as power supplies,
and in the analysis and quantification of electrophoresis results, including
computer systems and automated scanners. The Company sells its products directly
to institutions operating research laboratories and to distributors who market
the Company's products under the Zaxis name or their private labels. The
Company's blood serum lipoprotein assay system is marketed directly to research
laboratories. The system was granted clearance to be marketed for clinical use
by the Food and Drug Administration in September 1996.
The Company was primarily engaged in research and development activities from
1989 until 1994. In 1994, the Company moved into its present office and
manufacturing facilities and began selling certain products, finalizing product
planning and design, developing its computerized manufacturing process, and
setting marketing and distribution plans. In 1995, a private placement of units
consisting of common stock and two series of common stock warrants was
completed, resulting in net proceeds of $1,424,000. The proceeds were used to
complete the projects started in 1994, continue research activities and provide
funds during the startup of product manufacturing and marketing. During 1996,
the Company obtained financing totaling $1,955,000 from sales of common stock
and notes which was primarily used to fund operations as the Company sought to
establish marketing arrangements for its products.
In February 1997, the Company entered into a Financing and Shareholder Agreement
with MML Management Limited, an Australia-based investment firm ("MML"). The
agreement provided initial funds of $65,000 under a one-year note and additional
financing over the next year of up to $1.2 million, contingent upon the
occurrence of certain events. The initial funds were provided under a one year
9.25% note, collaterallized by accounts receivable and a patent owned by the
company. The note was extended when it matured in 1998. The certain events
which MML agreed would initiate additional financing, other than obtaining
investments under the private placement, have not occurred. These events
included the obtaining of new purchase orders from certain prospective
customers by certain dates. However, MML and affiliated entities did provide a
total of $857,590 in funding to the Company in 1997, of which $90,000 was for
stock purchases and the remainder of which was convertible debt.
Zaxis incurred losses of $1,320,000 in 1997 and $2,205,000 in 1996. The Company
does not expect to generate sufficient sales volume with its existing customer
base to support the cost of operations in the next year and is attempting to
strengthen its customer base in several ways. Principal efforts include
aggressive pursuit of additional private label distributors for the Company's
protein electrophoresis products, prototype testing of its precast DNA
Sequencing product with several leading instrument manufacturers with the intent
of obtaining exclusive supply contracts or joint ventures, and pursuit of
arrangements with clinical device manufacturers and pharmaceutical companies
for its lipoprotein assay system or components thereof.
MML Management Ltd. continues to be committed to the success of the Company and
currently is negotiating for additional long-term debt or equity infusions
through affiliates and associates of MML. There can be no assurance that MML
will be successful in its efforts nor that the Company will be able to
strengthen its customer base and generate sufficient sales volume to meet or
exceed the costs of operation. 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.
15
<PAGE> 16
ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INVENTORY
Inventories are stated at the lower of cost, determined using the first-in,
first-out method, or market value.
PROPERTY AND EQUIPMENT
Property and equipment are stated on the basis of cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Classes of property and equipment and related useful lives are as follows
<TABLE>
<CAPTION>
Estimated
Asset Useful Life
------------------------ -----------
<S> <C>
Leasehold improvements 5
Machinery and equipment 5 - 10
Office equipment 5 - 7
</TABLE>
Depreciation expense including amortization of capitalized leases charged to
operations was $105,140 and $91,424 for 1997 and 1996, respectively.
ASSET IMPAIRMENT
The companies policy is to review certain assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of these assets
may not be recoverable, in which case the asset generally would be written down
to fair value.
INTANGIBLES
Patent costs are amortized over the life of the patents. Amortization expense
was $5,013 and $3,495 for 1997 and 1996, respectively, and accumulated
amortization was $11,411 and $6,398 at December 31, 1997 and 1996, respectively.
Organization costs are amortized over five years. Accumulated amortization was
$9,081 and $6,712 at December 31, 1997 and 1996, respectively.
16
<PAGE> 17
ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
INCOME TAXES
The Company accounts for income taxes using the liability method of accounting.
Under the liability method, deferred tax assets and liabilities are determined
based upon differences between financial reporting and tax bases of assets and
liabilities and are measured using the currently enacted tax rates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's accounts receivable, short-term and
long-term debt approximate their fair value.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. Research and
development costs were approximately $127,000 and $146,000 for 1997 and 1996,
respectively.
STOCK COMPENSATION
As permitted by Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," the Company has elected to use the method of
accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." This method results in no compensation cost
being recognized. The pro forma effect of using the alternative method under
SFAS 123 results in a pro forma net loss that is not materially different from
amounts reported.
ADVERTISING COSTS
Advertising costs are expensed when incurred. Advertising expense amounted to
$4,601 in 1997 and $131,355 in 1996.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement 128, "Earnings per Share," which simplifies the standards for
computing earnings per share and makes them comparable to international
standards. Under the new requirements, basic earnings per share approximates
previously reported earnings per share, and diluted earnings per share takes
into account the effect on average common shares of stock options if dilutive.
The statement was adopted in December 1997 and had no effect on earnings per
share for all prior periods.
In June 1997, the FASB issued Statement 130, "Reporting Comprehensive Income,"
which establishes standards for the reporting and display of comprehensive
income and its components in a full set of financial statements. The standard is
effective for years beginning after December 15, 1997. The Company will adopt
the new standard in 1998.
17
<PAGE> 18
ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
3. BANK LOAN AND NOTES PAYABLE
Notes payable to directors of $869,810 at December 31, 1997 are due $2,020 on
demand and $867,590 at various dates from March 3, 1998 through July 31, 2000
and bear interest at rates from 9.25% to 10%.
Notes payable to others of $389,289 at December 31, 1997 are due $68,000 on
demand and $321,289 at various dates from January 28, 1998 through December 31,
1999 and bear interest at rates from 9.25% to 10%.
Holders of the notes payable were granted warrants to purchase 465,434 shares of
common stock at $1.50 or $3.00 per share for three years from the date of
issuances. The notes payable include terms which permit the holder to be repaid
in shares of common stock by exercising the warrants. If the holder so elects,
the Company will grant additional common stock warrants for the same exercise
price in an amount equivalent to 50% of the warrants exercised. No value was
assigned to the warrants.
Future maturities of long term debt assuming the notes are not converted prior
to maturity are as follows:
<TABLE>
<S> <C> <C>
1998 $ 210,020
1999 798,879
2000 250,000
Total $1,258,929
</TABLE>
4. DEFINED CONTRIBUTION PLAN
The Company maintains a 401(k) plan for substantially all employees. Company
contributions are at the discretion of management. There were no Company
contributions under the plan in 1997 or 1996.
5. LEASE OBLIGATIONS
The Company has equipment under capital leases as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
<S> <C> <C>
Cost $ 75,801 $ 31,650
Less accumulated amortization 11,370 7,535
--------- ---------
$ 64,431 $ 24,115
========= =========
</TABLE>
The Company rents a building for its office, research and development and
manufacturing under a sub-lease agreement. The lease is for a period of four
years and five months and expires on October 31, 1998. Rent expense was $112,700
in 1997 and $ 67,055 in 1996.
Rent expense under sub-lease to October 1998 will be $87,083.
18
<PAGE> 19
ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
6. CAPITAL STOCK TRANSACTIONS
During 1997, The Company sold 82,500 shares of common stock at price of $2.00
per share in a private offerings. Notes payable plus interest were converted to
197,581 shares of stock at prices ranging from $2.00 to $3.24 per share
depending on the terms of the note. These investors were issued 292,419
warrants to purchase stock at $3.00 per share expiring March 30, 1999.
During 1996, the Company sold shares of common stock at prices ranging from
$3.00 to $3.75 per share in private offerings and at $2.25 per share upon the
exercise of Class A warrants. In March 1997, additional shares were issued to
purchasers of shares at $3.75 per share to adjust the basis of those share
holdings to $3.00 per share.
7. INCOME TAXES
A reconciliation of income taxes computed at the U.S. federal statutory rate to
the provision for income taxes is as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Tax benefit at statutory rate $ (471,640) $(749,000)
Increase in valuation allowance on deferred tax asset 471,640 749,000
---------- ---------
Provision for income taxes $ - $ -
========== =========
</TABLE>
Deferred income taxes are provided to reflect the tax effects of temporary
differences in the recognition of revenue and expense for tax and reporting
purposes. Significant components of deferred tax assets at December 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 2,106,640 $1,666,000
Other, net 32,000 1,000
----------- ----------
2,138,640 1,667,000
Valuation allowance (2,138,640) (1,667,000)
----------- ----------
Net deferred tax assets $ - $ -
=========== ==========
</TABLE>
For Federal income tax purposes, net operating loss carryovers total $6,196,000
that, if not utilized, will expire between 2004 and 2012.
19
<PAGE> 20
ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
8. STOCK OPTIONS AND WARRANTS:
As of December 31, 1997 the following warrants are outstanding:
110,000 warrants exercisable at $1.50 related to previous debt issuances
expiring at various dates from January 26, 1998 through May 20, 1998.
208,432 warrants exercisable at $3.00 related to debt issuances expiring at
various dates from June 2, 1999 through October 20, 2000.
491,600 Class B warrants exercisable at $3.50 related to previous stock
purchases expiring on September 30, 1998.
367,419 Class C warrants exercisable at $3.00 related to current year stock
issuances and debt issuances expiring on March 30, 1999.
285,000 Class C Series 2 warrants exercisable at $1.00 expiring April 30, 1999.
International has a long term incentive plan under which options to purchase
405,000 shares of common stock may be granted at the fair market value on the
date of grant in the form of incentive or non-qualified stock options. In
addition, the Company has a Non-Employee Director's Stock Option plan under
which options to purchase up to 100,000 shares may be granted at fair market
value at the date of grant.
During 1997, 98,660 (74,200 in 1996) options were granted with exercise prices
between $1.44 and $5.50 ($1.44 and $3.75 in 1996) and expire either three or
five years from the date of grant. These options were exercisable upon grant. At
December 31, 1997, 253,128 (154,468 at December 31, 1996) options were
outstanding with an weighted average exercise price of $2.39 ($2.67 at December
31, 1996). No options were exercised during 1997 or 1996.
9. MAJOR CUSTOMERS
Two customers accounted for 58% of sales in 1997 and two customers accounted for
46% of sales in 1996. Since the Company will not be able to cover its operating
costs unless the customer base is increased, the loss of either of the major
1997 customers could have a material adverse effect on the Company.
20
<PAGE> 1
THIS CONVERTIBLE NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAWS. THIS NOTE CANNOT BE SOLD, TRANSFERRED, ASSIGNED OR
OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH APPLICABLE FEDERAL AND STATE
SECURITIES LAWS AND WILL NOT BE TRANSFERRED OF RECORD EXCEPT IN COMPLIANCE WITH
SUCH LAWS.
CONVERTIBLE NOTE
THIS NOTE IS NON-NEGOTIABLE AND SUBJECT TO RESTRICTIONS
ON TRANSFER AS DESCRIBED IN SECTION 15.
$___________ Hudson, Ohio
______, 1997
FOR VALUE RECEIVED, Zaxis International Inc., a Delaware corporation
(the "Company"), hereby promises to ______________________________ ("Payee"),
the principal sum of ______________________________ Dollars ($___,000), together
with interest thereon at the rate hereinafter specified.
1. REPAYMENT. On December 31, 1999 (the "Maturity Date"), the
outstanding principal balance, and accrued and unpaid interest thereon, shall be
due and payable in full.
2. INTEREST. The Company shall pay interest at the Maturity Date on the
unpaid principal amount of this Note at an annual rate equal to Nine and
One-Half per cent (9 1/2%) per annum, calculated on a 360 day year.
Interest shall be payable quarterly, commencing January 1, 1998.
3. PAYMENT. Amounts due under this Note are payable in lawful money of
the United States of America at Payee's address set forth above or at such other
location as may be designated by payee.
4. PREPAYMENT. The Company shall have the right, upon five (5) days
written notice to Payee, to prepay any amount of interest or principal due under
this Note at any time without penalty or premium. Any such prepayment shall
first be applied to the amount of interest accrued to the date of such
prepayment, then to the principal amount of this Note.
5. EVENTS OF DEFAULT. In the event of any one of the following:
(a) The Company shall default in the payment of any
amount under this Note when the same becomes due;
(b) The Company shall (i) apply for or consent to the
appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its property, (ii)
make a general assignment for the benefit of
creditors, (iii) commence a voluntary case under any
state or federal bankruptcy laws (as now or hereafter
in effect),
<PAGE> 2
(iv) acquiesce to or fail to have dismissed, within
thirty (30) days, any petition filed against it in
any involuntary case under such bankruptcy laws, or
(v) take any action for the purpose of effecting any
of the foregoing; or
(c) The Company shall admit in writing its inability to
pay its debts as they become due or cease operations
of its present business;
then, at the option of Payee, the entire amount of the principal of and interest
on this Note shall at once become due and payable, without presentment, demand,
protest or notice of protest of any kind, all of which are expressly waived by
the Company. In addition, upon any such event of default, Payee may exercise any
of the remedies provided by law.
6. CONVERSION. The Payee has the right, at its option, at any time
prior to maturity, to convert all, but not part of, the unpaid principal amount
hereof into fully paid and nonassessable $.01 par value shares of Common Stock
of the Company ("Common Stock"), as such shares shall be constituted at the date
of conversion, at the original conversion price of $3.24 principal amount of
this Note for one share of Common Stock, or at the adjusted conversion price in
effect at the time of conversion, determined as provided in Section 10 hereof,
upon surrender of the Note, at the office of the Company accompanied by written
notice of conversion and written evidence of transfer in form acceptable to
Company. Issuance of such shares shall satisfy all of Company's obligations
under this Note. No adjustment in respect of interest or dividends will be made
upon any conversion.
7. WARRANTS. If Payee converts this Note as provided in Section 6, then
as additional consideration for the loan of funds evidenced by this Note and the
conversion onto Common Stock, the Company will issue to Payee a Class Z 1
Warrant granting Payee the right to purchase one share of Common Stock of
Company for each share of Common Stock issued upon such conversion and a Class Z
2 Warrant granting Payee the right to purchase one share of Common Stock of
Company for each share of Common Stock issued upon such conversion. The Class Z
1 and Class Z 2 Warrants shall be subject to the Class Z Warrant Agreement.
8. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes,
if any, attributable to the initial issuance of shares of Common Stock upon the
conversion of this Note, provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any transfer
involved in the issue or delivery of any shares in a name other than that of the
Payee.
9. RESERVATION OF COMMON STOCK. There have been reserved (or will be
reserved in the future, if necessary) out of the authorized and unissued shares
of Common Stock, a number of shares sufficient to provide for the exercise of
the rights of conversion represented by this Note, and the transfer agent for
the Common Stock and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the conversion
rights aforesaid are hereby irrevocably authorized and directed at all times
until after the Maturity Date to reserve such number of authorized and unissued
shares as shall be requisite for such purpose.
10. ADJUSTMENT OF CONVERSION PRICE AND NUMBER OF SHARES. The number and
kind of securities purchasable upon conversion and the conversion price shall be
subject to adjustment from time to time upon the happening of certain events, as
hereinafter defined.
2
<PAGE> 3
10.1 MECHANICAL ADJUSTMENTS. The number of shares purchasable
upon conversion and the conversion price shall be subject to adjustment
as follows:
(a) In case the Company shall at any time after the
date of this Note (i) declare a dividend on the Common Stock
payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, (iii) combine the outstanding Common
Stock into a smaller number of shares, or (iv) issue any
shares of its capital stock in a reclassification of the
Common Stock (including any such reclassification in
connection with a consolidation or merger in which the Company
is the continuing corporation), the conversion price in effect
at the time of the record date for such dividend or of the
effective date of such subdivision, combination or
reclassification, and/or the number and kind of shares or
other securities issuable upon conversion on such date shall
be proportionately adjusted so that after such time the Payee
shall be entitled to receive the aggregate number and kind of
shares or other securities which, if such conversion has taken
place immediately prior to such date and at a time when the
Common Stock transfer books of the Company were open, he would
have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination or
reclassification. Such adjustment shall be made successively
whenever any event listed above shall occur.
(b) No adjustment in the conversion price shall be
required unless such adjustment would require an increase or
decrease of at least $.25 in such price; provided, however,
that any adjustments which by reason of this Section 10.1(b)
are not required to be made shall be carried forward and and
taken into account in any subsequent adjustment. All
calculations under this Section 10.1 shall be made to the
nearest cent and to the nearest one-hundredth of a share, as
the case may be.
(c) Shares of Common Stock at any time owned by the
Company shall not be deemed to be outstanding for purposes of
any computation under this Section 10.1.
10.2 NO ADJUSTMENTS UPON CERTAIN EVENTS. The
conversion price will not be adjusted on the (a) conversion of this
Note, (b) issuance or sale of Common Stock upon the exercise of any
rights, warrants, or options to subscribe for or purchase Common Stock,
or (c) amendment to or change in the terms of any rights, warrants or
options to subscribe for or purchase Common Stock.
10.3 NO ADJUSTMENT FOR DIVIDENDS. Except as provided
in Section 10.1,no adjustment in respect of any dividends shall be made
prior to the Maturity Date or upon conversion of this Note.
3
<PAGE> 4
10.4 FRACTIONAL SHARES. If the number of shares of
Common Stock purchasable upon conversion is adjusted pursuant to this
Section 10, the Company shall nevertheless not be required to issue
fractions of shares upon conversion or upon exercise of the Class Z
Warrants. With respect to any fraction of a share called for upon
conversion, the Company shall pay to the Payee an amount in cash equal
to such fraction multiplied by the market price of such fractional
share.
11. NO RIGHTS AS STOCKHOLDERS; NOTICES TO HOLDERS. Nothing contained in
this Note shall be construed as conferring upon the Payee the right to vote or
to receive dividends or to consent to or receive notice as shareholders in
respect of any meeting of shareholders for the election of directors of the
Company or on any other matter, or any rights whatsoever as a shareholder of the
Company as a result of being a holder of this Note.
12. NOTICES. All notices, requests, demands and other communication
under this Agreement must be in writing and will be deemed duly given, unless
otherwise expressly indicated to the contrary in this Agreement, (a) when
personally delivered, (b) upon receipt of a telephonic facsimile transmission
with a confirmed telephonic transmission answer back, (c) one (1) business day
after having been dispatched by an internationally recognized overnight courier
service, or (d) three (3) days after being deposited in the United States mail,
postage prepaid, addressed to the record holder of this Note as set forth in the
records of the Company and to the Company at its principal executive office, as
the case may be.
13. Supplements and Amendments.
---------------------------
(a) MUTUAL MODIFICATIONS. The Company and the Payee may from
time to time supplement or amend this Note in order to cure any
ambiguity or to correct or supplement any provision contained herein,
or to make any other provisions in regard to matters or questions
arising hereunder which the Company and the Payee may deem necessary or
desirable.
(b) COMPANY'S DISCRETION. Upon prior written notice to Payee,
the Company may, in its sole and absolute discretion, (a) decrease the
conversion price, or (b) increase the
number of shares to be received upon conversion.
14. SUCCESSORS. All the covenants and provisions of this Note by or for
the benefit of the Company or the Payee shall bind and inure to the benefit of
their respective successors and permitted assigns hereunder.
15. NON-NEGOTIABILITY; RESTRICTIONS ON TRANSFER; BENEFITS OF THIS
AGREEMENT. This Note is not negotiable and not transferable; PROVIDED, HOWEVER,
this Note may be transferred to persons who are "accredited investors" within
the meaning of Rule 501 promulgated under the Securities Act of 1933 upon the
prior written consent of the Company, which consent will not be unreasonable
withheld. Nothing in this Note shall be construed to give to any person or
corporation other than the Company and the Payee any legal or equitable right,
remedy or claim under this Note. This Note shall be for the sole and exclusive
benefit of the Company and the Payee.
4
<PAGE> 5
16. CAPTIONS. The captions of the sections and subsections of this Note
have been inserted for convenience only and shall have no substantive effect.
17. Miscellaneous.
--------------
(a) No waiver, consent or other binding agreement shall
deemed to have been made by Payee or be binding upon
Payee unless specifically granted in writing, which
writing shall be strictly construed. This Note
evidences the absolute and unconditional obligation
of the Company to pay the principal of, and interest
on, this Note. This Note is non-negotiable.
(b) This Note is made in Hudson, Ohio, and shall be
governed by, and shall be interpreted and construed
in accordance with, the laws of the State of Ohio
applicable to contracts and agreements to be
performed solely within the State of Ohio by
residents of the State of Ohio, i.e., without regard
to choice of law principles. Company and Payee each
irrevocably submits to the jurisdiction of any
federal or Ohio court sitting in the vicinity of
Hudson, Ohio over any suit, action or proceeding
arising out of or relating to this Note. Company and
Payee each irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or
hereafter have the laying of the venue of any such
suit, action or proceeding brought in such court and
any claim that any suit, action or proceeding brought
in such a court has been brought in an inconvenient
forum.
IN WITNESS WHEREOF, the Company has executed this convertible Note as
of the date first above written.
ZAXIS INTERNATIONAL INC.
By
-----------------------------------
Conaly Bedell, President
5
<PAGE> 6
-------------------
Name of Investor
ZAXIS INTERNATIONAL INC.
CLASS Z 1 WARRANT AGREEMENT
THE WARRANTS, INCLUDING THE UNDERLYING SHARES OF COMMON STOCK, OFFERED HEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. THE WARRANTS, INCLUDING THE UNDERLYING SHARES OF COMMON STOCK,
CANNOT BE SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE RESTRICTIONS ON TRANSFERABILITY CONTAINED IN THIS AGREEMENT
AND APPLICABLE FEDERAL AND STATE SECURITIES LAWS AND WILL NOT BE TRANSFERRED OF
RECORD EXCEPT IN COMPLIANCE WITH SUCH AGREEMENT AND SUCH LAWS.
1. Issuance of Warrants; Form of Warrants. Pursuant to the terms and
conditions of this Warrant Agreement, Zaxis International Inc., a Delaware
corporation (the "Company") hereby agrees to issue and deliver Class Z 1
Warrants (the "Warrants") to purchase _______ shares of Common Stock, $.01 par
value (the "Common Stock") of the Company. The text of the Warrant and of the
form of election to purchase shares shall be substantially as set forth in
EXHIBIT A attached hereto. The Warrants are not transferable; provided, however,
the Warrants may be transferred to persons who are "accredited investors" within
the meaning of Rule 501 promulgated under the Securities Act of 1933 upon the
prior written consent of the Company, which consent will not be unreasonably
withheld.
2. Registration. The Warrants shall be registered on the books of the
Company(the "Warrant Register"). The Company shall be entitled to treat the
Investor as the owner in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Warrant on the
part of any other person, and shall not be liable for any registration or
transfer of Warrants which are registered or to be registered in the name of a
fiduciary or the nominee of a fiduciary unless made with the actual knowledge
that a fiduciary or nominee is committing a breach of trust in requesting such
registration or transfer, or with knowledge of such facts that its participation
therein amounts to bad faith.
3. Term of Warrants; Exercise of Warrants. Subject to the provisions of
this Agreement, the Warrants will be exercisable by the Investor from and after
the date hereof until 5:00 p.m. Cleveland, Ohio local time, on _____________,
1998 (the "Term") and after such time period will no longer be exercisable.
1
<PAGE> 7
(a) Each Warrant entitles the Investor to purchase one (1)
share of Common Stock at a purchase price of $2.50 per share of Common
Stock, subject to adjustment (the "Warrant Price").
(b) Subject to the provisions of this Agreement, the Investor
shall have the right to purchase from the Company (and the Company
shall issue and sell to the Investor) the number of fully paid and
nonassessable shares of Common Stock specified in such Warrants, upon
surrender to the Company, or its duly authorized agent, of such
Warrants, with the form of election to purchase duly filled in and
signed, and upon payment to the Company of the Warrant Price, for the
number of shares of Common Stock in respect of which such Warrants are
then exercised. The date of exercise of any Warrant shall be deemed to
be the date of its receipt by the Company duly filled in and signed and
accompanied by proper payment as hereinafter provided. Payment of such
Warrant Price may be made in cash, by personal, certified or official
bank check.
(c) Upon surrender of Warrants, and payment of the Warrant
Price as aforesaid, the Company shall issue and cause to be delivered
with all reasonable dispatch to the Investor a certificate or
certificates for the number of shares of Common Stock so purchased upon
the exercise of such Warrants.
(d) On any partial exercise, the Company shall promptly issue
and deliver to the holder of the Warrant a new Warrant in the name of
that holder providing for the right to purchase the number of shares of
Common Stock as to which the Warrant has not been exercised.
4. Payment of Taxes. The Company will pay all documentary stamp taxes,
if any, attributable to the initial issuance of shares of Common Stock upon the
exercise of Warrants; provided, however, that the Company shall not be required
to pay any tax or taxes which may be payable in respect of any transfer involved
in the issue or delivery of any shares in a name other than that of the
Investor.
5. Reservation of Common Stock. There have been reserved (or will be
reserved in the future, if necessary) out of the authorized and unissued shares
of Common Stock, a number of shares sufficient to provide for the exercise of
the rights of purchase represented by the Warrants, and the transfer agent for
the Common Stock and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid are hereby irrevocably authorized and directed at all times
until after the expiration of the Term to reserve such number of authorized and
unissued shares as shall be requisite for such purpose.
6. Adjustment of Warrant Price and Number of Warrant Shares. The number
and kind of securities purchasable upon the exercise of each Warrant and the
Warrant Price shall be subject to adjustment from time to time upon the
happening of certain events, as hereinafter defined.
2
<PAGE> 8
6.1 Mechanical Adjustments. The number of shares purchasable
upon the exercise of each Warrant and the Warrant Price shall be
subject to adjustment as follows:
(a) In case the Company shall at any time after the date of
this Agreement (i) declare a dividend on the Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock,
(iii) combine the outstanding Common Stock into a smaller number of
shares, or (iv) issue any shares of its capital stock in a
reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), the Warrant Price in effect
at the time of the record date for such dividend or of the effective
date of such subdivision, combination or reclassification, and/or the
number and kind of shares or other securities issuable upon exercise of
the Warrants on such date shall be proportionately adjusted so that
after such time the Investor shall be entitled to receive the aggregate
number and kind of shares or other securities which, if such Warrant
had been exercised immediately prior to such date and at a time when
the Common Stock transfer books of the Company were open, he would have
owned upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification. Such adjustment
shall be made successively whenever any event listed above shall occur.
(b) No adjustment in the Warrant Price shall be required
unless such adjustment would require an increase or decrease of at
least $.25 in such price; provided, however, that any adjustments which
by reason of this Section 6.1(b) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 6.1 shall be made to the nearest
cent and to the nearest one-hundredth of a share, as the case may be.
(c) Shares of Common Stock at any time owned by the Company
shall not be deemed to be outstanding for purposes of any computation
under this Section 6.1.
6.2 No Adjustments Upon Certain Events. The exercise price
will not be adjusted on the (a) exercise of the Warrants, (b) issuance or sale
of Common Stock upon the exercise of any rights, warrants, or options to
subscribe for or purchase Common Stock, or (c) amendment to or change in the
terms of any rights, warrants or options to subscribe for or purchase Common
Stock.
6.3 No Adjustment for Dividends. Except as provided in Section
6.1, no adjustment in respect of any dividends shall be made during the term of
a Warrant or upon the exercise or conversion of a Warrant.
6.4 Fractional Shares. If the number of shares of Common Stock
purchasable upon the exercise of each Warrant is adjusted pursuant to this
Section 6, the Company shall nevertheless not be required to issue fractions of
shares upon exercise of the Warrants. With respect to any fraction of a share
called for upon any exercise of a Warrant, the Company shall pay to the Investor
an amount in cash equal to such fraction multiplied by the market price of such
fractional share.
3
<PAGE> 9
7. No Rights as Stockholders; Notices to Holders. Nothing contained in
this Agreement or in any of the Warrants shall be construed as conferring upon
the Investor the right to vote or to receive dividends or to consent to or
receive notice as shareholders in respect of any meeting of shareholders for the
election of directors of the Company or on any other matter, or any rights
whatsoever as a shareholder of the Company as a result of being a holder of
Warrants.
8. Notices. All notices, requests, demands and other communication
under this Agreement must be in writing and will be deemed duly given, unless
otherwise expressly indicated to the contrary in this Agreement, (a) when
personally delivered, (b) upon receipt of a telephonic facsimile transmission
with a confirmed telephonic transmission answer back, (c) one (1) business day
after having been dispatched by an internationally recognized overnight courier
service, or (d) three (3) days after being deposited in the United States mail,
postage prepaid, addressed to the record holder of the Warrant as set forth in
the Warrant Register and to the Company at its principal executive office, as
the case may be.
9. Supplements and Amendments.
(a) Mutual Modifications. The Company and the Investor may from time to
time supplement or amend this Agreement in order to cure any ambiguity
or to correct or supplement any provision contained herein which may be
defective or inconsistent with any other provision herein, or to make
any other provisions in regard to matters or questions arising
hereunder which the Company and the Investor may deem necessary or
desirable and which shall not be inconsistent with the provisions of
the Warrants.
(b) Company's Discretion. Upon prior written notice to Investor, the
Company may, in its sole and absolute discretion, (a) decrease the
Warrant Price, (b) extend the Term, or (c) increase the number of
shares to be received upon exercise of the Warrants.
10. Successors. All the covenants and provisions of this Agreement by
or for the benefit of the Company or the Investor shall bind and inure to the
benefit of their respective successors and permitted assigns hereunder.
11. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Investor, any legal or equitable right, remedy or claim under this Agreement.
This Agreement shall be for the sole and exclusive benefit of the Company and
the Investor.
4
<PAGE> 10
12. Captions. The captions of the sections and subsections of this
Agreement have been inserted for convenience only and shall have no substantive
effect.
IN WITNESS WHEREOF, the undersigned has executed this Warrant Agreement
this ______ day of __________, 1997.
(Check One)
--------------------------------
_____ Individually Signature of Investor
_____ Joint tenants with
right of survivorship --------------------------------
Investor's Name-please print
_____ Tenants-in-common
(each must sign) --------------------------------
Title (if applicable)
_____ In partnership*
--------------------------------
--------------------------------
_____ As trustee**
--------------------------------
Investor's Daytime Telephone Number
_____ In corporation***
--------------------------------
Social Security of Federal
Identification No.
---------------------------------
Signature of Additional Investor
(i.e., joint tenant or tenant-in-
common)
---------------------------------
Additional Investor's Name-please
print (i.e., joint tenant or
tenant-in-common)
----------------------------------
Title (if applicable)
* Please include a copy of partnership agreement or other document
authorizing investment and signature.
** Please include trust, agency or other agreement or document
authorizing investment and signature.
*** Please Include certified corporate resolution or other document
authorizing investment and signature.
5
<PAGE> 11
ACCEPTANCE
On behalf of Zaxis International Inc., the undersigned hereby
accepts the foregoing Warrant Agreement this _____ day of ___________,
1997.
ZAXIS INTERNATIONAL INC.
By:
-----------------------
Its:
-----------------------
Class Z 1 War Agmt D4
6
<PAGE> 12
-------------------
Name of Investor
ZAXIS INTERNATIONAL INC.
CLASS Z 2 WARRANT AGREEMENT
THE WARRANTS, INCLUDING THE UNDERLYING SHARES OF COMMON STOCK, OFFERED HEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. THE WARRANTS, INCLUDING THE UNDERLYING SHARES OF COMMON STOCK,
CANNOT BE SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE RESTRICTIONS ON TRANSFERABILITY CONTAINED IN THIS AGREEMENT
AND APPLICABLE FEDERAL AND STATE SECURITIES LAWS AND WILL NOT BE TRANSFERRED OF
RECORD EXCEPT IN COMPLIANCE WITH SUCH AGREEMENT AND SUCH LAWS.
1. Issuance of Warrants; Form of Warrants. Pursuant to the terms and
conditions of this Warrant Agreement, Zaxis International Inc., a
Delaware corporation (the "Company") hereby agrees to issue and deliver
Class Z 2 Warrants (the "Warrants") to purchase _______ shares of
Common Stock, $.01 par value (the "Common Stock") of the Company. The
text of the Warrant and of the form of election to purchase shares
shall be substantially as set forth in EXHIBIT A attached hereto. The
Warrants are not transferable; provided, however, the Warrants may be
transferred to persons who are "accredited investors" within the
meaning of Rule 501 promulgated under the Securities Act of 1933 upon
the prior written consent of the Company, which consent will not be
unreasonably withheld.
2. Registration. The Warrants shall be registered on the books of the
Company (the "Warrant Register"). The Company shall be entitled to treat the
Investor as the owner in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Warrant on the
part of any other person, and shall not be liable for any registration or
transfer of Warrants which are registered or to be registered in the name of a
fiduciary or the nominee of a fiduciary unless made with the actual knowledge
that a fiduciary or nominee is committing a breach of trust in requesting such
registration or transfer, or with knowledge of such facts that its participation
therein amounts to bad faith.
3. Term of Warrants; Exercise of Warrants. Subject to the provisions of
this Agreement, the Warrants will be exercisable by the Investor from and after
the date hereof until 5:00 p.m. Cleveland, Ohio local time, on _____________,
1999 (the "Term") and after such time period will no longer be exercisable.
1
<PAGE> 13
(a) Each Warrant entitles the Investor to purchase one (1)
share of Common Stock at a purchase price of $4.00 per share of Common
Stock, subject to adjustment (the "Warrant Price").
(b) Subject to the provisions of this Agreement, the Investor
shall have the right to purchase from the Company (and the Company
shall issue and sell to the Investor) the number of fully paid and
nonassessable shares of Common Stock specified in such Warrants, upon
surrender to the Company, or its duly authorized agent, of such
Warrants, with the form of election to purchase duly filled in and
signed, and upon payment to the Company of the Warrant Price, for the
number of shares of Common Stock in respect of which such Warrants are
then exercised. The date of exercise of any Warrant shall be deemed to
be the date of its receipt by the Company duly filled in and signed and
accompanied by proper payment as hereinafter provided. Payment of such
Warrant Price may be made in cash, by personal, certified or official
bank check.
(c) Upon surrender of Warrants, and payment of the Warrant
Price as aforesaid, the Company shall issue and cause to be delivered
with all reasonable dispatch to the Investor a certificate or
certificates for the number of shares of Common Stock so purchased upon
the exercise of such Warrants.
(d) On any partial exercise, the Company shall promptly issue
and deliver to the holder of the Warrant a new Warrant in the name of
that holder providing for the right to purchase the number of shares of
Common Stock as to which the Warrant has not been exercised.
4. Payment of Taxes. The Company will pay all documentary stamp taxes,
if any, attributable to the initial issuance of shares of Common Stock upon the
exercise of Warrants; provided, however, that the Company shall not be required
to pay any tax or taxes which may be payable in respect of any transfer involved
in the issue or delivery of any shares in a name other than that of the
Investor.
5. Reservation of Common Stock. There have been reserved (or will be
reserved in the future, if necessary) out of the authorized and unissued shares
of Common Stock, a number of shares sufficient to provide for the exercise of
the rights of purchase represented by the Warrants, and the transfer agent for
the Common Stock and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid are hereby irrevocably authorized and directed at all times
until after the expiration of the Term to reserve such number of authorized and
unissued shares as shall be requisite for such purpose.
6. Adjustment of Warrant Price and Number of Warrant Shares. The number
and kind of securities purchasable upon the exercise of each Warrant and the
Warrant Price shall be subject to adjustment from time to time upon the
happening of certain events, as hereinafter defined.
2
<PAGE> 14
6.1 Mechanical Adjustments. The number of shares purchasable
upon the exercise of each Warrant and the Warrant Price shall be
subject to adjustment as follows:
(a) In case the Company shall at any time after the date of
this Agreement (i) declare a dividend on the Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock,
(iii) combine the outstanding Common Stock into a smaller number of
shares, or (iv) issue any shares of its capital stock in a
reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), the Warrant Price in effect
at the time of the record date for such dividend or of the effective
date of such subdivision, combination or reclassification, and/or the
number and kind of shares or other securities issuable upon exercise of
the Warrants on such date shall be proportionately adjusted so that
after such time the Investor shall be entitled to receive the aggregate
number and kind of shares or other securities which, if such Warrant
had been exercised immediately prior to such date and at a time when
the Common Stock transfer books of the Company were open, he would have
owned upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification. Such adjustment
shall be made successively whenever any event listed above shall occur.
(b) No adjustment in the Warrant Price shall be required
unless such adjustment would require an increase or decrease of at
least $.25 in such price; provided, however, that any adjustments which
by reason of this Section 6.1(b) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 6.1 shall be made to the nearest
cent and to the nearest one-hundredth of a share, as the case may be.
(c) Shares of Common Stock at any time owned by the Company
shall not be deemed to be outstanding for purposes of any computation
under this Section 6.1.
6.2 No Adjustments Upon Certain Events. The exercise price
will not be adjusted on the (a) exercise of the Warrants, (b) issuance or sale
of Common Stock upon the exercise of any rights, warrants, or options to
subscribe for or purchase Common Stock, or (c) amendment to or change in the
terms of any rights, warrants or options to subscribe for or purchase Common
Stock.
6.3 No Adjustment for Dividends. Except as provided in Section 6.1, no
adjustment in respect of any dividends shall be made during the term of a
Warrant or upon the exercise or conversion of a Warrant.
6.4 Fractional Shares. If the number of shares of Common Stock
purchasable upon the exercise of each Warrant is adjusted pursuant to this
Section 6, the Company shall nevertheless not be required to issue fractions of
shares upon exercise of the Warrants. With respect to any fraction of a share
called for upon any exercise of a Warrant, the Company shall pay to the Investor
an amount in cash equal to such fraction multiplied by the market price of such
fractional share.
3
<PAGE> 15
7. No Rights as Stockholders; Notices to Holders. Nothing contained in
this Agreement or in any of the Warrants shall be construed as conferring upon
the Investor the right to vote or to receive dividends or to consent to or
receive notice as shareholders in respect of any meeting of shareholders for the
election of directors of the Company or on any other matter, or any rights
whatsoever as a shareholder of the Company as a result of being a holder of
Warrants.
8. Notices. All notices, requests, demands and other communication
under this Agreement must be in writing and will be deemed duly given, unless
otherwise expressly indicated to the contrary in this Agreement, (a) when
personally delivered, (b) upon receipt of a telephonic facsimile transmission
with a confirmed telephonic transmission answer back, (c) one (1) business day
after having been dispatched by an internationally recognized overnight courier
service, or (d) three (3) days after being deposited in the United States mail,
postage prepaid, addressed to the record holder of the Warrant as set forth in
the Warrant Register and to the Company at its principal executive office, as
the case may be.
9. Supplements and Amendments.
(a) Mutual Modifications. The Company and the Investor may from time to
time supplement or amend this Agreement in order to cure any ambiguity
or to correct or supplement any provision contained herein which may be
defective or inconsistent with any other provision herein, or to make
any other provisions in regard to matters or questions arising
hereunder which the Company and the Investor may deem necessary or
desirable and which shall not be inconsistent with the provisions of
the Warrants.
(b) Company's Discretion. Upon prior written notice to Investor, the
Company may, in its sole and absolute discretion, (a) decrease the
Warrant Price, (b) extend the Term, or (c) increase the number of
shares to be received upon exercise of the Warrants.
10. Successors. All the covenants and provisions of this Agreement by
or for the benefit of the Company or the Investor shall bind and inure to the
benefit of their respective successors and permitted assigns hereunder.
11. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Investor, any legal or equitable right, remedy or claim under this Agreement.
This Agreement shall be for the sole and exclusive benefit of the Company and
the Investor.
4
<PAGE> 16
12. Captions. The captions of the sections and subsections of this
Agreement have been inserted for convenience only and shall have no substantive
effect.
IN WITNESS WHEREOF, the undersigned has executed this Warrant Agreement
this ______ day of __________, 1997.
(Check One)
--------------------------------
_____ Individually Signature of Investor
_____ Joint tenants with
right of survivorship --------------------------------
Investor's Name-please print
_____ Tenants-in-common
(each must sign) --------------------------------
Title (if applicable)
_____ In partnership*
--------------------------------
--------------------------------
_____ As trustee**
--------------------------------
Investor's Daytime Telephone Number
_____ In corporation***
--------------------------------
Social Security of Federal
Identification No.
---------------------------------
Signature of Additional Investor
(i.e., joint tenant or tenant-in-
common)
---------------------------------
Additional Investor's Name-please
print (i.e., joint tenant or
tenant-in-common)
----------------------------------
Title (if applicable)
* Please include a copy of partnership agreement or other document
authorizing investment and signature.
** Please include trust, agency or other agreement or document
authorizing investment and signature.
*** Please Include certified corporate resolution or other document
authorizing investment and signature.
5
<PAGE> 17
ACCEPTANCE
On behalf of Zaxis International Inc., the undersigned hereby
accepts the foregoing Warrant Agreement this _____ day of ___________,
1997.
ZAXIS INTERNATIONAL INC.
By:
-------------------------
Its:
-------------------------
Class Z 2 War Agmt D4
6
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 81,410
<SECURITIES> 0
<RECEIVABLES> 39,071
<ALLOWANCES> 0
<INVENTORY> 76,320
<CURRENT-ASSETS> 213,709
<PP&E> 629,570
<DEPRECIATION> 289,960
<TOTAL-ASSETS> 598,285
<CURRENT-LIABILITIES> 873,098
<BONDS> 0
0
0
<COMMON> 57,450
<OTHER-SE> 5,945,774
<TOTAL-LIABILITY-AND-EQUITY> 598,285
<SALES> 274,539
<TOTAL-REVENUES> 276,923
<CGS> 686,892
<TOTAL-COSTS> 686,892
<OTHER-EXPENSES> 815,866
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94,429
<INCOME-PRETAX> (1,320,265)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,320,265)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
