U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB/A
Amendment No. 1
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 1996
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 0-20936
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DIVERSIFAX, INC.
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(Name of small business issuer in its charter)
Delaware 13-3637458
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
39 Stringham Avenue, Valley Stream, New York 11580
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(Address of Principal Executive Offices) (Zip Code)
Issuer`s Telephone Number (516) 872-0650
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. YES X NO __
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There were 14,039,678 shares outstanding of the issuer`s common stock, par
value $.001 per share, as of April 18, 1996.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS.
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THE THREE MONTHS ENDED FEBRUARY 29, 1996 COMPARED TO THE THREE MONTHS ENDED
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FEBRUARY 28, 1995
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Sales declined approximately $169,000 or 11.2% for the three months ended
February 29, 1996 compared to the three months ended February 28, 1995. This
decline was the result of the loss of certain of the Company's customers and the
elimination of non-profitable accounts (approximately $283,000), offset by the
additions of a university (approximately $37,000) and a major library system
(approximately $77,000) to the Company's customer base in March and July of
1995, respectively. There are two primary reasons for the loss of customers by
the Company. The majority of the Company's customers are maintained pursuant to
contractual agreements, generally ranging from three to five years. In certain
areas the Company's business has become increasingly more competitive.
Accordingly, when contracts come up for renewal the Company may be out bid by
its competitors. Secondly, the Company has commenced a critical review of its
customer base and has determined not to renew customer contracts where the costs
of maintaining such customers exceeded the benefits. This often occurs when the
required commission structure is excessive or the customer's demands for
equipment are unreasonable based on the revenue generated from the customer. In
March 1996, the Company was not successful in its bid for the renewal of its
contract with a major library system in the City of New York, which provided
approximately 12.3% of the Company's sales for the fiscal year ended November
30, 1995. The Company will continue to collect revenue from this library system
over the next several months until such time when all the Company's copiers are
removed. Additionally, in April 1996 the Company's bid for a large university
in the Southeast was accepted. Revenues derived from the Company's Smart Switch
continue to be minimal.
Cost of sales represented 78.7% of sales for the three months ended February 29,
1996 compared to 72.0% for the three months ended February 28, 1995. This
increase is primarily attributable to an increase in the cost of paper and other
supplies, and additional technical support needed for new equipment purchased.
In addition, the Company continued its program to refurbish its copiers which
commenced in the second half of fiscal 1995. Management believes that for
certain segments of its customer base refurbishment represents a less costly
alternative to the purchase of new equipment.
Depreciation and amortization decreased approximately $24,000 for the three
months ended February 29, 1996 compared to the three months ended February 28,
1995 as a result of certain of the Company's equipment becoming fully
depreciated, offset in part by recently purchased equipment.
<PAGE>
Selling, general and administrative expenses decreased to approximately $518,000
or 38.6% of sales for the three months ended February 29, 1996 from
approximately $582,000 or 38.6% of sales for the three months ended February 28,
1995. Selling, general and administrative expenses for the three months ended
February 29, 1996 include certain expenses incurred in connection with the
marketing, promotion and development of the Smart Switch operation
(approximately $120,000).
Interest expense decreased approximately $21,000 for the three months ended
February 29, 1996 compared to the three months ended February 28, 1995 as a
result of the Company's paying off all outstanding bank indebtedness in December
1995.
During the three months ended February 28, 1995, the Company determined to
write-off the unamortized portion of the fair market value of common shares
issued, in the amount of approximately $1,615,000, to an individual for services
that were to be performed over a seven year period, due to the individual's
failure to continue to perform his obligations pursuant to the agreement.
The above resulted in a net loss of approximately $365,000 for the three months
ended February 29, 1996 compared to a net loss of approximately $1,953,000 for
the three months ended February 28, 1995.
LIQUIDITY AND CAPITAL RESOURCES
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At February 29, 1996, the Company had cash and a working capital (deficiency) of
$684,000 and ($268,000), respectively, as compared to $1,001,000 and
($1,254,000), respectively, at November 30, 1995.
The Company's primary need for funds is to finance working capital, capital
expenditures and the further development of the Company's Smart Switch business.
Net cash used in operating activities of approximately $529,000 resulted from
the net loss of approximately $365,000 offset by non-cash items including
depreciation and amortization ($127,000) and the amortization of unearned
compensation ($55,000). In addition, net cash used in operating activities
decreased due to a decrease in accounts payable and accrued expenses of
$361,000.
Net cash used in investing activities in the amount of approximately $329,000
resulted from the acquisition of copiers and accessories.
Cash provided by financing activities amounted to approximately $542,000 during
the three months ended February 29, 1996 primarily as a result of the proceeds
from the exercise of common stock warrants ($1,548,000) offset by the repayment
of bank loans
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and capital lease obligations ($957,000) and stockholder's loans ($49,000).
The above resulted in a net decrease in cash of approximately $317,000 for the
three months ended February 29, 1996.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DIVERSIFAX, INC.
Date: September 9, 1996 /S/ Irwin A. Horowitz
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Irwin A. Horowitz,
President and Chief
Executive Officer
(Principal Executive,
Financial, and Accounting
Officer)
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIVERSIFAX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
FEBRUARY 29, November 30,
1 9 9 6 1 9 9 5
A S S E T S
CURRENT ASSETS
Cash $ 684,351 $1,001,372
Accounts receivable 64,912 53,912
Inventories 179,397 184,397
Prepaid expenses and other 82,048 103,329
TOTAL CURRENT ASSETS 1,010,708 1,343,010
Equipment and vehicles, less accumulated
depreciation 3,956,391 3,733,837
Intangible assets, net of accumulated
amortization of $159,200 238,800 258,700
Deferred tax benefit 340,000 340,000
Other assets 58,327 58,327
TOTAL ASSETS $5,604,226 $5,733,874
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Loan payable, bank $ 146,238
Capital lease obligations 810,880
Accounts payable and accrued expenses $1,049,832 1,410,763
Due to affiliates 228,670 228,670
TOTAL CURRENT LIABILITIES 1,278,502 2,596,551
Loans payable, stockholder 97,818 147,228
Due to affiliates 130,800 130,800
228,618 278,028
TOTAL LIABILITIES 1,507,120 2,874,579
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Convertible preferred stock, Series A, $.001 par value,
authorized 1,000,000 shares
Convertible preferred stock, Series B, $.001 par value,
authorized 2,900 shares
Convertible preferred stock, Series C, $.001 par value,
authorized 10,000 shares
Common stock, $.001 par value, authorized 25,000,000
shares, issued 14,039,678 shares 14,040 13,350
Additional paid in capital 9,745,620 8,198,006
Deficit ( 5,166,413) ( 4,800,914)
Unearned compensation ( 19,141) ( 74,147)
4,574,106 3,336,295
Less: Treasury stock, at cost ( 229,500) ( 229,500)
Subscription receivable ( 247,500) ( 247,500)
TOTAL STOCKHOLDERS' EQUITY 4,097,106 2,859,295
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $5,604,226 $5,733,874
See Notes to Consolidated Financial Statements.
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DIVERSIFAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS Three months
ENDED Ended
FEBRUARY 29, February 28,
1 9 9 6 1 9 9 5
SALES $1,339,620 $1,508,752
COST AND EXPENSES
Cost of sales, exclusive of depreciation 1,054,389 1,086,330
Depreciation and amortization 126,840 151,000
Selling, general and administrative 517,534 582,113
Interest 6,356 27,779
Write-off of consulting agreement 1,614,973
1,705,119 3,462,195
NET LOSS ($ 365,499) ($1,953,443)
Weighted average common shares outstanding 13,810,301 10,345,613
Loss per share of common stock ($.03) ($.19)
See Notes to Consolidated Financial Statements.
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DIVERSIFAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS Three Months
ENDED Ended
FEBRUARY 29, February 28,
1 9 9 6 1 9 9 5
OPERATING ACTIVITIES
Net loss ($ 365,499) ($1,953,443)
ADJUSTMENT TO RECONCILE NET LOSS TO
NET CASH USED IN OPERATING ACTIVITIES
Depreciation and amortization 126,840 151,000
Amortization of unearned compensation 55,006
Write-off of consulting agreement 1,614,973
CHANGES IN OPERATING ASSETS AND LIABILITIES
Accounts receivable ( 11,000) ( 21,365)
Inventories 5,000
Prepaid expenses and other 21,281 ( 29,919)
Accounts payable and accrued expenses ( 360,931) 97,912
Other assets 10,686
NET CASH USED IN OPERATING
ACTIVITIES ( 529,303) ( 130,156)
INVESTING ACTIVITIES
Purchases of equipment and vehicles ( 329,494)
NET CASH USED IN INVESTING
ACTIVITIES ( 329,494)
FINANCING ACTIVITIES
Repayment of loan payable, bank ( 146,238)
Repayment of capital lease obligations ( 810,880) ( 46,580)
Repayment of affiliate and stockholder's
loans payable ( 49,410) ( 10,249)
Proceeds from loan payable, affiliate 229,500
Proceeds of common stock warrants 1,548,304 60,500
Purchase of treasury stock ( 229,500)
NET CASH PROVIDED BY FINANCING
ACTIVITIES 541,776 3,671
Net decrease in cash ( 317,021) ( 126,485)
Cash, beginning of year 1,001,372 166,182
CASH, END OF PERIOD $ 684,351 $ 39,697
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID DURING THE PERIOD FOR:
Interest $6,356 $27,779
See Notes to Consolidated Financial Statements.
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DIVERSIFAX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION The consolidated balance sheet as of February
29, 1996 and the related consolidated
statements of operations and cash flows for
the three month periods ended February 29,
1996 and February 28, 1995 are unaudited. In
the opinion of management, all adjustments
(which include only normally recurring
adjustments) necessary for a fair
presentation of such financial statements
have been made.
The November 30, 1995 balance sheet data was
derived from audited financial statements but
does not include all disclosures required by
generally accepted accounting principles.
The interim financial statements and notes
thereto should be read in conjunction with
the financial statements and notes included
in the Company's latest annual report on Form
10-KSB. The results of operations for the
three month period ended February 29, 1996
are not necessarily indicative of the
operating results for the entire year.
2. LOAN PAYABLE, BANK
AND CAPITAL LEASE
OBLIGATIONS On December 19, 1995, with the proceeds from
the exercise of its common stock warrants
(See Note 3), the Company paid off its loan
payable and capital lease obligations in
full.
3. STOCKHOLDERS' EQUITY In December, 1995, the Company received
approximately $1,548,000 in connection with
the exercise of its remaining outstanding
common stock warrants, resulting in the
issuance of 688,130 shares of common stock.
