<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended March 31, 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 or organization) Identification No.)
7395 East Orchard Road, Suite A-100
Greenwood Village, Colorado 80111-2509
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (303) 713-0200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, $.001 par value Electronic Bulletin Board
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 a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy of
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K [ ].
<PAGE>
The registrant's common stock trades on the electronic bulletin board of the
Over-the-Counter market under the trading symbol "AXIS". The aggregate market
value of the registrant's voting stock held by non-affiliates of the registrant
as of March 31, 1997 was $ 344,776. The aggregate market value was calculated
based upon the number of shares held by non-affiliates on March 31, 1997 and the
price at which the registrant's common stock traded on May 22, 1997, the last
date on which the registrant had knowledge of a public trade prior to filing
this report.
The number of common shares outstanding as of March 31, 1997: 3,765,000.
Documents incorporated by reference:
Title of Document Part of Form 10-K
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Proxy Statement to shareholders to be filed by July 29, 1997 Part III
Annual Report to shareholders for the fiscal year ended
March 31, 1997 Parts II and IV
Registration Statement on Form S-18, SEC file no. 2-85302-D Part IV
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FORWARD LOOKING STATEMENTS
In addition to the historical information, this 10K and Annual Report
incorporated by reference herein, contain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 and the Company
desires to take advantage of the "Safe Harbor" provisions thereof. Therefore,
the Company is including this statement for the express purpose of availing
itself of the protections of such Safe Harbor with respect to all of such
forward-looking statements. The forward-looking statements in this report
reflect the Company's current views with respect to future events and financial
uncertainties, including those discussed herein, that could cause actual results
to differ materially from historical results or those anticipated. In this
report, the words "anticipates", "believes", "expects", "intends", "future" and
similar expressions identify forward-looking statements. Readers are cautioned
not to place undue reliance on the forward-looking statements contained herein,
which speak only as of the date hereof. The Company undertakes no obligation to
publically revise these forward-looking statements to reflect events or
circumstances that may arise after the date of this report.
<PAGE>
PART I
ITEM 1. BUSINESS
Z-Axis Corporation (the "Company") was incorporated under the laws of the
State of Colorado on May 16, 1983. The principal business and industry
segment in which the Company operates is the development and production of
computer-generated video graphics and other presentation materials. The
Company conducts its business from three locations, its corporate office and
production facility located in metropolitan Denver, Colorado and sales and
marketing offices located in New York, New York and Chicago, Illinois. The
Company operates within only one industry segment.
The Company was formed for the purpose of providing video graphic
presentation services for industrial and government customers. The Company
provided services during its early years primarily to the broadcast
television industry. In the late 1980's, the Company focused its sales and
marketing efforts toward two specific areas: animation and video presentation
services for the litigation support and aviation communications industries.
Litigation support customers include law firms, corporations and insurance
companies throughout the United States. Approximately 98%, 96% and 94% of
the Company's net sales during its fiscal years ended March 31, 1997, 1996
and 1995, respectively, were provided by litigation support services and the
balance, approximately 2%, 4% and 6% respectively, from aviation
communications and other services. The trend during recent years has been to
concentrate greater sales and marketing efforts towards the litigation
support industry. Although certain customers from time to time may each
provide more than 10% of the Company's net sales, it is not dependent upon
any group of customers. During the year ended March 31, 1997, sales to a
Federal Government agency and to Robins, Kaplan, Miller & Ciresi, a law firm,
accounted for approximately 10.9% and 11.1%, respectively, of the Company's
net sales.
The Company's products may consist of any combination of computer-generated
graphics, live action, photographs, graphic artwork, document presentation,
special effects and presentation exhibit boards. The litigation service
products have proven to be successful in courtroom presentations when highly
technical or complex concepts are being conveyed. Aviation customers use the
Company's products primarily for training and communications purposes.
The Company's video product is delivered to its customers on videotape or
videodisc. Videodisc material can be presented via either a bar code or
touch screen system. The Company continues to improve its service and
product technology. During the fiscal years ending March 31, 1997 and 1996,
the Company designed and developed an advanced electronic courtroom
presentation system consisting of proprietary software in combination with
off-the-shelf hardware. The system has been named "VuPoint" and the Company
has applied for trademark protection of the name and patent protection for
the software. VuPoint was introduced to the litigation market in early 1997.
It is designed for use by trial teams, outside counsel and in-house
attorneys. The Company considers it to have significant long-term revenue
potential and will continue further developments in the foreseeable future.
The Company competes nationally with other providers of presentation
services. Over the past several years, the Company has developed a high level
of expertise in the design and development of technical animations and visual
presentation materials for the litigation support industry. Competition at
the high end of this market is limited to a few companies. The Company has
developed a good reputation for its services and has established regular
customers. Management does not consider any portion of its business or
markets to be seasonal in nature.
There are no environmental risks or risk contingencies associated with the
conduct of the Company's business nor is there any foreign sales activity.
<PAGE>
The materials and equipment that the Company uses to provide its services are
readily available from a number of sources both locally and on a national
level. The Company does not encounter any difficulty in obtaining these
materials or equipment or in servicing its equipment.
At March 31, 1997 and 1996, the Company had a backlog of orders for its video
services in the amounts of approximately $1,022,000 and $1,040,000,
respectively. Although the Company had agreements to perform services in
these amounts, in the case of litigation support services, the agreements may
be canceled or modified for such reasons as pre-trial settlement of the case
being litigated or a decision to use the Company's services to a greater or
lesser extent than originally anticipated. Federal government contracts may
be terminated at any time at the option of the government.
At March 31, 1997, the Company had 22 regular full-time employees. In
addition, there is an adequate base of local well qualified independent
contract personnel that the Company employs from time to time as production
demands require.
ITEM 2. PROPERTIES
The Company's current headquarters and production facility are located in a
business park in the southern suburbs of Denver, Colorado. It leases the space
from an unaffiliated third party. The term of the lease is for a five year
period that ends on June 30, 2001. Management believes that the facilities are
adequate for the Company's operations.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year.
PART II
ITEM 5. MARKET OF REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The number of holders of record of the Company's common stock as of March 31,
1997 was 446 as reported by the transfer agent. This number does not include an
undetermined number of stockholders whose stock is held in "street" or "nominee"
name.
The Company has never paid a dividend with respect to its common stock and does
not anticipate paying a dividend in the foreseeable future.
The Company's common stock had been traded in the NASDAQ over-the-counter market
under the trading symbol "AXIS." On November 1, 1985, the Company's common
stock was deleted from the NASDAQ listing system because its net worth fell
below the minimum required to be traded on NASDAQ. Subsequent to November 1,
1985, the Company's common stock was traded on the "Pink Sheets".
During January 1995, the Company secured a market marker for trading in its
common stock and it became listed for trading on the electronic bulletin board
of the Over-the-Counter market, under the trading symbol "AXIS." Since listing
occurred on the Over-the-Counter market, trading has been sporadic.
<PAGE>
The following is a summary of the high and low bid and ask quotations, as
reported by the NASDAQ Stock Market, Inc. for the period indicated:
BID ASK
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High Low High Low
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Fiscal year ended March 31, 1996:
First quarter $0.250 $0.125 $0.625 $0.500
Second quarter $0.250 $0.125 $0.688 $0.500
Third quarter $0.188 $0.125 $0.688 $0.500
Fourth quarter $0.125 $0.125 $0.500 $0.500
Fiscal year ended March 31, 1997:
First quarter $0.125 $0.125 $0.500 $0.500
Second quarter $0.125 $0.125 $0.500 $0.500
Third quarter $0.125 $0.125 $0.500 $0.375
Fourth quarter $0.1875 $0.125 $0.5625 $0.375
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Quotations reported may represent prices between dealers, may not include retail
markups, markdowns or commissions and may not represent actual trades.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data on page 16 of the Annual Report to shareholders for the
fiscal year ended March 31, 1997 is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 16 through 20 of the Annual Report to shareholders for the
fiscal year ended March 31, 1997 is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements included on pages 2 through 15 of the Annual Report to
shareholders for the fiscal year ended March 31, 1997 are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The information contained in Z-Axis Corporation's Proxy Statement to
shareholders to be filed by July 29, 1997, with respect to directors and
officers of the registrant, is incorporated herein by reference.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information contained in Z-Axis Corporation's Proxy Statement to
shareholders to be filed by July 29, 1997, with respect to executive
compensation, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in Z-Axis Corporation's Proxy Statement to
shareholders to be filed by July 31, 1997, with respect to security ownership
of certain beneficial owners and management, is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in Z-Axis Corporation's Proxy Statement to
shareholders to be filed by July 29, 1997, with respect to certain
relationships and related transactions, is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are incorporated by reference:
1. Financial Statements:
Reports of Independent Certified Public Accountants
Balance Sheets - March 31, 1997 and 1996
Statements of Income - Years ended March 31, 1997, 1996 and 1995
Statements of Cash Flows - Years ended March 31, 1997, 1996 and 1995
Statements of Stockholders' Equity - Years ended March 31, 1997,
1996 and 1995
Summary of Accounting Policies and Notes to Financial Statements
2. Exhibits:
Pursuant to Regulation 240.12b-23, Exhibits 3.1 and 3.2 (Articles of
Incorporation and Bylaws) are incorporated by reference from the
Registration Statement on Form S-18, SEC File No. 2-85302-D,
effective September 15, 1983.
All other exhibits required by Item 601 of Regulation S-K are not
applicable.
(b) Reports on Form 8-K
There were no 8-K reports were filed during the last quarter of this
fiscal year.
<PAGE>
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 of be signed on its
behalf by the undersigned, thereunto duly authorized.
Z-AXIS CORPORATION
By: /s/ Steven H. Cohen
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Steven H. Cohen
(Chief Executive Officer)
Date: July 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 July 14, 1997
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Steven H. Cohen
/s/ Alan Treibitz Director, President, Treasurer,
- ---------------------- Chief Financial Officer, Principal
Alan Treibitz Accounting Officer July 14, 1997
/s/ Marilyn T. Heller Director, Secretary July 14, 1997
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Marilyn T. Heller
<PAGE>
Z-AXIS CORPORATION
1997 ANNUAL REPORT
<PAGE>
PRESIDENT'S LETTER TO SHAREHOLDERS
To our shareholders:
Having begun the past fiscal year with a very weak quarter, we spent the year
trying to recover. Turnover in our sales department and case delays slowed
down the recovery and our year ended at a virtual break-even. Although
disappointed with this performance, we have continued our efforts to set the
stage for future growth.
Z-Axis has always been a leader in the introduction of presentation
technology in the courtroom. Our pioneering use of sophisticated animation
and computer-controlled laserdisc presentation in the 1988 case of Delta
Airlines v. USA was a litigation landmark in the United States. The case led
to a significant growth period for Z-Axis. When the largest patent
infringement verdict of 1992 was awarded to our client in Honeywell v.
Minolta, our then new touch-screen technology received much praise. As a
result, Z-Axis increased its client base significantly.
Our new electronic courtroom presentation system, which we have named,
"VuPoint," was introduced to the litigation market in the fourth fiscal
quarter. Adding a number of advanced features, such as touch-screen access,
make it the most advanced system in the country. It has been very well
received by our clients.
VuPoint made its full-capability debut for the prosecution in the trial of the
United States vs. Timothy McVeigh for the 1995 bombing of the Murrah Federal
Building in Oklahoma City. The system was used extensively throughout the
trial to seamlessly present hundreds of electronically stored exhibits.
Several of the prosecuting attorneys remarked that VuPoint's efficiency
contributed significantly to the speed of the trial and the effectiveness of
the testimony.
In addition to providing VuPoint for the trial, Z-Axis worked for nearly a
year producing most of the demonstrative exhibits used in court, including
videos, animations and large exhibit boards. We felt honored to be chosen by
the Department of Justice as the presentation experts for this very important
case and our staff fully demonstrated the company's committment to high
quality products and services.
Many of our plans for the future revolve around our VuPoint system. It has
proven itself in one of the most demanding circumstances and should provide
us with years of value.
The first quarter of the current fiscal year has begun much stronger than
last year. With our new product in the market, a compelling success story in
the Oklahoma City bombing trial, and the stabilization of our sales force in
Denver, Chicago and New York, we are well-positioned for growth in the coming
years.
/s/Alan Treibitz
Alan Treibitz
June 18, 1997
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Z-Axis Corporation
Greenwood Village, Colorado
We have audited the accompanying balance sheets of Z-Axis Corporation as of
March 31, 1997 and 1996 and the related statements of income, stockholders'
equity and cash flows for each of the two years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principals used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Z-Axis Corporation as of
March 31, 1997 and 1996 and the results of its operations and its cash flows
for each of the two years then ended in conformity with generally accepted
accounting principals.
BDO Seidman, LLP
Denver, Colorado
May 22, 1997
2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Z-Axis Corporation
Greenwood Village, Colorado
We have audited the accompanying statements of income, stockholders' equity
and cash flows of Z-Axis Corporation for the year ended March 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Z-Axis
Corporation for the year ended March 31, 1995, in conformity with generally
accepted accounting principles.
Yale & Seffinger, P.C.
Denver, Colorado
May 31, 1995
3
<PAGE>
Z-AXIS CORPORATION
BALANCE SHEETS
March 31,
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1997 1996
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ASSETS
Current:
Cash $ 24,692 $ 118,823
Trade accounts receivable, net (Notes 3, 4 and 9) 862,104 706,597
Other current assets 28,018 51,857
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Total current assets 914,814 877,277
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Property and equipment, at cost:
Production equipment (Note 3) 1,504,141 1,880,500
Office equipment 216,434 277,102
Accumulated depreciation and amortization (1,395,578) (1,701,014)
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Net property and equipment 324,997 456,588
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Deferred income taxes (Note 1) 166,000 171,000
Capitalized software cost (Note 10) 312,611 134,339
Other assets 17,486 11,941
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TOTAL ASSETS $ 1,735,908 $ 1,651,145
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Line of credit (Note 3) $ 200,000 $ --
Accounts payable 161,049 183,662
Accrued expenses (Note 2) 163,217 221,921
Customer deposits 22,500 29,553
Current portion of long-term debt (Note 3) 37,842 48,994
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Total current liabilities 584,608 484,130
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Long-term debt (includes $82,878, 1997 and $79,792,
1996 to related parties), less current portion
(Note 3) 85,808 110,129
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Total liabilities 670,416 594,259
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Commitments (Note 6)
Stockholders' equity:
Common stock, $.001 par value, 10,000,000 shares
authorized, shares issued: 3,765,000, 1997 and
3,759,000, 1996 3,765 3,759
Additional paid in capital 1,439,231 1,438,487
Accumulated deficit (377,504) (385,360)
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Total stockholders' equity 1,065,492 1,056,886
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,735,908 $ 1,651,145
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See accompanying summary of accounting policies and notes to financial
statements.
4
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Z-AXIS CORPORATION
STATEMENTS OF INCOME
<TABLE>
For the years ended March 31,
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1997 1996 1995
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<S> <C> <C> <C>
Net sales (Note 4) $2,477,645 $2,830,797 $3,279,330
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Operating expenses:
Production 984,229 1,240,715 1,040,445
General and administrative 741,871 746,067 840,026
Marketing 583,602 640,114 631,944
Depreciation and amortization 160,514 176,337 111,651
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Total operating expenses 2,470,216 2,803,233 2,624,066
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Income from operations 7,429 27,564 655,264
Interest (expense) (26,281) (26,125) (22,345)
Other income 30,208 2,998 --
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Income before income taxes 11,356 4,437 632,919
Income tax expense (Note 1) 3,500 1,500 179,000
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NET INCOME $ 7,856 $ 2,937 $ 453,919
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NET INCOME PER COMMON SHARE OF STOCK $ 0.002 $ 0.001 $ 0.121
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Weighted average number of common shares
outstanding during the period 3,761,992 3,759,000 3,752,500
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See accompanying summary of accounting policies and notes to financial statements.
</TABLE>
5
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Z-AXIS CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
Additional Total
Number of Common paid in Accumulated stockholders'
common shares stock capital deficit equity
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<S> <C> <C> <C> <C> <C>
Balance, April 1, 1994 3,750,000 $3,750 $1,436,246 $(842,216) $ 597,780
Issue 3,000 common shares (Note 5) 3,000 3 747 -- 750
Net income -- -- -- 453,919 453,919
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Balance, March 31, 1995 3,753,000 3,753 1,436,993 (388,297) 1,052,449
Issue 6,000 common shares (Note 5) 6,000 6 1,494 -- 1,500
Net income -- -- -- 2,937 2,937
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Balance, March 31, 1996 3,759,000 3,759 1,438,487 (385,360) 1,056,886
Issue 6,000 common shares (Note 5) 6,000 6 744 -- 750
Net income -- -- -- 7,856 7,856
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Balance, March 31, 1997 3,765,000 $3,765 $1,439,231 $(377,504) $1,065,492
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See accompanying summary of accounting policies and notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
For the years ended March 31,
STATEMENTS OF CASH FLOWS -----------------------------------
INCREASE (DECREASE) IN CASH 1997 1996 1995
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<S> <C> <C> <C>
OPERATING ACTIVITIES: (NOTE 5)
Net income $ 7,856 $ 2,937 $ 453,919
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Deferred income taxes 5,000 1,000 176,000
Depreciation and amortization 160,514 176,336 111,651
Loss on disposal of equipment 28,259 -- --
Provision for bad debts 45,000 -- --
Accrued interest on notes payable and
other non-cash expenses 15,813 16,429 18,918
Changes in operating assets and liabilities:
Trade accounts receivable (200,507) 10,381 (164,811)
Other current assets 23,839 (7,006) (15,339)
Other assets (5,545) 50,361 (4,925)
Accounts payable (22,613) 18,817 3,426
Accrued expenses (58,704) (139,306) 121,413
Customer deposits (7,053) 6,038 (32,097)
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Net cash provided by (used in) operating activities (8,141) 135,987 668,155
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INVESTING ACTIVITIES:
Purchase of property and equipment (61,182) (76,996) (347,907)
Additions to software development costs (178,272) (134,339) --
Proceeds from sale of property and equipment 4,000 -- 1,650
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Net cash used in investing activities (235,454) (211,335) (346,257)
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CASH PROVIDED (USED) IN FINANCING ACTIVITIES:
Borrowing on line of credit 530,000 -- --
Payments on line of credit (330,000) -- --
Debt and capital lease principal payments (50,536) (90,979) (104,777)
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Net cash provided by (used in) financing activities 149,464 (90,979) (104,777)
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Net increase (decrease) in cash (94,131) (166,327) 217,121
Cash, beginning of year 118,823 285,150 68,029
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CASH, END OF YEAR $ 24,692 $ 118,823 $ 285,150
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- -------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to financial statements.
</TABLE>
6
<PAGE>
Z-AXIS CORPORATION
SUMMARY OF ACCOUNTING POLICIES AND NOTES TO THE FINANCIAL STATEMENTS
HISTORY AND NATURE OF BUSINESS:
Z-Axis Corporation (the "Company") was incorporated under the laws of the
State of Colorado on May 16, 1983. The Company is engaged in consulting and
presentation services. The primary market for the Company's services is the
litigation industry. These services include the strategic analysis of
complex litigation issues, the design of demonstrative evidence, the
production of such evidence and courtroom presentation. In addition, the
Company has developed two types of courtroom presentation systems for its
clients: a touchscreen video presentation system and "VuPoint," an electronic
image presentation system. The services are provided through its
headquarters and production facility in Denver, Colorado and its satellite
sales offices in New York City and Chicago.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CONCENTRATIONS OF CREDIT RISK:
Financial instruments which potentially subject the Company to concentrations
of credit risk consist primarily of cash and trade accounts receivable. The
Company maintains cash in demand deposits and interest bearing money market
accounts with high quality financial institutions. Such deposit accounts, at
times, may exceed federal insured limits. The Company has not experienced
any losses in such accounts. Concentrations of credit risk with respect to
trade accounts receivable are limited due to the Company's periodic credit
evaluations of its significant customers' financial condition and their
dispersion across geographic areas.
FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value of
the following financial instruments for which it is practicable to estimate
that value:
LONG-TERM DEBT: Substantially all of these notes bear interest at floating
rates based upon a financial institution's prime rate or U.S. Treasury Bill
rates. Accordingly, the fair value approximates their reported carrying
amount at March 31, 1997 and 1996.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Depreciation is computed by the
straight-line method over periods of two to seven years. Depreciation
expense includes amounts for owned and leased equipment. Repairs and
maintenance are charged to expense as incurred.
CAPITALIZED SOFTWARE COSTS:
Cost incurred internally in creating software products for resale are charged
to expense until technological feasibility has been established upon the
completion of a working model. Thereafter, all software costs are
capitalized until the point that the product is ready for sale and
subsequently reported at the lower of amortized cost or net realizable value.
In accordance with Statement of Financial Accounting Standard No. 86, the
Company will recognize the greater amount of annual amortization of
capitalized software costs under 1) the ratio of current year revenues by
7
<PAGE>
Z-AXIS CORPORATION
SUMMARY OF ACCOUNTING POLICIES AND NOTES TO THE FINANCIAL STATEMENTS
product, to the product's total estimated revenues or 2) over the product's
estimated economic useful life by the straight-line method. Amortization
began when the product was sold in April 1997.
REVENUE AND COST RECOGNITION:
The Company generates revenue with both hourly-rate and fixed price
contracts. Revenue generated from hourly-rate contracts is recognized as
costs are billed to the customer. Revenue is determined by the contract
billing rates and the time incurred to perform the service plus reimbursable
expenses. Expense is determined by actual cost incurred. Revenue generated
from fixed price contracts is recognized when the contract is completed. The
contract is considered complete when all costs, except for insignificant
amounts, have been incurred.
NET INCOME PER SHARE:
Net income per share is based on the weighted average number of shares
outstanding during the period. Options outstanding to purchase common stock
are included as common stock equivalents when dilutive.
INCOME TAXES:
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting No. 109 "Accounting for Income Taxes", ("SFAS No. 109").
Deferred income taxes result from temporary differences. Temporary
differences are differences between the tax basis of assets and liabilities
and their reported amounts in the financial statements that will result in
taxable or deductible amounts in future years.
STOCK OPTION PLAN
The Company applies APB Opinion 25 "Accounting for Stock Issued to
Employees", and related Interpretations in accounting for all stock option
plans. Under APB Opinion 25, no compensation cost has been recognized for
stock options issued to employees as the exercise price of the Company's
stock options granted equals or exceeds the market price of the underlying
common stock on the date of grant.
SFAS No. 123, "Accounting for Stock-Based Compensation", requires the Company
to provide pro forma information regarding net income as if compensation cost
for the Company's stock option plans had been determined in accordance with
the fair value based method prescribed in SFAS No. 123. To provide the
required pro forma information, the Company estimates the fair value of each
stock option at the grant date by using the Black-Scholes option-pricing
model.
RESEARCH AND DEVELOPMENT COSTS:
Research and development costs included in production expense for the years
ended March 31, 1997, 1996 and 1995 were $0, $16,370, and $0.
ADVERTISING AND PROMOTIONAL EXPENSE:
Advertising expenses are charged to operations during the year in which they
are incurred. Promotion expenses are charged to operations over the period
of the promotional campaign. Advertising and promotional expense for the
years ended March 31, 1997, 1996 and 1995 were approximately $69,000,
$55,000, and $32,000.
8
<PAGE>
Z-AXIS CORPORATION
SUMMARY OF ACCOUNTING POLICIES AND NOTES TO THE FINANCIAL STATEMENTS
STATEMENTS OF CASH FLOWS:
For purposes of the Statements of Cash Flows, the Company considers all
highly liquid investments purchased with an original maturity of three months
or less to be cash equivalents.
RECLASSIFICATIONS:
Certain items included in the prior years' financial statements have been
reclassified to conform to the current presentation.
RECENT ACCOUNTING PRONOUNCEMENTS:
The Financial Accounting Standards Board (FASB) has 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 Accounting Board Opinion
(APB) No. 15, "Earnings per Share". SFAS No. 128 provides for the
calculation of "Basic" and "Dilutive" 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 1998 and its implementation is not expected to have a
material effect on the Company's financial statements.
NOTE 1. INCOME TAXES
For income tax reporting purposes, the Company prepares its income tax
returns using the cash basis of accounting. The temporary differences that
arise from this election are the principle reasons for the difference between
the net income before income taxes in the accompanying financial statements
and the income for income tax reporting purposes. A reconciliation of the
amount of income tax expense that would result from applying statutory income
tax rates to the net income before income taxes in the accompanying financial
statements to the reported income tax expense is as follows:
<TABLE>
Years ended March 31,
-------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense that would result from applying
statutory income tax rates to net income before income
taxes in the accompanying financial statements $ 4,000 $ 1,000 $ 215,200
Reduction of valuation allowance (20,000) (3,000) --
Cash basis conversion adjustments 19,500 3,500 129,200
Utilization of operating loss carry-forwards -- -- (168,400)
Alternative minimum tax -- -- 3,000
- --------------------------------------------------------------------------------------------
$ 3,500 $ 1,500 $ 179,000
- --------------------------------------------------------------------------------------------
</TABLE>
Income tax expense (benefit) consists of the following:
Years ended March 31,
-----------------------------
1997 1996 1995
- -----------------------------------------------------
Current $(1,500) $ 500 $ 3,000
Deferred 5,000 1,000 176,000
- -----------------------------------------------------
$ 3,500 $1,500 $179,000
- -----------------------------------------------------
9
<PAGE>
Z-AXIS CORPORATION
SUMMARY OF ACCOUNTING POLICIES AND NOTES TO THE FINANCIAL STATEMENTS
The components of the current net deferred tax asset are as follows:
March 31,
----------------------
Current: 1997 1996
- -------------------------------------------------------------------------
Deferred tax assets:
Accounts payable and accrued expenses $140,000 $161,000
Net operating loss carry forwards 193,000 123,000
- -------------------------------------------------------------------------
Total deferred tax asset 333,000 284,000
- -------------------------------------------------------------------------
Deferred tax liabilities:
Accounts receivable 323,000 265,000
Prepaid expenses and other assets 10,000 19,000
- -------------------------------------------------------------------------
Total deferred tax liability 333,000 284,000
- -------------------------------------------------------------------------
Net current deferred tax asset $ -- $ --
- -------------------------------------------------------------------------
The components of the non-current net deferred tax asset are as follows:
March 31,
----------------------
Non-current: 1997 1996
- -------------------------------------------------------------------------
Deferred tax assets:
Notes payable - officers and directors $ 15,000 $ 24,000
Net operating loss carry forwards 319,000 254,000
Investment and other tax credits 34,000 36,000
Valuation allowance (65,000) (85,000)
- -------------------------------------------------------------------------
Total deferred tax asset 303,000 229,000
- -------------------------------------------------------------------------
Deferred tax liabilities:
Property and equipment 20,000 8,000
Capitalized software cost 117,000 50,000
- -------------------------------------------------------------------------
Total deferred tax liability 137,000 58,000
- -------------------------------------------------------------------------
Net non-current deferred tax asset $166,000 $171,000
- -------------------------------------------------------------------------
At March 31, 1997, the Company has federal income tax loss carryforwards of
approximately $1,361,000 which expire in the years 2001 through 2012 and
federal and state tax credits of approximately $34,000 which expire through
the year 2000. The Company has assessed its past earnings history and
trends, budgeted sales, expiration dates of the tax credits and loss
carryforwards, and its ability to implement tax planning strategies which are
designed to accelerate or increase taxable income. Based on the results of
this analysis, a valuation allowance has been established as management
believes that its more likely than not, that the deferred tax asset related
to tax credits and a portion of the loss carry forwards may not be realized
before all carryforward expiration dates.
NOTE 2. ACCRUED EXPENSES
Accrued expenses consist of the following:
March 31,
-----------------------
1997 1996
- ---------------------------------------------------------------
Compensation $109,207 $182,830
Interest, officers and directors 12,814 15,929
Other 41,196 23,163
- ---------------------------------------------------------------
$163,217 $221,921
- ---------------------------------------------------------------
10
<PAGE>
Z-AXIS CORPORATION
SUMMARY OF ACCOUNTING POLICIES AND NOTES TO THE FINANCIAL STATEMENTS
NOTE 3. DEBT
Long-term debt consists of the following:
March 31,
-------------------
1997 1996
- -------------------------------------------------------------------------------
Promissory notes, due May 1998, interest at prime rate
plus 3% per annum (a) $ 71,187 $ 64,811
Promissory note, due May 1998, interest variable
based on the six-month Treasury Bill rate (b) 11,691 14,981
Promissory note, payable monthly, including interest
at 9.5% per annum, due in October 1996 -- 6,555
Capital lease obligations 40,772 72,776
- -------------------------------------------------------------------------------
123,650 159,123
Less current portion 37,842 48,994
- -------------------------------------------------------------------------------
$ 85,808 $110,129
- -------------------------------------------------------------------------------
(a) Unsecured promissory notes due to current employees, officers and
directors.
(b) Due to a current officer and director, secured by the Company's trade
accounts receivable.
Interest expense incurred on indebtedness to related parties was $14,254,
$18,833, and $15,621 during the years ended March 31, 1997, 1996 and 1995,
respectively.
Maturities, by year, of long-term debt and net minimum lease obligations at
March 31, 1997 are as follows:
Year ending March 31,
- -------------------------------------------------------------------------------
1998 $ 70,128
1999 55,808
- -------------------------------------------------------------------------------
125,936
Less amount representing interest 2,286
- -------------------------------------------------------------------------------
Total long-term debt $123,650
- -------------------------------------------------------------------------------
The Company leases certain production and office equipment under the terms of
capital leases. The capitalized value of the leased equipment was $124,602 at
March 31, 1997 and 1996, and related accumulated depreciation in the amounts of
$43,475 and $25,129 at March 31, 1997 and 1996, respectively. These amounts are
combined with similar equipment in the accompanying financial statements.
Lessors have a security interest in all equipment classified as a capital lease.
The Company maintains a line of credit in the amount of $200,000 with a bank
which matures August 1997. If drawn upon, the indebtedness bears interest at
the bank's prime rate plus two percent per annum (10.5% at March 31, 1997). The
Company's accounts receivable and the personal guarantee of two executive
officers of the Company secure any amounts drawn under the line of credit. As of
March 31, 1997, the balance outstanding on the line of credit was $200,000.
11
<PAGE>
Z-AXIS CORPORATION
SUMMARY OF ACCOUNTING POLICIES AND NOTES TO THE FINANCIAL STATEMENTS
NOTE 4. MAJOR CUSTOMERS
For the year ended March 31, 1997, two customers accounted for approximately
10.9% and 11.1% of the Company's net sales. Approximately 21% and 36%, of the
Company's trade accounts receivable were due from two different customers at
March 31, 1997 and 1996, respectively.
NOTE 5. STATEMENT OF CASH FLOWS
Supplemental disclosure of cash flow information:
Years ended March 31,
--------------------------
1997 1996 1995
- ----------------------------------------------------------------------------
Cash paid during the period for interest $29,396 $15,932 $9,318
- ----------------------------------------------------------------------------
Accrued interest on notes payable to related parties in the amounts of $8,376,
$13,027 and $14,523 was added to the principal of the notes during the years
ended March 31, 1997, 1996 and 1995.
During the years ended March 31, 1997 and 1996 fixed assets with a net book
value in the amount of $35,258 and $4,406, respectively were retired. In
addition, during the year ended March 31, 1995, fully depreciated fixed assets,
which cost $212,724, were retired.
Capital lease obligations were incurred in the amount of $115,050 during the
year ended March 31, 1995, when the Company entered into capital lease
agreements for certain production and office equipment.
During the years ended March 31, 1997, 1996 and 1995, the Company recognized
$750, $1,500 and $750, respectively, as compensation expense upon the issuance
of 6,000, 3,000 and 6,000, respectively, shares of common stock to Board of
Directors members who are neither corporate officers nor employees.
NOTE 6. COMMITMENTS
The Company leases its office and production facility under the terms of an
operating lease. The lease term commenced on August 1, 1996 and extends for a
sixty-month period ending on June 30, 2001.
Future minimum payments required under the terms of the lease are as follows:
Year ending March 31,
- ------------------------------------------------------------------------------
1998 $ 92,312
1999 95,521
2000 98,730
2001 101,939
2002 34,336
- ------------------------------------------------------------------------------
Total $ 422,838
- ------------------------------------------------------------------------------
Rent expense was $88,525, $79,508 and $69,504 for the years ended March 31,
1997, 1996 and 1995.
12
<PAGE>
Z-AXIS CORPORATION
SUMMARY OF ACCOUNTING POLICIES AND NOTES TO THE FINANCIAL STATEMENTS
NOTE 7. EMPLOYEE BENEFIT PLANS
On April 1, 1993, the Company established the Z-Axis Corporation 401(K) Plan
(the "Plan"). Eligible employees may elect to participate in the Plan pursuant
to a salary reduction agreement after completing one year of service. The
Company elected to make matching contributions in amounts of ten percent of the
first five percent of a participating employee's salary deferral amount. The
Company made matching contributions to the Plan in the amounts of $2,899, $3,761
and $2,984 during the years ended March 31, 1997, 1996 and 1995, respectively.
On April 1, 1994, the Company established the Z-Axis Corporation Profit Sharing
Compensation Plan (the "Profit Sharing Plan"). Eligible employees automatically
participate in the non-qualified Profit Sharing Plan after one year of service.
The Company contributes 8% to 10% of profits as defined in the Profit Sharing
Plan. The Company accrued $0, $0 and $72,800 during the years ended March 31,
1997, 1996 and, respectively, for distribution under the terms of the Profit
Sharing Plan.
NOTE 8. INCENTIVE STOCK OPTION PLAN
In September 1996, the Board of Directors adopted with the approval of the
Stockholders, the 1996 Stock Option Plan (the "Plan"). The Plan provides for
grants to employees, directors or other persons deemed appropriate at the
discretion of the Compensation Committee (the "Committee") of the Board of
Directors, stock options to purchase common stock of the Copmpany at a price
equal in value to the fair market value, as defined, on the date of grant. The
exercise peiod for options granted under the Plan shall be determined by the
Committee; however, the exercise period shall not exceed ten years from the date
they are granted.
The ability to grant options under the Company's initial Stock Option Plan
expired in 1994, in accordance with the terms of that plan. At March 31, 1996
and 1995 the Company had no options outstanding under the terms of the expired
plan.
FASB Statement 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
requires the Company to provide pro forma information regarding net income and
net income per share as if compensation costs for the Company's stock option
plan had been determined in accordance with fair value based method prescribed
in SFAS No. 123. The Company estimates the fair value of each stock award at
March 31, 1997 by using the Black-Scholes option-pricing model with the
following weighted-average assumptions used respectively: dividend yield of 0
percent for all years; expected volatility of 18 percent; risk-free interest
rates of 6.00 - 6.55 percent; and expected lives of 5 years for the stock
awards.
Under the accounting provisions for SFAS No. 123, the Company's net income per
share would have been decreased by the pro forma amounts indicated below:
March 31, 1997
- ------------------------------------------------------------------------------
Net income:
As reported $ 7,856
Pro forma $ 3,442
Net income per share:
As reported $ .002
Pro forma $ .001
- ------------------------------------------------------------------------------
13
<PAGE>
Z-AXIS CORPORATION
SUMMARY OF ACCOUNTING POLICIES AND NOTES TO THE FINANCIAL STATEMENTS
During the initial phase-in period of SFAS No. 123, the effect on pro forma
results are not likely to be representative of the effects on pro forma results
in future years since options vest over several years and additional awards
could be made each year.
A summary of the status of the Company's stock option plan as of March 31, 1997
and changes during the year is presented below:
<TABLE>
March 31, 1997
----------------------------
Weighted
Average
Number of Exercisable
Shares Price
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding, beginning of year -- $0.000
Granted 115,000 0.130
Expired -- 0.000
Exercised -- 0.000
- ------------------------------------------------------------------------------------------------
Outstanding and exercisable, end of year 115,000 $0.130
- ------------------------------------------------------------------------------------------------
Weighted average fair value of options
granted during the year $0.038
- ------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options outstanding at
March 31, 1997:
<TABLE>
Options Outstanding and Exercisable
- ------------------------------------------------------------------------------------------------
Weighted
Average Weighted
Range of Number Remaining Average
Exercise Outstanding Contractual Exercise
Prices and Exercisable Life Price
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$0.125 100,000 9.41 $0.125
0.125 - 0.138 15,000 4.95 0.134
- ------------------------------------------------------------------------------------------------
Total $0.125 - $0.138 115,000 8.83 $0.126
- ------------------------------------------------------------------------------------------------
</TABLE>
NOTE 9. VALUATION AND QUALIFYING ACCOUNTS
Valuation allowance for the deferred tax asset accounts activity was as follows:
<TABLE>
March 31,
--------------------------
1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $ 85,000 $88,000
Charged to expenses -- --
Deductions (20,000) (3,000)
- ------------------------------------------------------------------------------------------------
Balance at end of year $ 65,000 $85,000
- ------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Z-AXIS CORPORATION
SUMMARY OF ACCOUNTING POLICIES AND NOTES TO THE FINANCIAL STATEMENTS
Allowance for bad debt account activity was as follows:
<TABLE>
March 31,
-------------------------
1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $ 0 $ 0
Additions 45,000 0
Write-offs (34,997) 0
- ------------------------------------------------------------------------------------------------
Balance at end of year $ 10,003 $ 0
- ------------------------------------------------------------------------------------------------
</TABLE>
NOTE 10. SIGNIFICANT FOURTH QUARTER ADJUSTMENTS
During the quarter ended March 31, 1997, the Company recorded a significant
adjustment affecting various accounts when $178,272 of costs associated with a
software product were capitalized. Such costs were incurred subsequent to the
establishment of technological feasibility and before the product was ready for
sale. The amounts that affected the quarters during fiscal year 1997 are as
follows:
<TABLE>
Quarter ended:
- ------------------------------------------------------------------------------------------------
<S> <C>
June 30, 1996 $ 47,476
September 30, 1996 43,096
December 31, 1996 39,740
March 31, 1997 47,960
- ------------------------------------------------------------------------------------------------
$178,272
- ------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
Z-AXIS CORPORATION
SELECTED FINANCIAL DATA
<TABLE>
Year ended March 31,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $2,477,645 $2,830,797 $3,279,330 $1,818,505 $2,039,252
Income from operations 7,429 27,564 655,264 4,931 329,458
Income before extraordinary items
and cumulative effect of change
in accounting for income taxes 11,356 4,437 632,919 6,714 303,648
Net income 7,856 2,937 453,919 331,714 303,648
Total assets 1,735,908 1,651,145 1,836,209 1,264,002 882,996
Long-term debt and capital
lease obligations 85,808 110,129 187,154 188,711 266,001
Stockholders' equity 1,065,492 1,056,886 1,052,449 597,780 266,066
Working capital 330,206 393,147 505,373 247,920 240,817
Net income per common share 0.002 0.001 0.121 0.088 0.081
Cash dividends -- -- -- -- --
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the Company's
financial statements and notes for the fiscal years ended March 31, 1997,
1996 and 1995. Except where otherwise noted, references to years are to
fiscal years ending March 31 of the year stated.
RESULTS OF OPERATIONS
NET SALES
Approximately 98%, 96% and 94% of the Company's net sales during 1997, 1996
and 1995, respectively, were derived from the litigation support field and
the balance from aviation communication and other services. During the most
recent three years, a significantly higher proportion of the Company's net
sales have come from the litigation support field. The Company has
increasingly developed its marketing strategies in this field. Management
expects this mix of its sales markets to continue for the foreseeable future.
Net sales decreased by approximately 12% during 1997. This followed a
decrease of approximately 14% during 1996 and an increase of approximately
80% during 1995. The decrease in 1997 and 1996 is primarily attributable to
turn-over in the sales department. During 1997, new sales associates were
hired and trained, and management expects that revenues should increase as
the new sales associates are currently generating significant sales
prospects. Two customers accounted for approximately 10.9% and 11.1% of
sales in 1997. No customers accounted for more than 10% of sales in 1996 and
1995. The Company's on-going operations and business are not dependent on
any customer or group of customers and are not materially affected by the
effects of inflation.
16
<PAGE>
The continued development of the marketing program remains a high management
priority. The Company's ability to maintain an effective marketing program,
expand its market share in the near-term and establish new markets in the
long-term, may have an effect on its future financial position and results of
operations. The number of contracts that the Company services at any given
time varies significantly throughout the year. The production of large
exhibit boards, which began during 1995, has given the Company the ability to
provide a more complete range of services to its litigation customers for
their courtroom presentations. In May of 1996, the Company opened a sales
office in Chicago, Illinois. Management considers the expenses associated
with the opening of this office, as well as expansion of the marketing
program, necessary for future growth.
OPERATING EXPENSES
For the years ended March 31, 1997 and 1996, total operating expenses were
only slightly less than net sales, producing income from operations in the
amounts of $7,429 and $27,564, respectively, and gross margins of less than
1%. During 1997, operating expenses decreased 12% over 1996. The decrease is
primarily due to lower direct production costs as a result of the decrease in
revenues during the same period, coupled with slightly lower marketing costs
and depreciation. During 1996, operating expenses increased 7% over 1995.
This increase is primarily due to increased employee cost in production
offset by a reduction in general and administrative expenses. Labor expense
continues to be the most significant of the Company's operating costs.
During the years 1997, 1996 and 1995 employee compensation costs accounted
for approximately 49%, 50% and 53%, respectively, of total operating
expenses. Management believes that its staffing levels and production
capacity are sufficient to maintain current and anticipated near-term
production levels. In addition, there is an adequate supply of local
personnel who are trained and qualified who the Company hires from time to
time on a contract basis as production requirements dictate.
Production expenses decreased during 1997 as compared to 1996 and 1995. The
decrease is due to lower sales levels during 1997. Production costs for
direct contract labor and other billable expenses will vary directly with
sales levels. Production expenses increased during 1996 when compared to
1995. This was primarily attributed to a full year of higher salary and
employee costs associated with adding 3 regular full-time employees in the
production department, an increase of 27%, that occurred in late fiscal 1995.
Further, higher levels of travel and outside services were required to
support the higher production levels.
General and administrative expenses did not fluctuate significantly during
1997 when compared to 1996. Included in general and administrative costs for
1997 is approximately $30,000 in expenses associated with relocation of the
corporate offices which occurred in August 1996. General and administrative
expenses decreased by approximately 12% during 1996 when compared to 1995.
This followed an increase of approximately 53% during 1995. The increase
during 1995 was primarily attributable to the fact that executive and staff
performance bonus levels, which are based upon defined profit, were achieved
during 1995 but were not achieved during 1997 or 1996. The Company accrued
$155,000 during 1995 for this incentive pay.
Marketing expenses decreased during 1997 when compared to 1996. This was due
to reduced sales salaries, commissions and travel. The salaries and travel
decreased as a result of the turnover of the sales staff. The commissions
decreased as a result of lower sales levels. Marketing expenses increased
during 1996 as compared to 1995. During 1996, additional expenses were
incurred for promotional and advertising material, representation at trade
shows, travel expenses and additional market research capabilities.
Management anticipates that during fiscal year 1998, marketing expenses will
increase as additional sales support staff are hired in the Denver office and
additional office expenses are incurred for expansion of the New York
operations.
17
<PAGE>
Depreciation expense decreased during 1997 due to retirement of equipment
with a net book value of $35,258. Depreciation expense increased during 1996
and 1995 as a result of capital equipment additions during those periods.
Capital additions during 1997 and 1996 were $61,182 and $76,996 respectively.
Rapid technological advances in the type of equipment that the Company uses
in providing its services require that depreciable lives of the equipment be
relatively short. At March 31, 1997, fully depreciated production video and
graphic equipment with an original cost of approximately $998,000 continued
in use. Management expects to invest approximately $240,000 in new
production equipment during fiscal 1998 which will allow the Company to keep
pace with the rapidly changing technology in the industry.
OTHER INCOME AND EXPENSES
Interest expense increased slightly during each of the three years through
1997, the net effect of slightly higher interest rates on certain debt and
capital lease debt additions, offset by debt repayments. Included in the net
interest for 1997 is approximately $22,000 of interest income paid by a
customer due to settlement of a receivable.
INCOME TAXES
For income tax reporting purposes, the Company files its income tax returns
using the cash basis of accounting. Consequently, the timing of the
reporting of certain income and expense items is different than that for
financial statement purposes.
At March 31, 1997, the Company had income tax loss carryforwards and tax
credits in the amounts of approximately $1,361,000 and $34,000, respectively.
The loss carryforwards expire between 2001 and 2012. Regular income taxes
will not be payable on the Company's taxable income until these benefits have
been fully utilized.
The Company's taxes on income increased to $3,500 during 1997 as compared to
$1,500 during 1996. The Company's taxes on income were $179,000 in 1995. The
changes in the income taxes are the direct result of the corresponding
changes in the Company's income before taxes for such periods. The Company
had a net deferred tax asset of $166,000 and $171,000 at March 31, 1997 and
1996 resulting primarily from cash basis adjustments and operating loss and
tax credit carry-forwards. The company has established a valuation allowance
of $65,000 and $85,000 at March 31, 1997 and 1996 against the deferred tax
asset as management believes that it is more likely than not, that the
deferred tax asset related to the tax credits and a portion of the loss
carryforwards may not be realized before all carryforward expiration dates.
See Note 1 to the Financial Statements.
NET INCOME
The Company recorded net income in the amounts of $7,856, $2,937 and $453,919
during the years ended March 31, 1997, 1996 and 1995, respectively. Net
income per common share was $0.002, $0.001 and $0.121, respectively, during
these periods.
At March 31, 1997, the Company had a backlog of orders in the amount of
approximately $1,022,000, compared to approximately $1,040,000 at March 31,
1996. Although the Company had agreements to perform services in these
amounts, in the case of litigation support services, the agreements may be
modified or canceled for such reasons as pre-trial settlement of the case
being litigated. Production scheduling of the backlog is generally determined
by the Company's customers and is largely controlled by the timing of
courtroom litigation. As a consequence, periods of idle production capacity
can occur. During these periods, management makes every effort to minimize
its impact through a combination of cost controls and production scheduling
to the extent possible.
18
<PAGE>
RESEARCH AND DEVELOPMENT
During the past two years, the Company has designed and developed an advanced
electronic courtroom presentation system consisting of proprietary software
in combination with off-the-shelf hardware. The system has been named
"VuPoint" and the Company has filed for trademark protection of the name and
patent protection for the software. VuPoint was introduced to the litigation
market in the first quarter of fiscal year 1998. It is a state-of-the-art
exhibit management and presentation system for use by trial teams, outside
counsel and in-house attorneys. VuPoint's first full use was by the
prosecution in the case against Timothy McVeigh for the 1995 bombing of the
Murrah Federal Building in Oklahoma City, Oklahoma. The Company considers
VuPoint to have significant long-term revenue potential and will continue
further developments in the foreseeable future. The product fulfills a need
in the marketplace, particularly in presenting exhibits for
document-intensive cases. For fiscal 1997 and 1996, the Company incurred $0,
and $16,370, respectively, of research and development expense and
capitalized $178,272 and $134,339, respectively, of software development
cost. In accordance with Statement of Financial Accounting Standard No. 86,
the Company will recognize the amount of annual amortization of capitalized
software costs under the ratio of current year revenues by product, to the
product's total estimated revenues. Management expects that the total
capitalized software development costs will be fully amortized within three
years.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company's working capital position was $330,206, a
decrease of 16% when compared to that of March 31, 1996. Total stockholders'
equity increased to $1,065,492.
Cash flows from operations were $(8,141), $135,987 and $668,155 during the
years ended March 31, 1997, 1996 and 1995, respectively. The lower cash
flows from operations during 1997 and 1996 was attributed to the lower sales
volumes. During 1997, 1996 and at times during 1995, cash flow from
operations was irregular. Accounts receivable collections slowed at times.
The Company's accounts receivable at any given time are generally few in
number and relatively large in amount. Although the Company has not had any
significant bad debt experiences, any delay in collection of its accounts
receivable can result in a disruption of cash flow. To help mitigate any
future cash flow irregularities, the Company carries a line of credit in the
amount of $200,000 with a bank. Capital additions, as they become necessary
to meet production demands and replace obsolete equipment, will be acquired
with a combination of debt financing and cash flow from operations.
Capital additions were $61,182, $76,996 and $462,957 during the years ended
March 31, 1997, 1996 and 1995, respectively. The 1997 and 1996 expenditures
were made primarily for new and replacement production equipment. Of the
total capital additions during the three year period, approximately 80% were
paid for from current operating cash flows and the remainder were obtained
through lease or debt arrangements with terms of three to five years.
Cash flows from financing activities were $149,464, $(90,979) and $(104,777)
during the years ended March 31, 1997, 1996 and 1995, respectively. The
increase in cash flows from financing activities during 1997 compared to 1996
and 1995 is the result of the utilization of the bank line of credit
available to the Company. The line of credit, which matures annually each
August, is expected by management to be renewed during the normal course of
business.
The timing of the Company's production volumes is largely dependent upon
factors that are not within its control, namely the timing of courtroom
litigation or the potential that a litigation may settle before trial. The
Company began 1998 with sales volumes higher, on average, than those achieved
during the second half of 1997. Net income is anticipated to be slightly
higher than breakeven during the first quarter of 1998. It is management's
anticipation that sales volumes will increase during the second and third
quarters of 1998.
19
<PAGE>
Management believes that its current working capital position and cash flow
from operations will be sufficient to meet future operating costs and debt
service obligations.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS No. 128).
This pronouncement provides a different method of calculating earning per
share than is currently used in accordance with Accounting Board Opinion
(APB) No. 15, "Earnings per Share". SFAS No. 128 provides for the
calculation of "Basic" and "Dilutive" 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 1998 and its implementation is not expected to have a
material effect on the Company's financial statements.
CORPORATE DATA AND STOCKHOLDER INFORMATION
STOCK INFORMATION
Prior to January 1995, there was no market maker for the Company's common
stock and the Company was not aware of any public or private trades and
accordingly, was not aware of high or low bid or ask quotations prior to that
time. During January 1995, the Company's common stock began trading on the
electronic bulletin board of the Over-the-Counter market under the trading
symbol "AXIS". The range of the high and low bid and ask quotations, as
reported by the Nasdaq Stock Market, Inc., for the period ended March 31,
1997 was as follows:
BID ASK
-----------------------------------
High Low High Low
- -------------------------------------------------------------------------
Fiscal year ended March 31, 1996:
First quarter $0.250 $0.125 $0.625 $0.500
Second quarter $0.250 $0.125 $0.688 $0.500
Third quarter $0.188 $0.125 $0.688 $0.500
Fourth quarter $0.125 $0.125 $0.500 $0.500
Fiscal year ended March 31, 1997:
First quarter $0.125 $0.125 $0.500 $0.500
Second quarter $0.125 $0.125 $0.500 $0.500
Third quarter $0.125 $0.125 $0.500 $0.375
Fourth quarter $0.1875 $0.125 $0.5625 $0.375
- -------------------------------------------------------------------------
Quotations reported may represent prices between dealers, may not include
retail markups, markdowns or commissions and may not represent actual trades.
20
<PAGE>
CORPORATE DATA AND STOCKHOLDER INFORMATION
DIRECTORS: OFFICERS:
Steven H. Cohen Steven H. Cohen
Chairman, member Compensation Committee Chief Executive Officer
Marvin A. Davis Jon D. Ackelson
Member, Compensation Committee Vice President, Production
Marilyn T. Heller Stephanie S. Kelso
Vice President, Sales
and Marketing
James E. Pacotti, Jr. Marilyn T. Heller
Member, Compensation Committee Secretary
Alan Treibitz
Alan Treibitz
CORPORATE OFFICE President, Chief Operating
7395 E. Orchard Road, Suite A-100 Officer, Chief Financial
Greenwood Village, Colorado 80111 Officer
Telephone: (303) 713-0200
TRANSFER AGENT INDEPENDENT AUDITORS
American Securities Transfer, Incorporated BDO Seidman, LLP
938 Quail Street, Suite 101 303 East 17th Avenue
Lakewood, Colorado 80215 Suite 600
Denver, Colorado 80203
DIVIDENDS
No dividends have been declared as of June 30, 1997 and the Company does not
anticipate paying dividends in the foreseeable future.
FORM 10-K
A copy of the Form 10-K for the year ended March 31, 1997, as filed with the
Securities and Exchange Commission, is available without charge upon written
request to the corporate Secretary.
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
Z-AXIS CORPORATION 1997 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 25
<SECURITIES> 0
<RECEIVABLES> 862
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 28
<PP&E> 1,720
<DEPRECIATION> (1,395)
<TOTAL-ASSETS> 1,736
<CURRENT-LIABILITIES> 585
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 1,061
<TOTAL-LIABILITY-AND-EQUITY> 1,736
<SALES> 2,478
<TOTAL-REVENUES> 2,478
<CGS> 0
<TOTAL-COSTS> 2,470
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26
<INCOME-PRETAX> 11
<INCOME-TAX> 3
<INCOME-CONTINUING> 8
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8
<EPS-PRIMARY> .002
<EPS-DILUTED> .002
</TABLE>
