TABLE OF CONTENTS




|                                                                   |                                               |  |  |  |  |  |  | 
|------------------------------------------------------------------ | --------------------------------------------- |  |  |  |  |  |  | 
|CONSOLIDATED BALANCE SHEETS                                       
|CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED THREE MONTHS ENDED
|CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED SIX MONTHS ENDED  
|CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                        
|                                                                   | Item 2. Managements Discussion and Analysis.
|PART II. OTHER INFORMATION                                        
|SIGNATURES                                                        
|Exhibit 27                                                        



---



U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549

FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2000

Zaxis International Inc.(Name of Issuer as specified in its charter)

|                                  |  |                                  |  |                                             
|--------------------------------- |  | -------------------------------- |  | --------------------------------------------
|Delaware
(State of Incorporation) |  | 0-15476
(Commission File Number) |  | 68-0080601
(IRS Employer Identification No.)

1890 Georgetown Road, Hudson Ohio 44236
(Address of principal executive office)

(330) 650-0444
(Registrants telephone number)

Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months and (2) has
been subject to such filings for the past 90 days. Yes [X] No []

As of June 30, 2000, there were 8,470,776 shares of Common Stock outstanding.

1



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##### Table of Contents



ZAXIS INTERNATIONAL INC.
FORM 10-QSB

INDEX

|           |  |                                                                                                                                        |          |  |  |  |  |    |    | 
|---------- |  | -------------------------------------------------------------------------------------------------------------------------------------- | -------- |  |  |  |  | -- | -- | 
|           |  |                                                                                                                                        | Page No.
|           |  |                                                                                                                                        |         
|PART I     |  | FINANCIAL INFORMATION                                                                                                                 
|          
|          
|          
|          
|Item 1.    |  | Financial Statements                                                                                                                  
|          
|          
|          
|          
|           |  | Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999                                                                  |          |  |  |  |  |    | 3  | 
|          
|          
|          
|          
|           |  | Consolidated Statements of Operations:                                                                                                
|          
|          
|          
|          
|           |  | Quarters ended June 30, 2000 and 1999                                                                                                  |          |  |  |  |  |    | 4  | 
|          
|          
|          
|          
|           |  | Six Months ended June 30, 2000 and 1999                                                                                                |          |  |  |  |  |    | 5  | 
|          
|          
|          
|          
|           |  | Consolidated Statements of Cash Flows                                                                                                  |          |  |  |  |  |    | 6  | 
|          
|          
|          
|          
|           |  | Notes to Consolidated Financial Statements                                                                                             |          |  |  |  |  |    | 7  | 
|          
|          
|          
|          
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations for the Three and Six Months Ended June 30, 2000 |          |  |  |  |  |    | 8  | 
|          
|          
|          
|          
|PART II    |  | OTHER INFORMATION                                                                                                                     
|          
|          
|          
|          
|           |  | Item 2. (c) Changes in SecuritiesIssuances of Unregistered Securities                                                                 |          |  |  |  |  |    | 10 | 
|          
|          
|          
|          
|           |  | Item 3. Defaults upon Senior Securities                                                                                                |          |  |  |  |  |    | 10 | 
|          
|          
|          
|          
|           |  | Item 6. Exhibits and Reports on Form 8-K                                                                                               |          |  |  |  |  |    | 10 | 
|          
|          
|          
|          
|SIGNATURES |  |                                                                                                                                        |          |  |  |  |  | 11 |   
|          
|          
|          
|          
|EXHIBIT    |  |                                                                                                                                        |          |  |  |  |  |    | 12 | 

2



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##### Table of Contents



ZAXIS INTERNATIONAL INC. AND SUBSIDIARY




CONSOLIDATED BALANCE SHEETS

ASSETS

|                                         |                 |                                      |                                                                                                        |                                                |             |             |            |              |            |   |            |  
|---------------------------------------- | --------------- | ------------------------------------ | ------------------------------------------------------------------------------------------------------ | ---------------------------------------------- | ----------- | ----------- | ---------- | ------------ | ---------- | - | ---------- | -
|                                         |                 |                                      |                                                                                                        |                                                |             | June 30,    |            | December 31,
|                                         |                 |                                      |                                                                                                        |                                                |             | 2000        |            | 1999        
|                                         |                 |                                      |                                                                                                        |                                                |             |             |            |             
|                                         |                 |                                      |                                                                                                        |                                                |             | (Unaudited)
|                                         | Current assets:
|                                        
|                                        
|                                        
|                                        
|                                         |                 | Cash                                 |                                                                                                        | $                                              | 63,828      |             |            | $            | 139,151    |  
|                                        
|                                        
|                                        
|                                        
|                                         |                 | Accounts receivable, net             |                                                                                                        |                                                | 69,662      |             |            |              | 45,286     |  
|                                        
|                                        
|                                        
|                                        
|                                         |                 | Inventory                            |                                                                                                        |                                                | 74,136      |             |            |              | 64,036     |  
|                                        
|                                        
|                                        
|                                        
|                                         |                 | Prepaid expenses and other           |                                                                                                        |                                                | 46,797      |             |            |              | 11,188     |  
|                                         |                 |                                      |                                                                                                        |                                                |             |             |            |             
|                                         |                 |                                      |                                                                                                        | Total current assets                           |             |             | 254,423    |              |            |   | 259,661    |  
|                                        
|                                        
|                                        
|                                        
|Property and equipment:                 
|                                        
|                                        
|                                        
|                                        
|                                         |                 | Machinery and equipment              |                                                                                                        |                                                | 307,421     |             |            |              | 361,582    |  
|                                        
|                                        
|                                        
|                                        
|                                         |                 | Office equipment                     |                                                                                                        |                                                | 147,890     |             |            |              | 190,064    |  
|                                        
|                                        
|                                        
|                                        
|                                         |                 | Leasehold improvements               |                                                                                                        |                                                | 54,889      |             |            |              | 86,992     |  
|                                         |                 |                                      |                                                                                                        |                                                |             |             |            |             
|                                         |                 |                                      | 510,200                                                                                                |                                                |             |             | 638,638    |             
|                                        
|                                        
|                                        
|                                        
|                                         |                 | Less accumulated depreciation        |                                                                                                        |                                                | 385,708     |             |            |              | 498,954    |  
|                                         |                 |                                      |                                                                                                        |                                                |             |             |            |             
|                                         |                 |                                      | 124,492                                                                                                |                                                |             |             | 139,684    |             
|                                        
|                                        
|                                        
|                                        
|Other assets:                           
|                                        
|                                        
|                                        
|                                        
|                                         |                 | Patent costs                         |                                                                                                        |                                                | 30,342      |             |            |              | 33,460     |  
|                                         |                 |                                      |                                                                                                        |                                                |             |             |            |             
|                                         |                 |                                      |                                                                                                        | Total assets                                   |             | $           | 409,257    |              |            | $ | 432,805    |  
|                                         |                 |                                      |                                                                                                        |                                                |             |             |            |             
|                                         |                 |                                      |                                                                                                        |                                                |             |             |            |             
|LIABILITIES AND STOCKHOLDERS DEFICIENCY
|                                        
|                                        
|                                        
|                                        
|Current liabilities:                    
|                                        
|                                        
|                                        
|                                        
|                                         |                 | Current portion of lease obligations |                                                                                                        | $                                              | 13,650      |             |            | $            | 12,653     |  
|                                        
|                                        
|                                        
|                                        
|                                         |                 | Notes payable to directors           |                                                                                                        |                                                | 1,408,907   |             |            |              | 1,488,907  |  
|                                        
|                                        
|                                        
|                                        
|                                         |                 | Notes payable                        |                                                                                                        |                                                | 276,685     |             |            |              | 417,928    |  
|                                        
|                                        
|                                        
|                                        
|                                         |                 | Accounts payable                     |                                                                                                        |                                                | 205,788     |             |            |              | 581,070    |  
|                                        
|                                        
|                                        
|                                        
|                                         |                 | Accrued expenses                     |                                                                                                        |                                                | 599,455     |             |            |              | 549,004    |  
|                                         |                 |                                      |                                                                                                        |                                                |             |             |            |             
|                                         |                 |                                      |                                                                                                        | Total current liabilities                      |             |             | 2,504,485  |              |            |   | 3,049,562  |  
|                                        
|                                        
|                                        
|                                        
|Long term liabilities:                  
|                                        
|                                        
|                                        
|                                        
|                                         |                 | Capitalized lease obligations        |                                                                                                        |                                                | 8,946       |             |            |              | 16,040     |  
|                                        
|                                        
|                                        
|                                        
|                                         |                 | Notes payable to directors           |                                                                                                        |                                                | 67,792      |             |            |              | 197,792    |  
|                                         |                 |                                      |                                                                                                        |                                                |             |             |            |             
|                                         |                 |                                      |                                                                                                        | Total long term liabilities                    |             |             | 76,738     |              |            |   | 213,832    |  
|                                        
|                                        
|                                        
|                                        
|Stockholders deficiency:               
|                                        
|                                        
|                                        
|                                        
|                                         |                 | Common stock                         |                                                                                                        |                                                | 84,708      |             |            |              | 69,275     |  
|                                        
|                                        
|                                        
|                                        
|                                         |                 |                                      | $.01 par value, 12,000,000 shares authorized,
8,470,776 shares issued and outstanding at June 30, 2000
|                                        
|                                        
|                                        
|                                        
|                                         |                 |                                      | 6,927,497 shares issued and outstanding and issuable at
December 31, 1999                             
|                                        
|                                        
|                                        
|                                        
|                                         |                 | Additional paid-in capital           |                                                                                                        |                                                | 8,402,112   |             |            |              | 7,046,790  |  
|                                        
|                                        
|                                        
|                                        
|                                         |                 | Accumulated deficit                  |                                                                                                        |                                                | (10,658,786 | )           |            |              | (9,946,654 | )
|                                         |                 |                                      |                                                                                                        |                                                |             |             |            |             
|                                         |                 |                                      |                                                                                                        | Total stockholders deficiency                 |             |             | (2,171,966 | )            |            |   | (2,830,589 | )
|                                         |                 |                                      |                                                                                                        |                                                |             |             |            |             
|                                         |                 |                                      |                                                                                                        | Total liabilities and stockholders deficiency |             | $           | 409,257    |              |            | $ | 432,805    |  
|                                         |                 |                                      |                                                                                                        |                                                |             |             |            |             

See notes to consolidated financial statements.

3



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##### Table of Contents



ZAXIS INTERNATIONAL INC. AND SUBSIDIARY




CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED

|                                                                  |                                                        |                              |           |                    |          |      |           |         |          |  
|----------------------------------------------------------------- | ------------------------------------------------------ | ---------------------------- | --------- | ------------------ | -------- | ---- | --------- | ------- | -------- | -
|                                                                  |                                                        |                              |           | Three Months Ended
|                                                                  |                                                        |                              |           | June 30           
|                                                                  |                                                        |                              |           |                   
|                                                                  |                                                        |                              |           | 2000               |          | 1999
|                                                                  |                                                        |                              |           |                    |          |     
|Net sales                                                         |                                                        | $                            | 55,800    |                    |          | $    | 44,203    |        
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Operating Costs:                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Cost of goods sold                                     |                              |           | 116,998            |          |      |           | 132,680 |         
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Selling, general, administrative and research expenses |                              |           | 306,970            |          |      |           | 220,698 |         
|                                                                  |                                                        |                              |           |                    |          |      |           |        
|                                                                  |                                                        |                              | 423,968   |                    |          |      | 353,378   |        
|                                                                  |                                                        |                              |           |                    |          |      |           |        
|                                                                  |                                                        | Loss from operations         |           |                    | (368,168 | )    |           |         | (309,175 | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Other income (expense):                                          
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Interest expense                                       |                              |           | (41,366            | )        |      |           | (49,654 | )       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Other, net                                             |                              |           | 23,164             |          |      |           | 55      |         
|                                                                  |                                                        |                              |           |                    |          |      |           |        
|                                                                  |                                                        | Total other income (expense) |           |                    | (18,202  | )    |           |         | (49,599  | )
|                                                                  |                                                        |                              |           |                    |          |      |           |        
|                                                                  |                                                        | Net loss                     |           | $                  | (386,370 | )    |           | $       | (358,774 | )
|                                                                  |                                                        |                              |           |                    |          |      |           |        
|Net loss per common share  Basic and Diluted                     |                                                        | $                            | (0.05     | )                  |          | $    | (0.06     | )      
|                                                                  |                                                        |                              |           |                    |          |      |           |        
|Weighted average number of shares outstanding  Basic and Diluted |                                                        |                              | 8,030,129 |                    |          |      | 6,373,667 |        
|                                                                  |                                                        |                              |           |                    |          |      |           |        

See notes to consolidated financial statements.

4



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##### Table of Contents



ZAXIS INTERNATIONAL INC. AND SUBSIDIARY




CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED

|                                                                  |                                                        |                              |           |                  |          |      |           |         |          |  
|----------------------------------------------------------------- | ------------------------------------------------------ | ---------------------------- | --------- | ---------------- | -------- | ---- | --------- | ------- | -------- | -
|                                                                  |                                                        |                              |           | Six Months Ended
|                                                                  |                                                        |                              |           | June 30         
|                                                                  |                                                        |                              |           |                 
|                                                                  |                                                        |                              |           | 2000             |          | 1999
|                                                                  |                                                        |                              |           |                  |          |     
|Net sales                                                         |                                                        | $                            | 143,453   |                  |          | $    | 92,151    |        
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Operating Costs:                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Cost of goods sold                                     |                              |           | 232,408          |          |      |           | 260,998 |         
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Selling, general, administrative and research expenses |                              |           | 592,065          |          |      |           | 439,019 |         
|                                                                  |                                                        |                              |           |                  |          |      |           |        
|                                                                  |                                                        |                              | 824,473   |                  |          |      | 700,017   |        
|                                                                  |                                                        |                              |           |                  |          |      |           |        
|                                                                  |                                                        | Loss from operations         |           |                  | (681,020 | )    |           |         | (607,866 | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Other income (expense):                                          
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Interest expense                                       |                              |           | (90,580          | )        |      |           | (99,308 | )       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Other, net                                             |                              |           | 59,468           |          |      |           | 206     |         
|                                                                  |                                                        |                              |           |                  |          |      |           |        
|                                                                  |                                                        | Total other income (expense) |           |                  | (31,112  | )    |           |         | (99,102  | )
|                                                                  |                                                        |                              |           |                  |          |      |           |        
|                                                                  |                                                        | Net loss                     |           | $                | (712,132 | )    |           | $       | (706,968 | )
|                                                                  |                                                        |                              |           |                  |          |      |           |        
|Net loss per common share  Basic and Diluted                     |                                                        | $                            | (0.09     | )                |          | $    | (0.12     | )      
|                                                                  |                                                        |                              |           |                  |          |      |           |        
|Weighted average number of shares outstanding  Basic and Diluted |                                                        |                              | 7,631,358 |                  |          |      | 6,115,886 |        
|                                                                  |                                                        |                              |           |                  |          |      |           |        

See notes to consolidated financial statements.

5



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##### Table of Contents



ZAXIS INTERNATIONAL INC. AND SUBSIDIARY




CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

|                                                                        |                       |                                              |                          |                                           |         |                  |            |                  |         |         |          |  
|----------------------------------------------------------------------- | --------------------- | -------------------------------------------- | ------------------------ | ----------------------------------------- | ------- | ---------------- | ---------- | ---------------- | ------- | ------- | -------- | -
|                                                                        |                       |                                              |                          |                                           |         | Six Months Ended |            | Six Months Ended
|                                                                        |                       |                                              |                          |                                           |         | June 30,         |            | June 30,        
|                                                                        |                       |                                              |                          |                                           |         | 2000             |            | 1999            
|                                                                        |                       |                                              |                          |                                           |         |                  |            |                 
|Operating activities:                                                  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Net loss                                                                |                       |                                              | ($712,132                | )                                         |         |                  | ($706,968  | )               
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Adjustments to reconcile net loss to cash
used in operating activities:
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                       | Depreciation and amortization                |                          |                                           | 48,499  |                  |            |                  | 51,810  |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                       | Compensation due to stock option grants      |                          |                                           |        |                  |            |                  | 3,676   |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                       | Changes in operating assets and liabilities:
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                       |                                              |                          | Accounts receivable                       |         |                  | (24,376    | )                |         |         | (5,132   | )
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                       |                                              |                          | Inventory and prepaid expenses            |         |                  | (45,709    | )                |         |         | (1,475   | )
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                       |                                              |                          | Accounts payable                          |         |                  | (375,282   | )                |         |         | 105,187  |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                       |                                              |                          | Accrued expenses                          |         |                  | 50,451     |                  |         |         | 116,376  |  
|                                                                        |                       |                                              |                          |                                           |         |                  |            |                 
|                                                                        |                       |                                              |                          | Net cash used in operating activities     |         |                  | (1,058,549 | )                |         |         | (436,526 | )
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Investing activities:
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                       | Purchases of property and equipment          |                          |                                           | (30,189 | )                |            |                  | (648    | )      
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                       | Patent cost expenditures                     |                          |                                           |        |                  |            |                  | (1,840  | )      
|                                                                        |                       |                                              |                          |                                           |         |                  |            |                 
|                                                                        |                       |                                              |                          | Net cash used in investing activities     |         |                  | (30,189    | )                |         |         | (2,488   | )
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Financing activities:                                                  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                       | Proceeds from sales of common stock          |                          |                                           | 990,755 |                  |            |                  | 215,561 |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                       | Payments on notes payable                    |                          |                                           | (46,243 | )                |            |                  | (3,336  | )      
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                       | Proceeds from notes payable                  |                          |                                           | 75,000  |                  |            |                  | 165,000 |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                       | Payments on capital lease obligations        |                          |                                           | (6,097  | )                |            |                  | (5,250  | )      
|                                                                        |                       |                                              |                          |                                           |         |                  |            |                 
|                                                                        |                       |                                              |                          | Net cash provided by financing activities |         |                  | 1,013,415  |                  |         |         | 371,975  |  
|                                                                        |                       |                                              |                          |                                           |         |                  |            |                 
|Decrease in cash                                                        |                       |                                              | (75,323                  | )                                         |         |                  | (67,039    | )               
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Cash at beginning of period                                             |                       |                                              | 139,151                  |                                           |         |                  | 49,327     |                 
|                                                                        |                       |                                              |                          |                                           |         |                  |            |                 
|Cash at end of period                                                   |                       | $                                            | 63,828                   |                                           |         |                  | ($17,712   | )               
|                                                                        |                       |                                              |                          |                                           |         |                  |            |                 
|Non cash transactions:                                                 
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                       |                                              | Notes converted to stock |                                           | $       | 380,000          |            |                  | $       | 300,000 |         
|                                                                        |                       |                                              |                          |                                           |         |                  |            |                 

See notes to consolidated financial statements.

6



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##### Table of Contents



ZAXIS INTERNATIONAL INC. AND SUBSIDIARY




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The financial statements present the consolidated financial position and
results of operations of Zaxis International Inc. (International or the
Company) and Zaxis Inc. (Zaxis) its wholly-owned subsidiary.

Zaxis Inc. was founded in 1989 as a privately held Ohio corporation. On August
25, 1995, Zaxis merged with a subsidiary of The InFerGene Company
(InFerGene). InFerGene was an inactive publicly traded Delaware corporation
founded in 1985. Neither InFerGene nor its subsidiary had any assets or
liabilities. The merger, for accounting purposes, was a reverse acquisition in
which Zaxis acquired InFerGene. The acquisition was accounted for as a
purchase with no value assigned to InFerGene. InFerGene then changed its name
to Zaxis International Inc. The financial statements include the operations of
Zaxis for all periods presented and the operations of International since the
date of acquisition. All intercompany transactions and balances have been
eliminated.

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-Q and
Article 10 of Regulation S-X. These interim financial statements include all
adjustments of a normal recurring nature that in the opinion of management are
necessary to make the financial statements not misleading. 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- and six-month periods ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the year ended December 31,
2000.

The consolidated balance sheet at December 31, 1999 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.

For further information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant Company and Subsidiarys annual
report on Form 10-KSB for the year ended December 31, 1999.

2. Common Stock and Warrants

During the three- and six-month periods ended June 30, 2000, Zaxis
International Inc., in connection with a private offering of securities,
obtained subscriptions for a total of 30,000 and 1,405,953 units, respectively,
with each unit consisting of one share of common stock and Class Z, Series Z-3,
Z-4, Z-5, and Z-6 Warrants entitling the holder in the aggregate to purchase
one additional share of common stock. For the three- and six- month periods
ended June 30, 2000, $68,617 and $990,755, respectively had been received in
cash, and $10,000 and $380,000, respectively of notes payable had been
converted.

7



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##### Table of Contents



3. Liquidity

During the three- and six-month periods ended June 30, 2000, Zaxis incurred
losses of $386,370 and $712,132, respectively, compared to losses of $358,774
and $706,968, respectively for the same periods in 1999. The operations of the
Company have been financed primarily by loans from companies and individuals
associated with members of the Board of Directors and the sale and issuance of
securities under the Companys Private Placement Offering that was terminated
by the Board of Directors effective March 31, 2000.

One of the Companys larger customers has offered $200,000 in debt financing if
these funds can be matched with additional debt or equity funding on a dollar
for dollar basis. The Companys management is currently working to secure the
necessary matching funds for this financing while continuing to search for
larger equity investors. Additional debt financing of $75,000 had been secured
as of June 30, 2000.

Of the $75,000 in note proceeds Zaxis had received as of June 30, 2000, $45,000
was from individual investors for which the Company issued convertible notes
due June 2001. This $45,000 qualified as matching funds under the financing
offer detailed previously. The remaining $30,000 was received from the customer
referenced above in exchange for the issuance of an unsecured promissory note
with a maturity date of June 15, 2001. In July 2000, Zaxis received an
additional $45,000 in matching debt financing from this customer due July 20,
2001 in accordance with the terms of this customers financing offer. The
Company continues to rely upon these sources to sustain on-going operations,
research, production development and sales development.

The Company will necessarily be reliant upon such sources of funding until the
marketing of the Companys principal products can be brought to a level
sufficient to support its operating requirements. These conditions cause doubt
about the Companys ability to continue as a going concern. No adjustments to
the amounts or classification of assets and liabilities that could result from
the outcome of this uncertainty are reflected in the financial statements.

4. Net Loss Per Common Share

The effects of outstanding options and warrants have not been included in the
calculation of net loss per share.




Item 2. Managements Discussion and Analysis.

Managements Discussion and Analysis of Financial Condition and Results of
Operations for the Three and Six Months Ended June 30, 2000.

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Results of operations

Sales for the second quarter of 2000 totaled $55,800 as compared with $44,203
for 1999s second quarter. Sales for the six months ended June 30, 2000, were
$143,453 as compared to $92,151 for the same period in 1999.

Operating costs were $423,968 for the second quarter of 2000 as compared with
$353,378 for the same period in 1999. Operating costs for the six months ended
June 30, 2000, were $824,473 as compared with $700,017 for the first six months
of 1999. These increases were primarily attributable to costs incurred in the
Companys fundraising and sales efforts.

Interest expense decreased from $49,654 to $41,366 for the quarters ended June
30, 1999 and June 30, 2000, respectively, and from $99,308 to $90,580 for the
six months ended June 30, 1999 and June 30, 2000, respectively, due primarily
to the conversions of notes payable to equity that occurred during this time
period.

Net loss for the second quarter of 2000 amounted to $386,370 as compared to a
net loss of $358,774 for the same quarter of 1999. The net loss for the six
months ended June 30, 2000, was $712,132 while the Company incurred a net loss
of $706,968 for the same period in 1999.

Financial Condition and Liquidity

Cash used for operations amounted to $1,058,549 for the six months ended June
30, 2000. Plant and equipment expenditures were $30,189. Cash provided from
financing activities for the six months ended June 30, 2000 included $990,755
from the sale of unregistered securities under the Companys Private Placement
Offering and $75,000 in proceeds from the issuance of notes payable. 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 2000 to
maintain steady relations with creditors while it strives to improve sales
volume and demonstrate that the Company can be successful.

The Company needs to secure additional immediate financing to allow it to
explore several opportunities for its products that are now available for
market introduction and to afford it time to build sales volumes of the
Companys products to profitable levels. In the period required for product
introduction and sales growth, the Company will also need to satisfy its
obligations to current creditors. Pursuant to this need, the Company continues
to seek interim and long-term debt or equity funding.

New funds were obtained through the Companys Private Placement Offering in the
first quarter of 2000. The Company issued the securities under this Private
Placement Offering in reliance upon the exemption afforded by Section 4(2) of
the Securities Act of 1933 and other available exemptions. This Offering was
terminated effective March 31, 2000.

Discussions have been initiated with potential new investors for debt and/or
equity funding, however none of these discussions or potential borrowings or
investments have been completed as of June 30, 2000. One of the Companys
larger customers has offered $200,000 in debt financing if these funds can be
matched with additional debt or equity funding on a dollar for dollar basis.
The Companys management is currently working to secure the necessary matching

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funds for this financing while continuing to search for larger equity
investors. Additional debt financing of $75,000 had been secured as of June 30,
2000.

Of the $75,000 in note proceeds Zaxis had received as of June 30, 2000, $45,000
was from individual investors for which the Company issued convertible notes
due June 2001. This $45,000 qualified as matching funds under the financing
offer detailed previously. The remaining $30,000 was received from the customer
referenced above in exchange for the issuance of an unsecured promissory note
with a maturity date of June 15, 2001.

Zaxis International Inc. will continue to be reliant upon such funding sources
until the sales and marketing programs 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Issuances of Unregistered Securities

During the period ended June 30, 2000, in transactions exempt from
registration, Zaxis International Inc. sold 1,405,953 shares of Common Stock in
exchange for cash ($990,755) and Convertible Notes ($380,000).

Item 3. Default upon Senior Securities

At June 30, 2000, the Company was delinquent on Convertible Note principal
payments of $982,195 and interest payments of $265,333.

Item 6. Exhibits and Reports on Form 8-K

A.  Exhibits

|        |  |                        
|------- |  | -----------------------
|Exhibit
|Number  |  | Description            
|        |  |                        
|27      |  | Financial Data Schedule

B.  Reports on Form 8-K during the Quarter Ended June 30, 2000

|       |  |                                                                                                                      
|------ |  | ---------------------------------------------------------------------------------------------------------------------
|4/7/00 |  | Announced the appointment of Charles L. Maimbourg to the position of
Chief Financial Officer effective April 3, 2000.

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SIGNATURES

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

|               |  |                                                 
|-------------- |  | ------------------------------------------------
|               |  | Zaxis International Inc.
(Registrant)           
|              
|              
|August 8, 2000 |  | BY:   S/S John Hrobsky                          
|
|               |  |                                                 
|               |  | John Hrobsky
President & Chief Executive Officer

In accordance with the Exchange Act, this report has been signed below by the
following person on behalf of the Registrant and in the capacity and on the
date indicated.

|                        |  |                         |  |               
|----------------------- |  | ----------------------- |  | --------------
|Signature               |  | Title                   |  | Date          
|                        |  |                         |  |               
|                       
|/s/Charles L. Maimbourg |  | Chief Financial Officer |  | August 8, 2000
|                       
|Charles L. Maimbourg   

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