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EX-32 - EXHIBIT 32.2 - Emerald Medical Applications Corp.exh32_2.htm
EX-32 - EXHIBIT 32.1 - Emerald Medical Applications Corp.exh32_1.htm
EX-31 - EXHIBIT 31.1 - Emerald Medical Applications Corp.exh31_1.htm
EX-31 - EXHIBIT 31.2 - Emerald Medical Applications Corp.exh31_2.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________

FORM 10-Q
___________________

ý                                  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2015

  

Commission file number: 0-15476

 

 

ZAXIS INTERNATIONAL INC.
(Exact Name Of Registrant As Specified In Its Charter) 

Delaware 68-0080601
(State of Incorporation) (I.R.S. Employer Identification No.)
   
7 Imber Street, Petach Tivka, Israel 4951141
(Address of Principal Executive Offices) (ZIP Code)
 

Registrant's Telephone Number, Including Area Code: (972) 3-744-4505

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act) or a smaller reporting company.
Large accelerated filer ¨ Accelerated filer ¨ Non-Accelerated filer ¨ Smaller reporting company x

On August 7, 2015, the Registrant had 13,589,905 shares of common stock outstanding.





 

Item
Description
Page
PART I - FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL STATEMENTS 3
ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION 13
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 17
ITEM 4.    CONTROLS AND PROCEDURES 16
   
PART II - OTHER INFORMATION
   
ITEM 1.    LEGAL PROCEEDINGS 16
ITEM 1A.    RISK FACTORS 16
ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 16
ITEM 3.    DEFAULT UPON SENIOR SECURITIES 16
ITEM 4.    MINE SAFETY DISCLOSURE 16
ITEM 5.    OTHER INFORMATION 16
ITEM 6.    EXHIBITS 16

 



PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS Back to Table of Contents

    Balance Sheets - June 30, 2015 (Unaudited) and December 31, 2014 3
    Statements of Operations - Three and Six Months Ended June 30, 2015 and 2014 (Unaudited) 4
    Statements of Cash Flows - Six Months Ended June 30, 2015 and 2014 (Unaudited) 5
    Notes to Unaudited Interim Financial Statements 6
 

Zaxis International Inc.
Balance Sheets
Back to Table of Contents
  June 30, 2015
(Unaudited) December 31, 2014
ASSETS
Current assets:
   Cash $ 467,380 $ 1,000
      Total current assets 467,380 1,000
     
        Total Assets $ 467,380 $ 1,000
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
   Accounts payable and accrued liabilities $ - $ 7,500
   Advances payable - 120,979
   Accrued interest payable - 35,305
      Total current liabilities - 163,784
 
Long-term liabilities:
   Notes payable - 22,375
     Total long-term liabilities - 22,375
 
      Total liabilities - 186,159
 
Stockholders' equity (deficit):
   Preferred stock, $0.0001 par value; 10,000,000 shares authorized; none issued
   Common stock, $0.0001 par value; 100,000,000 shares authorized; - -
   6,550,602 shares issued and outstanding at June 30, 2015 and December 31, 2014 655 455
   Stock payable 385,000 -
   Additional paid in capital 1,283,342 388,450
   Accumulated deficit (1,201,617) (574,064)
     Total stockholders' equity (deficit) 467,380 (185,159)
       Total liabilities and stockholders' equity $ 467,380 $ 1,000
 
See notes to unaudited interim financial statements

Zaxis International Inc.
Statements of Operations
Back to Table of Contents
 
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2015 June 30, 2014 June 30, 2015 June 30, 2014
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
 
Revenue $ - $ - $ - $ -
Costs and expenses:
   General and administrative 88,390 6,500 132,326 14,250
   Other expenses - advances to related party 300,000 - 490,000 2,678
Total operating expenses 388,390 6,500 622,326 16,928
 
   (Loss) from operations (388,390) (6,500) (622,326) (14,250)
 
   Interest expense (1,688) (307) (4,699) (2,678)
   Gain on debt settlement (528) - (528) -
Financial income (expense) (2,216) (307) (5,277) (2,678)
  
Provision for income taxes - - - -
  
      Net (loss) $ (390,606) $ (6,807) $ (627,553) $ (16,928)
 
Basic and diluted per share amounts:
Basic and diluted net loss $ (0.08) $ (0.00) $ (0.13) $ (0.01)
 
Weighted average shares outstanding
Basic and diluted 4,682,407 1,695,126 4,682,407 1,695,126
 
See notes to unaudited interim financial statements.

Zaxis International Inc.
Statements of Cash Flows

Back to Table of Contents

Six Months  Six Months
Ended Ended
June 30, 2015 June 30, 2014
  (Unaudited) (Unaudited)
Cash flows from operating activities:
Net (loss) $ (627,533) $ (16,928)
Loss (gain) on debt settlement 528 -
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
   Imputed interest 4,113 -
   (Decrease) increase in accounts payable (7,500) -
   (Decrease) increase in accrued expenses (35,833) 9,178
     Net cash used in operating activities (666,245) (7,750)
  
Cash flows from financing activities:
   Advances from related party - 7,500
   Principal payments on debt (52,375) -
   Proceeds from sale of common stock (net of issuance expenses) 1,185,000 -
     Net cash provided by financing activities 1,132,625 7,750
 
     Net increase (decrease) in cash 466,380 -
Cash and cash equivalents - beginning of period 1,000 -
Cash and cash equivalents - end of period $ 467,380 $ -
     Non-cash transactions:
Transfer of convertible note from related party to unrelated parties $ - $ 85,000
Transfer of advances from related party to unrelated party $ - $ 40,000
 
See notes to unaudited interim financial statements

Zaxis International Inc.
Notes to Unaudited Interim Financial Statements
June 30, 2015
Back to Table of Contents

Note 1. The Company

Organizational Background:   Emerald Medical Applications Corp. ("the Company") (f/k/a Zaxis International Inc.) was incorporated in Ohio in 1989. On August 25, 1995, Zaxis merged with a subsidiary of The InFerGene Company ("InFerGene") and InFerGene changed its name to Zaxis International Inc. InFerGene was incorporated in California in 1984 and subsequently changed its domicile in connection with the merger into Zaxis to Delaware in 1985. Operations ceased operations in 2002. In November 2002, the Company and its subsidiaries filed a petition for bankruptcy in the U.S. Bankruptcy Court Northern District of Ohio. On October 13, 2004, the Company emerged from bankruptcy. At present, the Company has no business operations and is deemed to be a shell company.

Basis of Presentation:   The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has not established any source of revenue to cover its operating costs, and as such, has incurred an operating loss since inception. Further, as of June 30, 2015, the cash resources of the Company were insufficient to meet its current business plan, and the Company had negative working capital. These and other factors raise substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

Significant Accounting Policies

Use of Estimates:   The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates.

Cash and Cash Equivalents:   For financial statement presentation purposes, the Company considers those short-term, highly liquid investments with original maturities of three months or less to be cash or cash equivalents. There were no cash equivalents as of June 30, 2015 and December 31, 2014.

Property and Equipment:   New property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 5 years. Expenditures for renewals and betterments are capitalized. Expenditures for minor items, repairs and maintenance are charged to operations as incurred. Gain or loss upon sale or retirement due to obsolescence is reflected in the operating results in the period the event takes place.

Valuation of Long-Lived Assets:   We review the recoverability of our long-lived assets including equipment, goodwill and other intangible assets, when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on our ability to recover the carrying value of the asset from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. Our primary measure of fair value is based on discounted cash flows. The measurement of impairment requires management to make estimates of these cash flows related to long-lived assets, as well as other fair value determinations.

Stock Based Compensation:   Stock-based awards are accounted for using the fair value method in accordance with ASC 718, Share-Based Payments. Our primary type of share-based compensation consists of stock options. We use the Black-Scholes option pricing model in valuing options. The inputs for the valuation analysis of the options include the market value of the Company's common stock, the estimated volatility of the Company's common stock, the exercise price of the warrants and the risk free interest rate.

Accounting For Obligations And Instruments Potentially To Be Settled In The Company's Own Stock:   We account for obligations and instruments potentially to be settled in the Company's stock in accordance with FASB ASC 815, Accounting for Derivative Financial Instruments. This issue addresses the initial balance sheet classification and measurement of contracts that are indexed to, and potentially settled in, the Company's own stock.

Fair Value of Financial Instruments:   FASB ASC 825, Financial Instruments, requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value. FASB ASC 825 defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. At June 30, 2015 and 2014, the carrying value of certain financial instruments (cash and cash equivalents, accounts payable and accrued expenses.) approximates fair value due to the short-term nature of the instruments or interest rates, which are comparable with current rates.

Fair Value Measurements:   The Company measures fair value under a framework that utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of inputs which prioritize the inputs used in measuring fair value are:

Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.
Level 2: Inputs to the valuation methodology include:
- Quoted prices for similar assets or liabilities in active markets;
- Quoted prices for identical or similar assets or liabilities in inactive markets;
- Inputs other than quoted prices that are observable for the asset or liability;
- Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.
Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The assets or liability's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The following table presents assets that were measured and recognize at fair value on March 31, 2015 and the year then ended on a recurring basis:

Fair Value Measurements at June 30, 2015
Quoted Prices in Active Significant Other Significant
Markets for Identical Assets Observable Inputs Unobservable Inputs

Total

(Level 1)

(Level 2)

(Level 3)

None $ - $ -

$

-

$

-
Total assets at fair value $

-

$ -

$

-

$

-

   

 

Fair Value Measurements at December 31, 2014
Quoted Prices in Active Significant Other Significant
Markets for Identical Assets Observable Inputs Unobservable Inputs

Total

(Level 1)

(Level 2)

(Level 3)

None $ - $ -

$

-

$

-
Total assets at fair value $

-

$ -

$

-

$

-

   

When the Company changes its valuation inputs for measuring financial assets and liabilities at fair value, either due to changes in current market conditions or other factors, it may need to transfer those assets or liabilities to another level in the hierarchy based on the new inputs used. The Company recognizes these transfers at the end of the reporting period that the transfers occur. For the fiscal periods ended Jun e30, 2015 and December 31, 2014, there were no significant transfers of financial assets or financial liabilities between the hierarchy levels.

Earnings per Common Share:   We compute net income (loss) per share in accordance with ASC 260, Earning per Share. ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. All per share disclosures retroactively reflect shares outstanding or issuable as though the reverse split had occurred January 1, 2012.

Income Taxes:   We have adopted FASB ASC 740, Accounting for Income Taxes. Pursuant to ASC 740, we are required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.

We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.

Deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax basis of assets and liabilities using the tax rates and laws in effect when the differences are expected to reverse. ASC 740 provides for the recognition of deferred tax assets if realization of such assets is more likely than not to occur. Realization of our net deferred tax assets is dependent upon our generating sufficient taxable income in future years in appropriate tax jurisdictions to realize benefit from the reversal of temporary differences and from net operating loss, or NOL, carryforwards. We have determined it more likely than not that these timing differences will not materialize and have provided a valuation allowance against substantially all of our net deferred tax asset. Management will continue to evaluate the realizability of the deferred tax asset and its related valuation allowance. If our assessment of the deferred tax assets or the corresponding valuation allowance were to change, we would record the related adjustment to income during the period in which we make the determination. Our tax rate may also vary based on our results and the mix of income or loss in domestic and foreign tax jurisdictions in which we operate.

In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and to the extent to which, additional taxes will be due. If we ultimately determine that payment of these amounts is unnecessary, we will reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We will record an additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is less than we expect the ultimate assessment to be.

ASC 740 which requires recognition of estimated income taxes payable or refundable on income tax returns for the current period and for the estimated future tax effect attributable to temporary differences and carry-forwards. Measurement of deferred income tax is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized.

Uncertain Tax Positions:   When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of FASB ASC 740-10, Accounting for Uncertain Income Tax Positions, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Our federal and state income tax returns are open for fiscal years ending on or after December 31, 2011. We are not under examination by any jurisdiction for any tax year. At March 31, 2015 we had no material unrecognized tax benefits and no adjustments to liabilities or operations were required under FIN 48.

Recent Accounting Pronouncements

On June 10, 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-10 , which eliminates development stage reporting requirements under FASB ASC 915, as well as amends provisions of existing variable interest entity guidance under ASC 810. Additionally, the ASU indicates that the lack of commencement of principal operations represents a risk and uncertainty and, accordingly, is subject to the disclosure requirements of FASB ASC 275. As a result of the changes, existing development stage entity presentation and disclosure requirements are eliminated. The presentation and disclosure changes to FASB ASC 915 are effective for public entities for annual periods beginning after December 15, 2014, and the revisions to the consolidation standards are effective for annual periods beginning after December 15, 2015. The Company has adopted these provisions and enhanced disclosure of risks and uncertainties as required.

In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this ASU change the criteria for reporting discontinued operations while enhancing disclosures in this area. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization's operations and financial results and include disposals of a major geographic area, a major line of business, or a major equity method investment. The new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. Additionally, the new guidance requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. The amendments in the ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. The Company is currently evaluating the impact of this pronouncement.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern. The new standard requires management of public and private companies to evaluate whether there is substantial doubt about the entity's ability to continue as a going concern and, if so, disclose that fact. Management will also be required to evaluate and disclose whether its plans alleviate that doubt. The standard requires management to evaluate, for each reporting period, whether there are conditions or events that raise substantial doubt about a company's ability to continue as a going concern within one year from the date the financial statements are issued. The new standard is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted. We do not expect the adoption of the ASU to have a significant impact on our consolidated financial statements.

Management does not anticipate that the adoption of these standards will have a material impact on the financial statements.

Note 2. Going Concern

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has incurred losses, has negative operational cash flows and has no revenues. The future of the Company is dependent upon Management success in its efforts and limited resources to pursue and effect a business combination.

These conditions raise substantial doubt about the Company's ability to continue as a going concern. These financial statements do not include any adjustments that might arise from this uncertainty.

Note 3. Stockholders' Equity

On January 8, 2015 the shareholders approved a resolution to increase the authorized common shares from 100,000,000 to 490,000,000 shares. All other provisions of the common shares remain unchanged. Also on that date, the Company declared a reverse split of common stock at the ration of 1:4. The stock split was effective January 8, 2015 for holders of record as of that date. Except as otherwise noted, all share, option and warrant numbers have been restated to give retroactive effect to this split. All per share disclosures retroactively reflect shares outstanding or issuable as though the reverse split had occurred at January 1, 2012.

Recent Issuances of Common Stock

During the period ended December 31, 2014 we issued 4,125,000 shares of our common stock (16,500,000 pre-reverse stock split) in exchange for converting $125,000 of promissory notes.

Between January 15, 2015 and March 15, 2015 the Company sold a total of 2,052,000 units for cash consideration of $780,000 at a price of $0.40 (the "Units"), each unit comprised of one share of common stock and one Class A warrant exercisable at $0.80 per share with a term 24 month. The relative fair value of the stock with embedded warrants was $351,419 for the common stock and $428,581 for the class A warrants. The warrants were valued using the Black-Scholes model with 216% volatility and discount rates ranging between 0.44% to 0.7%. The cash consideration is reflected in stock payable as shares will be issued after reverse merger is completed.

Between April 1, 2015 and June 29, 2015 the Company sold a total of 1,012,500 units for cash consideration of $405,000 at a price of $0.40 (the "Units"), each unit comprised of one share of common stock and one Class A warrant exercisable at $0.80 per share with a term 24 month. The relative fair value of the stock with embedded warrants was $158,123 for the common stock and $246,877 for the class A warrants. The warrants were valued using the Black-Scholes model with volatility ranging between163% - 177% and discount rates ranging between 0.54% to 0.71%. The cash consideration is reflected in stock payable as shares will be issued after reverse merger is completed.

Note 4. Related Party Transactions Not Disclosed Elsewhere

On March 25, 2014, our President and principal shareholder assigned accumulated advances and accruals totaling $124,229, to an unaffiliated third party. The advances carry no specific terms of repayment. On December 15, 2014, $22,375 of the then outstanding balance was converted to a promissory note. A summary of transactions is as follows:

  June 30, 2015 December 31, 2014
Beginning balance $ - $ 161,729
Increase due to payments made on behalf of the company $ - $ 21,625
Less March 24, 2014 conversion to convertible note $ - $ (40,000)
Less December 15, 2014 conversion to promissory note $ - $ (22,375)
Obligation transferred to unrelated party $ - $ (120,979)
Total - -
Less current portion - -
Due after one year $ - $ -

There was no stated term of interest associated with this obligation. Accordingly, the company imputed interest at an appropriate rate estimated at 8% as prescribed under FASB ASC 835. For the period ending December 31, 2014 the resultant charge of $11,210 to interest expense was considered a contribution of capital.

Note 5. Notes Payable

Convertible Notes Payable

On March 24, 2014, we issued a convertible promissory note in the amount of $40,000 to an unaffiliated party in consideration for past services provided to the Company. The Note bears interest at the rate of 1% per annum, is due and payable on March 24, 2015 and is convertible at a price of $0.005 per share. On March 24, 2014, the holder of the 2014 Note transferred and assigned the 2014 Note to five unaffiliated parties bearing the same interest rate and conversion price. In connection with the transfer and assignment of the 2014 Note, the Company agreed to extend the maturity date from March 24, 2015 to July 1, 2016.

On December 10, 2014, upon the request of all fifteen note holders, all convertible promissory notes in the aggregate principal amount of $125,000 were converted into 4,125,000 shares (16,500,000 pre-reverse stock split) consistent with the provisions of the notes. Related accrued interest of $35,295 was not included in the conversion and remains unpaid at June 30, 2015.

In accordance to ASC #815, Accounting for Derivative Instruments and Hedging Activities, we evaluated the holder's non-detachable conversion right provision and liquidated damages clause, contained in the terms governing the Note to determine whether the features qualify as an embedded derivative instruments at issuance. Such non-detachable conversion right provision and liquidated damages clause did not need to be accounted for as derivative financial instruments. Additionally, since the conversion price of the two notes represented the fair market value of the Company's common stock at the time of issuance, no beneficial conversion feature exists. We believe that the Company's shares of common stock is and have been very thinly traded during the last 3 years and that the fair value of the stock price was deemed not to be a fair value. Management decided that because the Company's ability to continue as a going concern was in question and that it has no revenue sources that the conversion price was a better measure of fair market value. Based on that decision, no beneficial conversion feature was reflected in the financial statements.

Note Payable - Not Convertible

On December 15, 2014, we issued a promissory note in the amount of $22,375 to an unaffiliated party in consideration for payments made on behalf of the Company for service provided to the Company (the "December 2014 Note"). The December 2014 Note bears interest at the rate of 1% per annum, is due and payable on January 15, 2016 and is not convertible to common stock.

On January 14 and 16, 2015, we issued two promissory notes in the amount of $15,000 each to two different unaffiliated party in consideration for cash transferred to the Company (the "January 2015 Notes"). The January 2015 Notes bears interest at the rate of 1% per annum, are due and payable on January 14 and 16, 2016 and are not convertible to common stock.

One of the notes was repaid in full during the first quarter with interest due waived the by the debtor, and the second note was repaid during the second quarter with interest due waived the by the debtor.

During the second quarter the promissory note in the amount of $22,375 with interest due was repaid in full.

During the second quarter an agreement was reached with the holder of $120,979 advance payable note to settle the full amount due for $30,000 and interest due. The settlement with all note holders resulted in $528 loss on debt settlement as well as a charge of $90,979 considered a contribution of capital.

We concluded that these notes have a stated rate of interest that is different from the rate of interest that is appropriate for this type of debt at the date of the transaction. Accordingly, the company imputed interest at an appropriate rate estimated at 8% as prescribed under FASB ASC 835. The resultant charge of $6,280 for the period ending December 31, 2014 and $4,113 for the period ending June 30, 2015 to interest expense was considered a contribution of capital.

For the periods ending June 30, 2015 and December 31, 2014 the Company has recognized $4,699 and $3,255 respectively in accrued interest expense related to the stated interest rate on the notes and has recognized $4,113 and $17,490 in imputed interest expense.

Note 6. Income Taxes

We have adopted ASC 740 which provides for the recognition of a deferred tax asset based upon the value the loss carry-forwards will have to reduce future income taxes and management's estimate of the probability of the realization of these tax benefits. Our net operating loss carryovers incurred prior to 2014 considered available to reduce future income taxes were reduced or eliminated through our recent change of control (I.R.C. Section 382(a)) and the continuity of business limitation of I.R.C. Section 382(c).

We have a current operating loss carry-forward of $784,725 resulting in deferred tax assets of $0. We have determined it more likely than not that these timing differences will not materialize and have provided a valuation allowance against substantially all our net deferred tax asset.

Future utilization of currently generated federal and state NOL and tax credit carry forwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended and similar state provisions. The annual limitation may result in the expiration of NOL and tax credit carry forwards before full utilization.

June 30, 2015

December 31, 2014

Individual components giving rise to the deferred tax assets are as follows: $ $
Future tax benefit arising from net operating loss carryovers 784,725 157,172
Less valuation allowance (784,725) (157,172)
Net deferred asset $

-

$

-

The Company is not under examination by any jurisdiction for any tax year. Our federal and state income tax returns are open for fiscal years ending on or after December 31, 2011.

Note 7. Advances to Related Party

On February 3, 2015, March 23, 2015, 4 May, 2015, June 6, 2015 and June 26, 2015, $90,000, $100,000, $100,000, $100,000, $100,000 respectively, were advanced to a company that Zaxis is in merger discussions with. These loans shall bear interest at the rate of one (1%) percent per annum (the "Interest Rate") and shall be due and payable ninety (90) days from the date of the Loan (the "Maturity Date"). Since collectability is not reasonably assured this amount is being expensed in the statement of operations.

The ability of the third party loanee Emerald Medical Applications Ltd to repay the loans as a standalone company is highly in doubt since it used the loan proceeds for ongoing business operations. If, for any reason, the merger with Zaxis, which is in advance stages of closing, does not close Emerald Medical Applications Ltd. will not have sufficient funds to repay the loan.

Note 8. Subsequent Events

In July 2015, the Company filed a Form 8-K/12G with the SEC for the merger between the Company and Emerald Medical Applications Ltd. On August 5, 2015, the Company filed a registration statement on Form S-1 for selling security holders offering 19,361,758 shares of common stock


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION Back to Table of Contents

Some of the statements contained in this quarterly report of Zaxis International Inc., Delaware corporation (hereinafter referred to as "we", "us", "our", "Company" and the "Registrant") discuss future expectations, contain projections of our plan of operation or financial condition or state other forward-looking information. Forward-looking statements give our current expectations or forecasts of future events. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "would," "expect," "plan," "anticipate," "believe," "estimate," "continue," or the negative of such terms or other similar expressions.

On December 30, 2014, the Registrant entered into a non-binding Memorandum of Understanding ("MOU") with Emerald Medical Applications Ltd., a private limited liability company incorporated under the laws of the State of Israel ("Emerald"). Emerald develops and owns proprietary technologies and methods relating to detection and diagnosis of early-stage Melanoma.

The MOU provides that the Registrant and Emerald will enter into a reverse merger (the "Reverse Merger"), subject to the execution of a definitive agreement (the "Definitive Agreement"). The execution of Definitive Agreement and the closing of the Reverse Merger will be subject to the Registrant's raise of $800,000 from third party investors, including but not limited to the Registrant's existing stockholders (the "Investors"), at terms and conditions to be agreed upon by the Registrant and Emerald.

Upon the closing, the holders of Emerald's capital stock will receive in exchange a number of shares of the Registrant's common stock equal to 45% of the Registrant's issued and outstanding common stock on a fully-diluted basis as at immediately following the closing of the Reverse Merger, excluding Registrant's securities to be issued to the Investors upon exercise of warrants issued to the Investors within the framework of the Reverse Merger. In addition, Emerald's holders will be issued up to an additional 21% of the Registrant's common stock in three equal tranches of 7% of the Registrant's issued and outstanding common stock as at immediately following the closing of the Reverse Merger, subject to Emerald's achievement of certain milestones to be set forth in the Definitive Agreement.

The Definitive Agreement with Emerald closed on July 14, 2015 and Emerald became a wholly-owned subsidiary of the Company.

Plan of Operations

We are a digital health startup company engaged in the development, sale and service of imaging solutions utilizing our proprietary DermaCompare software that we developed for use in derma imaging and analytics (our “DermaCompare” or “Product”). In our development of the DermaCompare technology, we utilized the knowledge learned from advanced military image processing and data analytics to improve the analysis of medical images for the benefit of patients and the medical community. We believe that our proprietary DermaCompare software represents an advancement in skin cancer screening that should enable physicians to more readily identify and monitor changes in their patients’ skin characteristics.

 

DermaCompare is Emerald’s first application of its technology, which we believe represents an advance in the early detection of skin cancer. DermaCompare is based on automated image analytics software using advanced algorithms for alignment, anchoring, identifying and detecting changes in the shapes, colors and sizes of skin lesions, which could potentially become Melanoma. We apply our DermaCompare technology in image capture, correction and intelligent data extraction in the market for derma imaging products.

 

Our DermaCompare solution allows dermatologists and other medical care professionals, using a set of 25 total body photography (“TBP”), to capture sets of skin lesion images with, among other devices, digital cameras, camera-equipped smart phones or tablets. These images are then transmitted online and are remotely analyzed by professionals using our DermaCompare software.

 

Our DermaCompare imaging software has 2 main modules:

 

  A SaaS cloud-based Dr. Module that can be launched on any desktop computer connected to the Internet; or
  Mobile APP for mass population uses can be installed on smart phones or tablets with iOS or Android operating systems.

 

Our future plans also contemplate the use of wearable computing and imaging devices such as Google glasses or other comparable devices.

 

Our sales and marketing plan is to sell licenses for our DermaCompare imaging software to: NHSs, HMOs, health insurance companies, hospitals and medical clinics through distributers, health care channel partners or directly through independent salespersons and/or web purchase to dermatologists and other physicians (GPs) that we expect to purchase licenses based on the number of potential numbers of patients.

 

During the quarter ended March 31, 2015, the Company sold a total of 2,052,000 units for cash consideration of $780,000 at a price of $0.40 (the "Units"), each unit comprised of one share of common stock and one Class A warrant exercisable at $0.80 per share with a term 24 month.

During the quarter ended June 30, 2015, the Company sold a total of 1,012,500 units for cash consideration of $405,000 at a price of $0.40 (the "Units"), each unit comprised of one share of common stock and one Class A warrant exercisable at $0.80 per share with a term 24 month.

Results of Operations during the three and six months ended June 30, 2015 as compared to the three and six months ended June 30, 2014

We have not generated any revenues during the three and six months ended June 30, 2015 and 2014. We had operating expenses related to general and administrative expenses, being a public company and interest expenses. During the three and six month period ended June 30, 2015, we incurred $390,606 and $627,553, respectively, in net loss compared to $6,807 and $16,928 during the same period in the prior year.

Our general and administrative expenses increased to $88,390 and $132,326 for the three and six months ended June 30, 2015 as compared to $6,500 and $14,250 during the same period in the prior year. The significant increase was due to increased expenses relating to the merger between the Company and Emerald Medical Applications Ltd.

Other expense increased to $300,000 and $490,000 for the three and six months ended June 30, 2015 as compared to $0 and $0 during the same period in the prior year, due to advances made to related parties. Interest expense increased to $1,698 and $4,699 for the three and six months ended June 30, 2015 as compared to $307 and $2678 during the same period in the prior year and gain of debt settlement increased to $528 and $0 for the three and six months ended June 30, 2015 as compared to $0 and $0 during the same period in the prior year.

On February 3, 2015, March 23, 2015, 4 May, 2015, June 6, 2015 and June 26, 2015, $90,000, $100,000, $100,000, $100,000, $100,000 respectively, were advanced to a company that Zaxis is in merger discussions with. These loans shall bear interest at the rate of one (1%) percent per annum (the "Interest Rate") and shall be due and payable ninety (90) days from the date of the Loan (the "Maturity Date"). Since collectability is not reasonably assured this amount is being expensed in the statement of operations.

The ability of the third party loanee Emerald Medical Applications Ltd to repay the loans as a standalone company is highly in doubt since it used the loan proceeds for ongoing business operations. If, for any reason, the merger with Zaxis, which is in advance stages of closing, does not close Emerald Medical Applications Ltd will not have sufficient funds to repay the loan.

Liquidity and Capital Resources

At present, the Company has no business operations and no material cash resources. We are dependent upon interim funding provided by Management and/or affiliated parties to pay professional fees and expenses. Our Management and affiliated parties have agreed to provide funding as may be required to pay for accounting fees and other administrative expenses of the Company. If we require additional financing, we cannot predict whether equity or debt financing will become available at terms acceptable to us, if at all. The Company depends upon services provided by Management and affiliated consultants to fulfill its filing obligations under the Exchange Act. At present, the Company has limited financial resources to pay for such services and may be required to issue restricted shares in lieu of cash.

On June 30, 2015, we have had current cash assets of $467,380 and had $0 in current and long-term liabilities.

On December 31, 2014, we have had current cash assets of $1,000 and had $163,874 in current liabilities consisting of $7,500 in accounts payable, $35,305 in accrued interest expenses and $120,979 in advances payable to unrelated parties. We had long-term liabilities of $22,375 in notes payable.

During the period ended June 30, 2015, we had negative cash flow from operations of $666,245, which was the result of a net loss of $627,553 decrease in accrued liabilities of $35,833 and decrease in accounts payable of $7,500 and offset by imputed interest of $4,113 and $528 loss on debt settlement.

During the period ended June 30, 2015, we had positive cash flow from financing activities of $1,132,625 which was the result of $1,185,000 from proceeds from sale of common stock offset by $52,375 principal payments on debt.

During the period ended June 30, 2014, we had negative cash flow from operations of $7,750 which was the result of a net loss of $16,928 offset by increase in accrued expenses of $9,178 and advances from related party of $7,750 due to loans made by former Management.

There are no limitations in the Company's certificate of incorporation on the Company's ability to borrow funds or raise funds through the issuance of restricted common stock to effect a business combination. The Company's limited resources and lack of having cash-generating business operations may make it difficult to borrow funds or raise capital. The Company's limitations to borrow funds or raise funds through the issuance of restricted capital stock required to effect or facilitate a business combination may have a material adverse effect on the Company's financial condition and future prospects, including the ability to complete a business combination. To the extent that debt financing ultimately proves to be available, any borrowing will subject us to various risks traditionally associated with indebtedness, including the risks of interest rate fluctuations and insufficiency of cash flow to pay principal and interest, including debt of an acquired business.

The Company has only limited capital. Additional financing is necessary for the Company to continue as a going concern. Our independent auditors have unqualified audit opinion for the period ended June 30, 2015 with an explanatory paragraph on going concern.

In view of these matters, realization of a major portion of the assets in the accompanying balance sheet is dependent upon continued operations of the Company. Management believes that actions presently being taken to obtain additional equity financing will provide the opportunity to continue as a going concern.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Back to Table of Contents

We have not entered into, and do not expect to enter into, financial instruments for trading or hedging purposes.

ITEM 4. CONTROLS AND PROCEDURES Back to Table of Contents

Evaluation of disclosure controls and procedures. As of June 30, 2015, the Company's chief executive officer and chief financial officer conducted an evaluation regarding the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the  Exchange Act. Based upon the evaluation of these controls and procedures, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report.

Changes in internal controls. During the quarterly period covered by this report, no changes occurred in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS Back to Table of Contents

None.

ITEM 1A. RISK FACTORS Back to Table of Contents

See risk factors discussed in the Company's registration statement on Form S-1 as filed with the SEC on August 5, 2015.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Back to Table of Contents

During the quarter ended June 30, 2015, the Company sold a total of 1,012,500 units for cash consideration of $405,000 at a price of $0.40 (the "Units"), each unit comprised of one share of common stock and one Class A warrant exercisable at $0.80 per share with a term 24 month. The issuances of these Warrants was made without registration under the Act in reliance upon the exemptions provided in Section 4(2) of the Act and Reg S.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES Back to Table of Contents

None.

ITEM 4. MINE SAFETY DISCLOSURE Back to Table of Contents

None.

ITEM 5. OTHER INFORMATION Back to Table of Contents

None.

ITEM 6. EXHIBITS Back to Table of Contents

(a) The following documents are filed as exhibits to this report on Form 10-Q or incorporated by reference herein.

Exhibit No. Description
31.1Certification of CEO pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of CFO pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of CEO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of CFO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned.

ZAXIS INTERNATIONAL INC.

By: /s/ Liron Carmel
Liron Carmel
Chief Executive Officer and Chairman
(Principal Executive Officer)
Date: August 7, 2015

By: /s/ Oded Gilboa
Oded Gilboa
Chief Financial Officer
(Principal Financial and Principal Accounting Officer)
Date: August 7, 2015

Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By: /s/ Liron Carmel
Liron Carmel
Chairman
(Principal Executive Officer)
Date: August 7, 2015