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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-KSB þ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended March 31, 2005. Commission file number 0-11284 Z-Axis Corporation  Colorado
(State or other jurisdiction of
incorporation or organization)
    
    84-0910490
(I.R.S. Employer Identification No.)
 5445 DTC Parkway, Suite 450Greenwood Village, Colorado
    
    80111-3143(Address of principal executive office)
    
    (Zip Code)
 Registrants telephone number, including area code: (303) 713-0200 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of each class
    
    Name of each exchange on which registeredCommon Stock, $.001 par value
    
    Electronic Bulletin Board
 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 þ No o Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy of information statements incorporated by reference in Part III of this Form 10 -
KSB or any amendment to this Form 10-KSB o. The registrants common stock trades on the electronic bulletin board of the Over-the-Counter
market under the trading symbol ZXIS.OB. The aggregate market value of the registrants voting
stock held by non-affiliates of the registrant as of March 31, 2005 was $925,541. The aggregate
market value was calculated based upon the number of shares held by non-affiliates on March 31,
2005 and the price at which the registrants common stock traded on June 22, 2005 the last date on
which the registrant had knowledge of a public trade prior to filing this report. The number of common shares outstanding as of March 31, 2005: 3,825,000.




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DOCUMENTS INCORPORATED BY REFERENCE Title of Document
    
    Part of Form 10-KSB
 Proxy Statement to shareholders to be filed by July 29, 2005
    
    Part IIIAnnual Report to shareholders for the fiscal year ended March 31, 2005
    
    Parts II and IV




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Z-AXIS CORPORATION TABLE OF CONTENTS Part I.Item 1. BusinessOur BusinessRecent DevelopmentsOur StrategyOur ServicesOur CustomersSales and MarketingBacklogCompetitionSuppliersManagement Information SystemsEmployeesItem 2. Description of PropertyItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of ShareholdersPart II.Item 5. Market for Common Equity and Related Stockholder MattersItem 6. Managements Discussion and Analysis of Financial Condition and Results of OperationsOverview 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 DisclosuresItem 8A.Controls and ProceduresPart IIIItems 9-12. Incorporated by reference as described aboveItem 13. Exhibits and Reports on Form 8-KItem 14. Incorporated by reference as described aboveCertification of CEOCertification of Director of Finance and AdministrationCertification of CEOCertification of Director of Finance and Administration




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Z-AXIS CORPORATION 
 PART I 
 Item 1. BUSINESS 
 Our Business Z-Axis Corporation (the Company) was incorporated under the laws of the State of Colorado on May
16, 1983. The principal business and industry segment in which the Company operates is the
development and production of computer-generated graphics and other presentation materials. The
Company conducts its business primarily from one location, its corporate office and production
facility located in metropolitan Denver, Colorado. During fiscal years 2005 and 2004, the Company
also had sales consultants located in Chicago, Illinois; Northern California; New York City, New
York; Houston, Texas; Washington, DC, and London, United Kingdom. The Company operates within only
one industry segment. The Company is in the business of providing video graphic presentation services in the litigation
services industry for commercial and government customers. These services include product leasing
and support for various presentation software systems used in trials, hearings and other related
court proceedings. Litigation services customers are primarily law firms and corporations located
throughout the United States. During fiscal years 2005 and 2004, sales were derived from the
litigation services field. 
 Recent Developments The Company is actively developing relationships with legal contacts in the United Kingdom, Germany
and France with the intent of selling the Companys services into these markets. During the last
fiscal quarter of 2005, the independent sales consultant responsible for developing the overseas
markets established a permanent residence in the United Kingdom. 
 Our Strategy Our mission is to be the leading provider of litigation presentation solutions that simplify
complex ideas and communications and deliver high value results to our clients. Our strategy
includes:  
    
    Focus on improving the sales effort for existing services and products with law firms.
    
    Improve our existing litigation presentation services and products to target the needs
of law firms in the litigation industry.
    
    Develop new litigation presentation services and products that will meet the needs of
law firms and enhance our position in the market.
    
    Identify and develop new customers, both domestic and international in related markets
that can benefit from our service and product offerings.
    
    Implement and improve production and training systems within the Company to ensure that
our services and products continue to meet high quality standards and are delivered on time
and within agreed upon budgets.
    
    Continue to invest in marketing efforts including printed materials, visual
presentations and hiring qualified sales consultants.




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Z-AXIS CORPORATION 
 Our Services and Products The Companys products may consist of any combination of computer-generated graphics, live action
video, photographs, graphic artwork, document presentation, special effects and presentation
exhibit boards. The litigation service products have proven to be successful in courtroom
presentations when highly technical or complex concepts are being conveyed. The Companys video animation product is delivered to its customers on videotape or in an
electronic format. The material can be presented using computers, videotape player or by an
electronic courtroom presentation system called VuPoint. During the past eight fiscal years the
Company designed, developed and refined an advanced electronic courtroom presentation system
consisting of proprietary software in combination with off-the-shelf hardware. The system has been
named VuPoint. The Company received trademark protection of the name and has patent protection
for a portion of the software technology. VuPoint was introduced to the litigation market in early
1997. It is designed for use by trial teams, outside counsel and in-house attorneys. The Company
considers it to have continuing revenue potential and will continue refinement and enhancement of
the system in accordance with the Companys strategic business plan. The Company has also developed in-house expertise on several other electronic courtroom
presentation systems including Sanction and Trial Director that are primarily sold to law firms by
other companies and independent dealers. Z-Axis has trial presentation system consultants that can
work with clients in courtroom and war room settings with these systems and further enhance the
clients success with their presentations to juries and judges. 
 Our Customers Our customers are primarily large and medium sized law firms that provide representation to their
clients in litigation proceedings including trials, Markman hearings, summary judgment hearings and
other related court proceedings. Although certain customers from time to time may each provide
more than 10% of the Companys net sales, it is not dependent upon any group of customers. One
customer accounted for 33% of the total sales in fiscal 2005 as compared to three customers that
accounted for 38% of total sales in fiscal 2004. 
 Marketing and Sales Our marketing efforts continue to be targeted specifically to attorneys who specialize in complex
litigation. In addition, we continue to update our website, as well as use electronic newsletters
and a direct mail campaign to our customer base. The Company has implemented a customer
satisfaction survey system to measure and understand our clients needs both now and in the future.
Our sales consultants frequently give presentations at litigation industry conferences and
continuing legal education seminars. One of the Companys sales strategies is to expand our service lines within the litigation market.
This includes selling services earlier in the litigation process in order to ensure a continuing
relationship with the attorneys over the course of a case. Management is continually monitoring,
training and developing the current sales team. The Company may choose to add additional sales
consultants in key locations to achieve the revenue goals set out by management.




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Z-AXIS CORPORATION 
 Backlog The Company considers expected revenue from current jobs that will continue into the next fiscal
year as well as forecasted revenue from jobs that have been closed, but will not start until the
future as backlog of orders for services. As of March 31, 2005 and 2004 management estimates the
backlog to be approximately $2,000,000. Management believes that the
backlog will stay at this level in the second and third quarters of fiscal 2006. Although the Company had agreements to
perform services in these amounts, in the case of litigation support services, the agreements may
be canceled or modified for such reasons as pre-trial settlement of the case being litigated or a
decision to use the Companys services to a greater or lesser extent than originally anticipated.
Federal government contracts may be terminated at any time at the option of the government. 
 Competition The Company competes nationally with other providers of presentation services. Over the years, the
Company has developed a high level of expertise in the design and development of technical
animations and visual presentation materials for the litigation services industry. Z-Axis competes
at the high end of this market which is limited to only a few companies. The Company has developed
a good reputation for its services and has established regular customers. Management does not
consider any portion of its business or markets to be seasonal in nature. 
 Suppliers The majority of production labor talent is provided by regular full-time producers, artists and
editors as well as independent contractors. The Company has the ability to increase or decrease
labor cost as revenue levels vary with the volume and size of the jobs in house at any given time.
Other materials and equipment that the Company uses to provide its services are readily available
from a number of sources both locally and on a national level. The Company has not encountered any
difficulty in obtaining these materials or equipment or in servicing its equipment. 
 Management Information Systems The Company currently utilizes several management information tools, including electronic
scheduling of resources, tracking of job progression and standard computerized accounting systems.
The Company does not require a computerized system for purchasing, as all materials and supplies
purchasing is entered directly into the accounting system. The Company does not carry any
inventory. The systems currently in place generate daily, weekly, monthly, quarterly and annual
reports that track sales volume, costs, labor efficiency and other relevant management information.
The Company continually enhances the management information systems, as needed to provide
additional information to all levels of management. 
 Employees At March 31, 2005, the Company had 22 regular full-time employees. In addition, there is an
adequate base of local well-qualified contract personnel that the Company employs from time to time
as production demands require.




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Z-AXIS CORPORATION 
 Item 2. DESCRIPTION OF PROPERTY The Companys current headquarters and production facility are located in a business park in the
south metropolitan area of Denver, Colorado. The Company leases its offices and production
facility under an operating lease. The lease term began on June 1, 2003 and will extend through
May 31, 2011. The terms of the lease provide for a total of six months of rent abatement granted
for the 1st, 2nd, 25th, 26th, 37th and 38th
months of the lease, which creates the deferred rent liability disclosed in the financial
statements. As of March 31, 2005 the deferred rent liability is $47,062. The terms of the lease
also require a security deposit in the amount of $27,982 and an Irrevocable Standby Letter of
Credit originally in the amount of $60,000, which is secured by a restricted money market cash
account at a financial institution. Subsequent to March 31, 2005, the amount of the Irrevocable
Standby Letter of Credit was reduced $24,000 to a balance of $36,000. The Irrevocable Standby
Letter of Credit will continue to reduce by $12,000 per year for the next three consecutive years
ending April 2008. The Company also has office space rental agreements for the Illinois and New
York locations. The Company leases the facilities from unaffiliated third parties. Management
believes that the facilities are adequate for the Companys operations. 
 Item 3. LEGAL PROCEEDINGS We are not currently party to any legal proceedings. 
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal
year. 
 PART II 
 Item 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The number of holders of record of the Companys common stock as of March 31, 2005 was 403 as
reported by the transfer agent. This number does not include an undetermined number of
stockholders whose stock is held in street or nominee name. The Company has never paid a dividend with respect to its common stock and does not anticipate
paying a dividend in the foreseeable future. The Companys common stock had been traded in the NASDAQ over-the-counter market under the trading
symbol AXIS. On November 1, 1985, the Companys common stock was deleted from the NASDAQ listing
system because its net worth fell below the minimum required to be traded on NASDAQ. Subsequent to
November 1, 1985, the Companys common stock was traded on the Pink Sheets. During January 1995, the Company secured a market marker for trading in its common stock and it
became listed for trading on the electronic bulletin board of the Over-the-Counter market, under
the trading symbol ZXIS.OB. Since listing occurred on the Over-the-Counter market, trading has
been sporadic.




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Z-AXIS CORPORATION The following is a summary of the high and low stock prices, as reported by the Over the Counter
Bulletin Board to an internet stock price service for the period indicated: 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
    
    
    $
    0.4100Fiscal year ended March 31, 2004:First quarter
    
    $
    0.5300
    
    
    $
    0.2700Second quarter
    
    $
    0.4500
    
    
    $
    0.2500Third quarter
    
    $
    0.4500
    
    
    $
    0.2500Fourth quarter
    
    $
    0.4500
    
    
    $
    0.3000
 Quotations reported may represent prices between dealers, may not include retail markups, markdowns
or commissions and may not represent actual trades. 
 Item 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Companys financial statements and
notes for the fiscal years ended March 31, 2005 and 2004. 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 our plans and strategies for our business, includes forward-looking statements that
involve risk and uncertainties. 
 Executive Summary As discussed under the caption Forward-Looking Statements, Z-Axis Corporation provides the
following risk factor disclosures in connection with its continuing efforts to qualify its written
and oral forward-looking statements for the safe harbor protection of the Reform Act and any other
similar safe harbor provisions. Important factors currently known to management could cause actual
results to differ materially from those in forward-looking statements include, but are not limited
to the following: The Company currently operates in one segment of the litigation industry. Any changes in Federal
or State laws as they apply to the admissibility of the types of services and products that Z-Axis
provides to our clients in their litigation proceedings could have a material affect on the
Companys ability to continue to service existing and potential new customers. The Company may
not, under these conditions, be able to generate enough cash to meet operating requirements. If
sufficient operating cash is not generated, the Company will have to borrow funds from the
revolving line of credit. The Companys ability to repay the line of credit will depend upon
future revenues and net earnings, which management cannot guarantee.




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Z-AXIS CORPORATION If the Companys sales levels decrease from their current level, management could be forced to
curtail production, selling and general and administrative costs or implement other cost reduction
measures. In this event, it is likely that the current operating profit would decrease and price
of the Companys stock will decrease significantly from the current level. The Company faces competition from a few high-end providers to the litigation market, internal
litigation support departments established within law firms and many smaller companies that provide
the same type of services as Z-Axis. Clients are becoming more price sensitive in this market and
Z-Axis will need to identify strategies that will augment the Companys current offerings with
value added services and products for our existing and potential customers. The Companys ability
to identify and implement these strategies is dependent upon managements ability to analyze the
needs of the market and respond quickly to those needs. Although the Company is not dependent upon any one customer for revenues, the Company does derive a
significant portion of sales from repeat business with existing clients. If the Companys current
relationships with any of the significant and/or key law firms are severed, then revenues could
decrease, as the timeframe needed to re-establish these relationships can be several months to
years long. The Companys production facility is located in one building and if this facility were to
experience a fire, flood or other calamity, the Companys operations could be temporarily disrupted
and the ability to generate the same level of revenues in the same timeframes would be compromised.
The Company does have a large pool of independent contractors who have their own production
facilities. Should a business disruption such as that described above occur, management believes
that a portion of the production could be diverted to these outside contractors and facilities.
However, the potential cost of this could be substantial and could lead to an increase in
production costs resulting in a decrease in operating profit. The Companys trading price for its stock may be highly volatile due to factors that have little or
nothing to do with the results of operations or profit levels. The market for the Companys stock
may experience significant price and volume fluctuations in response to a number of factors that
may not be controllable by management. The stock market in general and the market for small
capitalization stocks in particular, have experienced extreme volatility that often has been
unrelated to the operating performance of publicly traded companies. These broad market and small
capitalization stock fluctuations may adversely affect the trading price of the Companys common
stock, regardless of actual operating performance.




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Z-AXIS CORPORATION Results Of Operations The following table sets forth, for the fiscal years ended March 31, 2005 and 2004, the percentage
of net sales represented by the specific items included in our statements of operations. We have
included this comparison because we believe it provides a more meaningful basis for
period-to-period comparisons. The financial data should not be viewed as a substitute for our
historical results of operations determined in accordance with generally accepted accounting
principles and does not purport to be indicative of future results of operations. For the Years EndedMarch 31,2005
    
    
    2004Net sales
    
    
    100.0
    %
    
    
    100.0
    %Operating expensesProduction
    
    
    41.2
    
    
    
    41.6Research and development
    
    
    3.1
    
    
    
    0.9General and administrative
    
    
    26.6
    
    
    
    29.2Marketing
    
    
    25.9
    
    
    
    23.1Depreciation
    
    
    2.2
    
    
    
    3.6Amortization of software development costs
    
    
    0.7
    
    
    
    0.4Total operating expenses
    
    
    99.7
    
    
    
    98.8Income from operations
    
    
    0.3
    
    
    
    1.2Other income
    
    
    0.0
    
    
    
    1.0Income tax expense
    
    
    (0.1
    )
    
    
    (0.9
    )Net income
    
    
    0.2
    %
    
    
    1.3
    %
 Year Ended March 31, 2005 compared to Year Ended March 31, 2004 Net Sales During fiscal years 2005 and 2004 sales were derived primarily from the litigation services field.
Management continually evaluates the Companys marketing strategies in this field and expects that
the core business revenues will continue to be focused on the litigation services market.
Management continues to pursue business strategies aimed at gaining market share and positioning
the Company as the premier provider of presentation consulting services to the litigation industry.
Net sales increased by $384,463, or 12%, to $3,487,192 for the year ended March 31, 2005 as
compared to $3,102,729 for the year ended March 31, 2004. The increase in revenue was expected as
a result of the sales and marketing strategies implemented over the last two fiscal years. In
addition, the Company performed work on a large job during fiscal year 2005 which represented 33%
of the total revenue. Management does not anticipate that the job noted above will generate the
same level of revenues during fiscal 2006. Additional revenues from this job will depend upon the
outcome of certain legal proceedings. Revenues from other core business services are expected to
continue at their current levels, allowing the Company to maintain a profitable position. Cost
management measures are also in place aimed at maintaining overhead expenses at an appropriate
level to achieve profits, as well as effective utilization of contract labor on revenue producing
activities. One customer accounted for 33% of the total sales in fiscal 2005 as compared to three
customers that accounted for 38% of total sales in fiscal 2004.




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Z-AXIS CORPORATION The percentage of sales for any one customer during a fiscal year can vary greatly depending upon
the number of jobs or magnitude of the dollar value of the projects from that customer. Although
the Company does have several firms that provide repeat business, the sales focus is on
developing relationships with many different firms throughout the country in order to expand
the base of potential jobs arising out of the litigation industry. The Companys on-going
operations and business are not dependent on any customer and are not materially impacted by the
effects of inflation. The Companys ability to maintain an effective marketing program, expand its market share in the
near-term and establish new markets in the long-term, may have an effect on its future financial
position and results of operations. During fiscal years 2005 and 2004 the Company increased its
expenditures for marketing and advertising efforts. In order to continue to maintain the Companys
leadership position in the litigation services market, management expects that advertising and
marketing expenses will stay at their current levels during fiscal year 2006. Management considers
the expenses associated with an expansion of the marketing program, necessary for future growth. Operating Expenses Operating expenses increased $411,816, or 13%, to $3,476,883 for the fiscal year ended March 31,
2005 as compared to $3,065,067 for the fiscal year ended March 31, 2004. As a percentage of sales,
operating expenses were 99.7% for the fiscal year 2005 as compared to
98.8% for fiscal year 2004.
Operating costs includes compensation costs for all regular full and part-time employees, as well
as overhead expenses such as building rent, insurance, supplies, marketing costs and depreciation
and amortization. Since a portion of these costs are considered fixed, as revenue levels increase
or decrease the overall percentage of these costs against revenues will fluctuate. Labor expense
continues to be the most significant of the Companys operating costs. During 2005 and 2004,
employee compensation and benefit costs accounted for approximately 70% and 68%, respectively, of
total operating expenses. Management believes that the Companys staffing levels and production
capacity are sufficient to maintain current and anticipated near-term production levels. Production expenses increased $148,437, or 12%, to $1,437,366 for the fiscal year ended March 31,
2005 as compared to $1,288,929 for the fiscal year ended March 31, 2004. Production costs for
direct contract labor and other billable expenses will vary directly with sales levels. Production
costs as a percentage of sales were 41% for both fiscal year 2005 and 2004. Production costs
include some fixed expenses for salaried full and part time employees, as well as equipment
maintenance costs and production supplies. As revenue levels increase or decrease, the overall
percentage of these costs against revenue will fluctuate. The Company manages fluctuations in
production labor requirements through the use of employees in combination with a core of several
experienced contract producers and artists. This strategy is used to manage more effectively the
cost of labor, as monthly revenue levels can vary significantly. In addition, the production
department has compensation and benefit costs for core staff employees including artists, producers
and managers. These core staff costs do not vary as directly as contract labor costs with sales
revenue volume. Management consistently reviews strategies to maximize revenue while keeping
production costs at an efficient level. During the fourth quarter of fiscal 2005, the Company
acquired a producer who had her own litigation services business located on the west coast.
Management anticipates that this acquisition will help increase sales in the west coast region, as
well as provide direct customer production support in that territory.




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Z-AXIS CORPORATION Research and development costs, before capitalization of software development costs, decreased
$3,162 or 3%, to $107,483 for the fiscal year ended March 31, 2005 as compared to $110,645 for the
fiscal year ended March 31, 2004. During fiscal year 2004, $82,010 of the $110,645 in costs was
capitalized as software development costs accordance with Statement of Position 98-1, Accounting
for Costs of Computer Software Developed for Internal Use. The capitalized costs are the result
of a significant change to VuPoint, which resulted in release of version 6.0 in the fourth quarter
of fiscal year 2004. The Company received trademark protection of the VuPoint name and also
received patent protection for a portion of the software code. It is a state-of-the-art exhibit
management and presentation system for use by trial teams, outside counsel and in-house attorneys.
The product fulfills a need in the marketplace, particularly in presenting exhibits for
document-intensive cases. In addition to maintenance of VuPoint, research and development costs
for fiscal 2005 were focused on development of an internal multi-user system to help track the
Companys production activities. Management expects to continue to focus the Companys software
development efforts on both the internal user system, as well as VuPoint enhancements. General and administrative expenses increased $20,717, or 2%, to $925,993 for the fiscal year ended
March 31, 2005 as compared to $905,276 for the fiscal year ended March 31, 2004. The increase is
due to modest compensation increases for administrative and executive employees, higher general
business and officer and director insurance rates and payment of an executive bonus based on
revenue and profit levels. The executive bonus is part of the overall executive compensation plan
developed the Board of Directors Compensation Committee. The committee is comprised of outside
members of the Board of Directors. Executive costs are combined with other general and
administrative costs in the financial statements for presentation purposes . Management
expects that general and administrative costs will be consistent during fiscal year 2006. Marketing expenses increased $184,239, or 26%, to $902,918 for the fiscal year ended March 31, 2005
as compared to $718,679 for the fiscal year ended March 31, 2004. The increase is due to the
addition of sales consultants in the Texas, District of Columbia and Northern California regions,
as well as independent consultant compensation, travel and marketing costs associated with
development of overseas markets, primarily in the United Kingdom. The Company also incurred
outside consulting fees to upgrade the Companys website. The cost increase also reflects higher
sales commissions due to the increased sales levels. The addition of new sales consultants and
expenditures related to the Companys marketing efforts are part of an overall strategic plan that
management has been implementing during the past two fiscal years. Management expects that the
same level of marketing costs will be incurred for the foreseeable future as the Company continues
to position itself as a high end provider of litigation presentation services. Depreciation expense decreased $37,038, or 33%, to $75,662 during fiscal year ended March 31, 2005
as compared to $112,700 during fiscal year ended March 31, 2004. The decrease is due to
lower purchases of property and equipment during fiscal 2005 as compared to fiscal 2004. During
fiscal 2005, the Company invested $36,409 in capital purchases for various production and office
equipment and software upgrades. In addition, the Company financed $41,314 on capital leases for
the purchase of a color copier and several laptop computers to support production, marketing and
on-site trial presentation services. During fiscal 2004, the Company invested $103,763 in total
capital purchases. Management expects that capital expenditures will be comparable during fiscal
2006 as computer equipment is replaced and upgraded to keep pace with the current technology.
Rapid technological advances in the type of equipment that the Company uses in providing its
services require that depreciable lives of the equipment be relatively short.




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Z-AXIS CORPORATION Amortization expense related to capitalized software development costs was $27,461 for the fiscal
year ended March 31, 2005 as compared to $10,848 for the fiscal year ended March 31, 2004.
Research and development costs were capitalized during fiscal year 2004. These costs were for the
development of VuPoint 6.0 which began earning revenue in the fourth quarter of fiscal 2004. In
accordance with Statement of Position 98-1, Accounting for Costs of Computer Software Developed
for Internal Use, these costs are being amortized as revenue from rental of the software and
associated system operator services are earned. Revenue earned from these rentals and services was
$152,563 for fiscal year 2005 as compared to $84,535 for fiscal year 2004. Other Income and Expenses Interest expense was $3,152 for the fiscal year ended March 31, 2005 as compared to $1,441 for the
fiscal year ended March 31, 2004, representing an increase of 119%. The increase was due to
interest expense incurred on the capital lease obligations entered into during fiscal year 2005.
Other income was $3,825 in fiscal year 2005 as compared to $32,929 in fiscal year 2004. Other
income is comprised primarily of gain on the sale of production and other equipment during 2005 and
2004. Income Taxes For income tax reporting purposes, the Company files its income tax returns using the cash basis of
accounting. Consequently, the timing of the reporting of certain income and expense items is
different than that for financial statement purposes. The Company recognized an income tax expense of $2,522 as of March 31, 2005 compared to $27,726 as
of March 31, 2004. The Company utilized approximately $347,000 and $220,000 of net operating loss
carryforwards during fiscal 2005 and 2004, respectively, as the Company had taxable income prior to
this utilization. At March 31, 2005, the Company had federal income tax loss carry forwards of approximately $333,000
which expire in the years 2006 through 2022. Net Income Net income decreased $32,964 for the fiscal year ended March 31, 2005 compared to the fiscal year
ended March 31, 2004. Net income as a percentage of sales
decreased to 0.2% for the fiscal year
2005 as compared to 1.3% for the fiscal year 2004. The decrease in net income for fiscal year 2005
is primarily due to a slight increase in operating expenses as a percentage of sales, coupled with
a decrease in the gain on sale of equipment as compared to fiscal year 2004. Management
anticipates that net income for fiscal year 2006 will be between 1.0% and 5.0% of sales. The Company considers expected revenue from current jobs that will continue into the next fiscal
year as well as forecasted revenue from jobs that have been closed, but will not start until the
future as backlog of orders for services. As of March 31, 2005, management estimates the backlog
to be approximately $2,000,000. Management believes that the backlog
will stay at this level in
the second and third quarters of fiscal 2006. Although the Company had agreements to perform
services in these amounts, in the case of litigation support services, the agreements may be
canceled or modified for such reasons as pre-trial settlement of the case being litigated or a
decision to use the Companys services to a greater or lesser extent than originally anticipated.
Federal government contracts may be terminated at any time at the option of the government.




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Z-AXIS CORPORATION 
 Liquidity and Capital Resources 
 Cash Requirements The Companys significant contractual obligations consist of a capital lease in the amount of
$34,433 which will be paid off during fiscal year 2008 and an operating lease for the current
office space in Greenwood Village, Colorado which will require a total of $918,949 in payments over
the next seven years. Management expects that capital expenditures during fiscal year 2006 will be
approximately $85,000. Projected sales for fiscal year ending March 31, 2006 are $3.6 million. The
proceeds from collection of these sales will generate the necessary cash flow to meet operating
cash obligations for fiscal 2006. 
 Sources and Uses of Cash The Companys principal source of liquidity as of March 31, 2005 consisted of $761,379 in cash and
cash equivalents. Cash is generated through the sale of consulting, animation, multimedia and
electronic graphics services, exhibit boards and rental and in-court services associated with the
Companys proprietary presentation system called VuPoint. Cash and a revolving line of credit are
used to fund accounts payable, pay operating costs, pay principal and interest on a capital lease
and acquire new equipment as needed. During fiscal year 2005, the Company did not need to draw any
funds on the revolving line of credit. Cash Flows from Operating Activities Cash flows from operations were $431,677 and $171,650 during the years ended March 31, 2005 and
2004, respectively. Cash provided by operations for fiscal year 2005 consisted of net income,
adjusted for depreciation, amortization, gain on sale of equipment, allowance for doubtful accounts
and deferred income taxes. The increase in cash flows from operations for fiscal year 2005 as
compared to fiscal year 2004 was due to the fact that approximately $300,000 in accrued profit
sharing for the fiscal year 2003 was paid during fiscal year 2004. Profit sharing was not awarded
for fiscal year 2004 or 2005 and no payments were made during fiscal year 2005. Cash Flows from Investing Activities During fiscal year 2005, cash was used to invest in property and equipment. Capital additions were
$36,409 and $103,763 during the fiscal years ended March 31, 2005 and 2004. The expenditures for
2005 and 2004 were for replacement of office and production equipment. Capital additions, as they
become necessary to meet production demands and replace equipment, will be acquired with a
combination of debt financing and cash flow from operations. Cash flows for development of VuPoint
6.0 were $0 and $82,011 during the fiscal years ended March 31, 2005 and 2004. Management does not
expect to have further capital investment in development of VuPoint 6.0, but rather continue to
maintain the product through operating cash flows.




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Z-AXIS CORPORATION Cash Flows from Financing Activities Cash flows used in financing activities were $14,117 and $140,370 during the years ended March 31,
2005 and 2004. Cash used in financing during fiscal 2004 was primarily for payments on the capital
lease obligation. The decrease in cash flows used in financing activities during fiscal 2005 as
compared to 2004 was primarily due to the fact that the line of credit was paid off and the Company
set aside $60,000 in cash as guarantee on an Irrevocable Standby Letter of Credit associated with
the building operating lease during fiscal 2004. During fiscal 2005, the Company did not borrow on
the line of credit, nor were additional funds added to the restricted cash balances. 
 Debt Instruments, Guarantees and Related Covenants The Company entered into an agreement with a bank for a line-of-credit of $500,000 that is due July
2, 2006. The interest rate is calculated at 1% over the banks prime rate (7% at March 31, 2005)
and interest is payable monthly. The line is collateralized by the Companys accounts receivable
and general intangibles. The balance outstanding on the line-of-credit at March 31, 2005 was $0. 
 Cash Management The timing of the Companys production volumes is largely dependent upon factors that are not
within its control, namely the timing of courtroom litigation or the potential that litigation may
settle before trial. Sales revenues for the first quarter of fiscal year 2006 are anticipated to
be approximately $850,000 resulting in a modest after tax net income. Management believes that
sales volumes are expected to range between $700,000 and $950,000 for the remaining quarters of
fiscal year 2006, with an anticipated total sales volume of $3,600,000. This volume should allow
the Company to generate a net profit of approximately 1% to 5%. Management expects the Company to
continue to be in a profitable financial position during fiscal year 2006 and be able to meet
operating cash flow requirements and debt service obligations. Management is also focusing on
marketing efforts to further enhance the Companys position in the litigation presentation services
industry and position the Company to gain market share. Contractual Obligations and Commercial Commitments At March 31, 2005, the Company had certain cash obligations, which are due as follows: Less Than 1
    
    
    
    
    
    
    
    
    
    
    After 5Total
    
    
    Year
    
    
    1 to 3 Years
    
    
    4 to 5 Years
    
    
    YearsCapital lease obligations
    
    $
    42,371
    
    
    $
    18,808
    
    
    $
    23,563
    
    
    $
    
    
    
    $
    Operating leases
    
    
    918,949
    
    
    
    124,518
    
    
    
    437,483
    
    
    
    328,965
    
    
    
    27,983Total
    
    $
    961,320
    
    
    $
    143,326
    
    
    $
    461,046
    
    
    $
    328,965
    
    
    $
    27,983




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Z-AXIS CORPORATION 
 Critical Accounting Policies and Estimates Concentrations of Credit Risk Financial instruments, which potentially subject the Company to concentration of credit risk,
consist principally of cash and trade accounts receivable. The Company places its temporary cash
investments with what management believes are high-credit, quality financial institutions.
Concentrations of credit risk with respect to trade accounts receivable are limited due to the
Companys periodic credit evaluations of its significant customers financial condition and their
dispersion across geographic areas. Accounts Receivable The Company extends unsecured credit to its customers in the ordinary course of business, but
mitigates the associated credit risk by performing credit checks and actively pursuing past due
accounts. Amounts determined to be uncollectible are expensed in the period such determination is
made. The provision for uncollectible amounts is continually review and adjusted to maintain the
allowance for doubtful accounts at a level considered adequate to cover future losses. The
allowance is managements best estimate of uncollectible amounts and is determined based on
historical performance that is tracked by the Company on an ongoing basis. The Company will write
off all uncollectible accounts after all collection efforts have failed. The losses ultimately
incurred could differ materially in the near term from the amounts estimated in determining the
allowance. Software Development Costs The Company applies the provisions of Statement of Position 98-1, Accounting for Costs of Computer
Software Developed for Internal Use. The Company accounts for costs incurred in the development
of computer software as software research and development costs until the preliminary project stage
is completed. Direct costs incurred in the development of software are capitalized once the
preliminary project stage is completed, management has committed to funding the project and
completion and use of the software for its intended purpose are probable. The Company ceases
capitalization of development costs once the software has been substantially completed and is ready
for its intended use. Software development costs are amortized over their estimated useful lives
which are reflective of the Companys estimate of the expected revenues derived from the use of the
software. Costs associated with upgrades and enhancements that result in additional functionality
are capitalized. Stock Options The Company applies Accounting Principles Bulletin (APB) Opinion 25 Accounting for Stock Issued to
Employees and related Interpretations in accounting for all stock option plans. Under APB Opinion
25, no compensation cost has been recognized for stock options issued to employees as the exercise
price of the Companys stock options granted equals or exceeds the market price of the underlying
common stock on the date of grant. SFAS No. 123 and 148 require the Company to provide pro forma
information regarding net income and net income per share as if compensation costs for the
Companys stock option plan had been determined in accordance with the fair value based method
prescribed in SFAS No. 123. The Company estimates the fair value of each stock award at March 31,
2005 and 2004 by using the Black-Scholes option-pricing model with the following weighted-average
assumptions used respectively: dividend yield of 0% for all years; expected volatility of 123% and
176% for 2005 and 2004, respectively; risk-free interest rates of approximately 4%; and expected
lives of 5 and 10 years for 2005 and 2004 stock awards.




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Z-AXIS CORPORATION The Company has adopted the disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation. Accordingly, no compensation cost
has been recognized for the stock option plans as options were issued to employees of the Company. Revenue and Cost Recognition The Company generates revenue primarily from hourly-rate contracts with its customers. Some of the
revenue is generated by work with government agencies that require fixed-price contracts and are
negotiated periodically to allow for changes in the amount and scope of work. Revenue generated
from hourly-rate and fixed-price contracts is recognized as services are performed. Revenue is
determined by the contract billing rates and the time incurred to perform the service plus
reimbursable expenses. Expense is determined by actual cost incurred. 
 Recently Issued Accounting Pronouncements In December 2004, the FASB issued SFAS No. 153 Exchanges of Nonmonetary Assets, which is
effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. Earlier application is permitted for nonmonetary asset exchanges occurring in fiscal periods
beginning after December 16, 2004. The provisions of this Statement should be applied
prospectively. SFAS No. 153 amends Opinion 29 to eliminate the exception for nonmonetary exchanges
of similar productive assets and replaces it with a general exception for exchanges of nonmonetary
assets that do not have commercial substance. A nonmonetary exchange has commercial substance if
the future cash flows of the entity are expected to change significantly as a result of this
exchange. The adoption of this standard will not have a material impact on the Companys financial
statements. In December 2004, the FASB issued SFAS No. 123R, Share Based Payment, which will be effective for
the Company for the fiscal year which ends March 31, 2007. This statement is a revision of FASB
Statement No. 123, Accounting for Stock-Based Compensation.This Statement supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees,and its related implementation guidance. This
Statement requires a public entity to measure the cost of employee services received in exchange
for an award of equity instruments based on the grant-date fair value of the award (with limited
exceptions). That cost will be recognized over the period during which an employee is required to
provide service in exchange for the awardthe requisite service period (usually the vesting
period). No compensation cost is recognized for equity instruments for which employees do not
render the requisite service. Employee share purchase plans will not result in recognition of
compensation cost if certain conditions are met; those conditions are much the same as the related
conditions in Statement 123. The Company is not able to determine at this time if the adoption of
this standard will have a material effect on the Companys financial statements. 
 Market Risk The Companys revenues are not considered to be seasonal in nature, but they can fluctuate based on
the timing of our clients legal proceedings. Management believes that inflation has not had a
significant impact on the Companys financial position or results of operations. The Company does
not have any transactions, arrangements or relationships with special purpose entities. The
Company does not have any off-balance sheet debt, nor does it guarantee any financial obligations
of third or related parties.




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Z-AXIS CORPORATION 
 Other Matters Dividends No dividends have been declared as of March 31, 2005 and the Company does not anticipate paying
dividends in the foreseeable future. Related Party Transactions The Company does not have any financial transactions with related parties as of March 31, 2005. 
 Forward Looking Statements In addition to the historical information, this 10KSB and Annual Report incorporated by reference
herein, contain forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995 and the Company desires to take advantage of the Safe Harbor provisions
thereof. Therefore, the Company is including this statement for the express purpose of availing
itself of the protections of such Safe Harbor with respect to all of such forward-looking
statements. The forward-looking statements in this report reflect the Companys current views with
respect to future events and financial uncertainties, including those discussed herein, that could
cause actual results to differ materially from historical results or those anticipated. In this
report, the words anticipates, believes, expects, intends, future and similar expressions
identify forward-looking statements. Readers are cautioned not to place undue reliance on the
forward-looking statements contained herein, which speak only as of the date hereof. The Company
undertakes no obligation to publicly revise these forward-looking statements to reflect events or
circumstances that may arise after the date of this report.




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Z-AXIS CORPORATION 
 Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Presidents Letter to Shareholders To Our Shareholders: The results for Fiscal Year 2005 were as anticipated, with revenue growth over the previous year
and an investment in the expansion of sales, production and our core services. We believe this is
necessary in order to achieve long-term growth. We continue our industry leadership position by
working on the largest cases of note. Were proud of our participation in the Department of Justice
case against the tobacco industry, as well as the successful verdict gained for our client in the
second phase of the World Trade Center insurance case. Growing our Business
We now have an unprecedented number of sales consultants nationwide and are building momentum.
With increased coverage and as each consultant gains experience in their market, we are gaining
more new clients which should increase our market share over time. In the fourth quarter we
officially opened our international sales office in London. With a case in progress and several in
the early stages, we anticipate our investment in this market to pay off this year. Our Production is Virtually Anywhere
Weve seen a trend for increased need in our graphic services on location immediately before and
during trials or hearings. Often we are providing a small production team of artists and
presentation software operators to work side-by-side with the trial team. We continue to maintain our core production facility in Denver due to its central location and the
cost-effectiveness of doing business in Denver. Z-Net, our web-based project monitoring system and
client site, has made it easier to monitor the progress of jobs in production from planning to
completion, from any remote location. Our production services have also been enhanced with the hiring of a senior producer in Berkeley,
California, giving us an experienced producer on the West Coast. Her knowledge of the legal field,
our industry and the California market is quite extensive. Evolving Services
Weve seen an increase in print services and, as a result, added in-house print capabilities to our
list of services. This has allowed us to produce hard copies of exhibits and jury books as
leave-behinds. As more attorneys adopt PowerPoint for their presentations, we have increased our
use of this presentation software to support our clients needs. The Big Picture
Our emphasis in 2005 has not wavered. We anticipate an increase in sales over last year as we
continue to focus on our core strengths, expanding our market share, increasing our brand
recognition and strengthening our procedures. We continue to be hired on complex cases and take a
vested interest in providing favorable outcomes for our clients. /s/ Stephanie KelsoStephanie KelsoPresident




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Z-AXIS CORPORATION Table of Contents PageReport of Independent Registered Public Accounting Firm
    
    
    1Financial StatementsBalance Sheets
    
    
    2Statements of Income
    
    
    3Statement of Changes in Stockholders Equity
    
    
    4Statements of Cash Flows
    
    
    5Notes to Financial Statements
    
    
    6




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders
Z-Axis Corporation
Greenwood Village, Colorado We have audited the accompanying balance sheets of Z-Axis Corporation as of March 31, 2005 and
2004, and the related statements of income, changes in stockholders equity and cash flows for the
years then ended. These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion. In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Z-Axis Corporation as of March 31, 2005 and 2004, and the
results of their operations and their cash flows for the years then ended, in conformity with U.S.
generally accepted accounting principles. /s/ Ehrhardt Keefe Steiner & Hottman PCEhrhardt Keefe Steiner & Hottman PC June 10, 2005
Denver, Colorado - 1 -




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Z-AXIS CORPORATION 
 Balance Sheets March 31,2005
    
    
    2004AssetsCurrent assetsCash
    
    $
    761,379
    
    
    $
    379,788Accounts receivable, net of
allowance of $41,860 and
$92,160 respectively
    
    
    498,042
    
    
    
    780,279Other current assets
    
    
    57,820
    
    
    
    82,524Total current assets
    
    
    1,317,241
    
    
    
    1,242,591Non-current assetsProperty and equipment, net
    
    
    129,286
    
    
    
    135,312Restricted cash (Note 8)
    
    
    61,023
    
    
    
    60,524Capitalized software, net
    
    
    52,621
    
    
    
    80,082Deposits
    
    
    28,452
    
    
    
    28,433Deferred income taxes
    
    
    96,000
    
    
    
    179,000Total non-current assets
    
    
    367,382
    
    
    
    483,351Total assets
    
    $
    1,684,623
    
    
    $
    1,725,942Liabilities and Stockholders EquityCurrent liabilitiesLine-of-credit
    
    $
    
    
    
    $
    Accounts payable
    
    
    38,139
    
    
    
    32,887Accrued expenses
    
    
    102,397
    
    
    
    109,046Deferred revenue
    
    
    35,500
    
    
    
    48,500Deferred income taxes
    
    
    150,000
    
    
    
    232,000Current portion of capital lease obligations
    
    
    14,200
    
    
    
    5,695Total current liabilities
    
    
    340,236
    
    
    
    428,128Capital lease obligations, less current portion
    
    
    20,233
    
    
    
    1,042Deferred rent
    
    
    47,062
    
    
    
    28,140Total liabilities
    
    
    407,531
    
    
    
    457,310CommitmentsStockholders 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
    
    
    (173,404
    )
    
    
    (181,864
    )Total stockholders equity
    
    
    1,277,092
    
    
    
    1,268,632Total liabilities and stockholders equity
    
    $
    1,684,623
    
    
    $
    1,725,942
 See notes to financial statements. - 2 -




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Z-AXIS CORPORATION 
 Statements of Income For the Years EndedMarch 31,2005
    
    
    2004Net sales
    
    $
    3,487,192
    
    
    $
    3,102,729Operating expensesProduction
    
    
    1,437,366
    
    
    
    1,288,929Research and development
    
    
    107,483
    
    
    
    28,635General and administrative
    
    
    925,993
    
    
    
    905,276Marketing
    
    

    902,918
    
    
    
    718,679Depreciation and amortization
    
    
    75,662
    
    
    
    112,700Amortization of software development costs
    
    
    27,461
    
    
    
    10,848Total operating expenses
    
    
    3,476,883
    
    
    
    3,065,067Income from operations
    
    
    10,309
    
    
    
    37,662Other income (expense)Interest (expense), net
    
    
    (3,152
    )
    
    
    (1,441
    )Gain (loss) on sale of equipment
    
    
    (7,647
    )
    
    
    25,594Other income
    
    
    11,472
    
    
    
    7,335Total other income
    
    
    673
    
    
    
    31,488Income before income taxes
    
    
    10,982
    
    
    
    69,150Income tax expense
    
    
    (2,522
    )
    
    
    (27,726
    )Net income
    
    $
    8,460
    
    
    $
    41,424Weighted average common shares outstanding:Basic
    
    
    3,825,000
    
    
    
    3,825,000Diluted
    
    
    3,994,182
    
    
    
    3,962,211Basic income per common share
    
    $
    0.00
    
    
    $
    0.01Diluted income per common share
    
    $
    0.00
    
    
    $
    0.01
 See notes to financial statements. - 3 -




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Z-AXIS CORPORATION 
 Statement of Changes in Stockholders Equity For the Years Ended March 31, 2005 and 2004
 Additional
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    EquityBalance  March 31,
2003
    
    
    3,825,000
    
    
    $
    3,825
    
    
    $
    1,446,671
    
    
    $
    (223,288
    )
    
    $
    1,227,208Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,424
    
    
    
    41,424Balance  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
    )
    
    $
    1,277,092
 See notes to financial statements. - 4 -




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Z-AXIS CORPORATION 
 Statements of Cash Flows For the Years EndedMarch 31,2005
    
    
    2004Cash flows from operating activitiesNet income
    
    $
    8,460
    
    
    $
    41,424Adjustments to reconcile net income to net cash
provided by operating activitiesDepreciation
    
    
    75,662
    
    
    
    112,700Amortization of software development costs
    
    
    27,461
    
    
    
    10,848Loss (gain) on sale of equipment
    
    
    7,647
    
    
    
    (25,594
    )Allowance for doubtful accounts
    
    
    (50,300
    )
    
    
    (52,607
    )Deferred income taxes
    
    
    1,000
    
    
    
    27,724Changes in assets and liabilitiesAccounts receivable
    
    
    332,537
    
    
    
    380,122Other current assets
    
    
    24,704
    
    
    
    (29,316
    )Deposits
    
    
    (19
    )
    
    
    8,569Accounts payable
    
    
    5,252
    
    
    
    (6,816
    )Accrued expenses
    
    
    (6,649
    )
    
    
    (342,044
    )Deferred revenue
    
    
    (13,000
    )
    
    
    18,500Deferred rent
    
    
    18,922
    
    
    
    28,140423,217
    
    
    
    130,226Net cash provided by operating activities
    
    
    431,677
    
    
    
    171,650Cash flows from investing activitiesPurchase of property and equipment
    
    
    (36,409
    )
    
    
    (103,763
    )Proceeds from sale of equipment
    
    
    440
    
    
    
    27,855Capitalized software costs
    
    
    
    
    
    
    (82,011
    )Net cash used in investing activities
    
    
    (35,969
    )
    
    
    (157,919
    )Cash flows from financing activitiesIncrease in restricted cash
    
    
    (499
    )
    
    
    (60,524
    )Payments on line-of-credit
    
    
    
    
    
    
    (75,000
    )Capital lease principal payments
    
    
    (13,618
    )
    
    
    (4,846
    )Net cash used in financing activities
    
    
    (14,117
    )
    
    
    (140,370
    )Net increase (decrease) in cash
    
    
    381,591
    
    
    
    (126,639
    )Cash  beginning of year
    
    
    379,788
    
    
    
    506,427Cash  end of year
    
    $
    761,379
    
    
    $
    379,788
 Supplemental disclosure of cash flow information: The Company paid $6,274 and $3,654 for interest for the years ended March 31, 2005 and 2004,
respectively Supplemental disclosure of non-cash activity: During 2005, the Company purchased equipment on a capital lease in the amount of $41,314. See notes to financial statements. - 5 -




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Z-AXIS CORPORATION 
 Notes to financial statements Note 1  Description of Business and Summary of Significant Accounting Policies Z-Axis Corporation, (the Company), was incorporated under the laws of the State of Colorado on May
16, 1983. The Company is engaged in consulting and presentation services. The primary market for
the Companys services is the litigation industry. These services include the strategic analysis
of complex litigation issues, the design of demonstrative evidence, the production of such evidence
and courtroom presentation. In addition, the Company has developed an electronic image
presentation system for use in the courtroom called VuPoint. The services are provided through
its headquarters and production facility in Denver, Colorado and its satellite sales offices in New
York City, Washington D.C., Chicago, Houston, San Francisco and London. Concentrations of Credit Risk Financial instruments, which potentially subject the Company to concentration of credit risk
consist principally of cash and trade accounts receivable. The Company places its temporary cash
investments with what management believes are high-credit, quality financial institutions.
Concentrations of credit risk with respect to trade accounts receivable are limited due to the
Companys periodic credit evaluations of its significant customers financial condition and their
dispersion across geographic areas. Accounts Receivable The Company extends unsecured credit to its customers in the ordinary course of business, but
mitigates the associated credit risk by performing credit checks and actively pursuing past due
accounts. Amounts determined to be uncollectible are expensed in the period such determination is
made. The provision for uncollectible amounts is continually reviewed and adjusted to maintain the
allowance for doubtful accounts at a level considered adequate to cover future losses. The
allowance is managements best estimate of uncollectible amounts and is determined based on
historical performance that is tracked by the Company on an ongoing basis. The Company will write
off all uncollectible accounts after all collection efforts have failed. The losses ultimately
incurred could differ materially in the near term from the amounts estimated in determining the
allowance. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. - 6 -




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Z-AXIS CORPORATION Notes to financial statements Note 1  Description of Business and Summary of Significant Accounting Policies (continued) Property and Equipment Property and equipment is stated at cost. Equipment under capital leases is valued at the lower of
fair market value or net present value of the minimum lease payments at inception of the lease.
Depreciation is provided utilizing the straight-line method over the estimated useful lives for
owned assets, ranging from 2 to 7 years, and the related lease terms for leasehold improvements and
equipment under capital leases. Software Development Costs The Company applies the provisions of Statement of Position 98-1, Accounting for Costs of Computer
Software Developed for Internal Use. The Company accounts for costs incurred in the development
of computer software as software research and development costs until the preliminary project stage
is completed. Direct costs incurred in the development of software are capitalized once the
preliminary project stage is completed, management has committed to funding the project and
completion and use of the software for its intended purpose are probable. The Company ceases
capitalization of development costs once the software has been substantially completed and is ready
for its intended use. Software development costs are amortized over their estimated useful lives
which are reflective of the Companys estimate of the expected revenues derived from the use of the
software. Costs associated with upgrades and enhancements that result in additional functionality
are capitalized. Long-Lived Assets The Company reviews its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be recovered. The Company
looks primarily to the fair value of the underlying assets and secondarily to the discounted future
cash flows in its assessment of whether or not long-lived assets have been impaired. Fair Value of Financial Instruments The carrying amounts of financial instruments including cash, receivables, accounts payable and
accrued expenses approximated fair value as of March 31, 2005 because of the relatively short
maturity of these instruments. The carrying amounts of notes payable and debt issued approximate fair value as of March 31, 2005
because interest rates on these instruments approximate market interest rates. - 7 -




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Z-AXIS CORPORATION Notes to financial statements Note 1  Description of Business and Summary of Significant Accounting Policies (continued) Stock Options The Company applies Accounting Principles Bulletin (APB) Opinion 25 Accounting for Stock Issued to
Employees and related Interpretations in accounting for all stock option plans. Under APB Opinion
25, no compensation cost has been recognized for stock options issued to employees as the exercise
price of the Companys stock options granted equals or exceeds the market price of the underlying
common stock on the date of grant. SFAS No. 123 and 148 require the Company to provide pro forma
information regarding net income and net income per share as if compensation costs for the
Companys stock option plan had been determined in accordance with the fair value based method
prescribed in SFAS No. 123. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation. Accordingly, no compensation cost
has been recognized for the stock option plans issued to employees of the Company. Had
compensation cost for the Companys option plan been determined based on the fair value at the
grant date for awards consistent with the provisions of SFAS No. 123, the Corporations net income
and basic income per common share would have been changed to the pro forma amounts indicated below: For the Years EndedMarch 31,2005
    
    
    2004Net income as reported
    
    $
    8,460
    
    
    $
    41,424Total stock-based compensation
expense, determined under fair value
accounting, net of tax effects
    
    
    (24,784
    )
    
    
    (19,971
    )Pro forma net loss under SFAS 123
    
    $
    (16,324
    )
    
    $
    (21,453
    )Net income (loss) per common share:As reported
    
    $
    (0.00
    )
    
    $
    0.01Pro forma
    
    $
    (0.00
    )
    
    $
    (0.01
    )Assumptions:Dividend yield
    
    
    
    
    
    
    Volatility factor
    
    
    123
    %
    
    
    176
    %Risk free interest rate
    
    
    4
    %
    
    
    4
    %Expected life of options (in years)
    
    5 and 10
    
    5 and 10
 The weighted average fair value of options granted during the years ended March 31, 2005 and 2004
was $0.21 and $0.26 per share, respectively (Note 6.) - 8 -




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Z-AXIS CORPORATION Notes to financial statements Note 1  Description of Business and Summary of Significant Accounting Policies (continued) Revenue and Cost Recognition The Company generates revenue primarily from hourly-rate contracts with its customers. Some of the
revenue is generated by work with government agencies that require fixed-price contracts and are
negotiated periodically to allow for changes in the amount and scope of work. Revenue generated
from hourly-rate and fixed-price contracts is recognized as services are performed. Revenue is
determined by the contract billing rates and the time incurred to perform the service plus
reimbursable expenses. Expense is determined by actual cost incurred. Advertising Costs The Company expenses advertising costs as incurred. Research and Development Costs Expenditures made for research and development are charged to expense as incurred. Income Taxes The Company recognizes deferred tax liabilities and assets based on the differences between the tax
basis of assets and liabilities and their reported amounts in the financial statements that will
result in taxable or deductible amounts in future years. The Companys temporary differences
result primarily from the cash-basis treatment of certain assets and liabilities for tax purposes,
net operating loss carryforwards and property and equipment. Basic and Diluted Earnings Per Common Share Basic earnings per share are computed by dividing net income by the number of weighted average
common shares outstanding during the year. Diluted earnings per share is computed by dividing net
income by the number of weighted average common shares outstanding during the year, including
potential common shares, which consisted of stock options. Comprehensive Income The Company has adopted SFAS No. 130, Reporting Comprehensive Income. The statement establishes
standards for reporting and display of comprehensive income and its components in a full set of
general-purpose financial statements. The statement requires that all items that are required to
be recognized under accounting standards as components of comprehensive income be disclosed in the
financial statements. Comprehensive income is defined as the change in equity during a period from
transactions and other events from non-owner sources. Comprehensive income is the total of net
income and other comprehensive income. The Company had no transactions during the periods
presented that would result in comprehensive income being different. - 9 -




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Z-AXIS CORPORATION Notes to financial statements Note 1  Description of Business and Summary of Significant Accounting Policies (continued) Recently Issued Accounting Pronouncements In December 2004, the FASB issued SFAS No. 153 Exchanges of Nonmonetary Assets, which is
effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. Earlier application is permitted for nonmonetary asset exchanges occurring in fiscal periods
beginning after December 16, 2004. The provisions of this Statement should be applied
prospectively. SFAS No. 153 amends Opinion 29 to eliminate the exception for nonmonetary exchanges
of similar productive assets and replaces it with a general exception for exchanges of nonmonetary
assets that do not have commercial substance. A nonmonetary exchange has commercial substance if
the future cash flows of the entity are expected to change significantly as a result of this
exchange. The adoption of this standard will not have a material impact on the Companys financial
statements. In December 2004, the FASB issued SFAS No. 123R, Share Based Payment, which will be effective for
the Company for the fiscal year which ends March 31, 2007. This statement is a revision of FASB
Statement No. 123, Accounting for Stock-Based Compensation.This Statement supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees,and its related implementation guidance. This
Statement requires a public entity to measure the cost of employee services received in exchange
for an award of equity instruments based on the grant-date fair value of the award (with limited
exceptions). That cost will be recognized over the period during which an employee is required to
provide service in exchange for the awardthe requisite service period (usually the vesting
period). No compensation cost is recognized for equity instruments for which employees do not
render the requisite service. Employee share purchase plans will not result in recognition of
compensation cost if certain conditions are met; those conditions are much the same as the related
conditions in Statement 123. The Company is not able to determine at this time if the adoption of
this standard will have a material effect on the Companys financial statements. Reclassifications Certain amounts in the 2004 financial statements have been reclassified to conform to the 2005
presentation. - 10 -




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Z-AXIS CORPORATION Notes to financial statements Note 2  Balance Sheet Disclosures Software development costs consist of the following: March 31,2005
    
    
    2004Capitalized software
    
    $
    90,930
    
    
    $
    90,930Accumulated amortization
    
    
    (38,309
    )
    
    
    (10,848
    )$
    52,621
    
    
    $
    80,082
 Property and equipment consist of the following: March 31,2005
    
    
    2004Production equipment
    
    $
    592,092
    
    
    $
    625,943Office equipment
    
    
    328,789
    
    
    
    328,909Leasehold improvements
    
    
    23,706
    
    
    
    10,033944,587
    
    
    
    964,885Less accumulated depreciation and amortization
    
    
    (815,301
    )
    
    
    (829,573
    )$
    129,286
    
    
    $
    135,312
 Accrued expenses consist of the following: March 31,2005
    
    
    2004Accrued compensation
    
    $
    56,428
    
    
    $
    63,069Accrued expenses
    
    
    45,969
    
    
    
    45,977$
    102,397
    
    
    $
    109,046
 Note 3  Line-of-Credit The Company entered into an agreement with a bank for a line-of-credit of $500,000 that is due July
2, 2006. The interest rate is calculated at 1% over the banks prime rate (7% at March 31, 2005)
and interest is payable monthly. The line is collateralized by the Companys accounts receivable
and general intangibles. As of March 31, 2005, there were no borrowings on the line of credit. - 11 -




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Z-AXIS CORPORATION Notes to financial statements Note 4  Capital Leases The Company acquired assets under the provisions of long-term leases. For financial reporting
purposes, minimum lease payments relating to the assets have been capitalized. One lease will
expire in 2005 and the other lease will expire in 2007. Amortization of the leased property is
included in depreciation expense. The assets under capital lease have cost and accumulated amortization as follows: March 31,2005
    
    
    2004Equipment
    
    $
    56,381
    
    
    $
    15,066Less accumulated amortization
    
    
    (23,229
    )
    
    
    (13,811
    )$
    33,152
    
    
    $
    1,255
 Maturities of capital lease obligations are as follows: Year Ending March 31,2006
    
    $
    18,8082007
    
    
    17,6722008
    
    
    5,891Total minimum lease payments due
    
    
    42,371Amount representing interest
    
    
    (7,938
    )Present value of net minimum lease payments
    
    
    34,433Less current portion
    
    
    (14,200
    )Long-term capital lease obligation
    
    $
    20,233
 - 12 -




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Z-AXIS CORPORATION Notes to financial statements Note 5  Income Taxes The net current and long-term deferred tax assets and liabilities include the following: March 31,2005
    
    
    2004Current:Deferred tax asset:Vacation accrual
    
    $
    14,000
    
    
    $
    11,000Allowance for doubtful accounts
    
    
    16,000
    
    
    
    31,000Total deferred tax asset
    
    
    30,000
    
    
    
    42,000Deferred tax liability:Accrual to cash conversion
    
    
    (180,000
    )
    
    
    (274,000
    )Total deferred tax liability
    
    
    (180,000
    )
    
    
    (274,000
    )Net current deferred tax asset (liability)
    
    $
    (150,000
    )
    
    $
    (232,000
    )Long-term:Deferred tax asset:Net operating loss carryforward
    
    $
    124,000
    
    
    $
    231,000State net operating loss carryforward
    
    
    14,000
    
    
    
    Total deferred tax asset
    
    
    138,000
    
    
    
    231,000Deferred tax liability:Capitalized software
    
    
    (20,000
    )
    
    
    (27,000
    )Fixed assets
    
    
    (22,000
    )
    
    
    (25,000
    )Total deferred tax liability
    
    
    (42,000
    )
    
    
    (52,000
    )Net long-term deferred tax asset (liability)
    
    $
    96,000
    
    
    $
    179,000
 The components of income tax expense consist of: March 31,2005
    
    
    2004Current
    
    $
    1,522
    
    
    $
    Deferred
    
    
    1,000
    
    
    
    27,726$
    2,522
    
    
    $
    27,726
 - 13 -




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Z-AXIS CORPORATION Notes to financial statements Note 5  Income Taxes (continued) The following is a reconciliation of the statutory federal income tax rate applied to pre-tax
accounting net (loss) compared to the income taxes in the statements of operations: For the Years EndedMarch 31,2005
    
    
    2004Income tax expense at the statutory rate
    
    $
    3,700
    
    
    $
    23,000Change resulting from:State and local income taxes, net of federal income tax
    
    
    400
    
    
    
    2,000Nondeductible expenses
    
    
    5,081
    
    
    
    2,726Change in effective tax rate
    
    
    (6,659
    )
    
    
    $
    2,522
    
    
    $
    27,726
 At March 31, 2005, the Company has total federal income tax loss carryforwards of approximately
$333,000, which expire in the years 2005 through 2022. Note 6  Stock Option Plan Stock Options In September 1996, the Board of Directors adopted, with the approval of the Stockholders, the 1996
Stock Option Plan (the Plan). The Plan provides for grants to employees, directors or other
persons deemed appropriate at the discretion of the Compensation Committee (the Committee) of the
Board of Directors, stock options to purchase common stock of the Company at a price equal in value
to the fair market value, as defined, on the date of grant. The exercise period for options
granted under the Plan shall be determined by the Committee; however, the exercise period shall not
exceed ten years from the date they are granted. - 14 -




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Z-AXIS CORPORATION Notes to financial statements Note 6  Stock Option Plan (continued) The following table presents the activity for options outstanding: WeightedIncentive
    
    
    AverageStock
    
    
    ExerciseOptions
    
    
    PriceOutstanding  March 31, 2003
    
    
    205,020
    
    
    $
    0.15Granted
    
    
    77,500
    
    
    
    0.26Expired
    
    
    (20,000
    )
    
    
    0.26Outstanding  March 31, 2004
    
    
    262,520
    
    
    
    0.21Granted
    
    
    77,500
    
    
    
    0.36Expired
    
    
    (16,707
    )
    
    
    0.20Outstanding  March 31, 2005
    
    
    323,313
    
    
    $
    0.24
 The following table presents the composition of options outstanding and exercisable: Options OutstandingRange of Exercise Prices
    
    Number
    
    
    Life*$.0625 - $0.1625
    
    
    75,000
    
    
    
    4.87$.1875 - $0.2875
    
    
    125,813
    
    
    
    6.22$.2900 - $0.3900
    
    
    112,500
    
    
    
    7.69$.4000 - $0.5000
    
    
    10,000
    
    
    
    1.00Total  March 31, 2005
    
    
    323,313
    
    
    
    6.26
 
 *
    
    Price and Life reflect the weighted average exercise price and weighted average remaining
contractual life, respectively. - 15 -




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Z-AXIS CORPORATION Notes to financial statements Note 7  Income (Loss) Per Share The following table sets forth the computation for basic and diluted earnings per share: For the Years EndedMarch 31,2005
    
    
    2004Numerator for diluted income per common share
    
    $
    8,460
    
    
    $
    41,424Denominator for basic earnings per share -
weighted average shares
    
    
    3,825,000
    
    
    
    3,825,000Effect of dilutive securities  stock options
    
    
    169,182
    
    
    
    137,211Denominator for diluted earnings per share -
adjusted weighted average shares
    
    $
    3,994,182
    
    
    $
    3,962,211Diluted income per common share
    
    $
    
    
    
    $
    .01
 Where the inclusion of potential common shares is anti-dilutive, such shares are excluded from the
computation. Note 8 Commitments Operating Leases The Company leases its primary office and production facility under an operating lease. The lease
term began on June 1, 2003 and will extend through May 31, 2011. The terms of the lease provide
for a total of six months of rent abatement granted for the 1st, 2nd,
25th, 26th, 37th, and 38th months of the lease, which
creates the deferred rent liability disclosed in the financial statements. As of March 31, 2005
the deferred rent liability is $47,062. The terms of the lease also require a security deposit in
the amount of $27,982 and an Irrevocable Standby Letter of Credit originally in the amount of
$60,000, which is secured by a restricted money market cash account at a financial institution.
Subsequent to March 31, 2005, the amount of the Irrevocable Standby Letter of Credit was reduced
$24,000 to a balance of $36,000. The Irrevocable Stanby Letter of Credit will continue to reduce
by $12,000 per year for the next three consecutive years ending April 2008. The Company also has
office space rental agreements for the Illinois and New York locations. The Company leases the
facilities from unaffiliated third parties. These leases renew on a yearly basis. Rent expense
for the three leases was $157,948 and $158,132 for the years ended March 31, 2005 and 2004,
respectively. - 16 -




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Z-AXIS CORPORATION Notes to financial statements Note 8 Commitments (continued) Future minimum lease payments under these leases are approximately as follows: Year Ending March 31,2006
    
    $
    124,5182007
    
    
    124,8982008
    
    
    154,2452009
    
    
    158,3402010
    
    
    162,435Thereafter
    
    
    194,513$
    918,949
 Note 9- Employee Benefit Plan On April 1, 1993, the Company established the Z-Axis Corporation 401(k) Plan (the Plan).
Eligible employees may elect to participate in the Plan beginning on the first day of the calendar
quarter following their date of hire. The Company elected to make matching contributions in
amounts of ten percent of the first five percent of a participating employees salary deferral
amount. The Company made matching contributions to the Plan in the amounts of $4,354 and $4,660
during the years ended March 31, 2005 and 2004, respectively. Note 10 - Major Customers The Companys revenues are concentrated in a few customers. For the year ended March 31, 2005, one
customer comprised 33% of the Companys total sales and 20% of the accounts receivable balance at
March 31, 2005. For the year ended March 31, 2004, three customers comprised 38% of the Companys
total sales and three separate customers comprised 39% of the accounts receivable balance as of
March 31, 2004. - 17 -




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Z-AXIS CORPORATION 
 Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Company does not have any disagreements with its independent certified public accountants,
Ehrhardt Keefe Steiner & Hottman PC, related to accounting and financial disclosure. 
 Item 8a. CONTROLS AND PROCEDURES The Company maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the reports filed or submitted to the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified by the Commissions rules and forms, and
that information is accumulated and communicated to our management, including the Companys
principal executive and financial officer and director of finance (referred to in this periodic
report as the Companys Certifying Officers), as appropriate to allow timely decisions regarding
required disclosure. The Companys management evaluated, with the participation of the Certifying
Officers, the effectiveness of the Companys disclosure controls and procedures as of the date of
this Form 10-KSB, pursuant to Rule 13a-15 (b) under the Exchange Act. Based upon that evaluation,
the Certifying Officers concluded that, as of March 31, 2005, the Companys disclosure controls and
procedures were effective. There were no changes in the Companys internal control over financial reporting that occurred
during the fiscal year ended March 31, 2005 that have materially affected, or are reasonably likely
to materially affect, the Companys internal control over financial reporting. As a result of Section 404 of the Sarbanes-Oxley Act of 2002 and the rules issued hereunder, we
will be required to include in our Annual Report on Form 10-KSB for the year ended March 31, 2007 a
report on managements assessment of the effectiveness of our internal controls over financial
reporting. Our independent registered public accounting firm, Ehrhardt Keefe Steiner & Hottman PC
(EKS&H), will also be required to attest to and report on managements assessment. The Company
has not begun the necessary compliance work related to Section 404, and as a result we have not yet
evaluated or tested our compliance with this Section. Although we believe that the controls and
procedures that were in place for the year ended March 31, 2005 provide reasonable assurance the
Companys control objectives are being met, neither we nor our auditors have confirmed this
objective as will be required under Section 404. As a result, there is the possibility that
material deficiencies as defined in Section 404 could exist. In connection with the audit of the period ended March 31, 2005, there were no Reportable Events
within the meaning of Item 304(a)(1)(v) of Regulation S-K. However, the Companys auditors
communicated to the Registrant matters it considered to be a significant deficiency in the
Registrants internal controls relating to the limited resources available in the accounting and
finance department to maintain a complete segregation of accounting processes and duties. The
Company maintains a small core staff in accounting and finance, consequently some of the duties
that would normally be segregated for internal control purposes cannot be assigned to other company
employees due to the technical accounting background needed to perform these duties. However,
management oversight of the accounting and finance data gathering, processing and reporting
mitigates the deficiency in segregation of duties. In addition, management maintains a daily,
weekly and monthly accounting oversight system that includes identification of any significant or
unusual transactions that warrant additional investigation.




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Z-AXIS CORPORATION 
 PART III 
 Item 9, 10, 11, 12 Directors and officers of the registrant; Executive compensation; Security
ownership of certain beneficial owners and management; Certain relationships and related
transactions The information required by these Items is herein in incorporated by reference to the Z-Axis
Corporations Proxy Statement to shareholders to be filed by July 29, 2005. PART IV 
 Item 13. Exhibits, financial statement schedules and reports on Form 8-K (a) The following documents are incorporated by reference: 1. Exhibits: Pursuant to Regulation 240.12b-23, Exhibits 3.1 and 3.2 (Articles of Incorporation
and Bylaws) are incorporated by reference from the Registration Statement on Form
S-18, SEC File No. 2-85302-D, effective September 15, 1983. 
 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the
registrant has duly caused this report of be signed on its behalf by the undersigned, thereunto
duly authorized. Z-AXIS CORPORATION By:
    
    /s/ Alan TreibitzAlan Treibitz(Chief Executive Officer)
 Date: July 14, 2005 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/ Alan Treibitz
    
    Chief Executive OfficerAlan Treibitz