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Previous: ASSET BACKED SECURITIES CORP, 10-Q, 1998-08-12 |
Next: WELLS REAL ESTATE FUND II, 10-Q, 1998-08-12 |
<PAGE> 1
FORM 10-QSB - QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Zaxis International Inc.
(Name of Issuer as specified in its charter)
Delaware 0-15476 68-0080601
(State of Incorporation) (Commission File Number) (IRS Employer
Identification No.)
1890 Georgetown Road, Hudson, Ohio 44236
(Address of principal executive office)
(330)650-0444
(Registrant's telephone number)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months and (2) has
been subject to such filings for the past 90 days. Yes[X] No[ ]
As of June 30, 1998, there were 5,783,848 shares of Common Stock outstanding.
Page 1 of 10 Pages.
<PAGE> 2
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 June 30, 1998 and 1997 4
Six Months ended June 30, 1998 and 1997 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion of Financial Condition 8
and Results of Operations
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K. 9
SIGNATURES 10
Page 2 of 10 Pages.
<PAGE> 3
<TABLE>
<CAPTION>
ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
------
JUNE 30, DECEMBER 31,
1998 1997
---------------- ----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 22,852 $ 81,410
Accounts receivable, net 16,164 39,071
Inventory 72,514 76,320
Prepaid expenses and other 16,908 16,908
----------- -----------
Total current assets 128,437 213,709
PROPERTY AND EQUIPMENT:
Machinery and equipment 359,218 353,461
Office equipment 189,905 189,117
Leasehold improvements 86,992 86,992
----------- -----------
636,115 629,570
Less accumulated depreciation 343,046 289,610
----------- -----------
293,069 339,960
OTHER ASSETS:
Patent costs 40,646 41,853
Organization costs 1,579 2,764
----------- -----------
42,225 44,617
----------- -----------
TOTAL ASSETS $ 463,731 $ 598,286
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of lease obligations $ 10,238 $ 10,238
Notes Payable to directors 225,000 612,020
Notes payable 138,000 138,000
Accounts payable 433,729 430,513
Accrued expenses 350,208 222,327
----------- -----------
Total current liabilities 1,157,175 1,413,098
LONG TERM LIABILITIES:
Capitalized lease obligation 34,243 38,763
Notes payable 481,289 251,289
Notes payable to directors 790,195 257,590
----------- -----------
1,305,727 547,642
STOCKHOLDERS' EQUITY:
Common stock 57,624 57,450
$.01 par value, 12,000,000 shares authorized,
5,762,360 and 5,744,991 shares issued and outstanding
Additional paid-in capital 5,945,600 5,937,628
Accumulated deficit (8,002,395) (7,357,532)
----------- -----------
Total stockholders' equity (1,999,171) (1,362,454)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 463,731 $ 598,286
=========== ===========
See notes to consolidated financial statements
</TABLE>
Page 3 of 10 Pages.
<PAGE> 4
<TABLE>
<CAPTION>
ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
THREE MONTHS ENDED
JUNE 30,
--------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net sales $ 45,604 $ 75,339
Cost of goods sold 143,448 76,498
Selling, general and administrative expenses 209,954 244,519
----------- -----------
Loss from operations (307,798) (245,678)
Other income (expense):
Interest income 133 80
Miscellaneous income 6,152 --
Loss on sale of asset (173)
Interest expense (43,242) (20,533)
----------- -----------
Total other income (expense) (37,130) (20,453)
----------- -----------
Net loss $ (344,928) $ (266,131)
=========== ===========
Net loss per common share
Basic $ (0.06) $ (0.05)
===========
Diluted $ (0.06) $ (0.05)
=========== ===========
Weighted average number of shares outstanding
Basic 5,762,360 5,452,901
=========== ===========
Diluted 5,762,360 5,452,901
=========== ===========
See notes to consolidated financial statements.
</TABLE>
Page 4 of 10 Pages.
<PAGE> 5
<TABLE>
<CAPTION>
ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
SIX MONTHS ENDED
JUNE 30,
----------------------------------
1998 1997
----------- ------------
<S> <C> <C>
Net sales $ 95,388 $ 142,800
Cost of goods sold 281,300 165,869
Selling, general and administrative expenses 381,732 482,585
----------- -----------
Loss from operations (567,644) (505,654)
Other income (expense):
Interest income 366 1,287
Miscellaneous income 6,152 --
Loss on sale of asset (173)
Interest expense (75,418) (44,039)
----------- -----------
Total other income (expense) (69,073) (42,752)
----------- -----------
Net loss $ (636,717) $ (548,406)
=========== ===========
Net loss per common share
Basic $ (0.11) $ (0.10)
=========== ===========
Diluted $ (0.11) $ (0.10)
=========== ===========
Weighted average number of shares outstanding
Basic 5,762,360 5,468,778
=========== ===========
Diluted 5,762,360 5,468,778
=========== ===========
See notes to consolidated financial statements
</TABLE>
Page 5 of 10 Pages.
<PAGE> 6
<TABLE>
<CAPTION>
ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
SIX MONTHS ENDED
JUNE 30,
------------------------------
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(636,717) $(548,405)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 57,690 56,643
Compensation due to stock option grants -- 5,616
Changes in operating assets and liabilities:
Accounts receivable 22,907 (3,025)
Inventory and prepaid expenses 3,806 (21,702)
Accounts payable and accrued expenses 131,097 (74,209)
--------- ---------
Cash used in operating activities (421,217) (585,082)
INVESTING ACTIVITIES:
Purchase of property and equipment (6,545) (74,455)
Deposits 17,684
Patent cost expenditures (1,861) (5,363)
--------- ---------
Cash used in investing activities (8,406) (62,134)
FINANCING ACTIVITIES:
Proceeds from sales of common stock 245,948
Payments on notes payable
Proceeds from notes payable 375,585 372,360
Payments on capital lease obligations (4,520) 51,679
--------- ---------
Cash provided by financing activities 371,065 669,987
--------- ---------
Increase in cash (58,558) 22,772
Cash at beginning of period 81,410 1,090
--------- ---------
Cash at end of period $ 22,852 $ 23,862
========= =========
See notes to consolidated financial statements.
</TABLE>
Page 6 of 10 Pages.
<PAGE> 7
ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements present the consolidated financial position and
results of operations of Zaxis International Inc. (International) and Zaxis
Inc. (Zaxis or the Company), its wholly-owned subsidiary.
Zaxis Incorporated was founded in 1989 as a privately held Ohio corporation.
On August 25, 1995, Zaxis merged with a subsidiary of The InFerGene Company
(InFerGene). InFerGene was an inactive publicly traded Delaware corporation
founded in 1985. Neither InFerGene nor its subsidiary had any assets or
liabilities. The merger, for accounting purposes, was a reverse acquisition in
which Zaxis acquired InFerGene. The acquisition was accounted for as a
purchase with no value assigned to InFerGene. InFerGene then changed its name
to Zaxis International Inc. The financial statements include the operations of
Zaxis for all periods presented and the operations of International since the
date of acquisition. All intercompany transactions and balances have been
eliminated.
As an interim report, the financial statements and notes thereto do not
include all of the disclosures necessary for a full presentation of financial
condition and operating results, and should be read in conjunction with the
financial statements for the year ended December 31, 1997.
2. LIQUIDITY
Zaxis incurred losses of $636,717 during the six months ended June 30, 1998
and $548,406 in 1997. The operations of the Company have been financed mainly
by loans from companies and individuals associated with members of the Board
of Directors.
The Company continues to rely upon these sources to sustain on-going
operations, research, production development and sales development.
Discussions have been conducted with potential new investors for long-term
debt or equity funding, but to date no transactions have been completed. The
Company will necessarily be reliant upon such sources of funding until the
marketing of the companies principal products can be brought to a level
sufficient to support the operating requirements of the Company. These
conditions cause doubt about the Company's ability to continue as a going
concern. No adjustments to the amounts or classification of assets and
liabilities which could result from the outcome of this uncertainty are
reflected in the financial statements.
3. NET LOSS PER COMMON SHARE
The effects of outstanding options and warrants has not been included in the
calculation of net loss per share.
Page 7 of 10 Pages.
<PAGE> 8
PART 1. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Two aspects of the business account for the change in results of operation
between 1998 and 1997. Sales were down $47,412 and interest expense up
$31,379. Sales for the six months ended June 30, 1998, totaled $95,388
compared with $142,800 for 1997's first six months. The decline was largely
due to decrease in pre-cast gel sales as a result of removing the previous
principle product line from market until redesigned and reintroduced at trial
test sights late 4th quarter 1997. Also, sales of molecular grade water and
gel mix were postponed from first half of 1998. Sales in the second quarter
were $45,604, compared to $49,784 in the first quarter.
Cost of goods sold for the six months ended June 30, 1998, was $281,300,
exceeding sales by $185,912. Cost of goods sold for the same period in 1997
was $165,869, exceeding sales by $23,069. 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.
Selling, general and administrative expenses were $381,732 for the six months
ended June 30, 1998, down from $482,585 for the same period in 1997. Reduction
in general and administrative staff accounted for $41,327, or 41% of decrease.
Selling expenses, including sales salaries, advertising and travel expenses
were reduced by $16,580, or 16% of decrease.
Financial Condition and Liquidity
Borrowings added $375,585 to cash in the six months ended June 30, 1998. These
funds were used for operations, which used $421,217 in cash. Since the end of
1997, the excess of current liabilities over current assets has decreased by
$170,651 in the period, to $1,028,738 from $1,199,389.
The Company needs to secure immediate financing to allow it to explore several
opportunities from new products that are now available for market introduction
and to afford it time to build sales volumes of these new products to
profitable levels. In the period required for product introduction and sales
growth, the company will need to satisfy obligations to current creditors.
Pursuant to this need, the Company continues to seek interim funding
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None of substantial nature.
Item 2(c). Changes in Securities
None
Item 3. Defaults upon Senior Securities
The Company is more than thirty days past due on principal payments on
three individual C Series Notes totalling $105,000 in principal. The
Company is more than thirty days past due on interest payments on above
referenced C series notes in the amount of $13,621 and is more than thiry
days past due on interest payments on the Z series notes in the amount of
$28,591.
Page 8 of 10 Pages.
<PAGE> 9
Item 4. Submission of Matters to a Vote of Security Holders
On July 22, 1998, the Company held its Annual Meeting of Shareholders at Zaxis
International's offices in Hudson, Ohio. A slate of five Directors presented
by Management in a duly issued Proxy Statement and Form of Proxy were elected
to one-year terms by a favorable vote of more than 98% each. The votes for the
five directors elected were: Conaly Bedell, receiving 3,496,069 votes For,
65,085 Against; Craig Jones, receiving 3,496,069 For, 65,085 Against; Alan
Scott receiving 3,496,057 For, 65,097 Against; Calvin D. Wible, receiving
3,496,045 For, 65,109 Against; and Leonard A. Duval receiving 3,496,037 For,
65,117 Against. The only other matter to come before the Shareholders for a
vote at the Annual Meeting was the re-appointment of Ernst & Young as
Independent Accountants. The vote was 3,460,322 For, 100,819 Against. Ernst
and Young has been the auditor firm for Zaxis International for all but two
years since inception.
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits:
None
B. Reports on Form 8-K during the Quarter Ended June 30, 1998:
None
Page 9 of 10 Pages.
<PAGE> 10
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Zaxis International Inc.
------------------------
(Registrant)
August 12, 1998 BY: /s/ Conaly Bedell
------------------------
Conaly Bedell, President
Chief Executive Officer
August 12, 1998 BY: /s/ Sharon Killinger
----------------------
Sharon Killinger, Controller
Accounting Officer
Page 10 of 10 Pages
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 22,852
<SECURITIES> 0
<RECEIVABLES> 16,164
<ALLOWANCES> 0
<INVENTORY> 72,514
<CURRENT-ASSETS> 128,437
<PP&E> 636,115
<DEPRECIATION> 343,046
<TOTAL-ASSETS> 463,731
<CURRENT-LIABILITIES> 1,157,175
<BONDS> 0
0
0
<COMMON> 57,624
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 463,731
<SALES> 95,388
<TOTAL-REVENUES> 101,906
<CGS> 281,300
<TOTAL-COSTS> 281,300
<OTHER-EXPENSES> 381,732
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 75,418
<INCOME-PRETAX> (636,717)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (636,717)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
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