<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act Of 1934
For the quarterly period ended August 31, 1997
Transition Report Under Section 13 or 15(d) of the Exchange Act
FOR THE TRANSITION PERIOD FROM ____________ TO____________
Commission File Number 0-20936
DIVERSIFAX, INC.
-----------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 13-3637458
------------------------------- -------------------
(State or other jurisdiction of) (I.R.S. employer
incorporation or organization) Identification No.)
39 Stringham Avenue, Valley Stream, New York 11580
-------------------------------------------- ----------
(Address of principal executive office) (Zip Code)
Issuer's telephone number:
(516) 872-0650
--------------
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
--- ---
There were 14,826,373 shares outstanding of the issuer's common stock, par
value $.001 per share, as of October 10, 1997.
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIVERSIFAX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
1997 1996
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<S> <C> <C>
ASSETS
Current Assets
Cash...................................... $ 770,729 $ 198,069
Accounts receivable....................... 620,572 108,057
Inventories............................... 1,029,696 432,696
Prepaid expenses and other................ 37,923 114,801
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Total Current Assets................. 2,458,920 853,623
Equipment and vehicles, less accumulated
depreciation................................. 3,309,946 3,723,424
Intangible assets (net of accumulated
amortization)................................ 67,500 81,000
Deferred tax benefit........................... 210,000 210,000
Other assets................................... 335,000 48,000
- - ---------------------------------------------------------------------------------------
Total Assets......................... $6,381,366 $4,916,047
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- - ---------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses..... $ 720,940 $ 939,681
Loan payable.............................. 23,256
Capital lease payable..................... 15,824
Due to affiliates......................... 228,670 528,670
- - ---------------------------------------------------------------------------------------
Total Current Liabilities............ 988,690 1,468,351
- - ---------------------------------------------------------------------------------------
Loans payable, officer/stockholder............. 1,362,919 1,034,013
Loan payable, net of current portion........... 128,907
Capital lease payable, net of current
portion...................................... 85,297
Due to affiliates.............................. 130,800
- - ---------------------------------------------------------------------------------------
1,577,123 1,164,813
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Total Liabilities......................... 2,565,813 2,633,164
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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
Convertible preferred stock, Series D,
$.001 par value, authorized 1,500
shares, issued and outstanding 1,397
shares.................................... 1
Common stock, $.001 par value, authorized
25,000,000 shares, issued 14,343,346 and
14,045,093 shares, respectively........... 14,343 14,045
Additional paid in capital................ 11,395,568 9,717,619
Deficit................................... (7,117,359) (6,971,781)
- - ---------------------------------------------------------------------------------------
4,292,553 2,759,883
Less: Treasury stock, at cost................. (229,500) (229,500)
Subscription receivable................. (247,500) (247,500)
- - ---------------------------------------------------------------------------------------
Total Stockholders' Equity........... 3,815,553 2,282,883
- - ---------------------------------------------------------------------------------------
Total Liabilities and Stockholders'
Equity............................. $6,381,366 $4,916,047
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</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
DIVERSIFAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
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AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1997 1996 1997 1996
------------------ ------------------ ------------------ ------------
<S> <C> <C> <C> <C>
Sales................................... $ 4,997,493 $ 3,764,893 $ 1,534,985 $ 803,220
- - ------------------------------------------------------------------------------------------------------------------
Cost and Expenses
Cost of sales, exclusive of
depreciation........................ 2,696,275 2,720,753 889,181 483,980
Depreciation and amortization......... 574,758 454,717 191,586 129,625
Selling, general and administrative... 1,848,197 1,479,419 674,441 457,440
Interest.............................. 23,841 7,004 12,213 66
- - -----------------------------------------------------------------------------------------------------------------
5,143,071 4,661,893 1,767,421 1,071,111
- - -----------------------------------------------------------------------------------------------------------------
Net Loss........................... ($ 145,578) ($ 897,000) ($ 232,436) ($ 267,891)
- - -----------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------
Weighted average common shares
outstanding........................... 14,175,371 13,963,517 14,211,588 14,040,215
Loss per share of common stock.......... ($ .01) ($ .06) ($ .02) ($ .02)
- - -----------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
DIVERSIFAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------------
AUGUST 31, AUGUST 31,
1997 1996
------------------- -----------
<S> <C> <C>
Operating Activities
Net loss....................................... ($ 145,578) ($ 897,000)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization................. 574,758 454,717
Amortization of marketing agreement........... 206,250
Settlement of litigation...................... 70,000
Changes in operating assets and liabilities
Accounts receivable........................... ( 512,515) ( 27,887)
Inventories................................... ( 437,020) ( 81,000)
Prepaid expenses and other.................... 76,877 39,354
Other assets.................................. ( 287,000)
Accounts payable and accrued expenses......... ( 218,741) ( 368,895)
- - ---------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities..... ( 672,969) ( 880,711)
- - ---------------------------------------------------------------------------------------------
Investing Activities
Assets acquired through acquisitions........... ( 60,000)
Purchases of equipment and accessories......... ( 38,780) ( 818,437)
- - ---------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities..... ( 38,780) ( 878,437)
- - ---------------------------------------------------------------------------------------------
Financing Activities
Repayment of capital lease obligations......... ( 7,880) ( 810,880)
Repayment of loan payable...................... ( 7,817)
Repayment of long-term debt and conversion to
capital lease obligation..................... ( 146,238)
Repayment of affiliate and stockholder's loans
payable...................................... ( 430,800)
Proceeds from loan payable, officer/stockholder,
net.......................................... 328,906 564,665
Proceeds of common stock warrants.............. 1,548,304
Proceeds from sale of common stock............. 52,000
Proceeds from preferred stock issuance......... 1,500,000
Proceeds from capital contribution............. 7,500
Costs incurred in connection with registration
of common stock.............................. ( 48,000)
Costs incurred in connection with issuance of
preferred stock.............................. ( 150,000)
- - ---------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities. 1,284,409 1,115,351
- - ---------------------------------------------------------------------------------------------
Net increase (decrease) in cash................... 572,660 ( 643,797)
Cash--Beginning of year........................... 198,069 1,001,372
- - ---------------------------------------------------------------------------------------------
Cash--End of Period....................... $ 770,729 $ 357,575
- - ---------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Period for:
Interest........................................ $ 22,961 $ 7,004
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</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
DIVERSIFAX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- - --------------------------------------------------------------------------------
1. Basis of Presentation The consolidated balance sheet as of August 31,
1997, and the related consolidated statements of
operations and cash flows for the nine and three
month periods ended August 31, 1997 and 1996 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, 1996 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 and one month periods ended August
31, 1997 are not necessarily indicative of the
operating results for the entire year.
2. Loan Payable,
Officer/Stockholder During the nine months ended August 31, 1997, Dr.
Irwin A. Horowitz, the Chairman of the Board,
Chief Executive Officer and President of the
Company loaned the Company an additional
$538,906, net of any repayments.
On May 6, 1997, in consideration for the
additional interest-free loans made by Dr.
Horowitz, the Company granted to Dr. Horowitz
additional warrants to purchase 350,000 shares of
common stock at an exercise price of $1.935 per
share, all of which warrants are immediately
exercisable.
3. Stockholders' Equity During the nine months ended August 31,1997, the
Company sold 29,362 units for a total purchase
price of $52,000 in connection with the Company's
private placement offering of up to 1,000,000
units. Each unit consists of one share of common
stock and one three year warrant to purchase one
share of common stock.
During the nine months ended August 31, 1997, the
Company completed a private placement offering of
1,500 shares of the Company's series D convertible
preferred stock, pursuant to Rule 506, for which
the Company received gross proceeds of $1,500,000.
Each share of the series D preferred stock is
convertible into such number of shares of common
stock as is determined by dividing $1,000 by the
lesser of (A) 80% of the average bid price of the
common stock for the five trading days immediately
preceding the date of notice of conversion and (B)
(i) $2.25 for the first one-third of the shares of
series D preferred stock converted by a holder; or
(ii) $2.50 for the next one-third of the shares of
series D preferred stock converted by a holder; or
(iii) $2.75 for the balance of the shares of
series D preferred stock converted by a holder.
In no event can the conversion price be less than
$.60. The series D preferred stock unless sooner
converted, automatically converts to shares of
common stock on June 5, 2000.
5
<PAGE>
DIVERSIFAX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- - --------------------------------------------------------------------------------
3. Stockholders' Equity
(Continued) In addition, holders of the series D preferred
stock are entitled to receive a six percent
cumulative dividend on each share of series D
preferred stock for the period that such share is
outstanding. If on the proposed conversion date,
the closing price per share of the common stock is
$1.00 or less, then the Company can, at its option
and in lieu of conversion, redeem any or all of
the series D preferred stock for an amount equal
to the sum of (1) $1,200 for each share of series
D preferred stock redeemed, plus (ii) all accrued
but unpaid dividends, if any, on each share of
series D preferred stock redeemed. If the Company
chooses to redeem some, but not all of the series
D preferred stock, then the Company shall redeem a
pro-rata amount from each holder of the series D
preferred stock which was to be converted.
Through August 31, 1997, 103 shares of the series
D preferred stock have been converted into 128,891
shares of common stock.
4. Supplemental Disclosure
of Noncash Operating,
Investing and Financing
Activities During the nine months ended August 31, 1997, the
Company incurred capital lease obligations in the
amount of approximately $109,000 in connection
with the acquisition of microfiche scanner units
for demonstration and rental purposes. In
addition, the Company also entered into loan
agreements in the amount of approximately $160,000
in connection with the acquisition of microfiche
scanner units for resale.
5. Litigation In June, 1997, the Company entered into a
settlement agreement in connection with an action
brought against the Company and Dr. Horowitz
claiming that the Company owed and has refused to
pay certain amounts due under an alleged oral
agreement made with the plaintiff, to assist the
Company in becoming the exclusive distributor for
ScreenScan. Pursuant to the settlement agreement,
the plaintiff has been made a distributor of the
ScreenScan product in a limited area, subject to a
required quota of sales, and 40,000 shares of
common stock of the Company were issued to a
designee of the plaintiff.
The Company was involved in an action in the
Supreme Court, State of New York, New York County,
entitled Diversified Investors Corp. v.
DiversiFax, Inc. and Judd Rothman. The suit was
brought seeking payment owed to plaintiff pursuant
to prior non-interest bearing loans totaling
$228,670, made to the Company by various
creditors, two of whom have assigned their rights
under the loans to Diversified Investors Corp.
The Company acknowledged the amount due, but had
not paid because the creditors had not indicated
how the amount was to be allocated (due to a
dispute between the creditors). Based upon the
agreement describing the debt, the Company
believed that the amount was payable in Common
Stock of the Company.
6
<PAGE>
DIVERSIFAX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- - --------------------------------------------------------------------------------
5. Litigation (Continued) The plaintiff was seeking cash in lieu of stock.
The Company and the plaintiff each appealed to the
Appellate Division. In June, 1997, the Appellate
Division determined that payment of the debt
should be made in cash. The Company filed a
motion for leave to appeal to the Court of
Appeals, which motion was denied. The Company had
placed $287,000 in escrow as of August 31, 1997,
which amount was subsequently disbursed to the
plaintiff.
The Company is a party to a suit brought by Nassau
County to obtain an accounting of amounts which it
believes are due to the county pursuant to a
contract with IMSG Systems, Inc.
The Company is a party to a suit brought by a
former public relations firm of the Company which
alleges that it has incurred damages as a direct
result of alleged representations by the Company
that it would enter into a contract with such
firm.
Pursuant to a Supply and Distribution Agreement
with ScreenScan, the Company agreed to purchase a
minimum of $2,500,000 of microfiche scanner units
during the one-year period ending September 30,
1997. Through August 31, 1997, purchases of
approximately $843,000 were made. There can be no
assurance that the Company will be able to
distribute the full $2,500,000 of microfiche
scanner units. ScreenScan is currently claiming
that the Company has breached this agreement and
it is seeking to terminate the Company's exclusive
rights thereunder which would terminate the
Company's minimum purchase obligation. This
matter is presently before an arbitrator.
6. Subsequent Events In September, 1997, Dr. Horowitz made a one year
loan to the Company in the amount of $500,000,
bearing interest at the rate of 8%. In
consideration for the loan, the Company granted
Dr. Horowitz a three year warrant to purchase
1,100,000 shares of common stock at an exercise
price of $.84375 per share. The warrant is
immediately exercisable.
In September, 1997, Dr. Horowitz's son loaned the
Company an aggregate of $178,700 in the form of
two promissory notes, payable on or before
September 19, 1998. The notes are non-interest
bearing, provided however, that if the Company
fails to make payment on or before the due dates,
interest will accrue, from the due dates, at an
annual rate of 8%. In consideration for the
loans, the Company granted Dr. Horowitz's son a
three year warrant to purchase 331,540 shares of
the Company's common stock at an exercise price of
$.78125 per share, and a three year warrant to
purchase 61,600 shares of the Company's common
stock at an exercise price of $.8125 per share.
The warrants are immediately exercisable.
7
<PAGE>
DIVERSIFAX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- - --------------------------------------------------------------------------------
6. Subsequent Events
(Continued) In September, 1997, the Company's shareholders
voted to amend the Company's certificate of
incorporation to increase the aggregate number of
shares of all classes of capital stock which the
Company will have the authority to issue to
41,000,000, of which 40,000,000 shares shall be
common stock, par value $.001 per share, and
1,000,000 shares shall be open stock, par value
$.001 per share. Shares of open stock may be
issued from time to time in one or more classes or
one or more series within any class thereof, in
any manner permitted by law, as determined from
time to time by the board of directors.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Nine Months Ended August 31, 1997 Compared To Nine Months Ended August 31,
1996
Sales increased approximately $1,233,000 or 32.7% for the nine months ended
August 31, 1997 compared to the nine months ended August 31, 1996. This
increase was a result of the sales of microfiche scanner units under a
recently formed dealership arrangement with ScreenScan Systems. Revenues
derived form the Company's Smart Switch continue to be minimal.
Cost of sales represented 54.0% of sales for the nine months ended August 31,
1997 compared to 72.3% for the nine months ended August 31, 1996. This
decrease is a direct result of management's continued efforts to cut costs
and the renegotiation of commission rates with many of the Company's larger
customers. In addition, the Company realizes a higher gross margin on the
sale of microfiche scanner units than on its photocopy machine business.
Depreciation and amortization increased approximately $120,000 for the nine
months ended August 1997 compared to the nine months ended August 31, 1996 as
a result of depreciation of recently acquired copiers, accessories and
microfiche scanner units used for demonstration purposes.
Selling, general and administrative expenses increased to approximately
$1,848,000 for the nine months ended August 31, 1997 from approximately
$1,479,000 for the nine months ended August 31, 1996. However, selling,
general and administrative expenses decreased as a percentage of sales during
the same period from 39.3% in 1996 to 37.0% in 1997. This decrease as a
percentage of sales is due primarily to management's continued efforts to
monitor its costs. Selling, general and administrative expenses for the nine
months ended August 31, 1997 include the amortization of the consideration
paid under a marketing agreement of approximately $206,000, the settlement of
litigation in the amount of $70,000 and expenses incurred in connection with
the marketing, promotion and development of the newly acquired ScreenScan
dealership.
Interest expense increased approximately $16,800 for the nine months ended
August 31, 1997 compared to the nine months ended August 31, 1996 as a result
of the interest incurred on recently acquired capital lease obligations.
The above resulted in a net loss of $146,000 for the nine months ended August
31,1997 compared to a net loss of approximately $897,000 for the nine months
ended August 31, 1996.
Three Months Ended August 31, 1997 Compared To Three Months Ended August 31,
1996
Sales increased approximately $732,000 or 91.1% for the three months ended
August 31, 1997 compared to the three months ended August 31, 1996. This
increase was a result of the sales of microfiche scanner units under a
recently formed dealership arrangement with ScreenScan Systems.
Cost of sales represented 57.9% of sales for the three months ended August
31, 1997 compared to 60.3% for the three months ended August 31, 1996. This
decrease is a direct result of management's continued efforts to cut costs
and the renegotiation of commission rates with many of the Company's larger
customers. In addition, the Company realizes a higher gross margin on the
sale of microfiche scanner units than on its photocopy machine business.
Depreciation and amortization increased approximately $62,000 for the three
months ended August 31, 1997 compared to the three months ended August 31,
1996 as a result of depreciation of recently acquired copiers, accessories
and microfiche scanner units used for demonstration purposes.
<PAGE>
Selling, general and administrative expenses increased to approximately
$674,000 for the three months ended August 31, 1997 from approximately
$457,000 for the three months ended August 31, 1996. However, as a percentage
of sales, selling, general and administrative expenses decreased from 56.9%
to 43.9%. This decrease is the result of the same factors as discussed in the
nine month comparisons. Interest expense increased approximately $12,000 for
the three months ended August 31, 1997 compared to the three months ended
August 31, 1996 as a result of the interest incurred on recently acquired
capital lease obligations.
The above resulted in a net loss of approximately $232,000 for the three
months ended August 31, 1997 compared to a net loss of approximately $268,000
for the three months ended August 31, 1996.
Pursuant to the Supply and Distribution Agreement with ScreenScan, the
Company agreed to purchase a minimum of $2,500,000 of microfiche scanner
units during the one-year period ending September 30, 1997. Through August
31, 1997, purchases of approximately $843,000 were made. There can be no
assurance that the Company will be able to distribute the full $2,500,000 of
microfiche scanner units. ScreenScan is currently claiming that the Company
has breached this agreement and it is seeking to terminate the Company's
exclusive rights thereunder which would terminate the Company's minimum
purchase obligation. This matter is presently before an arbitrator.
LIQUIDITY AND CAPITAL RESOURCES
At August 31, 1997, the Company had cash and working capital (deficiency) of
$771,000 and $1,470,000, respectively, as compared to $198,000 and ($615,000)
respectively, at November 30, 1996.
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 and ScreenScan dealership, and possible acquisitions.
Net cash used in operating activities of approximately $673,000 during the
nine months ended August 31, 1997 resulted from net losses of $146,000,
increases in accounts receivable of approximately $513,000, inventories of
approximately $437,000, other assets of $287,000 and a decrease in accounts
payable and accrued expenses of approximately $219,000, offset in part by
depreciation and amortization of approximately $781,000.
Net cash provided by financing activities amounted to approximately
$1,284,000 during the nine months ended August 31, 1997 primarily as a result
of the net proceeds from the sale of preferred stock ($1,350,000), common
stock ($52,000), and officer/stockholder's loans ($329,000), offset in part
by the repayment of loans to affiliates ($431,000).
During the nine months ended August 31, 1997, the Company incurred capital
lease obligations in the amount of approximately $109,000 in connection with
the acquisition of microfiche scanner units for demonstration and rental
purposes. In addition, the Company also entered into loan agreements in the
amount of approximately $160,000 in connection with the acquisition of
microfiche scanner units for resale.
The above resulted in a net increase in cash of approximately $573,000 for
the nine months ended August 31, 1997.
In June, 1997, the Company successfully completed a private placement
offering of 1,500 shares of its series D convertible preferred stock for
which the Company received net proceeds of approximately $1,350,000. Each
share of the series D preferred stock is convertible into such number of
shares of common stock as is determined by dividing $1,000 by the lesser of
(A) 80% of the average bid price of the common stock for the five trading
days immediately preceding the date of notice of conversion and
<PAGE>
(B)(i) $2.25 for the first one third of the shares of series D preferred
stock converted by a holder; or (ii)$2.50 for the next one-third of the
shares of series D preferred stock converted by a holder; or (iii) $2.75 for
the balance of the shares of series D preferred stock converted by a holder.
In no event can the conversion price be less than $.60. The series D
preferred stock unless sooner converted, automatically converts to shares of
common stock on June 5, 2000. In addition, holders of the series D preferred
stock are entitled to receive a six percent cumulative dividend on each share
of series D preferred stock for the period that such share is outstanding. If
on the proposed conversion date, the closing price per share of the common
stock is $1.00 or less, then the Company can, at its option and in lieu of
conversion, redeem any or all of the series D preferred stock for an amount
equal to the sum of (i) $1,200 for each share of series D preferred stock
redeemed, plus (ii) all accrued but unpaid dividends, if any, on each share
of series D preferred stock redeemed. If the Company chooses to redeem some,
but not all of the series D preferred stock, then the Company shall redeem a
pro-rata amount from each holder of the series D preferred stock which was to
be converted.
Through August 31, 1997, 103 shares of the series D preferred stock have been
converted to 128,891 shares of common stock.
In September, 1997, Dr. Horowitz made a one year loan to the Company in the
amount of $500,000, bearing interest at the rate of 8%. In consideration for
the loan, the Company granted Dr. Horowitz a three year warrant to purchase
1,100,000 shares of common stock at an exercise price of $.84375 per share.
The warrant is immediately exercisable.
In September, 1997, Dr. Horowitz's son loaned the Company an aggregate of
$178,700 in the form of two promissory notes, payable on or before September
19, 1998. The notes are non-interest bearing, provided however, that if the
Company fails to make payment on or before the due dates, interest will
accrue from the dates, at an annual rate of 8%. In consideration for the
loans, the Company granted Dr. Horowitz's son a three year warrant to
purchase 331,540 shares of the Company's common stock at an exercise price of
$.78125 per share, and a three year warrant to purchase 61,600 shares of the
Company's common stock at an exercise price of $.8125 per share. The warrants
are immediately exercisable.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> AUG-31-1997
<CASH> 770,729
<SECURITIES> 0
<RECEIVABLES> 620,572
<ALLOWANCES> 0
<INVENTORY> 1,029,696
<CURRENT-ASSETS> 2,458,920
<PP&E> 3,309,946
<DEPRECIATION> 574,759
<TOTAL-ASSETS> 6,381,366
<CURRENT-LIABILITIES> 988,690
<BONDS> 0
0
1
<COMMON> 14,343
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,381,366
<SALES> 4,997,493
<TOTAL-REVENUES> 4,997,493
<CGS> 2,696,275
<TOTAL-COSTS> 2,696,275
<OTHER-EXPENSES> 2,422,955
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,841
<INCOME-PRETAX> (145,578)
<INCOME-TAX> 0
<INCOME-CONTINUING> (145,578)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (145,578)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
