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**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549**___________________**FORM 10-QSB**___________________

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

  

For the quarterly period endedSeptember 30, 2006

  

OR

  

** ̈                                TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

For the transition period from               to              

   

Commissionfile number: 0-15476

  

**ZAXISINTERNATIONAL INC.**(Exact Name Of RegistrantAs Specified In Its Charter)
| Delaware                                          | 68-0080601                              |
|---------------------------------------------------|-----------------------------------------|
| (State of Incorporation)                          | (I.R.S. Employer    Identification No.) |
|                                              |                                    |
| 115    East 57th Street, Suite 1118, New York, NY | 10022                                   |
| (Address of Principal    Executive Offices)       | (ZIP Code)                              |

Registrant'sTelephone Number, Including Area Code: (646) 202-9679

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

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.
| Large accelerated    filer  ̈ | Accelerated filer  ̈  | Non-accelerated    filer x |
|----------------------------------|-------------------------------|--------------------------------|

At June September30, 2006, the Registrant had 92,933,155 shares of common stock outstanding.

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**TABLE OF CONTENTS**
| Item                               |                          |                          |                          | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    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| **PART I - FINANCIAL INFORMATION** |
|                               |
| ITEM 1.                            |      |      |      |    FINANCIAL STATEMENTS.
    3  
ITEM 2.
            
   MANAGEMENT'S    DISCUSSION AND ANALYSIS AND PLAN OF OPERATION.
    3   
ITEM 3.
            
   CONTROLS AND PROCEDURES.
    6     
**PART II - OTHER    INFORMATION**
  
ITEM 1.
            
   LEGAL PROCEEDINGS.
    6  
ITEM 2.
            
   CHANGES IN SECURITIES.
    6   
ITEM 3.
            
   DEFAULT UPON    SENIOR SECURITIES.
    6   
ITEM 4.
            
   SUBMISSION OF    MATERS TO A VOTE OF SECURITY HOLDERS.
    6   
ITEM 5.
            
   OTHER INFORMATION.
    6   ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K.6
 
****
**PART I - FINANCIAL INFORMATION**

ITEM1. FINANCIAL STATEMENTS****Backto Table of Contents

The Registrant's unaudited interim financial statementsare attached hereto. Unaudited InterimFinancial Statements

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

Some of the statements contained in this quarterlyreport 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 ofoperation or financial condition or state other forward-looking information.Forward-looking statements give our current expectations or forecasts of future events.You can identify these statements by the fact that they do not relate strictly tohistorical or current facts. They use of words such as "anticipate,""estimate," "expect," "project," "intend,""plan," "believe," and other words and terms of similar meaning inconnection with any discussion of future operating or financial performance. From time totime, we also may provide forward-looking statements in other materials we release to thepublic.

OrganizationalHistory and General Background of the Registrant

Zaxis was incorporated inOhio 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 toDelaware in 1985.

The Company was a biotechnology holding company thatoperated its business through a wholly owned subsidiary. The Company was a manufacturerand distributor of products that were used in a molecular separation process known aselectrophoresis, a procedure used in more than 55,000 research, industrial and clinicallaboratories worldwide. The more common applications of this procedure includeprotein-based separations such as the HDL and LDL components and sub-components ofcholesterol, the identification of various genes and gene products (e.g. DNA, RNA, etc.)and the separation and identification of proteins in drug discovery applications(Proteomics). A variety of techniques, formats, materials, compounds, equipment anddevices are employed in electrophoresis and Zaxis provided products to meet these needs.The primary focus of the Company's former research and development efforts as well as itsformer sales and marketing efforts were targeted toward the consumables segment of thismarket. The Company's core products were the pre-cast gels and reagents used in theseelectrophoresis procedures.

The Company was not able to generate sufficient revenuesto support its operating expenses during fiscal year 2002. In addition, the Company wasnot able to raise additional capital to fund its negative cash flow from operationsthrough borrowings or equity financing to support its business plan. As a result, theCompany ceased operations during the fourth quarter in 2002 and filed for bankruptcypetition.

On November 6, 2002, the Registrant filed a petitionunder the U.S. Bankruptcy Code in the U.S. Bankruptcy Court Northern District of Ohio(case no. 02-55160). During 2003 and 2004,the Bankruptcy Trustee had disposed of substantially all of the assets of the Registrantand its subsidiary. On October 13, 2004, the Company emerged frombankruptcy.

As aresult of the Bankruptcy Court order, Ivo Heiden was appointed to the board of directorsof the Registrant. Mr. Heiden was subsequently appointed as sole officers of theRegistrant ("Management").

Plan of Operation

TheRegistrant has no present operations. Management determined to direct its efforts andlimited resources to pursue and effect a business combination.

    *Currenttrends*

Management believes that asa result of the relative uncertainty in the United States equity markets over the past fewyears, many privately-held companies have been closed off from the public market andtraditional IPO's. During the past few years, many privately-held or public companiesattempted to divest non-core assets and divisions and valuations of these assets anddivisions have decreased significantly. Therefore, Management believes that there aresubstantial business opportunities to effect attractive acquisitions. As a public entitywith its shares of common stock registered under the Exchange Act and publicly trading,Management believes to be well positioned to identify target acquisitions and to effect abusiness combination in order to take advantage of these current trends.

    *Effecting a business combination*

Prospective investors in theCompany's common stock will invest in the Company without an opportunity to evaluate thespecific merits or risks of any one or more business combinations. A business combinationmay involve the acquisition of, or merger with, a company which needs to raise substantialadditional capital by means of being a publicly trading company, while avoiding what itmay deem to be adverse consequences of undertaking a public offering itself. These includetime delays, significant expense, loss of voting control and compliance with variousFederal and state securities laws. A business combination may involve a company which maybe financially unstable or in its early stages of development or growth.

*    TheRegistrant has not identified a target business or target industry*

The Company's effort inidentifying a prospective target business will not be limited to a particular industry andthe Company may ultimately acquire a business in any industry Management deemsappropriate. To date, the Company has not selected any target business on which toconcentrate our search for a business combination. While the Company intends to focus ontarget businesses in the United States, it is not limited to those entities and mayconsummate a business combination with a target business outside of the United States.Accordingly, there is no basis for investors in the Company's common stock to evaluate thepossible merits or risks of the target business or the particular industry in which we mayultimately operate. To the extent we effect a business combination with a financiallyunstable company or an entity in its early stage of development or growth, includingentities without established records of sales or earnings, we may be affected by numerousrisks inherent in the business and operations of financially unstable and early stage orpotential emerging growth companies. In addition, to the extent that we effect a businesscombination with an entity in an industry characterized by a high level of risk, we may beaffected by the currently unascertainable risks of that industry. An extremely high levelof risk frequently characterizes many industries which experience rapid growth. Inaddition, although the Company's Management will endeavor to evaluate the risks inherentin a particular industry or target business, we cannot assure you that we will properlyascertain or assess all significant risk factors.

    *Sourcesof target businesses*

The Registrant anticipatesthat target business candidates will be brought to our attention from various unaffiliatedsources, including securities broker-dealers, investment bankers, venture capitalists,bankers and other members of the financial community, who may present solicited orunsolicited proposals. Our Management may also bring to our attention target businesscandidates. While we do not presently anticipate engaging the services of professionalfirms that specialize in business acquisitions on any formal basis, we may engage thesefirms in the future, in which event we may pay a finder's fee or other compensation. In noevent, however, will we pay Management any finder's fee or other compensation for servicesrendered to us prior to or in connection with the consummation of a business combination.

    *Selectionof a target business and structuring of a business combination*

Management owns 69.51% ofthe issued and outstanding shares and will have broad flexibility in identifying andselecting a prospective target business. In evaluating a prospective target business, ourManagement will consider, among other factors, the following:

Ÿ financial condition and results of operation of thetarget company;Ÿ growth potential;Ÿ experience and skill ofmanagement and availability of additional personnel;Ÿ capital requirements;Ÿ competitive position;Ÿ stage of development of theproducts, processes or services;Ÿ degree of current orpotential market acceptance of the products, processes or services;Ÿ proprietary features anddegree of intellectual property or other protection of the products, processes orservices;Ÿ regulatory environment of theindustry; andŸ costs associated witheffecting the business combination.

These criteria are notintended to be exhaustive. Any evaluation relating to the merits of a particular businesscombination will be based, to the extent relevant, on the above factors as well as otherconsiderations deemed relevant by our Management in effecting a business combinationconsistent with our business objective. In evaluating a prospective target business, wewill conduct a due diligence review which will encompass, among other things, meetingswith incumbent management and inspection of facilities, as well as review of financial andother information which will be made available to us.

We will endeavor tostructure a business combination so as to achieve the most favorable tax treatment to us,the target business and both companies' stockholders. We cannot assure you, however, thatthe Internal Revenue Service or appropriate state tax authority will agree with our taxtreatment of the business combination. 

The time and costs requiredto select and evaluate a target business and to structure and complete the businesscombination cannot presently be ascertained with any degree of certainty. Any costsincurred with respect to the identification and evaluation of a prospective targetbusiness with which a business combination is not ultimately completed will result in aloss to us.

    *Probablelack of business diversification*

We may seek to effectbusiness combinations with more than one target business, it is probable that we will havethe ability to effect only a single business combination. Accordingly, the prospects forour success may be entirely dependent upon the future performance of a single business.Unlike other entities which may have the resources to complete several businesscombinations of entities operating in multiple industries or multiple areas of a singleindustry, it is probable that we will not have the resources to diversify our operationsor benefit from the possible spreading of risks or offsetting of losses. By consummating abusiness combination with only a single entity, our lack of diversification may:

Ÿ subject us to numerous economic, competitive and regulatory developments, any orall of which may have a substantial adverse impact upon the particular industry in whichwe may operate subsequent to a business combination, andŸ result in our dependency uponthe development or market acceptance of a single or limited number of products, processesor services.

   *Limitedability to evaluate the target business' management*

Although we intend toclosely scrutinize the management of a prospective target business when evaluating thedesirability of effecting a business combination, we cannot assure you that our assessmentof the target business' management will prove to be correct. In addition, we cannot assureyou that the future management will have the necessary skills, qualifications or abilitiesto manage a public company intending to embark on a program of business development.Furthermore, the future role of our director, if any, in the target business cannotpresently be stated with any certainty. While it is possible that our director will remainassociated in some capacity with us following a business combination, it is unlikely thathe will devote his full efforts to our affairs subsequent to a business combination.Moreover, we cannot assure you that our director will have significant experience orknowledge relating to the operations of the particular target business. 

Following a businesscombination, we may seek to recruit additional managers to supplement the incumbentmanagement of the target business. We cannot assure you that we will have the ability torecruit additional managers, or that additional managers will have the requisite skills,knowledge or experience necessary to enhance the incumbent management.

Liquidity and Capital Resources

We will use our limited personnel andfinancial resources in connection with seeking new business opportunities, includingseeking an acquisition or merger with an operating company. It may be expected thatentering into a new business opportunity or business combination will involve the issuanceof a substantial number of restricted shares of common stock. If such additionalrestricted shares of common stock are issued, our shareholders will experience a dilutionin their ownership interest in the Registrant. If a substantial number of restrictedshares are issued in connection with a business combination, a change in control may beexpected to occur. 

At September 30, 2006, we had no assetsand had current liabilities consisting of payables in the amount of $9,318 compared to$3,618 at December 31, 2005.

During the nine-month period endedSeptember 30, 2006, we generated cash from financing activities in the amount of $5,200compared to $7,600 in the prior year, which financing activities consisted of advancesfrom our president.

Inconnection with our plan to seek new business opportunities and/or effecting a businesscombination, we may determine to seek to raise funds from the sale of restricted stock ordebt securities.We have no agreements to issue any debt or equity securities and cannotpredict whether equity or debt financing will become available at terms acceptable to us,if at all.

Thereare no limitations in our articles of incorporation on our ability to borrow funds orraise funds through the issuance of restricted common stock to effect a businesscombination. Our limited resources may make it difficult to do borrow funds or raisecapital. Our inability to borrow funds or raise funds through the issuance of restrictedcommon stock required to effect or facilitate a business combination may have a materialadverse effect on our financial condition and future prospects, including the ability tocomplete a business combination. To the extent that debt financing ultimately proves to beavailable, any borrowing will subject us to various risks traditionally associated withindebtedness, including the risks of interest rate fluctuations and insufficiency of cashflow to pay principal and interest, including debt of an acquired business. 

ITEM 3.CONTROLS AND PROCEDURES****Backto Table of Contents

*Evaluation of disclosure controls andprocedures.* As of September 30, 2006, the Company's chief executive officer and chieffinancial officer conducted an evaluation regarding the effectiveness of the Company'sdisclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) underthe  Exchange Act. Based upon the evaluation of these controls and procedures, ourchief executive officer and chief financial officer concluded that our disclosure controlsand procedures were 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 internalcontrol over financial reporting that materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.

**PART II - OTHER INFORMATION**

ITEM 1. LEGALPROCEEDINGS****  Back toTable of Contents

None.

ITEM 2. CHANGESIN SECURITIESBack to Table ofContents

None.

ITEM3. DEFAULTS UPON SENIOR SECURITIES****Back to Table of Contents

None.

ITEM4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSBack to Table of Contents

None.

ITEM5. OTHER INFORMATION****Backto Table of Contents

None.

ITEM6. EXHIBITS AND REPORTS ON FORM 8-K****Back to Table of Contents

(a) The following documentsare filed as exhibits to this report on Form 10-QSB or incorporated by reference herein.Any document incorporated by reference is identified by a parenthetical reference to theSEC filing that included such document.

Exhibit    No.Description31.1Certification of President    and 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 2002.32.2Certification of President    and CFO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the    Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K during the quarter covered by this report:

The Registrant did not filed a Form 8-K during the quarter endedSeptember 30, 2006.

SIGNATURES

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has been signed below bythe following persons on behalf of the registrant and in the capacities and on the dateindicated.

/s/ Ivo HeidenIvo Heiden   *President, CFO and Chairman**   Dated: November 14, 2006*

**UnauditedInterim Financial Statements**Back to Table of Contents
**Zaxis International Inc.**Balance    Sheets     **  ****September    30, 2006****December    31, 2005**(Unaudited)    
AssetsCurrent assets:   Cash$0$461     Total    current assets0461      Other assets00           Total Assets$0$461  
Liabilities    and Stockholders' DeficiencyCurrent liabilities:   Accounts payable5000   Payable-related    parties8,8183,618         Total current liabilities$9,318$3,618  Stockholders' deficiency:Preferred stock, 10,000,000    shares authorized, $0.0001 par value, none issued--Common stock, 100,000,000    shares authorized, $0.0001 par value;        92,933,155 issued and outstanding at September 30, 2006 and         92,333,155 issued and outstanding at December 31, 20059,2939,233   Additional paid in    capital14,691(3,249)   Accumulated    deficit(33,302)(9,141)     Total    stockholders' deficiency(9,318)(3,157)                 Total liabilities and stockholders' deficiency$0$461     See    notes to unaudited interim financial statements**Zaxis    International Inc.**Statements of    Operations  **Three Months****Three Months****Nine Months****Nine Months****Ended****Ended****Ended****Ended****September 30, 2006****September 30, 2005****September 30, 2006****September 30, 2005**(Unaudited)(Unaudited)(Unaudited)(Unaudited)  Revenue$0$0$0$0Costs and expenses:   General and administrative5232,50024,1617,535Total costs and expenses5232,50024,1617,535  **     **Net loss$(523)$(2,500)$(24,161)$(7,535)  Basic and diluted per share amounts:Basic and diluted net loss$(0.00)$(0.00)$(0.00)$(0.00)  Weighted average shares outstandingBasic and diluted92,933,15516,245,62392,639,82216,245,623  See notes to    unaudited interim financial statements**Zaxis    International Inc.**Statement of Cash    Flows
        **Nine Months****Nine Months****Ended****Ended****September 30, 2006****September 30, 2005**(Unaudited)(Unaudited)  Cash flows from operating activities:Net loss$(24,161)$(7,535)Expenses paid by issuance of common stock18,0000Adjustments to reconcile net loss to cash used    in operating activities:   (Increase) decrease in current    assets00   Increase (decrease) in accounts    payable and accrued expenses5000     Cash    flows used by operating activities(5,661)(7,535)  Cash flows from investing    activities:         Cash    used in investing activities00   Cash flows from financing activities:   Advances from related party5,2007,600     Cash    generated by financing activities5,2007,600       Change in cash(461)65Cash - beginning of period46184Cash - end of period$0$149  See notes to    unaudited interim financial statements**ZAXIS INTERNATIONAL INC.Notes to Unaudited Interim Financial Statements
**1. Basis of Presentation

The consolidated financial statements include the accounts of ZaxisInternational, Inc., a Delaware corporation.

The Financial Statements presented herein have been prepared by us inaccordance with the accounting policies described in our December 31, 2005 Annual Reporton Form 10-KSB and should be read in conjunction with the Notes to Consolidated FinancialStatements which appear in that report.

The preparation of these financial statements in conformity withaccounting principles generally accepted in the United States requires us to makeestimates and judgments that affect the reported amounts of assets, liabilities, revenuesand expenses, and related disclosure of contingent assets and liabilities. On an on goingbasis, we evaluate our estimates, including those related intangible assets, income taxes,insurance obligations and contingencies and litigation. We base our estimates onhistorical experience and on various other assumptions that are believed to be reasonableunder the circumstances, the results of which form the basis for making judgments aboutthe carrying values of assets and liabilities that are not readily apparent from otherresources. Actual results may differ from these estimates under different assumptions orconditions.

In the opinion of management, the information furnished in this Form10-QSB reflects all adjustments necessary for a fair statement of the financial positionand results of operations and cash flows as of and for the three month and nine-monthperiods ended September 30, 2006 and 2005. All such adjustments are of a normal recurringnature. The Consolidated Financial Statements have been prepared in accordance with theinstructions to Form 10-QSB and therefore do not include some information and notesnecessary to conform with annual reporting requirements.
**"Fresh Start" Accounting: On November 6, 2002 all assetswere transferred to the chapter 7 trustee in settlement of all outstanding corporateobligations. We adopted "fresh-start" accounting as of November 7, 2002 inaccordance with procedures specified by AICPA Statement of Position ("SOP") No.90-7, "Financial Reporting by Entities in Reorganization under the BankruptcyCode."

All results for periods subsequent to November 7, 2002 are referred toas those of the "Successor Company".

In accordance with SOP No. 90-7, the reorganized value of the Companywas allocated to the Company's assets based on procedures specified by SFAS No. 141,"Business Combinations". Each liability existing at the plan sale date, otherthan deferred taxes, was stated at the present value of the amounts to be paid atappropriate market rates. It was determined that the Company's reorganization valuecomputed immediately before November 6, 2002 was $0. We adopted "fresh-start"accounting because holders of existing voting shares immediately before filing andconfirmation of the sale received less than 50% of the voting shares of the emergingentity and its reorganization value is less than its post-petition liabilities and allowedclaims.
**2. Bankruptcy Proceedings

On November 6, 2002, the Registrant filed a voluntary Chapter 7petition under the U.S. Bankruptcy Code in the U.S. Bankruptcy Court Northern District ofOhio (case no. 02-55160). On October 13, 2004, the Bankruptcy Court approved an Orderconfirming the sale of debtor's interest in personal property to Park Avenue Group Inc.The material terms of the transaction confirmed by Bankruptcy Court authorized Park AvenueGroup to appoint new members to the Registrant's board of directors and authorized thosenewly-appointed board of directors be to:
- amend the Article of Incorporation to increase the number of authorized shares to    100,000,000 shares;
- amend the Article of Incorporation to change the par value of our common and preferred    stock to $0.0001;
- issue up to 30,000,000 shares of common stock, par value $0.0001 to the new management    which management was appointed by the newly-constituted board of directors;
- implement a reverse split of the issued and outstanding shares in a ratio to be    determined by the board of directors;
- cancel and extinguish all common share conversion rights of any kind, including without    limitation, warrants, options, convertible bonds, other convertible debt instruments and    convertible preferred stock; and
- cancel and extinguish all preferred shares of every series and accompanying conversion    rights of any kind.

The accounts of the former subsidiaries were not included in the saleand have not been carried forward.**Change in Control

In connection with the Order confirming the sale of debtor's interestin certain intangible personal property to Park Avenue Group Inc. approved by the U.S.Bankruptcy Court Northern District of Ohio on October 13, 2004, the Court authorized achange in control pursuant to which Ivo Heiden became our sole director on October 13,2004, and was appointed president by the new board of directors on October 19, 2004. TheCourt order further provided that the sale was free and clear of liens, claims andinterests of others and that the sale was free and clear of any and all other real orpersonal property interests, including any interests in Zaxis's subsidiaries. TheBankruptcy Court Order provided that the existing officers and directors were deemedremoved from office and also authorized the appointment of new members to the board ofdirectors. 

On November 30, 2004 the board of directors approved and authorized anamendment of our Article of Incorporation to establish a series B convertible preferredstock, par value $0.0001 ("Series B Convertible Preferred Stock"). The holdersof the Series B Convertible Preferred Stock shall be entitled to 20 (twenty) votes on allmatters submitted to a vote of the stockholders of the Registrant. The holders of Series BConvertible Preferred Stock shall have the right to convert each share into 20 (twenty)shares of common stock upon their written request at any time. On December 7, 2004, theboard of directors authorized the issuance of 2,000,000 shares of Series B ConvertiblePreferred Stock, which resulted in a change in control.

**3. Earnings/Loss Per Share**

Basic earnings per share is computed by dividing income available tocommon shareholders (the numerator) by the weighted-average number of common sharesoutstanding (the denominator) for the period. Diluted earnings per share assume that anydilutive convertible securities outstanding were converted, with related preferred stockdividend requirements and outstanding common shares adjusted accordingly. It also assumesthat outstanding common shares were increased by shares issuable upon exercise of thosestock options for which market price exceeds the exercise price, less shares which couldhave been purchased by us with the related proceeds. In periods of losses, diluted lossper share is computed on the same basis as basic loss per share as the inclusion of anyother potential shares outstanding would be anti-dilutive.
**4. New Accounting Standards

On January 1, 2006, we adopted the provisions of Statement of FinancialAccounting Standards ("SFAS") 123R, "Share-Based Payment" ("SFAS123(R)"), which requires that companies measure and recognize compensation expense atan amount equal to the fair value of share-based payments granted under compensationarrangements. Prior to January 1, 2006, we accounted for our stock-based compensationplans under the recognition and measurement principles of Accounting Principles Board("APB") Opinion 25, "Accounting for Stock Issued to Employees," andrelated interpretations, and would typically recognize no compensation expense for stockoption grants if options granted had an exercise price equal to the market value of theunderlying common stock on the date of grant. 

We adopted SFAS 123(R) using the "modified prospective"method, which results in no restatement of prior period amounts. Under this method, theprovisions of SFAS 123(R) apply to all awards granted or modified after the date ofadoption. In addition, compensation expense must be recognized for any unvested stockoption awards outstanding as of the date of adoption on a straight-line basis over theremaining vesting period. We calculate the fair value of options using a Black-Scholesoption pricing model. We do not currently have any outstanding options subject to futurevesting therefore no charge is required for the nine months ended September 30, 2006. SFAS123(R) also requires the benefits of tax deductions in excess of recognized compensationexpense to be reported in the Statement of Cash Flows as a financing cash inflow ratherthan an operating cash inflow. In addition, SFAS 123(R) required a modification to theCompany’s calculation of the dilutive effect of stock option awards on earnings pershare. For companies that adopt SFAS 123(R) using the "modified prospective"method, disclosure of pro forma information for periods prior to adoption must continue tobe made. 

In May 2005, the FASB issued SFAS No. 154, "Accounting Changes andError Corrections," which replaces APB Opinion No. 20 "Accounting Changes,"and FASB Statement No. 3 "Reporting Accounting Changes in Interim FinancialStatements," and changes the requirements for the accounting for and reporting of achange in accounting principle. This Statement requires retrospective application to priorperiods’ financial statements of changes in accounting principle, unless it isimpracticable to determine either the period-specific effects or the cumulative effect ofthe change. This Statement shall be effective for accounting changes and corrections oferrors made in fiscal years beginning after December 15, 2005. Early adoption is permittedfor accounting changes and corrections of errors made in fiscal years beginning after thedate this Statement is issued. We do not believe that adoption of SFAS 154 will have amaterial impact on our financial statements.************ |