<PAGE>
                   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, 2001



                           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, 2001, there were 16,198,123 shares of Common Stock
outstanding.

Transitional Small Business Disclosure Format (check one):

                        Yes:  / /      No: /X/
<PAGE>
                            ZAXIS INTERNATIONAL INC.
                                   FORM 1O-QSB

                                      INDEX

<TABLE>
<CAPTION>
                                                                                   Page No.
                                                                                  --------
<S>                                                                              <C>
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements.


      Condensed Consolidated Balance Sheets
             As of September 30, 2001 and December 31, 2000                             3

      Condensed Consolidated Statements of Operations:
             Three Months ended September 30, 2001 and 2000                             4
             Nine Months ended September 30, 2001 and 2000                              5

      Condensed Consolidated Statement of Stockholders' Deficiency
             for the nine months ended September 30, 2001                               6

      Condensed Consolidated Statements of Cash Flows
             for the nine months ended September 30, 2001 and 2000                      7

      Notes to Condensed Consolidated Financial Statements                         8 - 11


Item 2.  Management's Discussion and Analysis of Financial Condition
          and Results of Operations for the three and nine months ended
          September 30, 2001                                                       12 - 13


PART II.  OTHER INFORMATION

      Item 2. (c) Changes in Securities and use of proceeds -- Recent
      Issuances of Unregistered Securities                                             14

      Item 3.  Defaults upon Senior Securities                                         14

      Item 5.  Other Information                                                       14

      Item 6.  Exhibits and Reports on Form 8-K                                        14


SIGNATURES                                                                              15
</TABLE>
<PAGE>
                     ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                     ASSETS

                                                                                        SEPTEMBER 30,           DECEMBER 31,
                                                                                            2001                    2000
                                                                                        ------------           ------------
                                                                                         (UNAUDITED)              (AUDITED)
<S>                                                                                     <C>                    <C>
 CURRENT ASSETS:
       Cash                                                                             $    172,887           $      1,827
       Accounts receivable, net                                                               66,422                 28,325
       Inventory                                                                              22,650                 35,627
                                                                                        ------------           ------------
             Total current assets                                                            261,959                 65,779

PROPERTY AND EQUIPMENT:
       Machinery and equipment                                                               303,821                303,821
       Office equipment                                                                      147,890                147,890
       Leasehold improvements                                                                 54,889                 54,889
                                                                                        ------------           ------------
                                                                                             506,600                506,600
       Less accumulated depreciation                                                        (462,890)              (427,623)
                                                                                        ------------           ------------
                                                                                              43,710                 78,977
OTHER ASSETS:                                                                                 33,400                 38,366
                                                                                        ------------           ------------

             TOTAL ASSETS                                                               $    339,069           $    183,122
                                                                                        ============           ============

               LIABILITIES AND STOCKHOLDERS' DEFICIENCY

CURRENT LIABILITIES:
       Current portion of lease obligations                                             $      5,941           $     13,567
       Notes payable to related parties                                                      275,000              1,186,199
       Notes payable - other                                                                  15,000                300,715
       Accounts payable                                                                      225,294                246,397
       Accrued interest                                                                       36,687                245,136
       Other accrued expenses                                                                 70,946                 72,967
       Deferred revenue                                                                      198,806                     --
                                                                                        ------------           ------------

             Total current liabilities                                                       827,674              2,064,981

LONG TERM LIABILITIES:
       Capitalized lease obligations                                                              --                  1,328
                                                                                        ------------           ------------

             Total long term liabilities                                                          --                  1,328

REDEEMABLE CONVERTIBLE PREFERRED STOCK
       $.01 par value, 10,000,000 shares authorized,
           170 shares of Series 01-A issued and outstanding at September 30,
           2001; no shares issued and outstanding at December 31, 2000
           (redemption value of $174,250 at September 30, 2001)                              130,417                     --

STOCKHOLDERS' DEFICIENCY:
       Common stock - $.01 par value, 20,000,000 shares authorized, 16,198,123
        shares issued and issuable and outstanding at September 30, 2001,
         9,866,773 shares issued and outstanding at December 31, 2000                        161,981                 98,668
       Additional paid-in capital                                                         11,054,475              9,816,530
       Accumulated deficit                                                               (11,835,478)           (11,798,385)
                                                                                        ------------           ------------

             Total stockholders' deficiency                                                 (619,022)            (1,883,187)
                                                                                        ------------           ------------

             TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY                             $    339,069           $    183,122
                                                                                        ============           ============
</TABLE>

 See notes to consolidated financial statements.

                                        3
<PAGE>
                     ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                           THREE MONTHS ENDED
                                                                                             SEPTEMBER 30
                                                                                  ----------------------------------
                                                                                       2001                 2000
                                                                                  ------------           -----------
<S>                                                                               <C>                    <C>
Net sales                                                                         $    204,316           $   160,255

Operating Costs:
     Cost of goods sold                                                                161,729               151,572
     Selling, general, administrative and research expenses                            351,613               304,246
                                                                                  ------------           -----------
                                                                                       513,342               455,818
                                                                                  ------------           -----------
        Loss from operations                                                          (309,026)             (295,563)

Other income (expense):
     Interest expense                                                                  (36,002)              (43,966)
     Other, net                                                                          2,073                27,190
                                                                                  ------------           -----------

        Total other income (expense)                                                   (33,929)              (16,776)
                                                                                  ------------           -----------

        Loss from continuing operations before extraordinary gain (loss)              (342,955)             (312,339)

Extraordinary gain (loss) from extinguishment of debt                                  789,020              (372,118)
                                                                                  ------------           -----------

Net income (loss)                                                                 $    446,065           $  (684,457)
                                                                                  ============           ===========

Net loss per common share from continuing operations - Basic and Diluted          $       (.03)          $      (.04)

Extraordinary gain (loss) per common share - Basic and Diluted                             .07                  (.04)
                                                                                  ------------           -----------

Net income (loss) per common share - Basic and Diluted                            $        .04           $      (.08)
                                                                                  ============           ===========

Weighted average number of shares outstanding - Basic and Diluted                   10,369,363             8,833,362
                                                                                  ============           ===========
</TABLE>

 See notes to consolidated financial statements.

                                       4
<PAGE>
                     ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                              NINE MONTHS ENDED
                                                                                                SEPTEMBER 30
                                                                                    ----------------------------------
                                                                                         2001                 2000
                                                                                    ------------           -----------
<S>                                                                                 <C>                    <C>
Net sales                                                                           $    533,263           $   303,708

Operating Costs:
      Cost of goods sold                                                                 441,657               383,980
      Selling, general, administrative and research expenses                             807,727               896,311
                                                                                    ------------           -----------
                                                                                       1,249,384             1,280,291
                                                                                    ------------           -----------
          Loss from operations                                                          (716,121)             (976,583)

Other income (expense):
      Interest expense                                                                  (124,197)             (134,546)
      Other, net                                                                          14,205                86,658
                                                                                    ------------           -----------

          Total other income (expense)                                                  (109,992)              (47,888)
                                                                                    ------------           -----------

          Loss from continuing operations before extraordinary gain (loss)              (826,113)           (1,024,471)

Extraordinary gain (loss) from extinguishment of debt                                    789,020              (509,466)
                                                                                    ------------           -----------

Net loss                                                                            $    (37,093)          $(1,533,937)
                                                                                    ============           ===========


Net loss per common share from continuing operations- Basic and Diluted             $       (.08)          $      (.13)

Extraordinary gain (loss) per common share - Basic and Diluted                               .08                  (.06)
                                                                                    ------------           -----------

Net income (loss) per common share - Basic and Diluted                              $         --           $      (.19)
                                                                                    ============           ===========

Weighted average number of shares outstanding - Basic and Diluted                     10,100,699             7,942,869
                                                                                    ============           ===========
</TABLE>


 See notes to consolidated financial statements.

                                        5
<PAGE>
                     ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
          CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                              COMMON STOCK
                                                     ---------------------------     ADDITIONAL
                                                         NUMBER OF    STATED OR       PAID-IN         ACCUMULATED
                                                          SHARES       PAR VALUE       CAPITAL           DEFICIT           TOTAL
                                                     --------------  -----------   -------------      ------------    -----------
<S>                                                  <C>             <C>           <C>                <C>             <C>
BALANCE AT JANUARY 1, 2001                             9,866,773       $ 98,668      $  9,816,530      $(11,798,385)   $(1,883,187)

   Shares issued on exercise of options                  100,000          1,000            18,000                --         19,000
   Warrants issued for services and other                     --             --            65,605                --         65,605
   Shares issued for services                             60,000            600            16,800                --         17,400
   Shares issuable for commissions                        25,926            259             6,741                --          7,000
   Shares issuable for tax credits                       180,132          1,801            50,239                --         52,040
   Shares issued for cash                              3,000,000         30,000           270,000                --        300,000
   Shares issued and issuable for debt conversion      2,965,292         29,653           770,977                --        800,630
   Value of beneficial conversion option
       of preferred shares                                    --             --            56,666                --         56,666
   Preferred share accretion                                  --             --           (17,083)               --        (17,083)
   Net Loss                                                   --             --                --           (37,093)       (37,093)
                                                      ----------       --------      ------------      ------------    -----------

BALANCE AT SEPTEMBER 30, 2001                         16,198,123       $161,981      $ 11,054,475      $(11,835,478)   $  (619,022)
                                                      ==========       ========      ============      ============    ===========
</TABLE>


 See notes to consolidated financial statements.

                                        6
<PAGE>
                     ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                                        NINE MONTHS ENDED
                                                                          SEPTEMBER 30
                                                                 --------------------------------
                                                                    2001                2000
                                                                 -----------         ------------
<S>                                                              <C>                 <C>
Operating activities:
Net loss                                                         $ (37,093)          $(1,533,937)
Adjustments to reconcile net loss to net cash used in
  operating activities
    Depreciation and amortization                                   39,950                70,851
    Shares and warrants issued for services and other              142,244                    --
    Extraordinary loss on extinguishment of debt                        --               509,466
    Extraordinary gain on extinguishment of debt                  (789,020)                   --

    Changes in operating assets and liabilities:
      Accounts receivable                                          (38,097)              (52,221)
      Inventory and prepaid expenses                                12,977               (42,883)
      Accounts payable and accrued expenses                         98,860              (313,417)
      Deferred Revenue                                             198,806                    --
                                                                 ---------           -----------

              Net cash used in operating activities               (371,373)           (1,362,141)

 Investing activities:
  Purchase of property and equipment                                    --               (30,189)
                                                                 ---------           -----------

              Net cash used in investing activities                     --               (30,189)

Financing activities:
  Proceeds from exercise of stock options                           19,000                    --
  Proceeds from sale of common stock                               300,000             1,022,059
  Proceeds from issuance of preferred stock                        170,000                    --
  Payments on notes payable                                       (252,715)              (61,057)
  Proceeds from notes payable                                      314,500               345,000
  Payments on capital lease obligations                             (8,352)              (10,395)
                                                                 ---------           -----------

              Net cash provided by financing activities            542,433             1,295,607
                                                                 ---------           -----------

Increase (decrease) in cash                                        171,060               (96,723)

Cash at beginning of period                                          1,827               139,151
                                                                 ---------           -----------

Cash at end of period                                            $ 172,887           $    42,428
                                                                 =========           ===========

Non cash transactions:
     Notes, related accrued interest and commissions
        converted to common stock                                $ 800,629           $ 1,265,161
                                                                 =========           ===========
</TABLE>

See notes to consolidated financial statements.

                                       7
<PAGE>
                     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 that 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, 2001 are not necessarily indicative of the
results that may be expected for the full year ending December 31, 2001.

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, 2000.

NOTE 2 - GOING CONCERN

The Company has incurred substantial losses in 1999 and 2000 and incurred a net
loss from operations of $826,113 for the nine-month period ended September 30,
2001. The Company does not expect to generate sufficient sales volume with its
existing customer base to support its cost of operations through 2001 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 2000 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
<PAGE>
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 3 - RESTATEMENT

During the nine months ended September 30, 2000, the Company converted
$1,030,000 of notes payable (plus accrued interest of approximately $276,000) to
approximately 1.89 million shares of the Company's common stock. Certain of
these notes were converted at prices below the market value of the common stock
on the date of conversion, resulting in an extraordinary loss on the
extinguishment of the debt of $509,466. The Company recorded this extraordinary
loss in the fourth quarter of 2000. As a result, the financial statements for
the nine-month period ended September 30, 2000 have been restated to reflect the
extraordinary loss for the period to which it relates.

NOTE 4 - 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, 2001, the remaining deferred revenue amount was
$198,806.

NOTE 5 - NOTES PAYABLE

During the nine months ended September 30, 2001, the Company issued various
unsecured notes aggregating $214,500 ($147,000 to related parties). The notes
matured at various dates through October 2001. All of these notes were converted
to common stock in September 2001 (see below).

In April 2001, the Company issued a secured note payable for $50,000 to a
related party at a stated interest rate of 11.5%. The note is payable on demand.
In May 2001, the Company issued a $50,000 secured demand note payable to a
related party at a stated interest rate of 4.25%, which was repaid in June 2001.

On September 18, 2001, the Company entered into an agreement with Progen
Industries Limited, a related party, to issue 240,271 shares of Zaxis Common
Stock and $200,000 cash to Progen in full settlement of notes payable to them
totaling $826,699 and related interest of $227,320. Consequently, the Company
recognized an extraordinary gain of $789,020 related to this transaction for the
quarter ended September 30, 2001.

On September 24, 2001, the Company offered the remaining note holders the right
to convert their notes payable and related accrued interest into either common
stock or Redeemable Convertible Preferred Stock Series 01-A through October 31,
2001. This offering resulted in the Company converting $632,000 of notes payable
and $103,630 of related interest into approximately 2.72 million shares of the
Company's Common Stock. The notes were converted at the market value of the
common stock on the date of the offering, resulting in no gain or loss.

                                       9
<PAGE>
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


The conversion of the Progen debt and amounts due to other note holders
(including accrued interest) were accounted for as a troubled debt restructuring
in accordance with SFAS No. 15, Accounting by Debtors and Creditors for Troubled
Debt Restructurings.

At September 30, 2001, the Company was delinquent on principal and interest
payments of approximately $20,000.

NOTE 6 - REDEEMABLE PREFERRED STOCK

In June and July 2001, the Company issued a total of 170 shares of convertible
redeemable preferred stock Series 01-A, at a face value of $1,000 per share
(total of $170,000). The preferred stock agreements provide for quarterly stock
dividends at the rate of 10% per annum. The dividends are to be paid at the time
of conversion or redemption of the preferred shares. The Company retains the
right to pay the dividends in cash in lieu of stock.

The conversion feature gives the holder the right to convert the preferred
shares into shares of Zaxis common stock, after a holding period of one year.
The conversion price will be at 75% of the five-day average closing trading
price in which Zaxis shares were traded, immediately preceding the effective
date of conversion. The minimum and maximum conversion price range is $.10 to
$1.25 per share, respectfully.

The value assigned to the redeemable preferred stock was adjusted by $56,666 for
the discount related to the beneficial conversion option. The discount will be
accreted to additional paid-in capital over the redemption period.

The Company may be required to redeem the preferred shares at face value after a
period of two years.

NOTE 7 -  STOCKHOLDERS' DEFICIENCY

In January 2001, the Company issued 100,000 shares of common stock at $.19 per
share to an officer/shareholder upon exercise of his stock options.

During the nine months ended September 30, 2001, the Company issued 7,500
warrants and 85,926 shares of common stock to settle amounts owed for services,
resulting in a credit of $39,146 to additional paid-in capital based upon the
value of the services rendered. Additionally, in September 2001, the Company
issued 301,022 Class A Series 1 Warrants to certain noteholders for the
extension of the maturity dates for their notes. As a result, the Company
credited additional paid-in capital for $50,000 based on the value of the
warrants.

In August 2001, the Board of Directors approved the issuance of 180,132 shares
of common stock to certain stockholders, including 87,500 shares to certain
directors of the Company, related to Ohio Tax Credits which were to be earned
upon their original investments in the Company under a Private Placement
Memorandum. These Tax Credits were subsequently denied by the State of Ohio. The
issuance of these shares results in a charge of $52,040 to income and a
corresponding credit to additional paid-in capital.


                                       10
<PAGE>
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

In September 2001, the Company issued 3.0 million shares of common stock for
$300,000 (including $100,000 from a director of the Company). The proceeds were
used, in part, to retire certain notes payable due to a related party.

Stock options and warrants were excluded in the computation of diluted income
(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.


                                       11
<PAGE>
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, 2001.

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

Sales for the third quarter of 2001 were $204,316, an increase of 27.5% as
compared with sales of $160,255 for the third quarter of 2000. Sales for the
nine months ended September 30, 2001 were $533,263, an increase of 75.5% as
compared with sales of $303,708 for the same period in 2000. 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.

Cost of goods sold for the three months ended September 30, 2001 of $161,729
represented a 6.7% increase from cost of goods sold of $151,572 for the same
three-month period of 2000. Cost of goods sold for the nine months ended
September 30, 2001 of $441,657 represented a 15% increase from cost of goods
sold of $383,980 for the same nine-month period of 2000. These increases for the
three and nine month periods ended September 30, 2001 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 2001 compared to 2000.

Selling, general and administrative expenses for the third quarter of 2001 were
$351,613, an increase of 15.5% compared with selling, general and administrative
costs of $304,246 for the same period in 2000. Selling, general and
administrative expenses for the nine months ended September 30, 2001 were
$807,727, a reduction of 9.9% as compared with selling, general and
administrative costs of $896,311 for the first nine months of 2000. The increase
in selling, general and administrative expenses for the three months ended
September 30, 2001 compared to the same period for 2000 was due primarily to the
value of warrants issued. The reduced selling, general and administrative
expenses for the nine-month period ended September 30, 2001 compared to the same
period for 2000 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 2001 of $36,002 decreased by 18%
compared to the third quarter interest expense of $43,966 for 2000. Interest
expense for the nine-month period ended September 30, 2001 of $124,197 decreased
by 7.7% compared to interest expense for the nine-month period ended September
30, 2000 of $134,546. The weighted average debt outstanding was comparable for
these two periods.


                                       12
<PAGE>
The extraordinary gain of $789,020 for the period ended September 30, 2001 is
attributed to the conversion of notes and accrued interest of $1,054,019 to
Progen for 240,271 shares of Zaxis common stock and $200,000 cash.

Extraordinary charge of $509,466 for the nine-month period ended September 30,
2000 was attributed to the conversion of notes and accrued interest to the
Company's common stock at prices below the market value of the common stock on
the date of conversion.

Net income for the third quarter of 2001 amounted to $446,065 as compared to a
net loss of $684,457 for the same period in 2000. Net loss for the first nine
months of 2001 amounted to $37,093 as compared to a net loss of $1,533,937 for
the same period in 2000.


FINANCIAL CONDITION AND LIQUIDITY

Cash used for operations amounted to $371,373 for the nine months ended
September 30, 2001 as compared to $1,362,141 of cash used in the first nine
months of 2000. The decrease in the cash used from operations for 2001 as
compared to 2000 was primarily due to a decrease in the net loss by $1,496,844
for the nine-month period ended September 30, 2001 as compared to the comparable
period for 2000, a reduction of $789,020 for a non-cash extraordinary gain in
2001 compared to an increase of $509,466 for a non-cash extraordinary loss in
2000, an increase in deferred revenue of $198,806 for the nine-month period
ended September 30, 2001, and a net increase in cash provided from operations of
$73,740 from other changes in operating assets and liabilities for 2001 compared
to cash used by operations of $408,521 for other changes in operating assets and
liabilities for 2000.

We had no property and equipment expenditures for the nine-month period ended
September 30, 2001. Cash provided from financing activities totaled $542,433 for
the nine months ended September 30, 2001 as compared to $1,295,607 for the first
nine months of 2000. The financing activities during the first nine months of
2001 were primarily due to the issuance of notes payable ($314,500), preferred
stock ($170,000) and common stock ($300,000). The Company converted $1,789,649
of notes payable and accrued interest for approximately 2.96 million shares of
Zaxis common stock and $200,000 cash for the nine-month period ended September
30, 2001. 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 2001 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.

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<PAGE>
                           PART II. OTHER INFORMATION


ITEM 2(c). CHANGES IN SECURITIES AND USE OF PROCEEDS

During the nine-months ended September 30, 2001, Zaxis International Inc. issued
100,000 shares of restricted common stock at $.19 per share to the President/CEO
upon exercise of his stock options. In addition, the Company issued 85,926
shares of restricted common stock and 308,522 warrants for services valued at
$90,005.

In September 2001, the Company: issued 3,000,000 shares of restricted common
stock for $300,000; converted notes payable and accrued interest for 2,965,292
shares of restricted common stock; and issued 180,132 shares of restricted
common stock related to Ohio tax credits under a Private Placement Memorandum
which were subsequently denied.

ITEM 3.  DEFAULT UPON SENIOR SECURITIES

At September 30, 2001, the Company was delinquent on note principal and interest
payments of approximately $20,000.

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.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

A.    Exhibits

            None

B.    Reports on Form 8-K during the quarter ended September 30, 2001.

      9/20/01 -   The Company reported the retirement of all debt held by
                  Progen Industries Limited of Australia, including all notes
                  payable, accrued interest, warrants, options and commissions.
                  The debt was retired in exchange for a combination of cash and
                  restricted common stock.

                  Reported the announcement of John Hrobsky to the Board of
                  Directors.

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<PAGE>
                                   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 9, 2001                       BY: S/S John Hrobsky
                                           --------------------------------
                                       John Hrobsky, President &
                                       Chief Executive Officer and Acting Chief
                                       Financial Officer

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