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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, 1996.
[ ] Transition report pursuant to Section 13 or 15(d) of the Exchange act for
the transition period from to
Commission File Number: 0-20316
Avitar, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 06-1174053
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 Thorpe Avenue, Wallingford, Connecticut 06492
(Address of principal executive offices) (Zip Code)
(203)265-3594
(Issuer's telephone number)
556 Washington Avenue, North Haven, CT 06473
(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: 6, 966,884
AS OF AUGUST 12, 1996
Transitional Small Business Disclosure Format
(Check One): [ ] Yes ; [x] No
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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 8-10
Item 2 Management's Discussion and Analysis or Plan of Operation 11-14
PART II: OTHER INFORMATION 15
Item 5 Other Information 16
Item 6 Exhibits and Reports on Form 8-K 16
SIGNATURES 17
EXHIBIT INDEX 18
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PART I FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
Avitar, Inc. and Subsidiaries
Consolidated Balance Sheet
June 30, 1996
(Unaudited)
- ------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 918,856
Accounts receivable, net 868,170
Inventories 227,617
Prepaid expenses and other 52,737
------------
Total current assets 2,067,380
PROPERTY AND EQUIPMENT, net 417,439
GOODWILL , net of accumulated amortization of $626,799 4,970,316
OTHER ASSETS 39,671
------------
Total $ 7,494,806
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable (including $275,000 to an affiliate) $ 487,502
Accounts payable 641,130
Accrued expenses 515,622
Current portion of long-term debt 151,897
------------
Total current liabilities 1,796,151
LONG TERM DEBT, LESS CURRENT PORTION 301,867
------------
Total liabilities 2,098,018
------------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Series A convertible preferred stock, $.01 par value; authorized
5,000,000 shares; 1,275,261 shares issued and outstanding 12,752
Common Stock, $.01 par value; authorized 25,000,000 shares;
6,966,884 shares issued and outstanding 69,669
Additional paid-in capital 12,947,992
Accumulated deficit (7,633,625)
------------
Total stockholders' equity 5,396,788
------------
Total $ 7,494,806
============
See accompanying notes to consolidated financial statements.
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Avitar, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
- -------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, NINE MONTHS ENDED JUNE 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
REVENUES:
Sales $ 1,098,887 $ 1,108,585 $ 3,591,472 $ 2,094,137
Other revenue 492,819 -- 492,819 --
----------- ----------- ----------- -----------
Total revenues 1,591,706 1,108,585 4,084,291 2,094,137
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Direct cost of revenues 682,198 449,604 2,252,175 700,551
Selling, general and administrative expenses 596,312 439,439 1,753,774 1,059,802
Research and development expenses 91,238 539,672 260,778 539,672
Amortization of goodwill 139,926 70,502 419,782 70,502
----------- ----------- ----------- -----------
Total operating expenses 1,509,674 1,499,217 4,686,509 2,370,527
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 82,032 (390,632) (602,218) (276,390)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest income -- 84,810 137 238,361
Interest expense and financing costs (32,506) (63,546) (96,652) (116,772)
Other income, net -- 2,943 --
----------- ----------- ----------- -----------
Total other income (expense) (32,506) 21,264 (93,572) 121,589
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 49,526 (369,368) (695,790) (154,801)
PROVISION FOR INCOME TAXES 8,456 4,500 13,500 12,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 41,070 ($ 373,868) ($ 709,290) ($ 166,801)
=========== =========== =========== ===========
INCOME (LOSS) PER SHARE $ 0.01 ($ 0.08) ($ 0.13) ($ 0.03)
=========== =========== =========== ===========
WEIGHTED AVERAGE
NUMBER OF COMMON SHARES OUTSTANDING 5,785,495 4,997,320 5,379,828 4,848,328
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
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Avitar, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
Nine Months Ended June 30, 1996
(Unaudited)
- --------------------------------------------------------------------------------
Preferred Stock Common Stock
------------------------ -----------------------
Additional Accumulated
Shares Amount Shares Amount paid-in capital deficit
- -------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1995 1,097,981 $ 10,980 5,177,450 $ 51,775 $11,367,825 ($6,924,335)
Sale of Preferred Stock 50,000 500 49,500
Sale of Common Stock and Warrants 1,774,434 $ 17,774 1,421,236
Issuance of Common Stock for Services 12,000 $ 120 12,555
Conversion of Notes Payable 127,280 1,272 126,008
Placement fees for Conversion ($ 29,222)
of Notes Payable and Sale
of Preferred Stock
Net Loss (709,290)
========= =========== ========= =========== =========== ===========
Balance June 30, 1996 1,275,261 $ 12,752 6,966,884 $ 69,669 $12,947,992 ($7,663,625)
========= =========== ========= =========== =========== ===========
See accompanying notes to consolidated financial statements.
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Avitar, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
- --------------------------------------------------------------------------------
NINE MONTHS ENDED JUNE 30,
---------------------------
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($ 709,290) ($ 166,801)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 144,423 31,285
Amortization of goodwill 419,782 70,502
Interest on advances to affiliate -- (236,601)
Provision (recovery) for losses on accounts receivable 5,297 (12,944)
Amortization of debt discount -- 49,214
Non-cash charges for consulting services 12,675 12,500
Non-cash charges for research and development -- 503,943
Changes in operating assets and liabilities:
Increase in accounts receivable (237,778) (233,481)
Decrease (increase) in prepaid expenses and other current assets 32,876 8,959
Increase in other assets (63,668) (1,500)
Increase (decrease) in accounts payable, accrued
expenses and customer advances (278,877) 43,406
----------- -----------
Net cash provided by (used in) operating activities (674,560) 68,482
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to (investment in) affiliate -- (1,056,464)
Purchases of property and equipment (44,069) (7,000)
Increase in deferred acquisition costs -- (259,410)
----------- -----------
Net cash used in investing activities (44,069) (1,322,874)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and warrants 216,964 968,473
Sales of preferred stock, common stock and warrants, net 1,459,878 100,000
Repayment of long-term debt (61,344) (9,917)
Repayment of notes payable (122,294) --
Other (11,128) --
----------- -----------
Net cash provided by financing activities 1,482,076 1,058,556
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS 763,447 (195,836)
CASH AND CASH EQUIVALENTS, beginning of the period 155,409 361,499
----------- -----------
CASH AND CASH EQUIVALENTS, end of the period $ 918,856 $ 165,663
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during period:
Income taxes $ 3,567 $ 6,383
Interest 79,057 --
See accompanying notes to consolidated financial statements.
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AVITAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
1. BASIS OF PRESENTATION
Avitar, Inc. ("Avitar" or the "Company"), through its wholly-owned
subsidiary, Managed Health Benefits Corporation ("MHB"), is in the business
of providing cost containment services to assist employers and other
third-party payers in controlling costs of group medical, workers'
compensation and disability benefits. MHB has targeted certain economically
significant benefit areas where it believes health benefit payors have
difficulty in controlling costs: mental health, hospitalization and
occupational health and safety. Most of MHB's customers are located or
headquartered in the United States.
As discussed in Note 2, in May 1995, the Company acquired Avitar, Inc.
(which changed its name to Avitar Technologies, Inc. ("ATI")). ATI designs,
develops, manufactures and markets health care products and services. ATI
sells its products and services primarily to large medical supply
companies.
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 nine month periods ended June
30, 1996 are not necessarily indicative of the results that may be expected
for the full fiscal year ending September 30, 1996. 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, 1995.
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 significant recurring losses from
operations and has a working capital as of June 30, 1996 of only $271,229.
The Company raised net proceeds aggregating $1,500,000 during the years
ended September 30, 1995 and 1994 from the sale of common stock, a total of
$1,240,000 during the years ended September 30, 1995 and 1994 from the
issuance of notes, of which $1,040,000 was converted to equity at September
30, 1995, and $50,000 from the sale of Series A Convertible Preferred Stock
during the three months ended December 31, 1995. The Company was successful
in obtaining debt financing from a bank (see Note 4) and converting
$125,000 of the notes described above into equity (see Note 4). In
addition, the Company raised net proceeds aggregating approximately
$1,440,000 during May and June 1996 from the sale of common stock. In April
1996, the Company and Convatec , a division of E.R. Squibb and Sons, Inc.
("Convatec"), determined that it was necessary to modify and clairfy their
rights and obligations under the Supply and the License Agreement in light
of intervening business developments, facts, and circumstances. The Company
had entered into these agreements on June 30, 1994 with Calgon Vestal
Laboratories, Inc., now owned by
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Convatec. In consideration for the amendments to the agreements, Convatec
immediately compensated the Company $250,000, all of which was recognized
as income during the quarter ended June 30, 1996. In addition, the amended
agreements contain certain provisions that eliminate the Company's
obligation to repay any of the $425,000 received from Convatec in July 1994
as a licensing fee (the balance of which was also recognized as income
during the quarter ended June 30, 1996). Based upon current revenues,
expenses and cash flow projections, the Company believes the current level
of working capital, anticipated cash flow from operations, and net proceeds
from the financings noted above will be sufficient to finance the Company's
operating needs until the combined operations achieve profitability. There
can be no assurances that forecasted results will be achieved. 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. ACQUISITION
The Company (formerly Managed Health Benefits Corporation) acquired Avitar,
Inc. on May 19, 1995 though a merger transaction. Pursuant to this merger,
the Company changed its name to Avitar, Inc. The Company is now a holding
company with two operating subsidiaries, MHB and ATI (see Note 1). The
results of operations for ATI have been included for the three and nine
months ended June 30, 1996.
Pro forma operating results, as if the acquisition had occurred October 1,
1994 follow. These pro forma results reflect (i) amortization of goodwill
from October 1, 1994, and (ii) elimination of interest income (expense) on
the Company's advances to ATI.
Three Months Nine Months
Ended June 30, 1995 Ended June 30, 1995
------------------- -------------------
Revenues $ 1,355,734 $ 3,238,286
Net Loss (856,582) (2,060,207)
Net Loss per Share (.17) (.40)
3. INVENTORIES
At June 30, 1996, inventories consist of the following:
Raw Materials $101,356
Work-in-Process 22,668
Finished Goods 103,593
--------
Total $227,617
========
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4. NOTES PAYABLE
In January 1996, the Company obtained a $1,250,000 credit line from Silicon
Valley Financial Services, a division of Silicon Valley Bank. Under the
terms of the agreement, Silicon Valley Financial Services will advance
funds against 80% of the Company's qualified accounts receivable for an
administrative fee of .25 to .5% and interest at the rate of 2% per month
of the outstanding loan balance. As of June 30, 1996, the Company had
borrowed approximately $195,000 against its line of credit. The agreement
also provides for the interest rate to decrease to a rate not lower than
1.25% per month as the revenues of the Company grow and meet
pre-established levels.
In November 1995 and February 1996, the Company repaid certain notes
payable totaling $75,000 and interest accrued thereon totaling $6,208.
During March 1996, certain debt holders agreed to exchange their debt
totaling $125,000, and accrued interest thereon of $2,280, for 127,280
shares of Series A Convertible Preferred Stock. Each share of Series A
Convertible Preferred Stock entitles its holder to convert it at any time
into three shares of Common Stock and receive dividends in an amount equal
to 110% of any dividends paid on the Company's Common Stock into which each
share is convertible.
5. MAJOR CUSTOMERS
Customers in excess of 10% of total sales are:
Three Months Nine Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
Customer A* $ 368,000 -- $1,206,000 --
Customer B 123,000 $ 213,000 379,000 $ 625,000
Customer C 158,000 391,000 366,000 790,000
*Represents ATI customer and sales
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion and analysis includes the operations of ATI only for
the three and nine months ended June 30, 1996 and should be read in conjunction
with the Company's consolidated financial statements and the notes thereto
appearing elsewhere in this report.
RESULTS OF OPERATIONS
REVENUES
Sales for the three months ended June 30, 1996 decreased $9,698, or
approximately 1%, to $1,098,887 from $1,108,585 for the corresponding
period of the prior year. For the nine months ended June 30, 1996, sales
increased $1,497,335, or approximately 72%, to $3,591,472 from $2,094,137
for the nine months ended June 30, 1995. In addition to the increase in
revenue from the sales of Medgate OHS&E Software of approximately $74,000
for the nine months ended June 30, 1996, the change reflects additional
revenues from the operations of ATI for the three and nine months ended
June 30, 1996, of $132,510 and $1,563,922; respectively; offset by
decreases in sales of psychiatric review services of $216,208 and $140,587
for the three and nine months ended June 30, 1996 , respectively.
Other revenues of $492,819 for the three and nine months ended June 30,1996
reflect income recognized in connection with the amendments to ATI's
License and Supply Agreements with Convatec.
OPERATING EXPENSES
For the three months ended June 30, 1996, the direct costs of sales were
$682,198, or approximately 62% of sales, as compared to $449,604, or
approximately 41% of sales, for the three months ended June 30, 1995. The
direct costs of sales for the nine months ended June 30, 1996 were
$2,252,175, or approximately 63% of sales as compared to $700,551, or 33%
of sales, for the corresponding period of the prior year. Excluding the
costs associated with the sales of ATI for the three and nine months ended
June 30, 1996, the direct cost of sales for MHB amounted to $144,161,
approximately 23% of sales, for the three months ended June 30, 1996 and
$449,333, approximately 27% of sales, for the nine months ended June 30,
1996. For the three and nine months ended June 30, 1995, the direct costs
of sales for MHB were $140,875, approximately 19% of sales, and $391,822,
approximately 22% of sales, respectively. The higher ratio of direct costs
to sales for MHB during the three and six months ended June 30, 1996 was
primarily related to the decrease in MHB sales described above.
Sales, general and administrative expenses for the three months ended June
30, 1996 increased $156,873, or approximately 36%, to $596,312 from
$439,439 for the corresponding period of the prior year. For the nine
months ended June 30, 1996, sales, general and administrative expenses
increased $639,972, or approximately 65%, to $1,753,774 from $1,059,802 for
the nine months ended June 30, 1995. The increase for the three months
ended June 30, 1996 resulted mainly from the additional operating expenses
of ATI of $182,027. For the nine-month period ended June 30, 1996, the
increase was primarily attributable to the additional operating expenses of
ATI
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of $758,281, offset in part by a reduction of approximately $33,000 of
administrative expenses at MHB.
Research and development expenses for the three months ended June 30, 1996
amounted to $91,238 compared to $539,672 for corresponding period of the
prior year. For the nine months ended June 30, 1996, research and
development expenses were $260,778 versus $539,672 for the nine months
ended June 30, 1995. The decrease for the three and nine-month periods
ended June 30, 1996 was attributable to the non-recurring adjustment for
research and development expense of $503,943 that was recorded during the
quarter ended June 30, 1995.
Amortization of goodwill for the three and nine months ended June 30, 1996
was $139,1926 and $419,782, respectively. For the three and nine months
ended June 30, 1995, amortization of goodwill amounted to $70,502 which
covered the period from the date of the acquisition of ATI, May 19, 1995.
OTHER INCOME AND EXPENSE
No interest income was earned for the three months ended June 30, 1996 as
compared to $84,720 for the three months ended June 30, 1995. For the nine
months ended June 30, 1996, interest income amounted to $137 as compared to
$238,361 for the corresponding period of the prior year. The change for the
three and nine months ended June 30, 1996 is related primarily to the
interest charges on loans made to ATI prior to the acquisition. Since these
interest charges were considered not to be collectible, the amount included
in the interim financial statements for the three and nine months ended
June 30, 1995 was reversed in the fourth quarter of the fiscal year ended
September 30, 1995.
Interest expenses and financing costs were $32,506 for the three months
ended June 30, 1996 as compared to $63,546 for the corresponding period of
the prior year. For the nine months ended June 30, 1996, interest expenses
and financing costs were $96,652 as compared to $116,772 for the nine
months ended June 30, 1995. These changes resulted from interest expenses
of ATI for the three and nine months ended June 30, 1996 of approximately
$19,000 and $66,000, respectively, offset in part by a reduction in
interest expense on MHB's bridge loans for the three and nine months ended
June 30, 1996 of $50,000 and $86,000, respectively.
NET INCOME (LOSS)
Primarily as a result of the factors described above, the Company had net
income of $41,070 ($0.01 per share) for the three months ended June 30,
1996, as compared to a net loss of $373,868 ($0.08 per share) for the three
months ended June 30, 1995. For the nine months ended June 30, 1996, the
net loss was $709,290 ($0.13 per share) versus a net loss of $166,801
($0.03 per share) for the corresponding period of the prior year.
FINANCIAL CONDITION AND LIQUIDITY
At June 30, 1996 and September 30, 1995, the Company had working capital
(deficiency) of $271,229 and ($800,583), respectively and cash and cash
equivalents of $918,856 and $155,409, respectively. Net cash used in
operating activities during the nine months ended June 30, 1996
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amounted to $674,560 resulting primarily from an operating loss of
$709,290, increases in accounts receivable of $237,778, decreases in
accounts payable, accrued expenses and customer advances of $278,877 and
increases in inventories and other assets of $63,668; partially offset by
depreciation and amortization of equipment and goodwill of $564,205 and
decreases in prepaid expenses of $32,876. Net cash provided by financing
and investing activities for the same period was $1,438,007 which included
proceeds from notes payable and sales of preferred stock, common stock, and
warrants of $1,676,572, repayment of long-term debt, notes payable and
other of $194,766, and purchase of equipment of $44,069.
During October 1995, the Company sold 50,000 shares of its Series A
Convertible Preferred Stock in a private placement for a total of $50,000.
In March 1996, certain debt holders agreed to exchange their debt totaling
$125,000, and accrued interest thereon of $2,280, for 127,280 shares of
Series A Convertible Preferred Stock. Each share of this Series A
Convertible Preferred Stock entitles its holder to convert it at any time
into three shares of the Company's Common Stock and receive dividends in an
amount equal to 110% of any dividends paid on the Company's Common Stock
into which each share is convertible.
In January 1996, the Company obtained a $1,250,000 credit line from Silicon
Valley Financial Services, a division of Silicon Valley Bank. Under the
terms of the agreement, Silicon Valley Financial Services will advance
funds against 80% of the Company's qualified accounts receivable for an
administrative fee of .25 to .5% and interest at the rate of 2% per month
of the outstanding loan balance. As of June 30, 1996, the Company had
borrowed approximately $195,000 against its line of credit. The agreement
also provides for the interest rate to decrease to a rate not lower than
1.25% per month as the revenues of the Company grow and meet
pre-established levels.
During April 1996, the Company and Convatec, a division of E.R. Squibb &
Sons, Inc. ("Convatec") determined that it was necessary to modify and
clarify their rights and obligations under the Supply Agreement in light of
intervening business developments, facts, and circumstances. The Company
entered into these agreements on June 30, 1994 with Calgon Vestal
Laboratories, Inc., now owned by Convatec. In consideration for the
amendments to the agreements, Convatec immediately compensated the Company
$250,000, all of which was recognized as income during the quarter ending
June 30, 1996. In addition, the amended agreements contain termination
provisions that eliminate the Company's obligation to repay any of the
$425,000 received from Convatec in July 1994 as a licensing fee (the
balance of which was recorded as income during the quarter ended June 30,
1996).
In April 1996, the Company negotiated a settlement with an investment firm
that assisted the Company in the placement of its common stock under
Regulation S in 1994. Under the settlement, the Company received
approximately $89,000 from the exercise of the warrants granted to this
firm. In May and June 1996, the Company completed Regulation S placements
of 1,472,144 shares of its common stock to offshore investors resulting in
net proceeds of approximately $1,250,000. In addition, the Company sold
114,116 shares of its common stock during May and June 1996 for an
aggregate amount of $100,000.
For the balance of fiscal year 1996, the Company's cash requirements are
expected to include primarily the funding of any operating losses, the
payment of accrued professional fees and expenses incurred in relation to
the acquisition of ATI, and the repayment of the outstanding
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amount owed by ATI to PK&S ($275,000 principal amount plus all the accrued
interest thereof) if and to the extent that the Company has sufficient
funds available for such payment.
Operating revenues of the Company increased significantly during fiscal
year 1995 and are expected to continue increasing during fiscal year 1996.
Based on current sales, expense and cash flow projections, the Company
believes that the current level of cash on hand and the anticipated cash
flow from operations would be sufficient to fund operations until the
combined operations achieve profitability. Although the Company had
expected its combined operations to achieve profitability and generate
positive cash flow by the third quarter of calendar year 1996, the lower
than anticipated level of sales of products and services at ATI and MHB
will prevent the company from reaching this level of performance until at
least the forth calendar quarter of 1996. The longer-term cash requirements
of the Company to fund operating activities, purchase capital equipment and
possibly expand the business are expected to be met by the anticipated cash
flow from operations. 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 any needed additional capital on favorable terms.
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 the fiscal year ended September
30, 1995 contains an explanatory paragraph stating substantial doubt about
the Company's ability to continue as a going concern. Such report also
states that the ultimate outcome of this matter could not be determined as
of the date of such report (November 17, 1995). The Company's plans to
address the situation are presented above. However, there are no assurances
that these endeavors will be successful or sufficient.
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PART II OTHER INFORMATION
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ITEM 2 CHANGES IN SECURITIES
On June 12, 1996, the Expiration Date of the Redeemable Warrants of the Company
(AVITW-SmallCap) was extended from August 10,1996 to November 30, 1996.
Accordingly, holders may exercise such Redeemable Warrants until November 30,
1996 subject to the terms thereof.
ITEM 5. OTHER INFORMATION
The Company presently has 2,733,219 redeemable warrants outstanding. Each
redeemable warrant is estimated to enable its holder to purchase 3.57 (subject
to further adjustment) shares of the Company's common stock at an exercise price
of $1.96 (subject to further adjustment) per share any time until November 30,
1996 unless earlier redeemed by the Company. The closing bid price of the
Company's common stock on August 5, 1996 was $0.94 per share.
A registration statement on Form S-3 covering the shares underlying the
Redeemable Warrants and certain other warrants was filed with the Securities and
Exchange Commission on July 31, 1996 and became effective on August 7, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Document
10.28 Form of Offshore Securities Subscription Agreement
between the Company and parties purchasing common
stock under Regulation S during May-June 1996.
10.29 Form of Subscription Agreement between the
Company and the parties purchasing common stock
during May-June, 1996.
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the Company during the
quarter covered by this Report on Form 10-QSB.
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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 12, 1996 /s/ Peter P. Phildius
--------------------------------
Peter P. Phildius
Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
Dated: August 12, 1996 /s/ J.C. Leatherman, Jr.
--------------------------------
J.C. Leatherman, Jr.
Controller and Chief
Financial and Accounting Officer
(Principal Accounting and
Financial Officer)
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EXHIBIT INDEX
Exhibit No. Document Page
- ----------- -------- ----
10.28 Form of Offshore Securities Subscription Agreement 19
between the Company and parties purchasing common
stock under Regulation S during May-June 1996.
10.29 Form of Subscription Agreement between the 29
Company and parties purchasing common stock during
May-June 1996.
27 Financial Data Schedule
18