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 December 31, 2000.
[ ] Transition report pursuant to Section 13 or 15(d) of the Exchange act for
the transition period from to
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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 (I.R.S. Employer Identification No.)
incorporation or organization)
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)
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: 32,043,459
AS OF FEBRUARY 9, 2001
Transitional Small Business Disclosure Format
(Check One): [ ] Yes ; [x] No
Page 1 of 16 pages
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 14
Item 2 Changes in Securities and Use of Proceeds 15
Item 6 Exhibits and Reports on Form 8-K 15
SIGNATURES 16
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Avitar, Inc. and Subsidiaries
Consolidated Balance Sheet
December 31, 2000
(Unaudited)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 62,124
Accounts receivable 786,605
Inventories 285,755
Prepaid expenses and other 155,537
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Total current assets 1,290,021
PROPERTY AND EQUIPMENT, net 350,530
GOODWILL, net 2,394,411
OTHER ASSETS 162,156
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Total $ 4,197,118
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 287,935
Accounts payable 1,347,914
Accrued expenses 506,352
Current portion of long-term debt 95,301
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Total current liabilities 2,237,502
LONG TERM DEBT, LESS CURRENT PORTION 48,067
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Total liabilities 2,285,569
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COMMITMENTS
STOCKHOLDERS' EQUITY:
Series A, B and C convertible preferred stock, $.01 par value;
authorized 5,000,000 shares; 2,062,475 shares issued and
outstanding 20,625
Common Stock, $.01 par value; authorized 75,000,000 shares;
31,354,985 shares issued and outstanding 313,550
Additional paid-in capital 33,328,038
Accumulated deficit (31,690,023)
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1,972,190
Less preferred stock subscription receivable (60,641)
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Total stockholders' equity 1,911,549
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Total $ 4,197,118
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See accompanying notes to consolidated financial statements.
Avitar, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
THREE MONTHS ENDED DECEMBER 31,
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2000 1999
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SALES $ 1,169,336 $ 807,664
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OPERATING EXPENSES
Cost of sales 884,218 625,450
Selling, general and administrative 1,379,999 991,927
Research and development 434,713 326,209
Amortization of goodwill 70,424 70,424
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Total operating expenses 2,769,354 2,014,010
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LOSS FROM OPERATIONS (1,600,018) (1,206,346)
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OTHER INCOME (EXPENSE)
Interest income 146 6,730
Interest expense and financing costs (9,933) (28,732)
Other income (expense) (712) 18,000
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Total other expense (10,499) (4,002)
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NET LOSS $ (1,610,517) $ (1,210,348)
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BASIC AND DILUTED NET LOSS PER SHARE (Note 5)
Loss per share before cumulative accounting change $ (0.06) $ (0.05)
Cumulative effect of accounting change (0.03) -
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Net Loss per share $ (0.09)
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WEIGHTED AVERAGE
NUMBER OF COMMON SHARES OUTSTANDING 30,934,411 24,718,727
============= =============
See accompanying notes to consolidated financial statements.
Avitar, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
Three Months Ended December 31, 2000
(Unaudited)
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Preferred Stock Common Stock
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Additional
Shares Amount Shares Amount paid-in capital
- ------------------------------------------------ ----------- ------------ -------------- ---------------
Balance at September 30, 2000 2,062,143 $ 20,621 30,695,692 $306,957 $31,213,838
Sale of common stock and warrants 659,293 6,593 1,028,107
- -
Payment of preferred stock dividend,
Series B preferred stock 332 4 7,888
- -
Cumulative effect of accounting changes
for remeasurement of original discount
on preferred stock issuance (Note 5) 1,078,205
Net loss - - - - -
- ------------------------------------------------ ----------- ------------ -------------- ---------------
Balance at December 31, 2000 2,062,475 $20,625 31,354,985 $313,550 $33,328,038
Avitar, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
Three Months Ended December 31, 2000
(Unaudited)
(continued)
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Preferred
Stock
Accumulated Subscription
deficit Receivable
- ------------------------------------- --------------- ---------------------
Balance at September 30, 2000 ($28,993,409) ($60,641)
Sale of common stock and warrants -
-
Payment of preferred stock dividend,
Series B preferred stock (7,892) -
Cumulative effect of accounting changes
for remeasurement of original discount
on preferred stock issuance (Note 5) (1,078,205)
Net loss (1,610,517) -
- --------------------------------------------------- ---------------------
Balance at December 31, 2000 ($31,690,023) ($60,641)
See accompanying notes to consolidated financial statements.
Avitar, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
THREE MONTHS ENDED DECEMBER 31,
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2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($1,610,517) ($1,210,348)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 38,336 41,098
Amortization of goodwill 70,424 70,424
Changes in operating assets and liabilities:
Accounts receivable (38,722) (48,466)
Inventories 222,123 -
Prepaid expenses and other current assets 49,535 (5,842)
Other assets 97,550 36,684
Accounts payable and accrued expenses 108,458 157,478
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Net cash used in operating activities (1,062,813) (958,972)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (12,527) (91,563)
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Net cash used in investing activities (12,527) (91,563)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable and long-term debt (21,777) (102,430)
Sales of common stock, preferred stock and warrants 1,034,700 752,000
Preferred stock subscription receivable 42,228 -
Exercise of stock options and warrants - 196,830
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Net cash provided by financing activities 1,055,151 846,400
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NET DECREASE IN CASH AND CASH EQUIVALENTS (20,189) (204,135)
CASH AND CASH EQUIVALENTS, beginning of the period 82,313 280,758
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CASH AND CASH EQUIVALENTS, end of the period $62,124 $76,623
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during period:
Income taxes $ - $ -
Interest $ 9,759 $ 26,528
See accompanying notes to consolidated financial statements.
AVITAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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1. BASIS OF PRESENTATION
Avitar, Inc. ("Avitar" or the "Company"), through its wholly-owned
subsidiaries, Avitar Technologies Inc. ("ATI") and United States Drug
Testing Laboratories, Inc. ("USDTL"), designs, develops, manufactures,
markets and provides diagnostic test products and services. Avitar sells
these products and services to large medical supply companies, employers,
diagnostic distributors and governmental agencies. During Fiscal Years 2000
and 2001, the Company continued the development and marketing of
ORALscreen(TM), innovative point of care oral fluid drugs of abuse tests
that use the Company's foam as the means for collecting the oral fluid
sample.
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-month period ended December 31,
2000 are not necessarily indicative of the results that may be expected for
the full fiscal year ending September 30, 2001. 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, 2000.
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 as of December 31, 2000 of $947,481. The Company
raised net proceeds aggregating approximately $5,914,000 during fiscal year
ended September 30, 2000 from the sale of stock and the exercise of options
and warrants. During the three months ended December 31, 2000, the Company
raised approximately $1.035,000 from the sale of common stock and warrants.
Based upon cash flow projections, the Company believes the anticipated cash
flow from operations and proceeds from future equity financings 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.
2. INVENTORIES
At December 31, 2000, inventories consist of the following:
Raw Materials $161,903
Work-in-Process 46,556
Finished Goods 77,296
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Total $285,755
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3. MAJOR CUSTOMERS
Customers in excess of 10% of total sales are:
Three Months Ended December 31,
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2000 1999
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Customer A $125,948 $ -
Customer B * 106,817
Customer C * 112,500
*Customer was not in excess of 10% of total sales in 2000.
4. COMMON AND PREFERRED STOCK
During the quarter ended December 31, 2000, the Company sold 659,293 shares
of the Company's common stock and received proceeds of approximately
$1,035,000. In connection with the sale of the common stock, the Company
issued to the holders of the common stock warrants to purchase 2,759,293
shares of the Company's common stock at exercise prices of $1.28 to $1.50
per share which expire in three to five years.
Preferred stock dividends related to the Series B convertible preferred
stock for the three months ended December 31, 2000 amounted to $95,044. As
of December 31, 2000, the total amount of unpaid and undeclared dividends
was $343,340
5. EARNINGS PER SHARE
The following data show the amounts used in computing earnings per share:
2000 1999
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Net loss $(1,610,517) $(1,210,348)
Less:
Preferred Stock Dividends ( 95,044) ( 66,295)
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Value of warrants issued in
connection with Series C
preferred stock sales - ( 12,000)
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Loss available to common
stockholders used in basic and
diluted EPS before cumulative
accounting chnage $(1,705,561) $(1,288,643)
Cumulative effect of change in
accounting for original discount
related to prior years' preferred
stock issues (1,078,205) -
Net loss available to common
Shareholders used in basic and
diluted EPS $(2,783,766) $(1,288,643)
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Weighted average number of
common shares outstanding 30,934,411 24,718,727
============ ===============
In November 2000, the FASB Emerging Task Force ("ETIF") issued a consensus that
requires the remeasurement of original issue discount on preferred stock with
characteristics similar to convertible preferred stock issued by the Company
during fiscal years 2000 and 1999. The impact to adopting this ETIF amounting to
$1,078,205 has been included in the comutation of earnings per share for the
period ended December 31, 2000 as a cumulative change in accounting.
6. SUBSEQUENT EVENTS
Since December 31, 2000 the Company sold 688,474 shares of the Company's
common stock and received proceeds of approximately $651,000. In connection
with the sale of the common stock, the Company issued to the holders of the
common stock warrants to purchase 688,474 shares of the Company's common
stock at exercise prices of $1.26 to $1.64 per share which expire in 3
years.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
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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 December 31, 2000 increased
$361,672 or approximately 45 %, to $1,169,336 from $807,664 for the
corresponding period of the prior year. The change for the three months ended
December 31, 2000 primarily reflects the increase in sales of its OralScreen(TM)
products.
Operating Expenses
Cost of sales for the three months ended December 31, 2000 were
approximately 76% of sales compared to the cost of sales of approximately 77% of
sales for the three months ended December 31, 1999.
Selling, general and administrative expenses for the three months ended
December 31, 2000 increased $388,072, or approximately 39%, to $1,379,999 from
$991,927 for the corresponding period of the prior year. The increase for the
three month period ended December 31, 2000 continued to reflect the expanded
sales, marketing and administrative efforts associated with the Company's
OralScreen and HAIRscreen products and services.
Expenses for research and development for the three months ended December
31, 2000 amounted to $434,713 compared to $326,209 for the corresponding period
of the prior year. The increase of $108,504, or approximately 33%, was primarily
attributable to the increased research and development activities related to the
Company's OralScreen(TM) products.
For the three months ended December 31, 2000, amortization of goodwill was
$70,424 which was identical to the amount incurred for the three months ended
December 31, 1999.
Other Income and Expense
Interest income amounted to $ 146 for the quarter ended December 31, 2000
compared to $6,730 for the same period of the prior year. The decrease primarily
reflects the reduction in interest earned on cash management accounts.
Interest expense and financing costs were $9,933 for the three months ended
December 31, 2000 compared to $28,732 incurred during the three months ended
December 31, 1999. This decrease resulted primarily from no interest expense
being incurred on accounts receivable financing.
For the three months ended December 31, 2000, other expense amounted to
$712 as compared to other income of $18,000 for the three months ended December
31, 1999. This change is mainly a result of no rental income from the lease of
excess square feet in the Company's facility.
Accounting Change
In November 2000, the FASB Emerging Task Force ("ETIF") issued a consensus
that requires the remeasurement of original issue discount on preferred stock
with characteristics similar to convertible preferred stock issued by the
Company during fiscal years 2000 and 1999. The impact to adopting this ETIF
amounting to $1,078,205 has been included in the comutation of earnings per
share for the period ended December 31, 2000 as a cumulative change in
accounting.
The effect of this accounting change increased the Company's net loss per
share by $.03 for the period ended September 30, 2000.
Net Loss
Primarily as a result of the factors described above, the Company had a net
loss of $1,610,517, for the three months ended December 31, 2000, as compared to
a net loss of $1,210,348, for the three months ended December 31, 1999. The loss
per share before the cumulative effect of the change in accounting included in
the first quarter of Fiscal 2001 was $.06 per basic and diluted share for the
three months ended December 31, 2000 as compared to $.05 per basic and diluted
share for the three months ended December 31, 1999. The net loss per share after
the cumulative effect of the accounting change was $.09 per basic and diluted
share for the three months ended December 31, 2000.
FINANCIAL CONDITION AND LIQUIDITY
At December 31, 2000 and September 30, 2000 the Company had working capital
deficiencies of $947,481 and $543,515, respectively, and cash and cash
equivalents of $62,124 and $82,313 respectively. Net cash used in operating
activities during the three months ended December 31, 2000 amounted to
$1,062,813 resulting primarily from a net loss of $1,610,517 and an increase in
accounts receivable of $38,722; partially offset by depreciation and
amortization of $38,336, amortization of goodwill of $70,424, a decrease in
inventories of $222,123, a decrease in prepaid expenses and other current assets
of $49,535, a decrease in other assets of $97,550 and increases in accounts
payable and accrued expenses of $108,458. Net cash provided by financing and
investing activities during the three months ended December 31, 2000 amounted to
$1,042,624 which included proceeds from the sale of common stock and warrants of
$1,034,700 and a decrease in preferred stock subscription receivable of $42,228;
offset in part by the repayment of notes payable and long term debt of $21,777
and purchases of property and equipment of $12,527.
Since October 2000, the Company received proceeds of approximately
$1,686,300 from the sale of 1,347,767 shares of the Company's common stock and
warrants to purchase 3,448,767 shares of the Company's common stock at exercise
prices of $1.26 -$1.64 per share for a period of three to five years. In
addition, the Company plans to raise up to $10,000,000 from the sales of equity
and/or debt securities. The Company plans to use the proceeds from these
financings to provide working capital and capital equipment funding to operate
the Company, to expand the Company's business, to further develop and enhance
the ORALscreen and HAIRscreen drug screening systems, to fund strategic
acquisitions and to pursue the development of oral fluid diagnostic testing for
diseases. However, there can be no assurance that these financings will be
achieved.
For the balance of fiscal year 2001, the Company's cash requirements are
expected to include primarily the funding of operating losses, the payment of
outstanding accounts payable, the repayment of certain notes payable, the
funding of operating capital to grow the Company's drugs of abuse testing
products and services, the continued funding for the development of oral fluid
diagnostic testing products for diseases and the exploration and funding of
acquisitions that will accelerate the expansion of the Company.
Operating revenues of the Company grew approximately 45% during the first
quarter of Fiscal 2001 and are expected to grow at a more rapid pace during the
remainder of Fiscal 2001 as the Company continues to increase the shipments of
new and enhanced OralScreen(TM) products and grow the business of USDTL. Based
on current sales, expenses and cash flow projections, the Company believes that
the current level of cash and cash equivalents on hand and most importantly, a
portion of the anticipated net proceeds from the financing mentioned above would
be sufficient to fund operations until the Company achieves profitability. There
can be no assurance that the Company will consummate the above-mentioned
financing. Once the Company achieves profitability, the longer-term cash
requirements of the Company to fund operating activities, purchase capital
equipment, expand the existing business and develop new products are expected to
be met by the anticipated cash flow from operations and proceeds from the
financing 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 at the Company and will continue to seek
additional capital as necessary.
PART II OTHER INFORMATION
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
During the quarter ended December 31, 2000, the Company sold to private
investors 659,293 shares of the Company's common stock and received cash
proceeds of approximately $1035,000. In connection with the sale of this common
stock, the Company issued to the holders of the common stock warrants to
purchase 2,759,293 shares of the Company's common stock at an exercise price of
$1.28 to $1.50 per share which expire in three to five years. The exemption for
registration of these securities is based upon Section 4(2) of the Securities
Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None
(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: February 14, 2001 /S/ Peter P. Phildius
-------------------------
Peter P. Phildius
Chairman and Chief
Executive Officer
(Principal Executive Officer)
Dated: February 14, 2001 /S/ J.C. Leatherman, Jr.
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J.C. Leatherman, Jr.
Chief Financial Officer
(Principal Accounting and
Financial Officer)