<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
(Mark One)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1997
_________________
/ / 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
_______
DIVERSIFAX, INC.
________________________________________________________________________________
(Name of small business issuer in its charter)
Delaware 13-3637458
______________________________ ________________________________
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
39 Stringham Avenue, Valley Stream, New York 11580
____________________________________________ __________
(Address of Principal Executive Offices) (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 14,077,594 shares outstanding of the issuer's common stock,
par value $.001 per share, as of April 14, 1997.
<PAGE>
DIVERSIFAX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- -------------------------------------------------------------------------------
1. Basis of Presentation
The consolidated balance sheet as of February 28, 1997 and the related
consolidated statements of operations and cash flows for the three month
periods ended February 28, 1997 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 month period ended February 28, 1997 are
not necessarily indicative of the operating results for the entire year.
2. Loan Payable, Officer/Stockholder
During the three months ended February 28, 1997, Dr. Irwin A. Horowitz,
the Chairman of the Board, Chief Executive Officer and President of the
Company loaned the Company an additional $109,000.
3. Stockholders' Equity
During the three months ended February 28, 1997, the Company sold an
additional 37,916 units for a total purchase price of $94,000 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 common stock.
<PAGE>
4. Supplemental Disclosure of Noncash Investing and Financing Activities
During the three months ended February 28, 1997, the Company incurred
capital lease obligations in the amount of approximately $109,000 in
connection with the acquisition of ScreenScans.
<PAGE>
PART 1. FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
DIVERSIFAX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
FEBRUARY 28, 1997 NOVEMBER 30, 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 440,781 $ 198,069
Accounts receivable 320,278 108,057
Inventories 445,554 432,696
Prepaid expenses and other 123,567 114,801
- --------------------------------------------------------------------------------------------------------------------------------
Total Current Assets 1,330,180 853,623
Equipment and vehicles, less accumulated depreciation 3,663,601 3,723,424
Intangible assets, net of accumulated amortization 76,500 81,000
Deferred tax benefit 210,000 210,000
Other assets 48,000 48,000
- --------------------------------------------------------------------------------------------------------------------------------
Total Assets $5,328,281 $4,916,047
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Capital lease payable, current portion $ 12,826
Accounts payable and accrued expenses 970,492 $ 939,681
Due to affiliates 528,670 528,670
- --------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,511,988 1,468,351
Capital lease payable, net of current portion 94,984
Loans payable, officer/stockholder 1,142,952 1,034,013
Due to affiliates 130,800 130,800
- --------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 2,880,724 2,633,164
- --------------------------------------------------------------------------------------------------------------------------------
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 14,077,594 and 14,045,093 shares,
respectively 14,078 14,045
Additional paid in capital 9,811,586 9,717,619
Deficit (6,901,107) (6,971,781)
- --------------------------------------------------------------------------------------------------------------------------------
2,924,557 2,759,883
Less: Treasury stock, at cost (229,500) (229,500)
Subscription receivable (247,500) (247,500)
- --------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 2,447,557 2,282,883
- --------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 5,328,281 $ 4,916,047
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
DIVERSIFAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------
Three months Three months
Ended Ended
February 28, 1997 February 29, 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales $1,553,626 $1,339,620
- -------------------------------------------------------------------------------------------------------
Cost and Expenses
Cost of sales, exclusive of depreciation 850,673 1,054,389
Depreciation and amortization 181,136 126,840
Selling, general and administrative 449,670 517,534
Interest expense 1,473 6,356
- -------------------------------------------------------------------------------------------------------
1,482,952 1,705,119
- -------------------------------------------------------------------------------------------------------
Net Income (Loss) $ 70,674 ($ 365,499)
- -------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 14,073,353 13,810,301
Income (loss) per share of common stock $.01 ($.03)
- -------------------------------------------------------------------------------------------------------
See notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DIVERSIFAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Three months Three months
Ended Ended
February 28, 1997 February 29, 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income (loss) $ 70,674 $ (365,499)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities
Depreciation and amortization 181,136 126,840
Amortization of unearned compensation 55,006
Changes in operating assets and liabilities
Accounts receivable (212,221) (11,000)
Inventories (12,858) 5,000
Prepaid expenses and other (8,766) 21,281
Accounts payable and accrued expenses 30,811 (360,931)
- -------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Operating Activities 48,776 (529,303)
- -------------------------------------------------------------------------------------------------------------------------------
Investing Activities
Purchases of equipment and vehicles (7,813) (329,494)
- -------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (7,813) (329,494)
- -------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Repayment of loan payable, bank (146,238)
Repayment of capital lease obligations, net (1,190) (810,880)
Proceeds from affiliate and stockholder's loans payable 108,939 (49,410)
Proceeds of common stock warrants 1,548,304
Proceeds from sale of common stock 94,000
- -------------------------------------------------------------------------------------------------------------------------------
Net Cash provided by Financing Activities 201,749 541,776
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 242,712 (317,021)
Cash, beginning of year 198,069 1,001,372
- -------------------------------------------------------------------------------------------------------------------------------
Cash, End of Period $ 440,781 $ 684,351
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest $ 1,473 $ 6,356
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to Consolidated Financial Statements
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The three months ended February 28, 1997 compared to the three months ended
February 29, 1996
Sales increased approximately $214,000 or 16% for the three months ended
February 28, 1997 compared to the three months ended February 29, 1996. This
increase was a result of the initial sales of the newly acquired ScreenScan
dealership. Revenues derived from the Company's Smart Switch continue to be
minimal.
Cost of sales represented 55.6% of sales for the three months ended
February 28, 1997 compared to 78.7% for the three months ended February 29,
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 ScreenScans than on it's photocopy machine business.
Depreciation and amortization increased approximately $54,000 for the
three months ended February 28, 1997 compared to the three months ended
February 29, 1996 as a result of depreciation of recently acquired copiers
and accessories.
Selling, general and administrative expenses decreased to approximately
$450,000 or 28.9% of sales for the three months ended February 28, 1997 from
approximately $518,000 or 38.6% of sales for the three months ended February
29, 1996. The decrease is the result of the fruition of the Company's cost
containment efforts. Selling, general and administrative expenses for the
three months ended February 28, 1997 include certain expenses incurred in
connection with the marketing, promotion and development of the Smart Switch
operation and newly acquired ScreenScan dealership.
Interest expense decreased approximately $5,000 for the three months
ended February 28, 1997 compared to the three months ended February 29, 1996
as a result of the Company's paying off all outstanding bank indebtedness in
December 1995.
The above resulted in net income of approximately $71,000 for the three
months ended February 28, 1997 compared to a net loss of approximately
$366,000 for the three months ended February 29, 1996.
Liquidity and Capital Resources
At February 28, 1997, the Company had cash and a working capital
(deficiency) of
<PAGE>
$441,000 and ($182,000) respectively, as compared to $684,000 and ($268,000)
respectively, at February 29, 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.
Net cash provided by operating activities of approximately $49,000
resulted from net income of $71,000 offset by non-cash items including
depreciation and amortization of $181,000. In addition, an increase in
accounts payable and accrued expenses of $31,000 was offset by an increase in
accounts receivable of $212,000.
Cash provided by financing activities amounted to approximately $202,000
during the three months ended February 28, 1997 primarily as a result of the
proceeds from the sale of common stock ($94,000) and proceeds from
stockholder's loans ($109,000).
During the three months ended February 28, 1997, the Company incurred
capital lease obligations in the amount of approximately $109,000 in
connection with the acquisition of ScreenScan.
The above resulted in a net increase in cash of approximately $243,000
for the three months ended February 28, 1997.
<PAGE>
SIGNATURES
In accordance with section 13 or 15 (d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DIVERSIFAX, INC.
/S/ Irwin A. Horowitz
---------------------------------
Date: April 14, 1997 Irwin A. Horowitz
Chairman of the Board of
Directors, President and Principal
Financial Officer
(Chief Executive Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> FEB-28-1997
<CASH> 440,781
<SECURITIES> 0
<RECEIVABLES> 320,278
<ALLOWANCES> 0
<INVENTORY> 445,554
<CURRENT-ASSETS> 1,330,180
<PP&E> 3,663,601
<DEPRECIATION> 181,136
<TOTAL-ASSETS> 5,328,281
<CURRENT-LIABILITIES> 2,880,724
<BONDS> 0
0
0
<COMMON> 14,078
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,328,281
<SALES> 1,553,626
<TOTAL-REVENUES> 1,553,626
<CGS> 850,673
<TOTAL-COSTS> 850,673
<OTHER-EXPENSES> 630,806
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,473
<INCOME-PRETAX> 70,674
<INCOME-TAX> 0
<INCOME-CONTINUING> 70,674
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70,674
<EPS-PRIMARY> $.01
<EPS-DILUTED> $.01
</TABLE>
