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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 December 31, 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 (I.R.S. Employer Identification No.)
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 December 31, 1999: 3,805,000
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CONTENTS
PART I FINANCIAL STATEMENTS.
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Item 1. Condensed Balance Sheet as of December 31, 1999. 3
Condensed Statements of Operations, three and nine month periods
ended December 31, 1999 and 1998. 4
Condensed Statements of Cash Flows, nine month periods
ended December 31, 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
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
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<CAPTION>
December 31, March 31,
1999 1999
(Unaudited)
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<S> <C> <C>
ASSETS
Current assets:
Cash $ 27,110 $ 25,867
Trade accounts receivable 296,056 925,249
Other current assets 26,922 50,796
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Total current assets 350,088 1,001,912
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Property and equipment, at cost 1,575,269 1,552,008
Accumulated depreciation (1,261,684) (1,052,417)
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Net property and equipment 313,585 499,591
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Deferred income taxes 406,644 120,205
Capitalized software development costs, net 118,317 132,906
Other assets 10,722 10,712
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TOTAL ASSETS $1,199,356 $ 1,765,326
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LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Line of Credit $ 265,000 $ 70,000
Accounts payable 79,670 102,788
Accrued expenses 110,141 160,143
Customer deposits 21,000 28,000
Current portion of long-term obligations 116,448 134,959
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Total current liabilities 592,259 495,890
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Long-term obligations 47,507 131,102
Stockholders' equity:
Common stock 3,805 3,805
Additional paid in capital 1,444,191 1,444,191
Retained earnings (deficit) (888,406) (309,662)
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Total stockholders' equity 559,590 1,138,334
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,199,356 $ 1,765,326
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</TABLE>
See notes to condensed financial statements.
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CONDENSED STATEMENTS OF OPERATIONS
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<CAPTION>
Three months ended Nine months ended
December 31, December 31,
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1999 1998 1999 1998
(Unaudited) (Unaudited)
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<S> <C> <C> <C> <C>
Net sales $ 438,035 $ 853,287 $1,660,283 $ 2,855,731
Operating expenses:
Production 273,492 403,302 940,293 1,216,354
Research and development 26,365 71,456 89,595 187,907
General and administrative 176,785 186,406 542,678 565,663
Marketing 220,644 215,337 690,005 659,793
Depreciation 68,443 67,694 218,400 192,212
Amortization of prior year's software
development costs 7,599 - 14,589 -
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Total operating expenses 773,328 944,195 2,495,560 2,821,929
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Income (loss) from operations (335,293) (90,908) (835,277) 33,802
Other (expense) income, net: (12,013) (17,979) (27,467) (34,091)
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Income (loss) before income taxes (347,306) (108,887) (862,744) (289)
Income tax (expense) benefit 114,000 36,200 284,000 100
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NET INCOME (LOSS) $ (233,306) $ (72,687) $ (578,744) $ (189)
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INCOME (LOSS) PER COMMON SHARE OF STOCK:
BASIC $ (0.06) $ (0.02) $ (0.15) $ (0.00)
DILUTED $ (0.06) $ (0.02) $ (0.15) $ (0.00)
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Weighted average number of common shares
outstanding during the period
Basic 3,805,000 3,805,000 3,805,000 3,805,000
Diluted 3,805,000 3,805,000 3,805,000 3,805,000
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</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
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<CAPTION>
Nine months ended December 31,
-------------------------------
1999 1998
(Unaudited)
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<S> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net cash (used in) provided by operations $ (60,015) $ 315,288
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (31,636) (114,407)
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Net cash used in investing activities (31,636) (114,407)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit 1,430,000 740,000
Payments on line of credit (1,235,000) (940,000)
Debt and capital lease payments (102,106) (69,960)
Proceeds from exercise of stock options - 2,500
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Net cash provided by (used in) financing activities 92,894 (267,460)
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Net increase (decrease) in cash 1,243 (66,579)
Cash, beginning of period 25,867 139,254
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CASH, END OF PERIOD $ 27,110 $ 72,675
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</TABLE>
See notes to condensed financial statements.
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NOTES TO CONDENSED FINANCIAL STATEMENTS.
NOTE 1. INTERIM FINANCIAL INFORMATION
The accompanying Condensed Balance Sheet at December 31, 1999, Condensed
Statements of Operations for the three and nine month periods ended December
31, 1999 and 1998 and Cash Flows for the nine month periods ended December
31, 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.
NOTE 2. TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable consists of the following:
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<CAPTION>
December 31,
1999
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Trade accounts receivable $ 355,973
Less allowance for bad debt 59,917
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Trade accounts receivable, net $ 296,056
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Approximately 13% and 32% of the Company's trade receivables were due from two
different customers at December 31, 1999.
NOTE 3. DEBT
Long-term debt consists of the following:
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<CAPTION>
December 31,
1999
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Capital lease obligations $ 163,955
Less current portion 116,448
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Long term capital lease obligations $ 47,507
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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 December 31, 1999. The related accumulated
depreciation was approximately $267,000 at December 31, 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 2000. If drawn upon, the indebtedness bears interest at
the bank's prime rate plus two percent per annum (9.5% at December 31, 1999).
The Company's accounts receivable secure any amounts drawn under the line of
credit. As of December 31, 1999 the balance outstanding was $265,000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The accompanying Condensed Balance Sheet as of December 31, 1999 and
Condensed Statements of Operations and Cash Flows for the three and nine
month periods ended December 31, 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.
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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 nine-month periods ended December 31, 1999 were
$438,035 and $1,660,283, respectively. Net sales for the corresponding
periods ended December 31, 1998 were $853,287 and $2,855,731, respectively.
The decrease in sales for the three and nine month periods ended December 31,
1999 as compared to the corresponding periods ended December 31, 1998 were
48% and 41% respectively. Management believes that the decrease in revenues
during the current quarter and fiscal year is due to a slow down in the
general business services that support the litigation industry. Management
believes that this trend will start to improve in the fourth of the fiscal
year. In order to mitigate the trend, management has taken steps to increase
closes on new jobs by focusing new sales consultants on in-trial presentation
management revenue opportunities with VuPoint and multimedia technology. In
addition, the marketing department is utilizing an electronic system that
tracks litigation activity to generate new leads for the core business sales
consultants. Cost management measures are also in place aimed at decreasing
overhead expenses, as well as effective utilization of contract labor on
revenue producing activities. Management believes that the sales and
marketing efforts, coupled with the cost reduction measures will lead to more
positive financial results in the fourth quarter of the fiscal year.
OPERATING INCOME AND EXPENSES
Loss from operations was $(335,293) and $(835,277) for the three and nine
month periods ended December 31, 1999. (Loss) income from operations was
$(90,908) and $33,802 for the corresponding three and nine month periods
ended December 31, 1998. The decrease in operating income during the three
and nine month periods ended December 31, 1999 as compared to the same
periods of fiscal 1998 was due to the 48% and 41% decrease in revenues noted
above. Corresponding operating expenses decreased by 18% and 11% for the
three and nine month periods ended December 31, 1999 as compared to the three
and nine month periods ended December 31, 1998.
PRODUCTION EXPENSES
Production expenses were $273,192 and $940,293 for the three and nine month
periods ended December 31, 1999 as compared to $403,302 and $1,216,354 for
the three and nine month periods ended December 31, 1998. These results
represent a decrease of 32% and 22% for the three and nine month periods
ended December 31, 1999 as compared to the same periods of the prior fiscal
year. The decrease was primarily due to the decrease in contract labor
utilized for the period. Production costs for direct contract labor and other
billable expenses will vary directly with sales levels. In addition,
approximately $57,000 and $131,000 of production expense was reclassified
during the three and nine month periods ended December 31, 1999 to marketing
costs. This cost reclassification was done as a result of the re-assignment
of certain production personnel to a separate marketing effort aimed at
development of alternative markets into which the Company could potentially
sell animation and information consulting services.
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RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were $26,365 and $89,595 for the three and
nine-month periods ended December 31, 1999 as compared to $71,456 and
$187,907 for the three and nine month periods ended December 31, 1998. These
results represent a decrease of 63% and 52% for the three and nine month
periods ended December 31, 1999 as compared to the same periods of the prior
fiscal year. In the prior fiscal year, the majority of the research and
development costs incurred during the first and second quarters were
capitalized under Financial Accounting Standards Board Statement No.86 in the
fourth quarter as the Company determined that the costs incurred were
associated with significant enhancements that resulted in additional
functionality of the product. The Company utilized higher levels of labor to
build these enhancements during fiscal year 1999. The costs incurred for the
first three-quarters of fiscal year 2000 are expensed as these costs were for
continued maintenance of the product and did not require significant levels
of labor. 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 continue at their current level throughout the
remaining quarters of the current fiscal year.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $176,785 and $542,678 for the three
and nine month periods ended December 31, 1999 as compared to $186,406 and
$565,663 for the three and nine month periods ended December 31, 1998. These
results represent a decrease of 5% and 4% for the three and nine month
periods ended December 31, 1999 as compared to the same periods of the prior
fiscal year. The slight overall decrease is due to tighter management of
general office expenditures as well as certain salary reductions.
MARKETING EXPENSES
Marketing expenses were $220,644 and $690,005 for the three and nine month
periods ended December 31, 1999 as compared to $215,337 and $659,793 for the
three and nine month periods ended December 31, 1998. These results represent
an increase of 2% and 4% for the three and nine month periods ended December
31, 1999 as compared to the same periods of the prior fiscal year. The
increase is due to the reclassification of production costs as noted above.
Marketing expenses exclusive of the reclassification were $163,170 and
$558,862 for the three and nine month periods ended December 31, 1999. These
results represent a decrease of 24% and 15% for the three and nine month
periods ended December 31, 1999. The decreases are a direct result of lower
sales commissions due to lower revenue levels. Management expects the
marketing costs to decrease by approximately 25% in the fourth quarter of the
fiscal year due to personnel attrition.
DEPRECIATION EXPENSE
Depreciation expenses were $68,443 and $218,400 for the three and nine month
periods ended December 31, 1999 as compared to $67,694 and $192,212 for the
three and nine month periods ended December 31, 1998. The increase is due to
additions to property and equipment in the amount of $316,611 during the
fiscal year ended March 31, 1999 as well as additions to property and
equipment in the amount of $33,142 during the nine month period ended
December 31, 1999. Management expects to add approximately $25,000 in
additional office and production equipment during the fourth quarter of
fiscal 2000. The expenditures are necessary to replace office equipment that
no longer works adequately, as well as upgrade the capabilities of the
exhibit board department equipment. In addition, sales and marketing will
require upgraded computers capable of demonstrating the most current version
of VuPoint.
AMORTIZATION OF SOFTWARE DEVELOPMENT COSTS
The increase in amortization costs was due to amortization of capitalized
software development costs related to VuPoint in the amount of $7,599 and
$14,589 for the three and nine month periods ended December 31, 1999. These
costs were fully amortized in prior fiscal years; accordingly, no
amortization costs were recorded for the first three-quarters of fiscal year
1999.
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OTHER EXPENSE
Other expense was $12,013 and $27,467 for the three and nine month periods
ended December 31, 1999 as compared to $17,979 and $34,091 for the three and
nine month periods ended December 31, 1998. The decrease of 33% and 19% for
the three and nine-month periods ended December 31, 1999 as compared to the
same period ended December 31, 1998 is due to lower interest costs as certain
debt obligations were paid down during the first three quarters of fiscal
year 2000. This is offset by an increase in interest costs due to higher
levels of borrowing on the line of credit.
INCOME TAX EXPENSE
Income tax benefit was $114,000 and $284,000 for the three and nine month
periods ended December 31, 1999 as compared to $36,200 and $100 for the three
and nine month periods ended December 31, 1998. The decrease in income tax
expense for the first two quarters of the current fiscal year is the result
of the decrease in income from operations noted above.
NET INCOME
Net loss and basic loss per share was $(233,306) and $(.06) for the three
month period ended December 31, 1999 and $(578,744) and $(.15) for the nine
month period ended December 31, 1999. These results are compared to net loss
and basic loss per share of $(72,687) and $(.02) for the three month period
ended December 31, 1998 and $(189) and $.00 for the nine month period ended
December 31, 1998. Diluted loss per common share was $(.06) and $(.15) for
the three and nine month periods ended December 31, 1999 as compared to
diluted loss per share of $(.02) and $.00 for the three and nine month
periods ended December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company's working capital position was $(242,171),
a decrease of $307,860 during the current quarter. The decrease was due to
the lower receivables as a result of lower sales levels, coupled with higher
accounts payable, line of credit and accrued liabilities balances. Cash flow
used in operations was $(60,015) for the nine-months ended December 31, 1999,
as compared to $315,288 for the nine-months ended December 31, 1998. The
majority of the Company's cash flow from operations during the first three of
fiscal 2000 was used to paydown the line of credit, purchase new equipment
and make normal payments on capital lease obligations. Management plans to
investigate alternative financing sources to possibly supplement the
Company's current credit and borrowing agreements. It is management's opinion
that through cash management and other such measures, working capital for the
foreseeable future will be sufficient to meet operating requirements.
Capital additions were $16,668 and $33,142 during the three and nine month
periods ended December 31, 1999. These purchases were primarily for
production and office equipment.
Debt and capital lease payments were $(102,106) for the nine month period
ended December 31, 1999. Debt and capital lease payments are reported at net
of borrowings. The proceeds from borrowing during these periods were used for
financing normal operations and acquisition of new production equipment.
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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.
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
December 31, 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 to be signed on its
behalf by the undersigned, thereunto duly authorized.
Z-AXIS CORPORATION
By: : /S/ ALAN TREIBITZ
-----------------------
Alan Treibitz
President
Date: February 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 February 14, 2000
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Steven H. Cohen
/S/ ALAN TREIBITZ Director, President, Treasurer,
- ----------------------- Chief Financial Officer, Principal
Alan Treibitz Accounting Officer February 14, 2000
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> SEP-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 27
<SECURITIES> 0
<RECEIVABLES> 356
<ALLOWANCES> (60)
<INVENTORY> 0
<CURRENT-ASSETS> 350
<PP&E> 1,575
<DEPRECIATION> (1,262)
<TOTAL-ASSETS> 1,199
<CURRENT-LIABILITIES> 592
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 555
<TOTAL-LIABILITY-AND-EQUITY> 1,199
<SALES> 438
<TOTAL-REVENUES> 438
<CGS> 0
<TOTAL-COSTS> 773
<OTHER-EXPENSES> 12
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> (114)
<INCOME-CONTINUING> 233
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 233
<EPS-BASIC> (.06)
<EPS-DILUTED> (.06)
</TABLE>
