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 June 30, 2001.
[ ] 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: 36,283,167
AS OF AUGUST 10, 2001
Transitional Small Business Disclosure Format
(Check One): [ ] Yes ; [x] No
Page 1 of 22 pages
Exhibit Index is on Page 20 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 12
PART II: OTHER INFORMATION 17
Item 2 Changes in Securities and Use of Proceeds 18
Item 4 Submission of Matters to a Vote of Security Holders 18
Item 6 Exhibits and Reports on Form 8-K 18
SIGNATURES 19
EXHIBIT INDEX 20
PART I FINANCIAL INFORMATION
Avitar, Inc. and Subsidiaries
Consolidated Balance Sheet
(Unaudited)
June 30, 2001
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 239,732
Accounts receivable, net 956,856
Inventories 302,571
Prepaid expenses and other current assets 265,504
------------
Total current assets 1,764,663
PROPERTY AND EQUIPMENT, net 397,922
GOODWILL, net 2,527,045
OTHER ASSETS 151,833
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Total $ 4,841,463
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 284,898
Accounts payable 1,593,554
Accrued expenses 531,411
Current portion of long-term debt 88,138
------------
Total current liabilities 2,498,001
LONG TERM DEBT, LESS CURRENT PORTION 9,592
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Total liabilities 2,507,593
COMMITMENTS
STOCKHOLDERS' EQUITY:
Series A, B, C and D convertible preferred stock,
$.01 par value; authorized 5,000,000 shares;
2,198,070 shares issued and outstanding 21,980
Common Stock, $.01 par value; authorized
100,000,000 shares; 34,924,089 shares issued
and outstanding 349,241
Additional paid-in capital 38,024,743
Accumulated deficit (36,001,453)
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2,394,511
Less preferred stock subscription receivable (60,641)
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Total stockholders' equity 2,333,870
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Total $ 4,841,463
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See accompanying notes to consolidated financial statements.
Avitar, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
THREE MONTHS ENDED JUNE 30, NINE MONTHS ENDED JUNE 30,
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2001 2000 2001 2000
-------- -------- -------- --------
SALES ........................................... $ 1,869,441 $ 1,306,039 $ 4,268,355 $ 2,926,248
OPERATING EXPENSES
Cost of sales .............................. 1,073,250 1,016,864 2,761,461 2,361,840
Selling, general and administrative expenses 1,580,676 1,471,762 4,394,039 3,955,885
Research and development expenses .......... 457,020 449,943 1,401,903 1,093,151
Amortization of goodwill ................... 76,854 70,423 220,702 211,271
------------ ------------ ------------
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Total operating expenses .............. 3,187,800 3,008,992 8,778,105 7,622,147
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS ............................ (1,318,359) (1,702,953) (4,509,750) (4,695,899)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income ............................ 361 6,710 1,094 15,109
Interest expense and financing costs ....... (10,129) (13,940) (35,704) (56,365)
Other exppense, net ........................ (963) 8,319 (2,887) 35,835
------------ ------------ ------------
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Total other expense, net .............. (10,731) 1,089 (37,497) (5,421)
------------ ------------ ------------ ------------
NET LOSS ........................................ $ (1,329,090) $ (1,701,864) $ (4,547,247) $ (4,701,320)
============ ============ ============ ============
BASIC AND DILUTED NET LOSS PER SHARE (Note 6) ... $ (0.04) ($ 0.06) $ (0.22) $ (0.19)
============ ============ ============ ============
WEIGHTED AVERAGE
NUMBER OF COMMON SHARES OUTSTANDING ........ 33,459,667 28,850,406 31,768,656 26,667,432
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
Avitar, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
Nine Months Ended June 30, 2001
(Unaudited)
Preferred Stock Common Stock Preferred
..................... ......................... Stock
Additional Accumulated Subscription
Shares Amount Shares Amount paid-in capital deficit Receivable
- ---------------------------------- ---------- --------- ------------ ----------- --------------- --------- -----------
Balance at September 30, 2000 2,062,143 $20,621 30,695,692 $ 306,957 $ 31,213,838 ($28,993,409) ($60,641)
Exercise of warrants and stock options 177,400 1,774 37,679
Sales of common stock and warrants 3,354,478 33,545 3,010,755
Sales of Series D preferred stock and
warrants 141,333 1,413 1,058,585
Conversion of Series B preferred stock
into common stock (47,596) (476) 475,964 4,760 ( 4,284)
Payment of preferred stock dividend,
Series B preferred stock 42,190 422 322,170 (322,592)
Acquisiion of BJR Security, Inc. 220,555 2,205 247,795
Value of warrants issued in connection
with Series D preferred stock sales 575,000 (575,000)
Original discount on Series D preferred
stock sales 485,000 (485,000)
Cummulative effect of accounting changes
for remeasurement of original discount
on preferred stock issuances (Note 6 ) 1,078,205 (1,078,205)
Net loss (4,547,247)
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Balance at June 30, 2001 2,198,070 $21,980 34,924,089 $ 349,241 $ 38,024,743 ($36,001,453) ($60,641)
========== ========= ============ =========== ============ ============ =========
See accompanying notes to consolidated financial statements.
Avitar, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
NINE MONTHS ENDED JUNE 30,
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2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,547,247) $(4,701,320)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 127,213 130,631
Amortization of goodwill 220,702 211,271
Provision for losses on accounts receivable (61,692) 55,000
Changes in operating assets and liabilities
excluding effects of business acquisition:
Accounts receivable (147,281) (633,838)
Inventories 205,307 (176,707)
Prepaid expenses and other current assets (60,432) 292,463
Other assets 97,021 82,986
Accounts payable and accrued expenses 379,157 153,961
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Net cash used in operating activities (3,787,252) (4,585,553)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (79,013) (183,690)
Acquisition of BJR Security, Inc. (50,000) -
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Net cash used in investing activities (129,013) (183,690)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of common stock, preferred stock and warrants 4,104,298 2,624,840
Exercise of warrants and stock options 39,453 2,610,580
Preferred stock subscription receivable 42,228 100,000
Proceeds from (repayment of) notes payable and long-term debt (112,295) (320,580)
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Net cash provided by financing activities 4,073,684 5,014,840
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NET INCREASE IN CASH AND CASH EQUIVALENTS 157,419 245,597
CASH AND CASH EQUIVALENTS, beginning of the period 82,313 280,758
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CASH AND CASH EQUIVALENTS, end of the period $ 239,732 $ 526,355
================ ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during period:
Income taxes $ 3,131 $ 2,303
Interest $ 30,843 $ 55,835
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"), United States Drug Testing
Laboratories, Inc. ("USDTL") and BJR Security, Inc. designs, develops,
manufactures, markets and provides diagnostic test products and services as well
as drug detection and education services. Avitar sells these products and
services to large medical supply companies, employers, diagnostic distributors,
schools 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 reporting, 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 nine month periods ended June 30, 2001 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 June 30, 2001 of $733,338. The Company raised net proceeds
aggregating approximately $5,914,000 during the fiscal year ended September 30,
2000 from the sale of stock and the exercise of options and warrants. During the
nine months ended June 30, 2001, the Company raised approximately $4,144,000
from the sale of preferred and common stock and the exercise of options. 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 June 30, 2001, inventories consist of the following:
Raw Materials $151,463
Work-in-Process 35,803
Finished Goods 115,305
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Total $302,571
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3. ACQUISITION
As of March 1, 2001, the Company acquired all of the outstanding capital
stock of BJR Security, Inc. ("BJR") in exchange for cash of $50,000 and
approximately 221,000 restricted shares of the Company's common stock which
were valued at fair value at the date of acquisition of approximately
$250,000. The amount of consideration was determined by arm's length
negotiations between Avitar and the sole stockholder of BJR, taking into
account the revenues and prospects for BJR. The acquisition was recorded
using the purchase method of accounting and resulted in goodwill of
approximately $283,000. BJR is engaged in the business of providing
specialized drug detection and education services.
4. MAJOR CUSTOMERS
Customers in excess of 10% of total sales are:
Three Months Ended June 30, Nine Months Ended June 30,
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2001 2000 2001 2000
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Customer A $189,459 $299,298 $499,458 $552,644
Customer B 305,500 * 505,790 *
* Customer was not in excess of 10% of total sales.
5. COMMON STOCK, PREFERRED STOCK AND WARRANTS
In March 2001, the Company sold 141,333 shares of Series D convertible
preferred stock and received proceeds of approximately $1,060,000. In
connection with the sale of the preferred stock, the Company issued to the
holders of the preferred stock warrants to purchase 1,413,330 shares of the
Company's common stock at exercise prices of $1.13 per share for a term of
three years. The value of the warrants issued amounted to approximately
$575,000. The holders of the Series D convertible preferred stock may
convert their investment at any time into 10 shares of the Company's common
stock. The preferred stock was issued with a conversion price below the
common stock market value and as a result, an original discount was
recorded and included in the earnings per share calculation.
During the nine-month period ended June 30, 2001, the Company received
approximately $39,000 from the exercise of stock options to purchase
177,400 shares of the Company's common stock.
During the nine months ended June 30, 2001, the Company sold 3,354,478
shares of the Company's common stock and received proceeds of approximately
$3,044,300. In connection with the sale of the common stock, the Company
issued to the holders of the common stock warrants to purchase 5,454,478
shares of the Company's common stock at exercise prices of $.68 to $1.50
per share for terms of three to five years.
For the nine months ended June 30, 2001 holders of the Series B convertible
preferred stock converted 47,596 shares of their preferred stock into
475,964 shares of the Company's common stock. Preferred stock dividends
related to the Series B convertible preferred stock for the nine months
ended June 30, 2001 amounted to $322,592. As of June 30, 2001, the total
amount of unpaid and undeclared dividends was $216,978.
6. EARNINGS PER SHARE
The following data show the amounts used in computing earnings per share:
Three Months Ended June 30, Nine Months Ended June 30,
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2001 2000 2001 2000
Net loss $(1,329,090) $(1,701,864) $(4,547,247) $(4,701,320)
Less:
Preferred Stock Dividends ( 136,032) ( 91,023) ( 322,592) ( 244,960)
Value of warrants issued in
connection with Series C and
Series D preferred stock sales - - ( 575,000) ( 42,638)
Original discount related to
Series D preferred stock sales - - ( 485,000) -
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Loss available to common
stockholders used in basic and
diluted EPS before cumulative
accounting change (1,465,122) (1,792,887) (5,929,839) (4,988,918)
Cumulative effect of change in
accounting for original discount
related to prior years' preferred
stock issuances - - (1,078,205) -
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Net loss available to common
Stockholders used in basic and
diluted EPS $(1,465,122) $(1,792,887) $(7,008,044) $(4,988,918)
============= ============= ============= ============
Weighted average number of
common shares outstanding 33,459,667 28,850,406 31,768,656 26,667,432
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 of adopting this
ETIF amounting to $1,078,205 was recorded in the first quarter of Fiscal
2001 and has been included in the computation of earnings per share for the
nine months ended June 30, 2001 as a cumulative change in accounting.
7. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board finalized FASB
Statements No. 141, Business Combinations ("SFAS 141") and No. 142,
Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141 requires the
use of the purchase method accounting and prohibits the use of
pooling-of-interests method of accounting for business combinations
initiated after June 30, 2001. SFAS 141 also requires that the Company
recognize acquired intangible assets apart from goodwill if the acquired
intangible assets meet certain criteria. SFAS 141 applies to all business
combinations initiated after July 1, 2001 and for purchase business
combinations completed on or after July 1, 2001. It also requires, upon
adoption of SFAS 142, that the Company reclassify the carrying amounts of
intangible assets and goodwill based on the criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for
the purpose of assessing potential future impairments of goodwill, reassess
the useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An
intangible asset with an indefinite useful life should be tested for
impairment in accordance with the guidelines in SFAS 142. SFAS 142 is
required to be applied in fiscal years beginning after December 15, 2001 to
all goodwill and other intangible assets recognized at that date,
regardless of when those assets were initially recognized. SFAS 142
requires the Company to complete a transitional goodwill impairment test
six months from the date from the date of adoption. The Company is also
required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142.
The Company's previous business combinations were accounted for using the
purchase method. As on June 30, 2001, the net carrying amount of goodwill
is $2,527,045. Amortization expense during the nine-month period ended June
30, 2001 was $220,702. Currently, the Company is assessing but has not yet
determined how the adoption of SFAS 141 and SFAS 142 will impact its
financial position and results of operation.
8. SUBSEQUENT EVENTS
From June 30, 2001 through August 10, 2001 the Company sold 1,178,618
shares of the Company's common stock and received proceeds of approximately
$937,000. In connection with the sale of the common stock, the Company
issued to the holders of the common stock warrants to purchase 1,178,618
shares of the Company's common stock at exercise prices of $.68 to $1.16
per share for a term of 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. This report may contain forward-looking statements.
For a description of risks and uncertainties relating to such forward-looking
statements, see the Forward-Looking Statements and Associated Risks section
later in this Item.
RESULTS OF OPERATIONS
Revenues
Sales for the three months ended June 30, 2001 increased $563,402, or
approximately 43%, to $1,869,441 from $1,306,039 for the corresponding period of
the prior year. For the nine months ended June 30, 2001, sales increased
$1,342,107, or approximately 46%, to $4,268,355 from $2,926,248 for the nine
months ended June 30, 2000. The change for the three and nine months ended June
30, 2001 primarily reflects the increase in sales of its ORALscreen(TM) and BJR
revenue of $105,390 and $146,083, respectively.
Operating Expenses
Cost of sales for the three months ended June 30, 2001 were approximately
57% of sales which compares to the cost of sales of 78% for the three months
ended June 30, 2000. For the nine months ended June 30, 2001, the cost of sales
were 65% compared to 81% of sales for the same period of Fiscal 2000. For the
three and nine months ended June 30, 2001, the improvement in the ratio of cost
to sales was primarily due to the increase in sales described above and the
shift in the product mix to ORALscreen.
Selling, general and administrative expenses for the three months ended
June 30, 2001 increased $108,914, or approximately 7%, to $1,580,676 from
$1,471,762 for the corresponding period of the prior year. For the nine months
ended June 30, 2001, selling, general and administrative expenses increased
$438,154 or approximately 11%, to $4,394,039 from $3,955,885 for the nine months
ended June 30, 2000. The increase for the three and nine months ended June 30,
2001 reflected the expanded sales, marketing and administrative efforts
associated with the Company's OralScreen and HairScreen products along with
BJR's selling, general and administrative expenses of $73,050 and $90,119,
respectively.
Expenses for research and development for the three months ended June 30,
2001 amounted to $457,020 compared to $449,943 for the corresponding period of
the prior year. For the nine months ended June 30, 2001, expenses for research
and development increased $308,752 to $1,401,903 from $1,093,151 for the nine
months ended June 30, 2000. The change for the three and nine months ended June
30, 2001 was primarily attributable to the increased research and development
activities related to the Company's OralScreen products and oral fluid disease
testing applications.
For the three months and nine months ended June 30, 2001, amortization of
goodwill which resulted from the Company's acquisition of BJR and USDTL was
$76,854 and $220,702, respectively, compared to $70,423 and $211,271,
respectively, for the three and nine months ended, June 30, 2000. The changes
for the three and nine months ended June 30, 2001 reflect the acquisition of BJR
on March 1, 2001.
Other Income and Expense
Interest income for the three and nine months ended June 30, 2001 amounted
to $361 and $1,094, respectively compared to $6,710 and $15,109, respectively
for the same periods of Fiscal 2000. The decrease resulted primarily from the
reduced interest earned on cash management accounts.
Interest expense and financing costs were $10,129 for the three months
ended June 30, 2001 compared to $13,940 incurred during the three months ended
June 30, 2000. For the nine months ended June 30, 2001, interest expense and
financing costs decreased $20,661 to $35,704 from $56,365 for the same period in
the prior year. The decreases for the three and nine months ended June 30, 2001
primarily reflect reduced interest expense on bank advances related to financing
of accounts receivable.
For the three months ended June 30, 2001, other expense amounted to $963 as
compared to other income of $8,319 for the three months ended June 30, 2000.
Other expense for the nine months ended June 30, 2001 was $2,887 versus other
income of $35,835 for the corresponding period of the prior year. The change for
the three and nine months ended June 30, 2001 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 of adopting this ETIF
amounting to $1,078,205 was recorded in the first quarter of Fiscal 2001 and has
been included in the computation of earnings per share for the nine months ended
June 30, 2001 as a cumulative change in accounting.
The effect of this accounting change increased the Company's net loss per
share by $.03 for the nine months ended June 30, 2001.
Net Loss
Primarily as a result of the factors described above, the Company had a net
loss of $1,329,090, $ .04 per basic and diluted share, for the quarter ended
June 30, 2001, as compared to a net loss of $1,701,864, $ .06 per basic and
diluted share, for the quarter ended June 30, 2000. For the nine months ended
June 30, 2001, the Company had a net loss of $4,547,247, $.22 per basic and
diluted share, versus a net loss of $4,701,320, $.19 per basic and diluted
share, for the nine months ended June 30, 2000.
FINANCIAL CONDITION AND LIQUIDITY
At June 30, 2001 and September 30, 2000 the Company had working capital
deficits of $733,338 and $543,515, respectively, and cash and cash equivalents
of $239,732 and $82,313, respectively. Net cash used in operating activities
during the nine months ended June 30, 2001 amounted to $3,787,252 resulting
primarily from a net loss of $4,547,247, a decrease in the provision for losses
on accounts receivable of $61,692, an increase in accounts receivable of
$147,281 and an increase in prepaid expenses and other current assets of
$60,432; partially offset by depreciation and amortization of $127,213,
amortization of goodwill of $220,702, a decrease in inventories of $205,307, a
decrease in other assets of $97,021 and increases in accounts payable and
accrued expenses of $379,157. Net cash provided by financing and investing
activities during the nine months ended June 30, 2001 amounted to $3,944,671
which included proceeds from the sale of preferred stock, common stock and
warrants of $4,104,298, proceeds from the exercise of stock options of $39,453
and a decrease in preferred stock subscription receivable of $42,228; offset in
part by repayment of notes payable and long-term debt of $112,295, purchases of
property and equipment of $79,013 and cash paid in the acquisition of BJR
Security, Inc. of $50,000.
From September 30, 2000 through August 10, 2001, the Company received
proceeds of approximately $3,981,000 from the sale of 4,533,096 shares of the
Company's common stock and warrants to purchase 6,633,096 shares of the
Company's common stock at exercise prices of $.68 to $1.50 per share for a
period of three to five years. Also during the same period, the Company received
proceeds of approximately $1,060,000 from the sale of 141,333 shares of Series D
convertible preferred stock and warrants to purchase 1,413,330 shares of the
Company's common stock at an exercise price of $1.13 per share for three years.
Each share of the Series D preferred stock is convertible at any time into ten
shares of the Company's common stock. 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, and to pursue the development of oral fluid in-vitro
diagnostic testing products. 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, and the continued funding for the development of oral
fluid in-vitro diagnostic testing products.
Operating revenues of the Company grew approximately 46% during the first
nine months of Fiscal 2001 and are expected to grow at a more rapid pace during
the remainder of Fiscal 2001 and in FY 2002 as the Company continues to increase
the shipments of new and enhanced OralScreen(TM) products. 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.
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 2000 contains an explanatory
paragraph stating substantial doubt about the Company's ability to continue as a
going concern. Such report states that the ultimate outcome of this matter could
not be determined as the date of such report (December 5, 2000). The Company's
plans to address the situation are presented above. However, there are no
assurances that these endeavors will be successful or sufficient.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board finalized FASB Statements
No. 141, Business Combinations ("SFAS 141") and No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"). SFAS 141 requires the use of the purchase method
accounting and prohibits the use of pooling-of-interests method of accounting
for business combinations initiated after June 30, 2001. SFAS 141 also requires
that the Company recognize acquired intangible assets apart from goodwill if the
acquired intangible assets meet certain criteria. SFAS 141 applies to all
business combinations initiated after July 1, 2001 and for purchase business
combinations completed on or after July 1, 2001. It also requires, upon adoption
of SFAS 142, that the Company reclassify the carrying amounts of intangible
assets and goodwill based on the criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purpose of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidelines in SFAS 142. SFAS 142 is required to be applied
in fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date from the date of adoption. The
Company is also required to reassess the useful lives of other intangible assets
within the first interim quarter after adoption of SFAS 142.
The Company's previous business combinations were accounted for using the
purchase method. As on June 30, 2001, the net carrying amount of goodwill is
$2,527,045. Amortization expense during the nine-month period ended June 30,
2001 was $220,702. Currently, the Company is assessing but has not yet
determined how the adoption of SFAS 141 and SFAS 142 will impact its financial
position and results of operation.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
Except for the historical information contained herein, the matters set forth
herein are "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and
the Private Securities Litigation Reform Act of 1995. We intend that such
forward-looking statements be subject to the safe harbors created thereby.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause our actual results, performance or
achievements to be materially different from any future results, performance or
achievement expressed or implied by such forward-looking statements. Such
factors include, but are not limited to the following: product demand and market
acceptance risks, the effect of economic conditions, results of pending or
future litigation, the impact of competitive products and pricing, product
development and commercialization, technological difficulties, government
regulatory environment and actions, trade environment, capacity and supply
constraints or difficulties, the result of financing efforts, actual purchases
under agreements and the effect of the Company's accounting policies.
PART II OTHER INFORMATION
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
During the quarter ended June 30, 2001, the Company sold to private
investors 1,570,590 shares of the Company's common stock and received cash
proceeds of approximately $1,068,000. In connection with the sale of this common
stock, the Company issued to the holders of the common stock warrants to
purchase 1,570,590 shares of the Company's common stock at an exercise price of
$.68 per share for a term of three years. The exemption for registration of
these securities is based upon Section 4(2) of the Securities Act.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the shareholders was held on June 27, 2001. All
members of the Board of Directors were elected by more than 65% of the total
shares outstanding and more than 99% of the shares voted. In addition, the
increase in authorized shares of common stock from 75 to 100 million shares, the
establishment and implementation of an employee stock purchase plan with a
reserve of one million shares of common stock and the reappointment of BDO
Seidman, LLP as auditors were approved and the tabulation of votes were as
follows:
For Against Abstain
---------- ---------- ----------
Increase in Authorized Shares ........ 22,274,272 2,503,446 16,709
Employee Stock Purchase Plan ......... 22,627,244 2,123,993 133,190
Reappointment of Auditors ............ 24,825,325 11,771 47,331
Election of Directors ................ 24,777,332 -- 107,095
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Document
3.1 Certificate of Amendment of Certificate of Incorporation
(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: August 13, 2001 /S/ Peter P. Phildius
-----------------------------------
Peter P. Phildius
Chairman and Chief
Executive Officer
(Principal Executive Officer)
Dated: August 13, 2001 /S/ J.C. Leatherman, Jr.
---------------------------
J.C. Leatherman, Jr.
Chief Financial Officer
(Principal Accounting and
Financial Officer)
EXHIBIT INDEX
Exhibit Index Document Page
3.1 Certificate of Amendment of Certificate of Incorporation
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT OF CERTIFICATE
OF INCORPORATION
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AVITAR, INC.
Avitar, Inc., a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify as follows:
FIRST: That by unanimous written consent of the Board of Directors of
Avitar, Inc. resolutions were duly adopted setting forth a proposed amendment to
the Certificate of Incorporation of said corporation, declaring said amendment
to be advisable and calling a meeting of the stockholders of said corporation
for consideration thereof. The resolution setting forth the proposed amendment
is as follows:
RESOLVED, that the initial paragraph of Article Fourth of the Certificate
of Incorporation is hereby amended so that said initial paragraph of Article
Fourth shall read in its entirety as follows:
"FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is One Hundred Five Million (105,000,000) shares, of
which One Hundred Million (100,000,000) shares shall be Common Stock, par value
$.01 per share, and Five Million (5,000,000) shares shall be Preferred Stock,
par value $.001 per share."
SECOND: That in accordance with Section 242 of the Delaware General
Corporation Law, the above statement of amendment has been duly approved by the
Board of Directors of Avitar, Inc. by unanimous written consent as of May 8,
2001, and by the stockholders of Avitar, Inc. at the Annual Meeting of
Stockholders duly called and held on June 27, 2001. At the Annual Meeting, which
was held upon notice duly given in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at least a majority of the shares
issued and outstanding on the record date for the meeting constituting the
requisite vote as required by statute were voted in favor of the Amendment.
IN WITNESS WHEREOF, said AVITAR, INC., has caused this Certificate to be
signed by Peter P. Phildius, its Chairman and Chief Executive Officer, who does
make this certificate and declares and certifies under penalty of perjury that
this is the act and deed of the Corporation, and that the acts stated herein are
true, and accordingly have set his hand hereto this 2nd day of July, 2001.
AVITAR, INC.:
By: /s/ Peter P. Phildius
------------------------------------------
Name: Peter P.Phildius
Title: Chairman and Chief Executive Officer