<PAGE> 1
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, 1998
[ ] 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
Incorporation or Organization) Identification No.)
4274 Independence Court, Sarasota, Florida 34234-2109
__________________________________________ __________
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number (941) 351-2720
_______________
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 15,574,867 shares outstanding of the issuer's common stock,
par value $.001 per share, as of April 1, 1998.
<PAGE> 2
PART 1. FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
DIVERSIFAX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
FEBRUARY 28, 1998 NOVEMBER 30, 1997
<S> <C> <C>
ASSETS
Current Assets
Cash $ 255,916 $ 804,931
Accounts receivable 253,928 273,566
Inventories 863,644 583,202
Prepaid expenses and other 411,005 366,129
------------ -------------
Total Current Assets 1,784,493 2,027,828
Equipment and vehicles, less accumulated depreciation 3,117,679 3,274,851
Intangible assets, net of accumulated amortization 76,500 21,000
Deferred tax benefit 172,500 180,000
Other assets 53,004 53,235
------------ -------------
Total Assets $ 5,204,176 $ 5,556,914
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Capital notes payable $ 37,269
Capital lease payable, current portion 32,130 $ 41,937
Accounts payable and accrued expenses 816,193 791,757
Loan payable, stockholder 178,877 178,877
------------ -------------
Total Current Liabilities 1,064,469 1,012,571
Capital lease payable, net of current portion 205,301 205,301
Loans payable, officer/stockholder 1,742,872 1,781,308
------------ -------------
Total Liabilities 3,012,650 2,999,180
------------ -------------
Commitments and Contingencies
Stockholders' Equity
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 821 shares 1 1
Common stock, $.001 par value, authorized 40,000,000 shares,
Issued 15,299,215 and 15,299,215 shares 15,299 15,299
Subscription Receivable
Additional paid in capital 11,651,195 11,651,195
Deficit (9,206,620) (8,879,261)
------------ -------------
2,459,875 2,787,234
Less: Treasury stock, at cost (268,348) (229,500)
------------ -------------
Total Stockholders' Equity 2,191,527 2,557,734
------------ -------------
Total Liabilities and Stockholders' Equity $ 5,204,176 $ 5,556,914
============ =============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 3
DIVERSIFAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months Three months
Ended Ended
February 28, 1998 February 28, 1997
----------------- -----------------
<S> <C> <C>
Sales $ 1,091,719 $ 1,553,626
----------- -----------
Cost and Expenses
Cost of sales, exclusive of depreciation 646,625 850,673
Depreciation and amortization 182,004 181,136
Selling, general and administrative 571,767 449,670
Interest expense 11,182 1,473
----------- -----------
1,411,578 1,482,952
----------- -----------
Income(Loss) from Operation Before Taxes (319,859) 70,674
----------- -----------
Income Tax Expense 7,500
-----------
Net Income (Loss) $ (327,359) $ 70,674
=========== ===========
Weighted average common shares outstanding 15,299,215 14,073,353
Income (loss) per share of common stock $ (.02) $ .01
=========== ===========
</TABLE>
See notes to Consolidated Financial Statements
<PAGE> 4
DIVERSIFAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months Three months
Ended Ended
February 28, 1998 February 28, 1997
----------------- -----------------
<S> <C> <C>
Operating Activities
Net income (loss) $(327,359) $ 70,674
Adjustments to reconcile net income (loss) to
Net cash provided by (used in) operating activities
Depreciation and amortization 182,004 181,136
Deferred Tax Benefit 7,500
Changes in operating assets and liabilities
Accounts receivable 27,814 (212,221)
Inventories (231,716) (12,858)
Prepaid expenses and other (44,645) (8,766)
Accounts payable and accrued expenses (30,528) 30,811
--------- -----------
Net Cash Provided by (used in)
Operating Activities (416,930) 48,776
Investing Activities
Purchases of equipment and vehicles (8,055) (7,813)
Acquisition of net assets of Copier Specialists
(net of cash acquired of $3,054) (36,946)
--------- -----------
Net Cash Used in Investing Activities (45,001) (7,813)
Financing Activities
Repayment of capital lease obligations, net (9,807) (1,190)
Proceeds from affiliate and stockholder's
Loans payable 108,939
Proceeds from sale of common stock 94,000
Repayment of loans payable officer/stockholder (38,429)
Purchase of Treasury Stock (38,848)
--------- -----------
Net Cash (Used in) Provided by Financing Activities (87,084) 201,749
--------- -----------
Net increase (decrease) in cash (549,015) 242,712
Cash, beginning of year 804,931 198,069
--------- -----------
Cash End of Period $ 255,916 $ 440,781
========= ===========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest $ 11,182 $ 1,473
========= ===========
</TABLE>
See notes to Consolidated Financial Statements
<PAGE> 5
DIVERSIFAX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
1. Basis of Presentation The consolidated balance sheet as of February 28,
1998 and the related consolidated statements of
operations and cash flows for the three month
period ended February 28, 1998 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, 1997 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, 1998 are not necessarily indicative of
the operating results for the entire
year.
2. Other Items In February 1998, the Company, through its
wholly-owned subsidiary JA-Hunt Services, Inc.,
acquired the assets of a Florida-based company
engaged in the retail sale and servicing of copier
supplies and equipment for a purchase price of
$80,000 ($40,000 in cash and $40,000 in common
stock) plus the assumption of liabilities.
During March 1998, the Company paid off a loan
payable from a stockholder in the amount of
approximately $179,000.
During the three month period ended February 28,
1998 the Company re-purchased 100,000 shares of
its common stock for approximately $39,000.
<PAGE> 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The three months ended February 28, 1998 compared to the three months ended
February 28, 1997
Sales decreased approximately $462,000 or 29.7% for the three months ended
February 28, 1998 compared to the three months ended February 28, 1997. This
decrease was a result of a decrease in the revenue generated from the sale of
microfiche scanner units "SCREENSCAN" coupled with a decrease in copier
revenues. The decrease in copier revenue is the result of the loss of
contracts with two universities in the southeast during fiscal 1997. In
addition, during March 1998, the Company was notified that its proposal for the
renewal of its contract with another major university in the southeast was not
accepted. The Company, along with others submitting proposals, have appealed
the bid process, and such appeals are pending. Sales from this university
represented 11.5% of total sales for the year ended November 30, 1997. Revenues
derived from the Company's Smart Switch continue to be minimal.
Cost of sales represented 59.2% of sales for the three months ended February
28, 1998 compared to 54.7% for the three months ended February 28, 1997. This
increase is the result of lower microfiche scanner product mix.
Depreciation and amortization for the three months ended February 28, 1998,
remained consistent with the comparable prior period.
Selling, general and administrative expenses increased to approximately $572,000
or 52.3% of sales for the three months ended February 28, 1998 from
approximately $450,000 or 28.9% of sales for the three months ended February 28,
1997. The increase was the result of the one time expenses associated with the
relocation of the Company's executive offices to Sarasota, Florida, the
continued marketing, promotion and development of the Company's Screenscan
dealership and the fact that included in selling, general and administrative
expenses include certain fixed costs which when compared to a lower revenue base
result in a higher percentage of sales.
Interest expense increased approximately $9,709 for the three months ended
February 28, 1998 compared to the three months ended February 28, 1997.
The above resulted in net loss of approximately ($327,359) for the three months
ended February 28, 1998 compared to net income of approximately $70,674 for the
three months ended February 28, 1997.
<PAGE> 7
Liquidity and Capital Resources
At February 28, 1998, the Company had cash of $255,916 as compared to $440,781
at February 28, 1997. Working capital at February 28, 1998 was $720,024 as
compared to a working capital deficiency of $181,808 at February 28, 1997.
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 the acquisition of new businesses and the further
growth of acquisitions to broaden and diversify it revenue source making it
less seasonal.
Net cash used in operating activities of approximately $417,000 resulted from
the net loss of approximately $327,000 offset by non-cash items including
depreciation and amortization of $182,000 and a decrease in the deferred tax
benefit of $7,500. In addition net cash used in operating activities included
increases in inventories of $232,000 and prepaid expenses of $45,000.
Net cash used in investing activities of approximately $45,000 resulted from the
acquisition of copiers and accessories of $8,000 and net cash used in the
acquisition of Copier Specialists in the amount of $37,000.
Net cash used in financing activities in the amount of approximately $87,000
resulted from the repayment of capital lease obligations of $10,000, loans
payable to an officer/stockholder of $38,000 and the purchase of treasury stock
in the amount of $39,000. The above resulted in a net decrease in cash of
approximately $549,000 for the three months ended February 28, 1998. In
addition, in March 1998, the Company paid off a loan payable from a stockholder
in the amount of approximately $179,000.
Management continues to believe the expected cash flow from operations, the
expected growth of newly acquired companies, its ScreenScan dealership, and the
willingness and ability of the Company's Chief Executive Officer to fund any
operating deficits will allow the Company to continue operations over the next
12 months. However, no assurance can be given that these factors will
materialize.
<PAGE> 8
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.
/s/ Irwin A. Horowitz
--------------------------------
Date: April 14, 1998 Irwin A. Horowitz
Chairman of the Board of
Directors, President and Chief
Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> FEB-28-1998
<CASH> 225,916
<SECURITIES> 0
<RECEIVABLES> 253,928
<ALLOWANCES> 0
<INVENTORY> 863,644
<CURRENT-ASSETS> 1,784,493
<PP&E> 3,117,679
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,204,176
<CURRENT-LIABILITIES> 1,064,469
<BONDS> 0
0
0
<COMMON> 15,299
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,204,176
<SALES> 1,091,719
<TOTAL-REVENUES> 1,091,719
<CGS> 646,625
<TOTAL-COSTS> 646,625
<OTHER-EXPENSES> 753,771
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,182
<INCOME-PRETAX> (319,859)
<INCOME-TAX> 7,500
<INCOME-CONTINUING> (327,359)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (327,359)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
