ZAXIS INTERNATIONAL INC, 10QSB, 1996-11-14

ZAXIS INTERNATIONAL INC
10QSB, 1996-11-14
DRUGS, PROPRIETARIES & DRUGGISTS' SUNDRIES

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<PAGE> 1
FORM 10-QSB - QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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)

(216)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 November 5, 1996 there were 5,432,226 shares of Common Stock outstanding.

Page 1 of 37 Pages. Exhibit Index on Page 9.
<PAGE> 2

ZAXIS INTERNATIONAL INC.
FORM 10-QSB
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Part I - Financial Information

Item 1. Financial Statements.

Consolidated Balance Sheet 3

Consolidated Statements of Operations:

Quarters ended September 30, 1996 and 1995 4

Nine Months ended June 30, 1996 and 1995 5

Consolidated Statements of Cash Flows 6

Notes to Consolidated Financial Statements 7

Item 2. Management's Discussion and Analysis. 8-9

Part II - Other Information

Item 6. Exhibits and Reports on Form 8-K. 10

SIGNATURES 11
</TABLE>

2
<PAGE> 3
ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

ASSETS
------
September 30 December 31,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 118,708 $ 135,574
Accounts receivable, net 68,312 54,356
Inventory 136,056 135,845
Prepaid expenses and other 17,616 39,700
----------- -----------
Total current assets 340,692 365,475
PROPERTY AND EQUIPMENT:
Machinery and equipment 245,228 185,093
Office equipment 202,691 177,674
Leasehold improvements 88,054 50,847
----------- -----------
535,973 413,614
Less accumulated depreciation 159,127 96,201
----------- -----------
376,846 317,413
OTHER ASSETS:
Deposits 78,078 19,094
Patent costs 32,330 26,124
Organization costs 5,725 7,502
----------- -----------
116,133 52,720
----------- -----------
TOTAL ASSETS $ 833,671 $ 735,608
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

CURRENT LIABILITIES:
Current portion of lease obligations $ 2,348 $ 10,334
Bank loan payable 100,000 25,015
Notes payable to directors 141,340 0
Notes payable to others 189,000 0
Accounts payable 452,631 200,262
Accrued expenses 221,641 198,512
----------- -----------
Total current liabilities 1,106,960 434,123
STOCKHOLDERS' EQUITY:
Common stock 54,322 49,027
Additional paid-in capital 5,378,139 4,152,631
Deferred compensation (33,676) (59,375)
Accumulated deficit (5,672,074) (3,840,798)
----------- -----------
Total stockholders' equity (273,289) 301,485
----------- -----------
Total liabilities and stockholders' equity $ 833,671 $ 735,608
=========== ===========

</TABLE>

See notes to consolidated financial statements.

3
<PAGE> 4

ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net sales $ 119,794 $ 48,311

Cost of goods sold 191,560 69,798

Selling, general and administrative expenses 311,664 295,519
----------- -----------
Loss from operations (383,430) (317,006)

Other income (expense):
Interest income 1,319 1,357
Miscellaneous income 263 71
Interest expense (6,528) (8,809)
----------- -----------
Total other income (expense) (4,946) (7,381)
----------- -----------
Net loss $ (388,376) $ (324,387)
=========== ===========
Net loss per common share $ (0.07) $ (0.09)
=========== ===========

Weighted average number of shares outstanding 5,413,218 3,785,405
=========== ===========

</TABLE>

See notes to consolidated financial statements.

4
<PAGE> 5
ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED
<TABLE>
<CAPTION>

Nine Months Ended
September 30,
-------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net sales $ 339,390 $ 132,346

Cost of goods sold 715,233 244,226

Selling, general and administrative expenses 1,453,512 970,287
----------- -----------
Loss from operations (1,829,355) (1,082,167)

Other income (expense):
Interest income 6,196 2,739
Miscellaneous income 1,454 654
Interest expense (9,572) (12,109)
----------- -----------
Total other income (expense) (1,922) (8,716)
----------- -----------
Net loss $(1,831,277) $(1,090,883)
=========== ===========

Net loss per common share $ (0.34) $ (0.33)
=========== ===========
Weighted average number of shares outstanding 5,346,509 3,344,218
=========== ===========

</TABLE>

See notes to consolidated financial statements.

5
<PAGE> 6

ZAXIS INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED
<TABLE>
<CAPTION>

Nine Months Ended
September 30,
------------------------------
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ($1,831,277) ($1,090,883)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 66,881 36,624
Compensation due to stock option grants (5,278) 194,672
Changes in operating assets and liabilities:
Accounts receivable (13,956) (30,009)
Inventory and prepaid expenses 21,873 (81,719)
Accounts payable and accrued expenses 275,499 187,071
----------- -----------
Cash used in operating activities (1,486,258) (784,244)

INVESTING ACTIVITIES:
Purchase of property and equipment (122,359) (96,013)
Deposits (58,984) 0
Patent cost expenditures (8,384) (4,555)
----------- -----------
Cash used in investing activities (189,727) (100,568)

FINANCING ACTIVITIES:
Proceeds from sales of common stock 1,261,780 1,352,770
Payments on notes payable 405,325 0
Payments on capital lease obligations (7,986) (8,198)
----------- -----------
Cash provided by financing activities 1,659,119 1,344,572
----------- -----------
Increase in cash (16,866) 459,760
Cash at beginning of period 135,574 9,112
----------- -----------
Cash at end of period $ 118,708 $ 468,872
=========== ===========

</TABLE>

See notes to consolidated financial statements.

6
<PAGE> 7
ZAXIS INTERNATIONAL INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

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

On August 25, 1995, Zaxis merged with a subsidiary of The InFerGene Company
(InFerGene). InFerGene was an inactive public company and 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 financial statements and notes thereto do not include all of the disclosures
necessary for a full presentation of financial condition and operating results,
and should be read in conjunction with the financial statements for the year
ended December 31, 1995.

2. LIQUIDITY

Zaxis incurred losses of $1,831,277 during the nine months ended September 30,
1996, $1,729,000 in 1995 and $686,000 in 1994. The operations of the Company
have been financed mainly by private sales of common stock and by loans from
members of the Board of Directors and private investors.

Management recognizes that additional financial resources must be obtained in
order to execute its plans and to fund operations until they can generate cash,
and is in the process of pursuing several possibilities for interim and
long-term financing. The Company has engaged an investment banking firm to
assist in the private placement of debt securities for interim needs and will
then pursue long-term financing, possibly through the sale of common stock.
There can be no assurance that the Company will be successful in obtaining the
interim or long-term financing. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. No adjustments to the
amounts or classification of assets and liabilities which could result from the
outcome of this uncertainty are reflected in the financial statements.

3. NET LOSS PER COMMON SHARE

Net loss per share has been calculated giving retroactive effect to the exchange
ratio of Zaxis Inc. common stock for shares of Zaxis International Inc. in the
August 25, 1995 merger. The effects of outstanding options and warrants has not
been included in the calculation of net loss per share because their inclusion
would not be dilutive.

7
<PAGE> 8

ZAXIS INTERNATIONAL INC.

Item 2. Management's Discussion and Analysis.

Results of Operations
Sales for the nine months ended September 30, 1996 and 1995, were $339,000 and
$132,000, respectively. The increase of $207,000 resulted from (1) new programs
launched with outside distributors in late 1995 and early 1996 which accounted
for most of the $135,000 increase in the first two quarters of the year over
1995; (2) sales of laboratory equipment of $57,000 in the third quarter; and (3)
growth in sales of laboratory media, compounds and reagents.

Cost of goods sold amounted to $715,000 for the nine months ended September 30,
1996, exceeding sales by $386,000. Cost of goods sold for the comparable 1995
period of $244,000 was $112,000 more than the related sales. Costs continued to
exceed sales because sales volume is still below capacity. In addition, 1996
sales include sales of distributor demonstration equipment and devices at
discounted prices, producing a higher cost to sales ratio.

Selling, general and administrative expenses amounted to $1,454,000 for the nine
months ended September 30, 1996, up $483,000 or 50% from the previous year.
Higher professional and consulting fees, more advertising expense and increased
travel costs are the principal reasons for the increase. Sales, executive and
administrative salaries were also higher in 1996 than in 1995 due to added
personnel, but that increase was offset by a decline in non-cash compensation
due to stock option plans. For the quarter, these costs totaled $312,000, up
$16,000 from the prior year, and were lower than the costs incurred in the first
two quarters of 1996 of $462,000 and $680,000, respectively. The lower level of
expense in the third quarter reflects strict cost controls, payroll reductions
and less professional fees and advertising.

Interest expense of $9,572 for the nine months was $2,500 less than 1995 which
included borrowing costs on interim financing, pending the completion of a
private placement of Common Stock in August 1995. Interest expense for the
quarter ended September 30, 1996, was $6,528, compared with $3,044 for the first
six months of 1996. The increase was due to interest accrued on notes payable to
directors and others issued during the period June through September of 1996.

Financial Condition and Liquidity
Operating activities used $1,486,000 during the first nine months of 1996.
Investing activities, primarily equipment purchases and deposits, used an
additional $190,000. The primary source of funds was Common Stock sales of $1.3
million, including $1.1 million from the exercise of Class A Warrants in January
1996. The Company borrowed $405,000 during the nine months ended September 30,
1996, including $189,000 from private investors, $141,000 from directors and
$75,000 from a bank.

The Company is seeking immediate financing to allow it to exploit several
opportunities from new products emerging from development stage, to afford it
the time required to build sales volumes of existing products to profitable
levels, and to satisfy the demands of current creditors. Accordingly, the
Company intends to secure interim financing from private sources and has
retained an investment banking firm to assist in that effort. The

8
<PAGE> 9

ZAXIS INTERNATIONAL INC.

Company's immediate goal is to obtain sufficient funds to permit continuing
operations into the first half of 1997 and then complete long-term financing,
possibly through the sale of equity securities. Concurrently, the Company is
pursuing several opportunities to accelerate sales volume and provide additional
funds. These include joint ventures and supply arrangements with laboratory
instrument manufacturers utilizing various patent rights to which the Company
has access; alliances with molecular biology companies to market the Company's
long-lived precast DNA sequencing gel; and marketing programs with
pharmaceutical manufacturers and laboratory instrument marketers to obtain
market share for the Company's Lipoprotein assay kit which was granted FDA
clearance for clinical applications in September 1996.

There can be no assurance that any of the financing, marketing or joint venture
efforts will be concluded.

Part II-Other Information

Item 1. Legal Proceedings None.

Item 2. Changes in Securities None.

Item 3. Defaults Upon Senior Securities None.

Item 4. Submission of Matters to a Vote of Security Holders None.

Item 5. Other Information. None.

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

(a) Exhibits.

Page
----

10 Material Contracts

Promissory Notes to Directors and Other Investors 11-36

27 Financial Data Schedule 37

(b) Reports on Form 8-K.
None.

9
<PAGE> 10

SIGNATURES

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

Zaxis International Inc.
------------------------
(Registrant)

November 13, 1996 /s/ C. E. Leffler.
--------------------------------
C. E. Leffler
President

November 13, 1996 /s/ John V. Danis.
--------------------------------
John V. Danis
Vice President of Finance

10
<PAGE> 11

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. THIS NOTE CANNOT BE SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE
DISPOSED OF EXCEPT IN COMPLIANCE WITH APPLICABLE FEDERAL AND STATE SECURITIES
LAWS AND WILL NOT BE TRANSFERRED OF RECORD EXCEPT IN COMPLIANCE WITH SUCH LAWS.

PROMISSORY NOTE

$100,000.00 Hudson, Ohio
June 26 , 1996

FOR VALUE RECEIVED, Zaxis International Inc., a Delaware corporation (the
"Company"), hereby promises to pay to the order of Calvin D. Wible and Leonard
A. Duval ("Payee"), the principal sum of One Hundred Thousand Dollars
($100,000), together with interest thereon at the rate hereinafter specified.

1. REPAYMENT. On December 26, 1996 (the "Maturity Date"), the outstanding
principal balance, and accrued and unpaid interest thereon, shall be due and
payable in full.

2. INTEREST. The Company shall pay interest qurterly on the 26th of
September and December on the unpaid principal amount of this Note at an annual
rate equal to 9.25%.

3. PAYMENT. Amounts due under this Note are payable in lawful money of the
United States of America at Payee's address set forth above or at such other
location as may be designated by payee.

4. PREPAYMENT. The Company shall have the right to prepay any amount of
interest or principal due under this Note at any time without penalty or
premium. Any such prepayment shall first be applied to the amount of interest
accrued to the date of such prepayment, then to the principal amount of this
Note.

5. WARRANTS. As additional consideration for the loan of funds evidenced by
this Note, the Company has granted to Payee certain warrants pursuant to a
Warrant Agreement of even date herewith.

6. OPTIONAL REPAYMENT. Payee may elect to accept repayment in the form of
shares of Zaxis International Inc. Common Stock by exercising the Warrants
pursuant to the Warrant Agreement. If Payee so elects, the Company will grant
additional Warrants in an amount equivalent to 50% of the Warrants exercised.

7. EVENTS OF DEFAULT. In the event of any one of the following:

(a) The Company shall default in the payment of any amount under this
Note when the same becomes due;

<PAGE> 12

(b) The Company shall (I) apply for or consent to the appointment of,
or the taking of possession by, a receiver, custodian, trustee or
liquidator of itself or of all or a substantial part of its property,
(ii) make a general assignment for the benefit of creditors, (iii)
commence a voluntary case under any state or federal bankruptcy laws
(as now or hereafter ineffect), (iv) acquiesce to or fail to have
dismissed, within thirty (30) days, any petition filed against it in
any involuntary case under such bankruptcy laws, or (vii) take any
action for the purpose of effecting any of the foregoing; or

(c) The Company shall admit in writing its inability, or be generally
unable, to pay its debts as they become due or cease operations of its
present business;

then, at the option of Payee, the entire amount of the principal of and interest
on this Note shall at once become due and payable, without presentment, demand,
protest or notice of protest of any kind, all of which are expressly waived by
the Company. In addition, upon any such event of default, Payee may exercise any
of the remedies provided by law.

8. Miscellaneous.

(a) No waiver, consent or other binding agreement shall deemed to have
been made by Payee or be binding upon Payee unless specifically
granted in writing, which writing shall be strictly construed. This
Note evidences the absolute and unconditional obligation of the
Company to pay the principal of, and interest on, this Note. This Note
is non-negotiable.

(b) Payee shall not, solely by holding this Note, be entitled to vote
or receive dividends or be considered a shareholder of the Company for
any purpose, nor shall anything in this note be construed to confer on
Payee, any rights of a shareholder of the Company or any right to
vote, to give or withhold consent to any corporate action, to receive
notices of meetings of shareholders, to receive dividends or
subscription rights or otherwise.

IN WITNESS WHEREOF, the Company has executed this Note as of the date
first above written.

ZAXIS INTERNATIONAL INC.

By_____________________________________
C. E. Leffler, President

12
<PAGE> 13

PROMISSORY NOTE

$25,000.00 Hudson, Ohio
July 17, 1996

FOR VALUE RECEIVED, Zaxis International Inc., a Delaware corporation (the
"Company"), hereby promises to pay to the order of Calvin D. Wible and Leonard
A. Duval ("Payee"), the principal sum of Twenty Five Thousand Dollars ($25,000),
together with interest thereon at the rate hereinafter specified.

1. REPAYMENT. The outstanding principal balance, and accrued and unpaid
interest thereon, shall be due and payable on demand.

2. INTEREST. The Company shall pay interest quarterly on the 17th of
October, January, April and July on the unpaid principal amount of this Note at
an annual rate equal to 1% above the prime rate announced from time to time by
Key Bank.

3. PAYMENT. Amounts due under this Note are payable in lawful money of the
United States of America at Payee's address set forth above or at such other
location as may be designated by payee.

4. WARRANTS. As additional consideration for the loan of funds evidenced by
this Note, the Company has granted to Payee certain warrants pursuant to a
Warrant Agreement of even date herewith.

5. MISCELLANEOUS.

<PAGE> 14

IN WITNESS WHEREOF, the Company has executed this Note as of the date first
above written.

ZAXIS INTERNATIONAL INC.

By_____________________________________
C. E. Leffler, President

14
<PAGE> 15

PROMISSORY NOTE

$10,000.00 Hudson, Ohio
August 22, 1996

FOR VALUE RECEIVED, Zaxis International Inc., a Delaware corporation (the
"Company"), hereby promises to pay to the order of Leonard A. Duval ("Payee"),
the principal sum of Ten Thousand Dollars ($10,000), together with interest
thereon at the rate hereinafter specified.

1. REPAYMENT. The outstanding principal balance, and accrued and unpaid
interest thereon, shall be due and payable on demand. The Company shall have the
right to repay any amount of interest or principal due under this Note at any
time without penalty or premium. Any such repayment shall first be applied to
the amount of interest accrued to the date of such repayment, then to the
principal amount of this Note.

2. INTEREST. Interest shall accrue on the note at an annual rate of 9.25%

3. PAYMENTS. Amounts due under this Note are payable in lawful money of the
United States of America at Payee's address set forth above or at such other
location as may be designated by payee.

4. WARRANTS. As additional consideration for the loan of funds evidenced by
this Note, the Company has granted to Payee certain warrants pursuant to a
Warrant Agreement of even date herewith.

5. OPTIONAL REPAYMENT. Payee may elect to accept repayment in the form of
shares of Zaxis International Inc. Common Stock by exercising the Warrants
pursuant to the Warrant Agreement. If Payee so elects, the Company will grant
additional Warrants in an amount equivalent to 50% of the Warrants exercised.

6. MISCELLANEOUS.

<PAGE> 16

IN WITNESS WHEREOF, the Company has executed this Note as of the date first
above written.

ZAXIS INTERNATIONAL INC.

By_____________________________________
C. E. Leffler, President

<PAGE> 17

PROMISSORY NOTE

$3,000.00 Hudson, Ohio
September 16, 1996

FOR VALUE RECEIVED, Zaxis International Inc., a Delaware corporation (the
"Company"), hereby promises to pay to the order of Leonard A. Duval ("Payee"),
the principal sum of Three Thousand Dollars ($3,000), together with interest
thereon at the rate hereinafter specified.

2. INTEREST. Interest shall accrue on the note at an annual rate of 9.25%

3. PAYMENTS. Amounts due under this Note are payable in lawful money of the
United States of America at Payee's address set forth above or at such other
location as may be designated by payee.

4. WARRANTS. As additional consideration for the loan of funds evidenced by
this Note, the Company has granted to Payee certain warrants pursuant to a
Warrant Agreement of even date herewith.

6. MISCELLANEOUS.

<PAGE> 18

IN WITNESS WHEREOF, the Company has executed this Note as of the date first
above written.

ZAXIS INTERNATIONAL INC.

By_____________________________________
C. E. Leffler, President

18
<PAGE> 19

PROMISSORY NOTE

$11,000.00 Hudson, Ohio
August 22, 1996

FOR VALUE RECEIVED, Zaxis International Inc., a Delaware corporation (the
"Company"), hereby promises to pay to the order of Joseph Sussen ("Payee"), the
principal sum of Eleven Thousand Dollars ($11,000), together with interest
thereon at the rate hereinafter specified.

2. INTEREST. Interest shall accrue on the note at an annual rate of 9.25%

3. PAYMENTS. Amounts due under this Note are payable in lawful money of the
United States of America at Payee's address set forth above or at such other
location as may be designated by payee.

4. WARRANTS. As additional consideration for the loan of funds evidenced by
this Note, the Company has granted to Payee certain warrants pursuant to a
Warrant Agreement of even date herewith.

6. MISCELLANEOUS.

<PAGE> 20

IN WITNESS WHEREOF, the Company has executed this Note as of the date first
above written.

ZAXIS INTERNATIONAL INC.

By_____________________________________
C. E. Leffler, President

20
<PAGE> 21

PROMISSORY NOTE

$13,000.00 Hudson, Ohio
September 9, 1996

FOR VALUE RECEIVED, Zaxis International Inc., a Delaware corporation (the
"Company"), hereby promises to pay to the order of James Stewart ("Payee"), the
principal sum of Thirteen Thousand Dollars ($13,000), together with interest
thereon at the rate hereinafter specified.

2. INTEREST. Interest shall accrue on the note at an annual rate of 9.25%

3. PAYMENTS. Amounts due under this Note are payable in lawful money of the
United States of America at Payee's address set forth above or at such other
location as may be designated by payee.

4. WARRANTS. As additional consideration for the loan of funds evidenced by
this Note, the Company has granted to Payee certain warrants pursuant to a
Warrant Agreement of even date herewith.

6. MISCELLANEOUS.

(a) No waiver, consent or other binding agreement shall deemed to have
been made by Payee or be binding upon Payee unless specifically granted in
writing, which writing shall be strictly construed. This Note evidences the
absolute and unconditional obligation of the Company to pay the principal of,
and interest on, this Note. This Note is non-negotiable.

<PAGE> 22

(b) Payee shall not, solely by holding this Note, be entitled to vote
or receive dividends or be considered a shareholder of the Company for any
purpose, nor shall anything in this note be construed to confer on Payee, any
rights of a shareholder of the Company or any right to vote, to give or withhold
consent to any corporate action, to receive notices of meetings of shareholders,
to receive dividends or subscription rights or otherwise.

IN WITNESS WHEREOF, the Company has executed this Note as of the date
first above written.

ZAXIS INTERNATIONAL INC.

By_____________________________________
C. E. Leffler, President

22
<PAGE> 23

PROMISSORY NOTE

$10,000.00 Hudson, Ohio
September 12, 1996

FOR VALUE RECEIVED, Zaxis International Inc., a Delaware corporation (the
"Company"), hereby promises to pay to the order of Richard McNary ("Payee"), the
principal sum of Ten Thousand Dollars ($10,000), together with interest thereon
at the rate hereinafter specified.

2. INTEREST. Interest shall accrue on the note at an annual rate of 9.25%

3. PAYMENTS. Amounts due under this Note are payable in lawful money of
the United States of America at Payee's address set forth above or at such other
location as may be designated by payee.

4. WARRANTS. As additional consideration for the loan of funds evidenced
by this Note, the Company has granted to Payee certain warrants pursuant to a
Warrant Agreement of even date herewith.

6. MISCELLANEOUS.

(a) No waiver, consent or other binding agreement shall deemed to
have been made by Payee or be binding upon Payee unless specifically
granted in writing, which writing shall be strictly construed. This Note
evidences the absolute and unconditional obligation of the Company to pay
the principal of, and interest on, this Note. This Note is non-
negotiable.

<PAGE> 24

(b) Payee shall not, solely by holding this Note, be entitled to vote or
receive dividends or be onsidered a shareholder of the Company for any
purpose, nor shall anything in this note be construed to confer on Payee,
any rights of a shareholder of the Company or any right to vote, to give or
withhold consent to any corporate action, to receive notices of meetings of
shareholders, to receive dividends or subscription rights or otherwise.

IN WITNESS WHEREOF, the Company has executed this Note as of the date
first above written.

ZAXIS INTERNATIONAL INC.

By_____________________________________
C. E. Leffler, President

24
<PAGE> 25

PROMISSORY NOTE

$ 40,000.00 Hudson, Ohio
September 13, 1996

FOR VALUE RECEIVED, Zaxis International Inc., a Delaware corporation (the
"Company"), hereby promises to pay to the order of Edward Gottschalk ("Payee"),
the principal sum of Forty Thousand Dollars ($40,000), together with interest
thereon at the rate hereinafter specified.

1. REPAYMENT. The outstanding principal balance and accrued and unpaid
interest thereon, shall be due and payable on demand ("the Maturity Date").

2. INTEREST. The Company shall pay interest at the Maturity Date on the
unpaid principal amount of this Note at an annual rate equal to 9.25%.

3. PAYMENT. Amounts due under this Note are payable in lawful money of
the United States of America at Payee's address set forth above or at such other
location as may be designated by payee.

5. WARRANTS. As additional consideration for the loan of funds evidenced
by this Note, the Company has granted to Payee certain warrants pursuant to a
Warrant Agreement of even date herewith.

7. EVENTS OF DEFAULT. In the event of any one of the following:

(a) The Company shall default in the payment of any amount under this
Note when the same becomes due;

<PAGE> 26

(b) The Company shall (I) apply for or consent to the appointment of,
or the taking of possession by, a receiver, custodian, trustee or
liquidator of itself or of all or a substantial part of its property,
(ii) make a general assignment for the benefit of creditors, (iii)
commence a voluntary case under any state or federal bankruptcy laws
(as now or hereafter ineffect), (iv) acquiesce to or fail to have
dismissed, within thirty (30) days, any petition filed against it in
any involuntary case under such bankruptcylaws, or (vii) take any
action for the purpose of effecting any of the foregoing; or

(c) The Company shall admit in writing its inability, or be generally
unable, to pay its debts as they become due or cease operations of its
present business;

8. Miscellaneous.
--------------

IN WITNESS WHEREOF, the Company has executed this Note as of the date
first above written.

ZAXIS INTERNATIONAL INC.

By_____________________________________
C. E. Leffler, President

26
<PAGE> 27

PROMISSORY NOTE

$20,000.00 Hudson, Ohio
September 17, 1996

FOR VALUE RECEIVED, Zaxis International Inc., a Delaware corporation (the
"Company"), hereby promises to pay to the order of Howard Cassel ("Payee"), the
principal sum of Twenty Thousand Dollars ($20,000), together with interest
thereon at the rate hereinafter specified.

2. INTEREST. Interest shall accrue on the note at an annual rate of 9.25%

3. PAYMENTS. Amounts due under this Note are payable in lawful money of
the United States of America at Payee's address set forth above or at such other
location as may be designated by payee.

4. WARRANTS. As additional consideration for the loan of funds evidenced
by this Note, the Company has granted to Payee certain warrants pursuant to a
Warrant Agreement of even date herewith.

6. MISCELLANEOUS.

(a) No waiver, consent or other binding agreement shall deemed to
have been made by Payee or be binding upon Payee unless specifically
granted in writing, which writing shall be strictly construed. This
Note evidences the absolute and unconditional obligation of the
Company to pay the principal of, and interest on, this Note. This
Note is non-negotiable.

<PAGE> 28

IN WITNESS WHEREOF, the Company has executed this Note as of the date
first above written.

ZAXIS INTERNATIONAL INC.

By_____________________________________
C. E. Leffler, President

28
<PAGE> 29

PROMISSORY NOTE

$20,000.00 Hudson, Ohio
September 17, 1996

FOR VALUE RECEIVED, Zaxis International Inc., a Delaware corporation (the
"Company"), hereby promises to pay to the order of Kenneth Sladky ("Payee"), the
principal sum of Twenty Thousand Dollars ($20,000), together with interest
thereon at the rate hereinafter specified.

2. INTEREST. Interest shall accrue on the note at an annual rate of 9.25%

3. PAYMENTS. Amounts due under this Note are payable in lawful money of
the United States of America at Payee's address set forth above or at such other
location as may be designated by payee.

4. WARRANTS. As additional consideration for the loan of funds evidenced
by this Note, the Company has granted to Payee certain warrants pursuant to a
Warrant Agreement of even date herewith.

6. MISCELLANEOUS.

(a) No waiver, consent or other binding agreement shall deemed to
have been made by Payee or be binding upon Payee unless specifically
granted in writing, which writing shall be strictly construed. This
Note evidences the absolute and unconditional obligation of the
Company to pay the principal of, and interest on, this Note. This
Note is non-negotiable.

<PAGE> 30

(b) Payee shall not, solely by holding this Note, be entitled to vote
or receive dividends or be considered a shareholder of the
Company for any purpose, nor shall anything in this note be
construed to confer on Payee, any rights of a shareholder of the
Company or any right to vote, to give or withhold consent to any
corporate action, to receive notices of meetings of shareholders,
to receive dividends or subscription rights or otherwise.

IN WITNESS WHEREOF, the Company has executed this Note as of the date
first above written.

ZAXIS INTERNATIONAL INC.

By_____________________________________
C. E. Leffler, President

30
<PAGE> 31

PROMISSORY NOTE

$50,000.00 Hudson, Ohio
September 18, 1996

FOR VALUE RECEIVED, Zaxis International Inc., a Delaware corporation (the
"Company"), hereby promises to pay to the order of Brad Carter ("Payee"), the
principal sum of Fifty Thousand Dollars ($50,000), together with interest
thereon at the rate hereinafter specified.

2. INTEREST. Interest shall accrue on the note at an annual rate of 9.25%

3. PAYMENTS. Amounts due under this Note are payable in lawful money of
the United States of America at Payee's address set forth above or at such other
location as may be designated by payee.

4. WARRANTS. As additional consideration for the loan of funds evidenced
by this Note, the Company has granted to Payee certain warrants pursuant to a
Warrant Agreement of even date herewith.

6. MISCELLANEOUS.

(a) No waiver, consent or other binding agreement shall deemed to
have been made by Payee or be binding upon Payee unless specifically
granted in writing, which writing shall be strictly construed. This
Note evidences the absolute and unconditional obligation of the
Company to pay the principal of, and interest on, this Note. This
Note is non-negotiable.

<PAGE> 32

IN WITNESS WHEREOF, the Company has executed this Note as of the date
first above written.

ZAXIS INTERNATIONAL INC.

By_____________________________________
C. E. Leffler, President

32
<PAGE> 33

PROMISSORY NOTE

$15,000.00 Hudson, Ohio
September 18, 1996

FOR VALUE RECEIVED, Zaxis International Inc., a Delaware corporation (the
"Company"), hereby promises to pay to the order of Robert Williams, Jr.
("Payee"), the principal sum of Fifteen Thousand Dollars ($15,000), together
with interest thereon at the rate hereinafter specified.

2. INTEREST. Interest shall accrue on the note at an annual rate of 9.25%

3. PAYMENTS. Amounts due under this Note are payable in lawful money of
the United States of America at Payee's address set forth above or at such other
location as may be designated by payee.

4. WARRANTS. As additional consideration for the loan of funds evidenced
by this Note, the Company has granted to Payee certain warrants pursuant to a
Warrant Agreement of even date herewith.

6. Miscellaneous.

(a) No waiver, consent or other binding agreement shall deemed to
have been made by Payee or be binding upon Payee unless specifically
granted in writing, which writing shall be strictly construed. This
Note evidences the absolute and unconditional obligation of the
Company to pay the principal of, and interest on, this Note. This
Note is non-negotiable.

<PAGE> 34

IN WITNESS WHEREOF, the Company has executed this Note as of the date
first above written.

ZAXIS INTERNATIONAL INC.

By_____________________________________
C. E. Leffler, President

34
<PAGE> 35

PROMISSORY NOTE

$10,000.00 Hudson, Ohio
September 18, 1996

FOR VALUE RECEIVED, Zaxis International Inc., a Delaware corporation (the
"Company"), hereby promises to pay to the order of Robert Williams, Sr.
("Payee"), the principal sum of Ten Thousand Dollars ($10,000), together with
interest thereon at the rate hereinafter specified.

2. INTEREST. Interest shall accrue on the note at an annual rate of 9.25%

3. PAYMENTS. Amounts due under this Note are payable in lawful money of
the United States of America at Payee's address set forth above or at such other
location as may be designated by payee.

4. WARRANTS. As additional consideration for the loan of funds evidenced
by this Note, the Company has granted to Payee certain warrants pursuant to a
Warrant Agreement of even date herewith.

6. MISCELLANEOUS.

(a) No waiver, consent or other binding agreement shall deemed to
have been made by Payee or be binding upon Payee unless specifically
granted in writing, which writing shall be strictly construed. This
Note evidences the absolute and unconditional obligation of the
Company to pay the principal of, and interest on, this Note. This
Note is non-negotiable.

<PAGE> 36

IN WITNESS WHEREOF, the Company has executed this Note as of the date
first above written.

ZAXIS INTERNATIONAL INC.

By_____________________________________
C. E. Leffler, President

<ARTICLE> 5

<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
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0
0
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