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 March 31, 1999.
[X] Transition report pursuant to Section 13 or 15(d) of the Exchange act for
the transition period from
_______________________________________to_______________________________________
Commission File Number: 0-20316
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Avitar, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 06-1174053
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
65 Dan Road, Canton, Massachusetts 02021
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(Address of principal executive offices) (Zip Code)
(781) 821-2440
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(Issuer's telephone number)
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(Former name, former address and former fiscal year, if
changed since last report)
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. [x]Yes [ ]No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
COMMON STOCK: 21,264,156
AS OF MAY 10, 1999
Transitional Small Business Disclosure Format
(Check One): [ ] Yes ; [x] No
Page 1 of 20 pages
Exhibit Index: is on page 18 hereof.
TABLE OF CONTENTS
Page
PART I: FINANCIAL INFORMATION 3
Item 1 Consolidated Financial Statements
Balance Sheet 4
Statements of Operations 5
Statement of Stockholders' Equity 6
Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8
Item 2 Management's Discussion and Analysis or Plan of
Operation 11
PART II: OTHER INFORMATION 15
Item 1 Legal Proceedings 16
Item 2 Changes in Securities and Use of Proceeds 16
Item 6 Exhibits and Reports on Form 8-K 16
SIGNATURES 17
EXHIBIT INDEX 18
PART I FINANCIAL INFORMATION
AVITAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
1. BASIS OF PRESENTATION
Avitar, Inc. ("Avitar" or the "Company"), through its wholly-owned
subsidiary, Avitar Technologies Inc. ("ATI") develops, manufactures,
markets and sells proprietary hydrophilic polyurethane foam disposables
fabricated for medical, diagnostics, dental and consumer use. The Company
is a leading independent fabricator of disposable medical and dental
products from medical grade hydrophilic polyurethane foam.
On October 27, 1997, the Company sold the business and assets of its
wholly-owned subsidiary, Managed Health Benefits Corporation ("MHB"), which
provided health care cost containment services. Therefore, MHB is
considered a discontinued operation and this report primarily reflects the
continuing operation of the Company.
The accompanying consolidated financial statements of the Company have
been prepared in accordance with generally accepted accounting principles
for interim financial information, the instructions to Form 10-QSB and
Regulation S-B (including Item 310(b) thereof). Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
the Company's management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and six month periods ended March
31, 1999 are not necessarily indicative of the results that may be expected
for the full fiscal year ending September 30, 1999. The accompanying
consolidated financial statements should be read in conjunction with the
audited financial statements of the Company for the fiscal year ended
September 30, 1998.
The Company's consolidated financial statements have been presented on
the basis that it is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business. The Company has suffered recurring losses from operations and has
a working capital deficit and stockholders' deficit as of March 31, 1999 of
$ 236,299 and $ 96,101, respectively. The Company raised net proceeds
aggregating approximately $200,000 and $1,100,000 during the fiscal years
ended September 30, 1998 and 1997, respectively, from the sale of preferred
and common stock. During the six months ended March 31, 1999, the Company
raised approximately $ 3,470,150 from the sale of preferred stock and
warrants (see Note 6) and from the exercise of warrants to purchase common
stock. The Company anticipates raising additional capital from its current
capital raising effort. Based upon cash flow projections, the Company
believes the anticipated cash flow from operations and expected proceeds
from equity financings described above will be sufficient to finance the
Company's operating needs until the operations achieve profitability. There
can be no assurances that forecasted results will be achieved or that
additional financing will be obtained. The financial statements do not
include any adjustments relating to the recoverability and classification
of asset amounts or the amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going
concern.
Item 1. FINANCIAL STATEMENTS
Avitar, Inc. and Subsidiaries
Consolidated Balance Sheet
March 31, 1999
(Unaudited)
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ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 335,919
Accounts receivable, net 238,680
Notes receivable 494,800
Inventories 177,669
Prepaid expenses and other 72,240
------------
Total current assets 1,319,308
PROPERTY AND EQUIPMENT, net 154,630
OTHER ASSETS 16,048
------------
Total $ 1,489,986
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 272,506
Accounts payable 625,466
Accrued expenses 571,026
Current portion of long-term debt 86,609
------------
Total current liabilities 1,555,604
LONG TERM DEBT, LESS CURRENT PORTION 30,480
------------
Total liabilities 1,586,084
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COMMITMENTS
STOCKHOLDERS' EQUITY:
Series A and B convertible preferred stock, $.01 par value; authorized
5,000,000 shares; 1,890,019 shares issued and outstanding 18,901
Common Stock, $.01 par value; authorized 25,000,000 shares;
19,919,359 shares issued and outstanding 199,194
Additional paid-in capital 19,149,913
Notes receivable (1,400,000)
Accumulated deficit (18,064,109)
------------
Total stockholders' equity (96,101)
------------
Total $ 1,489,986
============
See accompanying notes to consolidated financial statements.
Avitar, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
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THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
---------------------------------------------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
SALES $ 481,419 $ 507,580 $ 965,516 $ 939,794
OPERATING EXPENSES
Direct cost of revenues 364,957 473,052 833,226 894,454
Selling, general and administrative expenses 428,359 421,216 769,099 739,445
Research and development expenses 157,986 152,562 282,716 277,250
------------- ------------- -------------- --------------
Total operating expenses 951,302 1,046,830 1,885,041 1,911,149
------------- ------------- -------------- --------------
LOSS FROM OPERATIONS (469,883) (539,250) (919,525) (971,355)
------------- ------------- -------------- --------------
OTHER INCOME (EXPENSE)
Interest income - 2,611 - 6,761
Interest expense and financing costs (48,278) (21,123) (90,141) (61,559)
Other income, net 30,756 5,045 54,766 5,045
------------- ------------- -------------- --------------
Total other income (expense) (17,522) (13,467) (35,375) (49,753)
------------- ------------- -------------- --------------
LOSS FROM CONTINUING OPERATIONS (487,405) (552,717) (954,900) (1,021,108)
DISCONTINUED OPERATIONS:
Gain from the Sale of MHB - - - 1,208,084
Income (loss) from the operations of MHB - - - (71,914)
------------- ------------- -------------- --------------
NET INCOME (LOSS) $ (487,405) $ (552,717) $ (954,900) $ 115,062
============= ============= ============== ==============
INCOME (LOSS) PER SHARE:
Net income (loss) $ (487,405) $ (552,717) $ (954,900) $ 115,062
Preferred stock dividends and accreted dividends (199,544) - (199,544) -
------------- ------------- -------------- --------------
Net income (loss) available to common stockholders $ (686,949) $ (552,717) $(1,154,444) $ 115,062
============= ============= ============== ==============
Loss per share from continuing operations $ (0.04) $ (0.03) $ (0.06) $ (0.06)
Income (loss) per share from discontinued operations - - - 0.07
------------- ------------- -------------- --------------
Net income (loss) per share-basic and diluted $ (0.04) $ (0.03) $ (0.06) $ 0.01
============= ============= ============== ==============
WEIGHTED AVERAGE
NUMBER OF COMMON SHARES OUTSTANDING 18,558,353 16,001,172 18,028,977 15,679,305
============= ============= ============== ==============
See accompanying notes to consolidated financial statements.
Avitar, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
Six Months Ended March 31, 1999
(Unaudited)
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Preferred Stock Common Stock
............................... ..............................
Shares Amount Shares Amount
- -------------------------------------------------------------- ------------- -------------- -------------
Balance at September 30, 1998 792,588 $ 7,926 17,469,768 $ 174,698
Issuance of common stock for services 83,551 836
Exercise of warrants 717,500 7,175
Settlement of underwriter litigation 400,000 4,000
Conversion of preferred stock (400,199) (4,002) 1,248,540 12,485
Sale of preferred stock and warrants 1,473,060 14,731
Conversion of notes payable from affiliates 24,570 246
Net loss
- -------------------------------------------------------------- ------------- -------------- -------------
Balance at March 31, 1999 1,890,019 $ 18,901 19,919,359 $ 199,194
=============== ============= ============== =============
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Additional
paid-in Notes Accumulated
capital receivable deficit
- ---------------------------------------------- -------------- --------------- -------------
Balance at September 30, 1998 $ 15,498,788 $ - $ (17,109,209)
Issuance of common stock for services 17,910
Exercise of warrants 289,675
Settlement of underwriter litigation (4,000)
Conversion of preferred stock (8,783)
Sale of preferred stock and warrants 3,158,569 (1,400,000)
Conversion of notes payable from affiliates 199,754
Net loss (954,900)
- ---------------------------------------------- --------------- --------------- --------------
Balance at March 31, 1999 $ 19,149,913 $ (1,400,000) $ (18,064,109)
=============== =============== ==============
See accompanying notes to consolidated financial statements.
Avitar, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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SIX MONTHS ENDED MARCH 31,
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1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (954,900) $ 152,062
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 64,680 73,352
Provision (recovery) for losses on accounts receivable - (6,025)
Non-cash charges for services 18,746 7,311
Non-cash recovery from settlement of note payable - (58,126)
Gain from sale of MHB - (1,208,084)
Changes in operating assets and liabilities:
Increase in accounts receivable (70,772) (168,582)
Increase in prepaid expenses and other current assets (9,266) (53,627)
Decrease in other assets - 639
Increase (Decrease) in accounts payable and accrued
expenses (206,341) 8,090
Other - (77,916)
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Net cash used in operating activities (1,157,853) (1,330,906)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (13,936) (3,647)
Proceeds from the sale of MHB - 1,286,000
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Net cash provided by (used in) investing activities (13,936) 1,282,353
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable - 310,546
Sales of preferred stock and warrants, net 1,278,500 -
Exercise of warrants 296,850 -
Repayment of long-term debt (48,046) (164,789)
Repayment of notes payable (32,079) (110,000)
-------------- -------------
Net cash provided by financing activities 1,495,225 35,757
-------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 323,436 (12,796)
CASH AND CASH EQUIVALENTS, beginning of the period 12,483 65,512
-------------- -------------
CASH AND CASH EQUIVALENTS, end of the period $ 335,919 $ 52,716
============== =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during period:
Income taxes $ 2,456 $ -
Interest $ 89,797 $ 49,879
See accompanying notes to consolidated financial statements.
2. DISCONTINUED OPERATIONS
On October 27, 1997, the Company sold MHB's net assets and business and
received $1,286,000. For the period of October 1, 1997 through the date of
the sale on October 27, MHB incurred an operating loss of $71,914.
3. INVENTORIES
At March 31, 1999, inventories consist of the following::
Raw Materials $ 76,892
Work-in-Process 74,790
Finished Goods 25,987
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Total $177,669
========
4. MAJOR CUSTOMERS
Customers in excess of 10% of total sales are:
Three Months Ended March 31, Six Months Ended March 31,
---------------------------- --------------------------
1999 1998 1999 1998
------------ --------------- ---------- ---------------
Customer A $141,293 $ 210,963 $275,827 $430,704
Customer B 72,678 54,662 188,032 110,025
Customer C 77,993 * 103,035 *
Customer D 61,073 * 99,380 *
* Not in excess of 10% of sales during this period.
5. DEBT
During March 1999, the Chairman of the Board and the President of the
Company converted notes payable (including the interest thereon) and
accrued salaries totaling approximately $200,000 into 24,570 shares of the
Company's Series B convertible preferred stock (see Note 6) and warrants to
purchase 400,000 shares of the Company's common stock for a period of one
year at an exercise price of $1.22 per share.
6. PREFERRED STOCK AND WARRANTS
During the six months ended March 31, 1999, the Company sold 1,473,060
shares of Series B convertible preferred stock and received proceeds of
approximately $3,173,300 (cash of $1,278,500, notes receivable of $494,800
which were collected during April 1999 and recorded as assets, note
receivable of $400,000 which has a maturity date of May 15, 1999 and notes
receivable of $1,000,000 which have maturity dates of July 31, 1999). In
connection with the sale of the preferred stock, the Company issued to the
holders of the preferred stock warrants to purchase 6,416,600 shares of the
Company's common stock for one year at exercise prices ranging from $.225
to $1.19 per share. Each share of Series B Convertible Preferred Stock
entitles its holder to convert it, at any
time, into 10 shares of the Company's common stock and to receive dividends
amounting to an annual 8% cash dividend or 10% stock dividend computed on
the amount invested, at the discretion of the Company. Preferred stock
dividends for this six-month period amounted to $46,669. As of March 31,
1999, the total amount of unpaid and undeclared dividends was $52,163.
Approximately 66,000 shares of the Series B convertible preferred stock
(convertible into 660,000 shares of the Company's common stock were issued
with a conversion price below the common stock's quoted value and as a
result, accreted dividends of approximately $152,875 were recorded for the
six-month period. The amount for dividends and accreted dividends were
included in determining the earnings per share for common stockholders.
7. SUBSEQUENT EVENTS
Since March 31, 1999, the Company sold an additional 68,017 shares of
Series B convertible preferred stock (convertible into 680,170 shares of
the Company's common stock) and received proceeds of approximately
$485,000. In connection with these sales of preferred stock, the Company
issued to the holders of the preferred stock warrants to purchase
approximately 970,000 shares of the Company's common stock for one year at
exercise prices from $.54 to $2.39 per share. The conversion and dividend
provision for the preferred stock are set forth in Note 6. In addition,
holders of the Series A convertible preferred stock converted approximately
132,744 shares of the preferred stock into 398,232 shares of the Company,s
common stock.
Subsequent to March 31, 1999, warrants to purchase 1,025,000 shares of the
Company's common stock were exercised and the Company received net proceeds
of approximately $521,600.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion and analysis should be read in conjunction
with the Company's consolidated financial statements and the notes thereto
appearing elsewhere in this report.
RESULTS OF OPERATIONS
Revenues
Sales for the three months ended March 31, 1999 decreased $26,161, or
approximately 5%, to $481,419 from $507,580 for the corresponding period of the
prior year. For the six months ended March 31, 1999, sales increased $25,722, or
approximately 3%, to $965,516 from $939,794 for the six months ended March 31,
1998. The sales of wound dressing products accounted for the decrease in sales
for the quarter ended March 31, 1999, but were the main reason for the higher
sales during the six months ended March 31, 1999.
Operating Expenses
Direct costs of sales were approximately 76% of sales for the three
months ended March 31, 1999, as compared to approximately 93% of sales for the
three months ended March 31, 1998. For the six months ended March 31, 1999,
direct costs of sales were 86% of sales compared to 95% of sales for the same
period of Fiscal 1998. The improvement for the three and six months ended March
31, 1999 was primarily the result of certain reductions in costs which may not
occur in future periods.
Selling, general and administrative expenses for the three months ended
March 31, 1999 increased $7,143, or approximately 2%, to $428,359 from $421,216
for the corresponding period of the prior year. For the six months ended March
31, 1999, selling, general and administrative expenses increased $29,654, or
approximately 4%, to $769,099 from $739,445 for the six months ended March 31,
1998. The increase for the three-month period ended March 31, 1999 resulted
mainly from expanded sales and marketing efforts associated with the Company's
entry into the diagnostic market. The increase for the six months ended March
31, 1999 reflected the impact of the reduction included in the six months ended
March 31, 1998 of approximately $58,000 which was related to the settlement of a
note payable and increased marketing and sales expenses; partially offset by a
reduction in overall administrative expenses of approximately $28,000.
Expenses for research and development for the three months ended March
31, 1999 amounted to $157,986 compared to $152,562 incurred for the
corresponding period of the prior year. For the six months ended March 31, 1999,
expenses for research and development were $282,716 versus $277,250 for the six
months ended March 31, 1998. The change for the three and six months ended March
31, 1999 occurred primarily from the increase in research and development
expense of approximately $5,400 for efforts undertaken by the Company to enter
the rapid diagnostic test market.
Other Income and Expense
For the three months ended March 31, 1999, other expenses (net of other
income) amounted
to $17,522 as compared to other expenses (net of other income) of $13,467 for
the three months ended March 31, 1998. Other expenses (net of other income) for
the six months ended March 31, 1999 were $35,375 compared to $49,753 for the
corresponding period of the prior fiscal year. The increase for the quarter
ended March 31, 1999 resulted primarily from an increase in interest expense on
bank advances and loans of approximately $27,000; offset in part by increases in
rental income of $18,000 and in interest income of $4,000. The change for the
six months ended March 31, 1999 was mainly due to an increase in rental and
miscellaneous income of $43,000 which was partially offset by an increase in
interest expense on bank advances and loans of approximately $28,000.
Discontinued Operations
In October 1997, the Company sold the net assets and business of its
MHB subsidiary and received $1,286,000. No income or expenses were recorded for
the three and six months ended March 31, 1999 compared to income from the
operations and sale of MHB of $1,136,170 for the six months ended March 31,
1998.
Net Loss
Primarily as a result of the factors described above, the Company had a
net loss of $487,405 for the three months ended March 31, 1999 versus a net loss
of $552,717 for the three months ended March 31, 1998. For the six months ended
March 31, 1999, the Company had a net loss of $954,900 compared to net income of
$152,062 for the six months ended March 31, 1998.
FINANCIAL CONDITION AND LIQUIDITY
At March 31, 1999 and September 30, 1998 the Company had working
capital deficiencies of ($236,299) and ($1,569,085), respectively, and cash and
cash equivalents of $335,919 and $12,483 respectively. Net cash used in
operating activities during the six months ended March 31, 1999 amounted to
$1,157,853 resulting primarily from a net loss of $954,900;an increase in
accounts receivable of $70,772, an increase in prepaid and other current assets
of $9,266 and a decrease in accounts payable and accrued expenses of $206,341;
partially offset by depreciation and amortization of $64,680 and non-cash
charges for services of $18,746. Net cash provided by financing and investing
activities during the three months ended March 31, 1999 amounted to $1,481,289
which included proceeds from the sale of preferred stock and warrants of
$1,278,500 and proceeds from the exercise of warrants of $296,850; offset in
part by the repayment of long term debt of $48,046 and the repayment of notes
payable of $32,079.
During the period of October 1998 through April 1999, the Company
received net proceeds of approximately $3,658,300 ($2,258,300 in cash, $400,000
in a note receivable with a maturity date of May 15, 1999 and $1,000,000 in
notes receivable with maturity dates of July 31, 1999) from the sale of
1,541,077 shares of Series B convertible preferred stock (convertible at any
time into 15,410,770 shares of the Company's common stock) which included
warrants to purchase 7,386,600 shares of the Company's common stock at exercise
prices of $.22 -$2.39 per share for a period of twelve months. From February
through early May 1999, the Company received proceeds of approximately $725,000
from the exercise of warrants to purchase approximately 1,742,500 shares of the
Company's common stock. In March 1999, the Chairman of the Board and the
President of the Company converted notes payable (including the accrued interest
thereon) and accrued salaries totaling approximately $200,000 into 24,570 shares
of the Company's Series B convertible preferred stock. (convertible into 245,700
shares of the Company's common stock) and warrants to purchase 400,000 shares of
the Company's common stock at an exercise price of $1.22 per share for one year.
For the balance of fiscal year 1999, the Company's cash requirements
are expected to include primarily the funding of operating capital to grow the
Company's rapid diagnostic testing and other lines of business, the funding of
operating losses, the payment of outstanding accounts payable and the repayment
of certain notes payable.
Although operating revenues of the Company only increased 3% during the
first half of Fiscal 1999, sales are expected to be higher for the last half of
Fiscal 1999 as the Company accelerates the expansion of the use of its
polyurethane foam bases technology to produce and market products for the
diagnostic testing and other marketplaces. Based on current sales, expense and
cash flow projections, the Company believes that the current level of cash and
the collection of the notes receivable related to the financing described above
would be sufficient to fund operations until the Company achieves profitability.
Once the Company achieves profitability, the longer-term cash requirements of
the Company to fund operating activities, purchase capital equipment and expand
the business are expected to be met by the anticipated cash flow from operations
and proceeds from the financings described above. However, because there can be
no assurances that sales will materialize as forecasted, management will
continue to closely monitor and attempt to control costs.
As a result of the Company's recurring losses from operations and
working capital deficit, the report of its independent certified public
accountants relating to the financial statements for Fiscal 1998 contains an
explanatory paragraph stating substantial doubt about the Company's ability to
continue as a going concern. Such report also states that the ultimate outcome
of this matter could not be determined as of the date of such report (December
23, 1998). The Company's plans to address the situation are presented above.
However, there are no assurances that these endeavors will be successful or
sufficient.
Year 2000 Impact
Many currently installed computer systems and software products are
coded to accept or recognize only two digit entries in the date code field.
These systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies and governmental agencies may
need to be upgraded to comply with such Year 2000 requirements or risk system
failure or miscalculations causing disruptions of normal business activities.
The Company has undertaken a review concerning the ability of its
internal information systems, including its internal accounting systems, to
handle date information and function appropriately from and after January 1,
2000 and does not believe that the total cost to address any changes to become
Year 2000 Compliant will be material. In addition, the Company during the second
quarter of calendar 1999 will complete its evaluation as to what impact, if any,
possible Year 2000 problems encountered by its suppliers and customers will have
upon the Company. At this time, the Company does not believe that these problems
would have a material effect on the Company.
As discussed above, the Company has not yet completed its Year 2000
evaluation and therefore, has not developed any contingency plans. The results
of the Company's evaluation will be the basis for determining the nature and
extent of any contingency plans.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As reported in the Annual Report for the last fiscal year, A.S. Goldmen
& Company, Inc. ("Underwriter") and certain holders of the Underwriter's
warrants issued by the Company has previously commenced a court action against
the Company in the Federal Court for the Southern District of New York (the
"Court"). In December 1998, the Court denied the Company's motion to dismiss
this action, but the Court did not decide and expressly left open the principal
legal argument urged by the Company in favor of dismissal. In March 1999, this
action was settled and discontinued with prejudice.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
During the quarter ended March 31, 1999, the Company sold to private
investors 1,360,035 shares of Series B Convertible Preferred Stock and received
cash proceeds of approximately $993,500, notes receivable of $494,800 which were
collected during April 1999 and notes receivable of $1,400,000 having maturity
dates of May 15, 1999 and July 31, 1999. In connection with the sale this
preferred stock, the Company issued to the holders of the preferred stock
warrants to purchase 5,776,600 shares of the Company's common stock at an
exercise price of $.24 to $1.19 per share for a period of 12 months. Each share
of the Series B Convertible Preferred Stock entitles its holders to convert it,
at any time, into 10 shares of the Company's common stock and to receive
dividends amounting to an annual 8% cash dividend or 10% stock dividend computed
on the amount invested, at the discretion of the Company. The exemption for
registration of these securities is based upon Section 4(2) of the Securities
Act.
ITEM 5. OTHER INFORMATION
On January 18, 1999, the Company's Board of Directors granted to the
management and employees of the company options to purchase approximately
4,250,000 shares of the Company's common stock at an exercise price of $.345 per
share (market value at time of grant). Vesting for approximately 2,485,000 of
these shares occurs over a five-year period while the vesting for remaining
1,765,000 shares takes place the earlier of meeting certain performance
objectives or July 18, 2009.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Document
----------- --------
27.3 Financial Data Schedule
(b) Reports on Form 8-K:
None
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.
AVITAR, INC.
(Registrant)
Dated: May 14, 1999 /S/ Peter P. Phildius
---------------------
Peter P. Phildius
Chairman and Chief
Executive Officer
(Principal Executive Officer)
Dated: May 14, 1999 /S/ J.C. Leatherman, Jr.
------------------------
J.C. Leatherman, Jr.
Chief Financial Officer
(Principal Accounting and
Financial Officer)
EXHIBIT INDEX
================================================================================
Exhibit No. Document Page
- ----------- --------
27.3 Financial Data Schedule 19