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 quarterly period ended September 30, 2000.
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 (I.R.S. Employer Identification No.)
of incorporation of organization)
7395 East Orchard Road, Suite A-100
Greenwood, Colorado 80111-2509
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 713-0200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
The number of common shares outstanding as of September 30, 2000: 3,825,000
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CONTENTS
PART I Financial Statements.
Item 1. Condensed Balance Sheet as of September 30, 2000. 3
Condensed Statements of Operations, three and six
month periods ended September 30, 2000 and 1999. 4
Condensed Statements of Cash Flows, six month periods
ended September 30, 2000 and 1999. 5
Notes to Condensed Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 6-9
PART II Other Information. 10
Item 1. Legal proceedings. 10
Item 2. Changes in securities. 10
Item 3. Defaults upon senior securities. 10
Item 4. Submission of matters to a vote of security holders. 10
Item 5. Other information. 10
Item 6. Exhibits and reports on Form 8-K. 10
SIGNATURES 11
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Z-AXIS CORPORATION
PART I Financial Information
Item 1. Financial Statements
Condensed Balance Sheets
September 30,
2000
-----------
(Unaudited)
Assets
Current assets:
Cash .................................................... $ (53,049)
Trade accounts receivable ............................... 507,516
Other current assets .................................... 11,379
-----------
Total current assets ................................ 465,846
-----------
Property and equipment, at cost ............................ 1,532,790
Accumulated depreciation ................................... (1,356,188)
-----------
Net property and equipment .......................... 176,602
-----------
Capitalized software development costs, net ................ 101,530
Other assets ............................................... 10,722
-----------
Total assets ............................................... $ 754,700
===========
Liabilities and stockholders' equity
Current liabilities:
Line of Credit .......................................... $ 500,000
Accounts payable ........................................ 108,799
Accrued expenses ........................................ 106,060
Customer deposits ....................................... 11,000
Loan from shareholder ................................... 25,000
Current portion of long-term obligations ................ 66,245
-----------
Total current liabilities ........................... 817,104
-----------
Long-term obligations ...................................... 19,596
Stockholders' equity:
Common stock ............................................ 3,825
Additional paid in capital .............................. 1,446,671
Retained earnings (deficit) ............................. (1,532,496)
-----------
Total stockholders' equity .......................... (82,000)
-----------
Total liabilities and stockholders' equity ................ $ 754,700
===========
See notes to condensed financial statements.
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Z-AXIS CORPORATION
Condensed Statements of Operations
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
--------------------------------------------------------
1999 2000 1999 2000
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales .............................. $ 471,383 $ 671,215 $ 1,205,877 $ 1,222,247
Operating expenses:
Production .......................... 231,257 317,810 508,932 666,800
Research and development ............ 22,662 27,930 41,401 63,229
General and administrative .......... 158,402 183,843 314,260 365,893
Marketing ........................... 146,892 224,889 327,824 469,363
Depreciation ........................ 51,994 72,888 108,731 149,956
Amortization of prior year's software -- 1,691 6,738 6,990
----------- ----------- ----------- -----------
Total operating expenses ........ 611,207 829,051 1,307,886 1,722,231
----------- ----------- ----------- -----------
Income (loss) from operations .......... (139,824) (157,836) (102,009) (499,984)
Other (expense) income, net: ........... (21,593) (6,179) (33,431) (15,454)
----------- ----------- ----------- -----------
Income (loss) before income taxes ...... (161,417) (164,015) (135,440) (515,438)
Income tax (expense) benefit ........... -- 54,000 -- 170,000
----------- ----------- ----------- -----------
Net income (loss) ...................... $(161,417) $ (110,015) $ (135,440) $ (345,438)
=========== =========== =========== ===========
Income (loss) per common share of stock:
Basic ............................... $ (0.0) $ (0.0) $ (0.04) $ (0.09)
=========== =========== =========== ===========
Diluted ............................. $ (0.0) $ (0.0) $ (0.04) $ (0.09)
=========== =========== =========== ===========
Weighted average number of common shares
Basic ............................... 3,825,000 3,805,000 3,825,000 3,805,000
=========== =========== =========== ===========
Diluted ............................. 3,825,000 3,805,000 3,825,000 3,805,000
=========== =========== =========== ===========
</TABLE>
See notes to condensed financial statements.
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Z-AXIS CORPORATION
Condensed Statements of Cash Flows
Six Months Ended
September 30,
----------------------
2000 1999
--------- ---------
(Unaudited)
Cash flows from operations:
Net cash used in operations ............. $(180,124) $(144,087)
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment ............ (315) (16,474)
--------- ---------
Net cash used in investing activities ... (315) (16,474)
--------- ---------
Cash flows from financing activities:
Borrowings on line of credit .................. 225,000 865,000
Payments on line of credit .................... (125,000) (635,000)
Debt and capital lease payments ............... (61,484) (67,241)
Loan from shareholder ......................... 25,000 --
Proceeds from exercise of stock options ....... 2,500 --
--------- ---------
Net cash provided by financing activities 66,016 162,759
--------- ---------
Net (decrease) increase in cash .................. (109,423) 2,198
Cash , beginning of period ....................... 61,374 25,867
--------- ---------
Cash, end of period .............................. $ (53,049) $ 28,065
========= =========
See notes to condensed financial statements.
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Z-AXIS CORPORATION
Notes to Condensed Financial Statements.
Note 1. Interim Financial Information
The accompanying Condensed Balance Sheet at September 30, 2000, Condensed
Statements of Operations for the three and six month periods ended September 30,
2000 and 1999 and Cash Flows for the six month periods ended September 30, 2000
and 1999, should be read in conjunction with the Company's financial statements
and notes for the years ended March 31, 2000 and 1999. 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.
Note 2. Trade accounts receivable
Trade accounts receivable consists of the following:
September 30,
1999
------------
Trade accounts receivable ...................... $584,194
Less allowance for bad debt .................... 76,678
--------
Trade accounts receivable, net ................. $507,516
========
Approximately 13% and 26% of the Company's trade receivables were due from two
different customers at September 30, 2000.
Note 3. Debt
Long-term debt consists of the following:
September 30,
2000
------------
Capital lease obligations ...................... $ 85,841
Less current portion ........................... 66,245
--------
Long term capital lease obligations ............ $ 19,596
========
The Company leases certain production and office equipment under the terms of
capital leases. The capitalized value of the leased equipment was approximately
$416,000 at September 30, 2000. The related accumulated depreciation was
approximately $332,000 at September 30, 2000. 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 $500,000 with a bank,
which matures October 2000. If drawn upon, the indebtedness bears interest at
the bank's prime rate plus one percent per annum (10.5% at September 30, 2000).
The Company's accounts receivable secure any amounts drawn under the line of
credit. As of September 30, 2000 the balance outstanding was $500,000.
Management expects that the terms and conditions of the line of credit will be
renegotiated with the bank and it is probable that the outstanding balance will
be refinanced as a term note.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The accompanying Condensed Balance Sheet as of September 30, 2000 and Condensed
Statements of Operations and Cash Flows for the three month periods ended
September 30, 2000 and 1999 should be read in conjunction with the Company's
financial statements and notes for the years ended March 31, 2000 and 1999.
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.
FORWARD LOOKING STATEMENTS
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 three and six-month periods ended September 30, 2000 were
$471,383 and $1,205,877, respectively. Net sales for the corresponding periods
ended September 30, 1999 were $671,215 and $1,222,247, respectively. The
decrease in sales for the three and six-month periods ended September 30, 2000
as compared to the corresponding periods ended September 30, 1999 were 29% and
1% respectively. Management believes that the decrease in revenues during the
second quarter of fiscal year 2001 as compared to the first quarter was due to
several jobs not becoming active as quickly as anticipated. The backlog at March
31, 2000 was $2,340,500 as compared to $1,123,000 at March 31, 1999;
accordingly, management expected the increase in the revenues for the first
quarter of fiscal 2001. The backlog during the second quarter of fiscal year
2001 is comparable to the level at March 31, 2000 and management expects the
third quarter fiscal year 2001 revenues to increase back to the first quarter
levels as more backlogged jobs become active. For the six months ended September
30, 2000 the net sales levels are comperable to the same period of the prior
fiscal year. Management expects that the fiscal year 2001 third quarter sales
will exceed the same period of the prior fiscal year due to the increase in
backlog as noted above.
Operating Income and Expenses
Loss from operations was $(139,824) and $(102,009) for the three and six-month
periods ended September 30, 2000. Loss from operations was $(164,015) and
$(515,438) for the corresponding three and six-month periods ended September 30,
1999. The loss from operations in the second quarter of fiscal year 2001 was the
direct result of the decrease in sales revenue for that quarter. The loss from
operations for the six-month period ended September 30, 2001 is significantly
improved over the loss in the same period of fiscal year 2000. The Company has
decreased operating expenses from $1,722,231 for the six month period ended
September 30, 1999 to $1,307,886 for the six month period ended September 30,
2000. This represents a 24% decrease in operating expenses, resulting in a lower
level of losses for the six-month period ended September 30, 2000.
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Production Expenses
Production expenses were $231,257 and $508,932 for the three and six-month
periods ended September 30, 2000 as compared to $317,810 and 666,800 for the
three and six-month periods ended September 30, 1999. These results represent a
decrease of 27% and 23% for the three and six-month periods ended September 30,
2000 as compared to the same periods of the prior fiscal year. The decrease was
primarily due to a decrease in contract labor utilized for the period as
compared to the prior fiscal year, as well as a decrease in production overhead
expenses. Production overhead expenses are expected to further decrease in the
third quarter due to personnel attrition.
Research and Development Expenses
Research and development expenses were $22,662 and $41,401 for the three and
six-month periods ended September 30, 1999 as compared to $27,930 and $63,229
for the three and six-month periods ended September 30, 1999. These results
represent a decrease of 18% and 34% for the three and six-month periods ended
September 30, 2000 as compared to the same periods of the prior fiscal year. The
decrease was due to personnel attrition during fiscal year 2000. 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 plans to continue further enhancements and upgrades to the
product into the next fiscal quarter. Research and development expenses are
expected to stay at the same level in the third quarter of fiscal 2001.
General and Administrative Expenses
General and administrative expenses were $158,402 and $314,260 for the three and
six-month periods ended September 30, 2000 as compared to $183,843 and $365,893
for the three and six-month periods ended September 30, 1999. These results
represent a decrease of 13% and 14% for the three and six-month periods ended
September 30, 2000 as compared to the same periods of the prior fiscal year. The
decrease is due to tighter management of general office expenditures as well as
decrease in accruals for bad debt reserves. A historical review of the
uncollectable accounts receivable write-offs as compared to the allowance for
doubtful accounts balance allowed the Company to decrease the monthly reserves
for these potential write-offs. General and administrative expenses are expected
to remain at the same level in the third quarter of fiscal 2001.
Marketing Expenses
Marketing expenses were $146,892 and $327,824 for the three and six-month
periods ended September 30, 2000 as compared to $224,889 and $469,363 for the
three and six-month periods ended September 30, 1999. These results represent
decreases of 34% and 30% for the three and six-month periods ended September 30,
2000 as compared to the same periods of the prior fiscal year. The decrease in
expense is due to the discontinuation of the "Concept 2" marketing effort in the
fourth quarter of fiscal 2000, accordingly, these costs were not incurred in the
first or second quarters of fiscal 2001. This effort began in the first quarter
of fiscal 2000 and was a separate marketing plan aimed at development of
alternative markets into which the Company could potentially sell animation and
information consulting services. The Company does not expect to engage in
further efforts to develop "Concept 2", but rather focus on expansion of the
current market and customer base through Core Business Services and VuPoint
products and consulting. The decrease in marketing expenses is also due to lower
travel, advertising and brochure printing expenditures during the first six
months of fiscal year 2001 as compared to the prior year. Marketing expenses are
expected to remain at the current level in the third quarter of fiscal 2001.
Depreciation Expense
Depreciation expenses were $51,994 and $108,731 for the three and six-month
periods ended September 30, 2000 as compared to $72,888 and $149,956 for the
three and six-month periods ended September 30, 1999. The decrease was expected
as 85% of the fixed assets are fully depreciated. The Company's fixed assets
consist of a significant amount of computer and other production equipment that
is depreciated using the straight-line method over two to three years. Due to
the nature of the technology and the rapid changes that are made to computer and
production systems, the useful lives for depreciation purposes on this equipment
are relatively short. The Company does not plan any significant fixed asset
purchases in the third quarter of fiscal year 2001.
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Amortization of prior years' software development costs
Amortization expense related to capitalized software development costs was
$2,846 and $6,738 for the three and six-month periods ended September 30, 2000
as compared to $1,691 and $6,990 for the three and six-month periods ended
September 30, 1999. The decrease in amortization expenses for the second quarter
of fiscal 2001 as compared to the second quarter of fiscal 2000 was due to
decrease in VuPoint revenue for the same periods. Amortization expense is
calculated as a percentage of VuPoint revenue.
Other Expense
Other expense was $20,593 and $33,431 for the three and six-month periods ended
September 30, 2000 as compared to $6,179 and $15,454 for the three and six-month
periods ended September 30, 1999. The increase in other expense was the result
of an increase in interest expense as a result of the balance outstanding on the
line of credit. Management expects the current level of interest costs to remain
the same for the third quarter of fiscal year 2001. As the Company improves cash
flow by maintaining the current sales levels and accounts receivable
collections, interest costs will start to decrease during the fourth quarter of
fiscal year 2001 as the balance on the line of credit is paid down.
Income Tax Expense
Income tax (expense)/benefit was $0 for the three and six month periods ended
September 30, 2000 as compared to $54,000 and $170,000 for the three and six
month periods ended September 30, 1999. An income tax provision is not
anticipated to be recorded for fiscal year 2001 because the Company has
approximately $1,470,000 in federal income tax loss carry forwards that expire
in the years 2001 through 2020.
Net Income
Net loss and basic loss per share was $(161,417) and $(.04) for the three month
period ended September 30, 2000 and $(135,440) and $(.04) for the six month
period ended September 30, 2000. These results are compared to net loss and
basic loss per share of $(110,015) and $(.03) for the three month period ended
September 30, 1999 and $(345,438) and $(.09) for the six month period ended
September 30, 1999. Diluted loss per common share was $(.04) and $(.04) for the
three and six month periods ended September 30, 1999 as compared to diluted loss
per share of $(.03) and $(.09) for the three and six month periods ended
September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company's working capital position was $(351,258).
Cash flow used in operations was $(180,124) for the six months ended September
30, 2000, as compared to $(144,087) for the six months ended September 30, 1999.
The majority of the Company's cash flow from operations during the first and
second quarters of fiscal 2001 was used make normal payments on operating
expenses and 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 were $315 during the three and six-month periods ended
September 30, 2000.
Debt and capital lease payments were $(61,484) for the six-month period ended
September 30, 2000. Borrowing on the line of credit, net of payments, was
$100,000 for the six-month period ended September 30, 2000. The borrowing on the
line of credit was used to cover the deficit in cash flow generated from
operations noted above.
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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 litigation may settle before trial. Although the sales volume
for the first six months of fiscal 2001 is comperable to the same period in
fiscal year 2000, total operating costs for the first six months of fiscal 2001
decreased 24% over the same period in fiscal year 2000. The aggressive cost
management measures, coupled with a consistent increase in the number of jobs
closed by the sales consultants during the first two quarters of fiscal 2001 has
resulted in better overall financial performance for fiscal 2001 and compared to
fiscal 2000. The backlog continues to grow as more potential jobs are identified
and closed by the sales consultants. Management believes that sales volumes are
expected to range between $650,000 and $850,000 for the remaining quarters of
fiscal year 2001, with an anticipated sales volume of between $2,8000,000 and
$3,000,000. This volume should allow the Company to generate a modest operating
profit of 3% to 5%. Management is monitoring operating costs and making the
necessary adjustments to allow the Company to continue to be in a profitable
position during fiscal year 2001 and meet operating cash flow requirements and
debt service obligations. Management also continues to pursue development of
alternative revenue sources from other industries and alliances that can benefit
from the many artistic and creative resources within the Company. In addition,
the Company is considering introducing an Internet software product based upon
the VuPoint presentation system. To finance the development of this new product,
management is considering alternative funding sources including venture capital
and a possible secondary offering.
PART II Other information.
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.
The Annual Meeting of Shareholders of the Corporation was held at the
corporate offices on September 22, 2000. The following individuals were elected
to serve as directors of the corporation:
Shares Voted
Name Shares Voted For Withhold Authority
-------------------------------------------------------------------------------
Steven H. Cohen 1,832,925 4,900
Alan Treibitz 1,832,425 4,900
Marilyn T. Heller 1,832,425 4,900
Marvin A. Davis 1,828,645 4,900
James E. Pacotti, Jr. 1,828,645 4,900
Item 5. Other information.
Not applicable.
Item 6. Exhibits and reports on Form 8-K.
(a) No exhibits.
(b) No reports on Form 8-K have been filed during the quarter ended
September 30, 2000.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934 the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Z-AXIS CORPORATION
By: : /s/ Alan Treibitz
Alan Treibitz
President
Date: November 14, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Steven H. Cohen Director, Chief Executive Officer
--------------------------- November 14, 2000
Steven H. Cohen
/s/ Alan Treibitz Director, President, Treasurer,
------------------- Chief Financial Officer, Principal
Alan Treibitz Accounting Officer November 14, 2000
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