UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended June 30, 1999.
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 incorporation (I.R.S. Employer
or organization) Identification No.)
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, 1999: 3,805,000.
CONTENTS
PART I Financial Information
Item 1. Condensed Balance Sheet as of June 30, 1999. 3
Condensed Statements of Operations, Three-month
periods ended June 30, 1999 and 1998. 4
Condensed Statements of Cash Flows, Three month
periods ended June 30, 1999 and 1998. 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 9
Item 1. Legal proceedings 9
Item 2. Changes in securities 9
Item 3. Defaults upon senior securities 9
Item 4. Submission of matters to a vote of security holders 9
Item 5. Other information 9
Item 6. Exhibits and reports on Form 8-K 9
SIGNATURES 9
<PAGE>
PART I Financial Information
Item 1. Financial Statements
Z-Axis Corporation
Condensed Balance Sheets
June 30, 1999
-----------
(Unaudited)
Assets
Current assets:
Cash .................................................... $ 23,654
Trade accounts receivable, net .......................... 585,892
Other current assets .................................... 27,728
-----------
Total current assets ............................. 637,274
-----------
Property and equipment, at cost .......................... 1,563,240
Accumulated depreciation ................................. (1,127,352)
-----------
Net property and equipment ....................... 435,888
-----------
Capitalized software development costs, net .............. 127,607
Deferred income taxes .................................... 237,430
Other assets ............................................. 10,712
-----------
Total assets ............................................. $ 1,448,911
===========
Liabilities and stockholders' equity
Current liabilities:
Line of Credit .......................................... $ 95,000
Accounts payable ........................................ 56,236
Accrued expenses ........................................ 143,914
Customer deposits ....................................... 18,000
Current portion of long-term obligations ................ 133,658
-----------
Total current liabilities ....................... 446,808
-----------
Long-term obligations .................................... 99,191
Stockholders' equity:
Common stock ............................................ 3,805
Additional paid in capital .............................. 1,444,191
Retained earnings (deficit) ............................. (545,084)
-----------
Total stockholders' equity ....................... 902,912
-----------
Total liabilities and stockholders' equity ............... $ 1,448,911
===========
See notes to condensed financial statements.
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<PAGE>
Z-Axis Corporation
Condensed Statements of Operations
Three Months
Ended June 30,
----------------------------
1999 1998
----------- -----------
(Unaudited)
Net sales .............................. $ 551,033 $ 1,062,574
Operating expenses:
Production ............................ 364,187 414,995
Research and development .............. 35,299 43,917
General and administrative ............ 182,050 195,308
Marketing ............................. 229,277 242,745
Depreciation .......................... 77,068 58,949
Amortization of prior years' software
development costs .................... 5,299 --
----------- -----------
Total operating expenses ...... 893,180 955,914
----------- -----------
(Loss) income from operations .......... (342,147) 106,660
Other expense .......................... (9,275) (7,169)
----------- -----------
(Loss) income before income taxes ...... (351,422) 99,491
Income tax benefit (expense) ........... 116,000 (32,700)
----------- -----------
Net income ............................. $ (235,422) $ 66,791
----------- -----------
Net income per common share of stock:
Basic ............................... $ (0.06) $ 0.02
=========== ===========
Diluted ............................. $ (0.06) $ 0.02
=========== ===========
Weighted average number of common shares
outstanding during the period:
Basic ............................... 3,805,000 3,785,000
=========== ===========
Diluted ............................. 3,805,000 3,857,018
=========== ===========
See notes to condensed financial statements.
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<PAGE>
Z-Axis Corporation
Condensed Statements of Cash Flows
Three Months
Ended June 30,
------------------------
1999 1998
--------- ---------
(Unaudited)
Cash flows from operations:
Net cash provided by operations ..... $ 19,503 $ 174,588
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment ..... (13,504) (44,991)
--------- ---------
Net cash used in investing activities (13,504) (44,991)
--------- ---------
Cash flows from financing activities:
Debt and capital lease payments ........ (8,212) (220,857)
Proceeds from exercise of stock options 0 2,500
--------- ---------
Net cash used in financing activities (8,212) (218,357)
--------- ---------
Net decrease in cash .................... (2,213) (88,760)
Cash , beginning of period .............. 25,867 139,254
--------- ---------
Cash, end of period ..................... $ 23,654 $ 50,494
========= =========
See notes to condensed financial statements.
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<PAGE>
Z-Axis Corporation
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, 1999 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, 1999 and 1998 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:
June 30,
1999
--------
Trade accounts receivable .... $658,038
Less allowance for bad debt .. (72,146)
--------
Trade accounts receivable, net $585,892
========
Approximately 15% and 21% of the Company's trade accounts receivable was due
from two different customers at June 30, 1999.
Note 3. Debt
Long-term debt consists of the following:
June 30,
1999
--------
Capital lease obligations .... $232,849
Less current portion ......... (133,658)
--------
Long term capital lease
obligations.................. $ 99,191
========
The Company leases certain production and office equipment under the terms of
capital leases. The capitalized value of the leased equipment was approximately
$412,000 at June 30, 1999. The related accumulated depreciation was
approximately $210,000 at June 30, 1999. 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 $400,000 with a bank,
which matures August 1999. If drawn upon, the indebtedness bears interest at the
bank's prime rate plus tow percent per annum (8.75% at June 30, 1999). The
Company's accounts receivable secure any amounts drawn under the line of credit.
As of June 30, 1999 the balance outstanding was $95,000.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The accompanying Condensed Balance Sheet at June 30, 1999 and Condensed
Statements of Operations and Cash Flows for the three month periods ended June
30, 1999 and 1998 should be read in conjunction with the Company's financial
statements and notes for the years ended March 31, 1999 and 1998. 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 June 30, 1999 and 1998 were $551,033 and
$1,062,574, respectively; representing a 48% decrease during the first quarter
of fiscal 2000 as compared to the first quarter of fiscal 1999. Management
believes that the decrease in revenues was due to a temporary slow down in the
general business services that support the litigation industry. Core business
revenues are primarily earned from providing animation and video presentation
services to the litigation support market. During the quarter ended June 30,
1999, there were fewer jobs that moved off the Company's backlog and into active
production, as a result the revenues were decreased. Management believes that
this trend will begin to reverse in the second quarter of the fiscal year.
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 2000 were $52,993 as compared to $19,385
during the corresponding period of the preceding fiscal year. The increase in
revenues from VuPoint rentals and service was due to more trials utilizing the
system during the first quarter of fiscal 2000 as compared to the first quarter
of fiscal 1999. Management anticipates that sales volumes and operating results
will increase during the second and third quarters as a result of increased
client trial activity.
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<PAGE>
Operating Income and Expenses
Loss from operations in the amount of $(342,147) was recorded during the first
quarter of fiscal 2000, compared to income from operations in the amount of
$106,660 during the corresponding period of the preceding fiscal year. The
decrease in operating income from the first quarter of fiscal 2000, as compared
to the first quarter of fiscal 1999 was primarily due to the decrease in
revenues of 48% as noted above. Corresponding operating expenses decreased by 6%
for the first quarter of fiscal 2000, as compared to the first quarter of fiscal
1999.
Production Expenses
Production expenses decreased 12% to $364,187 in the first quarter of fiscal
2000 from $414,995 in the first quarter of fiscal 1998. The decrease was
primarily due to the decrease in contract labor utilized during the period.
Production costs for direct contract labor and other billable expenses will vary
directly with sales levels.
Research and Development Expenses
Research and development expenses decreased 20% to $35,299 in the first quarter
of fiscal 2000 from $43,917 in 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 stay at the same level
in the second quarter of fiscal 2000.
General and Administrative Expenses
General and administrative expenses decreased 7% to $182,050 in the first
quarter of fiscal 2000 from $195,308 in the first quarter of fiscal 1999. The
decrease is due to tighter management of general office expenditures. General
and administrative expenses are expected to stay at the same level in the second
quarter of fiscal 2000.
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<PAGE>
Marketing Expenses
Marketing expenses decreased 5% to $229,277 in the first quarter of fiscal 2000
from $242,745 in the first quarter of fiscal 1999. The decrease in expense is
due, in part, to a decrease in salespersons commissions. Sales commissions are
calculated as a percentage of sales. Management expects marketing expenses to
decrease further in the second quarter due to a temporary decrease in the number
of sales consultants on staff.
Depreciation Expense
Depreciation expense increased 30% in the first quarter of fiscal 2000 to
$77,068 from $58,949 in the first quarter of fiscal 1999. The increase is due to
additions to property and equipment in the amount of $316,611 during fiscal year
ended March 31, 1999, as well as additions to property and equipment in the
amount of $13,504 during the first quarter of fiscal 2000.
Amortization of prior years' software development costs
The increase in amortization costs was due to amortization of capitalized
software development costs related to VuPoint in the amount of $5,299 recorded
in the first quarter of fiscal 2000. These costs were fully amortized in prior
fiscal years; accordingly, no amortization costs were recorded for the first
quarter of fiscal year 1999.
Other Expense
Other expense increased 29% to $9,275 in the first quarter of fiscal 2000 from
$7,168 during the first quarter of fiscal 1999. The increase is due to higher
interest costs as a result of higher borrowing on the line of credit during the
first quarter of fiscal 2000.
Income Tax Expense
The income tax benefit for the first quarter of fiscal 2000 was $116,000 as
compared to an expense of $(32,700) for the first quarter of fiscal 1999. The
decrease in the expense is the direct result of the decrease in income from
operations as noted above.
Net Income
Net loss and basic loss per share were $(235,422) and $(0.06), respectively for
the first quarter of fiscal 2000 compared to net income of $66,791 and $0.02 for
the same period of fiscal 1999. Diluted loss per share were $(0.06) for the
first quarter of fiscal 2000 as compared to diluted income per share $0.02 for
the first quarter of fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, the Company's working capital position was $190,466. Cash flow
from operations was $19,503 during the first quarter of fiscal 2000. The
majority of the Company's cash flow from operations during the first quarter of
fiscal 2000 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 2000, primarily for production and
office equipment, were $13,504.
Debt and capital lease payments were $(8,212), net of borrowings, during the
three months ended June 30, 1999.
Year 2000 Compliance
General
Many older computer systems, software products and embedded chips that are in
use today were programmed to accept two digit entries in the date code field
(e.g. "98" for "1998"). These systems, software and embedded chips need to be
modified or upgraded to distinguish twenty-first century dates (e.g. "2002")
from twentieth century dates (e.g. "1902"), in order to avoid the possibility of
erroneous results or systems failures.
The Company's management has addressed potential Year 2000 compliance issues
relating to its 1) internal operating systems, 2) vendors, facilities and other
third parties and 3) software products that it licenses to customers. Management
believes that adequate resources have been allocated to this effort and expects
that any Year 2000 considerations will not 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.
Corporate Infrastructure State of Readiness
Management has addressed the Year 2000 issues with respect to the software
product ("VuPoint") which the Company licenses to existing and potential
customers. VuPoint currently is Year 2000 compliant and any modifications or
rewrites of the software code will be tested to be assured that they are also
Year 2000 compliant. Management has also evaluated the Company's internal
critical business systems that have date sensitivity. Any internal critical
business systems that are not Year 2000 compliant have been or will be replaced
or modified before their potential "failure date". Management has communicated
with major vendors, suppliers, landlords and other third parties regarding Year
2000 compliance of embedded processors in the Company's computers and
facilities, software and other information technology, and other products and
services which the Company obtains from third parties.
Costs
In the course of normal business operations, the Company has incurred
approximately $110,000 in costs to replace and upgrade computer systems and
software programs that potentially were not Year 2000 compliant. Management
estimates that an additional $5,000 to $10,000 will need to be expended to
upgrade the remaining business systems that are not currently Year 2000
compliant. As a result of the expenditures already made, and those planned,
management is confident that all critical business systems that the Company
relies upon for operations are or will be Year 2000 compliant by the end of the
current calendar year.
Risks
The VuPoint software that the Company intends to offer to its customers under
licensing arrangements, might contain undetected errors or failures when first
introduced or when new versions are released, even though the product is
intended to be Year 2000 compliant. While the Company has assessed, corrected
and tested VuPoint in regard to Year 2000 compliance, there can be no assurances
that the product or future releases of the product will not contain undetected
date sensitivity errors. If the Company is unable or is delayed in making the
necessary date code changes to VuPoint or future releases of the product, the
Company does not anticipate that there would be a material adverse effect upon
the Company's business, operating results, financial condition and cash flows.
There can be no assurances that the systems of other parties upon which the
Company relies will be made Year 2000 compliant on a timely basis. The Company
utilizes third party vendor equipment, telecommunications products, and software
products. Third parties' Year 2000 compliance efforts are not within the control
of the Company. The failure of any critical technology components to operate
properly may have a material impact on business operations or require the
Company to incur unanticipated expenses to remedy any problems.
The most substantial operational risks are those that are beyond the Company's
control, including the progress of government agencies and compliance efforts of
utility companies. It is possible that interruptions in vital services due to
Year 2000 non-compliance will interfere with normal business operations. Such
failures could materially and adversely affect the Company's results of
operations.
Forward-looking statements contained in this Year 2000 Compliance disclosure
should be read in conjunction with the Company's disclosure under the heading of
Forward Looking Statements for the purposes of the Safe Harbor provisions of the
Private Securities Litigation Act of 1995.
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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, 1999.
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
Alan Treibitz
President
Date: August 19, 1999
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 19, 1999
- ---------------------
Steven H. Cohen
/s/ Alan Treibitz Director, President, Treasurer,
- --------------------- Chief Financial Officer, Principal
Accounting Officer August 19, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> JUN-30-1999
<CASH> 23,654
<SECURITIES> 0
<RECEIVABLES> 658,038
<ALLOWANCES> 72,146
<INVENTORY> 0
<CURRENT-ASSETS> 637,274
<PP&E> 1,563,240
<DEPRECIATION> 1,127,352
<TOTAL-ASSETS> 1,448,911
<CURRENT-LIABILITIES> 446,808
<BONDS> 0
0
0
<COMMON> 3,805
<OTHER-SE> 899,107
<TOTAL-LIABILITY-AND-EQUITY> 1,448,911
<SALES> 551,033
<TOTAL-REVENUES> 551,033
<CGS> 0
<TOTAL-COSTS> 893,180
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,275
<INCOME-PRETAX> (351,422)
<INCOME-TAX> 116,000
<INCOME-CONTINUING> (235,422)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (235,422)
<EPS-BASIC> (.06)
<EPS-DILUTED> (.06)
</TABLE>
