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<SEC-DOCUMENT>0001161697-06-000695.txt : 20060719
<SEC-HEADER>0001161697-06-000695.hdr.sgml : 20060719
<ACCEPTANCE-DATETIME>20060719141026
ACCESSION NUMBER:		0001161697-06-000695
CONFORMED SUBMISSION TYPE:	10QSB
PUBLIC DOCUMENT COUNT:		3
CONFORMED PERIOD OF REPORT:	20060228
FILED AS OF DATE:		20060719
DATE AS OF CHANGE:		20060719

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			DIVERSIFAX INC
		CENTRAL INDEX KEY:			0000885462
		STANDARD INDUSTRIAL CLASSIFICATION:	SERVICES-MAILING, REPRODUCTION, COMMERCIAL ART & PHOTOGRAPHY [7330]
		IRS NUMBER:				133637458
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1130

	FILING VALUES:
		FORM TYPE:		10QSB
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-20936
		FILM NUMBER:		06969069

	BUSINESS ADDRESS:	
		STREET 1:		4274 INDEPENDENCE CT
		CITY:			SARASOTA
		STATE:			FL
		ZIP:			34241-2109
		BUSINESS PHONE:		9413512720

	MAIL ADDRESS:	
		STREET 1:		4274 INDEPENDENCE CT
		CITY:			SARASOTA
		STATE:			FL
		ZIP:			34241-2109
</SEC-HEADER>
<DOCUMENT>
<TYPE>10QSB
<SEQUENCE>1
<FILENAME>form10-qsb_feb282006.txt
<DESCRIPTION>FORM 10-QSB 02-28-2006
<TEXT>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON D. C. 20549

                                   FORM 10-QSB

(X)      Quarterly report pursuant to Section 13 or 15(d) of the Securities and
         Exchange Act of 1934.

                FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2006.


( )      Transition report pursuant to 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 registrant as specified in charter)


           DELAWARE                                     13-3637458
           --------                                     ----------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)


              4274 INDEPENDENCE COURT, SARASOTA, FLORIDA 34234-2109
              -----------------------------------------------------
                    (Address of principal executive offices)


                                 (941) 351-2720
                                 --------------
              (Registrant's Telephone Number, Including Area Code)


Check whether the registrant: (1) has filed all reports required to be filed by
Section 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 ( ) NO (X)


Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

                                 YES ( ) NO (X)


State the number of shares outstanding of each of the issuer's classes of common
equity as of July 17, 2006

                                26,726,200 SHARES


Transitional Small Business Disclosure Format:

                                 YES ( ) NO (X)
<PAGE>

                                 DIVERSIFAX INC.
                                   FORM 10-QSB
                     FOR THE QUARTER ENDED FEBRUARY 28, 2006

PART I - FINANCIAL INFORMATION

     Item 1 -

         Financial Statements

             Consolidated Balance Sheet for February 28, 2006 (unaudited) .... 1

             Consolidated Statements of Operations (unaudited) for the
             three months ended February 28, 2006 and February 28, 2005 ...... 2

             Consolidated Statements of Cash Flows (unaudited) for the
             three months ended February 28, 2006 and February 28, 2005 ...... 3

             Notes to Consolidated Condensed Financial Statements ............ 4

     Item 2 -

         Management's Discussion and Analysis of Financial Condition and
         Results of Operations ............................................... 6

     Item 3 -

         Controls and Procedures ............................................. 9

PART II - OTHER INFORMATION

     Item 1 - Legal Proceedings ..............................................10

     Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds ....10

     Item 3 - Defaults Upon Senior Securities ................................10

     Item 4 - Submission of Matters To A Vote of Security Holders ............10

     Item 5 - Other Information ..............................................10

     Item 6 - Exhibits .......................................................10

<PAGE>

                        DIVERSIFAX INC. AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEET (UNAUDITED)

                                                                   February 28,
                                                                       2006
                                                                   ------------
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS ......................................   $     25,032
INVESTMENT, EVOLVE ONE, INC ....................................        105,000
OTHER RECEIVABLES, RELATED PARTY ...............................         11,402
OTHER CURRENT ASSETS ...........................................         19,429
                                                                   ------------
     TOTAL CURRENT ASSETS ......................................        160,863

PROPERTY AND EQUIPMENT, NET ....................................         20,382

NOTE RECEIVABLE ................................................         24,675
                                                                   ------------

     TOTAL ASSETS ..............................................   $    205,920
                                                                   ============

LIABILITIES AND STOCKHOLDERS'  DEFICIT
CURRENT LIABILITIES
BANK OVERDRAFT .................................................   $     23,776
CURRENT MATURITIES OF LONG-TERM DEBT AND .......................         11,344
NOTES PAYABLE
ACCOUNTS PAYABLE ...............................................        104,987
ACCRUED PAYROLL, STOCKHOLDER ...................................      1,084,223
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES .................         16,578
                                                                   ------------
     TOTAL CURRENT LIABILITIES .................................      1,240,908

LONG-TERM DEBT AND NOTES PAYABLES, LESS ........................         10,566
CURRENT MATURITIES
LOAN PAYABLE, OFFICER/STOCKHOLDER ..............................      1,859,959
                                                                   ------------

     TOTAL LIABILITIES .........................................      3,111,433


STOCKHOLDERS' DEFICIT

COMMON STOCK, $.001 PAR VALUE; 70,000,000 SHARES AUTHORIZED;
26,726,200 SHARES ISSUED; 26,399,702 SHARES OUTSTANDING ........         26,727
ADDITIONAL PAID-IN CAPITAL .....................................     11,641,395
ACCUMULATED DEFICIT ............................................    (14,305,287)
LESS:  TREASURY STOCK; 326,498 SHARES AT COST ..................       (268,348)
                                                                   ------------

     TOTAL STOCKHOLDERS' DEFICIT ...............................     (2,905,514)
                                                                   ------------
     TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT ...............   $    205,920
                                                                   ============

                 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
                     THE CONSOLIDATED FINANCIAL STATEMENTS.

                                        1
<PAGE>

                        DIVERSIFAX INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

                                                        Three Months Ended
                                                   February 28 and February 28,
                                                   ----------------------------
                                                       2006            2005
                                                   ------------    ------------

SALES ..........................................   $    129,949    $    145,320

COSTS AND EXPENSES
     Cost of sales .............................         71,260          85,791
     Depreciation expense ......................          2,298           2,876
     Selling, general and administrative .......        193,192          89,453
                                                   ------------    ------------
                                                        266,750         178,120
                                                   ------------    ------------

                                                        136,801          32,800

OTHER INCOME (EXPENSE):
     Other income ..............................             31          19,125
     Interest income ...........................              -           2,100
     Interest expense ..........................        (10,054)        (10,592)
                                                   ------------    ------------
                                                        (10,023)         10,633

                                                   ------------    ------------
          LOSS BEFORE TAXES ....................       (146,824)        (22,167)

     Benefit for income taxes ..................              -               -
                                                   ------------    ------------

          NET INCOME (LOSS) ....................   $   (146,824)   $    (22,167)
                                                   ============    ============

Weighted average common shares outstanding .....     26,399,702      26,299,702
Loss per share of common stock .................   $      (0.01)   $      (0.00)

                 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
                     THE CONSOLIDATED FINANCIAL STATEMENTS.

                                        2
<PAGE>

                        DIVERSIFAX INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

                                                      For the Three Months Ended
                                                      --------------------------
                                                      February 28,  February 28,
                                                          2006          2005
                                                      ------------  ------------
Operating activities:
Net loss ...........................................   $(146,824)    $ (22,167)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
     Depreciation expense ..........................       2,298         2,876
Changes in operating assets and liabilities
     Accounts receivable ...........................      20,540           180
     Other current assets ..........................     (16,180)            0
     Accounts payable ..............................      78,652             0
     Accrued payroll, stockholder ..................      33,079        33,080
     Accrued expenses and other current liabilities      (59,975)      (31,520)
     Deferred revenue ..............................           0       (18,750)
                                                       ---------     ---------
Net cash (used in)operating activities .............     (88,410)      (36,301)

Investing activities:

     Collections on note receivable ................      (8,777)          260
                                                       ---------     ---------
Net cash (used in) provided by investing activities       (8,777)          260

Financing activities:
     Increase in bank overdraft ....................      23,776             -
     Net repayments under loan payable to
      officer/stockholder ..........................      85,121        (7,112)
     Principal borrowings on long-term debt ........           0        (2,379)
     Repayments on long-term debt ..................      (2,420)            0
     Purchase of treasury stock
     Proceeds from issuance of stock ...............           1             -
                                                       ---------     ---------
          Net cash used in financing activities ....     106,478        (9,491)


Net increase (decrease) in cash and cash equivalents       9,291       (45,532)

Cash and cash equivalents, beginning of period .....      15,741       287,477
                                                       ---------     ---------
          Cash and cash equivalents, end of period .   $  25,032     $ 241,945
                                                       =========     =========

Supplemental disclosures cash flow information:
Interest paid ......................................   $   1,054     $      50
Disposal of fixed assets, cost of $1,082,923, net
 of accumulated depreciation .......................   $       0     $       0

                 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
                     THE CONSOLIDATED FINANCIAL STATEMENTS.

                                        3
<PAGE>

NOTE A.  NATURE OF BUSINESS AND INTERIM FINANCIAL STATEMENTS

Nature of business:
- -------------------

DiversiFax, Inc. and Subsidiaries (the "Company") has been engaged, since
November 1993, in the business of owning, leasing, and operating coin and debit
card pay-per-copy photocopy machines, fax machines, microfilm reader-printers
and accessory equipment.

Due to the increased use of internet services, demand for the services provided
by the Company has declined sharply.

The Company was incorporated under the laws of the State of Delaware on February
28, 1989. The Company's principal executive offices and operations center are
located at 4274 Independence Court, Sarasota, Florida 34234-2109, telephone
number (941) 351-2720.

Interim financial statements:
- -----------------------------

The interim consolidated financial statements presented herein are unaudited and
have been prepared in accordance with the instructions to Form 10-QSB and
Article 10 of Regulation S-B These statements should be read in conjunction with
the audited consolidated financial statements and note thereto included in our
annual report on Form 10-KSB for the year ended November 30, 2005. In the
opinion of management the interim statements include all adjustments (consisting
only of normal recurring adjustments) necessary to summarize fairly our
financial position, results of operations, and cash flows. The results of
operations and cash flows for the three months ended February 28, 2006 may not
be indicative of the results that may be expected for the year ending November
30, 2006.

NOTE B.  GOING CONCERN

The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and liabilities, in
the ordinary course of business. Operating losses have been incurred resulting
in an accumulated deficit of $14,305,287 at February 28, 2006. The Company has
negative working capital in the amount of approximately $1,080,000 at February
28, 2006, including owing approximately $1,084,000 to its chief executive
officer. These conditions raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial statements of the
Company do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern. Currently, the Company's Chief Executive Officer funds any
operating deficits and management believes that actions presently being taken to
restructure operations provide the opportunity for the Company to continue as a
going concern; however, there is substantial doubt that such future funding will
continue.

NOTE C.  SUBSEQUENT EVENT

On April, 28, 2006, a group of investors, including Diversifax, Inc.,
representing 80% of the issued share capital in Evolve One, Inc. sold their
interest in Evolve One, Inc. The Company sold 12,137,784 of its total holding of
12,848,916 shares, retaining 711,132 shares and 6,000,000 warrants, which expire
on 6/20/2010. The Company received $ 108,553 for the shares, as well as
receiving reimbursement in the amount of $53,339 for expenses incurred and paid
by Diversifax.

                                        4
<PAGE>

In accordance with Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144),
the carrying values of long-lived assets, including definite-lived intangibles,
are periodically reviewed by the Company and impairments are recognized if the
expected future operating non-discounted cash flows derived from an asset are
less than its carrying value and if the carrying value is more than the fair
value of the asset. Impairment was previously assessed to the company's carrying
value. The investment is at cost, net of the assessed impairment.

As of July, 2006 the management of the company is currently contemplating sale
of part or all of the company's assets, due to cash flow concerns. The actions
may consider exchange of stock for debt or other actions considered necessary.

NOTE D.  IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In November 2004, the Financial Accounting Standards Board issued statement of
Financial Accounting Standard No. 151, "Inventory Costs". The new Statement
amends Accounting Research Bulletin No. 43, Chapter 4, "Inventory Pricing," to
clarify the accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material. This Statement requires that those items be
recognized as current-period charges and requires that allocation of fixed
production overheads to the cost of conversion be based on the normal capacity
of the production facilities. This statement is effective for fiscal years
beginning after June 15, 2005. The Company does not expect adoption of this
statement to have a material impact on our financial condition or results of
operations.

In December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment. This
Statement replaces FASB Statement No. 123 and supersedes APB Opinion No. 25.
Statement No. 123(R) will require the fair value of all stock option awards
issued to employees to be recorded as an expense over the related vesting
period. The Statement also requires the recognition of compensation expense for
the fair value of any unvested stock option awards outstanding at the date of
adoption. The Company is evaluating these new rules, but expect no material
impact upon adoption relating to outstanding options since a majority of the
awards under the existing incentive stock option plan will be fully vested prior
to the effective date of the revised rules.

In May 2005, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standard 154, "Accounting Changes and Error Corrections."
The Statement applies to all voluntary changes in accounting principle and to
changes required by an accounting pronouncement that do not include explicit
transition provisions. SFAS No. 154 requires that changes in accounting
principle be retroactively applied, instead of including the cumulative effect
in the income statement. The correction of an error will continue to require
financial statement restatement. A change in accounting estimate will continue
to be accounted for in the period of change and in subsequent periods, if
necessary. SFAS No. 154 is effective for fiscal years beginning after December
31, 2005. We do not expect the adoption of this Statement to have a material
impact on our financial condition or results of operations.

                                        5
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

The following discussions should be read in conjunction with our Consolidated
Financial Statements and the notes thereto presented in "Item 1 - Financial
Statements" and our audited financial statements and the related Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in our report on Form 10-KSB for the year ended November 30, 2005. The
information set forth in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" includes forward-looking statements that
involve risks and uncertainties. Many factors, including those discussed below
under "Factors That May Affect Future Results" and "Outlook" could cause actual
results to differ materially from those contained in the forward-looking
statements below.

OVERVIEW

Effective November 1, 1993, DiversiFax, Inc. (the "Company") acquired all of the
outstanding common stock of IMSG Systems, Inc. ("IMSG") and its affiliated
companies, National Copy Corp. ("National"), Capital Copy Corp. ("Capital") and
Advanced Business Systems, Inc. ("Advanced") (IMSG, National, Capital and
Advanced collectively "IMSG and Affiliates") in exchange for the issuance of
662,000 shares of Series A, convertible preferred stock. The preferred stock was
automatically converted into an aggregate of 6,620,000 shares of common stock of
the Company in November, 1995.

IMSG and Affiliates owns, supplies and maintains self-service coin and card
reader operated photocopy machines in colleges, universities, libraries,
courthouses, government agencies, pharmacies and other retail establishments
throughout the eastern United States.

The Company is primarily responsible for the collection of the payments and most
locations share in the revenue from the photocopy machines.

In terms of an agreement with Evolve One, Inc., dated December 11, 2005, all the
stock and assets of Auctionstore.com and Stogiesonline, both wholly owned
subsidiaries of Evolve One Inc., were transferred to Diversifax Inc., in lieu of
monies owed to Diversifax Inc., for storage, rent and handling of all physical
assets of both of those companies. The agreement includes all inventory,
computers, computer programs, customer lists, humidors cigar lighters and cigar
paraphernalia, and other assets, belonging to those companies. It is the intent
of the Company to liquidate those assets in an attempt to minimize the losses
incurred through the Evolve One venture.

GOING CONCERN

The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and liabilities, in
the ordinary course of business. Operating losses have been incurred resulting
in an accumulated deficit of $14,305,287 at February 28, 2006. The Company has
negative working capital in the amount of approximately $1,080,000 at February
28, 2006, including owing approximately $1,084,000 to its chief executive
officer. These conditions raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial statements of the
Company do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern. Currently, the Company's Chief Executive Officer funds any
operating deficits and management believes that actions presently being taken to
restructure operations provide the opportunity for the Company to continue as a
going concern; however, there is significant doubt that such future funding will
continue.

                                        6
<PAGE>

CRITICAL ACCOUNTING POLICIES

The following discussion and analysis is based upon our consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of our
financial statements requires management to make estimates and assumptions that
affect the reported amounts of revenues and expenses, and assets and liabilities
during the periods reported. Estimates are used when accounting for certain
items such as revenues, allowances for doubtful accounts, depreciation, taxes,
valuation of investments, and long-lived assets. We base our estimates on
historical experience, where applicable and other assumptions that we believe
are reasonable under the circumstances. Actual results may differ from our
estimates under different assumptions or conditions. We believe that the
following critical accounting policies reflect our more significant judgments
and estimates used in preparation of our consolidated financial statements.

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.

The majority of cash is maintained with a major financial institution in the
United States. Deposits with this bank may exceed the amount of insurance
provided on such deposits. Generally, these deposits may be redeemed upon demand
and, therefore, bear minimal risk.

The long term investment in Evolve One is accounted for using the equity method.
Evolve One has experienced substantial operating losses since acquisition. There
has been no activity in the company thus far this fiscal year. Accordingly, at
February 28, 2006 the company's investment has been written down to its
estimated realizable value. Management's estimate is based on the subsequent
sale of Diversifax's shares of Evolve One, Inc.

Property and equipment are recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the respective assets,
ranging generally from five to ten years. For income tax purposes, the Company
uses accelerated methods for all assets. Maintenance and repairs are charged to
operations when incurred. Betterments and renewals are capitalized. When
property and equipment are sold or otherwise disposed of, the asset account and
related accumulated depreciation account are relieved, and any gain or loss is
included in operations.

Loss per share has been computed using the weighted average number of common and
common equivalent shares outstanding during each period presented. Common
equivalent shares for outstanding options and warrants were not included in the
weighted average shares outstanding where the effect would be anti-dilutive.

Revenue from the Company's self-service coin and card reader operated photocopy
machines is principally recognized at the time payment is received. Revenue from
the Company's scanner units is recognized when the product is shipped.

                                        7
<PAGE>

RESULTS OF OPERATIONS FOR THREE MONTHS ENDED FEBRUARY 28, 2006 COMPARED TO
FEBRUARY 28, 2005

Sales: Sales for the first quarter of 2006 decreased $15,371, or 11% to $129,949
from $145,320 for the first quarter of 2005. This decrease represents the
continuing decline in demand for the Company's products. The majority of the
Company's customers are maintained pursuant to contractual agreements, generally
ranging from three to five years. Over the past few years, 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 continued 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 not
reasonable.

Cost of Sales: Cost of sales for the first quarter of 2006 decreased $14,531, or
17% to $71,260 from $85,791 for the first quarter of 2005. Cost of sales
represented 55% of sales for the first quarter of 2006 compared to 59% of sales
for the first quarter of 2005. The decrease is generally due to reduced sales in
the current quarter.

Selling, general and administrative expenses: Selling, general and
administrative expenses increased to $193,192 or 149% of sales for the first
quarter of 2006 from $89,453 or 62% of sales for the first quarter of 2005. This
increase is primarily attributable to the accrual of audit fees, as well as
other professional fees incurred in the disposition of the Company's interest in
Evolve One, Inc.

Other income: Other income for the first quarter of 2005 represented the earned
portion of management fees flowing from the contract with Evolve One, Inc. this
income stream has ceased.

The above factors resulted in a net loss of $146,824 for the first quarter of
2006 compared to $22,167 for the first quarter of 2005.

The Company's Copier activities are subject to seasonal fluctuations. Revenues
from Copiers tend to be lower during the summer months of June through September
and in the last weeks of December and the first weeks of January due to school
and employee vacation patterns.

LIQUIDITY AND CAPITAL RESOURCES

At February 28, 2006, the Company had cash of $25,032 as compared to $15,741 at
November 30, 2005. The Company also had an overdraft of $23,776 at February 28,
2006.

The Company's primary need for funds is to finance working capital, capital
expenditures and the further development and the acquisition of new businesses
and the further growth of acquisitions to broaden and diversify its revenue
source making it less seasonal.

Net cash used in operating activities of $88,410 during the first quarter of
2006 resulted from the net loss of $146,824 offset by non-cash items including
depreciation of $2,298. In addition, net cash used in operating activities
included an increase in accrued expenses and a decrease in deferred revenue.

Net cash used in financing activities amounted to $106,748 during the first
quarter of 2006. At February 28, 2006, the amount of the loan payable,
officer/stockholder by the Company to Dr. Irwin Horowitz was $1,859,959.

                                        8
<PAGE>

The above resulted in a net decrease in cash of $9,291 for the year first
quarter of 2006.

Management continues to believe the expected cash flow from operations, and the
willingness and ability of the Company's Chief Executive officer to fund any
operating deficit will allow the Company to continue operations over the next 12
months. However, no assurance can be given that these factors will materialize.

ITEM 3.  CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.
- -------------------------------------------------

(a)  Under the supervision and with the participation of our Management,
     including our principal executive officer, we conducted an evaluation of
     the effectiveness of the design and operations of our disclosure controls
     and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
     Securities Exchange Act of 1934, as amended (the "Exchange Act") as of the
     end of the period covered by this report. Based on this evaluation, our
     Principal Executive Officer concluded that our disclosure controls and
     procedures were not effective so as to timely identify, correct and
     disclose information required to be included in our Securities and Exchange
     Commission ("SEC") reports due to the Company's limited internal resources
     and lack of ability to have multiple levels of transaction review. There
     were no significant changes in internal controls or in other factors that
     could significantly affect internal controls subsequent to the date of
     evaluation, during the most recent quarter, including any corrective
     actions with regard to significant deficiencies and material weaknesses.
     Through the use of an external consultant and the audit process, management
     believes that the financial statements and other information presented
     herewith are materially correct.

                                        9
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS -

The Company is not a party to any material legal proceedings, except as follows:

     (1) Jacksonville Public Library re breach of contract

     (2) Ikon Business Solutions re commission

The Company believes that the outcome of the above actions will not have a
material adverse effect on the Company's financial condition. The above legal
proceedings are pending in the courts in Jacksonville, FL. The proceedings began
in 2001 and the principal parties are Capital Copy, Inc., the City of
Jacksonville, and Ikon Office Solutions. The disputes concern commission payable
from the city for copy services and contracts and the Company has filed a
proposal for settlement amounting to $100,000.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS -

The Common Stock was traded on the over-the-counter market with quotations
reported on the National Association of Securities Dealers Automatic Quotation
System (NASDAQ), Small Cap Market, under the symbol "DFAX," until delisted on
10/30/1998. Subsequently, all trading has been done on the Pink Sheets.

As of February 28, 2006, there were approximately 235 holders of record of the
Common Stock, including record holders which may hold such stock for beneficial
owners and which have not been polled to determine the extent of beneficial
ownership.

The Company has never paid cash dividends on its Common Stock. Holders of Common
Stock are entitled to receive such dividends as may be declared and paid from
time to time by the Board of Directors out of funds legally available therefor.
The Company intends to retain any earnings for the operation and expansion of
its business and does not anticipate paying cash dividends in the foreseeable
future. Any future determination as to the payment of cash dividends will depend
upon future earnings, results of operations, capital requirements, the Company's
financial condition and such other factors as the Board of Directors may
consider.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES - None

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - No Annual Meeting
of Stockholders was held during the preceding year.

ITEM 5 - OTHER INFORMATION - None

ITEM 6 - EXHIBITS

Exhibits are filed as part of, or incorporated by reference into this report.

31.1     Certification of the Chief Executive Officer, dated July 17, 2006
         (This certification required as required as Exhibit 31 under 601(a) of
         Regulation S-K is filed as Exhibit 99.1 pursuant to SEC interim filing
         guidance.) (2)

32.1     Certification of the Chief Executive Officer, dated July 17, 2006
         (This certification required as required as Exhibit 31 under 601(a) of
         Regulation S-K is filed as Exhibit 99.2 pursuant to SEC interim filing
         guidance.) (2)

                                       10
<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 .and Subsidiaries


Date: July 17, 2006                     /s/ Irwin A. Horowitz
                                        ---------------------
                                        Dr. Irwin A. Horowitz
                                        Chairman of the Board, Chief
                                        Executive Officer and President
                                        (principal executive officer)


         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.


Signature                               Title                      Date
- ---------                               -----                      ----

/s/ Irwin A. Horowitz                   Director                   July 17, 2006
- ---------------------
Irwin A. Horowitz


/s/ Lonnie L. Sciambi                   Director                   July 17, 2006
- ---------------------
Lonnie L. Sciambi


                                       11
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>2
<FILENAME>ex_31-1.txt
<DESCRIPTION>CERTIFICATION
<TEXT>

                                                                    EXHIBIT 31.1

                      CERTIFICATION PURSUANT TO SECTION 302
                        OF THE SARBANES-OXLEY ACT OF 2002

I, Dr. Irwin A. Horowitz, certify that:

1. I have reviewed this Form 10-QSB of DiversiFax, Inc. and Subsidiaries;

2. Based on my knowledge, this report does not contain any untrue statement of a
   material fact or omit to state a material fact necessary to make the
   statements made, in light of the circumstances under which such statements
   were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
   information included in this report, fairly present in all material respects
   the financial condition, results of operations and cash flows of the
   registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for
   establishing and maintaining disclosure controls and procedures (as defined
   in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

   a. Designed such disclosure controls and procedures, or caused such
      disclosure controls and procedures to be designed under our supervision,
      to ensure that material information relating to the registrant, including
      its consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this report is being
      prepared;

   b. Evaluated the effectiveness of the registrant's disclosure controls and
      procedures and presented in this report our conclusions about the
      effectiveness of the disclosure controls and procedures, as of the end of
      the period covered by this report based on such evaluation; and

   c. Disclosed in this report any change in the registrant's internal control
      over financial reporting that occurred during the registrant's most recent
      fiscal quarter (the registrant's fourth fiscal quarter in the case of an
      annual report) that has materially affected, or is reasonably likely to
      materially affect, the registrant's internal control over financial
      reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on
   our most recent evaluation of internal control over financial reporting, to
   the registrant's auditors and the audit committee of the registrant's board
   of directors (or persons performing the equivalent functions):

   a. All significant deficiencies and material weaknesses in the design or
      operation of internal control over financial reporting which are
      reasonably likely to adversely affect the registrant's ability to record,
      process, summarize and report financial information; and

   b. Any fraud, whether or not material, that involves management or other
      employees who have a significant role in the registrant's internal control
      over financial reporting.

Date: July 17, 2006

By:   /s/ Dr. Irwin A. Horowitz
      -------------------------
      Dr. Irwin A. Horowitz, Chief Executive
      Officer and Chief Financial Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>3
<FILENAME>ex_32-1.txt
<DESCRIPTION>CERTIFICATION
<TEXT>

                                                                    EXHIBIT 32.1

                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
      AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

         In connection with the Form 10-QSB of DiversiFax, Inc. and Subsidiaries
(the "Company") for the quarter ended February 28, 2006, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), the
undersigned certifies, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to
ss. 906 of the Sarbanes-Oxley Act of 2002, to the best of their knowledge and
belief, that:

         1) the Report fully complies with the requirements of Sections 13(a) or
            15(d) of the Securities and Exchange Act of 1934, as amended; and

         2) the information contained in the Report fairly presents, in all
            material respects, the financial condition and results of operations
            of the Company.

Date: July 17, 2006


By:   /s/ Dr. Irwin A. Horowitz
      -------------------------
      Dr. Irwin A. Horowitz, Chief Executive
      Officer and Chief Financial Officer


This certification shall not be deemed "filed" for purposes of Section 18 of the
Securities and Exchange Act of 1934, or the Exchange Act, or otherwise subject
to the liability of Section 18 of the Exchange Act. Such certification shall not
be deemed to be incorporated by reference into any filing under the Securities
Act of 1933 or the Exchange Act, except to the extent that the Company
specifically incorporates by reference.
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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