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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 period ended June 30, 1998.
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 Identification No.)
incorporation or organization)
7395 E. Orchard Road, Suite 100
Greenwood Village, Colorado 80111
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(Address of principal executive office) (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 June 30, 1998: 3,785,000.
Page 1 of 9
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CONTENTS
PART I FINANCIAL INFORMATION
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Item 1. Condensed Balance Sheets, March 31 and June 30, 1998. 3
Condensed Statements of Operations, Three month periods
ended June 30, 1998 and 1997. 4
Condensed Statements of Cash Flows, Three month periods
ended June 30, 1998 and 1997. 4
Notes to Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-8
PART II OTHER INFORMATION 8
Item 1. Legal proceedings 8
Item 2. Changes in securities 8
Item 3 Defaults upon senior securities 8
Item 4 Submission of matters to a vote of security holders 8
Item 5. Other information 8
Item 6. Exhibits and reports on Form 8-K 8
SIGNATURES 9
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Page 2 of 9
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
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June 30, 1998 March 31,1998
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(Unaudited)
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ASSETS
Current assets:
Cash $ 50,494 $ 139,254
Trade accounts receivable, net 1,051,335 1,121,753
Other current assets 47,044 46,956
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Total current assets 1,148,873 1,307,963
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Property and equipment, at cost 1,487,512 1,450,837
Accumulated depreciation (967,129) (977,566)
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Net property and equipment 520,383 473,271
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Deferred income taxes 100,290 132,575
Other assets 13,819 13,819
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TOTAL ASSETS $ 1,783,365 $ 1,927,628
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of Credit $ - $ 200,000
Accounts payable 92,495 113,829
Accrued expenses 260,237 278,168
Customer deposits 13,000 27,000
Current portion of long-term obligations 92,984 72,651
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Total current liabilities 458,716 691,648
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Long-term obligations 133,962 114,585
Stockholders' equity:
Common stock 3,805 3,785
Additional paid in capital 1,444,191 1,441,711
Retained earnings (deficit) (257,309) (324,101)
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Total stockholders' equity 1,190,687 1,121,395
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,783,365 $ 1,927,628
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</TABLE>
See notes to condensed financial statements.
Page 3 of 9
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CONDENSED STATEMENTS OF OPERATIONS
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Three months ended June 30,
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1998 1997
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(Unaudited)
<S> <C> <C>
Net sales $ 1,062,574 $ 760,595
Operating expenses:
Production 414,995 315,379
Research and development 43,917 43,099
General and administrative 195,308 153,828
Marketing 242,745 175,897
Depreciation 58,949 40,027
Amortization of prior years' software
development costs - 14,932
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Total operating expenses 955,914 743,162
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Income from operations 106,660 17,433
Other expense (7,169) (8,538)
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Income before income taxes 99,491 8,895
Income tax expense (32,700) (3,000)
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NET INCOME $ 66,791 $ 5,895
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NET INCOME PER COMMON SHARE OF STOCK:
BASIC $ 0.018 $ 0.002
DILUTED $ 0.017 $ 0.002
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Weighted average number of common shares
outstanding during the period:
Basic 3,785,000 3,765,000
Diluted 3,857,018 3,842,360
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CONDENSED STATEMENTS OF CASH FLOWS
Three months ended June 30,
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1998 1997
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(Unaudited)
CASH FLOWS FROM OPERATIONS:
Net cash provided by operations $ 174,588 $ 234,361
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (44,991) (879)
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Net cash used in investing activities (44,991) (879)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Debt and capital lease payments (220,857) (238,638)
Proceeds from exercise of stock options 2,500 -
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Net cash used in financing activities (218,357) (238,638)
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Net decrease in cash (88,760) (5,156)
Cash, beginning of period 139,254 24,692
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CASH, END OF PERIOD $ 50,494 $ 19,536
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See notes to condensed financial statements.
Page 4 of 9
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NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL INFORMATION
In the opinion of management, the accompanying unaudited condensed financial
statements contain all adjustments necessary to present fairly the financial
position as of June 30, 1998 and March 31, 1998 and the results of operations
and statement of cash flows for the periods presented. The results of
operations for the three month periods ending June 30, 1998 and 1997 are not
necessarily indicative of results to be expected for the full year.
NOTE 2. TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable consists of the following:
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June 30, 1998 March 31, 1998
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Trade accounts receivable $ 1,085,761 $ 1,131,756
Less allowance for bad debt 34,426 10,003
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Trade accounts receivable, net $ 1,051,335 $ 1,121,753
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Approximately 29% and 35% of the Company's trade accounts receivable was due
from the same customer at June 30, 1998 and March 31, 1998, respectively.
NOTE 3. DEBT
Long-term debt consists of the following:
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June 30, 1998 March 31, 1998
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Capital lease obligations $ 226,946 $ 187,236
Less current portion 92,984 72,651
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Long term capital lease obligations $ 133,962 $ 114,585
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</TABLE>
The Company leases certain production and office equipment under the terms of
capital leases. The capitalized value of the leased equipment was $287,324
at June 30, 1998 and $226,757 at March 31, 1998. The related accumulated
depreciation was $73,599 at June 30, 1998 and $48,824 at March 31, 1998.
These amounts are combined with similar equipment in the accompanying
condensed 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 $250,000 with a bank,
which matures August 1998. If drawn upon, the indebtedness bears interest at
the bank's prime rate plus tow percent per annum (10.5% at June 30, 1998 and
March 31, 1998). The Company's accounts receivable secure any amounts drawn
under the line of credit. As of June 30, 1998 and March 31, 1998, the
balance outstanding was $0 and $200,000, respectively.
NOTE 4. 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 reflect
the potential dilution of securities that could share in the earnings of the
entity. For purposes of computing diluted earnings per share, dilutive
securities represented 72,018 and 77,660 common stock equivalents at June 30,
1998 and 1997, respectively.
Page 5 of 9
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The accompanying Condensed Balance Sheets at March 31 and June 30, 1998 and
Condensed Statements of Operations and Cash Flows for the three month periods
ended June 30, 1998 and 1997 should be read in conjunction with the Company's
financial statements and notes for the years ended March 31, 1998, 1997 and
1996. 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. Except
where otherwise noted, references to periods are to periods of fiscal years
ended March 31 of the year stated.
In addition to the historical information, this 10-Q 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 publicly revise these
forward-looking statements to reflect events or circumstances that may arise
after the date of this report.
RESULTS OF OPERATIONS
NET SALES
Net sales for the quarter ended March 31, 1998 and 1997 were $1,062,574 and
$760,595, respectively; representing a 40% increase during the first quarter
of fiscal 1999 as compared to the first quarter of fiscal 1998. The increase
in revenues was due to 43% increase in core business revenues. Core business
revenues are primarily earned from providing animation and video presentation
services to the litigation support market. Litigation support customers
include law firms, corporations, insurance companies and certain government
agencies. The Company also earns revenues from the rental and service of 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. Revenues from the rental of the
VuPoint system and the corresponding service revenues earned during the first
quarter of fiscal 1999 were $19,385 as compared to $49,144 during the
corresponding period of the preceding fiscal year. The decrease in revenues
from VuPoint rentals and service was due to fewer trials utilizing the system
during the first quarter of fiscal 1999 as compared to the first quarter of
fiscal 1998. Management anticipates that overall sales volumes and operating
results are expected to remain at current levels during the second quarter.
However, management anticipates that sales volumes and operating results will
increase during the third quarter as a result of increased client trial
activity.
OPERATING INCOME AND EXPENSES
Income from operations in the amount of $106,660 was recorded during the
first quarter of fiscal 1999, compared to income from operations in the
amount of $17,433 during the corresponding period of the preceding fiscal
year. The increase in operating income from the first quarter of fiscal 1999,
as compared to the first quarter of fiscal 1998 was primarily due to an
increase in revenues of 40% from $760,595 to $1,062,574, as noted above.
Corresponding operating expenses increased by 29% for the first quarter of
fiscal 1999, as compared to the first quarter of fiscal 1998.
PRODUCTION EXPENSES
Production expenses increased 32% to $414,995 in the first quarter of fiscal
1999 from $315,379 in the first quarter of fiscal 1998. The increase is
consistent with the increase in core business revenues and was primarily due
to the increase in labor needed to produce higher revenue levels. Production
costs for direct contract labor and other billable expenses will vary
directly with sales levels.
Page 6 of 9
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RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased 2% in the first quarter of fiscal
1999 from $43,099 during the first quarter of fiscal 1998 to $43,917 during
the first quarter of fiscal 1999. Research and development costs are
incurred as the Company continues to refine and enhance the VuPoint system.
Management considers VuPoint to have significant long-term revenue potential
and will continue further developments in the foreseeable future. Research
and development expenses are expected to increase in the second quarter of
fiscal 1999 as the Company has added a director position to oversee the
development of VuPoint.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 27% in the first quarter of
fiscal 1999 to $195,308 from $153,828 in the first quarter of fiscal 1998.
The increase is due to an increase in the cost of office space rental,
additional professional fees for management consulting activities and an
increase in the reserves booked for accounts receivable.
MARKETING EXPENSES
Marketing expenses increased 38% in the first quarter of fiscal 1999 to
$242,745 from $175,897 in the first quarter of fiscal 1998. The additional
expense is due to an increase in salespersons commissions and is directly
proportional to the 40% increase in revenues. Sales commissions are
calculated as a percentage of sales.
DEPRECIATION EXPENSE
Depreciation expense increased 47% in the first quarter of fiscal 1999 to
$58,949 from $40,027 in the first quarter of fiscal 1998. The increase is
due to additions to property and equipment in the amount of $339,910 during
fiscal year ended March 31, 1998, as well as additions to property and
equipment in the amount of $105,558 during the first quarter of fiscal 1999.
Equipment with a net book value of $7,030 and $1,431 was retired or sold
during the fiscal year ended March 31, 1998 and the quarter ended June 30,
1998, respectively.
AMORTIZATION OF PRIOR YEARS' SOFTWARE DEVELOPMENT COSTS
The decrease in amortization costs was due to amortization of capitalized
software development costs related to VuPoint in the amount of $14,932
recorded in the first quarter of fiscal 1998. These costs were fully
amortized by fiscal year ended March 31, 1998; accordingly, no amortization
costs were recorded for the first quarter of fiscal year 1999.
OTHER EXPENSE
Other expense decreased 16% in the first quarter of fiscal 1999 from $8,538
during the first quarter of fiscal 1998 to $7,169 during the first quarter of
fiscal 1999. The decrease is due to lower interest costs as certain debt
obligations were paid off during the fiscal year ended March 31, 1998.
INCOME TAX EXPENSE
Income tax expense increased to $32,700 during the first quarter of fiscal
1999 from $3,000 during the first quarter of fiscal 1998. The increase is
the direct result of the increase in income from operations as noted above.
The Company had a net deferred tax asset of $100,290 at June 30, 1998 as
compared to $132,575 at March 31, 1998. The decrease in the deferred tax
asset was the direct result of the corresponding increase in the Company's
income before taxes for the first quarter of fiscal 1999. The company has
established a valuation allowance of $14,000 at June 30, 1998 and March 31,
1998 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.
Page 7 of 9
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NET INCOME
Net income and basic income per share were $66,791 and $0.018, respectively
for the first quarter of fiscal 1999 compared to $5,895 and $0.002 for the
same period of fiscal 1998. Diluted earnings per share were $0.017 for the
first quarter of fiscal 1999 as compared to $0.002 for the first quarter of
fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company's working capital position was $690,157, an
increase of $73,842 from the position at March 31, 1998. The year-to-date
increase is attributed to positive cash flows from operations. Cash flow
from operations was $174,588 during the first quarter of fiscal 1999. The
majority of the Company's cash flow from operations during the first quarter
of fiscal 1999 was used to paydown the line of credit and make normal
payments on capital lease obligations. 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 during the first quarter of 1998, primarily for production
and research and development equipment, were $105,558; $60,567 of these
additions were financed through capital lease arrangements.
Debt and capital lease payments were $220,857, net of borrowings, during the
three months ended June 30, 1998.
YEAR 2000 COMPLIANCE
Management has reviewed the Company's internal computer systems and software
products for Year 2000 problems and believes that such systems and products
are, or will soon be, Year 2000 compliant, and management therefore does not
expect Year 2000 considerations will materially impact the Company's internal
operations. Year 2000 considerations may have an affect on some of the
Company's customers and suppliers, and thus indirectly affect the Company.
It is not possible to quantify the aggregate cost to the Company with respect
to customers and suppliers with Year 2000 problems, although the Company does
not anticipate it will have a material impact on its business.
PART II
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
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
June 30, 1998.
Page 8 of 9
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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 of 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: August 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 August 14, 1997
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/s/ Alan Treibitz
- ------------------------ Director, President, Treasurer,
Alan Treibitz Chief Financial Officer, Principal
Accounting Officer August 14, 1997
Page 9 of 9
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 50
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<RECEIVABLES> 1,051
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<PP&E> 1,488
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<TOTAL-ASSETS> 1,784
<CURRENT-LIABILITIES> 459
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 1,191
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