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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, 2006
 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
 Securities registered pursuant to Section 12(b) of the Act:
    
    NoneSecurities registered pursuant to Section 12(g) of the Act:
    
    Common Stock, $.001 par value(Title of
Class)
 o
 þ o
 o
 o þ




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TABLE OF CONTENTS
 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 Part IItem 1. Description of BusinessRecent DevelopmentsOur BusinessBusiness ExpansionOur StrategyOur Products and ServicesOur CustomersSales and MarketingBacklogCompetitionSuppliersManagement Information SystemsEmployeesRisk FactorsItem 2. Description of PropertyItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPart IIItem 5. Market for Common Equity and Related Stockholder MattersItem 6. Managements Discussion and Analysis or Plan of Operation
Overview and Executive SummaryLiquidity and Capital Resources-Cash Requirements-Sources and Uses of Cash-Debt Instruments, Guarantees and Related Covenants-Cash ManagementCritical Accounting Policies and EstimatesRecently Issued Accounting PronouncementsMarket RisksOther MattersForward Looking StatementsItem 7. Financial StatementsItem 8. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 8A. Controls and ProceduresItem 8B Other Information
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Part IIIExcept 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 2006 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.Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange ActItem 10. Executive CompensationItem 11. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder MattersItem 12. Certain Relationships and Related TransactionsItem 13. ExhibitsItem 14. Principal Accountant Fees and ServicesSIGNATURESCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to 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 2005;
    
    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.
 Risk
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Factors
 
 PART I
 
 Item 1. Description of Business
 
 Recent Developments
    6




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Our Business
   7




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Business Expansion
  
 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
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Our Customers
  
 Marketing and Sales
   
 Backlog
    9




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Competition
   10




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Suppliers
  
 Management Information Systems
  
 Employees
  
 Risk Factors
 .
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Risks Related to Our Current Business
 We generated a significant loss in fiscal 2006 and a modest profit in fiscal 2005, and we cannot
assure you when or if we will be able to return to profitability.
  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.
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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.
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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.
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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.
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
    
    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.
  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;
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
    
    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.
  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.
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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.
  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.
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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.
  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.
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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.
  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.
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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 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
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Item 3. LEGAL PROCEEDINGS
 Recent Developments
 
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 Item 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
     High
    
    LowFiscal 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
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High
    
    LowFiscal year ended March 31, 2005:First quarter
    
    $
    0.3500
    
    
    $
    0.2600Second quarter
    
    
    0.3900
    
    
    
    0.2500Third quarter
    
    
    0.8000
    
    
    
    0.2700Fourth quarter
    
    
    0.6200
    
    
    
    0.4100
  
 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, 2006 and 2005. 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
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Customer Concentration
  24




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Results Of Operations
  For the Years EndedMarch 31,2006
    
    2005Net sales
    
    
    100.0
    %
    
    
    100.0
    %Operating expensesProduction
    
    
    46.2
    
    
    
    41.2Research and development
    
    
    3.7
    
    
    
    3.1General and administrative
    
    
    32.0
    
    
    
    26.6Marketing
    
    
    31.6
    
    
    
    25.9Depreciation
    
    
    2.1
    
    
    
    2.2Amortization of software development costs
    
    
    1.8
    
    
    
    0.7Total operating expenses
    
    
    117.4
    
    
    
    99.7(Loss) income from operations
    
    
    (17.4
    )
    
    
    0.3Other income
    
    
    0.3
    
    
    
    0.0Income tax benefit (expense)
    
    
    2.7
    
    
    
    (0.1
    )Net (loss) income
    
    
    (14.4
    )%
    
    
    0.2
    %
 Year Ended March 31, 2006 compared to Year Ended March 31, 2005
 Net Sales
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Operating Expenses
     26




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27




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Other Income and Expenses
  Income Taxes
    Net (Loss) Income
  
 Liquidity and Capital Resources
 
 Cash Requirements
  28




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Sources and Uses of Cash
  Cash Flows from Operating Activities
  Cash Flows from Investing Activities
  Cash Flows from Financing Activities
  
 Debt Instruments, Guarantees and Related Covenants
  29




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Cash Management
  Contractual Obligations and Commercial Commitments
  Payments due inLess ThanTotal
    
    
    1 Year
    
    
    1 to 3 Years
    
    
    4 to 5 YearsShort-term debt (1)
    
    $
    170,000
    
    
    $
    170,000
    
    
    $
    
    
    
    $
    Capital lease obligations
    
    
    21,996
    
    
    
    16,488
    
    
    
    5,508
    
    
    
    Operating leases
    
    
    796,856
    
    
    
    127,323
    
    
    
    475,020
    
    
    
    194,513Total
    
    $
    988,852
    
    
    $
    313,811
    
    
    $
    480,528
    
    
    $
    194,513
 
 (1)
    
    Represents the balance outstanding under the bank line of credit at March 31, 2006. 
 Critical Accounting Policies and Estimates
  Concentrations of Credit Risk
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Accounts Receivable
  Stock Options
    Revenue and Cost Recognition
  31




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Recently Issued Accounting Pronouncements
 Share Based Payment Accounting for Stock-Based Compensation. Accounting for Stock Issued to Employees,
 Accounting Changes and Error Corrections-a replacement
of APB Opinion No. 20 and FASB Statement No. 3 Accounting Changes Reporting Accounting Changes in Interim Financial Statements
 
 Market Risk
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Other Matters
 Backlog
  Off-Balance Sheet Arrangements
  Dividends
  Related Party Transactions
  Inflation
  33




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




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Z-AXIS CORPORATION
 
 Balance Sheets
 March 31,2006
    
    
    2005AssetsCurrent assetsCash
    
    $
    75,722
    
    
    $
    761,379Accounts receivable, net of allowance
of $56,573 (2006) and $41,860 (2005)
    
    
    1,127,839
    
    
    
    498,042Other current assets
    
    
    52,024
    
    
    
    57,820Total current assets
    
    
    1,255,585
    
    
    
    1,317,241Non-current assetsProperty and equipment, net
    
    
    97,995
    
    
    
    129,286Restricted cash (Note 8)
    
    
    36,288
    
    
    
    61,023Capitalized software, net
    
    
    
    
    
    
    52,621Deposits
    
    
    28,468
    
    
    
    28,452Deferred income taxes
    
    
    344,000
    
    
    
    96,000Total non-current assets
    
    
    506,751
    
    
    
    367,382Total assets
    
    $
    1,762,336
    
    
    $
    1,684,623Liabilities and Stockholders EquityCurrent liabilitiesLine-of-credit
    
    $
    170,000
    
    
    $
    Accounts payable
    
    
    105,043
    
    
    
    38,139Accrued expenses
    
    
    185,662
    
    
    
    102,397Deferred revenue
    
    
    33,000
    
    
    
    35,500Deferred income taxes
    
    
    315,000
    
    
    
    150,000Current portion of capital lease obligations
    
    
    14,863
    
    
    
    14,200Total current liabilities
    
    
    823,568
    
    
    
    340,236Capital lease obligations, less current portion
    
    
    5,370
    
    
    
    20,233Deferred rent
    
    
    80,954
    
    
    
    47,062Total liabilities
    
    
    909,892
    
    
    
    407,531CommitmentsStockholders equityCommon stock, $.001 par value, 10,000,000
shares authorized, 3,825,000 shares issued
and outstanding
    
    
    3,825
    
    
    
    3,825Additional paid-in capital
    
    
    1,446,671
    
    
    
    1,446,671Accumulated deficit
    
    
    (598,052
    )
    
    
    (173,404
    )Total stockholders equity
    
    
    852,444
    
    
    
    1,277,092Total liabilities and stockholders equity
    
    $
    1,762,336
    
    
    $
    1,684,623
  F - 2




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Z-AXIS CORPORATION
 
 Statements of Operations
 For the Years EndedMarch 31,2006
    
    
    2005Net sales
    
    $
    2,945,190
    
    
    $
    3,487,192Operating expensesProduction
    
    
    1,361,843
    
    
    
    1,437,366Research and development
    
    
    109,968
    
    
    
    107,483General and administrative
    
    
    943,193
    
    
    
    925,993Marketing
    
    
    930,927
    
    
    
    902,918Depreciation and amortization
    
    
    61,278
    
    
    
    75,662Amortization of software development costs
    
    
    52,621
    
    
    
    27,461Total operating expenses
    
    
    3,459,830
    
    
    
    3,476,883(Loss) income from operations
    
    
    (514,640
    )
    
    
    10,309Other income (expense)Interest income (expense), net
    
    
    6,882
    
    
    
    (3,152
    )Loss on sale of equipment
    
    
    
    
    
    
    (7,647
    )Other income
    
    
    2,531
    
    
    
    11,472Total other income
    
    
    9,413
    
    
    
    673(Loss) income before income taxes
    
    
    (505,227
    )
    
    
    10,982Income tax benefit (expense)
    
    
    80,579
    
    
    
    (2,522
    )Net (loss) income
    
    $
    (424,648
    )
    
    $
    8,460Weighted average common shares outstanding:Basic
    
    
    3,825,000
    
    
    
    3,825,000Diluted
    
    
    3,825,000
    
    
    
    3,994,182Basic (loss) income per common share
    
    $
    (0.11
    )
    
    $
    0.00Diluted (loss) income per common share
    
    $
    (0.11
    )
    
    $
    0.00
  F - 3




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Z-AXIS CORPORATION
 
 Statement of Changes in Stockholders Equity
For the Years Ended March 31, 2006 and 2005
 Additional
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    StockohldersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    EquityBalance  March 31,
2004
    
    
    3,825,000
    
    
    $
    3,825
    
    
    $
    1,446,671
    
    
    $
    (181,864
    )
    
    $
    1,268,632Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,460
    
    
    
    8,460Balance  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
    )
    
    $
    852,444
  F - 4




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Z-AXIS CORPORATION
 
 Statements of Cash Flows
 For the Years EndedMarch 31,2006
    
    
    2005Cash flows from operating activitiesNet (loss) income
    
    $
    (424,648
    )
    
    $
    8,460Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activitiesDepreciation
    
    
    61,278
    
    
    
    75,662Amortization of software development costs
    
    
    52,621
    
    
    
    27,461Loss on sale of equipment
    
    
    
    
    
    
    7,647Allowance for doubtful accounts
    
    
    14,713
    
    
    
    (50,300
    )Deferred income taxes
    
    
    (83,000
    )
    
    
    1,000Changes in assets and liabilitiesAccounts receivable
    
    
    (644,510
    )
    
    
    332,537Other current assets
    
    
    5,796
    
    
    
    24,704Deposits
    
    
    (16
    )
    
    
    (19
    )Accounts payable
    
    
    66,904
    
    
    
    5,252Accrued expenses
    
    
    83,265
    
    
    
    (6,649
    )Deferred revenue
    
    
    (2,500
    )
    
    
    (13,000
    )Deferred rent
    
    
    33,892
    
    
    
    18,922(411,557
    )
    
    
    423,217Net cash (used in) provided by operating activities
    
    
    (836,205
    )
    
    
    431,677Cash flows from investing activitiesPurchase of property and equipment
    
    
    (29,987
    )
    
    
    (36,409
    )Proceeds from sale of equipment
    
    
    
    
    
    
    440Net cash used in investing activities
    
    
    (29,987
    )
    
    
    (35,969
    )Cash flows from financing activitiesDecrease (increase) in restricted cash
    
    
    24,735
    
    
    
    (499
    )Borrowing on line-of-credit
    
    
    170,000
    
    
    
    Capital lease principal payments
    
    
    (14,200
    )
    
    
    (13,618
    )Net cash provided by (used in) financing activities
    
    
    180,535
    
    
    
    (14,117
    )Net (decrease) increase in cash
    
    
    (685,657
    )
    
    
    381,591Cash  beginning of year
    
    
    761,379
    
    
    
    379,788Cash  end of year
    
    $
    75,722
    
    
    $
    761,379
      F - 5




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##### Table of Contents



Note 1  Description of Business and Summary of Significant Accounting Policies
  Concentrations of Credit Risk
  Accounts Receivable
  Use of Estimates
  Property and Equipment
  F- 6




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##### Table of Contents



Note 1  Description of Business and Summary of Significant Accounting Policies (continued)
 Software Development Costs
  Long-Lived Assets
  Fair Value of Financial Instruments
   Stock Options
    F- 7




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##### Table of Contents



Note 1  Description of Business and Summary of Significant Accounting Policies (continued)
  For the Years EndedMarch 31,2006
    
    
    2005Net (loss) income as reported
    
    $
    (424,648
    )
    
    $
    8,460Total stock-based compensation expense, determined
under fair value accounting, net of tax effects
    
    
    (7,922
    )
    
    
    (24,784
    )Pro forma net (loss) under SFAS 123
    
    $
    (432,570
    )
    
    $
    (16,324
    )Basic and diluted net (loss) income per common share:As reported
    
    $
    (0.11
    )
    
    $
    0.00Pro forma
    
    $
    (0.11
    )
    
    $
    0.00Assumptions:Dividend yield
    
    
    
    
    
    
    Volatility factor
    
    79.5% and 349%
    
    
    123
    %Risk free interest rate
    
    4.78% and 4.8%
    
    
    4
    %Expected life of options (in years)
    
    5 and 10
    
    5 and 10
  Revenue and Cost Recognition
  Advertising Costs
  Research and Development Costs
  Income Taxes
  F- 8




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##### Table of Contents



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
 Share Based Payment Accounting for Stock-Based Compensation. Accounting for Stock Issued to Employees,
 Accounting Changes and Error Corrections-a replacement
of APB Opinion No. 20 and FASB Statement No. 3 Accounting Changes Reporting Accounting Changes in Interim Financial Statements
 F- 9




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##### Table of Contents



Note 1  Description of Business and Summary of Significant Accounting Policies (continued)
  Note 2  Balance Sheet Disclosures
  March 31,2006
    
    
    2005Capitalized software
    
    $
    90,930
    
    
    $
    90,930Accumulated amortization
    
    
    (90,930
    )
    
    
    (38,309
    )$
    
    
    
    $
    52,621
  March 31,2006
    
    
    2005Production equipment
    
    $
    610,137
    
    
    $
    592,092Office equipment
    
    
    335,199
    
    
    
    328,789Leasehold improvements
    
    
    23,706
    
    
    
    23,706969,042
    
    
    
    944,587Less accumulated depreciation and amortization
    
    
    (871,047
    )
    
    
    (815,301
    )$
    97,995
    
    
    $
    129,286
 F- 10




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##### Table of Contents



Note 2  Balance Sheet Disclosures (cont.)
  March 31,2006
    
    
    2005Accrued compensation
    
    $
    115,941
    
    
    $
    56,428Accrued expenses
    
    
    69,721
    
    
    
    45,969$
    185,662
    
    
    $
    102,397
 Note 3  Line-of-Credit
  Note 4  Capital Leases
   March 31,2006
    
    
    2005Equipment
    
    $
    41,315
    
    
    $
    56,381Less accumulated amortization
    
    
    (18,367
    )
    
    
    (23,229
    )$
    22,948
    
    
    $
    33,152
  Year Ending March 31,2007
    
    $
    16,4882008
    
    
    5,508Total minimum lease payments due
    
    
    21,996Amount representing interest
    
    
    (1,763
    )Present value of net minimum lease payments
    
    
    20,233Less current portion
    
    
    (14,863
    )Long-term capital lease obligation
    
    $
    5,370
 F- 11




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##### Table of Contents



Note 5  Income Taxes
  March 31,2006
    
    
    2005Current:Deferred tax asset:Vacation accrual
    
    $
    18,000
    
    
    $
    14,000Allowance for doubtful accounts
    
    
    21,000
    
    
    
    16,000Total deferred tax asset
    
    
    39,000
    
    
    
    30,000Deferred tax liability:Accrual to cash conversion
    
    
    (354,000
    )
    
    
    (180,000
    )Total deferred tax liability
    
    
    (354,000
    )
    
    
    (180,000
    )Net current deferred tax asset (liability)
    
    $
    (315,000
    )
    
    $
    (150,000
    )Long-term:Deferred tax asset:Deferred rent
    
    $
    30,000
    
    
    $
    Net operating loss carryforward
    
    
    412,000
    
    
    
    124,000State net operating loss carryforward
    
    
    14,000
    
    
    
    14,000Change in valuation allowance
    
    
    (100,000
    )
    
    
    Total deferred tax asset
    
    
    356,000
    
    
    
    138,000Deferred tax liability:Capitalized software
    
    
    
    
    
    
    (20,000
    )Fixed assets
    
    
    (12,000
    )
    
    
    (22,000
    )Total deferred tax liability
    
    
    (12,000
    )
    
    
    (42,000
    )Net long-term deferred tax asset (liability)
    
    $
    344,000
    
    
    $
    96,000
  March 31,2006
    
    
    2005Current
    
    $
    1,225
    
    
    $
    1,522Deferred
    
    
    (81,804
    )
    
    
    1,000$
    (80,579
    )
    
    $
    2,522
 F- 12




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##### Table of Contents



Note 5  Income Taxes (continued)
  For the Years EndedMarch 31,2006
    
    
    2005Income tax (benefit) expense at the statutory rate
    
    $
    (171,777
    )
    
    $
    3,700Change resulting from:State and local income taxes, net of federal income tax
    
    
    (14,156
    )
    
    
    400Nondeductible expenses
    
    
    5,354
    
    
    
    5,081Change in effective tax rate
    
    
    
    
    
    
    (6,659
    )Change in valuation allowance
    
    
    100,000
    
    
    
    $
    (80,579
    )
    
    $
    2,522
  Note 6  Stock Option Plan
 Stock Options
  F - 13




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##### Table of Contents



Note 6  Stock Option Plan (continued)
  WeightedIncentive
    
    
    AverageStock
    
    
    ExerciseOptions
    
    
    PriceOptions outstanding  March 31, 2004
    
    
    272,520
    
    
    $
    0.21Granted
    
    
    77,500
    
    
    
    0.36Expired
    
    
    (16,707
    )
    
    
    0.20Options outstanding  March 31, 2005
    
    
    333,313
    
    
    
    0.24Granted
    
    
    55,070
    
    
    
    0.46Expired
    
    
    (13,383
    )
    
    
    0.36Options outstanding  March 31, 2006
    
    
    375,000
    
    
    $
    0.27Options vested and exercisable at March 31, 2006
    
    
    242,430
    
    
    $
    0.21
  Options OutstandingRange of Exercise Prices
    
    Number
    
    
    Price
    
    
    Life*$.0625 - $0.1625
    
    
    75,000
    
    
    $
    0.07
    
    
    
    4.60$.1875 - $0.2875
    
    
    132,430
    
    
    
    0.24
    
    
    
    7.20$.2900 - $0.3900
    
    
    127,570
    
    
    
    0.35
    
    
    
    6.85$.4000 - $0.5390
    
    
    40,000
    
    
    
    0.50
    
    
    
    7.75Total - March 31, 2006
    
    
    375,000
    
    
    $
    0.27
    
    
    
    6.73
  Exercisable OptionsRange of Exercise Prices
    
    Number
    
    
    Price
    
    
    Life*$.0625 - $0.1625
    
    
    75,000
    
    
    $
    0.07
    
    
    
    4.60$.1875 - $0.2875
    
    
    109,926
    
    
    
    0.23
    
    
    
    5.73$.2900 - $0.3900
    
    
    57,504
    
    
    
    0.35
    
    
    
    5.28$.4000 - $0.5390
    
    
    Total - March 31, 2006
    
    
    242,430
    
    
    $
    0.21
    
    
    
    5.27
 
 *
    
    Price and Life reflect the weighted average exercise price and weighted average remaining
contractual life, respectively. F - 14




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##### Table of Contents



Note 7  (Loss) Income Per Share
  For the Years EndedMarch 31,2006
    
    
    2005Numerator for diluted (loss) income per common share
    
    $
    (424,648
    )
    
    $
    8,460Denominator for basic (loss) income per share -
weighted average shares
    
    
    3,825,000
    
    
    
    3,825,000Effect of dilutive securities  stock options
    
    
    
    
    
    
    169,182Denominator for diluted (loss) income per share -
adjusted weighted average shares
    
    
    3,825,000
    
    
    
    3,994,182Basic and diluted (loss) income per common share
    
    $
    (0.11
    )
    
    $
    0.00
  Note 8 Commitments
 Operating Leases
 st nd th th th th
 F - 15




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##### Table of Contents



Note 8 Commitments (continued)
  Year Ending March 31,2007
    
    $
    127,3232008
    
    
    154,2452009
    
    
    158,3402010
    
    
    162,4352011
    
    
    166,530Thereafter
    
    
    27,983$
    796,856
 Note 9- Employee Benefit Plan
  Note 10  Major Customers
  Note
11  Subsequent Events (unaudited)
  Recent Developments
 F - 16




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##### Table of Contents



Item 8.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ONACCOUNTING AND FINANCIAL DISCLOSURE
  
 Item 8A. CONTROLS AND PROCEDURES
     35




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##### Table of Contents



Limitations on Effectiveness of Controls
  
 Item 8B. OTHER INFORMATION
  
 PART III
 
 Item 9.
    
    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROLPERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
  
 Item 10. EXECUTIVE COMPENSATION
  
 Item 11.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT AND RELATED STOCKHOLDER MATTERS
  36




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##### Table of Contents



Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 Item 13. EXHIBITS
   
 
 Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  37




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##### Table of Contents



SIGNATURES
  Z-AXIS CORPORATIONBy:
    
    /s/ Alan TreibitzAlan TreibitzChief Executive Officer
 :
June 9, 2006
  /s/ Alan Treibitz
    
    Chief Executive OfficerAlan Treibitz
 38




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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
 39