Amendment to Annual Report — Small Business — Form 10-KSB
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10KSB/A — Amendment to Annual Report — Small Business
Document Table of Contents
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB/A
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2004
Commission file number: 1-15695
AVITAR, INC.
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(Name of small business issuer in its charter)
Delaware 06-1174053
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
65 Dan Road, Canton, MA 02021
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(Address of principal executive offices) (Zip code)
Issuer's telephone number: (781) 821-2440
Securities registered under Section 12(b) of the Exchange Act:
Title of Class Name of Exchange on Which Registered
Common Stock American Stock Exchange
Securities registered under Section 12(g) of the Exchange Act:
Title of Class
Class A Warrants
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. Yes X No
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained in this form, and no disclosure will be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $4,048,547
Page 1 of pages.
Exhibit Index is on page hereof.
The aggregate market value of the common equity held by non-affiliates of the
Registrant (assuming solely for purposes hereof that all directors and officers
of the Registrant are "affiliates") as of December 20, 2004: $14,943,399.
The approximate number of shares of Common Stock outstanding (including shares
held by affiliates of the Registrant) as of December 20, 2004: 139,155,798
Documents incorporated by reference: NONE
Transitional Small Business Disclosure Format (check one): Yes ; No X
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Introduction
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 fiscal year ended September 30, 2004 (" Fiscal 2004"), 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.
Products
Currently, the Company offers the following products, which utilize its
proprietary medical polyurethane foam technology:
Diagnostic Test Products and Drug Detection Services
The Company makes products and offers services for the diagnostic test
applications and contraband detection needs described below. These products
accounted for approximately 57% of the Company's revenue in Fiscal 2004 and
approximately 58% of the Company's revenue in Fiscal 2003.
Drugs of Abuse Point of Collection Tests . The Company's ORALscreen (R) and
ORALscreen DRUGOMETER(TM) are oral fluid-based, rapid on-site assay systems for
detecting drugs of abuse (heroin, cocaine, marijuana and methamphetamines). In
addition, Avitar offers ORALconfirm(TM), an oral fluid laboratory test to
confirm the results of ORALscreen tests, ORALscreen OSR(TM), an instrument that
automates the reading, recording, reporting and transmitting of results for the
ORALscreen tests and ORALadvantage(TM), which is a complete package geared to
small businesses that includes ORALscreen tests, a sample substance abuse
testing policy and on-site drug testing program implementation tools. The
National Institute of Drug Abuse has reported that 10% of workers in the United
States abuse drugs, resulting in an annual cost in excess of $110 billion to
employers. Currently, approximately $1.5 billion annually is spent in the United
States for drugs of abuse tests, the majority of which are for pre-employment
testing. Significant advantages exist for saliva to replace urine in many of the
drug tests and at the same time, to expand the market where current
infrastructure cost limitations prohibit the use of these much needed drug
tests. Use of the ORALscreen products will provide employers with the ability to
implement a random testing program that has been proven to be a more effective
tool for deterring the use of drugs by employees in the workplace. The primary
customers for these products are employers, schools, and military services.
Contraband Detection Services. The Company's highly trained dogs detect the
presence of contraband items in a variety of settings including schools, cruise
ships, warehouses and other commercial entities. Each dog is task specific,
alerting on only one odor (narcotics, explosives or firearms).
Foam Disposable Products
The Company produces medical-grade hydrophilic polyurethane foam
disposables fabricated for the applications described below. These products
accounted for approximately 43% of the Company's revenue in Fiscal 2004 and
approximately 42% of the Company's revenue in Fiscal 2003.
Wound Dressings. Avitar's Hydrasorb(R) ("Hydrasorb") wound dressing product
is a highly absorbent topical dressing for moderate to heavy exudating wounds.
These dressings have a unique construction that provide a moist wound healing
environment which promotes skin growth and closure. The Hydrasorb product is
marketed internationally by the Kendall Company ("Kendall"), by the Knoll Pharma
Division of Abbott Laboratories, Ltd. ("Knoll") and other specialty distributors
worldwide. In addition to the Hydrasorb line, the Company has custom developed
specialty wound dressings for the cardiac catheter lab market as well as the
orthopedic market.
Custom Foam Products. The Company continues to have applications for its
proprietary technologies in a variety of other medical/consumer markets. They
include the Illizarov Dressing used for dressing external bone fixators in
orthopedic procedures and a molded dental applicator for a consumer teeth
bleaching system and a device used by astronauts for relieving ear pressure
while in a pressurized space suit. Customers for these products include Smith
and Nephew, CCA Industries and NASA.
Development
The Company employs a product strategy that is based on conducting pure
research and development and when appropriate, forming partnerships with market
leading companies and recognized persons or entities in diagnostic testing and
foam products application areas. With this approach, proprietary products are
either developed with internal sources or co-developed through the generation
and development of product ideas either internally or through these strategic
partnerships. To any such partnership, Avitar contributes the proprietary foam
technology, the oral fluid processing expertise, the product design, development
and prototyping, and the start-up and commercial-scale manufacturing. The
ability of the Company to keep current on technology and purchase new equipment
in connection with development of new, improved products will be affected by its
existing and future need for, and the availability of, financing.
Products go through several stages of development. After each stage, the
Company will conduct studies to determine the effectiveness of each product.
Once a product is developed and the Company determines it may be commercially
viable, Avitar will obtain governmental approvals, if necessary, prior to
marketing the product. See "Government Regulation." There can be no assurance,
however, that such approvals will actually be obtained. The Company intends to
conduct marketing trials with any new product to determine the effectiveness of
the product. If such marketing trials prove to be successful and after the
product is ready for marketing, Avitar will begin selling the product. See
"Sales and Marketing" below.
Sales and Marketing
To sell its ORALscreen products, the Company relies on its sales force, its
strategic partners and a network of distributors that currently sell to the
drugs of abuse testing market. The Company intends to expand its sales and
marketing staff from its current level of nine (9) full-time employees to at
least sixteen (16) full-time employees and to continue to explore strategic
partnering arrangements with companies that have established distribution
channels such as significant diagnostic test and health care product companies
and employee related service organizations. Avitar anticipates that such
arrangements may involve the grant by Avitar of the exclusive or semi-exclusive
rights to sell specific products to specified market segments and/or in
particular geographic territories in exchange for a royalty, joint venture or
other financial interest. The Company generally has sold, and intends to
continue to sell, its wound dressing and custom foam products through large,
recognized distributors of dental and medical products and does not anticipate
that a large direct sales force will be required for these products. If the
Company is unable to establish satisfactory product distribution arrangements in
the manner described above, it will be required to devote substantial resources
to the expansion of its direct sales force. There can be no assurance that
Avitar would have the resources required for such an endeavor.
To introduce its products to targeted distributors and direct customers,
the Company participates in trade shows and conducts seminars for sales
personnel. Avitar also conducts user trials to support the marketing efforts of
its distribution partners.
The Company believes that these arrangements will be more effective in
promoting and distributing its products in view of Avitar's limited resources
and the extensive marketing networks of such distributors.
The Company's most significant distribution arrangements are summarized as
follows:
Oral Fluids Sampling and Processing Systems. In March 1996, the Company
signed a licensing agreement with Simplex Medical Systems, Inc. ("Simplex"),
which grants Avitar exclusive worldwide rights to manufacture and market
Simplex's patent-pending, state-of-the-art saliva collection device. This
device, which utilizes Avitar's proprietary foam technology, will be used to
collect saliva for diagnostic tests such as HIV, hepatitis, and a number of
other diseases and substances which formerly required blood as the test medium.
Under this licensing agreement, the Company must pay to Simplex certain
royalties on the sale of each licensed product.
Drugs of AbuseTest. In January 2001, Avitar entered into a strategic
partnership agreement with the Pinkerton Services Group ("PSG") of the Pinkerton
Corporation whereby Avitar granted PSG the right to distribute the Company's
ORALscreen product line and PSG granted Avitar the right to sell PSG's third
party administration services to Avitar customers. Under this arrangement, PSG
is required to offer only Avitar's ORALscreen as its oral fluid drug testing
products. In July 2001, this agreement with PSG was assigned to ChoicePoint,
Inc. ("ChoicePoint") upon the completion of its acquisition of PSG. ChoicePoint
is one of the largest third party administrators of employer drug testing
programs in the United States.
In October 2001, the Company entered into an agreement with Quest
Diagnostics, Inc. ("Quest"). Under this agreement, Avitar granted Quest the
right to distribute the Company's ORALscreen product line.
Wound Dressings. In December 1999, the Company entered into a Supply
Agreement with the Kendall Company for the distribution of its Hydrasorb(TM)
products in the United States beginning January 1, 2000. In August 2000, the
Company amended this Supply Agreement to permit Kendall to distribute the
Hydrasorb products internationally.
Since November 1993, the Company has maintained a distribution agreement
with Knoll (the "Knoll Agreement") pursuant to which Knoll was granted the right
to distribute HydrasorbTM products throughout Canada. The Knoll Agreement
provides that HydrasorbTM products are to be sold at agreed upon prices (subject
to annual inflation adjustments) and that certain minimum quantities are
maintained.
Custom Foam Products. Custom medical foam products (including the Illizarov
dressing and certain nasal and sinus products) are marketed and distributed (in
the United States and abroad) primarily by Smith & Nephew on a non-exclusive
basis pursuant to an oral agreement.
Manufacturing and Supply
The Company's only manufacturing facility is located in Canton,
Massachusetts and as of September 30, 2004, comprises approximately 37,000
square feet, of which 10,000 square feet are currently being used for
administrative and office space and 27,000 square feet are being used for
product manufacturing and warehousing.
Given the use of certain products in the diagnostic test, medical and
dental markets, the Company is required to conform to the Food and Drug
Administration ("FDA") Good Manufacturing Practice regulations, International
Standard Organization ("ISO") rules and various other statutory and regulatory
requirements applicable to the manufacture and sale of medical devices. Avitar
is subject to inspections by the FDA at all times. See "Government Regulation".
The Company does not have written agreements with most of its suppliers of
raw materials and laboratory supplies. While the Company purchases some product
components from single sources, most of the supplies used can be obtained from
more than one source. Avitar acquires the same key component for its customized
foam products and HydrasorbTM wound dressings from a single supplier. The
Company also purchases a main component of its ORALscreen products from one
source. Avitar's current suppliers of such key components are the only vendors
which presently meet Avitar's specifications for such components. The loss of
these suppliers would, at a minimum, require the Company to locate other
satisfactory vendors, which would result in a period of time during which
manufacturing and sales of products utilizing such components may be suspended
and could have a material adverse effect on Avitar's financial condition and
operations. Avitar believes that alternative sources could be found for such key
components and expects that the cost of such components from an alternative
source would be similar. The Company also believes that alternative sources of
supply are available for its remaining product components and that the loss of
any such supplier would not have a material adverse effect upon Avitar's
business.
Government Regulation
Avitar and many of its products are subject to regulation by the FDA and
the corresponding agencies of the states and foreign countries in which the
Company sells its products. Accordingly, the Company is required to comply with
the FDA's Current Good Manufacturing Practice (CGMP) requirements for medical
devices, ISO rules and similar other state and foreign country requirements
governing the manufacture, marketing, distribution, labeling, registration,
notification, clearance and/or pre-market approval of drugs, medical and dental
devices and cosmetics, as well as record keeping and reporting requirements
applicable to such products. Specifically, the CGMP requirements govern the
methods used in, and the facilities and controls used for, the design,
manufacture, packaging, labeling, storage, installation and servicing of all
finished medical devices intended for human use. These requirements are intended
to ensure that the finished devices will be safe and effective and otherwise in
compliance with the Federal Food, Drug and Cosmetic Act. Avitar's wound dressing
products have been classified as Class I devices for these regulations. The
Company believes that it is in compliance with all such requirements. In
addition, the Company is subject to inspections by the FDA at all times, and may
be subject to inspections by state and foreign agencies. If the FDA believes
that its legal requirements have not been fulfilled, it has extensive
enforcement powers, including the ability to initiate action to physically seize
products or to enjoin their manufacture and distribution, to require recalls of
certain types of products, and to impose or seek to impose civil or criminal
sanctions against individuals or companies violating applicable statutes.
In addition, there can be no assurance that the FDA or the U.S. Federal
Government will not enact further changes in the current rules and regulations
with respect to products, which Avitar already markets or may plan to market in
the future. If Avitar is unable to demonstrate compliance with such new or
modified requirements, sales of affected products may be significantly limited
or prohibited until and unless such requirements are met .
The laboratory and contraband detection services offered by the Company are
subject to licensing requirements of the states in which these services are
provided.
Competition
The Company believes that the principal competitive factors in Avitar's
markets are innovative product design, product quality, established strategic
customer relationships, name recognition, distribution and price. At least
twenty (20) companies of all sizes, including major diagnostic test, dental and
health care companies, are engaged in activities similar to those of Avitar.
Most of Avitar's competitors have substantially greater financial, marketing,
administrative and other resources and larger research and development staffs.
Although Avitar may not have the development resources of many of its
competitors, the Company believes its product design and development experience
allows it to compete favorably in providing innovative products and services in
Avitar's markets. Of the approximately five (5) instant oral fluid based drugs
of abuse testing products currently being offered, Avitar's ORALscreen
represents one of the most comprehensive, state-of-the-art test for drugs of
abuse currently being provided. Furthermore, the Company believes that its
Hydrasorb wound dressings, and custom foam products possess qualities with
significant advantages over competing products, including cost effectiveness. In
addition to the Company's national sales force, ChoicePoint, Quest and many
smaller, local companies are marketing and distributing the Company's ORALscreen
products. Kendall, Knoll and Medi are distributing the Company's HydrasorbTM
wound dressings. See "Products", "Sales and Marketing".
In addition, colleges, universities, governmental agencies and other public
and private research organizations will continue to conduct research and are
becoming more active in seeking patent protection and licensing arrangements to
collect royalties for use of technology that they have developed, some of which
may be directly competitive with that of Avitar. In addition, these institutions
compete with companies such as Avitar in recruiting highly qualified scientific
personnel.
The Company believes that its product markets are highly fragmented with
many different companies competing with regard to a specific product or product
category. As a result, Avitar's competition varies from product to product.
Avitar's primary competitors in the wound dressing market include Bristol Meyers
Squibb, Johnson & Johnson, Smith and Nephew, 3M and Acme United. In the drugs of
abuse test market, the largest competitors are Varian Instruments, Biosite
Diagnostics, Editek, Inc., Abbott Diagnostics, OraSure Technologies, Inc. and
American Biomedical .
Intellectual Property
Trade secrets, proprietary information and know-how are important to the
Company's scientific and commercial success. Avitar currently relies on a
combination of patents, trade secrets, trademark law and non-disclosure
agreements to establish and protect its proprietary rights in its products.
Avitar currently holds numerous United States patents, has applications pending
for additional patents and has licenses to use certain patents. In addition, the
Company has certain registered and other trademarks.
The Company believes that its products, trademarks and other proprietary
rights do not infringe upon the proprietary rights of third parties.
Product Liability; Insurance Coverage
The testing, marketing and sales of diagnostic test, medical and dental
products and services entail a high risk of product liability and professional
liability claims by consumers and others. Claims may be asserted against the
Company by end-users of any of Avitar's products. As of September 30, 2004, the
Company had product liability insurance coverage in the amount of $5,000,000 and
professional liability insurance coverage in the amount of $1,000,000 for each
incident and $3,000,000 in the aggregate. No claims had been asserted against
either coverage. Amounts payable pursuant to such coverage are subject to a
deductible on each occurrence ranging from $500 to $10,000 payable by Avitar, up
to an annual aggregate deductible payable by Avitar of $25,000, and certain
other coverage exclusions. This insurance will not cover liabilities caused by
events occurring prior to the time such policy was purchased by the Company or
liabilities caused by events occurring after such policy is terminated or for
claims made after 60 days following termination of the policy. Further, certain
distributors of diagnostic test, medical and dental products require minimum
product liability insurance coverage as a condition precedent to purchasing or
accepting products for distribution.
Employees
At September 30, 2004, the Company had 60 full-time employees, including 3
in research and development, 42 in manufacturing, supply, laboratory and direct
service operations, 8 in sales and marketing and 7 in administration. None of
the employees is subject to a collective bargaining agreement. The Company
believes its relationship with its employees to be satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 40,000 square feet of space that includes
37,000 square feet in Canton, Massachusetts for its manufacturing facility and
administrative offices until June 2005 and approximately 3,000 square feet in
Gainesville, Texas for the contraband detection service operation of BJR until
February 2006. The current annual rent is approximately $353,000 for the Canton
facility (excluding assessment for operating expenses) and $24,000 for the
Gainesville facility. All facilities are in satisfactory condition for their
purposes.
ITEM 3. LEGAL PROCEEDINGS
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the shareholders was held on September 28, 2004. All
members of the Board of Directors were elected by more than 65% of the total
shares outstanding and more than 97% of the shares voted. In addition, the
reappointment of BDO Seidman, LLP as auditors was approved and the tabulation of
votes for all matters were as follows:
[Enlarge/Download Table]
For Withheld Against Abstain
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Election of Directors 89,874,072 4,669,245 N/A N/A
Ratification and Approval of the
Issuance of the Maximum Number
of Shares of Common Stock Issued
or Issuable in connection with the
May 2004 Private Placement 24,557,307 N/A 3,568,811 248,892
Ratification and Approval of the
Issuance of the Maximum Number
of Shares of Common Stock Issued
or Issuable in connection with the
August 2004 Private Placement 24,610,807 N/A 3,527,741 236,462
Approval of the Issuance of the
Maximum Number of Shares of
Common Stock Issued or Issuable
in connection with the New Private
Placement 24,611,677 N/A 3,558,391 204,942
Approval of Amendment to Certificate
of Incorporation to effect an increase
of Authorized Shares of Common
from 200,000,000 to 300,000,000 90,627,140 N/A 3,847,976 68,201
Reappointment of Auditors 93,682,643 N/A 736,748 123,926
Part II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Price Data. Since March 6, 2000, the Company's Common Stock has been
traded on American Stock Exchange ("AMEX") under the symbol AVR. The table below
sets forth the high and low sales prices for the Company's Common Stock, as
quoted on AMEX for the periods indicated.
High Low
Fiscal 2003
First Quarter .45 .18
Second Quarter .29 .15
Third Quarter .26 .09
Fourth Quarter .26 .13
Fiscal 2004
First Quarter .32 .15
Second Quarter .37 .18
Third Quarter .24 .10
Fourth Quarter .14 .08
As of December 20, 2004 the last sales price for the Company's Common Stock
was $.13 per share.
Holders. The Company had approximately 350 owners of record and, it
believes, in excess of 9,000 beneficial owners of the Company Common Stock as of
December 24, 2004.
Dividends. Since its inception, the Company has not paid or declared any
cash dividends on its Common Stock. The Company intends to retain future
earnings, if any, that may be generated from its operations to help finance the
operations and expansion of the Company and accordingly does not plan, for the
reasonably foreseeable future, to pay cash dividends to holders of its Common
Stock. Any decisions as to the future payment of dividends will depend on the
earnings, if any, and financial position of the Company and such other factors
as its Board of Directors may deem relevant.
Securities authorized for issuance under equity compensation plans. See
Equity Compensation Plan Information in Item 11, Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters, below.
Issuances of securities without registration during the fourth quarter of
Fiscal 2004. During the quarter ended September 30, 2004 the Company issued to
holders of Series A Convertible Preferred Stock 13,713,371 shares of the
Company's common stock upon the conversion of their preferred stock. 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and the notes thereto appearing
elsewhere in this report.
Results of Operations
Revenues
Sales for the fiscal year ended September 30, 2004 ("Fiscal 2004")
decreased $549,478, or approximately 12%, to $4,048,547 from $4,598,025 for the
fiscal year ended September 30, 2003 ("Fiscal 2003"). The results for Fiscal
2004 primarily reflect the decrease in the volume of sales of its OralScreen(R)
of $351,000 and foam products of $188,000. The reduction for the ORALscreen
products resulted from the low level of employee hiring in the United States and
the impact of the decrease in sales staff that occurred as part of the expense
reductions described below under operating expenses. The change in revenue from
foam products was primarily due to a reduction in orders of a special wound
dressing product made specifically for one customer.
Operating Expenses
Costs of sales were approximately 67% of sales in Fiscal 2004 compared to
approximately 75% of sales for Fiscal 2003. The change for Fiscal 2004 reflects
the impact of the operating cost reduction program that management put in place
in the second half of Fiscal 2003 to deal with the severe capital constraints
faced by the Company at that time. During Fiscal 2004, the effect of this
program resulted in labor expense decreases of approximately $139,000 and
facility rent reductions of approximately $42,000. The improvement in cost of
sales also reflects the elimination of $187,000 in charges that took place in
Fiscal 2003 related to expired inventory and replacements of products in the
Company's inventory that were found to be defective. Under an August 2002
agreement with a supplier, the Company was required to purchase specified
amounts of the main components of its ORALscreen products (shelf life of nine
months) during the early part of Fiscal 2003. When the sales of the ORALscreen
products did not grow as anticipated by the Company during the remaining months
of Fiscal 2003, inventory expirations occurred that resulted in write-offs of
approximately $125,000.
Sales, general and administrative expenses for Fiscal 2004 decreased
$202,275, or approximately 7%, to $3,400,770 from $3,603,045 for Fiscal 2003.
The decrease for Fiscal 2004 primarily reflects the impact of labor expense
reductions of approximately $364,000, facility rent reductions of $30,000 and
other expense reductions of $212,000 resulting from the operating cost reduction
program described above and reductions in accrued royalty expenses of
approximately $242,000 due to management's revision of estimates of amounts due
to a former supplier under a product development agreement; offset in part by
increases in legal, exchange fees, accounting expenses, warranty and special
shareholder meeting expenses totaling approximately $335,000 and increases in
sales and marketing expenses of approximately $310,000. With respect to the
revision in accrued royalty expenses, 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. The
increase in legal expenses, exchange fees, accounting expenses and special
shareholder meeting expenses were a direct result of the security registrations,
additional listing of shares, and shareholder approvals necessitated by the
several capital financings that took place during Fiscal 2004. Under the
warranty provisions of the ORALscreen products sold to customers, the Company
will, during the shelf life of the product, replace any product that does not
perform in accordance with the product specifications listed in the product
insert provided such product has been stored properly and used in accordance
with standard operating instructions. In Fiscal 2004, warranty expense increased
by approximately $77,000 primarily as a result of unit cost adjustments that
needed to be made on replacement shipments. During the last four months of
Fiscal 2004, the Company began an expansion of its sales and marketing efforts
to take advantage of the revenue opportunity that exists for the ORALscreen
products. Consequently, the increases in sales and marketing expenses were
primarily related to the hiring of additional staff needed to undertake this
expansion and begin to replace sales and marketing resources that were
eliminated as part of the cost reduction program described above. Due to the
timing of adding the sales and marketing resources, revenues for Fiscal 2004
remained at the lower level and did not begin to grow until the fourth quarter
of Fiscal 2004. In order to achieve revenue growth, the Company will continue to
incur increased expenses to hire additional direct sales staff and expand
marketing programs beyond Fiscal 2004.
Research and development expenses for Fiscal 2004 amounted to $564,831
compared to $764,982 for Fiscal 2003. The decrease of $200,151, or approximately
26%, was primarily attributable to the lower staffing levels that were put in
place as part of the expense cost reduction program described above. The Company
must continue developing and enhancing its ORALscreen products and therefore,
will most likely incur increased expenses for research and development beyond
Fiscal 2004.
Other Income and Expense
Other income for Fiscal 2004 amounted to $4,508 as compared to other income
of $16,704 for the fiscal year ended September 30, 2003. The amount for Fiscal
2003 reflects income of $15,000 from the sale of excess equipment.
Interest expense and financing costs were $330,298 for Fiscal 2004 compared
to $1,747,503 incurred during Fiscal 2003. The reduction for Fiscal 2004
resulted primarily from the decrease in interest expense of $247,000 and
financing costs of 353,000 associated with short-term notes that matured in
December 2003,and long-term notes that were converted in August 2003 (see Notes
9 and 16 of the consolidated financial statements). Additionally, Fiscal 2003
interest expense included the beneficial conversion costs of $955,000 for these
long-term notes. These decreases were offset in part by non-cash interest
expense of approximately $66,000 associated with the loss on the extinguishment
of debt related to the issuance of preferred stock in May 2004 in connection
with the conversion of a long-term note of $1,250,000 with a maturity date of
August 2005 and the write-off of the remaining deferred financing costs and
original issue discount related to this long-term note of approximately $71,000.
Discontinued Operations
On December 16, 2003, the Company consummated the sale of the business and
net assets, excluding cash, of its USDTL subsidiary. In Fiscal 2004, USDTL had a
loss of $12,788 ($17,235 from disposal of USDTL offset in part by income from
two month of operations of $4,447) compared to a loss of $878,217 for Fiscal
2003. Fiscal 2003 included a loss on the disposal of USDTL of $895,000, which
was offset in part by income from operations of $16,783 (see Note 3 of the
consolidated financial statements).
Cumulative Effect of a Change in Accounting Principle
For the fiscal year ended September 30, 2003, the Company, in accordance
with its adoption of SFAS 142 on October 1, 2002, recorded a charge of $650,000
for the impairment of goodwill associated with the acquisition of USDTL in 1999.
See Note 6 of the consolidated financial statements for a complete description
of this adjustment to goodwill.
Net Loss
Primarily as a result of the factors described above, the Company had a net
loss of $2,968,760, $.05 per basic and diluted share, for Fiscal 2004 compared
to a net loss of $6,462,101, $.12 per basic and diluted share, for Fiscal 2003.
Financial Condition and Liquidity
At September 30, 2004, the Company had a working capital deficit of
$388,972 and cash and cash equivalents of $508,876. Our cash flows from
financing activities provided the primary source of funding during the year
ended September 30, 2004 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 year ended September 30, 2004:
September 30,
Sources (use) of cash flows 2004
Operating activities $(3,595,361)
Investing activities 340,534
Financing activities 2,632,784
Net decrease in cash and equivalents $( 622,043)
Operating Activities. The net loss of $2,968,760 (comprised of expenses
totaling $7,017,307 less revenues of $4,048,547) 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 and deferred rent, expenses and interest paid with common stock
and the loss related to the extinguishment of debt, the cash needed to finance
the net loss was $2,429,209. Working capital requirements necessitated the use
of $884,309 to pay aging accounts payable and reduce accrued expenses, $118,176
to finance an increase in accounts receivables resulting from higher customer
billings realized in September 2004, $98,925 to increase inventory levels to
meet the higher demand for our products experienced during the last quarter of
Fiscal 2004, $46,199 to cover prepayment of higher insurance premiums and
$20,250 of prepaid revenue that became actual revenue during the year. In
addition, a minor decrease in other assets reduced operating cash needs by
$1,707.
Investing and Financing Activities. Cash generated by investing activities
consisted of proceeds of $500,000 from the sale of the USDTL subsidiary; of
which $159,466 was used for additions to property, plant and equipment that
included a major tool used in the production of the ORALscreen products. To
fulfill the major financing requirements of the business, preferred stock,
common stock and warrants (as described below) were sold and generated
$2,800,406; of which $151,512 was used to repay various short-term and long term
notes payable. In addition, $16,110 was used to pay dividends for the 8%
Connvertible Preferred Stock
As indicated in the Results of Operations above, the Company sold the net
assets, excluding cash, and the business of its USDTL subsidiary in December
2003. From this sale, the Company received net proceeds of approximately
$500,000. In addition, under the terms of the sale, the Company expects to
receive an additional $500,000 in the future, less amounts for the purchase of
services by Avitar under a services and consulting agreement, based on
obligations of the purchaser of USDTL to pay the Company 10% of certain revenues
in excess of $1,500,000 annually beginning with the calendar year ending
December 31, 2004. The Company recorded the $500,000 received in the first
quarter of FY2004 and will recognize proceeds for the additional $500,000 when
they are received.
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. During
December 2004, the Company sold 1,285 shares of Series A Convertible Preferred
Stock and Warrants to purchase 600,000 shares of common stock for which it
received net proceeds of approximately $1,135,000. These shares of Series A
Convertible Preferred Stock, with face value of $1,285,000, are 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. In August 2004, the
Company sold 1,250 shares of Series A Convertible Preferred Stock and Warrants
to purchase 125,000 shares of common stock for which it received net proceeds of
approximately $1,061,000. These shares of Series A Convertible Preferred Stock,
with face value of $1,250,000, are convertible into common stock at the lesser
of $.09 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 $.095 per share. During May 2004, the Company sold 1,000 shares
of Series A Convertible Preferred Stock and Warrants to purchase 100,000 shares
of common stock for which it received net proceeds of approximately $815,000.
The Series A Convertible Preferred Stock, with a face value of $1,000,000, 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.
At September 30, 2004, 750 shares, with a face value of $750,000, had been
converted into 8,441,688 shares of common stock. The warrants issued in
connection with the sale of 2,250 shares of preferred stock and the conversion
feature resulted in a deemed dividend of $386,000 being recorded and included in
the earnings per share calculation for Fiscal 2004. In May 2004, the Company
converted a long-term note of $1,250,000 with a maturity date of August 2005
into 1,316 shares of Series A Convertible Redeemable Preferred Stock. The Series
A Convertible Redeemable Preferred Stock, with a face value of $1,316,000, 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. At September 30, 2004, 358 shares, with a face
value of $358,000, had been converted into 5,163,986 shares of common stock. The
conversion feature of these preferred shares resulted in a deemed dividend of
$329,000 being recorded and included in the earnings per share calculation for
Fiscal 2004. In addition, $66,000 of interest and financing charges for the loss
on extinguishment of long-term debt were recorded during the fiscal year ended
September 30, 2004. In March 2004, the Company, as part of the agreement
covering the preferred stock sold in September 2003, sold 1,000 shares of 6%
Convertible Preferred Stock and Warrants to purchase 4,629,630 shares of Common
Stock for which it received net proceeds of approximately $920,000. The 6%
Convertible Preferred Stock, with a face value of $1,000,000, is convertible
into Common Stock at $0.216 per share, subject to adjustments, and the Warrants
are exercisable at $0.135 per share. The warrants issued in connection with this
preferred stock and the conversion feature resulted in a deemed dividend of
$1,000,000 being recorded and included in the earnings per share calculation for
Fiscal 2004. The cash available at September 30, 2004, the proceeds from the
financing completed in December 2004 and anticipated customer receipts are
expected to be sufficient to fund the operations of the Company through March
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 approximately $8 million 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 will enable 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. Failure to meet the overall objectives of the plan or make
adequate progress towards meeting these objectives could result in the Company
losing its listing on AMEX.
Required payments for debt, capital leases and minimum rentals are as
follows:
[Enlarge/Download Table]
Fiscal Capital Operating Short- Long-
Year Leases Leases Term Debt Term Debt Total
-------------------------------------------------------------------------------------------
2005 $ - $288,690 $197,620 $ - $486,310
2006 - 10,000 - - 10,000
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Total minimum payments $ - $298,690 $197,620 $ - $496,310
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Operating revenues are expected to 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 will need 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 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 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 periods 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.
Critical Accounting Policies
The Company's significant accounting policies are listed in Note 2 to the
consolidated financial statements for the year ended September 30, 2004.
However, certain of its accounting policies require the application of
significant judgment by its management, and such judgments are reflected in the
amounts reported in the consolidated financial statements.The Company considers
its accounting policies with respect to revenue recognition, use of estimates,
long-lived assets and goodwill as the most critical to its results of operations
and financial condition.
Revenue Recognition
The Company recognizes revenue from product sales upon shipment and
delivery with delivery being made F.O.B. to the carrier. Revenue from the sales
of services are recognized in the period the services are provided. These
revenues are recognized provided that a purchase order has been received or a
contract has been executed, there are no uncertainties regarding customer
acceptance, the sales price is fixed or determinable and collection is deemed
probable. If uncertainties regarding customer acceptance exist, the Company
recognizes revenue when those uncertainties are resolved. Amounts collected or
billed prior to satisfying the above revenue recognition criteria are recorded
as deferred revenue.
The Company does not offer its customers or distributors the right to
return product once it has been delivered in accordance with the terms of sale.
Product returns, which must be authorized by the Company, occur mainly under the
warranties associated with the product. The Company maintains sufficient
reserves for warranty costs. Price discounts for products are reflected in the
amount billed to the customer at the time of delivery. Rebates and payments have
not been material and are adequately covered by established allowances.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements, and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Long-Lived Assets and Goodwill
The Company evaluates its long-lived assets under the provisions of
Statement of Financial Accounting Standards No. 144 ("SFAS No. 144"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." SFAS No. 144 establishes accounting standards for the
impairment of long-lived assets and certain identifiable intangibles to be held
and used and for long-lived assets, and certain identifiable intangibles to be
disposed of.
The Company evaluates Goodwill in accordance with provisions of Statement
of Accounting Standards No. 142, "Goodwill and Other Intangible Assets", ("SFAS
No. 142"). SFAS No. 142 requires among other things, that companies no longer
amortize goodwill, but 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 guidelines in SFAS 142. SFAS 142 is required to be applied to
all goodwill and other intangible assets regardless of when those assets were
initially recognized.
In assessing the recoverability of its long-lived assets and goodwill,
Avitar must make assumptions in determining the fair value of the asset by
estimating future cash flows and considering other factors, including
significant changes in the manner or use of the assets, or negative industry
reports or economic conditions. If those estimates or their related assumptions
change in the future, the Company may be required to record impairment charges
for those assets.
As of September 30, 2004, the Company had a net carrying amount of goodwill
of approximately $238,000.
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 on the Company's accounting policies.
ITEM 7. FINANCIAL STATEMENTS
Reference is made to the Index on page F-1 of the Consolidated Financial
Statements, included herein.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 8A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
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 September 30, 2004, pursuant to Exchange Act Rules
13a-15(e) and 15(d)-15(e). 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 are adequate and effective to ensure
material information and other information requiring disclosure is identified
and communicated on a timely basis.
(b) Changes in Internal Control Over Financial Reporting During the fourth
quarter of 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 III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The directors and executive officers of the Company and their respective
ages and positions with the Company, as of September 30, 2004, along with
certain biographical information (based solely on information supplied by them),
are as follows:
Name Age Title
Peter P. Phildius 74 Chairman of the Board and Chief Executive
Officer/Director
Douglas W. Scott (1) 58 President and Chief Operating Officer/
Director
Douglas Lewis(3) 55 President of USDTL
Jay C. Leatherman Jr. 60 Vice President, Chief Financial Officer and
Secretary
James Groth (1)(2) 66 Director
Neil R. Gordon (1)(2) 56 Director
Charles R. McCarthy (1)(2) 66 Director
--------------------------------------------------------------------------------
1. Member of Audit Committee.
2. Member of Compensation Committee.
3. Service as Executive Officer was terminated on December 1, 2003 with the
sale of the USDTL subsidiary.
PETER P. PHILDIUS
Mr. Phildius has been Chairman of the Company's Board of Directors since
October 1990 and Chief Executive Officer since July 1996. He has been a general
partner in Phildius, Kenyon & Scott ("PK&S") since the firm's founding in 1985.
Prior to 1985, Mr. Phildius was an independent consultant and Chairman and
co-founder of Nutritional Management, Inc., a company that operates weight loss
clinics (1983 - 1985), President and Chief Operating Officer of Delmed, Inc., a
medical products company (1982 - 1983), President and Chief Operating Officer of
National Medical Care, Inc., a dialysis and medical products company (1979 -
1981), and held a variety of senior management positions with Baxter
Laboratories Inc. ("Baxter"), a hospital supply company and the predecessor of
Baxter Healthcare Corporation. During the last eight years of his 18 year career
at Baxter (1961 - 1979), Mr. Phildius was Group Vice President and President of
the Parenteral Division, President of the Artificial Organs Division and
President of the Fenwal Division.
DOUGLAS W. SCOTT
Mr. Scott has been the Chief Operating Officer since July 1996, was the
Chief Executive Officer from August 1989 until July 1996 and has been a director
of the Company since August 1989. Mr. Scott has been a general partner in PK&S
since its founding in 1985. Prior to 1985, Mr. Scott was Executive Vice
President of Nutritional Management, Inc. (1983 - 1985); Senior Vice President,
Operations of Delmed, Inc. (1982 - 1983); Vice President, Quality Assurance of
Frito-Lay, Inc., a consumer products company (1980 - 1982); and held several
senior positions at Baxter from 1970 - 1980. The last two of these senior
positions at Baxter were General Manager of the Vicra Division and General
Manager of Irish Operations. Mr. Scott is also a director of Candela
Corporation, a publicly-traded company in the business of manufacturing and
marketing medical lasers. Mr. Scott received an M.B.A. from Harvard Business
School.
JAY C. LEATHERMAN, JR.
Mr. Leatherman has served as the Company's Chief Financial Officer since
October 1992 and its Secretary since July 1994. He has over 20 years experience
in financial management in the health care field. Mr. Leatherman served as Vice
President and Chief Financial Officer of 3030 Park, Inc. and 3030 Park
Management Company from 1985 to 1992, responsible for financial, management
information services and business development functions for this continuing care
retirement complex and management services and consulting company. He served as
Director of Finance and Business Services for the Visiting Nurses Association of
New Haven, Inc. from 1977 to 1985. In addition, he served in a variety of
accounting and financial positions with Westinghouse Electric Corporation from
1969 to 1977. Mr. Leatherman has a Bachelor's Degree in Business Administration
from the University of Hawaii.
DOUGLAS LEWIS
From 1990 until the sale of the USDTL subsidiary on December 1, 2003, Mr.
Lewis was the President of USDTL and a Vice President of the Company. He has
over 25 years experience in the operation and management of laboratories, which
specialize in diagnostic testing for drugs of abuse. Mr. Lewis has held senior
level management and consulting positions with various hospital and private
laboratories in the Chicago, Illinois area. He received a Bachelor of Arts
Degree in Chemistry from Grinnell College and was a Pre-Doctoral Fellow at the
University of Illinois.
JAMES GROTH
Mr. Groth has served as a director of the Company since January 1990. Mr.
Groth has been President of Mountainside Corporation, a provider of corporate
sponsored functions, for over the past 15 years.
NEIL R. GORDON
Mr. Gordon has served as a director since June 1997. He has been President
of N.R. Gordon & Company, Inc., a company that provides a broad range of
financial consulting services, since 1995. From 1981 to 1995, he was associated
with Ekco Group, Inc. and served as its Treasurer from 1987 to 1995. Mr. Gordon
has also served as Director of Financing and Accounting for Empire of Carolina,
Inc. He received a Bachelor of Science Degree from Pennsylvania State
University.
CHARLES R. MCCARTHY, JR.
Mr. McCarthy has served as a director since February 1999. He has been
counsel in the Washington D.C. law firm, O'Connor & Hannan, since 1993. He is
currently a director of Interactive Technology.Com, Limited. Previously, Mr.
McCarthy was General Counsel to the National Association of Corporate Directors,
served as a trial attorney with the Securities and Exchange Commission, was Blue
Sky Securities Commissioner for the District of Columbia and was a law professor
teaching securities law topics and served as a Board member of and counsel to a
number of public companies over the last 30 years.
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Securities Exchange Act ("SEC") of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities to file reports of ownership
and changes in ownership with the Securities and Exchange Commission and AMEX.
Officers, directors and greater than ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
Based on its review of the copies of such forms received by it, the Company
believes that, during Fiscal 2004, all filing requirements applicable to its
officers, directors and greater than ten-percent shareholders were met.
Code of Ethics
Avitar has historically operated under informal ethical guidelines, under
which the Company's principal executive, financial and accounting officers, are
held accountable. In accordance with these guidelines, the Company has always
promoted honest, ethical and lawful conduct throughout the organization. The
Company adopted a written code of ethics as of June 2004.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth compensation
earned by or paid to the Chief Executive Officer, Chief Operating Officer and
other executive officers for Fiscal 2004 and, to the extent required by
applicable Commission rules, the preceding two fiscal years.
[Download Table]
Annual Compensation Long-Term
Name/Position Year Salary(1) Bonus Compensation Options
Peter P. Phildius 2004 $200,000 $0 0
(Chairman of the Board/ 2003(4) $171,661 $0 0
Chief Executive Officer) 2002 $200,000 $0 125,000(2)
Douglas W. Scott 2004 $180,000 $0 0
(President/ 2003(4) $154,500 $0 0
Chief Operating Officer) 2002 $180,000 $0 66,000(2)
Jay C. Leatherman, Jr. 2004 $140,000 $0 0
(Chief Financial Officer) 2003(4) $120,616 $0 0
2002 $131,230 $0 43,750(2)
Douglas Lewis 2004(3) $ - $0 0
(Vice President/President 2003 $126,000 $0 0
of USDTL) 2002 $126,000 $0 0
(1) Does not include amounts reimbursed for business-related expenses incurred
by the executive officers on behalf of the Company.
(2) Reflects additional stock options granted to executive officers by the
Company's Board of Directors in January 2002.
(3) Resigned on December 1, 2003 as part of the sale of USDTL and therefore did
not have compensation in excess of $100,000.
(4) Reflects temporary salary reductions in effect during Fiscal 2003.
Option Exercises in Last Fiscal Year and Year-Ended Option Values. No stock
options or stock appreciation rights were exercised by the executive officers in
Fiscal 2004.
As of September 30, 2004, the executive officers held options as follows,
none of which is in the money:
[Download Table]
Options Granted Value of Options
Total Shares Exercisable Exercisable Not Exercisable
Peter Phildius 2,178,000 1,396,800 $ 0 $ 0
Douglas Scott 1,398,000 988,800 0 0
Jay Leatherman 651,250 377,500 0 0
Employment Agreements. Messrs. Phildius and Scott are covered by Employment
Agreements (the "Employment Agreements") which commenced on May 19, 1995.
Pursuant to the Employment Agreements, if Messrs. Phildius and/or Scott are
terminated without "Cause" (as such term is defined in the Employment
Agreements) by the Company or if Messrs. Phildius and/or Scott terminate their
employment as a result of a breach by the Company of its obligations under such
Agreements, he will be entitled to receive his annual base salary ($200,000 for
Mr. Phildius and $180,000 for Mr. Scott) for a period of up to 18 months
following such termination. In addition, if there is a "Change of Control" of
the Company (as such term is defined in the Employment Agreements) and, within
two years following such "Change of Control", either of Messrs. Phildius or
Scott is terminated without cause by the Company or terminates his employment as
a result of a breach by the Company, such executive will be entitled to certain
payments and benefits, including the payment, in a lump sum, of an amount equal
to up to two times the sum of (i) the executive's annual base salary and (ii)
the executive's most recent annual bonus (if any). In addition, pursuant to the
Employment Agreements, which have a three-year term (subject to extension),
Messrs. Phildius and Scott are each entitled to annual bonus payments of up to
$150,000 if the Company achieves certain levels of pre-tax income (as such term
is defined in such Agreements) or alternative net income objectives established
by the Board of Directors.
In July 1999, the Company entered into employment agreements with two
executives of USDTL. The agreements provide for annual compensation aggregating
$226,000 per year, plus cost-of-living increases and bonuses or commissions, as
defined. The agreements terminated on December 1, 2003. Expenses under these
agreements totaled approximately $40,800 and $245,000 in 2004 and 2003,
respectively.
Director Compensation. During Fiscal 2003, the Company compensated its
non-management directors a $5,000 annual retainer, $1,000 for each board meeting
attended, $500 for each committee meeting attended and reasonable out-of-pocket
travel expenses if they must travel outside of the area to attend the meeting.
In addition, each non-management director was entitled to receive options to
purchase 30,000 shares of the Company's common stock for the year served as a
director. Such options will vest equally over a three-year period and will
expire 10 years from the date of grant.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of the Company's Common
Stock beneficially owned as of December 27, 2004 by (i) each person believed by
the Company to be the beneficial owner of more than 5% of the outstanding
Company Common Stock; (ii) each director of the Company; (iii) the Company Chief
Executive Officer and its four most highly compensated executive officers (other
than the Chief Executive Officer) who earn over $100,000 a year; and (iv) all
directors and executive officers of the Company as a group. Beneficial ownership
by the Company's stockholders has been determined in accordance with the rules
promulgated under Section 13(d) of the Securities Exchange Act of 1934, as
amended. All shares of the Company Common Stock are owned both of record and
beneficially, unless otherwise indicated.
Name and Address of Beneficial Owner (1) No. Owned %
Peter P. Phildius (2)(3)(9)(11) 4,797,515 4.7
Douglas W. Scott (2)(4)(9)(12) 3,436,896 3.7
Phildius, Kenyon & Scott("PK&S") (2)(9) 1,732,595 1.3
Jay C. Leatherman, Jr.(2)(5) 383,130 *
James Groth (2)(6)(13) 232,199 *
Neil R.Gordon (2)(7) 273,097 *
Charles R. McCarthy (2)(8) 305,155 *
David Brown (10) 12,113,874 8.7
Gryphon Master Fund, LP (14) 11,296,296 7.5
All directors and executive officers
as a group (3)(4)(5)(6)(7)(8)(9)(11)(12)(13) 7,695,397 5.4
* Indicates beneficial ownership of less than one (1%) percent.
(1) Information with respect to holders of more than five (5%) percent of the
outstanding shares of the Company's Common Stock was derived from, to the
extent available, Schedules 13D and the amendments thereto on file with the
Commission and the Company's records regarding Preferred Stock issuances.
(2) The business address of such persons, for the purpose hereof, is c/o
Avitar, Inc., 65 Dan Road, Canton, MA 02021.
(3) Includes 1,668,120 shares of the Company's Common Stock, and options to
purchase 1,396,800 shares of the Company's Common Stock. Also includes the
securities of the Company beneficially owned by PK&S as described below in
Note 9.
(4) Includes 715,501 shares of the Company's Common Stock, and options to
purchase 988,800 shares of the Company's Common Stock. Also includes the
securities of the Company beneficially owned by PK&S as described below in
Note 9.
(5) Includes 5,630 shares of the Company's Common Stock, and options to
purchase 377,500 shares of the Company's Common Stock.
(6) Includes 74,699 shares of the Company's Common Stock and options to
purchase 157,500 shares of the Company's Common Stock.
(7) Includes 90,597 shares of the Company's Common Stock, warrants to purchase
40,000 shares of the Company's Common Stock granted to such director under
a consulting agreement to provide services to the Company and options to
purchase 142,500 shares of the Company's Common Stock.
(8) Includes 172,655 shares of the Common Stock, and options to purchase
132,500 shares of the Common Stock.
(9) Represents ownership of 1,732,595 shares of the Company's Common Stock.
PK&S is a partnership of which Mr. Phildius and Mr. Scott are general
partners.
(10) The business address for such person is 4101 Evans Avenue, Fort Meyers, FL
33901. Represents 12,113,874 shares of the Company's Common Stock.
(11) Does not include 67,000 shares of the Common Stock owned by Mr. Phildius'
wife, all of which he disclaims beneficial ownership.
(12) Does not include 15,000 shares of the Common Stock owned by Mr. Scott's
children, all of which he disclaims beneficial ownership.
(13) Does not include 10,929 shares of the Company's Common Stock owned by a
trust established for Mr. Groth's children, all of which he disclaims
beneficial ownership.
(14) The business address for such entity is 500 Crescent Court, #270, Dallas,
TX 75201. Represents preferred stock convertible into 11,296,296 shares of
the Company's Common Stock.
Securities authorized for issuance under equity compensation plans.
[Enlarge/Download Table]
Equity Compensation Plan Information
As of September 30, 2004
-------------------------------------------------------------------------------------------------------------
Weighted-average
exercise price of
Number of securities to outstanding options, Number of securities
be issued upon exercise warrants and rights remaining available for
of outstanding options, future issuance under
warrants and rights equity compensation
plans (excluding
securities reflected in
column (a)
Plan category (a) (b) (c)
Equity compensation plans
approved by security
holders 722,800 $.49 127,200
Equity compensation plans
not approved by security
holders 7,779,250 $.42 7,111,577
Total 8,502,050 $.44 7,238,777
See information concerning compensation plans not approved by shareholders
in Consolidated Financial Statements, Note 13, Stockholders' Equity, Common
Stock Purchase Warrants and Stock Options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PK&S, a 2.9 % beneficial owner of the Company, provided consulting services
to the Company from September 1989 to May 1995. On May 28, 1992, the Company
entered into a written consulting agreement with PK&S, which reflected the
provisions of a previous oral agreement approved by the Company's Board of
Directors in October 1990. Pursuant to its arrangement with the Company, PK&S
provided the services of each of Messrs. Phildius and Scott to the Company for
approximately 20 hours per week.
On May 19, 1995, the Company's Consulting Agreement ended and was replaced
by the Employment Agreements with Messrs. Phildius and Scott (See "Employment
Agreements"). As requested by Messrs. Phildius and Scott and approved by the
Company's Board of Directors, the salary and benefits provided under the
Employment Agreements will be paid directly to PK&S. Under the terms of the
current employment agreements with Peter Phildius and Douglas Scott described
above, the Company pays their salaries and related expenses directly to PK&S.
The aggregate of salaries and reimbursement of expenses paid to PK&S by the
Company on behalf of Messrs. Phildius and Scott for fiscal years 2004 and 2003
totaled $420,103 and $364,989 respectively. At September 30, 2004, the Company's
accounts payable included $51,500 for PKS, which represented the amount due to
Messrs. Phildius and Scott for their fringe benefits for the period of September
1, 2002 to September 30, 2004. The amount for 2003 reflects the temporary salary
reductions in effect during Fiscal 2003.
ITEM 13. EXHIBITS
(a) Exhibits:
Exhibit No. Document
3.1 Complete Copy of Certificate of Incorporation.
(F) 3.2 Complete Copy of Bylaws
(G) 4.1 Certificate of Designations, Rights and Preferences of Series A
Redeemable Convertible Preferred Stock
(C) 4.2 Certificate of Designations, Rights and Preferences of Series B
Redeemable Convertible Preferred Stock
(D) 4.3 Certificate of Designations, Rights and Preferences of Series C
Redeemable Convertible Preferred Stock
(A) 10.1 Employment Agreement between MHB and Peter P. Phildius, dated as of
July 23, 1993.
(B) 10.2 Amended and Restated Employment Agreement between MHB and Peter P.
Phildius, dated as of August 15, 1994.
(D) 10.3 Form of Subscription Agreement between the Company and parties
purchasing preferred and common stock during Fiscal 2000, Fiscal 2001,
Fiscal 2002 and Fiscal 2003
(G) 10.4 Form of Subscription and Securities Purchase Agreement between the
Company and parties purchasing preferred stock and warrants during Fiscal
2004
14.1 Code of Ethics
21.1 Subsidiaries of the Company
23.1 Consent of BDO Seidman, LLP
31.1 Rule 13a-14(a)/15d-14(a) Certification
31.2 Rule 13a-14(a)/15d-14(a) Certification
32.1 Section 1350 Certification
32.2 Section 1350 Certification
-----------------------------------------------------------------
(A) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Company's Registration Statement on Form S-4 (Commission File No.
33-71666), and incorporated herein by reference.
(B) Previously filed with the Securities and Exchange Commission as an Exhibit
to MHB's Amendment No. 1 to the Registration Statement on Form S-4
(Commission File No. 33-71666), as filed on October 12, 1994, and
incorporated herein by reference.
(C) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Company's Annual Report for the fiscal year ended September 30, 1999
(Commission File No. 0-20316), and incorporated herein by reference.
(D) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Company's Annual Report for the fiscal year ended September 30, 2000
(Commission File No. 1-51695), and incorporated herein by reference.
(E) Omitted.
(F) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Company's Annual Report for the fiscal year ended September 30, 2002
(Commission File No. 1-51695) as amended, and incorporated herein by
reference.
(G) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Company's Current Report for the event occurred on May 25, 2004
(Commission File No. 1-15695), and incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
During Fiscal 2004 and Fiscal 2003, the Company retained its principal
auditor, BDO Seidman, LLP to provide services in the following categories and
amounts:
[Download Table]
2004 2003
Audit Fees (services in connection with the audit
of the Company's financial statements, review of
the Company's quarterly reports on Form 10-QSB
and statutory or regulatory filings or engagements) $ 127,020 $ 118,330
Audit Related Fees (assurance and related services) $ - $ -
Tax Fees (services in connection with the
Preparation of the Company's tax returns) $ 12,000 $ 12,350
All Other Fees $ - $ -
Our Audit Committee's policy is to pre-approve all audit and permissible
non-audit services performed by the independent accountants. These services may
include audit services, audit-related services, tax services and other services.
Under our Audit Committee's policy, pre-approval is generally provided for
particular services or categories of services, including planned services,
project-based services and routine consultations. In addition, the Audit
Committee may also approve particular services on a case-by-case basis.
Our Audit Committee pre-approved all services that our independent
accountants provided to us in the past two fiscal years. It considered whether
the provision of non-audit services by the Company's principal auditor was
compatible with maintaining auditor independence and has determined such
services were not incompatible with maintaining auditor independence.
SIGNATURES
In accordance with Section 13 of the Exchange Act, the Registrant caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: March 4, 2005
AVITAR, INC.
(Registrant)
By: /s/ Peter P. Phildius
Peter P. Phildius
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Name Title Date
/s/ Peter P. Phildius Chairman of the Board and March 4, 2005
---------------------------- Chief Executive Officer
Peter P. Phildius (Principal Executive Officer);
and Director
/s/ Douglas W. Scott President and Chief Operating March 4, 2005
---------------------------- Officer and Director
Douglas W. Scott
/s/ J.C. Leatherman, Jr. Chief Financial Officer and March 4, 2005
---------------------------- Secretary (Principal Financial
J.C. Leatherman, Jr. and Accounting Officer)
/s/ Neil R .Gordon
---------------------------- Director March 4, 2005
Neil R. Gordon
/s/ James Groth Director March 4, 2005
----------------------------
James Groth
/s/ Charles R. McCarthy Director March 4, 2005
----------------------------
Charles R. McCarthy
Avitar, Inc. and
Subsidiaries
Consolidated Financial Statements
Years Ended September 30, 2004 and 2003
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Avitar, Inc.
We have audited the accompanying consolidated balance sheet of Avitar, Inc. and
subsidiaries as of September 30, 2004, and the related consolidated statements
of operations, stockholders' deficit and cash flows for each of the two years in
the period ended September 30, 2004. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board ("United States"). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Avitar, Inc. and
subsidiaries as of September 30, 2004, and the results of their operations and
their cash flows for each of the two years in the period ended September 30,
2004, in conformity with accounting principles generally accepted in the United
States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has working capital and stockholder deficits as of September
30, 2004. These matters raise substantial doubt about its ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ BDO Seidman, LLP
Boston, Massachusetts
December 8, 2004, except
for Note 17 for which the
date is December 17, 2004
Avitar, Inc. and Subsidiaries
Consolidated Balance Sheet
September 30, 2004
--------------------------------------------------------------------------------
Assets
Current:
Cash and cash equivalents $508,876
Accounts receivable, less allowance for doubtful
accounts of $12,000 (Note 15) 635,737
Inventories (Note 4) 348,853
Prepaid expenses and other (including related party
receivables of $10,200) 174,480
-------------------------------------------------------------------------------
Total current assets 1,667,946
Property and equipment, net (Note 5) 293,573
Goodwill (Note 6) 238,120
Other assets, net (Notes 7) 147,940
-------------------------------------------------------------------------------
$ 2,347,579
===============================================================================
See accompanying notes to consolidated financial statements.
F-3
Avitar, Inc. and Subsidiaries
Consolidated Balance Sheet
[Enlarge/Download Table]
September 30, 2004
------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Deficit
Current liabilities:
Short-term debt (including $ 32,063 due to related parties) (Note 8) $ 197,620
Accounts payable (including $51,500 due to related parties) 768,064
Accrued expenses (Note 18) 898,734
Deferred revenue 192,500
------------
Total current liabilities 2,056,918
------------
Redeemable convertible preferred stock (Note 10) 958,048
------------
Commitments (Notes 11 and 13)
Stockholders' deficit (Note 13):
Series A, B, C and 6% convertible preferred stock, $.01 par value; authorized 5,000,000 shares;
46,130 shares issued and outstanding, with aggregate liquidation value - Series A-$1,500,000;
Series B - $13,464; Series C - $195,000; 6% Convertible-$2,000,000 462
Common stock, $.01 par value; authorized 300,000,000 shares; 123,118,165 shares
issued and outstanding 1,231,182
Additional paid-in capital 49,657,819
Accumulated deficit (51,556,850)
------------
Total stockholders' deficit (667,387)
------------
------------
$ 2,347,579
------------
See accompanying notes to consolidated financial statements.
F-4
Avitar, Inc. and Subsidiaries
Consolidated Statements of Operations
[Enlarge/Download Table]
Years ended September 30, 2004 2003
-----------------------------------------------------------------------------------------------
Sales (Note 15) $ 4,048,547 $ 4,598,025
----------- -----------
Operating expenses:
Cost of sales 2,713,128 3,433,083
Selling, general and administrative (Note 18) 3,400,770 3,603,045
Research and development 564,831 764,982
----------- -----------
Total operating expenses 6,678,729 7,801,110
----------- -----------
Loss from operations (2,630,182) (3,203,085)
Other income (expense):
Interest expense and financing costs (includes $6,980 and
$ 4,456 to related parties in 2004 and 2003,
repsectively) (Notes 8, 9 and 16) (330,298) (1,747,503)
Other income, net 4,508 16,704
----------- -----------
Total other expense, net (325,790) (1,730,799)
Loss from continuing operations before discontinued
operations and cumulative effect of a change in accounting
principle (2,955,972) (4,933,884)
----------- -----------
Discontinued operations (Notes 3 and 6):
Income from operations of USDTL 4,447 16,783
Loss from disposal of discontinued operations (17,235) (895,000)
----------- -----------
Loss from discontinued operations (12,788) (878,217)
----------- -----------
Loss before cumulative effect of a change in accounting
principle (2,968,760) (5,812,101)
Cumulative effect of a change in accounting principle (Note 6) -- (650,000)
----------- -----------
Net loss $(2,968,760) $(6,462,101)
----------- -----------
Basic and diluted loss per share from continuing
operations before discontinued operations and
cumulative effect of a change in accounting
principle (Note 13) $ (.05) $ (.10)
-------------------------------- ---
Basic and diluted net loss per share (Note 13) $ (.05) $ (.12)
------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statement
F-5
Avitar, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity(Deficit)
(Note 13)
[Enlarge/Download Table]
Preferred Stock Common Stock
Years ended September 30, 2004 and 2003 Shares Amount Shares Amount
----------------------------------------------------------------------------------------------------------------------
Balance at September 30, 2002 1,775,330 $17,752 44,674,215 $ 446,742
Issuance of common stock and warrants for services - - 855,973 8,560
Sale of common stock and warrants, net of expenses - - 4,674,900 46,749
Sale of preferred stock and warrants, net of expenses 1,000 10 - -
Conversion of Series A, B, and C preferred stock into
common stock (1,639,133) (16,390) 17,701,101 177,011
Exercise of warrants - - 1,431,243 14,312
Payment of preferred stock dividend, Series B preferred stock 5 - - -
Issuance of common stock for interest on long-term debt - - 1,173,063 11,731
Discount and beneficial conversion related to issuance of
common stock in connection with convertible notes - - 5,730,000 57,300
Conversion of long-term convertible notes - - 10,611,111 106,111
Issuance of warrants in connection with discount on notes payable - - - -
Issuance of warrants in connection with restructuring of
facility lease - - - -
Issuance of common stock and warrants for settlement agreement
with financial consultant (Note 12) - - 2,016,590 20,166
Net loss - - - -
----------------------------------------------------------------------------------------------------------------------
Balance at September 30, 2003 137,202 $ 1,372 88,868,196 $ 888,682
----------------------------------------------------------------------------------------------------------------------
Sale of common stock - - 36,156 362
Sale of preferred stock and warrants, net of expenses 3,250 33 - -
Conversion of Series A, Series B, Series D, 8% redeemable
preferred stock into common stock (94,322) (943) 21,074,721 210,748
Exercise of warrants - - 11,903,844 119,038
Payment of preferred stock dividend, Series A preferred stock - - 85,848 858
Payment of preferred stock dividend, 6% preferred stock - - - -
Issuance of common stock for interest on long-term debt - - 1,149,400 11,494
Net loss - - - -
----------------------------------------------------------------------------------------------------------------------
Balance at September 30, 2004 46,130 $ 462 123,118,165 $1,231,182
----------------------------------------------------------------------------------------------------------------------
Avitar, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity(Deficit)
(continued)
(Note 13)
[Enlarge/Download Table]
Additional
Paid-in Accumulated
Years ended September 30, 2004 and 2003 Capital Deficit
--------------------------------------------------------------------------------------------------------
Balance at September 30, 2002 $41,769,112 $(42,102,770)
Issuance of common stock and warrants for services 236,878 -
Sale of common stock and warrants, net of expenses 507,198 -
Sale of preferred stock and warrants, net of expenses 899,990 -
Conversion of Series A, B, and C preferred stock into
common stock (160,620) -
Exercise of warrants 114,500 -
Payment of preferred stock dividend, Series B preferred stock 14 (14)
Issuance of common stock for interest on long-term debt 230,917
Discount and beneficial conversion related to issuance of
common stock in connection with convertible notes 897,700 -
Conversion of long-term convertible notes 848,889 -
Issuance of warrants in connection with discount on notes payable 31,194 -
Issuance of warrants in connection with restructuring of
facility lease 218,341 -
Issuance of common stock and warrants for settlement agreement
with financial consultant (Note 12) 499,834 -
Net loss - (6,462,101)
--------------------------------------------------------------------------------------------------------
Balance at September 30, 2003 $46,093,947 $(48,564,885)
--------------------------------------------------------------------------------------------------------
Sale of common stock 4,544 -
Sale of preferred stock and warrants, net of expenses 2,795,467 -
Conversion of Series A, Series B, Series D, 8% redeemable
preferred stock into common stock 729,147 -
Exercise of warrants (119,038) -
Payment of preferred stock dividend, Series A preferred stock 6,237 (7,095)
Payment of preferred stock dividend, 6% preferred stock - (16,110)
Issuance of common stock for interest on long-term debt 147,515 -
Net loss - (2,968,760)
---------------------------------------------------------------------------------------------------------
Balance at September 30, 2004 $49,657,819 $(51,556,850)
---------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
F-6
Avitar, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
[Enlarge/Download Table]
Years ended September 30, 2004 2003
--------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $ (2,968,760) $ (6,462,101)
Adjustments to reconcile net loss to net cash used in
operating activities:
Cumulative effect of change in accounting principle - 650,000
Loss from disposal of discontinued operation 17,235 895,000
Depreciation and amortization 116,230 169,081
Amortization of debt discount and deferred financing costs 101,084 15,110
Amortization of deferred rent expense 124,766 -
Common stock and warrants issued for services and placement
agent fees - 245,438
Common stock and warrants for interest on short-term and
long-term debt 114,236 1,228,842
Loss on the extinguishment of long-term debt 66,000
Changes in operating assets and liabilities:
Accounts receivable (118,176) 449,558
Inventories (98,925) 264,694
Prepaid expenses and other current assets (46,199) 7,938
Other assets 1,707 (78,008)
Accounts payable and accrued expenses (884,309) 93,485
Deferred revenue (20,250) 177,750
Net assets of USDTL - (108,841)
---------------------------------------------------------------------------------------------------------
Net cash used in operating activities (3,595,361) (2,452,054)
----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (159,466) (8,559)
Proceeds from the sale of USDTL 500,000 -
---------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 340,534 (8,559)
-----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of short-term debt (140,233) (135,131)
Repayments of notes payable and long-term debt (11,279) (14,301)
Proceeds from issuance of long-term convertible notes - 955,000
Sales of preferred stock, common stock and warrants 2,800,406 2,153,947
Payment of preferred stock dividend (16,110) -
Exercise of stock options and warrants - 128,813
Net cash provided by financing activities 2,632,784 3,088,328
---------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (622,043) 627,715
Cash and cash equivalents, beginning of year 1,130,919 503,204
---------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 508,876 $ 1,130,919
Avitar, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Concluded)
[Enlarge/Download Table]
Years ended September 30, 2004 2003
---------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information: Cash paid during the year
for:
Interest $ 10,843 $ 58,421
Supplemental schedule of noncash investing and
financing activities:
Fair value of equity instruments recorded in connection with
financial advisors Settlement Agreement (Note 12) - 520,000
During 2004, 1,149,400 shares of common stock were issued for interest on
long-term debt, of which 497,473 shares were payment of accrued interest
of $44,773.
During 2004, 700 shares of 8% redeemable convertible preferred stock were
converted into 4,666,667 shares of common stock
During 2004, $1,250,000 of long-term debt was converted into 1,316 shares
of Series A redeemable convertible preferred stock 1,250,000
During 2004, 358 shares of Series A redeemable convertible preferred
stock were converted into 5,163,986 shares of common stock
During 2004, 989 shares of Series A and B convertible preferred stock were
converted into 8,444,078 shares of common stock.
During 2004, 93,333 shares of Series D convertible preferred stock were
converted into 2,799,990 shares of common stock.
During 2004, 85,848 shares of common stock were issued for payment of
dividends for Series A convertible preferred stock and redeemable
convertible preferred stock.
During 2003, 1,639,133 shares of Series A, B and C preferred stock were
converted into 17,701,101 shares of common stock.
During 2003, 5 shares of Series B preferred stock were issued as payment
of a preferred stock dividend of $14.
During 2003, 1,173,063 shares of common stock were issued for interest on
long-term debt.
See accompanying notes to consolidated financial statements
Avitar, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Description of Business and Basis of Presentation
Avitar, Inc. ("Avitar" or the "Company"), through its
wholly-owned subsidiaries, Avitar Technologies, Inc.
("ATI"), and BJR Security, Inc. ("BJR"), designs, develops,
manufactures and markets diagnostic test and medical
products and provides contraband detection services. Avitar
sells its products and services to employers, diagnostic
test distributors, large medical supply companies,
governmental agencies, schools and corporations. The Company
operates in one reportable segment since revenues of its
contraband detection business represent an immaterial
portion of its total revenues. In December 2003, Avitar
consummated the sale of the business and net assets,
excluding cash, of its wholly-owned subsidiary, United
States Drug Testing Laboratories, Inc. ("USDTL"). 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 certain revenue targets. Due to
the contingent nature of the additional $500,000, the
payments will be recorded as revenues when they are
received. The USDTL business has been treated as a
discontinued operation (see Note 3).
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 of $388,972 and a stockholders'
deficit of $667,387 as of September 30, 2004. The Company
raised net proceeds aggregating approximately $2,800,000
during the 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.
Subsequent to September 30, 2004, the Company raised gross
proceeds of $1,250,000 from the sale of preferred stock (see
Note 17). The Company is working with placement agents and
investment fund mangers to obtain additional equity
financing. Based upon cash flow projections, the Company
believes the anticipated cash flow from operations and most
importantly, the expected net 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. Summary of
Significant
Accounting
Policies
Concentration of Credit Risk and Significant Customers
Financial instruments that subject the Company to credit
risk consist primarily of cash, cash equivalents and trade
accounts receivable. The Company places its cash and cash
equivalents in established financial institutions. The
Company has no significant off-balance-sheet concentration
of credit risk such as foreign exchange contracts, options
contracts or other foreign hedging arrangements. The
Company's accounts receivable credit risk is not
concentrated within any one geographic area. The Company has
not experienced any significant losses related to
receivables from any individual customers or groups of
customers in any specific industry or by geographic area.
Due to these factors, no additional credit risk beyond
amounts provided for collection losses is believed by
management to be inherent in the Company's accounts
receivable.
Accounts receivable are customer obligations due under
normal trade terms. The Company sells its products to
employers, distributors and OEM customers. The Company
generally requires signed sales agreements, non-refundable
advance payments and purchase orders depending upon the type
of customer, and letters of credit may be required in
certain circumstances. Accounts receivable is stated at the
amount billed to the customer less a valuation allowance for
doubtful accounts.
Senior management reviews accounts receivable on a monthly
basis to determine if any receivables could potentially be
uncollectible. The Company includes specific accounts
receivable balances that are determined to be uncollectible
in its overall allowance for doubtful accounts. After all
attempts to collect a receivable have failed, the receivable
is written off against the allowance. Based on available
information, the Company believes its allowance for doubtful
accounts as of September 30, 2004 of $12,000 is adequate.
See Note 15 for information on customers that individually
comprise greater than 10% of total revenues.
Estimates and Assumptions
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been
eliminated.
Revenue Recognition
The Company recognizes revenue from product sales upon
shipment and delivery with delivery being made F.O.B. to the
carrier. Revenue from the sales of services are recognized
in the period the services are provided. These revenues are
recognized provided that a purchase order has been received
or a contract has been executed, there are no uncertainties
regarding customer acceptance, the sales price is fixed or
determinable and collection is deemed probable. If
uncertainties regarding customer acceptance exist, the
Company recognizes revenue when those uncertainties are
resolved. Amounts collected or billed prior to satisfying
the above revenue recognition criteria are recorded as
deferred revenue. The Company does not offer its customers
or distributors the right to return product once it has been
delivered in accordance with the terms of sale. Product
returns, which must be authorized by the Company, occur
mainly under the warranties associated with the product. The
Company maintains sufficient reserves to handle warranty
costs. Price discounts for products are reflected in the
amount billed to the customer at the time of delivery.
Rebates and payments have not been material and are
adequately covered by established allowances.
Cash Equivalents
The Company considers all highly liquid investments and
interest-bearing certificates of deposit with original
maturities of three months or less to be cash equivalents.
Inventories
Inventories are recorded at the lower of cost (determined on
a first-in, first-out basis) or market. The inventories of
the ORALscreen products and some components of the foam
products are subject to expiration dating. Senior management
reviews the inventories on a periodic basis to insure that
adequate reserves have been established to cover product
obsolescence and unusable inventory. These decisions are
based on the levels of inventories on hand in relation to
the estimated forecast of product demand, production
requirements over the next twelve months and the expiration
dates of the raw materials and finished goods. Forecasting
of product demand can be a complex process, especially for
ORALscreen instant drug tests. Although every effort is made
to insure the accuracy of these forecasts of future product
demand, any significant unanticipated changes in demand
could have a significant impact on the carrying value of the
Company's inventories and reported operating results.
Property and Equipment
Property and equipment (including equipment under capital
leases) is recorded at cost at the date of acquisition.
Depreciation is computed using the straight-line method over
the estimated useful lives of the assets (three to seven
years). Leasehold improvements are amortized over the
shorter of their estimated useful life or lease term.
Expenditures for repairs and maintenance are expensed as
incurred.
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2. Summary of
Significant
Accounting
Policies
(Continued)
Long-lived Assets
The Company evaluates its long-lived assets under the
provisions of Statement of Financial Accounting Standards
("SFAS") No. 144, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed
of." SFAS No. 144 establishes accounting standards for the
impairment of long-lived assets and certain identifiable
intangibles to be held and used and for long-lived assets,
and certain identifiable intangibles to be disposed of. The
Company adopted SFAS No. 144 in the first quarter of fiscal
2003 and its adoption did not have any material effects on
the Company's financial statements.
In assessing the recoverability of its long-lived assets,
the Company must make assumptions in determining the fair
value of the asset by estimating future cash flows and
considering other factors, including significant changes in
the manner or use of the assets, or negative industry
reports or economic conditions. If those estimates or their
related assumptions change in the future, the Company may be
required to record impairment charges for those assets.
Goodwill
Effective October 1, 2002, the Company adopted SFAS No. 142,
"Goodwill and Other Intangible Assets". Prior to the
adoption of SFAS No. 142, goodwill resulting from the excess
of cost over fair value of net assets acquired was amortized
on a straight-line basis over 10 years. SFAS No. 142
requires among other things, that companies no longer
amortize goodwill, but 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 guidelines in SFAS 142. SFAS 142 is required
to be applied to all goodwill and other intangible assets
regardless of when those assets were initially recognized.
The Company will recognize an impairment of goodwill if
undiscounted estimated future operating cash flows of the
acquired business are determined to be less than the
carrying amount of the goodwill. If the Company determines
that the goodwill has been impaired, the measurement of the
impairment will be equal to the excess of the carrying
amount of the goodwill over the amount of the fair value of
the asset. If an impairment of goodwill were to occur, the
Company would reflect the impairment through a reduction in
the carrying value of goodwill (see Note 6).
Patents
Patent costs are being amortized over their estimated useful
lives of 5 - 7 years by the straight-line method.
Research and Development
Research and development costs are expensed as incurred.
Income (Loss)Per Share of Common Stock
The Company follows SFAS No. 128 "Earnings per Share." Under
SFAS 128, basic earnings per share excludes the effect of
any dilutive options, warrants or convertible securities and
is computed by dividing the net income (loss) available to
common shareholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per
share is computed by dividing the net income (loss)
available to common shareholders by the sum of the weighted
average number of common shares and common share equivalents
computed using the average market price for the period under
the treasury stock method (when dilutive).
2. Summary of
Significant
Accounting
Policies
(Continued)
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
years ended 2004 and 2003, 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.
[Download Table]
Year Ended September 30,
2004 2003
Loss available to common shareholders $( 4,829,339) $(8,136,561)
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 106,400) (911,218)
Pro forma net loss $( 4,935,739) $( 9,047,779)
Loss per share:
Basic and diluted - as reported $ (.05) $ (.12)
Basic and diluted - pro forma (.05) (.13)
In determining the pro forma amounts above, the Company
estimated the fair value of each option granted using the
Black-Scholes option pricing model with the following
weighted-average assumptions used for grants:
2004 2003
Risk free interest rate 2.5 % 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 in fiscal
2004 and 2003 was $0.13 and $0.17, respectively.
Income Taxes
Income taxes are accounted for using the liability method as
set forth in SFAS No. 109, "Accounting for Income Taxes."
Under this method, deferred income taxes are provided on the
differences in basis of assets and liabilities between
financial reporting and tax returns using enacted rates.
Valuation allowances have been recorded (see Note 14).
Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable and
accounts payable approximate fair value because of the
short-term nature of these items. The current fair values of
the short -term debt approximate fair value because of the
respective interest rates.
Advertising
The Company expenses advertising costs as incurred.
Advertising expense was approximately $0 and $29,000 in
fiscal 2004 and 2003, respectively.
2. Summary of
Significant
Accounting
Policies
(Continued)
New Accounting
Pronouncements
In December 2004, the Financial Accounting Standards Board
("FASB") issued a proposed Statement, "Share-Based Payment",
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 2, the Company
currently accounts for share-based compensation transactions
using APB Opinion No. 25. The adoption of this statement is
effective for fiscal periods 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.
3. Discontinued Operations
On December 16, 2003, the Company consummated a 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 beginning with the
calendar year ending December 31, 2004, less any amounts due
from the Company for the purchase of services from the
buyer. Due to the contingent nature of the additional
$500,000, the payments will be recorded as revenues when
they are received. The accompanying financial statements
have been restated to reflect USDTL as a discontinued
operation. Following is a summary of the results of
operations of USDTL:
Years ended September 30, 2004 2003
Sales $ 289,501 $1,647,006
Operating expenses 284,223 1,633,459
Other expense (18,066) (891,764)
-----------------------------------------------------------
Loss from discontinued operations $( 12,788) $ (878,217)
-----------------------------------------------------------
Other expense in 2004 includes a loss from the disposal of
USDTL of $17,235 and in 2003 includes the write-down to fair
value of goodwill of $895,000 prior to the sale.
4. Inventories
Inventories consist of the following:
September 30, 2004
------------------------------------------------------
Raw materials $ 225,449
Work-in-process 32,725
Finished goods 90,679
------------------------------------------------------
$ 348,853
======================================================
5. Property and Equipment
Property and equipment consists of the following:
September 30, 2004
------------------------------------------------------------
Equipment $ 1,290,039
Furniture and fixtures 247,338
Leasehold improvements 52,375
Construction in progress 50,900
------------------------------------------------------------
1,640,652
Less: accumulated depreciation
and amortization 1,347,079
------------------------------------------------------------
$ 293,573
============================================================
At September 30, 2004, the cost of equipment under capital
leases was $45,102 and the related accumulated amortization
was $35,372.
6. Goodwill
As of October 1, 2002, the Company's goodwill of $2,139,555
was composed of $1,901,435 associated with the acquisition
of USDTL in 1999 and $238,120 associated with the
acquisition of BJR in 2001. As a result of the transitional
impairment tests for the adoption of SFAS No. 142,
management, after considering a number of factors including
an independent valuation which relied on present value of
future cash flows contained in an offer to purchase USDTL
and market price comparisons of sales multiples for
companies engaged in a similar business to USDTL, determined
the acquisition to be impaired. The difference in value of
$650,000 was reported as the cumulative effect of change in
accounting principle for the year ended September 30, 2003.
No adjustment to the $238,120 balance of goodwill associated
with the BJR acquisition was deemed necessary as of October
1, 2002, September 30, 2003 or September 30, 2004.
During Fiscal 2003, the Company pursued the sale of its
USDTL subsidiary and this sale was consummated on December
16, 2003. Based on the sale price, considering only the cash
paid at the closing of $500,000, an additional impairment of
goodwill was recorded for $895,000, which is included in the
results of discontinued operations as of September 30, 2003.
The effect on reported net loss due to the cumulative effect
of change in accounting principle and discontinuance of
goodwill amortization is as follows:
[Download Table]
Year ended September 30, 2004 2003
Loss available to common
shareholders used in basic
and diluted EPS (Note 13) $(4,829,339) $(8,136,561)
Cumulative effect of change
in accounting principle - 650,000
Adjusted net loss before
cumulative effect of change
in accounting principle $(4,829,339) $(7,486,561)
Basic and diluted loss per
share as reported $(.05) $(.12)
Cumulative effect of
change in accounting
principle - .01
Basic and diluted loss
per share before
cumulative effect of
change in accounting
principle $(.05) $(.11)
7. Other Assets
Other assets consist of the following:
September 30, 2004
------------------------------------------------------------
Patents $149,966
Deposits 1,500
Deferred rental costs 93,575
Related party receivables (long-term portion) 9,100
------------------------------------------------------------
254,141
Less accumulated amortization 106,201
------------------------------------------------------------
Other assets, net $147,940
============================================================
Included in the above are patent costs of $149,966 with
related accumulation amortization costs of $106,201. The
patents have a weighted average amortization period of 7
years. Amortization expense related to the patents was
$13,000 and $13,000 for fiscal 2004 and 2003, respectively.
Estimated amortization expense related to the patents for
the next five years is as follows:
September 30,
2005 $14,000
2006 14,000
2007 8,000
2008 3,000
2009 2,000
8. Short-Term Debt
Short-term debt consists of the following:
[Enlarge/Download Table]
September 30, 2004
--------------------------------------------------------------------------------------
Note payable to individual, interest at 24%, payable in monthly
principal installments of $13,106 plus accrued interest
through June 2005. $117,955
Note payable to insurance company, interest at 6.7%, payable in
monthly installments of approximately $4,811 through October
2004. 4,811
Notes payable to insurance company, interest at 6.0%, payable in
monthly installments of approximately $1,277 through November
2004. 2,017
Notes payable to insurance company, interest at 8.5%, payable in
monthly installments of approximately $8,155 through February
2005. 40,774
Funds advanced from various related parties, interest at 10%. 32,063
--------------------------------------------------------------------------------------
$197,620
======================================================================================
9. Long-Term Debt
In August 2002, the Company executed a note payable with
Global Capital Funding Group, L.P. in the principal amount
of $1,250,000 which was payable at maturity in August 2005.
Interest on this note was 14% and was payable quarterly in
cash or the Company's common stock at the option of the
Company. The Company issued warrants to purchase 675,000
shares of common stock at $.31 per share for five years in
connection with this note. The warrants were valued at
$45,973 and were recorded as a discount to the note. The
discount was $28,957 as of September 30, 2003. Fees of
approximately $114,000 incurred in connection with securing
this loan were recorded as a deferred financing charge. The
collateral pledged by the Company to secure the note include
all assets of the Company. In May 2004, the Company
converted this note of $1,250,000 into 1,316 shares of
Series A Convertible Redeemable Preferred Stock (see Note
10). Accordingly, the outstanding balance of the note was $0
as of September 30, 2004 and the collateral pledged by the
Company was released. Interest cost, including amortization
of debt discount and deferred financing costs, during 2004
and 2003 amounted to $214,320 and $232,935, respectively. In
2004, $66,000 of interest and financing charges for the loss
on the extinguishment of debt were recorded. Additionally,
the unamortized balance of the discount and deferred
financing costs were reduced to $0 as of September 30, 2004.
In Fiscal 2003, the Company executed convertible notes
payable with private individuals in the principal amount of
$955,000 which were payable at maturity in February 2008.
These notes were senior subordinated obligations of the
Company bearing interest at the rate of 15% per annum.
Interest on the outstanding principal amount at the rate of
10% was payable quarterly in cash with the balance of 5% to
accrue until maturity. Each note holder received six shares
of the Company's common stock for each dollar of principal
in the note for a total of 5,730,000 shares. These notes and
any accrued and unpaid interest due thereon, were
convertible into common stock of the Company at a conversion
price of $.09 per share, subject to adjustments. In
conjunction with the issuance of these notes, the Company
paid a placement agent $87,000 in cash, issued 573,000
shares of the Company's common stock and warrants to
purchase 461,353 shares of the Company's common stock at an
exercise price of $.09 per share, subject to adjustments,
which have been recorded as deferred financing costs
totaling approximately $312,000. The fair value of the
shares issued to the note holders resulted in a beneficial
conversion feature of the convertible notes and was
accounted for in accordance with Emerging Issues Task Force
("EITF") No. 00-27 as a discount of $955,000 on the notes.
Since all the notes were converted into 10,611,111 shares of
common stock during 2003, the entire discount of $955,000
and deferred financing costs of $312,000 were recorded as
interest expense for 2003. In 2004, the number of warrants
issued to the placement agent were adjusted to reflect 10%
of the shares received by the note holders upon their
conversion and the placement agent received 679,111 shares
of common stock upon the cashless exercise of its warrants.
Note holders received 497,473 shares of common stock during
Fiscal 2004 as payment of their accrued interest totaling
$44,773.
10. Redeemable Convertible Preferred Stock
In May 2004, the Company converted a long-term note of
$1,250,000 with a maturity date of August 2005 into 1,316
shares of Series A Redeemable Convertible Preferred Stock.
The Series A Redeemable Convertible Preferred Stock, with a
face value of $1,316,000, 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
holder was entitled to redeem these shares under certain
provisions of the agreement covering the purchase of the
preferred stock. The conversion feature of these preferred
shares resulted in a deemed dividend of $329,000 being
recorded and included in the earnings per share calculation
for 2004. In addition, $66,000 of interest and financing
charges for the loss on extinguishment of long-term debt
were recorded during 2004. During 2004, 358 shares of the
preferred stock, with a face value of $358,000, were
converted into 5,163,986 shares of the Company's common
stock. As of September 30, 2004, there were 958 shares of
redeemable convertible preferred stock outstanding with a
face value of approximately $958,000. Subsequent to
September 30, 2004, all the remaining shares of the
redeemable convertible preferred stock were converted into
common stock (see Note 17).
In August 2003, the Company issued 700 shares of 8%
convertible preferred stock and received gross proceeds of
$700,000. The Company paid fees of $119,000 which have been
recorded as deferred financing costs. These preferred shares
entitle the holder to convert, at any time, the amount
invested into shares of common stock at a conversion price
of $.15 per share subject to anti-dilution provisions and
receive annual cash dividends of 8% payable semi-annually.
At the end of five years from the date of issuance, the
holder is entitled to redeem the shares plus accrued
dividends. Warrants to purchase 4,666,666 shares of common
stock at an exercise price of $.01 cents per share that were
issued in connection with the preferred stock and the
conversion feature resulted in a deemed dividend of $665,000
which was recorded and included in the loss per share
calculation for the year ended September 30, 2003. All 700
shares of the preferred stock were converted into 4,666,667
shares of the Company's common stock during 2004.
11. Commitments
Leases
ATI and BJR lease office space under non-cancelable
operating leases which expire at various dates through 2005.
Certain additional costs are incurred in connection with the
leases and the leases may be renewed for additional periods.
ATI leases certain equipment under capital leases.
Rental expense under all operating leases charged to
operations for the years ended September 30, 2004 and 2003
totaled approximately $494,000 and $493,000, respectively.
11. Commitments
(Continued)
Leases Future minimum rentals are as follows:
(Continued) -----------------------------------------------------------
Year ending September 30, Operating
-----------------------------------------------------------
2005
$288,690
2006 10,000
-----------------------------------------------------------
Total minimum lease payments $ 298,690
------------------------------------
Employment Agreements
The Company entered into employment agreements with its two
principal executives, which payments thereunder were
subsequently assigned to a related party. The agreements
provide for annual compensation aggregating $380,000 per
year, plus cost-of-living increases and bonuses based upon
pre-tax income, as defined or other net income objectives
established by the Board of Directors. In the event of a
change in control of the Company, the two executives may be
entitled to receive up to two times their annual salary plus
the most recent annual bonus. The agreements renew
automatically on an annual basis and may be terminated upon
60 days written notice by either party. Expenses under these
agreements totaled approximately $380,000 and $326,000 in
2004 and 2003, respectively. The expense for Fiscal 2003
reflects the temporary salary reduction that was in effect
during Fiscal 2003.
11. Commitments
(Continued)
Retirement Plan
In February 1998, the Company adopted a defined contribution
retirement plan which qualifies under Section 401(k) of the
Internal Revenue Code, covering substantially all employees.
Participant contributions are made as defined in the Plan
agreement. Employer contributions are made at the discretion
of the Company. No Company contributions were made in 2004
or 2003.
12. Settlement Agreement
As of September 30, 2002, the Company recorded a liability
of $520,000 with a corresponding charge to equity to reflect
the fair value of the cost associated with a Settlement
Agreement for compensation to the Estate and successors of a
financial advisor who provided services to the Company from
1998 to 2001 directly related to the raising of capital
through issuance of equity instruments. On December 11,
2002, the Company settled this liability and issued
2,016,590 shares of common stock and warrants to purchase
1,176,679 shares of common stock at exercise prices ranging
from $0.23 to $0.35 per share with expiration dates in
October 2003 and December 2003. In Fiscal 2003, the Company
recorded an offsetting increase of $520,000 to stockholders'
equity for the fair value of the shares and warrants issued.
13. Stockholders'
Equity(Deficit)
Preferred Stock
Preferred stock shares outstanding consist of the following:
September 30, 2004
--------------------------------------
Series A 1,500
Series B 5,689
Series C 36,941
6% Convertible 2,000
--------------------------------------
Total 46,130
--------------------------------------
13. Stockholders'
Equity(Deficit)
(Continued)
Preferred Stock (Continued)
The 5,689 shares of Series B convertible preferred stock
issued and outstanding entitle the holder of each share to:
convert it, at any time, at the option of the holder, into
ten shares of common stock subject to antidilution
provisions and receive dividends amounting to an annual 8%
cash dividend or 10% stock dividend payable in shares of
Series B preferred stock computed on the amount invested, at
the discretion of the Company. After one year from the date
of issuance, the Company may redeem, in whole or in part,
the outstanding shares at the offering price in the event
that the average closing price of ten shares of the
Company's common stock shall equal or exceed 300% of the
offering price for any 20 consecutive trading days prior to
the notice of redemption; and liquidating distributions of
an amount per share equal to the offering price. During
2004, 239 of these shares were converted into 2,390 shares
of common stock. In 2003, 1,422,342 of these shares were
converted into 14,523,420 shares of common stock. Undeclared
and unpaid dividends amounted to $4,647 and $2,864 at
September 30, 2004 and 2003, respectively. No dividends were
paid in 2004 or 2003.
13. Stockholders'
Equity(Deficit)
(Continued)
Preferred Stock (Continued)
The 36,941 shares of Series C convertible preferred stock
issued and outstanding entitle the holder of each share, on
each anniversary date of the investment, to convert into the
number of shares of common stock derived by dividing the
purchase price paid for each share of the preferred stock by
the average price of the Company's common stock for the five
trading days prior to conversion subject to anti-dilution
provisions and receive royalties of 5% of revenues related
to disease diagnostic testing from the preceding fiscal
year. There were no royalties earned for the years ended
September 30, 2004 or 2003. After one year from the date of
issuance the Company may redeem in whole or in part, into
the number of shares of the Company's common stock derived
by dividing the redemption price, as defined, by the average
closing price of the Company's common stock for the five
trading days prior to the redemption date, and liquidating
distributions of an amount per share equal to the amount of
unpaid royalties due to the holder in the event of
liquidation. During 2004, none of these shares was converted
into shares of common stock. In 2003, 133,333 of these
shares were converted into 3,017,307 shares of common stock.
All of the 93,333 shares of Series D convertible preferred
stock issued and outstanding as of September 30, 2003 were
converted into 2,799,990 shares of common stock during 2004.
Based on the applicable anti-dilution provisions, the Series
D convertible preferred stock conversion price was adjusted
so that the holder received 30 shares of common stock
instead of 10 shares of common stock for each share Series D
convertible preferred stock converted.
The 2,000 shares of 6% convertible preferred stock issued
and outstanding entitle the holder to convert, at any time,
$1,000,000 invested in 2004 and $1,000,000 invested in 2003
into shares of common stock at a conversion price of $.216
and $.15 per share, respectively, subject to anti-dilution
provisions and receive annual cash dividends of 6%, payable
semi-annually. Warrants to purchase 4,629,630 and 6,666,667
shares of common stock at exercise prices of $.135 and $.05
per share, respectively, that were issued in connection with
the preferred stock and conversion feature resulted in a
deemed dividend totaling $2,000,000, of which $1,000,000 was
recorded and included in the loss per share calculation for
each of the years ended September 30, 2004 and September 30,
2003. At September 30, 2004, all the warrants issued in
connection with the 6% convertible preferred stock were
exercised on a cashless basis into 6,790,124 shares of
common stock. Undeclared and unpaid dividends totaled
$94,354 and $164 at September 30, 2004 and 2003,
respectively. No dividends were paid in 2004 or 2003.
The 1,500 shares of Series A Convertible Preferred Stock,
issued and outstanding as of September 30, 2004, with a face
value of $1,500,000, entitle the holder to receive annual
dividends of 4% payable quarterly and convert, at any time,
$1,250,000 and $250,000 into shares of common stock at the
lesser of $.12 and $.09 per share, respectively, 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. During 2004, a total of 2,250 shares of the
Series A Convertible Preferred Stock , with a face value of
$2,250,000 were sold. Warrants to purchase 100,000 and
125,000 shares of common stock at exercise prices of $.126
and $.095 cents per share, respectively, that were issued in
connection with the preferred stock and conversion feature
for sales of the preferred stock in 2004 (2,250 shares)
resulted in a deemed dividend totaling $386,000 which was
recorded and included in the loss per share calculation for
the year ended September 30, 2004. As of September 30, 2004,
750 shares of the Series A Convertible Preferred Stock, with
a face value of $750,000, were converted into 8,441,688
shares of common stock, Undeclared and unpaid dividends
amounted to $17,499 September 30, 2004. Dividends paid in
2004 amounted to $4,201.
13. Stockholders'
Equity(Deficit)
(Continued)
Common Stock Purchase Warrants
The Company has outstanding warrants entitling the holders
to purchase common stock at the applicable exercise price.
In fiscal 2004, warrants were exercised for 11,903,844
shares and warrants covering 13,126,164 shares were
cancelled or expired. During fiscal 2003, warrants were
exercised for 1,413,143 shares and warrants covering 850,334
shares were cancelled or expired. In fiscal 2004 and 2003,
warrants covering 5,207,388 and 19,110,310 shares were
issued, respectively, primarily in connection with
convertible notes, common stock and preferred stock
issuances, discounts on notes payable and deferred rental
costs related to the restructure of a facility lease in
fiscal 2003. The fair value of warrants for the right to
purchase 4,854,630 shares of common stock related to the
preferred stock and redeemable preferred stock issuances in
fiscal 2004 resulted in a deemed dividend of approximately
$1,715,000 for the warrants and conversion feature. This
amount was recorded and included in the earnings per share
calculation. The fair value of warrants for the right to
purchase 11,333,000 shares of common stock related to the
preferred stock and redeemable preferred stock issuances in
fiscal 2003 resulted in a deemed dividend of approximately
$1,665,000 for the warrants and conversion feature. This
amount was recorded and included in the earnings per share
calculation. The fair value of the warrants covering
2,274,353 shares issued in 2003 for discount on notes
payable, deferred financing cost related to convertible
notes and deferred rental costs amounted to approximately
$310,000. The following is a summary of shares issuable upon
the exercise of warrants (all of which are exercisable) at
September 30, 2004.
[Enlarge/Download Table]
Exercise Shares Expiration
Price Issuable Date
----------------------------------------------------------------------------------------------------------------------------
Warrants issued in connection with services in 1999 $.26 -$.75 274,400 2004
Warrants issued in connection with services in 2001 $.71-$2.26 67,000 2006
Warrants issued in connection with common
stock issuances in 2002 $.68-$1.38 2,175,750 2004-2005
Warrants issued in connection with long-term note
payable in 2002 $.31 675,000 2007
Warrants issued in connection with discounts on
notes payable in 2003 $.01-$.25 213,000 2006
Warrants issued in connection with common stock
sales in 2003 $.20-$.30 4,326,946 2005-2007
Warrants issued to placement agent in connection
with sales of preferred stock in 2003 $.20 100,000 2006
Warrants issued in connection with deferred rent
costs associated with restructure of facility lease
in 2003 $.20 1,500,000 2013
Warrants issued in connection with preferred stock
sales in 2004 $.095-$..126 225,000 2009
Warrants issued to placement agent in connection
with sales of preferred stock in 2003 $.10-$.13 135,000 2009
Total Number of Shares Issuable 9,692,096
13. Stockholders'
Equity(Deficit)
(Continued)
Stock Options
The Company has stock option plans providing for the
granting of incentive stock options for up to 750,000 shares
of common stock to certain employees to purchase common
stock at not less than 100% of the fair market value on the
date of grant. Each option granted under the plan may be
exercised only during the continuance of the optionee's
employment with the Company or during certain additional
periods following the death or termination of the optionee.
Options granted before fiscal 1999 under the Plan vest after
the completion of two years of continuous service to the
Company or at a rate of 50% per year. Beginning fiscal 1999,
options granted vest at a rate of 20% per year.
During fiscal 1995, the Company adopted a directors' plan,
(the "Directors' Plan"). Under the Directors' Plan, each
nonmanagement director is to be granted options covering
5,000 shares of common stock initially upon election to the
Board, and each year in which he/she is elected to serve as
a director. In fiscal 2001, the Company adopted a
compensation plan for outside directors that provides for
each non-management director to receive options covering
100,000 shares of common stock upon initial election to the
Board and to receive annual grants of 30,000 shares of
common stock at the fair market value on the date of grant
which vest over three years. During fiscal 2004 and 2003, no
options were issued to outside directors.
13. Stockholders'
Equity(Deficit)
(Continued)
Stock Options (Continued)
During fiscal 2004 and 2003, options to purchase 2,061,900
and 635,000 common shares, respectively, were granted
primarily to employees of the Company with exercise prices
equal to the stock's fair value on the grant date. Of the
options granted in fiscal 2004, 1,755,000 were granted
outside of the Company's established plans to management
with all of these options beginning to vest on the
anniversary date of the grant at a rate of 20% per year or
in full at the retirement of optionee who has attained 65
years of age. During fiscal 2004, options to purchase
1,702,348 shares held by employees of the Company were
forfeited or expired and no options held by employees were
exercised.
A summary of option transactions is as follows:
[Enlarge/Download Table]
Weighted
Average
Shares Price Price
Outstanding at September 30, 2002 10,865,898 $1.12 $.17-$3.19
Forfeited/expired (3,358,400) 1.73 .22- 3.11
Granted 635,000 .23 .19 - .26
--------------------------------------------------------------------------------------
Outstanding at September 30, 2003 8,142,498 .72 .17- 3.19
Forfeited/expired (1,702,348) 1.10 .20- 3.11
Granted 2,061,900 .15 .07- .30
--------------------------------------------------------------------------------------
Outstanding at September 30, 2004 8,502,050 $ .44 $.07- $3.19
--------------------------------------------------------------------------------------
13. Stockholders'
Equity(Deficit)
(Continued)
Stock Options (Continued)
The following tables summarize information about stock
options outstanding and exercisable at September 30, 2004:
[Download Table]
Options Outstanding
Weighted-
Number Average Weighted-
Range of of Shares at Remaining Average
Exercise September 30, Contractual Exercise
Prices 2004 Life (years) Price
------------------------------------------------------------------------------
$ 0- $ 0.20 1,765,900 9.4 $ 0.12
0.21- 0.30 1,695,000 4.9 0.27
0.33- 0.59 3,280,900 4.3 0.35
0.66- 0.94 806,000 6.9 0.75
1.09- 1.36 865,750 6.4 1.20
1.71- 1.71 10,000 5.1 1.71
------------------------------------------------------------------------------
3.11- 3.19 78,500 5.3 3.13
------------------------------------------------------------------------------
$ 0.07- $ 3.19 8,502,050 6.04 $ .44
------------------------------------------------------------------------------
Options Exercisable
Weighted-
Number Average Weighted-
Range of of Shares at Remaining Average
Exercise September 30, Contractual Exercise
Prices 2004 Life (years) Price
------------------------------------------------------------------------------
$ 0- $ 0.20 154,100 5.6 $ 0.15
0.21- 0.30 1,017,200 2.3 0.25
0.33- 0.59 1,747,150 4.3 0.35
0.66- 0.94 568,600 6.9 0.77
1.09- 1.36 474,300 6.3 1.22
1.71- 1.71 8,000 5.1 1.71
3.11- 3.19 65,800 5.4 3.13
------------------------------------------------------------------------------
$ 0.07- $ 3.19 4,035,150 5.11 $ .54
------------------------------------------------------------------------------
13. Stockholders'
Equity(Deficit)
(Continued)
Loss Per Share
The following data shows the amounts used in computing loss
per share:
[Enlarge/Download Table]
September 30, 2004 2003
--------------------------------------------------------------------------------------
Loss from continuing operations before
discontinued operations and cumulative
effect of a change in accounting
principle $ (2,955,972) $ (4,933,884)
Less:
Preferred stock dividends (145,579) (9,460)
Deemed dividends in connection with Series
A preferred stock sales (715,000) (665,000)
Deemed dividends in connection with 6%
preferred stock sales (1,000,000) (1,000,000)
--------------------------------------------------------------------------------------
Loss available to common stockholders
from continuing operations before
discontinued operations and cumulative
effect of a change in accounting principle (4,816,551) (6,608,344)
Add:
Loss from discontinued operations (12,788) (878,217)
Cumulative effect of a change in
accounting principle - (650,000)
--------------------------------------------------------------------------------------
Net loss available to common shareholders $ (4,829,339) $ (8,136,561)
--------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding 106,658,715 68,452,155
--------------------------------------------------------------------------------------
[Enlarge/Download Table]
The following is the basic and diluted loss per share
calculation:
September 30, 2004 2003
--------------------------------------------------------------------------------------
Loss per share applicable to common
shareholders before discontinued
operations and cumulative effect $(0.05) $ (0.10)
Impact of discontinued operations - (0.01)
Impact of cumulative effect - (0.01)
--------------------------------------------------------------------------------------
Basic and diluted net loss per share
applicable to common shareholders $(0.05) $ (0.12)
--------------------------------------------------------------------------------------
13. Stockholders'
Equity(Deficit)
(Continued)
Loss Per Share (Continued)
The following table summarizes securities that were
outstanding as of September 30, 2004 and 2003, but not
included in the calculation of diluted net loss per share
because such shares are antidilutive:
[Download Table]
September 30, 2004 2003
-----------------------------------------------------------------------------
Stock options 8,502,050 8,142,498
Convertible preferred stock 30,247,521 8,889,277
Stock warrants 9,692,096 29,514,716
Redeemable convertible preferred stock 10,644,977 4,666,666
14. Income Taxes
No provision for Federal income taxes has been made for the
years ended September 30, 2004 or 2003, due to the Company's
operating losses. At September 30, 2004, the Company has
unused net operating loss carryforwards of approximately
$46,500,000 including approximately $11,000,000 acquired
from ATI which expire at various dates through 2024. Most of
this amount is subject to annual limitations due to various
"changes in ownership" that have occurred over the past few
years. Accordingly, most of the net operating loss
carryforwards will not be available to use in the future.
As of September 30, 2004 , the deferred tax assets related
to the net operating loss carryforwards have been fully
offset by valuation allowances, since the utilization of
such amounts is uncertain.
15. Major Customers and Suppliers
Customers in excess of 10% of total sales are:
Years ended September 30, 2004 2003
-----------------------------------------------------------
Customer A $1,022,816 $880,322
Customer C * 576,330
* Not in excess of 10%.
At September 30, 2004, accounts receivable from major
customers totaled approximately $153,000.
The Company's current suppliers of certain key material
components are the only vendors that meet the Company's
specifications for such components. The loss of these
suppliers could have a material adverse effect on the
Company.
16. Interest Expense and Financing Costs
Interest expense and financing costs for 2004 and 2003 are:
[Download Table]
2004 2003
Interest on short-term and long-term debt $ 163,214 $ 409,909
Discount and deferred financing costs on
long term debt (Notes 9 & 10) 101,084 1,306,000
Discount on short-term notes payable - 31,594
Extinguishment of long-term debt (Note 10) 66,000 -
Total Interest and Financing Costs $ 330,298 $1,747,503
17. Subsequent Events
Subsequent to year-end, the remaining 958 shares of the
Series A redeemable convertible preferred stock with a face
value of $958,000 were converted into 13,460,348 shares of
common stock. In addition, 250 shares of Series A preferred
stock with a face value of $250,000 were converted into
2,577,285 shares of common stock. On December 10, 2004, the
Company sold 1,285 shares of Series A Convertible Preferred
Stock and Warrants to purchase 600,000 shares of common
stock for which it received net proceeds of approximately
$1,135,000. These shares of Series A Convertible Preferred
Stock, with face value of $1,285,000, are 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.
18. Change in Accounting Estimate
The amount for accrued expenses as of September 30, 2004
reflects a reduction to accrued royalty expense of
approximately $242,000 due to management's revision of
estimates of amounts due to a former supplier under a
development agreement. The reduction of the accrual resulted
in reducing selling, general and administration expenses in
the consolidated statement of operations for fiscal 2004 by
$242,000.
Exhibit Index
Exhibit No. Document
3.1 Complete Copy of Certificate of Incorporation.
(F) 3.2 Complete Copy of Bylaws
(G) 4.1 Certificate of Designations, Rights and Preferences of Series A
Redeemable Convertible Preferred Stock
(C) 4.2 Certificate of Designations, Rights and Preferences of Series B
Redeemable Convertible Preferred Stock
(D) 4.3 Certificate of Designations, Rights and Preferences of Series C
Redeemable Convertible Preferred Stock
(A) 10.1 Employment Agreement between MHB and Peter P. Phildius, dated as of
July 23, 1993.
(B) 10.2 Amended and Restated Employment Agreement between MHB and Peter P.
Phildius, dated as of August 15, 1994.
(D) 10.3 Form of Subscription Agreement between the Company and parties
purchasing preferred and common stock during Fiscal 2000, Fiscal 2001,
Fiscal 2002 and Fiscal 2003
(G) 10.4 Form of Subscription and Securities Purchase Agreement between the
Company and parties purchasing preferred stock and warrants during Fiscal
2004
14.1 Code of Ethics
21.1 Subsidiaries of the Company
23.1 Consent of BDO Seidman, LLP
31.1 Rule 13a-14(a)/15d-14(a) Certification
31.2 Rule 13a-14(a)/15d-14(a) Certification
32.1 Section 1350 Certification
32.2 Section 1350 Certification
-----------------------------------------------------------------
(A) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Company's Registration Statement on Form S-4 (Commission File No.
33-71666), and incorporated herein by reference.
(B) Previously filed with the Securities and Exchange Commission as an Exhibit
to MHB's Amendment No. 1 to the Registration Statement on Form S-4
(Commission File No. 33-71666), as filed on October 12, 1994, and
incorporated herein by reference.
(C) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Company's Annual Report for the fiscal year ended September 30, 1999
(Commission File No. 0-20316), and incorporated herein by reference.
(D) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Company's Annual Report for the fiscal year ended September 30, 2000
(Commission File No. 1-51695), and incorporated herein by reference.
(E) Omitted.
(F) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Company's Annual Report for the fiscal year ended September 30, 2002
(Commission File No. 1-51695) as amended, and incorporated herein by
reference.
(G) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Company's Current Report for the event occurred on May 25, 2004
(Commission File No. 1-15695), and incorporated herein by reference.
Dates Referenced Herein and Documents Incorporated by Reference
| Referenced-On Page |
|---|
| This ‘10KSB/A’ Filing | | Date | | First | | Last | | | Other Filings |
|---|
| |  |
| | 12/15/05 | | 1 | | 12 |
| | 9/30/05 | | 12 | | | | | 10KSB, NT 10-K |
| Filed on: | | 3/4/05 | | 1 |
| | 12/31/04 | | 1 | | 12 | | | 10QSB, 10QSB/A |
| | 12/27/04 | | 1 |
| | 12/24/04 | | 1 |
| | 12/20/04 | | 1 |
| | 12/17/04 | | 1 | | 3 |
| | 12/10/04 | | 12 | | | | | 8-K |
| | 12/8/04 | | 1 | | 3 |
| For Period End: | | 9/30/04 | | 1 | | 12 | | | 10KSB, 10KSB/A |
| | 9/28/04 | | 1 | | | | | DEF 14A |
| | 5/25/04 | | 1 | | 12 | | | 8-K |
| | 3/17/04 | | 1 |
| | 3/3/04 | | 1 |
| | 1/30/04 | | 1 |
| | 12/16/03 | | 1 | | 12 | | | 8-K, 8-K/A |
| | 12/1/03 | | 1 |
| | 9/30/03 | | 1 | | 12 | | | 10KSB, 8-K, ARS, NT 10-K |
| | 12/11/02 | | 12 |
| | 10/1/02 | | 1 | | 12 |
| | 9/30/02 | | 1 | | 12 | | | 10KSB, 10KSB/A |
| | 9/1/02 | | 1 |
| | 9/30/00 | | 1 | | 12 | | | 10KSB, ARS, DEF 14A, NT 10-K, PRE 14A |
| | 3/6/00 | | 1 |
| | 1/1/00 | | 1 |
| | 9/30/99 | | 1 | | 12 | | | 10KSB, ARS, NT 10-K |
| | 5/19/95 | | 1 |
| | 10/12/94 | | 1 | | 12 |
| | 8/15/94 | | 1 | | 12 |
| | 7/23/93 | | 1 | | 12 |
| | 5/28/92 | | 1 |
| List all Filings |
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