U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A-1
(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, 2005.
[ ] Transition report pursuant to Section 13 or 15(d) of the Exchange act for
the transition period from
to
- ------------------------------- ------------------------------------------
Commission File Number: 1-15695
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Avitar, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 06-1174053
(State or other jurisdiction (I.R.S. Employer Identification No.)
of 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: 156,531,335
AS OF MAY 10, 2005
Transitional Small Business Disclosure Format
(Check One): [ ] Yes ; [x] No
Transitional Small Business Disclosure Format
(Check One): [ ] Yes ; [x] No
Page 1 of 25 pages
Exhibit Index is on Page 25
TABLE OF CONTENTS
Page
PART I: FINANCIAL INFORMATION 3
Item 1 Consolidated Financial Statements
Balance Sheet 4
Statements of Operations 5
Statement of Stockholders' Deficit 6
Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8
Item 2 Management's Discussion and Analysis or Plan of Operation 14
Item 3 Controls and Procedures 20
PART II: OTHER INFORMATION 21
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 22
Item 6 Exhibits and Reports on Form 8-K 22
SIGNATURES 25
EXHIBIT INDEX 26
CERTIFICATIONS 27
Avitar, Inc. and Subsidiaries
Consolidated Balance Sheet
March 31, 2005
(Unaudited)
(As restated)
- -------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 69,626
Accounts receivable, net 481,981
Inventories 551,010
Prepaid expenses and other current assets 171,721
------------
Total current assets 1,274,338
PROPERTY AND EQUIPMENT, net 244,270
GOODWILL, net 238,120
OTHER ASSETS 193,632
------------
Total Assets $ 1,950,360
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Notes payable $ 392,542
Accounts payable 885,996
Accrued expenses 720,273
Deferred income 178,550
Fair value of warrants (Note 12) 426,300
Fair value of embedded derivatives (Note 12) 675,600
------------
Total current liabilities 3,279,262
------------
REDEEMABLE CONVERTIBLE AND CONVERTIBLE PREFERRED
STOCK (Note 6) 3,480,000
------------
COMMITMENTS
STOCKHOLDERS' DEFICIT:
Series B convertible preferred stock, $.01 par value; authorized
5,000,000 shares; 5,689 shares issued and outstanding 58
Common Stock, $.01 par value; authorized 300,000,000 shares;
155,207,442 shares issued and outstanding 1,552,074
Additional paid-in capital 46,316,629
Accumulated deficit (52,677,663)
------------
Total stockholders' deficit (4,808,902)
------------
Total Liabilities and Stockholders' Deficit $ 1,950,360
============
See accompanying notes to consolidated financial statements.
Avitar, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
(As restated)
- -----------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
---------------------------------------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
SALES $ 955,223 $ 1,017,190 $ 1,991,263 $ 1,837,390
------------ ------------ ------------ ------------
OPERATING EXPENSES
Cost of sales 714,610 755,623 1,430,619 1,321,342
Selling, general and administrative expenses 1,031,620 677,248 1,964,282 1,392,172
Research and development expenses 183,306 119,512 379,749 227,667
------------ ------------ ------------ ------------
Total operating expenses 1,929,536 1,552,383 3,774,650 2,941,181
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (974,313) (535,193) (1,783,387) (1,103,791)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense and financing costs (23,183) (72,414) (36,369) (141,682)
Other income (expense), net 711,321 179,741 190,691 (107,602)
------------ ------------ ------------ -------------
Total other income (expense), net 688,138 107,327 154,322 (249,284)
------------ ------------ ------------ -------------
LOSS FROM CONTINUING OPERATIONS (286,175) (427,866) (1,629,065) (1,353,075)
------------ ------------ ------------ -------------
DISCONTINUED OPERATIONS
Income from operations of USDTL - - - 4,447
Loss from the disposal of USDTL - - - (17,235)
------------ ------------ ------------ -------------
Loss from discontinued operations - - - (12,788)
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
NET LOSS $ (286,175) $ (427,866) $(1,629,065) $(1,365,863)
============ ============ ============ =============
BASIC AND DILUTED LOSS PER SHARE FROM CONTINUING
OPERATIONS (Note 9) $ - $ (0.01) $ (0.02) $ (0.02)
============ ============ ============ =============
BASIC AND DILUTED LOSS PER SHARE (Note 9) $ - $ (0.01) $ (0.02) $ (0.02)
============ ============ ============ =============
WEIGHTED AVERAGE
NUMBER OF COMMON SHARES OUTSTANDING 148,207,442 102,438,882 139,041,290 99,248,955
============ ============ ============ =============
See accompanying notes to consolidated financial statements.
Avitar, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Deficit
Six Months Ended March 31, 2005
(Unaudited)
(As restated)
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Preferred Stock Common Stock
.................. ................... Total
Additional Accumulated Stockholders
Shares Amount Shares Amount paid-in capital deficit Deficit
- ---------------------------------------------------- -------- --------- -------- --------------- --------------
Balance at September 30, 2004 46,130 $ 462 123,118,165 $ 1,231,182 $49,657,819 $(51,556,850) $ (667,387)
Adjustment (38,941) (389) - - (3,231,322) 556,862 (2,674,849)
-------- ------ ----------- ---------- ----------- ------------ ----------
Balance at September 30, 2004
(As restated) (7,189) 73 123,118,165 1,231,182 46,426,497 (50,999,988) (3,342,236)
-------- ------ ----------- ---------- ----------- ------------ -----------
Sale of common stock 23,479 235 2,565
Conversion of Series A convertible
preferred stock into common stock (1,500) (15) 17,173,239 171,732 (171,717) -
Conversion of Series A redeemable
convertible preferred stock into
common stock - - 13,205,882 132,059 825,989 -
Payment of convertible preferred stock
dividend for Series A preferred stock - - 610,945 6,109 42,501 (48,609)
Accretion of mandatory redeemable
preferred stock (992,100) (992,100)
Common stock issued in connection
with estblishing equity credit line 1,075,732 10,757 114,243 125,000
Net loss - - - - - (1,629,065) (1,629,065)
-------- ------ ----------- ---------- ----------- ------------ -----------
Balance at March 31, 2005 5,689 $ 58 155,207,442 $ 1,552,074 $46,316,629 $(52,677,663) $(4,808,902)
- ---------------------------------------------------- ------ ----------- ---------- ----------- ------------ -----------
See accompanying notes to consolidated financial statements.
Avitar, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(As restated)
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SIX MONTHS ENDED MARCH 31,
----------------------
2005 2004
---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,629,065) $(1,365,863)
Adjustments to reconcile net loss to
net cash used in operating activities:
Loss from disposal of discontinued operation - 17,235
Depreciation and amortization 77,538 58,412
Amortization of debt discount and deferred financing 11,506 28,968
Amortization of deferred rent expense 62,384 41,589
Common stock for interest on long-term debt - 87,500
(Income) expense from changes in value of embedded
derivatives and warrants (189,546) 116,709
Changes in operating assets and liabilities:
Accounts receivable 153,756 (11,320)
Inventories (202,157) (106,885)
Prepaid expenses and other current assets 2,759 7,786
Other assets 698 24,705
Accounts payable and accrued expenses (60,529) (943,899)
Deferred revenue (13,950) (1,200)
----------- -----------
Net cash used in operating activities (1,786,606) (2,046,263)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (21,725) (1,239)
Proceeds from sale of USDTL - 500,000
----------- -----------
Net cash provided by (used in) investing activities (21,725 498,761
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of common stock, redeemable preferred stock and warrants 1,162,575 922,310
Proceeds from (repayment of) notes payable and long-term debt 206,506 (108,505)
Payment of cash dividend on 8% redeemable convertible preferred stock - (16,110)
----------- -----------
Net cash provided by financing activities 1,369,081 797,695
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (439,250) (749,807)
CASH AND CASH EQUIVALENTS, beginning of the period 508,876 1,130,919
----------- -----------
CASH AND CASH EQUIVALENTS, end of the period $ 69,626 $ 381,112
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during period:
Income taxes $ - $ -
Interest $ 16,986 $ 8,049
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
During the six months ended March 31, 2005, 958 shares of Series A
redeemable convertible preferred stock were converted into
13,205,882 shares of common stock.
During the six months ended March 31, 2005, 1500 shares of Series A
convertible preferred stock were converted into 17,173,239 shares
of common stock.
During the six months ended March 31, 2005, 610,945 shares of common
were issued as payment of dividends for Series A convertible and
redeemable convertible preferred stock.
During the six months ended March 31, 2005, warrants to purchase $ 12,673 -
250,000 shares of common stock were issued in connection with
the issuance of notes payable.
During the six months ended March 31, 2005, 1,075,732 shares $ 125,000 -
of common stock were issued as payment of investor and placement
agent fees in connection with SEDA financing.
During the six months ended March 31, 2004, 926,599 shares of common
stock were issued for interest on long-term debt.
During the six months ended March 31, 2004, 700 shares of 8%
redeemable convertible preferred stock were converted into
4,666,667 shares of common stock.
During the six months ended March 31, 2004, 10,399,214 shares of
common stock were issued for the exercise of warrants.
During the six months ended March 31, 2004, 239 shares of Series B
convertible preferred stock were converted into 2,390 shares of
common stock.
See accompanying notes to consolidated financial statements.
PART I FINANCIAL INFORMATION
AVITAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
1. BASIS OF PRESENTATION
Avitar, Inc. (the "Company" or "Avitar") through its wholly-owned
subsidiary Avitar Technologies, Inc. ("ATI") develops, manufactures,
markets and sells diagnostic test products and proprietary hydrophilic
polyurethane foam disposables fabricated for medical, diagnostics, dental
and consumer use. During the first half of FY2005, the Company continued
the development and marketing of innovative point of care oral fluid drugs
of abuse tests, which use the Company's foam as the means for collecting
the oral fluid sample. Through its wholly owned subsidiary, BJR Security,
Inc. (`BJR"), the Company provides specialized contraband detection and
education services.
On December 16, 2003, the Company sold the business and net assets,
excluding cash, of its wholly owned subsidiary, United States Drug Testing
Laboratories, Inc. ("USDTL"), which operated a certified laboratory and
provided specialized drug testing services primarily utilizing hair and
meconium as the samples. Therefore, USDTL is considered a discontinued
operation and this report reflects the continued operations of the Company.
During the audit for Fiscal 2005, the Company was advised by its
independent registered public accounting firm that the method used to
account for sales of certain convertible preferred stock and convertible
notes was not in accordance with the requirements of Emerging Issues Task
Force ("EITF") Issue No. 00-19 "Accounting for Derivative Financial
Instruments Indexed To and Potentially Settled In a Company's Own Stock".
The statements of stockholders' deficit as of September 30, 2004 and for
the six months ended March 31, 2005, the balance sheet as of March 31,
2005, the statements of operations for the quarter and six months ended
March 31, 2005 and 2004 and the statements of cash flow for the six months
ended March 31, 2005 and 2004 included herein have been restated to correct
the error in accounting for the issuance of various securities and the
derivative features embedded therein. These restatements resulted in a
stockholders' deficit of $3,342,236 at September 30, 2004 (an increase of
$2,674,849), a stockholders' deficit of $4,808,902 at March 31, 2005 (an
increase of $3,296,901), a net loss of $286,175 for the quarter ended March
31, 2005 (a decrease of $710,613 or $.01 per share), a net loss of $427,866
for the quarter ended March 31, 2004(a decrease of $175,081 or $.01 per
share), a net loss of $1,629,065 for the six months ended March 31, 2005 (
a decrease of $189,546 or $.00 per share) and a net loss of $1,365,863 for
the six months ended March 31, 2004 (an increase of $116,709 or $.00 per
share).
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 months ended March 31,
2005 are not necessarily indicative of the results that may be expected for
the full fiscal year ending September 30, 2005. 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, 2004. 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 had a working capital deficit as of March 31, 2005 and
September 30, 2004 of $914,607 and $388,972, respectively. The Company
raised net proceeds aggregating approximately $2,800,000 during the fiscal
year ended September 30, 2004 from the sale of stock and warrants. In
addition, the Company converted $1,250,000 of long-term debt into preferred
stock. During the six months ended March 31, 2005, the Company raised net
proceeds of approximately $1,160,000 from the sale of preferred stock and
warrants and $250,000 from short-term notes. The Company is working with
placement agents and investment fund mangers to obtain additional equity
financing. In April 2005, the Company raised gross proceeds of $750,000
from the sale of Series E Convertible Preferred Stock and Warrants, of
which $375,000 was paid in the first closing and a second tranche of
$375,000 was paid on May 9, 2005 . The $750,000 of Series E Preferred Stock
are convertible into Common Stock at the lesser of $.08 per share or 80% of
the average of the three lowest closing bid prices for the ten trading days
immediately prior to the notice of conversion, subject to adjustments and
limitations, and the Warrants are exercisable at $.084 per share for a
period of three years. Prior to entering into the Securities Purchase
Agreement for the sale of the Series E Preferred Stock, the Company entered
into a Termination Agreement terminating the Standby Equity Distribution
Agreement (`SEDA") made as of February 1, 2005 with Cornell Capital
Partners, L.P. ("Cornell Capital"). The terms of this SEDA were discussed
in detail in Notes 1 and 10 to the Financial Statements and in the
Financial and Liquidity Section of the Company's Report on Form 10-QSB/A
filed for the quarter ended December 31, 2004. If Cornell Capital does not
enter into a SEDA on identical terms within ninety (90) days after all
amounts payable under the Securities Purchase Agreement are satisfied,
Cornell Capital has agreed to return to the Company all fees pursuant to
the February 2005 SEDA. The fees (1,075,732 shares of common stock with a
value of $125,000) paid to Cornell Capital and its placement agent in
connection with this transaction were recorded as deferred financing costs
in the quarter ended March 31, 2005 and will be amortized over the 24 month
term of the SEDA.
2. INVENTORIES
At March 31, 2005, inventories consist of the following:
Raw Materials $393,379
Work-in-Process 55,635
Finished Goods 101,996
---------
Total $551,010
========
3. DISCONTINUED OPERATIONS
On December 16, 2003, the Company consummated the sale of USDTL's
business and net assets, excluding cash. The Company received $500,000 in
cash upon the closing of the sale and is entitled to receive an additional
$500,000 as the buyer of USDTL achieves specified revenue targets. Under
the terms of the sale, the buyer must pay the Company 10% of certain annual
revenues in excess of $1,500,000, less any amounts due from the Company for
the purchase of services from the buyer. The Company recorded the $500,000
received in the first quarter of FY2004. Due to the contingent nature of
the additional $500,000, the payments will be recorded as they are
received. The accompanying financial statements reflect USDTL as a
discontinued operation. The following is a summary of the results of
operations for USDTL for the three and six months ended March 31, 2005 and
2004:
Three Months Six Months
Ended March 31, Ended March 31,
2005 2004 2005 2004
------------ ------------ ------------- -----------
Sales $ - $ - $ - $289,501
Operating expenses - - - 284,223
Other income (expense) - - - (18,066)
----------- ------------- ------------ ----------
Loss from discontinued operations $ - $ - $ - $(12,788)
=========== ============= ============ ==========
Other income (expense) for the six months ended March 31, 2004
includes the loss from the disposal of USDTL of $17,235.
4. MAJOR CUSTOMERS
Customers in excess of 10% of total sales are:
Three Months Ended March 31, Six Months Ended March 31,
----------------------------- -----------------------------
2005 2004 2005 2004
---------------- -------------- --------------- ----------------
Customer A $308,375 $ 269,088 $562,161 $ 402,223
At March 31, 2005, accounts receivable from major customers totaled
approximately $166,835.
5. NOTES PAYABLE
During March 2005, the Company issued short-term notes payable
totaling $250,000 to an acredited investor. These notes have a term of six
months and bear interest at the rate of 1% per month. In connection with
the notes payable, the holder received warrants to purchase one share of
the Company's common stock for each dollar loaned to the Company for a
period of three years at exercise prices ranging from $.09 to $.10 per
share. During the quarter ended March 31, 2005, $12,673, representing the
value for the warrants issued to purchase 250,000 shares of common stock
associated with the $250,000 of borrowings during the period, was recorded
as a discount to debt and is being amortized over the term of the notes.
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK
In December 2004, the Company sold 1,285 shares of Series A Redeemable
Convertible Preferred Stock and Warrants to purchase 600,000 shares of
common stock for which it received net proceeds of approximately
$1,160,000. The Series A Redeemable Convertible Preferred Stock, with a
face value of $1,285,000, is convertible into common stock at the lesser of
$.12 per share or 85% of the average of the three lowest closing bid
prices, as reported by Bloomberg, for the ten trading days immediately
prior to the notice of conversion subject to adjustments and floor prices.
The Warrants are exercisable at $.126 per share. The warrants issued in
connection with the sale of 1,285 shares of preferred stock and the put
right and the conversion feature resulted in a deemed dividend of
$1,058,260 being recorded and included in the earnings per share
calculation for the quarter and six months ended March 31, 2005. A
liability of approximately $1,058,260 was recorded for the original fair
value of the warrants issued in connection with the sale of the 1,285
shares of preferred stock and the conversion feature which was $723,240 at
March 31, 2005. Upon the occurrence of specific events, the holders of the
Series A Redeemable Convertible Preferred Stock are entitled to redeem
these shares under certain provisions of the agreement covering the
purchase of the preferred stock. Accordingly, this security was not
classified as permanent equity.
36,941 shares of the Series C convertible preferred stock with a face
value of $195,000 and 2,000 shares of the 6% Convertible preferred stock
with a face value of $2,000,000 are carried at face value on the balance
sheet outside permanent equity as the Company cannot be sure it has
adequate authorized shares for their conversion as of March 31, 2005.
7. COMMON AND PREFERRED STOCK
During the six months ended March 31, 2005, the Company issued
30,379,121 shares of common stock to holders who converted 1500 shares of
Series A Convertible Preferred Stock and 958 shares of Series A Redeemable
Convertible Preferred Stock. As payment of $48,610 of dividends on these
converted shares, the Company issued 610,945 shares of the Company's common
stock. Dividends for all preferred stock amounted to $81,679 for the six
months ended March 31, 2005 and the total amount of unpaid and undeclared
dividends was $181,559. As part of the SEDA Agreement which was described
in detail in Note 1of the Company's Report on Form 10Q-SB/A for the quarter
ended December 31, 2004 and discussed in Note 1of this Report, the Company
paid commitment fees totaling 1,075,732 shares of common stock (with a
value of $125,000) to the investor and the placement agent being used by
the investor for this financing transaction. These fees were recorded as
deferred financing costs in the quarter ended March 31, 2005 and will be
amortized over the 24 month term of the SEDA.
8. GOODWILL
As of September 30, 2004, the Company's goodwill was composed of
$238,120 associated with the acquisition of BJR in 2001. In accordance with
SFAS No. 142, the Company evaluated the goodwill related to the BJR
acquisition and determined that no adjustment to the goodwill balance of
$238,120 was deemed necessary at March 31, 2005.
9. LOSS PER SHARE
The following data show the amounts used in computing earnings per
share:
Three Months Six Months
Ended March 31, Ended March 31,
2005 2004 2005 2004
---------- ---------- ------------ ------------
Loss from continuing operations $(286,175) $(427,866) $(1,629,065) $(1,365,863)
Less:
Preferred Stock Dividends (31,415) (19,183) (81,679) (43,510)
Deemed dividends in connection
with Series A and 6% preferred
stock sales - (1,000,000) (1,058,260) (1,000,000)
Loss attributable to common
stockholders from
continuing operations (317,590) (1,447,049) (2,769,004) (2,409,373)
Add:
Income (loss) from discontinued
operation - - - (12,788)
---------- ----------- ----------- -----------
Net loss attributable to common
stockholders used in basic and
diluted EPS $(317,590) $(1,447,049) $(2,769,004) $(2,422,161)
========== =========== =========== ===========
Weighted average number of
common shares outstanding 148,207,442 102,438,882 139,041,290 99,248,955
============ ============ ============ ===========
Loss per share applicable to common
stockholders before discontinued
operations $(0.00) $(0.01) $(0.02) $(0.02)
Impact of discontinued operations - - - -
---------- ----------- ----------- ----------
Basic and diluted loss per share
applicable to common
stockholders $(0.00) $(0.01) $(0.02) $(0.02)
========== =========== =========== ==========
10. STOCK OPTIONS
The Company accounts for its stock-based compensation plans using the
intrinsic value method in accordance with the provisions of APB Opinion No.
25, Accounting for Stock Issued to Employees, and complies with the
disclosure provisions of SFAS No. 123, Accounting for Stock- Based
Compensation, and SFAS No. 148, Accounting for Stock-Based Compensation-
Transition and Disclosure. No stock-based employee compensation cost was
reflected in net loss for the quarter and six months ended March 31, 2005
or 2004, as all options granted under those plans had an exercise price
equal to the fair market value of the underlying common stock on the date
of grant.
The following table illustrates, in accordance with the provisions of SFAS
No. 148, Accounting for Stock-Based Compensation - Transition and
Disclosure, the effect on net loss and loss per share if the Company had
applied the fair value recognition provisions of SFAS No. 123, Accounting
for Stock-Based Compensation, to stock-based employee compensation.
Three Months Ended March 31, Six Months Ended March 31,
2005 2004 2005 2004
---------------- ----------------- ------------------ -----------------
Net loss $ (286,175) $ (427,866) $ (1,629,065) $ (1,365,863)
Add: stock based employee
compensation expense included in reported net
loss, net of tax - - - -
Deduct: total stock based employee
compensation expense determined
under the fair value based method for
all awards, net of tax (37,450) (67,803) (67,145) (117,606)
------------- ------------- ------------ -----------
Pro forma net loss $ (323,625) $ (495,669) $(1,696,210) $(1,483,469)
============= ============= ============ ============
Loss per share:
Basic and diluted - as reported $ (.00) $ (.01) $ (.01) $ (.02)
Basic and diluted - pro forma (.00) (.01) (.01) (.02)
The fair value of the Company's stock-based option awards to employees was
estimated assuming no expected dividends and the following weighted-average
assumptions:
March 31, March 31,
2005 2004
------------------ --------------
Risk free interest rate 3.8 % 2.5%
Expected dividend yield - -
Expected lives 5-9 years 5-9 years
Expected volatility 80% 80%
The weighted average fair value of options granted for the three and six
months ended March 31, 2005 was $0.07. The weighted average fair value of
options granted for the three and six months ended March 31, 2004 was
$0.24.
11. SUBSEQUENT EVENTS
Since March 31, 2005, holders of Series A convertible preferred stock
converted 100 shares of preferred stock and accrued dividends for such
shares into 1,323,893 shares of common stock. In April 2005, the Company
raised gross proceeds of $750,000 from the sale of Series E Convertible
Preferred Stock and Warrants, of which $375,000 was paid in the first
closing and a second tranche of $375,000 was paid on May 9, 2005. The
$750,000 of Series E Preferred Stock are convertible into Common Stock at
the lesser of $.08 per share or 80% of the average of the three lowest
closing bid prices for the ten trading days immediately prior to the notice
of conversion, subject to adjustments and limitations, and the Warrants are
exercisable at $.084 per share for a period of three (3) years.
12. DERIVATIVES
The Company has issued and outstanding convertible debt and certain convertible
equity instruments with embedded derivative features. The Company analyzes these
financial instruments in accordance with SFAS No. 133 and EITF Issue Nos. 00-19
and 05-02 to determine if these hybrid contracts have embedded derivatives which
must be bifurcated. In addition, free-standing warrants are accounted for as
equity or liabilities in accordance with the provisions of EITF Issue No. 00-19.
As of March 31, 2005, the Company could not be sure it had adequate authorized
shares for the conversion of all outstanding instruments due to certain
conversion rates which vary with the fair value of the Company's common stock
and therefore all embedded derivatives and freestanding warrants are recorded at
fair value, marked-to-market at each reporting period, and are carried on
separate lines of the accompanying balance sheet. If there is more than one
embedded derivative, their value is considered in the aggregate.
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.
RESTATEMENT
As indicated in Note 1 of the Consolidated Financial Statements, the
statements of stockholders' deficit as of September 30, 2004 and for the six
months ended March 31, 2005, the balance sheet as of March 31, 2005, the
statements of operations for the quarter and six months ended March 31, 2005 and
2004 and the statements of cash flow for the six months ended March 31, 2005 and
2004 included herein have been restated to correct the error in accounting for
the issuance of various securities and the derivative features embedded therein.
The effects of these restatements are described in Note 1 of the Consolidated
Financial Statements and the discussions below are based on restated
information.
RESULTS OF OPERATIONS
Revenues
Sales for the three months ended March 31, 2005 decreased $61,967 to
$955,223 from $1,017,190 for the corresponding period of the prior year. For the
six months ended March 31, 2005, sales increased $153,873 to $1,991,263 from
$1,837,390. The change for the three months ended March 31, 2005 primarily
reflects decreases in volume of sales of $27,000 for its ORALscreen(R) products
and $20,000 for its Foam Products along with a decrease of $15,000 in revenue
from contraband detection services. The change for the six months ended March
31, 2005 primarily reflects increases in volume of sales of $95,000 for its
ORALscreen(R) products and $101,000 for its Foam Products; offset in part by a
decrease of $42,000 in revenue from contraband detection services.
Operating Expenses
Cost of sales for the three months ended March 31, 2005 was approximately
75% of sales compared to the cost of sales of approximately 74% of sales for the
three months ended March 31, 2004. For the six months ended March 31, 2005, the
cost of sales was 72% compared to 72% of sales for the same period of Fiscal
2004. The change for Fiscal 2005 resulted primarily from a shift in the product
mix (46% in Fiscal 2005 versus 44% in Fiscal 2004) to the lower margin foam
products and a change in customer mix for the ORALscreen products; offset by a
reduction in warranty expense of approximately $71,000 for the quarter ended
March 31, 2005 and $101,000 for the six months ended March 31, 2005.
Selling, general and administrative expenses for the three months ended
March 31, 2005 increased $ 354,372, or approximately 52%, to $1,031,620 from
$677,248 for the corresponding period of the prior year. For the six months
ended March 31, 2005, selling, general and administrative expenses increased
$572,110 or approximately 41%, to $1,964,282 from $1,392,172 for the six months
ended March 31, 2004. The change for the three-month period ended March 31, 2005
primarily reflects the cost of approximately $171,000 for the addition of sales
and marketing resources and increased public relations and investor relations
consulting expenses of approximately $62,000; offset in part by a reduction in
legal expenses related to special shareholder meetings and SEC registration
statements of approximately $88,000 and a decrease of approximately $33,000 in
various other administrative expenses. The increase for the six months ended
March 31, 2005, included approximately $399,000 for additional sales and
marketing resources and approximately $73,000 for public and investor relations
consulting expense; offset in part by a reduction of approximately $37,000 in
various other administrative expenses. The three and six month periods ended
March 31, 2004 included a reduction for accrued royalty expense of approximately
$242,000 as a result of management's revision of estimates of amounts due to a
former supplier under a product development agreement. With respect to the
revision in accrued royalty expenses in Fiscal 2004, the Company, during the
term of a product development agreement with the supplier, had accrued the
royalties due under this agreement with expectation that the supplier would
fulfill the terms of the agreement. However, in 2002, the Company notified the
supplier that the supplier had failed to meet the terms of the product
development agreement and therefore, under the terms of this agreement, no
royalties would be payable. Since being notified, the supplier had done nothing
to cure this default. In view of this lapse in time and that other product
undertakings by the supplier would prevent the supplier from ever curing any of
its defaults under the agreement, there was no longer any need to maintain the
royalty reserve for this supplier. In order to achieve revenue growth, the
Company will continue to incur increased expenses to hire additional direct
sales staff and expand marketing programs during the remainder of FY2005 and
beyond.
Expenses for research and development for the three months ended March 31,
2005 amounted to $183,306 compared to $119,512 for the corresponding period of
the prior year, an increase of $63,794. For the six months ended March 31, 2005,
expenses for research and development were $379,749 versus $227,667 for the six
months ended March 31, 2004, an increase of $152,082. The change for the quarter
ended March 31, 2005 was primarily attributable to additional personnel expense
of approximately $48,000 and contracted development expense of approximately
$11,000 associated with ORALscreen product enhancements. For the six months
ended March 31, 2005, the increase was mainly the result of additional personnel
expense of approximately $96,000 and contracted development expenses of
approximately $34,000 for ORALscreen product enhancements that included the
Drugometer(TM), a single step drug test device introduced in November 2004. The
Company plans to continue improving and enhancing its ORALscreen products, and
therefore will most likely incur increased expenses for research and development
during the remainder of FY2005 and beyond.
Other Income and Expense
Interest expense and financing costs were $23,183 for the three months
ended March 31, 2005 compared to $72,414 incurred during the three months ended
March 31, 2004. For the six months ended March 31, 2005, interest expense and
financing costs amounted to $36,369 versus $141,682 for the corresponding period
of Fiscal 2004. The decrease for the three months ended March 31, 2005 resulted
primarily from interest expense and amortization of deferred financing costs of
approximately $53,000 associated with the long-term debt of $1,250,000 that was
converted into preferred stock in May 2004; offset in part by the interest of
approximately $4,000 associated with notes payable issued in March 2005. For the
six months ended March 31, 2005, the change primarily reflected the reduction of
approximately $106,000 in interest expense and financing costs associated with
the long-term debt of $1,250,000 that was converted into preferred stock in May
2004.
For the three months ended March 31, 2005, other income amounted to
$711,321 compared to $179,741 for the three months ended March 31, 2004. Other
income for the six months ended March 31, 2005 was $190,691 compared to other
expense of $107,602 for the six months ended March 31, 2004. The amount for the
quarter ended March 31, 2005 reflected an increase in income of approximately
$536,000 from changes in the fair market value of derivative securities and
warrants. The amount for the six months ended March 31, 2005, reflected an
increase in income of approximately $306,000 from changes in the fair market
value of derivative securities and warrants.
Discontinued Operations
On December 16, 2003, the Company consummated the sale of the business and
net assets, excluding cash, of its USDTL subsidiary. For the three and six
months ended March 31, 2005, no activity was recorded for USDTL compared to a
loss of $12,788 for the six months ended March 31, 2004. The loss for the six
months ended March 31, 2004 resulted from a loss on the disposal of USDTL of
$17,235 which was offset in part by income from operations of $4,447 (see Note 3
of the consolidated financial statements).
Net Loss
Primarily as a result of the factors described above, the Company had a net
loss of $286,175 for the three months ended March 31, 2005, as compared to net
loss of $427,866 for the three months ended March 31, 2004. For the six months
ended March 31, 2005, the Company had a net loss of $1,629,065 versus $1,365,863
for the corresponding period of Fiscal 2004. The loss per share was $.00 per
basic and diluted share for the three months ended March 31, 2005 compared to a
loss per share of $.01 per basic and diluted share for the three months ended
March 31, 2004. For the six months ended March 31, 2005, the loss per share was
$.02 per basic and diluted share versus a loss per share of $.02 per basic and
diluted share for the six months ended March 31, 2004.
FINANCIAL CONDITION AND LIQUIDITY
At March 31, 2005, the Company had a working capital deficit of $2,004,924
and cash and cash equivalents of $69,626. Cash flows from financing activities
provided the primary source of funding during the six months ended March 31,
2005 and the Company will continue to rely on this type of funding until
profitability is reached. The following is a summary of cash flows for the six
month period ended March 31, 2005:
Six Months Ended
March 31,
Sources (uses) of cash flows 2005
---------------------------- ------------------
Operating activities $(1,786,606)
Investing activities (21,725)
Financing activities 1,369,081
-------------
Net decrease in cash and equivalents $ (439,250)
==============
Operating Activities. The net loss of $1,629,065 (composed of expenses
totaling $3,811,019 less revenues and other income of $2,181,954) was
the major use of cash by operations. When the net loss is adjusted for
non-cash expenses such as depreciation and amortization, amortization
of debt discounts, deferred financing costs, deferred rent and income
from the changes in the fair market value of derivative securities and
warrants, the cash needed to finance the net loss was $1,667,183.
Working capital requirements necessitated the use of $60,529 to pay
aging accounts payable and reduce accrued expenses and $202,157 to
increase inventory levels to meet anticipated demand for products
during the next quarter. In addition, changes netting $10,493 in
various other assets and liabilities further increased the operating
cash needs. A decrease in accounts receivable due to cash receipts
exceeding billings for ORALscreen products during the second quarter
lessened working capital needs by $153,756.
Investing and Financing Activities. Cash used in investing consisted of
cash paid of $21,725 for additions to property, plant and equipment. To
finance the business, preferred stock and warrants (as described below)
were sold and raised approximatly $1,163,000. In addition, short term
borrowings generated approximately $206,000 after repayment of certain
short-term notes payable.
During FY 2005, 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 its ORALscreen product line.
In April 2005, the Company raised gross proceeds of $750,000 from the sale
of Series E Convertible Preferred Stock and Warrants, of which $375,000 was paid
in the first closing and a second tranche of $375,000 is to be paid at the
second closing within 30 days or less. The $750,000 of Series E Preferred Stock
are convertible into Common Stock at the lesser of $.08 per share or 80% of the
average of the three (3) lowest closing bid prices for the ten (10) trading days
immediately prior to the notice of conversion, subject to adjustments and
limitations, and the warrants are exercisable at $.084 per share for a period of
five (5) years. Prior to entering into the Securities Purchase Agreement for the
sale of the Series E Preferred Stock, the Company entered into a Termination
Agreement terminating the Standby Equity Distribution Agreement (`SEDA") made as
of February 1, 2005 with Cornell Capital Partners, L.P. ("Cornell Capital"). The
terms of this SEDA were discussed detail in Notes 1 and 10 to the Financial
Statements and in the Financial and Liquidity Section of the Company's Report on
Form 10-QSB/A filed for the quarter ended December 31, 2004. If Cornell Capital
does not enter into a SEDA on identical terms within ninety (90) days after all
amount payable under the Securities Purchase Agreement for the Series E
Preferred Stock are satisfied, Cornell Capital has agreed to return all fees
pursuant to the February 2005 SEDA. Since March 2005, the Company has received
$500,000 (of which $250,000 was received during the quarter ended March 31,
2005) from short-term notes issued to a private party. These notes have a term
of six (6) months and bear interest at the rate of one percent (1%) per month.
In connection with the notes payable, the holder received warrants to purchase
one (1) share of the Company's common stock for each dollar loaned to the
Company for a period of three (3) years at exercise prices ranging from $.08 to
$.10 per share. During the quarter ended March 31, 2005, $12,673, representing
the value of the warrants issued to purchase 250,000 shares of common stock for
the $250,000 of borrowings during the period, was recorded as a discount to the
debt and is being amortized over the term of the notes.
During December 2004, the Company sold 1,285 shares of Series A Redeemable
Convertible Preferred Stock and Warrants to purchase 600,000 shares of common
stock for which it received net proceeds of approximately $1,160,000. The Series
A Redeemable Convertible Preferred Stock, with a face value of $1,285,000, is
convertible into common stock at the lesser of $.12 per share or 85% of the
average of the three lowest closing bid prices, as reported by Bloomberg, for
the ten trading days immediately prior to the notice of conversion subject to
adjustments and floor prices. The Warrants are exercisable at $.126 per share.
The warrants issued in connection with the sale of 1,285 shares of preferred
stock and the put right and the conversion feature resulted in a deemed dividend
of $1,058,260 being recorded and included in the earnings per share calculation
for six months ended March 31, 2005. A liability of approximately $1,058,260 was
recorded for the original fair value of the warrants issued in connection with
the sale of the 1,285 shares of preferred stock and the conversion feature which
was $723,240 at March 31, 2005. Upon the occurrence of specific events, the
holders of the Series A Redeemable Convertible Preferred Stock are entitled to
redeem these shares under certain provisions of the agreement covering the
purchase of the preferred stock. Accordingly, this security was not classified
as equity.
The cash available at March 31, 2005, the proceeds from the financings
completed since March 31, 2005 and anticipated customer receipts are expected to
be sufficient to fund the operations of the Company through June 2005. Beyond
that time, the Company will require significant additional financing from
outside sources to fund its operations. The Company plans to continue working
with placement agents and/or investment fund managers in order to raise
additional capital during the remainder of fiscal year 2005 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 drug screening systems and to pursue the development of in-vitro
oral fluid diagnostic testing products. However, there can be no assurance that
these financings will be achieved.
The Company has accumulated losses that have reduced shareholders' equity
to a deficit. As a result, as previously reported, the Company received a letter
dated January 30, 2004 from The American Stock Exchange ("AMEX" or the
"Exchange") noting that the Company's 2003 Annual Report on Form 10-KSB
indicates that the Company is not in compliance with all the continued listing
standards of AMEX. In its letter, the Exchange indicated that, in order to
maintain its AMEX listing, the Company must submit a plan by March 3, 2004
advising the Exchange of the action that it takes or will take that will bring
it into compliance with the continued listing standards within 18 months. The
Company submitted its plan. On March 17, 2004, the Exchange notified the Company
that it had accepted Avitar's plan, which permitted the Company to maintain its
listing on the American Stock Exchange. More specifically, the Exchange granted
the Company an extension through July 2005 subject to periodic reviews by the
Exchange to assure that Avitar is making progress consistent with the plan. The
Company has provided AMEX with quarterly updates on its performance against the
plan. Although the major milestones of the plan were not achieved as of March
31, 2005, the Company is working towards meeting the overall objectives of the
plan. Failure to meet the overall objectives of the plan or to make adequate
progress towards meeting these objectives could result in the Company losing its
listing on AMEX.
Management continues to expect operating revenues will grow during Fiscal
2005 as employment begins to rise in the United States and the Company is able
to convert employers to using ORALscreen, Avitar's oral fluid drug testing
products. In order to achieve the revenue growth, the Company has begun to
significantly increase its direct sales force and implement an expanded,
targeted marketing program. ORALscreen, as an instant on-site diagnostic test,
is part of the fastest growing segment of the diagnostic test market.
Inventories are currently at appropriate levels for anticipated sales volumes
and the Company, with its production capacity and the arrangements with its
current contract manufacturing sources, expects to be able to maintain
inventories at optimal levels. Based on current sales, expense 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 future 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, or that any or
all of the net proceeds sought thereby will be obtained. Furthermore, there can
be no assurance that the Company will have sufficient resources to achieve the
anticipated growth. 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
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 at the Company and will continue to
actively seek the needed additional capital.
As a result of the Company's recurring losses from operations and working
capital deficit, the report of its independent registered public accounting firm
relating to the financial statements for Fiscal 2004 contains an explanatory
paragraph expressing 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 of the date of such report (December 8, 2004 except
for Note 17 which is as of December 17, 2004). 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 December 2004, the Financial Accounting Standards Board ("FASB") issued
a Statement, "Share-Based Payments", that addresses the accounting for
share-based payment transactions in which an enterprise receives employee
services in exchange for (a) equity instruments of the enterprise or (b)
liabilities that are based on the fair value of the enterprise's equity
instruments or that may be settled by the issuance of such equity instruments.
The statement eliminates the ability to account for share-based compensation
transactions using APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and generally requires that such transactions be accounted for using
a fair value-based method. As discussed in Note 4, the Company currently
accounts for share-based compensation transactions using APB Opinion No. 25. The
adoption of this statement is effective for fiscal years beginning after
December 15, 2005 and will have an impact on the Company's consolidated
financial position and results of operations, the level of which the Company is
currently assessing.
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.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
As discussed in of our consolidated financial statements, we have restated
our statements of stockholders' deficit as of September 30, 2004 and for the six
months ended March 31, 2005, the balance sheet as of March 31, 2005, the
statements of operations for the quarter and six months ended March 31, 2005 and
2004 and the statements of cash flow for the six months ended March 31, 2005 and
2004 to correctly apply GAAP related to our issuance of certain securities.
Our management, including our chief executive officer and chief financial
officer, have carried out an evaluation of the effectiveness of our disclosure
controls and procedures as of March 31, 2005, pursuant to Exchange Act Rules
13a-15(e) and 15(d)-15(e). As part of its evaluation, management considered the
facts and circumstances relating to the restatement described above. Based upon
that evaluation, our chief executive officer and chief financial officer have
concluded that as of such date, our disclosure controls and procedures in place
were not operating effectively.
(b) Changes in Internal Control Over Financial
Reporting During the period covered by this report, there have been no
changes in our internal control over financial reporting that have materially
affected or are reasonably likely to materially affect our internal control over
financial reporting.
PART II OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the quarter ended March 31, 2005 the Company issued to holders of
the Series A Preferred Stock 14,652,345 shares of the Company's common stock
upon the conversion of 1,250 shares of their preferred stock. Also during the
quarter ended March 31, 2005, the Company issued 299,445 shares of the Company's
common stock as payment for dividends on the Series A Preferred Stock and
1,075,732 shares of the Company's common stock as payment of investor and
placement agent fees pursuant to a financing agreement. The exemption for
registration of these securities is based upon Section 4(2) of the Securities
Act because the issuances were made to accredited investors in private
placements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Document
(A) 4.1 Securities Purchase Agreement dated as of April 14, 2005 between the
Company and Cornell Capital Partners, LP
(A) 4.2 Registration Rights Agreement dated as of April 14, 2005 between the
Company and Cornell Capital Partners, LP
(A) 4.3 Termination Agreement dated as of March 31, 2005 between the Company
and Cornell Capital Partners, LP
(A) 4.4 Certificate of Designations of the Series E Convertible Preferred Stock
(A) 4.5 Warrant
31.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Adopted Pursuant to Section 302 of the Sarbanes-Oxley Certification
Pursuant to 18 U.S.C. Section 1350, as Act of 2002
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(A) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Report on 8-K (Commission File No. 1-51695), as filed
on April 19, 2005, and incorporated herein by reference.
(b) Reports on Form 8-K:
Form 8-K, Items 1.01 and 9.01, dated February 2, 2005 regarding a Standby
Equity Distribution Agreement with Cornell Capital Partners, LP for the sale of
common stock.
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 10, 2006 /S/ Peter P. Phildius
-----------------------------------
Peter P. Phildius
Chairman and Chief
Executive Officer
(Principal Executive Officer)
Dated: February 10, 2006 /S/ J.C. Leatherman, Jr.
---------------------------
J.C. Leatherman, Jr.
Chief Financial Officer
(Principal Accounting and
Financial Officer)
EXHIBIT INDEX
Exhibit No. Document
(A) 4.1 Securities Purchase Agreement dated as of April 14, 2005 between the
Company and Cornell Capital Partners, LP
(A) 4.2 Registration Rights Agreement dated as of April 14, 2005 between the
Company and Cornell Capital Partners, LP
(A) 4.3 Termination Agreement dated as of March 31, 2005 between the Company
and Cornell Capital Partners, LP
(A) 4.4 Certificate of Designations of the Series E Convertible Preferred Stock
(A) 4.5 Warrant
31.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Adopted Pursuant to Section 302 of the Sarbanes-Oxley Certification
Pursuant to 18 U.S.C. Section 1350, as Act of 2002
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(A) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Report on 8-K (Commission File No. 1-51695), as filed
on April 19, 2005, and incorporated herein by reference.