##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-KSB
 Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the
fiscal year ended March 31, 2007
 Commission file number: 0-11284
 Z-Axis Corporation
  Colorado
    
    84-0910490(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)5445 DTC Parkway, Suite 450Greenwood Village, Colorado
    
    80111-3143(Address of principal executive offices)
    
    (Zip Code)
 (303) 713-0200
 None
 Common Stock, $.001 par value
  o
 þ o
 o
 o þ




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TABLE OF CONTENTS
  
 Part I

7Item 1. Description of Business

7Recent Developments

7Our Business

8Business Expansion

8Our Strategy

9Our Products and Services

9Our Customers

9Sales and Marketing

10Backlog

10Competition

12Suppliers

12Management Information Systems

13Employees

13Risk Factors

13Item 2. Description of Property

24Item 3. Legal Proceedings

24Item 4. Submission of Matters to a Vote of Security Holders

24Part II

25Item 5. Market for Common Equity and Related Stockholder Matters

25Item 6. Managements Discussion and Analysis or Plan of Operation

26Overview and Executive SummaryLiquidity and Capital Resources

31-Cash Requirements

31-Sources and Uses of Cash

31-Cash Flows from Operating Activities

31-Cash
Flows from Investing Activities

32-Cash
Flows from Financing Activities

32-Debt Instruments, Guarantees and Related Covenants

32-Cash Management

32-Contractual Obligations and Commercial Commitments

33Critical Accounting Policies and Estimates

33Recently Issued Accounting Pronouncements

34Market Risks

35Other Matters

36Item 7. Financial Statements

37Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

F-24Item 8A. Controls and Procedures

F-24Item 8B Other Information

F-25Part III

F-25Except with respect to Item 13 below, the information required under this Part III is
incorporated herein by reference to the proxy statement relating to our 2007 annual
meeting of stockholders.
The proxy statement will be filed with the Securities and Exchange Commission within 120
days after the close of our fiscal year.
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Item 9 Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act

F-25Item 10. Executive Compensation

F-25Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

F-25Item 12. Certain Relationships and Related Transactions

F-26Item 13. Exhibits

F-26Item 14. Principal Accountant Fees and Services

F-26SIGNATURESCertification of the CEOCertification of the Director of Finance and AdministrationCertification of the CEO - Section 906Certification of the Director of Finance and Administration - Section 906President's Letter to Shareholders
  
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##### Table of Contents



CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
  
    
    our ability to complete the proposed exchange with Silicon Mountain,
which is described in Part I of this 10-KSB beneath Business  Recent
Developments;
    
    an inability to sell our existing video graphic presentation
operations to the Z-Axis investor group on terms approved by our
independent directors, which is also described under Business 
Recent Developments;
    
    our failure or inability to obtain stockholder approval of the
exchange and LLC sale transactions;
    
    our executive officers and directors having potential or actual
conflicts of interest in approving the exchange with Silicon Mountain
and the sale of the Z-Axis video graphic presentation operations;
    
    a change in control of Z-Axis if the exchange and the sale transactions are concluded;
    
    the ability of a financial advisor to render a fairness opinion on the exchange and
sale transactions;
    
    the transformation of our business from one operating in the
litigation services industry to one operating in the computer memory
business;
    
    our securities ownership being concentrated after the exchange and LLC sale transactions;
    
    a number of risks associated with the computer memory industry, in
which we will operate if the exchange is consummated;
    
    a further change in control if, following the exchange, Z-Axis
acquires one or more additional businesses for stock;
    
    the ability of Z-Axis after the exchange to secure financing in order
to expand its operations or to pay for acquisitions using cash;
    
    volatility in our operating results, both within and among fiscal quarters and fiscal years;
    
    our financial and operational performance following the exchange and sale transactions;
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
    
    our ability to sustain our operations in the litigation services industry if the exchange
and the sale transactions do not occur;
    
    our ability to reduce in future periods the significant loss we experienced in 2006 and 2007;
    
    our current dependence on a small number of video graphic presentations to generate the vast
majority of our revenues during any particular quarter or fiscal year, which dependence will
continue if the exchange and sale transactions are not concluded;
    
    our limited liquidity and an inability to raise additional capital;
    
    financial limitations on our ability to increase our marketing and selling activities, which
may adversely affect our ability to secure new customers;
    
    our dependence on sales consultants and independent contractors who assist us in securing
new customers and performing video production activities;
    
    the settlement of one or more suits in which we are providing litigation support services,
which could adversely impact our expected sales in current or future periods;
    
    long lead times associated with obtaining new customers and performing our litigation
support services;
    
    our reliance on government customers that may face budget limitations in securing litigation
support services from us;
    
    intense competition in our industry and in the computer memory industry;
    
    our public securities limited liquidity and trading, as well as the current lack of a
viable trading market;
    
    our stocks current trading level, which results in our stock being considered a penny
stock under applicable SEC rules and which subjects broker-dealers to additional disclosure
and other requirements when executing trades in our stock;
    
    our inability to secure research coverage and market makers to make an active market in our
stock; and
    
    delisting of our securities from the OTC Bulletin Board if, following the exchange, we do
not comply with one or more of the listing standards of the OTC Bulletin Board.
 5




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Risk Factors
 6




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PART I
 
 Item 1. Description of Business
 
 Recent Developments
    7




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Our Business
  
 
 Business Expansion
  8




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Our Strategy
  
    
    Continue to emphasize sales and marketing to grow our business.
    
    Continue to strengthen our existing litigation support services and presentation
products to target the needs of law firms and their clients.
    
    Develop new litigation presentation services and products that will meet the needs of
law firms and their clients and enhance our position in the market.
    
    Identify and develop new customers in related markets that can benefit from our service
and product offerings.
    
    Continue to implement and improve processes to ensure that our services and products
meet high quality standards, are delivered on time and within agreed-upon budgets.
 
 Our Products and Services
    
 Our Customers
  9




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Marketing and Sales
   
 Backlog
   10




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11




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Competition
   
 Suppliers
  12




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Management Information Systems
  
 Employees
  
 Risk Factors
 .
 Risks Related to Our Current Business
 We generated a significant loss in fiscal 2007 and fiscal 2006, and we cannot assure you when or if
we will be able to return to profitability.
  13




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Because we depend on a small number of customers for our sales in particular fiscal periods, our
net sales and operating results are highly volatile and our business can fluctuate substantially in
and among fiscal periods.
  Our litigation support presentations are generally used in legal proceedings in which substantial
damages are claimed, which as a practical matter limits the size of our target market.
  Advances in presentation, video, graphic and multimedia technologies that make such technologies
more widely available or easily usable may adversely affect our ability to obtain new presentation
customers or to effectively market our services.
  14




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We depend on sales consultants and a small number of employees to market our litigation support
services, and our sales and operating results could be harmed if they fail to do so effectively.
  We use independent contractors to assist in production of video and multimedia presentations for
our customers, which may expose us to risks associated with timely performance of services or
quality control issues that could harm our customer relationships.
  We face significant competition in the litigation support services industry and in the production
of video, graphic and other presentations, which could adversely affect our future operating
results, financial condition and liquidity and our ability to grow our business.
  15




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We have a limited base of potential customers and no long-term contracts with our customers.
  If our video, computer-generated graphics and multimedia presentations do not meet customer
expectations related to quality, cost or other factors, we may be subject to damage claims or
litigation or we may lose customers.
  We have only one production facility and if this facility were to experience a fire, flood or other
calamity, our operations could be substantially harmed.
  16




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The loss of Alan Treibitz or Stephanie S. Kelso could significantly harm our operations and our
marketing efforts.
  We rely on trade secret and non-disclosure agreements and a single patent to protect certain
aspects of our proprietary information, the loss or misappropriation of which could have an adverse
impact on our business.
  Risks Related to Our Common Stock
 Our common stock is subject to the SECs penny stock rules, which may cause broker-dealers
executing trades in our stock to experience difficulty in completing customer transactions and
which may adversely affect the trading of our common stock.
  
    
    make a special written suitability determination for the purchaser;
    
    receive the purchasers written agreement to a transaction prior to sale;
    
    provide the purchaser with risk disclosure documents identifying
certain risks of investing in penny stocks, a purchasers legal
remedies, and information about the market for penny stocks; and
    
    obtain a signed and dated acknowledgment from the purchaser that he,
she or it actually received the required risk disclosure documents
before a transaction in a penny stock is completed.
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Our common stock is quoted on the OTC Bulletin Board, which limits the liquidity and price of our
common stock more than if it was quoted or listed on The Nasdaq Stock Market or a national
exchange .
  Our stock price is highly volatile, and you may not be able to resell your shares at or above
recent public sale prices.
  
    
    actual or anticipated fluctuations in our operating results;
    
    our inability to obtain research coverage;
    
    changes in market valuations of other litigation service support companies,
particularly those that market high-end products and services such as ours;
    
    announcements by us or our competitors of significant customer contracts,
acquisitions, strategic partnerships, joint ventures or capital infusions;
    
    introduction of technologies or product enhancements that reduce the need for our
litigation support services;
    
    the loss of one or more key customers or the settlement of one or more large cases
soon after our engagement; and
    
    departures of key personnel.
  18




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Risks Related to the Exchange and the Sale of the LLC
 The following is a non-exclusive description of some of the risks that may relate to the exchange
and the LLC interests purchase transactions that are described beneath Description of Business 
Recent Developments. These transactions are required by the terms of the agreements to which they
relate to occur simultaneously. We cannot assure you that these transactions will be closed. The
proxy statement that relates to our forthcoming annual meeting, at which our stockholders will be
asked to approve the exchange and the sale of the LLC, will include a more complete description of
the exchange and the sale of the LLC, as well as information concerning the business of Silicon
Mountain. Our stockholders and other parties are urged to read the proxy statement carefully upon
its availability.
 The closings of the exchange and the LLC sale are subject to the fulfillment or waiver of a number
of conditions, including approval of such transactions by our stockholders and approval of the
exchange by the Silicon Mountain stockholders. If any of these conditions are not fulfilled or
waived or if the required stockholder approvals are not obtained, the exchange and the LLC sale
will not close.
  19




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Our current officers and directors will resign upon consummation of the exchange and the LLC sale,
and Silicon Mountains management, most of the members of which have not previously managed a
public company, will then operate Silicon Mountains business as a subsidiary of ours.
  20




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Closing of the exchange will take place concurrently with the sale of our litigation support
business and will result in our doing business in the computer memory industry, which will expose
us to a variety of risks that are quite different from those currently faced by us.
  If following the exchange we issue stock to complete an additional business combination, your
equity interest in us could be reduced or there may be a change in control of our company.
  
    
    may significantly reduce your equity interest in us;
    
    may cause a change in control if a substantial number of our shares of
common stock are issued, which may among other things:
 
    
    limit our ability to use any net operating loss carry forwards we have; and
    
    result in the resignation or agreed-upon removal of our then-officers and directors; and
 
    
    may adversely affect the then-prevailing market price for our common stock.
  21




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If following the exchange we acquire a company by issuing debt securities, our post-exchange
operating results may decline due to increased interest expense or our liquidity may be adversely
affected by an acceleration of our indebtedness.
  
    
    default and foreclosure on our assets if our operating cash flow after
a business combination were insufficient to pay our debt obligations;
    
    acceleration, even if we are then current in our debt service
obligations, if the debt securities have covenants that require us to
meet certain financial ratios or maintain designated reserves, and
such covenants are breached without waiver or renegotiation;
    
    a required immediate payment of all principal and accrued interest, if
any, if the debt security was payable on demand; and
    
    our inability to obtain additional financing, if necessary, if the
debt securities contain covenants restricting our ability to obtain
additional financing.
 Substantial amounts of our common stock could be sold commencing one year after the exchange, which
could depress our stock price.
  Our stock ownership will be concentrated after the exchange and the LLC sale.
  22




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If we do not conduct an adequate due diligence investigation of Silicon Mountain, we may be
required to subsequently take write-downs or write-offs, restructuring, and impairment or other
charges that could have a significant negative effect on our financial condition, results of
operations and our stock price, which could cause the value of your investment to fall.
  We may be unable to obtain additional financing if necessary to fund the operations and growth of
Silicon Mountain.
  The exchange ratio was determined by negotiation between us and Silicon Mountain, and therefore may
be more arbitrary than the price of securities for other companies in the computer memory industry.
  
    
    the history and prospects of our existing business and Silicon Mountains business;
    
    the market price of recent sales of our common stock in the market and
the prices at which Silicon Mountain recently sold its securities in
private placement transactions;
    
    the prospects for our litigation support business as a stand-alone
public company, and the prospects for Silicon Mountains business as a
stand-alone public company;
    
    our capital structure and Silicon Mountains capital structure;
    
    an assessment of the trading history of our common stock and
the prospects for development of
 23




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a more active market for our
common stock following the exchange;
    
    the likelihood of obtaining a fairness opinion from a financial
advisor that deems the exchange and the LLC sale to be fair to our
stockholders from a financial point of view; and
    
    other factors as were deemed relevant.
  
 Item 2. DESCRIPTION OF PROPERTY
 st nd th th th th
 
 Item 3. LEGAL PROCEEDINGS
 Recent Developments
 
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  24




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PART II
 
 Item 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
     High
    
    LowFiscal year ended March 31, 2007:First quarter
    
    $
    0.3200
    
    
    $
    0.2300Second quarter
    
    
    0.3000
    
    
    
    0.1600Third quarter
    
    
    0.1700
    
    
    
    0.1600Fourth quarter
    
    
    0.1600
    
    
    
    0.1300Fiscal year ended March 31, 2006:First quarter
    
    $
    0.4400
    
    
    $
    0.3500Second quarter
    
    
    0.4900
    
    
    
    0.3400Third quarter
    
    
    0.4500
    
    
    
    0.2900Fourth quarter
    
    
    0.2900
    
    
    
    0.2300
  25




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Item 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 The following discussion should be read in conjunction with the Companys financial statements and
the notes thereto for the fiscal years ended March 31, 2007 and 2006. Except where otherwise
noted, references to years are to fiscal years ending March 31 of the year stated. Some of the
information contained in this discussion and analysis are set forth elsewhere in the Form 10-KSB ,
including information with respect to the exchange, the LLC sale and our plans and strategies for
our business, and includes forward-looking statements that involve risk and uncertainties. Our
actual results will depend upon a number of factors, including but not limited to the risk factors
set forth in Part I, Item 1 above. There may be other factors not mentioned above or included
elsewhere in this report that may cause actual results to differ materially from any
forward-looking statements. You should not place undue reliance on any forward-looking statements.
We assume no obligation to update any forward-looking statements as a result of new information,
future events or developments, except as required by the securities laws.
 Known Trends and Future Events
    26




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Customer Concentration
  Results of Operations
  For the Years EndedMarch 31,2007
    
    2006Net sales
    
    
    100.0
    %
    
    
    100.0
    %Operating expensesProduction
    
    
    40.9
    
    
    
    46.2Research and development
    
    
    2.8
    
    
    
    3.7General and administrative
    
    
    40.8
    
    
    
    32.0Marketing
    
    
    26.2
    
    
    
    31.6Depreciation
    
    
    1.4
    
    
    
    2.1Amortization of software development costs
    
    
    0.0
    
    
    
    1.8Total operating expenses
    
    
    112.1
    
    
    
    117.4(Loss) income from operations
    
    
    (12.1
    )
    
    
    (17.4
    )Other income (expense)
    
    
    ( 0.4
    )
    
    
    0.3Income tax benefit (expense)
    
    
    2.4
    
    
    
    2.7Net (loss) income
    
    
    (10.1
    )%
    
    
    (14.4
    )%
 Year Ended March 31, 2007 compared to Year Ended March 31, 2006
 27




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Net Sales
    Operating Expenses
   28




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29




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Other Income and Expenses
  Income Taxes
    30




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Net (Loss) Income
  
 Liquidity and Capital Resources
 
 Cash Requirements
 
 
 Sources and Uses of Cash
  
 Cash Flows from Operating Activities
  31




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Cash Flows from Investing Activities
  
 Cash Flows from Financing Activities
  
 Debt Instruments, Guarantees and Related Covenants
  
 Cash Management
  32




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Contractual Obligations and Commercial Commitments
  Payments due inLess Than 1Total
    
    
    Year
    
    
    1 to 3 Years
    
    
    4 to 5 YearsShort-term debt (1)
    
    $
    145,000
    
    
    $
    145,000
    
    
    $
    
    
    
    $
    Capital lease obligations
    
    
    5,370
    
    
    
    5,370
    
    
    
    
    
    
    
    Operating leases
    
    
    669,533
    
    
    
    154,245
    
    
    
    320,775
    
    
    
    194,513Total
    
    $
    819,903
    
    
    $
    304,615
    
    
    $
    320,775
    
    
    $
    194,513
 
 (1)
    
    Represents the balance outstanding under the bank line of credit at March 31, 2007. 
 Critical Accounting Policies and Estimates
  Concentrations of Credit Risk
  33




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Accounts Receivable
  Revenue and Cost Recognition
  
 Recently Issued Accounting Pronouncements
 Accounting for Uncertainty
in Income Taxes  an interpretation of FASB Statement 109.
  Accounting for Certain Hybrid Instruments Accounting for Derivative Instruments and Hedging Activities
 34




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Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities
 Fair Value Measurements
  
 Market Risk
  35




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Other Matters
 Backlog
  Off-Balance Sheet Arrangements
  Dividends
  Related Party Transactions
  Inflation
  36




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Item 7. FINANCIAL STATEMENTS
 Table of Contents
 PageReport of Independent Registered Public Accounting Firm
    
    
    F - 1Financial StatementsBalance Sheets
    
    
    F - 2Statements of Operations
    
    
    F - 3Statement of Changes in Stockholders Equity
    
    
    F - 4Statements of Cash Flows
    
    
    F - 5Notes to Financial Statements
    
    
    F - 6
 37




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    /s/ Ehrhardt Keefe Steiner & Hottman PC
 
 F - 1




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##### Table of Contents



Z-AXIS CORPORATION
 
 Balance Sheets
 March 31,2007
    
    
    2006AssetsCurrent assetsCash
    
    $
    13,393
    
    
    $
    75,722Accounts receivable, net of
allowance of $47,130 (2006) and
$56,573 (2006)
    
    
    944,473
    
    
    
    1,127,839Other current assets
    
    
    25,713
    
    
    
    52,024Total current assets
    
    
    983,579
    
    
    
    1,255,585Non-current assetsProperty and equipment, net
    
    
    98,752
    
    
    
    97,995Restricted cash (Note 8)
    
    
    25,196
    
    
    
    36,288Deposits
    
    
    27,983
    
    
    
    28,468Deferred income taxes
    
    
    312,000
    
    
    
    344,000Total non-current assets
    
    
    463,931
    
    
    
    506,751Total assets
    
    $
    1,447,510
    
    
    $
    1,762,336Liabilities and Stockholders EquityCurrent liabilitiesLine-of-credit
    
    $
    145,000
    
    
    $
    170,000Accounts payable
    
    
    173,683
    
    
    
    105,043Accrued expenses
    
    
    197,409
    
    
    
    185,662Deferred revenue
    
    
    52,409
    
    
    
    33,000Deferred income taxes
    
    
    204,000
    
    
    
    315,000Current portion of capital lease obligations
    
    
    5,370
    
    
    
    14,863Total current liabilities
    
    
    777,871
    
    
    
    823,568Capital lease obligations, less current portion
    
    
    
    
    
    
    5,370Deferred rent
    
    
    117,415
    
    
    
    80,954Total liabilities
    
    
    895,286
    
    
    
    909,892CommitmentsStockholders equityCommon stock, $.001 par value, 10,000,000
shares authorized, 3,825,000 shares issued
and outstanding
    
    
    3,825
    
    
    
    3,825Additional paid-in capital
    
    
    1,473,701
    
    
    
    1,446,671Accumulated deficit
    
    
    (925,302
    )
    
    
    (598,052
    )Total stockholders equity
    
    $
    552,224
    
    
    $
    852,444Total liabilities and stockholders equity
    
    $
    1,447,510
    
    
    $
    1,762,336
  F - 2




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Z-AXIS CORPORATION
 
 Statements of Operations
 For the Years EndedMarch 31,2007
    
    
    2006Net sales
    
    $
    3,226,496
    
    
    $
    2,945,190Operating expensesProduction
    
    
    1,320,160
    
    
    
    1,361,843Research and development
    
    
    90,192
    
    
    
    109,968General and administrative
    
    
    1,316,161
    
    
    
    943,193Marketing
    
    
    845,353
    
    
    
    930,927Depreciation and amortization
    
    
    46,189
    
    
    
    61,278Amortization of software development costs
    
    
    
    
    
    
    52,621Total operating expenses
    
    
    3,618,055
    
    
    
    3,459,830Loss from operations
    
    
    (391,559
    )
    
    
    (514,640
    )Other income (expense)Interest income (expense), net
    
    
    (21,705
    )
    
    
    6,882Other income
    
    
    8,279
    
    
    
    2,531Total other income (expense)
    
    
    (13,426
    )
    
    
    9,413Loss before income taxes
    
    
    (404,985
    )
    
    
    (505,227
    )Income tax benefit
    
    
    77,735
    
    
    
    80,579Net loss
    
    $
    (327,250
    )
    
    $
    (424,648
    )Weighted average common shares outstandingBasic
    
    $
    3,825,000
    
    
    $
    3,825,000Diluted
    
    $
    3,825,000
    
    
    $
    3,825,000Basic loss per common share
    
    $
    (0.09
    )
    
    $
    (0.11
    )Diluted loss per common share
    
    $
    (0.09
    )
    
    $
    (0.11
    )
  F - 3




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Z-AXIS CORPORATION
 
 Statement of Changes in Stockholders Equity
 For the Years Ended March 31, 2007 and 2006
 Additional
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    EquityBalance  March 31,
2005
    
    
    3,825,000
    
    
    $
    3,825
    
    
    $
    1,446,671
    
    
    $
    (173,404
    )
    
    $
    1,277,092Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (424,648
    )
    
    
    (424,648
    )Balance  March 31,
2006
    
    
    3,825,000
    
    
    
    3,825
    
    
    
    1,446,671
    
    
    
    (598,052
    )
    
    
    852,444Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (327,250
    )
    
    
    (327,250
    )Compensation
expense from stock
option grants
    
    
    
    
    
    
    
    
    
    
    27,030
    
    
    
    
    
    
    
    27,030Balance  March 31,
2007
    
    
    3,825,000
    
    
    $
    3,825
    
    
    $
    1,473,701
    
    
    $
    (925,302
    )
    
    $
    552,224
  F - 4




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##### Table of Contents



Z-AXIS CORPORATION
 
 Statements of Cash Flows
 For the Years EndedMarch 31,2007
    
    
    2006Cash flows from operating activitiesNet loss
    
    $
    (327,250
    )
    
    $
    (424,648
    )Adjustments to reconcile net loss to net cash provided by
(used in) operating activitiesDepreciation
    
    
    46,189
    
    
    
    61,278Amortization of software development costs
    
    
    
    
    
    
    52,621Stock based compensation
    
    
    27,030
    
    
    
    Gain on sale of equipment
    
    
    (4,517
    )
    
    
    Allowance for doubtful accounts
    
    
    (9,442
    )
    
    
    14,713Deferred income taxes
    
    
    (79,000
    )
    
    
    (83,000
    )Changes in assets and liabilitiesAccounts receivable
    
    
    192,808
    
    
    
    (644,510
    )Other current assets
    
    
    26,311
    
    
    
    5,796Deposits
    
    
    485
    
    
    
    (16
    )Accounts payable
    
    
    68,640
    
    
    
    66,904Accrued expenses
    
    
    11,747
    
    
    
    83,265Deferred revenue
    
    
    19,409
    
    
    
    (2,500
    )Deferred rent
    
    
    36,461
    
    
    
    33,892336,121
    
    
    
    (411,557
    )Net cash provided by (used in) operating activities
    
    
    8,871
    
    
    
    (836,205
    )Cash flows from investing activitiesPurchase of property and equipment
    
    
    (46,770
    )
    
    
    (29,987
    )Proceeds from sale of equipment
    
    
    4,341
    
    
    
    Net cash used in investing activities
    
    
    (42,429
    )
    
    
    (29,987
    )Cash flows from financing activitiesDecrease in restricted cash
    
    
    11,092
    
    
    
    24,735Net (payments)/borrowing on line-of-credit
    
    
    (25,000
    )
    
    
    170,000Capital lease principal payments
    
    
    (14,863
    )
    
    
    (14,200
    )Net cash (used in) provided by financing activities
    
    
    (28,771
    )
    
    
    180,535Net decrease in cash
    
    
    (62,329
    )
    
    
    (685,657
    )Cash  beginning of year
    
    
    75,722
    
    
    
    761,379Cash  end of year
    
    $
    13,393
    
    
    $
    75,722
    F - 5




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##### Table of Contents



Z-AXIS CORPORATION
 
 Notes to Financial Statements
 Note 1  Description of Business and Summary of Significant Accounting Policies
  Concentrations of Credit Risk
  Accounts Receivable
  Use of Estimates
  F - 6




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##### Table of Contents



Z-AXIS CORPORATION
 Notes to Financial Statements
 Note 1  Description of Business and Summary of Significant Accounting Policies (continued)
 Property and Equipment
  Software Development Costs
  Long-Lived Assets
  Fair Value of Financial Instruments
   F - 7




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##### Table of Contents



Z-AXIS CORPORATION
 Notes to Financial Statements
 Note 1  Description of Business and Summary of Significant Accounting Policies (continued)
 Stock Options
    F - 8




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##### Table of Contents



Z-AXIS CORPORATION
 Notes to Financial Statements
 Note 1  Description of Business and Summary of Significant Accounting Policies (continued)
 Stock Options (continued)
  For the YearEndedMarch 31,2006Net (loss) income as reported
    
    $
    (424,648
    )Total stock-based compensation expense,
determined under fair value accounting, net of
tax effects
    
    
    (7,922
    )Pro forma net (loss) under SFAS 123
    
    $
    (432,570
    )Basic and diluted net (loss) income per common share:As reported
    
    $
    (0.11
    )Pro forma
    
    $
    (0.11
    )Assumptions:Dividend yield
    
    
    Volatility factor
    
    79.5% and 349%Risk free interest rate
    
    4.78% and 4.8%Expected life of options (in years)
    
    5 and 10
  F - 9




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##### Table of Contents



Z-AXIS CORPORATION
 Notes to Financial Statements
 Note 1  Description of Business and Summary of Significant Accounting Policies (continued)
 Stock Options (continued)
 Non-Qualified Stock Options and Non-Plan Options
  Revenue and Cost Recognition
   Advertising Costs
  Research and Development Costs
  Income Taxes
  F - 10




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##### Table of Contents



Z-AXIS CORPORATION
 Notes to Financial Statements
 Note 1  Description of Business and Summary of Significant Accounting Policies (continued)
 Basic and Diluted (Loss) Income Per Common Share
  Comprehensive Income
  Recently Issued Accounting Pronouncements
 Accounting for Uncertainty
in Income Taxes  an interpretation of FASB Statement 109.
  F - 11




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##### Table of Contents



Z-AXIS CORPORATION
 Notes to Financial Statements
 Note 1  Description of Business and Summary of Significant Accounting Policies (continued)
 Recently Issued Accounting Pronouncements (continued)
  Accounting for Certain Hybrid Instruments Accounting for Derivative Instruments and Hedging Activities Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities
  F - 12




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##### Table of Contents



Z-AXIS CORPORATION
 Notes to Financial Statements
 Note 1  Description of Business and Summary of Significant Accounting Policies (continued)
 Recently Issued Accounting Pronouncements (continued)
  Note 2  Balance Sheet Disclosures
  March 31,2007
    
    
    2006Capitalized software
    
    $
    90,930
    
    
    $
    90,930Accumulated amortization
    
    
    (90,930
    )
    
    
    (90,930
    )$
    
    
    
    $
    
 F - 13




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##### Table of Contents



Z-AXIS CORPORATION
 Notes to Financial Statements
 Note 2  Balance Sheet Disclosures (continued)
  March 31,2007
    
    
    2006Production equipment
    
    $
    620,617
    
    
    $
    610,137Office equipment
    
    
    371,489
    
    
    
    335,199Leasehold improvements
    
    
    23,706
    
    
    
    23,7061,015,812
    
    
    
    969,042Less accumulated depreciation and amortization
    
    
    (917,060
    )
    
    
    (871,047
    )$
    98,752
    
    
    $
    97,995Accrued expenses consist of the following:March 31,2007
    
    
    2006Accrued compensation
    
    $
    75,934
    
    
    $
    115,941Accrued expenses
    
    
    121,475
    
    
    
    69,721$
    197,409
    
    
    $
    185,662
 Note 3  Line-of-Credit
  Note 4  Capital Leases
  F - 14




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##### Table of Contents



Z-AXIS CORPORATION
 Notes to Financial Statements
 Note 4  Capital Leases (continued)
  March 31,2007
    
    
    2006Equipment
    
    $
    41,315
    
    
    $
    41,315Less accumulated amortization
    
    
    (26,173
    )
    
    
    (18,367
    )$
    15,142
    
    
    $
    22,948
  Year Ending March 31,2008
    
    $
    5,508Total minimum lease payments due
    
    
    5,508Amount representing interest
    
    
    (138
    )Present value of net minimum lease payments
    
    
    5,370Less current portion
    
    
    (5,370
    )Long-term capital lease obligation
    
    $
    
 F - 15




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##### Table of Contents



Z-AXIS CORPORATION
 Notes to Financial Statements
 Note 5  Income Taxes
  March 31,2007
    
    
    2006CurrentDeferred tax asset:Vacation accrual
    
    $
    20,000
    
    
    $
    18,000Allowance for doubtful accounts
    
    
    17,000
    
    
    
    21,000Total deferred tax asset
    
    
    37,000
    
    
    
    39,000Deferred tax liabilityAccrual to cash conversion
    
    
    (241,000
    )
    
    
    (354,000
    )Total deferred tax liability
    
    
    (241,000
    )
    
    
    (354,000
    )Net current deferred tax asset (liability)
    
    $
    (204,000
    )
    
    $
    (315,000
    )Long-termDeferred tax assetDeferred rent
    
    $
    44,000
    
    
    $
    30,000Net operating loss carryforward
    
    
    419,000
    
    
    
    412,000State net operating loss carryforward
    
    
    29,000
    
    
    
    14,000Stock-based compensation
    
    
    10,000
    
    
    
    Valuation allowance
    
    
    (178,000
    )
    
    
    (100,000
    )Total deferred tax asset
    
    
    324,000
    
    
    
    356,000Deferred tax liability:Fixed assets
    
    
    (12,000
    )
    
    
    (12,000
    )Total deferred tax liability
    
    
    (12,000
    )
    
    
    (12,000
    )Net long-term deferred tax asset (liability)
    
    $
    312,000
    
    
    $
    344,000
  March 31,2007
    
    
    2006Current
    
    $
    1,225
    
    
    $
    1,225Deferred
    
    
    (78,960
    )
    
    
    (81,804
    )$
    (77,735
    )
    
    $
    (80,579
    )
 F - 16




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##### Table of Contents



Z-AXIS CORPORATION
 Notes to Financial Statements
 Note 5  Income Taxes (continued)
  For the Years EndedMarch 31,2007
    
    
    2006Income tax (benefit) expense at the statutory rate
    
    $
    (137,695
    )
    
    $
    (171,777
    )Change resulting from:State and local income taxes, net of federal income tax
    
    
    (13,365
    )
    
    
    (14,156
    )Nondeductible expenses
    
    
    4,183
    
    
    
    5,354Change in valuation allowance
    
    
    78,000
    
    
    
    100,000Other
    
    
    (8,858
    )
    
    
    $
    (77,735
    )
    
    $
    (80,579
    )
  Note 6  Stock Option Plan
 Stock Options
  F - 17




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##### Table of Contents



Z-AXIS CORPORATION
 Notes to Financial Statements
 Note 6  Stock Option Plan (continued)
 Stock Options (continued)
 Valuation and Expense Information under SFAS 123(R)
  Twelve MonthsEnded March 31,2007Expected life (years)
    
    5 - 10 yearsRisk-free interest rate
    
    
    4.78 - 4.8%Expected volatility
    
    
    229 - 445%Expected dividend yield
    
    NoneWeighted average fair value
    
    $
    .30
 F - 18




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##### Table of Contents



Z-AXIS CORPORATION
 Notes to Financial Statement
 Note 6  Stock Option Plan (continued)
 Stock Options (continued)
 Valuation and Expense Information under SFAS 123(R) (continued)
  WeightedIncentive
    
    
    AverageStock
    
    
    ExerciseOptions
    
    
    PricePlan OptionsOptions outstanding  March 31, 2005
    
    
    333,313
    
    
    $
    0.24Granted
    
    
    55,070
    
    
    
    0.46Expired
    
    
    (13,383
    )
    
    
    0.36Options outstanding  March 31, 2006
    
    
    375,000
    
    
    
    0.27Granted
    
    
    
    
    
    
    Expired
    
    
    (1,224
    )
    
    
    0.19Options outstanding  March 31, 2007
    
    
    373,776
    
    
    $
    0.27Options vested and exercisable at March 31, 2007
    
    
    311,229
    
    
    $
    0.24Incentive Non-
    
    WeightedPlan Stock
    
    AverageOptions
    
    Exercise PriceNon-Plan OptionsOutstanding non-plan stock options at March 31, 2006
    
    
    
    
    
    
    Granted
    
    
    99,930
    
    
    $
    0.30Exercised
    
    
    
    
    
    
    Canceled
    
    
    
    
    
    
    Outstanding non-plan stock options at March 31, 2007
    
    
    99,930
    
    
    $
    0.30Vested or expected to vest at March 31, 2007
    
    
    
    
    
    
    Options exercisable at March 31, 2007
    
    
    
    
    
    
    
 F - 19




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##### Table of Contents



Z-AXIS CORPORATION
 Notes to Financial Statement
 Note 6  Stock Option Plan (continued)
 Stock Options (continued)
 Valuation and Expense Information under SFAS 123(R) (continued)
  Options OutstandingRange of Exercise Prices
    
    Number
    
    
    Price
    
    
    Life*$.0625 - $0.1625
    
    
    75,000
    
    
    $
    0.07
    
    
    
    3.73$.1875 - $0.2875
    
    
    131,206
    
    
    
    0.24
    
    
    
    4.97$.2900 - $0.3900
    
    
    227,500
    
    
    
    0.35
    
    
    
    6.47$.4000 - $0.5390
    
    
    40,000
    
    
    
    0.50
    
    
    
    7.75Total  March 31, 2007
    
    
    473,706
    
    
    $
    0.27
    
    
    
    5.53
  Exercisable OptionsRange of Exercise Prices
    
    Number
    
    
    Price
    
    
    Life*$.0625 - $0.1625
    
    
    75,000
    
    
    $
    0.07
    
    
    
    3.73$.1875 - $0.2875
    
    
    131,206
    
    
    
    0.24
    
    
    
    4.97$.2900 - $0.3900
    
    
    91,687
    
    
    
    0.35
    
    
    
    5.95$.4000 - $0.5390
    
    
    13,336
    
    
    
    0.50
    
    
    
    7.75Total  March 31, 2007
    
    
    311,229
    
    
    $
    0.24
    
    
    
    5.08
 
 *
    
    Price and Life reflect the weighted average exercise price and weighted average remaining
contractual life, respectively. F - 20




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##### Table of Contents



Z-AXIS CORPORATION
 Notes to Financial Statements
 Note 7  Commitments
 Operating Leases
 st nd th th th th
  Year Ending March 31,2008
    
    $
    154,2452009
    
    
    158,3402010
    
    
    162,4352011
    
    
    166,5302012
    
    
    27,983Thereafter
    
    
    $
    669,533
 Note 8  Employee Benefit Plan
  F - 21




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##### Table of Contents



Z-AXIS CORPORATION
 Notes to Financial Statement
 Note 9  Major Customers
  Note 10  Subsequent Events (Unaudited)
   F - 22




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##### Table of Contents



Z-AXIS CORPORATION
 Notes to Financial Statements
 Note 10  Subsequent Events (Unaudited) (continued)
    F - 23




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##### Table of Contents



Z-AXIS CORPORATION
 
 Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 Item 8A. CONTROLS AND PROCEDURES
     F - 24




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##### Table of Contents



Z-AXIS CORPORATION
 Limitations on Effectiveness of Controls
  
 Item 8B. OTHER INFORMATION
  
 PART III
 
 Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
16(A) OF THE EXCHANGE ACT
  
 Item 10. EXECUTIVE COMPENSATION
  
 Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  F - 25




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##### Table of Contents



Z-AXIS CORPORATION
 
 Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 Item 13. EXHIBITS
    
 Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  F - 26




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##### Table of Contents



Z-AXIS CORPORATION
 
 SIGNATURES
  Z-AXIS CORPORATIONBy:
    
    /s/ Alan TreibitzAlan TreibitzChief Executive Officer
 :
June 27, 2007
  /s/ Alan Treibitz

Alan Treibitz
    
    Chief Executive Officer




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##### Table of Contents



Exhibit Index
 Exhibit No
    
    Description31.1
    
    Certification of the CEO31.2
    
    Certification of the Director
of Finance and Administration32.1
    
    Certification of the CEO 
Section 906 of Sarbanes-Oxley32.2
    
    Certification of the Director
of Finance and Administration  Section 906 of
Sarbanes-Oxley99.1
    
    Presidents Letter to
Shareholders