<PAGE> 1
FORM 10-QSB - QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Zaxis International Inc.
(Name of Issuer as specified in its charter)
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<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[X] No[ ]
As of May 5, 1998, there were 5,766,242 shares of Common Stock outstanding.
Page 1 of 9 Pages.
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ZAXIS INTERNATIONAL INC.
FORM 10-QSB
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets 3
Consolidated Statements of Operations:
Quarters ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis 7-8
SIGNATURES 9
Page 2 of 9 Pages.
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ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
UNAUDITED
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<CAPTION>
ASSETS
------
MARCH 31 DECEMBER 31
1998 1997
------------ ------------
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CURRENT ASSETS:
Cash $ 27,938 $ 81,410
Accounts receivable, net 9,993 39,071
Inventory 73,907 76,320
Prepaid expenses and other 16,908 16,908
----------- -----------
Total current assets 128,747 213,709
PROPERTY AND EQUIPMENT:
Machinery and equipment 358,543 353,461
Office equipment 190,420 189,117
Leasehold improvements 86,992 86,992
----------- -----------
635,956 629,570
Less accumulated depreciation 317,067 289,610
----------- -----------
318,889 339,960
OTHER ASSETS:
Patent costs 41,443 41,853
Organization costs 2,171 2,764
----------- -----------
43,614 44,617
----------- -----------
TOTAL ASSETS $ 491,250 $ 598,285
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of lease obligations $ 10,238 $ 10,238
Bank loan payable $ - $ -
Notes Payable to directors $ 611,030 $ 612,020
Notes payable 138,000 138,000
Accounts payable 413,410 430,513
Accrued expenses 269,991 222,327
----------- -----------
Total current liabilities 1,442,669 1,413,098
LONG TERM LIABILITIES:
Capitalized lease obligations 36,546 38,763
Notes Payable 326,289 251,289
Notes Payable to directors 324,895 257,590
----------- -----------
Total long term liabilites 687,729 547,642
STOCKHOLDERS' EQUITY:
Common stock 57,450 57,450
$.01 par value, 12,000,000 shares authorized,
5,744,991 and 5,744,991 shares issued and outstanding
Additional paid-in capital 5,945,774 5,937,628
Deferred compensation - -
Accumulated deficit (7,642,372) (7,357,532)
----------- -----------
Total stockholders' equity (1,639,148) (1,362,454)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 491,250 $ 598,285
=========== ===========
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See notes to consolidated financial statements.
PAGE 3 OF 9
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ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
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<CAPTION>
UNAUDITED
THREE MONTHS ENDED
MARCH 31
-------------------------------
1998 1997
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Net sales $ 49,784 $ 67,461
Cost of goods sold 137,852 89,370
Selling, general and administrative expenses 171,778 238,066
----------- -----------
Loss from operations (259,845) (259,975)
Other income (expense):
Interest income 233 1,207
Miscellaneous income - -
Interest expense (32,176) (23,506)
----------- -----------
Total other income (expense) (31,943) (22,299)
-----------
Net loss $ (291,787) $ (282,274)
=========== ===========
Net loss per common share
Basic $ (0.05) $ (0.05)
=========== ===========
Diluted $ (0.05) $ (0.05)
=========== ===========
Weighted average number of shares outstanding
Basic 5,744,991 5,449,519
=========== ===========
Diluted 5,744,991 5,449,519
=========== ===========
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PAGE 4 OF 9
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ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
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<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1998 1997
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OPERATING ACTIVITIES:
Net loss $(291,787) $(282,274)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 29,571 26,640
Compensation due to stock option grants - 2,808
Changes in operating assets and liabilities:
Accounts receivable 29,078 17,211
Inventory and prepaid expenses 2,413 33,827
Accounts payable and accrued expenses 45,654 (35,945)
--------- ---------
Cash used in operating activities (185,071) (237,733)
INVESTING ACTIVITIES:
Purchase of property and equipment (6,386) (79,116)
Patent cost expenditures (1,113) (18)
--------- ---------
Cash used in investing activities (7,499) (79,134)
FINANCING ACTIVITIES:
Proceeds from sales of common stock and excercise of warrants - 105,000
Proceeds from notes payable and bank loan payable 141,315 164,900
Payments on capital lease obligations (2,217) 57,280
--------- ---------
Cash provided by financing activities 139,098 327,180
---------
Increase in cash (53,472) 10,313
Cash at beginning of period 81,410 1,090
--------- ---------
Cash at end of period $ 27,938 $ 11,403
========= =========
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PAGE 5 OF 9
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ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements present the consolidated financial position and results
of operations of Zaxis International Inc. (International) and Zaxis Inc. (Zaxis
or the Company), its wholly-owned subsidiary.
On August 25, 1995, Zaxis merged with a subsidiary of The InFerGene Company
(InFerGene). InFerGene was an inactive public company and neither InFerGene nor
its subsidiary had any assets or liabilities. The merger, for accounting
purposes, was a reverse acquisition in which Zaxis acquire InFerGene. The
acquisition was accounted for as a purchase with no value assigned to InFerGene.
InFerGene then changed its name to Zaxis International Inc. The financial
statements include the operations of Zaxis for all periods presented and the
operations of International since the date of acquisition. All intercompany
transactions and balances have been eliminated.
The financial statements and notes thereto do not include all of the disclosures
necessary for a full presentation of financial condition and operating results,
and should be read in conjunction with the financial statements for the year
ended December 31, 1997.
2. LIQUIDITY
The Company has a deficit in stockholders equity of $1,639,148 compared to
$1,362,454 in 1997. There is a working capital deficit of $1,313,922 compared to
$1,199,389 in 1997. The operations of the Company have been financed mainly by
private sales of common stock and by loans of members of the Board of Directors
and private investors.
Management recognizes that additional financial resources must be obtained in
order to execute its plans and to fund operations until they can generate cash,
and is in the process of pursuing several possibilities for interim and
long-term financing. The Company has engaged an investment banking firm to
assist in the private placement of debt securities for interim needs and with
them pursuing long-term financing, possibly through the sale of common stock.
There can be no assurance that the Company will be successful in obtaining the
interim of long-term financing. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. No adjustments to the
amounts of classification of assets and liabilities which could result from the
outcome of this uncertainty are reflected in the financial statements.
3. NET LOSS PER COMMON SHARE
The effects of outstanding options and warrants have not been included in the
calculation of net loss per share.
Page 6 of 9 Pages
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PART 1. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Sales for the three months ended March 31, 1998, totaled $49,784 compared with
$67,461 for 1997's first three months.
Cost of goods sold for the three months ended March 31, 1998, was $137,852,
exceeding sales by $88,068. Cost of goods sold for the same period in 1997 was
$89,370, exceeding sales by $21,909. A significant portion of increase was due
to production runs used for in house testing of production method improvements.
Selling, general and administrative expenses were $171,778 for the three months
ended March 31, 1998, down $66,288 for the same period in 1997.
Financial Condition and Liquidity
Borrowings added $141,315 to cash in the first quarter of 1998. These funds were
used mainly in operations, which used $185,071 in cash. Since the end of 1997,
the excess of current liabilities over current assets has increased by $114,533
in the period, to $1,313,922 from $1,199,389.
The Company needs to secure immediate financing to allow it to exploit several
opportunities from new products that are at the end of the development stage,
afford it time to build sales volumes of these new products to profitable
levels, and satisfy obligations to current creditors. In August 1997, the Board
approved an offering of $660,000 in Convertible Two Year Notes which goal was
exceeded, bringing in $821,183 through this date. Currently, the company is
negotiating details of an infusion of funds from a private investor in the mid
six figures. Also the company is involved in other preliminary discussions with
private investors for infusion of one million dollars.
The Board voted on December 19, 1997, to extend the expiration date on Class B
Warrants to 5 p.m. EST on September 30, 1998.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None of substantial nature.
Item 2(c). Changes in Securities
Item 3. Defaults upon Senior Securities
None
Page 7 of 9 Pages.
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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 March 31, 1998:
None
Page 8 of 9 Pages.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Zaxis International Inc.
------------------------
(Registrant)
May 15, 1998 BY: S/S Conaly Bedell
------------------------------
Conaly Bedell, President
Chief Executive Officer
May 15, 1998 BY: S/S Sharon Killinger
------------------------------
Sharon Killinger, Controller
Accounting Officer
Page 9 of 9 Pages
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 27,938
<SECURITIES> 0
<RECEIVABLES> 9,993
<ALLOWANCES> 0
<INVENTORY> 73,907
<CURRENT-ASSETS> 128,747
<PP&E> 635,956
<DEPRECIATION> 317,067
<TOTAL-ASSETS> 491,250
<CURRENT-LIABILITIES> 1,442,669
<BONDS> 0
0
0
<COMMON> 57,450
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 491,250
<SALES> 49,784
<TOTAL-REVENUES> 50,017
<CGS> 137,852
<TOTAL-COSTS> 137,852
<OTHER-EXPENSES> 171,778
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,176
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (291,787)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
