Viewbix Inc. — Interim / Quarterly Report 2002

Nov 5, 2002

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 September 30, 2002 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 October 31, 2002, there were 16,245,623 shares of Common Stock and 170 shares of Redeemable Convertible Preferred Shares ("Preferred Stock") outstanding, this latter Preferred Stock equivalent to an additional 1,700,000 shares of Common Stock on conversion. Transitional Small Business Disclosure Format (check one): Yes: No: X ------ -------- ZAXIS INTERNATIONAL INC. FORM 1O-QSB INDEX

ZAXIS INTERNATIONAL INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS ------

See notes to consolidated financial statements. 3 ZAXIS INTERNATIONAL INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

See notes to consolidated financial statements. 4 ZAXIS INTERNATIONAL INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

See notes to consolidated financial statements. 5 ZAXIS INTERNATIONAL INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY (UNAUDITED)

See notes to the consolidated financial statements. 6 ZAXIS INTERNATIONAL INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

See notes to consolidated financial statements. 7 ZAXIS INTERNATIONAL INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION The financial statements present the consolidated financial position and results of operations of Zaxis International Inc. ("the Company") and its wholly-owned subsidiary, Zaxis Inc. All intercompany transactions and balances have been eliminated. The Company 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 Company also sells equipment manufactured to its specifications, including power supplies used in performing electrophoresis. The Company's products are sold directly to institutions operating research laboratories and to distributors who market its products under the "Zaxis" name or their own private labels. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Article 10 of Regulation S-B. These interim financial statements include all adjustments, consisting of normal recurring adjustments, which are in the opinion of management necessary for a fair presentation. However, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results for the nine-month period ended September 30, 2002 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2002. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-KSB for the year ended December 31, 2001. NOTE 2 - GOING CONCERN The Company has incurred substantial losses in 2000 and 2001 and incurred a net loss of $ 340,343 for the nine-month period ended September 30, 2002. The Company does not expect to generate sufficient sales volume with its existing customer base to support its cost of operations through 2002 and, accordingly, will need to raise additional funds through borrowings or equity funding. The Company is actively pursuing additional funds through the issuance of either debt or equity instruments. However, such funds may not be available on favorable terms or at all. These factors raise substantial doubts about the Company's ability to continue as a going concern and the auditor's report contained in the Company's 2001 annual report on Form 10-KSB filed with the U.S. Securities and Exchange Commission contains an explanatory paragraph with respect to this matter. 8 ZAXIS INTERNATIONAL INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTINUED - (UNAUDITED) NOTE 3 - DEFERRED REVENUE In June 2001, the Company received $281,855 in accordance with an agreement to develop, manufacture and deliver a new product to a customer. The Company recognizes revenue under this agreement based upon shipment of the product to the customer or, with respect to product development costs, as such costs are incurred. As of September 30, 2002, the remaining deferred revenue amount was $127,088. NOTE 4 - NOTES PAYABLE During the second and third quarter of 2002 the Company did not issue any notes payable. During the first quarter of 2002 the Company issued various notes aggregating to $165,000 ($155,000 to related parties) with stated annual interest rates ranging from 4.25% to 7.5%. The notes mature at various dates through January 20, 2003 with $125,000 payable on demand. At September 30, 2002, the Company was delinquent on principal and interest payments of approximately $15,000 and $6,569 respectively. The Company is working with the holders of these notes and is attempting to receive additional time to work out payments. At September 30, 2002, amounts due to directors and former directors represents a bonus payable to a former officer/director payable in July 2001. In May 2001, the Company issued a $50,000 secured note payable to a related party at a stated interest rate of 4.25%. The note, payable upon demand, was repaid in June 2001. NOTE 5 - COMMON STOCK During the second quarter ending June 30, 2002, the Company issued 38,500 stock options to employees under the Employee Stock Option Plan at a rate of $.11 per share. During this same period, 3,750 options were terminated and 32,040 expired. Stock options and warrants were excluded in the computation of diluted loss per share for the periods presented since their effect would have been antidilutive. There were no stock options issued during the first quarter ending March 31, 2002 or the third quarter ending September 30, 2002. The company issued 15,000 shares of common stock during the quarter ending September 30, 2002 for services. There were no common stocks issued during the second quarter ending June 30, 2002. During the first quarter ending March 31, 2002, the Company issued, in a transaction exempt from registration under the Securities Act of 1933, 15,000 shares of common stock for services. NOTE 6 - CONVERTIBLE-REDEEMABLE PREFERED STOCK During the nine months ending September 30, 2002 there were no convertible-redeemable preferred shares issued. 9 ZAXIS INTERNATIONAL INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED NOTE 7 - STOCKHOLDERS' DEFICIENCY During the nine months ended September 30, 2002, The Company Issued 15,000 shares of common stock for services. Stock options and warrants were excluded in the computation of diluted loss per share for the periods presented since their effect would have been antidilutive. NOTE 8 - CONTINGENCY On or about March 15, 2001, the Company entered into a Plan and Agreement of Merger (the "Merger Agreement") with Online Testing Center, Inc. ("OTC") relating to the proposed acquisition of OTC through a merger of OTC with and into the Company. Consummation of the Merger Agreement was subject to a number of conditions and provided for certain termination rights. The company notified OTC that it was terminating the Merger Agreement on April 6, 2001. OTC has alleged that the termination was invalid and that it intended to pursue its rights to enforce the Merger Agreement. To date, the Company is not aware that any action has commenced. Management of the Company believes that it had sufficient legal grounds to terminate the Merger Agreement and has no liability in any asserted action. On August 12, 2002, the Company received notification of possible litigation involving a former employee with respect to a bonus payment note issued to the employee by the Company. This notification has been forwarded to legal counsel for review. NOTE 9 - DISCLOSURE As of this date, an Independent Auditor's review of the financial statements included in this filing has not been performed. If the review is completed at a later date, the quarterly report will be amended to remove this disclosure. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2002. THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED INCLUDING, WITHOUT LIMITATION, STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, BELIEFS, INTENTIONS OR FUTURE STRATEGIES THAT ARE SIGNIFIED BY SUCH WORDS AS "EXPECTS", "ANTICIPATES", "INTENDS", "BELIEVES", OR SIMILAR LANGUAGE. ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS DOCUMENT ARE BASED ON INFORMATION AVAILABLE TO THE COMPANY ON THE DATE HEREOF, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS. IN EVALUATING THE COMPANY'S BUSINESS, THE COMPANY CAUTIONS PROSPECTIVE INVESTORS THAT ITS BUSINESS AND FINANCIAL PERFORMANCE ARE SUBJECT TO SUBSTANTIAL RISKS AND UNCERTAINTIES. RESULTS OF OPERATIONS Net sales for the third quarter of 2002 were $291,007, an increase of 42.4% as compared with sales of $204,316 for the third quarter of 2001. Net sales for the nine months ended September 30, 2002 were $718,444, an increase of 34.7% as compared with sales of $533,263 for the same period in 2001. Sales gains were due to increased market penetration by the Company's pre-cast protein and DNA gels and the increased effectiveness of the Company's national and international distributors. For the month of September the company reported its highest gross sales volume in its history, $133,602. Cost of goods sold for the three months ended September 30, 2002 of $217,008 represented a 6.1% increase from cost of goods sold of $204,508 for the same three-month period of 2001. Cost of goods sold for the nine months ended September 30, 2002 of $586,844 represented a 2.0% increase from cost of goods sold of $575,188 for the same nine-month period of 2001. These increases for the three and nine month periods ended September 30, 2002 were the result of increased sales offset by the effect of the benefit of any economies of scale being realized due to higher unit volumes in 2002 compared to 2001. Selling, general and administrative expenses for the third quarter of 2002 were $141,228, a decrease of 54.3% compared with selling, general and administrative costs of $308,834 for the same period in 2001. Selling, general and administrative expenses for the nine months ended September 30, 2002 were $475,757, a reduction of 29.4% as compared with selling, general and administrative costs of $674,196 for the first nine months of 2001. The reduced selling, general and administrative expenses were due primarily to a delay in hiring replacements for open positions and a reduction in the use of consultants. Interest expense for the third quarter of 2002 of $10,584 decreased by 70.6% compared to the third quarter interest expense of $36,002 for 2001. Interest expense for the nine-month period ended September 30, 2002 of $28,482 decreased by 77.1% compared to interest expense for the nine-month period ended September 30, 2001 of $124,197. The weighted average debt outstanding was comparable for these two periods. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS Net operating loss for the third quarter of 2002 amounted to $67,229 as compared to a net operating loss of $309,026 for the same period in 2001. However, for the month of September we actually had a net operating profit (for the first time in the company's history) of $1,916 resulting from the extraordinarily high gross sales in that month. Total net operating loss for the first nine months of 2002 amounted to $344,157 as compared to a total net operating loss of $716,121for the same period in 2001. We are comparing net operating loss for the third quarter instead of net loss because of the extraordinary non-operating gain of $789,020 which occurred in the third quarter of 2001, representing the settlement of the outstanding Progen debt, which distorts the ability to make a realistic comparison of performance. On a net income/loss basis we reported a net loss of $63,674 for the third quarter of 2002 compared to a net profit (after the extraordinary gain on the Progen notes) in the third quarter of 2001 of $446,065. For the 2002 nine months to date, we reported a net loss of $304,343 compared to a net loss of $37,093 (after accounting for the Progen extraordinary gain) for the same none month period in 2001. FINANCIAL CONDITION AND LIQUIDITY Cash used for operations amounted to $133,092 for the nine months ended September 30, 2002 as compared to $371,373 of cash used in the first nine months of 2001. We had no property and equipment expenditures for the nine-month period ended September 30, 2002. Cash provided from financing activities totaled $163,672 for the nine months ended September 30, 2002 as compared to $542,433 for the first nine months of 2001. The financing activities during the first nine months of 2002 were primarily the issuance of notes payable ($165,000). To support its anticipated cash needs, the Company will be required to raise additional capital through borrowings or equity financings. There can be no assurance that this will be achieved. The Company is working in 2002 to maintain steady relations with creditors while it strives to increase sales volume and demonstrate that the Company can be successful. In June 2001, the Company received $281,855 from a new customer to develop, manufacture and deliver a new product for the proteomics market. This cash will be used to fund product development, manufacturing start-up and actual production costs for the new product. This unique product is used in the protein separation/purification process called 2-D gel electrophoresis. Management believes the Company is the only provider of this product at this time. The Company will continue to be reliant upon investor funding sources until the unit sales volumes result in sufficient revenue to support the Company's operations. There can be no assurance that the Company will continue to receive investor funding or that the Company will be able to strengthen its customer base sufficiently to generate the sales volume required to meet or exceed the cost of operations. 12 PART II. OTHER INFORMATION ITEM 2(c). CHANGES IN SECURITIES AND USE OF PROCEEDS During the nine months ended September 30, 2002, the Company Issued 15,000 shares of common stock for services valued at $300. No stock was issued during the second quarter ending June 30, 2002. During the first quarter ending March 31, 2002 Zaxis International Inc. issued 15,000 shares of Common Stock, in a transaction exempt from regulations under the Securities Act of 1933, for services valued at $1,650. ITEM 3. DEFAULT UPON SENIOR SECURITIES At September 30, 2002, the Company was delinquent on note principal payments of approximately $15,000 and interest payments of $6,569 respectively. The Company is attempting to work with its note holders to extend the timing of payments. ITEM 5. OTHER INFORMATION On or about March 15, 2001, the Company entered into a Plan and Agreement of Merger (the "Merger Agreement") with Online Testing Center, Inc. ("OTC") relating to a proposed acquisition of OTC through a merger of OTC with and into the Company. Consummation of the Merger Agreement was subject to a number of conditions and provided for certain termination rights. The Company notified OTC that it was terminating the Merger Agreement on April 6, 2001. OTC has alleged that the termination was invalid and that it intended to pursue its rights to enforce the Merger Agreement. To date, the Company is not aware that any action has commenced. Management of the Company believes that it had sufficient legal grounds to terminate the Merger Agreement and has no liability in any asserted action. On August 12, 2002, the Company received notification of possible litigation involving a former employee respect to a bonus payment note issued to the employee by the Company. This notification has been forwarded to legal counsel for review ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K None 13 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) November 4, 2002 BY: S/S Leonard P. Tannen ---------------------------------- Leonard P. Tannen, President & Chief Executive Officer and Acting Chief Financial Officer CEO/CFO CERTIFICATION The undersigned CEO and Acting CFO hereby certifies that this periodic report containing the financial statements of Zaxis International, Inc. fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in this report fairly presents, in all material respects, the financial condition and result of operations of the Company. BY: S/S Leonard P. Tannen Date: November 4, 2002 -------------------------------- ---------------- Leonard P. Tannen President & Chief Executive Officer, Acting Chief Financial Officer Zaxis International, Inc. 14