<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
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, 1999
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, 1999, there were 6,216,306 shares of Common Stock outstanding.
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ZAXIS INTERNATIONAL INC.
FORM-1O-QSB
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998.............................. 3
Consolidated Statements of Operations:
Quarters ended June 30, 1999 and 1998..................................................... 4
Six Months ended June 30, 1999 and 1998................................................... 5
Consolidated Statements of Stockholders' Deficiency................................................ 6
Consolidated Statements of Cash Flows.............................................................. 7
Notes to Consolidated Financial Statements......................................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations for the Six Months Ended June 30, 1999.................................. 9
PART II. OTHER INFORMATION
Item 1. Not Applicable
Item 2. (c) Changes in Securities.................................................................. 9
Item 3. Defaults upon Senior Securities............................................................ 10
Items 4-6. Not Applicable
SIGNATURES.................................................................................................. 11
</TABLE>
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ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ (17,712) $ 49,327
Accounts receivable, net 19,036 13,904
Inventory 68,517 64,738
Prepaid expenses and other 27,367 29,671
----------- -----------
Total current assets 97,208 157,640
PROPERTY AND EQUIPMENT:
Machinery and equipment 360,730 360,082
Office equipment 190,064 190,064
Leasehold improvements 86,992 86,992
----------- -----------
637,786 637,138
Less accumulated depreciation 448,975 400,731
----------- -----------
188,811 236,407
OTHER ASSETS:
Patent costs 36,579 37,910
Organization costs -- 395
----------- -----------
36,579 38,305
----------- -----------
TOTAL ASSETS $ 322,598 $ 432,352
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Current portion of lease obligations $ 11,753 $ 10,906
Notes payable to directors 1,015,195 784,895
Notes payable 306,928 475,264
Accounts payable 582,149 476,962
Accrued expenses 565,717 449,341
----------- -----------
Total current liabilities 2,481,742 2,197,368
LONG TERM LIABILITIES:
Capitalized lease obligations 22,609 28,706
Notes payable -- 130,000
Notes payable to directors 613,712 684,012
----------- -----------
Total long term liabilites 636,321 842,718
STOCKHOLDERS' DEFICIENCY:
Common stock 63,737 58,112
$.01 par value, 12,000,000 shares authorized,
6,373,667 shares issued and issuable at June 30, 1999
5,811,216 shares issued and outstanding at December 30, 1998
Additional paid-in capital 6,498,497 5,984,885
Accumulated deficit (9,357,699) (8,650,731)
----------- -----------
Total stockholders' deficiency (2,795,465) (2,607,734)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 322,598 $ 432,352
=========== ===========
</TABLE>
See notes to consolidated financial statements
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ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net sales $ 44,203 $ 45,604
Operating Costs:
Cost of goods sold 132,680 143,448
Selling, general, administrative and research expenses 220,698 209,954
----------- -----------
353,378 353,402
----------- -----------
Loss from operations (309,175) (307,798)
Other income (expense):
Interest expense (49,654) (43,242)
Other, net 55 6,112
=========== ===========
Total other income (expense) (49,599) (37,130)
----------- -----------
Net loss $ (358,774) $ (344,928)
=========== ===========
Net loss per common share -- Basic and Diluted $ (0.06) $ (0.06)
=========== ===========
Weighted average number of shares outstanding -- Basic and Diluted 6,373,667 5,762,360
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 5
ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net sales $ 92,151 $ 95,388
Operating Costs:
Cost of goods sold 260,998 281,300
Selling, general, administrative and research expenses 439,019 381,732
----------- -----------
700,017 663,032
----------- -----------
Loss from operations (607,866) (567,644)
Other income (expense):
Other, net 206 6,345
Interest expense (99,308) (75,418)
----------- -----------
Total other income (expense) (99,102) (69,073)
----------- -----------
Net loss $ (706,968) $ (636,717)
=========== ===========
Net loss per common share -- Basic and Diluted $ (0.12) $ (0.11)
=========== ===========
Weighted average number of shares outstanding -- Basic and Diluted 6,115,886 5,762,360
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 6
ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- ADDITIONAL TOTAL
NUMBER OF STATED OR PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES PAR VALUE CAPITAL DEFICIT DEFICIENCY
--------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 5,811,216 $ 58,112 $ 5,984,885 $(8,650,731) $(2,607,734)
Sales of shares, including conversion of
notes payable 551,733 5,518 510,043 515,561
Shares issued due to stock option grants 10,718 107 3,569 3,676
Net loss for the period (706,968) (706,968)
--------- ---------- ----------- ----------- -----------
Balance at June 30, 1999 6,373,667 $ 63,737 $ 6,498,497 $(9,357,699) $(2,795,465)
</TABLE>
See notes to consolidated financial statements.
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ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, DECEMBER 31,
---------------- -------------------
1999 1998
---------------- -------------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (706,968) $ (1,285,053)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 49,970 119,678
Compensation due to stock option grants 3,676 39,773
Changes in operating assets and liabilities:
Accounts receivable (5,132) 25,167
Inventory and prepaid expenses (1,475) (1,181)
Accounts payable and accrued expenses 221,563 273,463
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Cash used in operating activities (438,366) (828,153)
INVESTING ACTIVITIES:
Purchase of property and equipment (648) (7,569)
Patent cost expenditures -- (2,243)
------------ -------------
Cash used in investing activities (648) (9,812)
FINANCING ACTIVITIES:
Proceeds from sales of common stock 515,561 --
Net proceeds from notes payable (138,336) 815,272
Payments on capital lease obligations (5,250) (9,390)
------------ -------------
Cash provided by financing activities 371,975 805,882
Increase (Decrease) in cash (67,039) (32,083)
Cash at beginning of period 49,327 81,410
------------ -------------
Cash at end of period $ (17,712) $ 49,327
============ =============
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 8
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 consolidated
financial statements and footnotes included in the annual report on Form 10-KSB
for the year ended December 31, 1998.
2. COMMON STOCK AND WARRANTS
During the six months ended June 30, 1999, Zaxis International Inc., in
connection with an ongoing private offering of securities, obtained
subscriptions for a total of 515,561 units at $1.00 per unit; each unit
consisting of one share of common stock and Class Z, Series Z-3, Z-4, Z-5, and
Z-6 Warrants entitling the holder in the aggregate to purchase one additional
share of common stock. As of June 30, 1999, $191,553 had been received in cash
and $324,008 of principal and accrued interest of notes payable had been
converted; also, as of that date, 358,200 shares of common stock had actually
been issued and the balance of 157,361 shares were still to be issued.
3. LIQUIDITY
Zaxis incurred losses of $706,968 during the six months ended June 30, 1999, and
$636,717 in 1998. 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. 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.
4. NET LOSS PER COMMON SHARE
The effects of outstanding options and warrants have not been included in the
calculation of net loss per share.
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<PAGE> 9
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis.
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Six Months Ended June 30, 1999.
RESULTS OF OPERATIONS
Sales for the second quarter totaled $44,203 as compared with $45,604 for 1998's
second quarter. Sales for the six months ended June 30, 1999, were $92,151 as
compared to $95,388 for the same period last year.
Operating costs were $353,378 for the second quarter of 1999 as compared with
$353,402 for the same period last year. Operating costs for the six months ended
June 30, 1999, were $700,017 as compared with $663,032 for the first six months
of 1998.
Interest expense increased due to increased borrowings.
Net loss for the second quarter amounted to $358,774 as compared to a net loss
of $344,928 for the same quarter of 1998. The net loss for the six months ended
June 30, 1999, was $706,968 and compares to a net loss of $636,717 for the same
period last year.
FINANCIAL CONDITION AND LIQUIDITY
Cash used for operations amounted to $438,366 for the six months ended June 30,
1999. Plant and equipment expenditures amounted to only $648. Cash provided from
financing activities, including the sale of additional unregistered securities
amounted to $371,975 for the six months ended June 30, 1999. The Company is
reliant upon investors to provide funds for operations and is working to
maintain steady relations with its creditors while it strives to improve sales
volumes and to demonstrate that the Company can be successful.
The Company needs to secure additional 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 also need to satisfy obligations to current
creditors. Pursuant to this need, the Company continues to seek interim and
long-term debt or equity funding.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None of substantial nature.
Item 2(c). Changes in Securities--Recent Issuances of Unregistered Securities
During the period ended June 30, 1999, in transactions exempt from
registration, Zaxis International Inc. sold 515,561 shares (of which 157,361
shares were still to be issued as of June 30, 1999) of Common Stock valued at
$1.00 per share in exchange for cash ($191,553) and Convertible
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Notes and related accrued interest ($324,008). In addition, 10,718 shares of
Common Stock were issued due to the exercise of stock option grants.
Item 3. Default upon Senior Securities
The company is more than 30 days past due on principal payment on three
individual C series notes totaling $65,000. The Company is more than 30 days
past due on interest payments on above referenced C series notes and 9 1/2%
Convertible notes in the aggregate amount of $252,090.
Item 4. Submission of Matters to a Vote of Security Holder
No matters were submitted to a vote of security holders during the six
months ended June 30, 1999.
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 June 30, 1999:
None
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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 the undersigned, thereunto duly
authorized.
Zaxis International Inc.
------------------------
(Registrant)
August 12, 1999 BY: S/S Conaly Bedell
------------------
Conaly Bedell, President
Chief Executive Officer
August 12, 1999 BY: S/S Roger A. Kittelson
-----------------------
Roger A. Kittelson
Director of Finance
(Principal Accounting Officer)
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