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, 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 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, 2000: 3,805,000.
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CONTENTS
PART I Financial Information
Item 1. Condensed Balance Sheet as of June 30, 2000 and
March 31, 2000. 3
Condensed Statements of Operations, Three-month periods
ended June 30, 2000 and 1999. 4
Condensed Statements of Cash Flows, Three month periods
ended June 30, 2000 and 1999. 4
Notes to Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 5-8
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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PART I Financial Information
Item 1. Financial Statements
Condensed Balance Sheets
June 30,
2000 March 31,
(Unaudited) 2000
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Assets
Current assets:
Cash $ 7,383 $ 61,374
Trade accounts receivable 586,946 330,703
Other current assets 12,498 11,469
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Total current assets 606,827 403,546
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Property and equipment, at cost 1,532,790 1,532,476
Accumulated depreciation (1,304,194) (1,247,457)
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Net property and equipment 228,596 285,019
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Capitalized software development costs, net 104,376 108,269
Other assets 10,722 10,722
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Total assets $ 950,521 $ 807,556
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Liabilities and stockholders' equity Current liabilities:
Line of Credit $ 500,000 $ 400,000
Accounts payable 135,059 50,962
Accrued expenses 108,635 132,328
Customer deposits 11,000 21,000
Current portion of long-term obligations 85,079 106,946
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Total current liabilities 839,773 711,236
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Long-term obligations 33,831 45,379
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Stockholders' equity:
Common stock 3,805 3,805
Additional paid in capital 1,444,191 1,444,191
Retained earnings (deficit) (1,371,079) (1,397,055)
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Total stockholders' equity 76,917 50,941
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Total liabilities and stockholders'
equity $ 950,521 $ 807,556
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See notes to condensed financial statements.
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Condensed Statements of Operations
Three months ended
June 30,
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2000 1999
(Unaudited)
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Net sales $ 734,494 $ 551,033
Operating expenses:
Production 277,675 364,187
Research and development 18,739 35,299
General and administrative 155,858 182,050
Marketing 180,931 229,277
Depreciation 56,737 77,068
Amortization of prior year's
software development costs 3,892 5,299
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Total operating expenses 693,832 893,180
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Income (loss) from operations 40,662 (342,147)
Other (expense) income, net: (14,685) (9,275)
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Income (loss) before income taxes 25,977 (351,422)
Income tax (expense) benefit - 116,000
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Net income (loss) $ 25,977 $ (235,422)
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Income (loss) per common share of stock:
Basic $ 0.01 $ (0.06)
Diluted $ 0.01 $ (0.06)
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Weighted average number of common shares
outstanding during the period
Basic 3,805,000 3,805,000
Diluted 3,805,000 3,805,000
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Condensed Statements of Cash Flows
Three months ended
June 30,
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2000 1999
(Unaudited)
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Cash flows from operations:
Net cash (used in) provided by operations $ (120,261) $ 19,503
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Cash flows from investing activities:
Purchase of property and equipment (315) (13,504)
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Net cash used in investing activities (315) (13,504)
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Cash flows from financing activities:
Borrowings on line of credit 225,000 95,000
Payments on line of credit (125,000) (70,000)
Debt and capital lease payments (33,415) (33,212)
Proceeds from exercise of stock options - -
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Net cash provided by (used in) financing
activities 66,585 (8,212)
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Net increase (decrease) in cash (53,991) (2,213)
Cash , beginning of period 61,374 25,867
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Cash, end of period $ 7,383 $ 23,654
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See notes to condensed financial statements.
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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, 2000 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, 2000 and 1999 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, 2000
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Trade accounts receivable $ 664,919
Less allowance for bad debt 77,973
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Trade accounts receivable, net $ 586,946
Approximately 12%, 16% and 48% of the Company's trade accounts receivable was
due from three different customers at June 30, 2000.
Note 3. Debt
Long-term debt consists of the following:
June 30, 1999
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Capital lease obligations $ 118,910
Less current portion 85,079
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Long term capital lease obligations $ 33,831
The Company leases certain production and office equipment under the terms of
capital leases. The capitalized value of the leased equipment was approximately
$375,000 at June 30, 2000. The related accumulated depreciation was
approximately $263,000 at June 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 June 30, 2000). The
Company's accounts receivable secure any amounts drawn under the line of credit.
As of June 30, 2000 the balance outstanding was $500,000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The accompanying Condensed Balance Sheet at June 30, 2000 and Condensed
Statements of Operations and Cash Flows for the three month periods ended June
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.
In addition to the historical information, this 10-QSB 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.
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RESULTS OF OPERATIONS
Net Sales
Net sales for the quarter ended June 30, 2000 and 1999 were $734,494 and
$551,033, respectively; representing a 33% increase during the first quarter of
fiscal 2001 as compared to the first quarter of fiscal 2000. The increase in
revenues is the result of jobs moving off of the backlog status to work in
progress and completed during the first quarter of fiscal year 2001. 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. Management anticipates that the same level of revenues
will be achieved during the second and third quarters of fiscal 2001. 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 received trademark protection of the name
and has applied for 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 $38,923 as compared to $52,993 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 2001 as compared to the first quarter of fiscal
2000. Management anticipates that sales volumes and operating results will
increase during the second and third quarters as a result of increased client
trial activity.
Operating Income and Expenses
Income from operations in the amount of $40,662 was recorded during the first
quarter of fiscal 2001, compared to loss from operations in the amount of
$(342,147) during the corresponding period of the preceding fiscal year. The
increase in operating income from the first quarter of fiscal 2001, as compared
to the first quarter of fiscal 2000 was primarily due to the increase in
revenues of 33% as noted above. In addition, operating expenses decreased by 22%
for the first quarter of fiscal 2001, as compared to the first quarter of fiscal
2000.
Production Expenses
Production expenses decreased 24% to $277,675 in the first quarter of fiscal
2001 from $364,187 in the first quarter of fiscal 2000. The decrease was due to
a 24% reduction in contract labor utilized during the first quarter of fiscal
2001 as well as a 23% decrease in overall production expenses as compared to the
prior fiscal quarter. Production expenses are expected to stay at the current
level in the second quarter of fiscal 2001.
Research and Development Expenses
Research and development expenses decreased 47% to $18,739 in the first quarter
of fiscal 2001 from $35,299 in the first quarter of fiscal 2000. 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 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 2001.
General and Administrative Expenses
General and administrative expenses decreased 14% to $155,858 in the first
quarter of fiscal 2001 from $182,050 in the first quarter of fiscal 2000. 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 2001.
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Marketing Expenses
Marketing expenses decreased 21% to $180,931in the first quarter of fiscal 2001
from $229,277 in the first quarter of fiscal 2000. 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
quarter 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. Marketing expenses are expected to remain at the current level in
the second quarter of fiscal 2001.
Depreciation Expense
Depreciation expense decreased 26% in the first quarter of fiscal 2001 to
$56,737 from $77,068 in the first quarter of fiscal 2000. The decrease is
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.
Amortization of prior years' software development costs
Amortization of capitalized software development costs decreased 27% in the
first quarter of fiscal 2001 to $3,892 from $5,299 in the first quarter of
fiscal 2000. The decrease in amortization costs was due to the fact that
amortization expense is calculated as a percentage of VuPoint revenue. As noted
above, VuPoint revenue earned in the first quarter of fiscal 2001 was $38,923 as
compared to $52,993 in the first quarter of fiscal 2000.
Other Expense
Other expense increased 58% to $14,685 in the first quarter of fiscal 2001 from
$9,275 during the first quarter of fiscal 2000. 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 2001.
Income Tax Expense
The income tax (expense)/benefit for the first quarter of fiscal 2001 was $0 as
compared to $116,000 for the first quarter of fiscal 2000. An income tax
provision or benefit is not anticipated to be recorded for fiscal year 2001
because the Company has fully allowed for the deferred tax asset that is a
result of approximately $1,470,000 in federal income tax loss carry forwards
that expire in the years 2001 through 2020.
Net Income
Net income (loss) and basic income (loss) per share were $25,977 and $0.01,
respectively for the first quarter of fiscal 2001 compared to of $(235,422) and
$(0.06) for the same period of fiscal 2000. Diluted income (loss) per share was
$0.01 for the first quarter of fiscal 2001 as compared to $(0.06) for the first
quarter of fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company's working capital position was $(232,946). Cash
flow from operations was $(120,261) during the first quarter of fiscal 2001. The
majority of the Company's cash flow from operations during the first quarter of
fiscal 2000 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 during the first quarter of fiscal 2001 were $315.
Capital lease payments were $(33,415) during the first quarter of fiscal 2001.
Borrowing on the line of credit, net of payments, was $100,000. 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. The increase in sales
volume during the first quarter of fiscal 2001 as compared to the first quarter
of fiscal 2000 and the resulting net profit is due to a consistent increase in
the number of jobs closed by the sales consultants over the last two quarters of
fiscal 2000 and the first quarter of fiscal 2001. 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
total sales volume of $3,200,000. This volume should allow the Company to
generate an operating profit of approximately 7%. Management is negotiating with
its banking relationship to provide for long-term capital through the
refinancing of fixed assets, monitoring operating costs and making the necessary
adjustments to allow the Company to continue to be in a profitable financial
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 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.
Recent Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No.
133). SFAS No. 133 addresses the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, and
hedging activities. SFAS No. 133 effective date has been postponed by the
issuance of SFAS No. 137, to be effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. This statement currently has no impact on
the financial statements of the Company as the Company has no derivative
instruments nor participates in hedging activities.
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, 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 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, 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 August 14, 2000
--------------------
Steven H. Cohen
/s/ Alan Treibitz Director, President, Treasurer,
------------------ Chief Financial Officer, Principal
Alan Treibitz Accounting Officer August 14, 2000
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