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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1997.
Commission file number 0-11284
Z-Axis Corporation
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(Exact name of registrant as specified in its charter)
Colorado 84-0910490
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(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
7395 East Orchard Road, Suite A-100
Greenwood, Colorado 80111-2509
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 713-0200
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 [ ]
The number of common shares outstanding as of September 30, 1997: 3,785,000
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CONTENTS
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PART I FINANCIAL STATEMENTS.
Item 1. Condensed Balance Sheets, March 31 and September 30, 1997. 3
Condensed Statements of Operations, three and six month periods
ended September 30, 1997 and 1996. 4
Condensed Statements of Cash Flows, six month periods
ended September 30, 1997 and 1996. 4
Notes to Condensed Financial Statements. 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 5-6
PART II OTHER INFORMATION. 6
Item 1. Legal proceedings. 6
Item 2. Changes in securities. 6
Item 3. Defaults upon senior securities. 7
Item 4. Submission of matters to a vote of security holders. 7
Item 5. Other information. 7
Item 6. Exhibits and reports on Form 8-K. 7
SIGNATURES 8
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
September 30, March 31,
1997 1997
(Unaudited)
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ASSETS
Current assets:
Cash $ 25,954 $ 24,692
Trade accounts receivable 691,325 862,104
Other current assets 32,853 28,018
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Total current assets 750,132 914,814
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Property and equipment, at cost 1,839,833 1,720,575
Accumulated depreciation (1,476,090) (1,395,578)
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Net property and equipment 363,743 324,997
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Deferred income taxes 165,730 166,000
Capitalized software costs 282,182 312,611
Other assets 17,305 17,486
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TOTAL ASSETS $ 1,579,092 $ 1,735,908
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of Credit $ 45,000 $ 200,000
Accounts payable 119,941 161,049
Accrued expenses 209,542 163,217
Customer deposits 29,000 22,500
Current portion of long-term obligations 68,787 37,842
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Total current liabilities 472,270 584,608
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Long-term obligations 38,236 85,808
Stockholders' equity:
Common stock 3,785 3,765
Additional paid in capital 1,441,711 1,439,231
Retained earnings (deficit) (376,910) (377,504)
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Total stockholders' equity 1,068,586 1,065,492
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TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 1,579,092 $ 1,735,908
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See notes to condensed financial statements.
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CONDENSED STATEMENTS OF OPERATIONS
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Three months ended Six months ended
September 30, September 30,
1997 1996 1997 1996
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(Unaudited) (Unaudited)
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Net sales $ 788,538 $ 886,923 $ 1,549,133 $ 1,275,381
Operating expenses:
Production 407,324 328,619 780,735 573,882
General and administrative 157,445 224,817 311,273 391,007
Marketing 181,989 157,610 357,886 315,313
Depreciation 42,635 39,782 82,662 82,411
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Total operating expenses 789,393 750,828 1,532,556 1,362,613
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Income (loss) from operations (855) 136,095 16,577 (87,232)
Other (expense) income, net: (6,746) (7,837) (15,283) 8,985
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Income (loss) before income taxes (7,601) 128,258 1,294 (78,247)
Income tax (expense) benefit 2,300 (42,346) (700) 25,800
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NET INCOME (LOSS) $ (5,301) $ 85,912 $ 594 $ (52,447)
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INCOME (LOSS) PER COMMON SHARE OF STOCK:
NET INCOME (LOSS) PER COMMON SHARE OF STOCK $ (0.00) $ 0.02 $ 0.00 $ (0.01)
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING DURING THE PERIOD 3,771,666 3,765,000 3,768,333 3,765,000
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CONDENSED STATEMENTS OF CASH FLOWS
Six months ended September 30,
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1997 1996
(Unaudited)
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CASH FLOWS FROM OPERATIONS:
Net cash provided by (used in) operations $ 290,829 $ (79,541)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (123,140) (16,097)
Proceeds from sale of equipment 2,700
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Net cash used in investing activities (120,440) (16,097)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit 395,000 110,000
Payments on line of credit (550,000) (30,000)
Borrowing on capital leases 57,370
Debt and capital lease payments (73,997) (28,205)
Proceeds from exercise of stock options 2,500
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Net cash provided by (used in) financing
activities (169,127) 51,795
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Net (decrease) in cash 1,262 (43,843)
Cash, beginning of period 24,692 118,823
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CASH, END OF PERIOD $ 25,954 $ 74,980
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See notes to condensed financial statements.
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NOTES TO CONDENSED FINANCIAL STATEMENTS.
NOTE 1.
The accompanying Condensed Balance Sheets at September 30, 1997 and March 31,
1997, Condensed Statements of Operations for the three and six month periods
ended September 30, 1997 and 1996 and Cash Flows for the six month periods ended
September 30, 1997 and 1996, should be read in conjunction with the Company's
financial statements and notes for the years ended March 31, 1997, 1996 and
1995. These condensed financial statements contain all adjustments that
management considers necessary for fair presentation. Results for interim
periods are not necessarily indicative of results for a full year.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION.
At September 30, 1997, the Company's working capital position was $277,862, a
decrease of $64,804 during the current quarter and a decrease of $52,344 over
the position at March 31, 1997. The decrease for the second quarter is
attributed to aggressive payments on accounts payable, and substantial paydown
of the current portion of long-term debt. Cash flow from operations was
$290,829 for the six months ended September 30, 1997, as compared to $234,361
for the three months ended June 30, 1997 and $(79,541) for the six months ended
September 30, 1996. It is management's opinion that through cash management and
other measures, working capital for the foreseeable future will be sufficient to
meet operating requirements.
Capital additions were $47,640 and $75,500 during the three month periods ended
June 30 and September 30, 1997, as compared to $3,217 and $12,880 during the
three month periods ended June 30 and September 30, 1996.
Debt and capital lease payments were $398,205 and $225,792 during the three
month periods ended June 30 and September 30, 1997, as compared to $15,154
and $13,051 for the three month periods ended June 30 and September 30, 1996.
Debt and capital lease payments for the three month periods ended June 30
and September 30, 1997 are reported at gross amounts. The proceeds from
borrowing during these periods were used for financing normal operations and
acquisition of new production equipment. Amounts available under the line of
credit were $155,000 and $190,000 for the three month periods ended June 30
and September 30, 1996, respectively.
RESULTS OF OPERATIONS.
During the three and six month periods ended September 30, 1997, income from
operations was $(855) and $16,577 compared to the corresponding periods of
the preceding year of $136,095 and $(87,232), respectively. Net income (loss)
for the three and six month periods ended September 30, 1997 was $(5,301) and
$594 compared to the corresponding periods of the preceding year of $85,912
and $(52,447). The roughly break even operating income during the second
quarter of the current fiscal year was primarily attributable to lower sales
volumes, as compared to the second quarter of the prior fiscal year. In
addition, production costs for the second quarter of the current fiscal year
were higher than the same period of the prior year, as well as the prior
quarter of the current fiscal year. Operating expenses increased by 5% during
the three month period ended September 30, 1997 and 12% during the six month
period ended September 30, 1997 when compared to corresponding periods of the
prior fiscal year. Production expenses for the three and six months ended
September 30, 1997 were higher than those of the corresponding quarters of
the proceeding year primarily due to use of outside production facilities
while the in-house facilities were undergoing extensive replacement and
reconfiguration of equipment, as well as increased research and development
costs for development of the VuPoint software. Included in the production
expenses for the three and six months ended September 30, 1997 are
approximately $71,700 and $129,700, respectively, of research and development
cost, as compared to $36,800 and $78,000 during the corresponding periods of
the prior fiscal year. The increases in the research and development costs
are attributed to an increase in contract labor employed to program, test and
document the VuPoint software system. Sales attributed to rental and
services provided in connection with the VuPoint software comprise 7% of the
total revenues for the three and six month periods ended September 30, 1997
as compared to 0% for the corresponding quarters in the previous year.
General and Administrative expenses were lower during the three and six month
periods ended September 30, 1997 as compared to the same periods of the prior
fiscal year due to reclassification of payroll taxes to their respective
departments. In the prior fiscal year, all payroll taxes were recorded to
the General and Administrative department. Marketing expenses for the three
and six month periods ended
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September 30, 1997 are higher as compared to the same periods of the prior
fiscal year due to increased expenditures on advertising, as well as higher
commissions due to higher sales levels in the six month period. Management
anticipates that sales volumes and operating results are expected to increase
during the third quarter as a result of increased client trial activity.
The Company had a net deferred tax asset of $165,730 at September 30, 1997 as
compared to $166,000 at March 31, 1997. The decrease in the deferred tax
asset was the direct result of the corresponding increase in the Company's
income before taxes for the six months ended September 30, 1997. The Company
has established a valuation allowance of $65,000 at March 31, 1997 and
September 30, 1997 against the deferred tax asset as management believes that
it is more likely than not, that the deferred tax asset related to tax
credits and a portion of the loss carryforwards may not be realized before
all carryforward expiration dates.
ACCOUNTING PRONOUNCEMENTS.
On March 3, 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS
No. 128). This pronouncement provides a different method of calculating
earnings per share than is currently used in accordance with the Accounting
Principles Board Opinion (APB) No. 15, "Earnings Per Share". SFAS No. 128
provides for the calculation of "Basic" and "Diluted" earnings per share.
Basic earnings per share includes no dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution of securities that could share in the earnings of an entity, similar to
fully diluted earnings per share. The Company will adopt SFAS No. 128 in fiscal
1998 and its implementation is not expected to have a material effect on the
financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is
defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures,
SFAS No. 130 requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence
as other financial statements.
Also, in June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments
of an Enterprise and Related Information" which supersedes SFAS No. 14
"Financial Reporting for Segments of a Business Enterprise." SFAS No. 131
establishes standards for the way that public companies report information
about operating segments in annual financial statements and requires
reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosure regarding products and services, geographic areas and major
customers. SFAS No. 131 defines operating segments as components of a
company about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance.
Both SFAS No. 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of these
standards, management has been unable to fully evaluate to impact, if any,
they may have on future financial statement disclosures. Results of
operations and financial position, however, will be unaffected by
implementation of these standards.
PART II OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Shareholders of the Corporation was held at the
corporate offices on September 29, 1997. The following individuals
were elected to serve as directors of the corporation:
SHARES VOTED
NAME SHARES VOTED FOR "WITHHOLD AUTHORITY"
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Steven H. Cohen 1,760,459 15,400
Alan Treibitz 1,760,459 15,400
Marilyn T. Heller 1,760,459 15,400
Marvin A. Davis 1,760,959 14,900
James E. Pacotti, Jr. 1,760,959 14,900
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) No exhibits.
(b) No reports on Form 8-K have been filed during the quarter ended
September 30, 1997.
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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, thereunto duly authorized.
Z-AXIS CORPORATION
By: /s/ ALAN TREIBITZ
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Alan Treibitz
President
Date: November 14, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
/s/ STEVEN H. COHEN Director, Chief Executive Officer November 14, 1997
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Steven H. Cohen
/s/ ALAN TREIBITZ Director, President, Treasurer,
- ---------------------- Chief Financial Officer, Principal
Alan Treibitz Accounting Officer November 14, 1997
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