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 March 31, 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 March 31, 2001, there were 9,981,773 shares of Common Stock outstanding.

Transitional Small Business Disclosure Format (check one):

Yes:    No: X





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ZAXIS INTERNATIONAL INC.
FORM 10-QSB

INDEX

|                                                                        |                                                                                                   |                                                                 |    |          |   | 
|----------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------- | --------------------------------------------------------------- | -- | -------- | - | 
|                                                                        |                                                                                                   |                                                                 |    | Page No.
|                                                                        |                                                                                                   |                                                                 |    |         
|PART I. FINANCIAL INFORMATION                                          
|                                                                       
|Item 1. Financial Statements                                           
|                                                                       
|                                                                        | Condensed Consolidated Balance Sheets                                                            
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                                                                                   | as of March 31, 2001 and December 31, 2000                      |    |          | 3 | 
|                                                                       
|                                                                        | Condensed Consolidated Statements of Operations:                                                 
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                                                                                   | Three Months ended March 31, 2001 and 2000                      |    |          | 4 | 
|                                                                       
|                                                                        | Condensed Consolidated Statement of Stockholders Deficiency                                     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                                                                                   | For the three months ended March 31, 2001                       |    |          | 5 | 
|                                                                       
|                                                                        | Condensed Consolidated Statements of Cash Flows                                                   |                                                                 |    | 6        |  
|                                                                       
|                                                                        | Notes to Condensed Consolidated Financial Statements                                              |                                                                 |    | 7-8      |  
|                                                                       
|Item 2. Managements Discussion and Analysis of Financial Condition and
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                                                                                   | Results of Operations for the Three Months Ended March 31, 2001 |    |          | 9 | 
|                                                                       
|PART II. OTHER INFORMATION                                             
|                                                                       
|                                                                        | Item 2. (c) Changes in Securities and use of proceedsRecent Issuances of Unregistered Securities |                                                                 |    | 10       |  
|                                                                       
|                                                                        | Item 3. Defaults upon Senior Securities                                                           |                                                                 |    | 10       |  
|                                                                       
|                                                                        | Item 5: Other Information                                                                         |                                                                 |    | 10       |  
|                                                                       
|                                                                        | Item 6. Exhibits and Reports on Form 8-K                                                          |                                                                 |    | 11       |  
|                                                                       
|SIGNATURES                                                              |                                                                                                   |                                                                 | 12 |         





---



Part 1  Financial Information

Item 1. Financial Statements

ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

|                                         |  |                                                                                                                                                                                      |                                                |   |             |             |         |              |             |            |   | 
|---------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------- | - | ----------- | ----------- | ------- | ------------ | ----------- | ---------- | - | 
|                                         |  |                                                                                                                                                                                      |                                                |   |             | March 31,   |         | December 31,
|                                         |  |                                                                                                                                                                                      |                                                |   |             | 2001        |         | 2000        
|                                         |  |                                                                                                                                                                                      |                                                |   |             |             |         |             
|                                         |  |                                                                                                                                                                                      |                                                |   |             | (Unaudited) |         | (Audited)   
|                                        
|Current assets:                         
|                                        
|                                        
|                                        
|                                        
|                                         |  | Cash                                                                                                                                                                                 |                                                | $ | 776         |             |         | $            | 1,827       |           
|                                        
|                                        
|                                        
|                                        
|                                         |  | Accounts receivable, net                                                                                                                                                             |                                                |   | 55,472      |             |         |              | 28,325      |           
|                                        
|                                        
|                                        
|                                        
|                                         |  | Inventory                                                                                                                                                                            |                                                |   | 35,480      |             |         |              | 35,627      |           
|                                         |  |                                                                                                                                                                                      |                                                |   |             |             |         |             
|                                         |  |                                                                                                                                                                                      | Total current assets                           |   |             | 91,728      |         |              |             | 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                                                                                                                                                        |                                                |   | 443,061     |             |         |              | 427,623     |           
|                                         |  |                                                                                                                                                                                      |                                                |   |             |             |         |             
|                                         |  |                                                                                                                                                                                      | 63,539                                         |   |             |             | 78,977  |             
|                                        
|                                        
|                                        
|                                        
|Other assets                             |  |                                                                                                                                                                                      | 36,807                                         |   |             |             | 38,366  |             
|                                         |  |                                                                                                                                                                                      |                                                |   |             |             |         |             
|                                         |  |                                                                                                                                                                                      | Total assets                                   |   | $           | 192,074     |         |              | $           | 183,122    |  
|                                         |  |                                                                                                                                                                                      |                                                |   |             |             |         |             
|                                        
|LIABILITIES AND STOCKHOLDERS DEFICIENCY
|                                        
|                                        
|                                        
|                                        
|Current liabilities:                    
|                                        
|                                        
|                                        
|                                        
|                                         |  | Current portion of capitalized lease obligations                                                                                                                                     |                                                | $ | 11,910      |             |         | $            | 13,567      |           
|                                        
|                                        
|                                        
|                                        
|                                         |  | Notes payable to related parties                                                                                                                                                     |                                                |   | 1,328,199   |             |         |              | 1,186,199   |           
|                                        
|                                        
|                                        
|                                        
|                                         |  | Notes payable                                                                                                                                                                        |                                                |   | 345,500     |             |         |              | 300,715     |           
|                                        
|                                        
|                                        
|                                        
|                                         |  | Accounts payable                                                                                                                                                                     |                                                |   | 244,723     |             |         |              | 246,397     |           
|                                        
|                                        
|                                        
|                                        
|                                         |  | Accrued interest                                                                                                                                                                     |                                                |   | 286,332     |             |         |              | 245,136     |           
|                                        
|                                        
|                                        
|                                        
|                                         |  | Other accrued expenses                                                                                                                                                               |                                                |   | 79,500      |             |         |              | 72,967      |           
|                                         |  |                                                                                                                                                                                      |                                                |   |             |             |         |             
|                                         |  |                                                                                                                                                                                      | Total current liabilities                      |   |             | 2,296,164   |         |              |             | 2,064,981  |  
|                                        
|                                        
|                                        
|                                        
|Long term liabilities:                  
|                                        
|                                        
|                                        
|                                        
|                                         |  | Capitalized lease obligations                                                                                                                                                        |                                                |   |            |             |         |              | 1,328       |           
|                                         |  |                                                                                                                                                                                      |                                                |   |             |             |         |             
|                                         |  |                                                                                                                                                                                      | Total long term liabilities                    |   |             |            |         |              |             | 1,328      |  
|                                        
|                                        
|                                        
|                                        
|Stockholders deficiency:               
|                                        
|                                        
|                                        
|                                        
|                                         |  | Common stock  $.01 par value, 20,000,000 shares authorized,
9,981,773 shares issued and outstanding at March 31, 2001,
9,866,773 shares issued and outstanding at December 31, 2000 |                                                |   | 99,818      |             |         |              | 98,668      |           
|                                        
|                                        
|                                        
|                                        
|                                         |  | Additional paid-in capital                                                                                                                                                           |                                                |   | 9,838,130   |             |         |              | 9,816,530   |           
|                                        
|                                        
|                                        
|                                        
|                                         |  | Accumulated deficit                                                                                                                                                                  |                                                |   | (12,042,038 | )           |         |              | (11,798,385 | )         
|                                         |  |                                                                                                                                                                                      |                                                |   |             |             |         |             
|                                         |  |                                                                                                                                                                                      | Total stockholders deficiency                 |   |             | (2,104,090  | )       |              |             | (1,883,187 | )
|                                         |  |                                                                                                                                                                                      |                                                |   |             |             |         |             
|                                         |  |                                                                                                                                                                                      | Total liabilities and stockholders deficiency |   | $           | 192,074     |         |              | $           | 183,122    |  
|                                         |  |                                                                                                                                                                                      |                                                |   |             |             |         |             

See notes to consolidated financial statements.

3



---



ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

|                                                                  |  |                                              |                                                             |   |                    |          |           |   |         |          |  
|----------------------------------------------------------------- |  | -------------------------------------------- | ----------------------------------------------------------- | - | ------------------ | -------- | --------- | - | ------- | -------- | -
|                                                                  |  |                                              |                                                             |   | Three Months Ended
|                                                                  |  |                                              |                                                             |   | March 31          
|                                                                  |  |                                              |                                                             |   |                   
|                                                                  |  |                                              |                                                             |   | 2001               |          | 2000     
|                                                                  |  |                                              |                                                             |   |                    |          |          
|Net sales                                                         |  | $                                            | 152,767                                                     |   |                    | $        | 87,653    |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Operating Costs:                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  |  | Cost of goods sold                           |                                                             |   | 129,993            |          |           |   | 115,410 |         
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  |  | Selling, general and administrative expenses |                                                             |   | 223,889            |          |           |   | 285,095 |         
|                                                                  |  |                                              |                                                             |   |                    |          |           |  
|                                                                  |  |                                              | Loss from operations                                        |   |                    | (201,115 | )         |   |         | (312,852 | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Other income (expense):                                          
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  |  | Interest expense                             |                                                             |   | (42,892            | )        |           |   | (49,214 | )       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  |  | Other, net                                   |                                                             |   | 354                |          |           |   | 36,303  |         
|                                                                  |  |                                              |                                                             |   |                    |          |           |  
|                                                                  |  |                                              | Total other income (expense)                                |   |                    | (42,538  | )         |   |         | (12,911  | )
|                                                                  |  |                                              |                                                             |   |                    |          |           |  
|                                                                  |  |                                              | Loss from continuing operations before extraordinary charge |   |                    | (243,653 | )         |   |         | (325,763 | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Extraordinary charge from extinguishments of debt                 |  |                                              |                                                            |   |                    |          | (137,348  | )
|                                                                  |  |                                              |                                                             |   |                    |          |           |  
|                                                                  |  |                                              | Net loss                                                    |   | $                  | (243,653 | )         |   | $       | (463,111 | )
|                                                                  |  |                                              |                                                             |   |                    |          |           |  
|Net loss from continuing operations  basic and diluted           |  | $                                            | (0.02                                                       | ) |                    | $        | (0.05     | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Extraordinary charge  Basic and Diluted                          |  |                                              |                                                            |   |                    |          | (0.02     | )
|                                                                  |  |                                              |                                                             |   |                    |          |           |  
|Net loss per common share  Basic and Diluted                     |  | $                                            | (0.02                                                       | ) |                    | $        | (0.07     | )
|                                                                  |  |                                              |                                                             |   |                    |          |           |  
|Weighted average number of shares outstanding  Basic and Diluted |  |                                              | 9,894,184                                                   |   |                    |          | 6,540,829 |  
|                                                                  |  |                                              |                                                             |   |                    |          |           |  

See notes to consolidated financial statements.

4



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ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIENCY
(UNAUDITED)

|                           |                                      |  |              |         |            |   |         |       |             |   |           |        |  |   |             |          |  
|-------------------------- | ------------------------------------ |  | ------------ | ------- | ---------- | - | ------- | ----- | ----------- | - | --------- | ------ |  | - | ----------- | -------- | -
|                           |                                      |  | Common Stock
|                           |                                      |  |              |         | Additional
|                           |                                      |  | Number of    |         | Stated or  |   | Paid-In |       | Accumulated
|                           |                                      |  | Shares       |         | Par Value  |   | Capital |       | Deficit    
|                           |                                      |  |              |         |            |   |         |       |            
|Balance at January 1, 2001 |                                      |  | 9,866,773    |         |            | $ | 98,668  |       |             | $ | 9,816,530 |        |  | $ | (11,798,385 | )       
|                          
|                          
|                          
|                          
|                           | Shares issued on exercise of options |  |              | 100,000 |            |   |         | 1,000 |             |   |           | 18,000 |  |   |             |         |  
|                          
|                          
|                          
|                          
|                           | Shares issued for services           |  |              | 15,000  |            |   |         | 150   |             |   |           | 3,600  |  |   |             |         |  
|                          
|                          
|                          
|                          
|                           | Net loss for the quarter             |  |              |        |            |   |         |      |             |   |           |       |  |   |             | (243,653 | )
|                           |                                      |  |              |         |            |   |         |       |             |   |           |        |  |   |             |         
|Balance at March 31, 2001  |                                      |  | 9,981,773    |         |            | $ | 99,818  |       |             | $ | 9,838,130 |        |  | $ | (12,042,038 | )       
|                           |                                      |  |              |         |            |   |         |       |             |   |           |        |  |   |             |         

See notes to the consolidated financial statements.

5



---



ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

|                                                                        |                                         |                                              |                                       |         |                    |          |          |         |         |          |  
|----------------------------------------------------------------------- | --------------------------------------- | -------------------------------------------- | ------------------------------------- | ------- | ------------------ | -------- | -------- | ------- | ------- | -------- | -
|                                                                        |                                         |                                              |                                       |         | Three Months Ended
|                                                                        |                                         |                                              |                                       |         | March 31,         
|                                                                        |                                         |                                              |                                       |         |                   
|                                                                        |                                         |                                              |                                       |         | 2001               |          | 2000    
|                                                                        |                                         |                                              |                                       |         |                    |          |         
|Operating activities:                                                  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Net loss                                                                |                                         | $                                            | (243,653                              | )       |                    | $        | (463,111 | )      
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Adjustments to reconcile net loss to cash
used in operating activities:
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                         | Depreciation and amortization                |                                       |         | 16,997             |          |          |         | 25,528  |         
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                         | Shares issued for services                   |                                       |         | 3,750              |          |          |         |        |         
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                         | Extraordinary charge                         |                                       |         |                   |          |          |         | 137,348 |         
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                         | Changes in operating assets and liabilities:
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                         |                                              | Accounts receivable                   |         |                    | (27,147  | )        |         |         | (59,787  | )
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                         |                                              | Inventory                             |         |                    | 147      |          |         |         | (6,717   | )
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                         |                                              | Accounts payable and accrued expenses |         |                    | 46,055   |          |         |         | (282,414 | )
|                                                                        |                                         |                                              |                                       |         |                    |          |          |        
|                                                                        |                                         |                                              | Cash used in operating activities     |         |                    | (203,851 | )        |         |         | (649,153 | )
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Investing activities:                                                  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Purchases of property and equipment                                     |                                         |                                              |                                      |         |                    |          | (30,189  | )      
|                                                                        |                                         |                                              |                                       |         |                    |          |          |        
|                                                                        |                                         |                                              | Cash used in investing activities     |         |                    |         |          |         |         | (30,189  | )
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Financing activities:                                                  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Proceeds from exercise of stock options |                                              |                                       | 19,000  |                    |          |          |        |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Proceeds from sale of common stock      |                                              |                                       |        |                    |          |          | 922,138 |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Payments on notes payable               |                                              |                                       | (2,715  | )                  |          |          | (16,762 | )      
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Proceeds from notes payable             |                                              |                                       | 189,500 |                    |          |          |        |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Payments on capital lease obligations   |                                              |                                       | (2,985  | )                  |          |          | (2,991  | )      
|                                                                        |                                         |                                              |                                       |         |                    |          |          |        
|                                                                        |                                         |                                              | Cash provided by financing activities |         |                    | 202,800  |          |         |         | 902,385  |  
|                                                                        |                                         |                                              |                                       |         |                    |          |          |        
|Increase (Decrease) in cash                                             |                                         |                                              | (1,051                                | )       |                    |          | 223,043  |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Cash at beginning of period                                             |                                         |                                              | 1,827                                 |         |                    |          | 139,151  |        
|                                                                        |                                         |                                              |                                       |         |                    |          |          |        
|Cash at end of period                                                   |                                         | $                                            | 776                                   |         |                    | $        | 362,194  |        
|                                                                        |                                         |                                              |                                       |         |                    |          |          |        

See notes to consolidated financial statements.

6



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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 three-month period ended March 31, 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 of $243,653 for the quarter
ended March 31, 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.

7



---



ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(UNAUDITED)

NOTE 3  RESTATEMENT

During the three months ended March 31, 2000, the Company converted $140,000 of notes payable (plus accrued
interest of approximately $30,000) to approximately 310,000 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 $137,348. The Company recorded this
extraordinary loss in the fourth quarter of 2000. As a result, the financial statements for the period ended
March 31, 2000 have been restated to reflect the extraordinary loss in the period to which it relates.

NOTE 4  NOTES PAYABLE

During the three months ended March 31, 2001, the Company issued notes aggregating $189,500 ($142,000 to related
parties) with stated interest rates ranging from 11% to 11.5%. The notes mature at various dates through
September 2001.

At March 31, 2001, the Company was delinquent on principal and interest payments of approximately $874,000 and
$218,000, respectively.

NOTE 5  COMMON STOCK

During the three months ended March 31, 2001, the Company issued 100,000 shares of common stock at $.19 per share
to an officer/shareholder upon exercise of his stock options.

No stock options or warrants were granted during the quarter ended March 31, 2001. 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 6  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.

8



---



Item 2. Managements Discussion and Analysis.

Managements Discussion and Analysis of Financial Condition and Results of Operations for the Three Months Ended
March 31, 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 first three months ended March 31, 2001 were $152,767 as compared with $87,653 for the first three
months of 2000. This 74% increase in sales was due to increased market penetration of the Companys PAGE gels and
associated reagents, buffers, DNASE Free water and stains.

The Companys cost of goods sold for the three months ended March 31, 2001 of $129,993 represented a 12.6%
increase from the cost of goods sold of $115,410 for the same three-month period of 2000. The high costs of goods
sold relative to total revenues reflect a lack of any economies of scale being realized due to low unit volumes.

Selling, general and administrative expenses were $223,889 for the three months ended March 31, 2001, a decrease
of 21% from $285,095 for the same three-month period in 2000. This decrease is primarily attributable to a
reduction of consulting costs and temporary help.

Interest expense for the first quarter of 2001 was reduced by $6,322 or 13% compared to the first quarter in 2000
primarily due to a higher weighted-average debt outstanding in 2000 compared to 2001.

Extraordinary charge of $137,348 for the three month period ended March 31, 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.

The net loss for the quarter ended March 31, 2001 amounted to $(243,653) as compared to a net loss of $(463,111)
for the same quarter in 2000. The loss per share was affected by the increase in the weighted average number of
shares outstanding to 9,894,184 in the three months ended March 31, 2001 from 6,540,829 in the three months ended
March 31, 2000.

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Financial Condition and Liquidity

Cash used for operations amounted to $203,851 for the three months ended March 31, 2001. We had no property and
equipment expenditures for the quarter. Cash provided from financing activities totaled $202,800 for the three
months ended March 31, 2001 primarily due to the issuance of notes payable of $189,500 and proceeds of $19,000
from the exercise of stock options. 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 improve sales
volume and demonstrate that the Company can be successful.

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.

PART II. OTHER INFORMATION

Item 2(c). Changes in Securities and use of proceeds

During the period ended March 31, 2001, Zaxis International Inc. issued 100,000 shares of Common Stock at $.19
per share to the President/CEO upon exercise of his stock options. In addition, the Company issued 15,000 shares
of common stock for services valued at $3,750.

Item 3. Default upon Senior Securities

At March 31, 2001, the Company was delinquent on note principal payments of approximately $874,000 and interest
payments of $218,000.

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.

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Item 6. Exhibits and Reports on Form 8-K

Reports on Form 8-K during the Quarter Ended March 31, 2001:

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1/31/01 |  | Reported that Company had reached tentative agreement with John Turner on terms and conditions
from a significant investment in the Company. Reported that Company is seeking interim
financing of $250,000 for short-term operating expenses.                                                                                                                                                                                                                                                                                                                                                        
|       
|       
|       
|       
|3/16/01 |  | Reported that company had dismissed Ernst & Young LLP as the Companys independent auditor and
engaged Grant Thornton LLP to act as its auditors for the fiscal year ended December 31, 2000.
Reported that the Ernst & Young LLP report on the financial statements as of and for the years
ended December 31, 1999 and 1998 did not contain an adverse opinion or disclaimer of opinion
and was not qualified or modified as to uncertainty, auditing scope or accounting principles,
except for the modification regarding the uncertainty of the Companys ability to continue as a
going concern.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|             |  |                                                                                     
|------------ |  | ------------------------------------------------------------------------------------
|             |  | Zaxis International Inc.                                                            
|             |  |                                                                                     
|             |  | (Registrant)                                                                        
|            
|            
|May 15, 2001 |  | BY: S/S John Hrobsky                                                                
|             |  |                                                                                     
|             |  | John Hrobsky, President &
Chief Executive Officer and Acting Chief
Financial Officer

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