<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the quarterly period ended June 30, 1996.
[ ] Transition report pursuant to Section 13 or 15(d) of the Exchange act for
the transition period from to
Commission File Number: 0-20316
Avitar, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 06-1174053
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 Thorpe Avenue, Wallingford, Connecticut 06492
(Address of principal executive offices) (Zip Code)
(203)265-3594
(Issuer's telephone number)
556 Washington Avenue, North Haven, CT 06473
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [x]Yes [ ]No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
COMMON STOCK: 6, 966,884
AS OF AUGUST 12, 1996
Transitional Small Business Disclosure Format
(Check One): [ ] Yes ; [x] No
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PART I: FINANCIAL INFORMATION 3
Item 1 Consolidated Financial Statements
Balance Sheet 4
Statements of Operations 5
Statement of Stockholders' Equity 6
Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8-10
Item 2 Management's Discussion and Analysis or Plan of Operation 11-14
PART II: OTHER INFORMATION 15
Item 5 Other Information 16
Item 6 Exhibits and Reports on Form 8-K 16
SIGNATURES 17
EXHIBIT INDEX 18
</TABLE>
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PART I FINANCIAL INFORMATION
3
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ITEM 1. FINANCIAL STATEMENTS
Avitar, Inc. and Subsidiaries
Consolidated Balance Sheet
June 30, 1996
(Unaudited)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 918,856
Accounts receivable, net 868,170
Inventories 227,617
Prepaid expenses and other 52,737
------------
Total current assets 2,067,380
PROPERTY AND EQUIPMENT, net 417,439
GOODWILL , net of accumulated amortization of $626,799 4,970,316
OTHER ASSETS 39,671
------------
Total $ 7,494,806
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable (including $275,000 to an affiliate) $ 487,502
Accounts payable 641,130
Accrued expenses 515,622
Current portion of long-term debt 151,897
------------
Total current liabilities 1,796,151
LONG TERM DEBT, LESS CURRENT PORTION 301,867
------------
Total liabilities 2,098,018
------------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Series A convertible preferred stock, $.01 par value; authorized
5,000,000 shares; 1,275,261 shares issued and outstanding 12,752
Common Stock, $.01 par value; authorized 25,000,000 shares;
6,966,884 shares issued and outstanding 69,669
Additional paid-in capital 12,947,992
Accumulated deficit (7,633,625)
------------
Total stockholders' equity 5,396,788
------------
Total $ 7,494,806
============
</TABLE>
See accompanying notes to consolidated financial statements.
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Avitar, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, NINE MONTHS ENDED JUNE 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Sales $ 1,098,887 $ 1,108,585 $ 3,591,472 $ 2,094,137
Other revenue 492,819 -- 492,819 --
----------- ----------- ----------- -----------
Total revenues 1,591,706 1,108,585 4,084,291 2,094,137
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Direct cost of revenues 682,198 449,604 2,252,175 700,551
Selling, general and administrative expenses 596,312 439,439 1,753,774 1,059,802
Research and development expenses 91,238 539,672 260,778 539,672
Amortization of goodwill 139,926 70,502 419,782 70,502
----------- ----------- ----------- -----------
Total operating expenses 1,509,674 1,499,217 4,686,509 2,370,527
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 82,032 (390,632) (602,218) (276,390)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest income -- 84,810 137 238,361
Interest expense and financing costs (32,506) (63,546) (96,652) (116,772)
Other income, net -- 2,943 --
----------- ----------- ----------- -----------
Total other income (expense) (32,506) 21,264 (93,572) 121,589
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 49,526 (369,368) (695,790) (154,801)
PROVISION FOR INCOME TAXES 8,456 4,500 13,500 12,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 41,070 ($ 373,868) ($ 709,290) ($ 166,801)
=========== =========== =========== ===========
INCOME (LOSS) PER SHARE $ 0.01 ($ 0.08) ($ 0.13) ($ 0.03)
=========== =========== =========== ===========
WEIGHTED AVERAGE
NUMBER OF COMMON SHARES OUTSTANDING 5,785,495 4,997,320 5,379,828 4,848,328
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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Avitar, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
Nine Months Ended June 30, 1996
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------------ -----------------------
Additional Accumulated
Shares Amount Shares Amount paid-in capital deficit
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1995 1,097,981 $ 10,980 5,177,450 $ 51,775 $11,367,825 ($6,924,335)
Sale of Preferred Stock 50,000 500 49,500
Sale of Common Stock and Warrants 1,774,434 $ 17,774 1,421,236
Issuance of Common Stock for Services 12,000 $ 120 12,555
Conversion of Notes Payable 127,280 1,272 126,008
Placement fees for Conversion ($ 29,222)
of Notes Payable and Sale
of Preferred Stock
Net Loss (709,290)
========= =========== ========= =========== =========== ===========
Balance June 30, 1996 1,275,261 $ 12,752 6,966,884 $ 69,669 $12,947,992 ($7,663,625)
========= =========== ========= =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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Avitar, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($ 709,290) ($ 166,801)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 144,423 31,285
Amortization of goodwill 419,782 70,502
Interest on advances to affiliate -- (236,601)
Provision (recovery) for losses on accounts receivable 5,297 (12,944)
Amortization of debt discount -- 49,214
Non-cash charges for consulting services 12,675 12,500
Non-cash charges for research and development -- 503,943
Changes in operating assets and liabilities:
Increase in accounts receivable (237,778) (233,481)
Decrease (increase) in prepaid expenses and other current assets 32,876 8,959
Increase in other assets (63,668) (1,500)
Increase (decrease) in accounts payable, accrued
expenses and customer advances (278,877) 43,406
----------- -----------
Net cash provided by (used in) operating activities (674,560) 68,482
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to (investment in) affiliate -- (1,056,464)
Purchases of property and equipment (44,069) (7,000)
Increase in deferred acquisition costs -- (259,410)
----------- -----------
Net cash used in investing activities (44,069) (1,322,874)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and warrants 216,964 968,473
Sales of preferred stock, common stock and warrants, net 1,459,878 100,000
Repayment of long-term debt (61,344) (9,917)
Repayment of notes payable (122,294) --
Other (11,128) --
----------- -----------
Net cash provided by financing activities 1,482,076 1,058,556
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS 763,447 (195,836)
CASH AND CASH EQUIVALENTS, beginning of the period 155,409 361,499
----------- -----------
CASH AND CASH EQUIVALENTS, end of the period $ 918,856 $ 165,663
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during period:
Income taxes $ 3,567 $ 6,383
Interest 79,057 --
</TABLE>
See accompanying notes to consolidated financial statements.
7
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AVITAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
1. BASIS OF PRESENTATION
Avitar, Inc. ("Avitar" or the "Company"), through its wholly-owned
subsidiary, Managed Health Benefits Corporation ("MHB"), is in the business
of providing cost containment services to assist employers and other
third-party payers in controlling costs of group medical, workers'
compensation and disability benefits. MHB has targeted certain economically
significant benefit areas where it believes health benefit payors have
difficulty in controlling costs: mental health, hospitalization and
occupational health and safety. Most of MHB's customers are located or
headquartered in the United States.
As discussed in Note 2, in May 1995, the Company acquired Avitar, Inc.
(which changed its name to Avitar Technologies, Inc. ("ATI")). ATI designs,
develops, manufactures and markets health care products and services. ATI
sells its products and services primarily to large medical supply
companies.
The accompanying consolidated financial statements of the Company have been
prepared in accordance with generally accepted accounting principles for
interim financial information, the instructions to Form 10-QSB and
Regulation S-B (including Item 310(b) thereof). Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
the Company's management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and nine month periods ended June
30, 1996 are not necessarily indicative of the results that may be expected
for the full fiscal year ending September 30, 1996. The accompanying
consolidated financial statements should be read in conjunction with the
audited financial statements of the Company for the fiscal year ended
September 30, 1995.
The Company's consolidated financial statements have been presented on the
basis that it is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business. The Company has suffered significant recurring losses from
operations and has a working capital as of June 30, 1996 of only $271,229.
The Company raised net proceeds aggregating $1,500,000 during the years
ended September 30, 1995 and 1994 from the sale of common stock, a total of
$1,240,000 during the years ended September 30, 1995 and 1994 from the
issuance of notes, of which $1,040,000 was converted to equity at September
30, 1995, and $50,000 from the sale of Series A Convertible Preferred Stock
during the three months ended December 31, 1995. The Company was successful
in obtaining debt financing from a bank (see Note 4) and converting
$125,000 of the notes described above into equity (see Note 4). In
addition, the Company raised net proceeds aggregating approximately
$1,440,000 during May and June 1996 from the sale of common stock. In April
1996, the Company and Convatec , a division of E.R. Squibb and Sons, Inc.
("Convatec"), determined that it was necessary to modify and clairfy their
rights and obligations under the Supply and the License Agreement in light
of intervening business developments, facts, and circumstances. The Company
had entered into these agreements on June 30, 1994 with Calgon Vestal
Laboratories, Inc., now owned by
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Convatec. In consideration for the amendments to the agreements, Convatec
immediately compensated the Company $250,000, all of which was recognized
as income during the quarter ended June 30, 1996. In addition, the amended
agreements contain certain provisions that eliminate the Company's
obligation to repay any of the $425,000 received from Convatec in July 1994
as a licensing fee (the balance of which was also recognized as income
during the quarter ended June 30, 1996). Based upon current revenues,
expenses and cash flow projections, the Company believes the current level
of working capital, anticipated cash flow from operations, and net proceeds
from the financings noted above will be sufficient to finance the Company's
operating needs until the combined operations achieve profitability. There
can be no assurances that forecasted results will be achieved. The
financial statements do not include any adjustments relating to the
recoverability and classification of asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
2. ACQUISITION
The Company (formerly Managed Health Benefits Corporation) acquired Avitar,
Inc. on May 19, 1995 though a merger transaction. Pursuant to this merger,
the Company changed its name to Avitar, Inc. The Company is now a holding
company with two operating subsidiaries, MHB and ATI (see Note 1). The
results of operations for ATI have been included for the three and nine
months ended June 30, 1996.
Pro forma operating results, as if the acquisition had occurred October 1,
1994 follow. These pro forma results reflect (i) amortization of goodwill
from October 1, 1994, and (ii) elimination of interest income (expense) on
the Company's advances to ATI.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended June 30, 1995 Ended June 30, 1995
------------------- -------------------
<S> <C> <C>
Revenues $ 1,355,734 $ 3,238,286
Net Loss (856,582) (2,060,207)
Net Loss per Share (.17) (.40)
</TABLE>
3. INVENTORIES
At June 30, 1996, inventories consist of the following:
<TABLE>
<S> <C>
Raw Materials $101,356
Work-in-Process 22,668
Finished Goods 103,593
--------
Total $227,617
========
</TABLE>
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4. NOTES PAYABLE
In January 1996, the Company obtained a $1,250,000 credit line from Silicon
Valley Financial Services, a division of Silicon Valley Bank. Under the
terms of the agreement, Silicon Valley Financial Services will advance
funds against 80% of the Company's qualified accounts receivable for an
administrative fee of .25 to .5% and interest at the rate of 2% per month
of the outstanding loan balance. As of June 30, 1996, the Company had
borrowed approximately $195,000 against its line of credit. The agreement
also provides for the interest rate to decrease to a rate not lower than
1.25% per month as the revenues of the Company grow and meet
pre-established levels.
In November 1995 and February 1996, the Company repaid certain notes
payable totaling $75,000 and interest accrued thereon totaling $6,208.
During March 1996, certain debt holders agreed to exchange their debt
totaling $125,000, and accrued interest thereon of $2,280, for 127,280
shares of Series A Convertible Preferred Stock. Each share of Series A
Convertible Preferred Stock entitles its holder to convert it at any time
into three shares of Common Stock and receive dividends in an amount equal
to 110% of any dividends paid on the Company's Common Stock into which each
share is convertible.
5. MAJOR CUSTOMERS
Customers in excess of 10% of total sales are:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Customer A* $ 368,000 -- $1,206,000 --
Customer B 123,000 $ 213,000 379,000 $ 625,000
Customer C 158,000 391,000 366,000 790,000
</TABLE>
*Represents ATI customer and sales
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion and analysis includes the operations of ATI only for
the three and nine months ended June 30, 1996 and should be read in conjunction
with the Company's consolidated financial statements and the notes thereto
appearing elsewhere in this report.
RESULTS OF OPERATIONS
REVENUES
Sales for the three months ended June 30, 1996 decreased $9,698, or
approximately 1%, to $1,098,887 from $1,108,585 for the corresponding
period of the prior year. For the nine months ended June 30, 1996, sales
increased $1,497,335, or approximately 72%, to $3,591,472 from $2,094,137
for the nine months ended June 30, 1995. In addition to the increase in
revenue from the sales of Medgate OHS&E Software of approximately $74,000
for the nine months ended June 30, 1996, the change reflects additional
revenues from the operations of ATI for the three and nine months ended
June 30, 1996, of $132,510 and $1,563,922; respectively; offset by
decreases in sales of psychiatric review services of $216,208 and $140,587
for the three and nine months ended June 30, 1996 , respectively.
Other revenues of $492,819 for the three and nine months ended June 30,1996
reflect income recognized in connection with the amendments to ATI's
License and Supply Agreements with Convatec.
OPERATING EXPENSES
For the three months ended June 30, 1996, the direct costs of sales were
$682,198, or approximately 62% of sales, as compared to $449,604, or
approximately 41% of sales, for the three months ended June 30, 1995. The
direct costs of sales for the nine months ended June 30, 1996 were
$2,252,175, or approximately 63% of sales as compared to $700,551, or 33%
of sales, for the corresponding period of the prior year. Excluding the
costs associated with the sales of ATI for the three and nine months ended
June 30, 1996, the direct cost of sales for MHB amounted to $144,161,
approximately 23% of sales, for the three months ended June 30, 1996 and
$449,333, approximately 27% of sales, for the nine months ended June 30,
1996. For the three and nine months ended June 30, 1995, the direct costs
of sales for MHB were $140,875, approximately 19% of sales, and $391,822,
approximately 22% of sales, respectively. The higher ratio of direct costs
to sales for MHB during the three and six months ended June 30, 1996 was
primarily related to the decrease in MHB sales described above.
Sales, general and administrative expenses for the three months ended June
30, 1996 increased $156,873, or approximately 36%, to $596,312 from
$439,439 for the corresponding period of the prior year. For the nine
months ended June 30, 1996, sales, general and administrative expenses
increased $639,972, or approximately 65%, to $1,753,774 from $1,059,802 for
the nine months ended June 30, 1995. The increase for the three months
ended June 30, 1996 resulted mainly from the additional operating expenses
of ATI of $182,027. For the nine-month period ended June 30, 1996, the
increase was primarily attributable to the additional operating expenses of
ATI
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of $758,281, offset in part by a reduction of approximately $33,000 of
administrative expenses at MHB.
Research and development expenses for the three months ended June 30, 1996
amounted to $91,238 compared to $539,672 for corresponding period of the
prior year. For the nine months ended June 30, 1996, research and
development expenses were $260,778 versus $539,672 for the nine months
ended June 30, 1995. The decrease for the three and nine-month periods
ended June 30, 1996 was attributable to the non-recurring adjustment for
research and development expense of $503,943 that was recorded during the
quarter ended June 30, 1995.
Amortization of goodwill for the three and nine months ended June 30, 1996
was $139,1926 and $419,782, respectively. For the three and nine months
ended June 30, 1995, amortization of goodwill amounted to $70,502 which
covered the period from the date of the acquisition of ATI, May 19, 1995.
OTHER INCOME AND EXPENSE
No interest income was earned for the three months ended June 30, 1996 as
compared to $84,720 for the three months ended June 30, 1995. For the nine
months ended June 30, 1996, interest income amounted to $137 as compared to
$238,361 for the corresponding period of the prior year. The change for the
three and nine months ended June 30, 1996 is related primarily to the
interest charges on loans made to ATI prior to the acquisition. Since these
interest charges were considered not to be collectible, the amount included
in the interim financial statements for the three and nine months ended
June 30, 1995 was reversed in the fourth quarter of the fiscal year ended
September 30, 1995.
Interest expenses and financing costs were $32,506 for the three months
ended June 30, 1996 as compared to $63,546 for the corresponding period of
the prior year. For the nine months ended June 30, 1996, interest expenses
and financing costs were $96,652 as compared to $116,772 for the nine
months ended June 30, 1995. These changes resulted from interest expenses
of ATI for the three and nine months ended June 30, 1996 of approximately
$19,000 and $66,000, respectively, offset in part by a reduction in
interest expense on MHB's bridge loans for the three and nine months ended
June 30, 1996 of $50,000 and $86,000, respectively.
NET INCOME (LOSS)
Primarily as a result of the factors described above, the Company had net
income of $41,070 ($0.01 per share) for the three months ended June 30,
1996, as compared to a net loss of $373,868 ($0.08 per share) for the three
months ended June 30, 1995. For the nine months ended June 30, 1996, the
net loss was $709,290 ($0.13 per share) versus a net loss of $166,801
($0.03 per share) for the corresponding period of the prior year.
FINANCIAL CONDITION AND LIQUIDITY
At June 30, 1996 and September 30, 1995, the Company had working capital
(deficiency) of $271,229 and ($800,583), respectively and cash and cash
equivalents of $918,856 and $155,409, respectively. Net cash used in
operating activities during the nine months ended June 30, 1996
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amounted to $674,560 resulting primarily from an operating loss of
$709,290, increases in accounts receivable of $237,778, decreases in
accounts payable, accrued expenses and customer advances of $278,877 and
increases in inventories and other assets of $63,668; partially offset by
depreciation and amortization of equipment and goodwill of $564,205 and
decreases in prepaid expenses of $32,876. Net cash provided by financing
and investing activities for the same period was $1,438,007 which included
proceeds from notes payable and sales of preferred stock, common stock, and
warrants of $1,676,572, repayment of long-term debt, notes payable and
other of $194,766, and purchase of equipment of $44,069.
During October 1995, the Company sold 50,000 shares of its Series A
Convertible Preferred Stock in a private placement for a total of $50,000.
In March 1996, certain debt holders agreed to exchange their debt totaling
$125,000, and accrued interest thereon of $2,280, for 127,280 shares of
Series A Convertible Preferred Stock. Each share of this Series A
Convertible Preferred Stock entitles its holder to convert it at any time
into three shares of the Company's Common Stock and receive dividends in an
amount equal to 110% of any dividends paid on the Company's Common Stock
into which each share is convertible.
In January 1996, the Company obtained a $1,250,000 credit line from Silicon
Valley Financial Services, a division of Silicon Valley Bank. Under the
terms of the agreement, Silicon Valley Financial Services will advance
funds against 80% of the Company's qualified accounts receivable for an
administrative fee of .25 to .5% and interest at the rate of 2% per month
of the outstanding loan balance. As of June 30, 1996, the Company had
borrowed approximately $195,000 against its line of credit. The agreement
also provides for the interest rate to decrease to a rate not lower than
1.25% per month as the revenues of the Company grow and meet
pre-established levels.
During April 1996, the Company and Convatec, a division of E.R. Squibb &
Sons, Inc. ("Convatec") determined that it was necessary to modify and
clarify their rights and obligations under the Supply Agreement in light of
intervening business developments, facts, and circumstances. The Company
entered into these agreements on June 30, 1994 with Calgon Vestal
Laboratories, Inc., now owned by Convatec. In consideration for the
amendments to the agreements, Convatec immediately compensated the Company
$250,000, all of which was recognized as income during the quarter ending
June 30, 1996. In addition, the amended agreements contain termination
provisions that eliminate the Company's obligation to repay any of the
$425,000 received from Convatec in July 1994 as a licensing fee (the
balance of which was recorded as income during the quarter ended June 30,
1996).
In April 1996, the Company negotiated a settlement with an investment firm
that assisted the Company in the placement of its common stock under
Regulation S in 1994. Under the settlement, the Company received
approximately $89,000 from the exercise of the warrants granted to this
firm. In May and June 1996, the Company completed Regulation S placements
of 1,472,144 shares of its common stock to offshore investors resulting in
net proceeds of approximately $1,250,000. In addition, the Company sold
114,116 shares of its common stock during May and June 1996 for an
aggregate amount of $100,000.
For the balance of fiscal year 1996, the Company's cash requirements are
expected to include primarily the funding of any operating losses, the
payment of accrued professional fees and expenses incurred in relation to
the acquisition of ATI, and the repayment of the outstanding
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amount owed by ATI to PK&S ($275,000 principal amount plus all the accrued
interest thereof) if and to the extent that the Company has sufficient
funds available for such payment.
Operating revenues of the Company increased significantly during fiscal
year 1995 and are expected to continue increasing during fiscal year 1996.
Based on current sales, expense and cash flow projections, the Company
believes that the current level of cash on hand and the anticipated cash
flow from operations would be sufficient to fund operations until the
combined operations achieve profitability. Although the Company had
expected its combined operations to achieve profitability and generate
positive cash flow by the third quarter of calendar year 1996, the lower
than anticipated level of sales of products and services at ATI and MHB
will prevent the company from reaching this level of performance until at
least the forth calendar quarter of 1996. The longer-term cash requirements
of the Company to fund operating activities, purchase capital equipment and
possibly expand the business are expected to be met by the anticipated cash
flow from operations. However, because there can be no assurances that
sales will materialize as forecasted, management will continue to closely
monitor and attempt to control costs at the Company and will continue to
actively seek any needed additional capital on favorable terms.
As a result of the Company's recurring losses from operations and working
capital deficit, the report of its independent certified public accountants
relating to the financial statements for the fiscal year ended September
30, 1995 contains an explanatory paragraph stating substantial doubt about
the Company's ability to continue as a going concern. Such report also
states that the ultimate outcome of this matter could not be determined as
of the date of such report (November 17, 1995). The Company's plans to
address the situation are presented above. However, there are no assurances
that these endeavors will be successful or sufficient.
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PART II OTHER INFORMATION
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ITEM 2 CHANGES IN SECURITIES
On June 12, 1996, the Expiration Date of the Redeemable Warrants of the Company
(AVITW-SmallCap) was extended from August 10,1996 to November 30, 1996.
Accordingly, holders may exercise such Redeemable Warrants until November 30,
1996 subject to the terms thereof.
ITEM 5. OTHER INFORMATION
The Company presently has 2,733,219 redeemable warrants outstanding. Each
redeemable warrant is estimated to enable its holder to purchase 3.57 (subject
to further adjustment) shares of the Company's common stock at an exercise price
of $1.96 (subject to further adjustment) per share any time until November 30,
1996 unless earlier redeemed by the Company. The closing bid price of the
Company's common stock on August 5, 1996 was $0.94 per share.
A registration statement on Form S-3 covering the shares underlying the
Redeemable Warrants and certain other warrants was filed with the Securities and
Exchange Commission on July 31, 1996 and became effective on August 7, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Document
10.28 Form of Offshore Securities Subscription Agreement
between the Company and parties purchasing common
stock under Regulation S during May-June 1996.
10.29 Form of Subscription Agreement between the
Company and the parties purchasing common stock
during May-June, 1996.
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the Company during the
quarter covered by this Report on Form 10-QSB.
16
<PAGE> 17
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AVITAR, INC.
(Registrant)
Dated: August 12, 1996 /s/ Peter P. Phildius
--------------------------------
Peter P. Phildius
Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
Dated: August 12, 1996 /s/ J.C. Leatherman, Jr.
--------------------------------
J.C. Leatherman, Jr.
Controller and Chief
Financial and Accounting Officer
(Principal Accounting and
Financial Officer)
17
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Document Page
- ----------- -------- ----
<S> <C> <C>
10.28 Form of Offshore Securities Subscription Agreement 19
between the Company and parties purchasing common
stock under Regulation S during May-June 1996.
10.29 Form of Subscription Agreement between the 29
Company and parties purchasing common stock during
May-June 1996.
27 Financial Data Schedule
</TABLE>
18
<PAGE> 1
EXHIBIT NO. 10.28
19
<PAGE> 2
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
THIS OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT is executed in reliance
upon the transaction exemption afforded by Regulation S ("Regulation S") as
promulgated by the Securities and Exchange Commission ("SEC"), under the
Securities Act of 1933, as amended ("1993 Act").
THIS AGREEMENT has been executed by the undersigned in connection with
the private placement of shares of Common Stock (hereinafter referred to as the
"Shares") of AVITAR, INC. (hereinafter referred to as "AVIT") located at 65 Dan
Road, Canton, Massachusetts 02021; a corporation organized under the laws of
Delaware, United States of America (hereinafter referred to as "Seller" or
"Company"). The undersigned, _____________________, a corporation organized
under the laws of _______________ jurisdiction (hereinafter referred to as
"Purchaser"), hereby represents and warrants to, and agrees with Seller as
follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE
a. The undersigned hereby subscribes for ________ Shares of the Common
Stock of AVIT for an aggregate amount of $________ (US).
b. Form of Payment. Purchaser shall pay the purchase price by
delivering immediately available funds in United States Dollars to Levy & Levy,
P.A., Attn: William N. Levy, Esq., Plaza 1000, Suite 309, Voorhees, New Jersey
08043 as Escrow Agent, by delivery of securities versus payment.
2. ACCEPTANCE OF SUBSCRIPTION
a. This subscription may be accepted or rejected by the Company at its
sole discretion.
b. This subscription shall be deemed accepted only when this Agreement
is signed by the Company in the space provided on the signature page hereof.
c. If the Company receives subscriptions from multiple subscribers, it
has no obligation to accept subscriptions in the order received.
3. PURCHASER REPRESENTATIONS AND WARRANTIES
a. Offshore Transaction. Purchaser hereby represents and warrants to
Seller as of the date hereof and as of the Closing Date as follows:
(i) If the Purchaser is a corporation, it is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, and if the Purchaser is a partnership or other organization, it
is duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization.
<PAGE> 3
(ii) (a) If the Purchaser is a corporation, the execution, delivery
and performance of this Agreement have been duly authorized by
all necessary corporate action, (b) if the Purchaser is a
partnership or other organization, the other governing
documents to enter into this Agreement and to consummate the
transactions contemplated hereby and all necessary consents and
approvals required by the partnership agreement or other
governing documents have been obtained, and (c) this Agreement
constitutes a legal, valid and binding obligation of the
Purchaser, enforceable against the Purchaser in accordance with
its terms, except to the extent that enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights
generally.
(iii) The Purchaser did not receive any offer to purchase the Shares
in the United States. This Agreement has not been executed by
the Purchaser in the United States.
(iv) The Purchaser is not a "U.S. person," as defined in Rule
902(o) of Regulation S (a "U.S. Person"), promulgated under the
Securities Act of 1933, as amended (the "1933 Act") and as set
forth in Schedule A attached hereto, and is not acquiring the
Shares, directly or indirectly, for the account or benefit of
any U.S. Person.
(v) The Purchaser (a) has received a copy of the Disclosure
Documents (as hereinafter defined) and has carefully reviewed
and understands the Disclosure Documents and this Agreement and
(b) understands that, except as set forth in the Disclosure
Documents and in this Agreement, no representations or
warranties have been made to the Purchaser by the Company or by
any distributor, or by any of their officers, directors,
employees, agents or affiliates, and (c) agrees that, in
connection with the purchase of the Shares, it is not relying
upon any information concerning the Company, other than (i)
that contained in the Disclosure Documents and in this
Agreement and (ii) on the results of its own independent
investigations. The term "Disclosure Documents" shall mean (a)
the Company's latest Annual Report to Shareholders on Form 10-K
(without exhibits), (b) the Company's Quarterly Reports on Form
10-Q and Form 8-K thereafter, and (c) copies of the Company's
significant press releases issued after said Annual Report.
(vi) The Purchaser understands that (a) no governmental authority
has passed upon the accuracy or completeness of the Disclosure
Documents or has made any finding or determination concerning
the appropriateness or suitability of an investment in the
Shares and (b) no governmental authority has recommended or
endorsed, or will recommend or endorse, the investment in the
Shares.
2
<PAGE> 4
(vii) The Purchaser is acquiring the Shares for investment and not
purchasing the Shares with a view to the distribution thereof
within the meaning of the 1933 Act.
(viii) The Purchaser will not engage in any transaction or series of
transactions that, although in technical compliance with
Regulation S, is part of a plan or scheme to evade the
registration requirements of the 1933 Act with respect to the
Shares.
(ix) All subsequent offers and sales of the Shares by Purchaser shall
be made in compliance with Regulation S under the Securities
Act, pursuant to registration under the Securities Act or
pursuant to an exemption from such registration. In any case,
the Shares shall not be resold to U.S. persons or within the
United States during the period of forty (40) days commencing on
the date of Closing of the purchase of the Shares.
(x) Purchaser understands that the Shares are being offered and sold
to it in reliance on specific exemptions from the registration
requirements of Federal and State securities laws and that the
Seller is relying upon the truth and accuracy of the
representations, warranties, agreements acknowledgements and
understandings of Purchaser set forth herein in order to
determine the applicability of such exemptions and the
suitability of Purchaser to acquire the Shares.
(xi) Purchaser agrees to indemnify and hold the Company, the
Distributor, their respective officers, directors and
shareholders or any other person who may be deemed to control
the Company or the Distributor harmless from any loss,
liability, claim, damage or expense, arising out of the
inaccuracy of any of Purchaser's representations, warranties
or statements or the breach of any of the agreements contained
herein.
4. LIMITATIONS ON TRANSFER AND CERTAIN COVENANTS.
a. The Purchaser acknowledges that (i) the Shares have not been
registered under the 1933 Act in reliance on provisions of Rule 903 or Rule 904
of Regulation S, nor have the Shares been registered or qualified for sale
under the laws of any other jurisdiction (either within or outside of the
United States) and (ii) the Company has no obligations hereunder or any current
intention to effect any such registration or qualification.
b. The Purchaser covenants and agrees that it will not sell the Shares
to a U.S. Person, or for the account or benefit of a U.S. Person, prior to the
expiration of a period of 40 days following the Closing Date ("Restricted
Period").
3
<PAGE> 5
c. The Purchaser acknowledges that the certificates evidencing the
Shares will bear the following legend:
"These shares have been issued pursuant to Regulation S as an
exemption to the registration provisions under the Securities Act of
1933, as amended. These shares cannot be transferred, offered or sold
in the U.S. or to U.S. persons (as defined in Regulation S) until after
____________________, 1996 (Forty-one days after issuance)."
The Company covenants and agrees that following the expiration of the
Restricted Period it will advise the transfer agent for the Common Stock, upon
the request of a recordholder of the Shares, that the foregoing legend can be
removed from the certificate for the Shares.
d. The Purchaser represents and warrants to the Company that, as of the
date hereof and as of the Closing Date, neither it nor any of its affiliates
has, and covenants that during the Restricted Period neither it nor any of its
affiliates will establish or maintain, any short position (including any short
call position or any long put position) with respect to the Common Stock of the
Company, and that no such person or entity is a party to, nor shall it enter
into during the Restricted Period, any contract or arrangement having the effect
of eliminating or substantially diminishing the risk of ownership of the Shares.
5. REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Purchaser, as of the date
hereof and as of the Closing Date, that:
a. The Company is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation.
b. The execution, delivery and performance of this Agreement has
been duly authorized by all necessary corporate action and this
Agreement constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except to
the extent that enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting
creditors' rights generally.
c. The execution, delivery and performance of this Agreement does
and will not (i) violate any provision of the Company's Certificate of
Incorporation or By-laws, (ii) violate or breach any material contract
or agreement to which the Company is a party, (iii) result in the
creation of any lien, security interest, charge or encumbrance on any
property or assets of the Company, or (iv) require the authorization,
consent or approval of any court or any administrative or governmental
body pursuant to any law, statute, rule or regulation to which the
Company is subject to any order, judgment or decree by which the
Company is bound.
4
<PAGE> 6
d. When issued in accordance with the terms of this Agreement, the
Shares:
(i) except for the Regulation S legend provided in this
Agreement, will be free and clear of any restrictions, liens,
claims or other encumbrances by the Company (other than those
that may arise by reason of any action or inaction of the
Purchaser);
(ii) will be duly authorized, validly issued, fully paid and
nonassessable;
(iii) will not have been issued or sold in violation of any
preemptive or other similar rights of the holders of any
securities of the Company; and
(iv) will not subject the holders thereof to personal liability
to the Company solely by reason of their ownership of such
Shares.
e. The Company is a "Reporting Issuer" as defined by Rule 902(I) of
Regulation S. The Company is in full compliance, to the extent
applicable, with all reporting obligations under either Section 12(b),
12(g) or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Common Stock trades on NASDAQ Small Cap and its
trading symbol is "AVII".
f. Seller has not offered the securities which are the subject of
this transaction to any person in the United States, any identifiable
groups of U.S. citizens abroad, or to any U.S. person as that term is
defined in Regulation S.
g. At the time the buy order was originated, Seller and/or its
agents reasonably believed Purchaser was outside of the United States
and was not a U.S. person.
h. Seller and/or its agents reasonably believe that the
transaction has not been pre-arranged with a buyer in the United States.
i. In regard to this transaction, Seller has not conducted any
"directed selling efforts" as that term is defined in Rule 902 of
Regulation S nor has Seller conducted any general solicitation relating
to the offer and sale of the securities which are the subject of this
transaction to persons resident within the United States or elsewhere.
Each of the foregoing representations and warranties shall survive the
Closing.
6. REMEDIES.
In the event of a breach by the Purchaser of any of the
representations, warranties or covenants contained in this Agreement, and
without limitation of any other remedy available to the Company at law or in
equity, the Company shall have the right and the option to rescind the sale of
the Shares to the Purchaser. In such case, the amount payable to the Purchaser
upon rescission will be the aggregate Purchase Price, less all expenses, costs
and damages incurred by the Company, and
5
<PAGE> 7
whereupon the Company shall have no further liability or obligation to the
Purchaser under this Agreement or otherwise.
7. ASSIGNABILITY.
Neither this Agreement, nor the rights or obligations of either party
hereunder, may be transferred or assigned without the prior written consent of
the other party (which may be withheld for any reason in the sole discretion of
the party required to provide such consent) and any purported transfer or
assignment not so consented to shall be void. This Agreement shall be binding
on and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
8. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof, and there are no
representations, warranties, covenants or other agreements of either party
except as stated herein.
9. AMENDMENTS.
No provision of this Agreement shall be waived, discharged or amended,
except by an instrument in writing signed by the party against whom any such
waiver, modification, discharge or amendment is sought.
10. WAIVERS.
No waiver by either party of any default with respect to any provision,
condition or requirements of this Agreement shall be deemed to be a waiver of
any future default with respect to the same provision, condition or
requirement, or a waiver of any other provision, condition or requirement
hereof. No delay or omission of either party to exercise any right hereunder
shall in any manner impair the exercise of such right at any future time.
11. APPLICABLE LAW.
This Agreement shall be construed in accordance with and governed by
the laws of the State of New York without regard to the conflicts of laws
principles thereof.
12. SEVERABILITY.
Each provision of this Agreement shall be considered severable and if
for any reason any provision which is not essential to the effectuation of the
basic purposes of this Agreement is determined by a court of competent
jurisdiction to be invalid or unenforceable, or contrary to existing or
future applicable law, such invalidity shall not impair the operation of or
affect those provisions of this Agreement which are valid. In such case, this
Agreement shall be construed so as to limit any term or provision so as to make
it enforceable or valid within the requirements of any applicable
6
<PAGE> 8
law, and in the event such term or provision cannot be so limited, this
Agreement shall be construed to omit such invalid or unenforceable provision.
13. FAX SIGNATURES AND COUNTERPARTS.
This Agreement may be executed in any number of counterparts, including
counterparts transmitted by telecopier or FAX, any one of which shall
constitute an original of this Agreement. When counterparts of facsimile copies
have been executed by all parties, they shall have the same effect as if the
signature to each counterpart or copy were upon the same document and copies of
such documents shall be deemed valid as originals. The parties agree that all
such signatures may be transferred to a single document upon the request of any
party.
14. NOTICES.
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be effective (a) upon hand delivery or
delivery by telecopy or facsimile at the address or number designated below (if
delivery on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the close of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to the Company: Peter Phildius
Avitar, Inc.
65 Dan Road
Canton, Massachusetts 02021
If to the Purchaser, as set forth on the signature page hereof.
Either party hereto may from time to time change its address for
notices under this Section 14 by giving at least 10 days written notice of such
changed address to the other party hereto.
15. HEADINGS.
The headings herein are for convenience of reference only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
the interpretation of any of the provisions hereof.
16. NO THIRD PARTY BENEFICIARIES.
This Agreement is intended for the benefit of the parties hereto and
their respective successors and permitted assigns, and is not for the benefit
of, nor may any provision hereof be enforced by, any other person.
7
<PAGE> 9
SCHEDULE A
CATEGORIES OF U.S. PERSONS
1.) Any natural person resident in the United States;
2.) Any partnership or corporation organized or incorporated under the laws
of the United States;
3.) Any estate of which any executor or administrator is a U.S. person;
4.) Any trust of which any trustee is a U.S. person;
5.) Any agency or branch of a foreign entity located in the U.S.;
6.) Any non-discretionary account or similar account (other than estate or
trust) held by a dealer or other fiduciary for the benefit or account of
a U.S. person;
7.) Any partnership or corporation if: (A) organized or incorporated under
the laws of any foreign jurisdiction; and (B) formed by a U.S. person
principally for the purpose of investment in securities not registered
under the Act, unless it is organized or incorporated, and owned, by
accredited investors (as defined in Rule 501[a]) who are not natural
persons, estates or trusts.
8.) Any employee benefit plan established and administered in accordance
with the law of a country other than the United States and customary
practices and documentation of such country shall not be deemed a U.S.
person.
9.) Any agency or branch of a U.S. person located outside the United States
shall not be deemed a "U.S. person" if:
the agency or branch operates for valid business
reasons; and the agency or branch is engaged in the
business of insurance or banking and is subject to
substantive insurance or banking regulation,
respectively, in the jurisdiction where located.
10.) the International Monetary Fund, the International Bank for
Reconstruction and Development, the Inter-American Development Bank, the
Asian Development Bank, the African Development Bank, the United States,
and their agencies, affiliates and pension plans, and any other similar
international organizations, their agencies, affiliates and pension
plans shall not be deemed "U.S. person."
<PAGE> 10
12
17. FEES AND EXPENSES
Each party shall pay for the fees and expenses of its own advisers,
counsel, accountants and other experts, if any, and all other expenses incurred
by such party incident to the negotiation, preparation, execution and delivery
and performance of this Agreement.
18. CONSENT OF JURISDICTION
Each of the Company and the Purchaser (i) hereby irrevocably submits to
the nonexclusive jurisdiction of the United States District Court for the
Southern District of New York or any New York State Court arising in New York
and New York County for the purposes of any New York State Court arising in New
York City and New York County for the purposes of any suit, action or proceeding
arising out of or relating to this Agreement and (ii) hereby waives, and agrees
not to assert in any such suit, action or proceeding, any claim that is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. Each of the Company and the Purchaser commits
to process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this paragraph shall affect or
limit any right to serve process in any other manner permitted by law.
IN WITNESS WHEREOF, the undersigned has caused this Offshore Securities
Subscription Agreement to be executed by a duly authorized officer.
- -----------------------------------------------
Name of Purchaser (Please Print or Type)
By:
--------------------------------------------
NAME:
TITLE:
Date:
------------------------
- ------------------------------------------------
Broker Address
- ------------------------ ---------------------
Telephone Number Facsimile Number
ACCEPTED:
AVITAR, INC.
By:
----------------------------------------------
NAME: Peter Phildius
TITLE: Chief Executive Officer
<PAGE> 1
EXHIBIT NO. 10.29
<PAGE> 2
AVITAR, INC.
SUBSCRIPTION AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (the "Act"), AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS
OF SAID ACT AND SUCH LAWS. THE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SAID ACT AND
SUCH LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM,
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY, NOR
HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED
THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE
MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
AGREEMENT, dated as of April 25, 1996 by and between Avitar, Inc., a
Delaware corporation (The "Company"), and the undersigned investor (the
"Purchaser").
WITNESSETH:
WHEREAS, the Company is seeking to raise up to $500,000 from a targeted
group of potential investors;
WHEREAS, in order to effectuate such financing, the Company is offering
for sale shares of its common stock, par value $.01 (the "Common Stock"), in an
aggregate amount up to $500,000 (the "Maximum Amount") with a minimum offering
amount (the "Minimum Amount") of $100,000 (the "Offering");
WHEREAS, the Company is making the Offering pursuant to Regulation D
promulgated under the Securities Act of 1933, as amended; and
WHEREAS, in order to comply with the requirements of Regulation D, the
Company requires the Purchaser to make the representations, warranties and
agreements contained herein to, and for the reliance of, the Company.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, and subject to the terms and conditions set forth herein, the Company
and the Purchaser hereby agree as follows:
<PAGE> 3
2
1. Subscription. The Purchaser, intending to be legally bound, hereby
irrevocably agrees to purchase from the Company the number of shares of
Common Stock (the "Shares") set forth on the signature page hereof, at a
purchase price of $.____ per Share. The Purchaser hereby acknowledges
and agrees that the minimum subscription amount for Shares is $____
(subject to the right of the Company, in its sole discretion, to reduce
such minimum subscription amount).
2. Payment. The Purchaser encloses herewith a check payable to the order
of, or will immediately make a wire transfer payment to, "Avitar, Inc."
in the full amount of the purchase price of the Shares being subscribed
for. To request wire transfer instructions, please contact Jay
Leatherman, Jr., Chief Financial Officer of the Company, at (203)
234-7737. Such funds will be held for the Purchaser's benefit, and will
be returned promptly, without interest, penalty, expense or deduction if
this Subscription Agreement is not accepted by the Company, the Offering
is terminated pursuant to its terms or by the Company, or the Minimum
Amount of Shares is not sold.
3. Segregation of Funds. All payments made as provided in Section 2 hereof
shall be held and kept segregated from its other funds by the Company
until the earliest to occur of (a) the closing of the sale of the
Minimum Amount of Shares (the "First Closing"), (b) the termination of
the Offering by the Company or (c) June 30, 1996 unless extended by the
Company to not later than August 31, 1996 (the "Termination Date"). The
Company may continue to offer and sell the Shares and conduct additional
closing(s) (each, a "Closing") for the sale of additional Shares after
the First Closing and until the Termination Date, at such times and in
such amounts as it, in its sole discretion, deems appropriate.
4. Acceptance of Subscription. The Purchaser understands and agrees that
the Company, in its sole discretion, reserves the right to accept or
reject this or any other subscription for Shares, in whole or in part
and in any order, notwithstanding prior receipt by the Purchaser of
notice of acceptance of this subscription. The Company shall have no
obligation hereunder until the Company shall execute and deliver to the
Purchaser an executed copy of this Subscription Agreement. If this
subscription is rejected in whole or the Offering is terminated or the
Minimum Amount is not raised, all funds received from the Purchaser will
be returned without interest, penalty, expense or deduction, and this
Subscription Agreement shall thereafter be of no further force or
effect. If this subscription is rejected in part, the funds for the
rejected portion of this subscription will be returned without interest,
penalty, expense
<PAGE> 4
3
or deduction, and this Subscription Agreement will continue in full
force and effect to the extent this subscription was accepted.
The Company reserves the right to, in its sole discretion and without
notice to the Purchaser or any other subscribers, increase or decrease
the Minimum Amount and/or the Maximum Amount.
5. Representation, Warranties and Agreements of the Company. The Company
hereby represents and warrants to the Purchaser, and covenants and
agrees with the Purchaser, as follows:
a. The Company has been duly organized, is validly existing and is in
good standing under the laws of the State of Delaware.
b. This Agreement and the issuance of the Shares have been duly
authorized by the Company.
c. The Company is in compliance in all material respects with the
Federal securities laws applicable to the issuance of the Shares to
the Purchaser; provided, however, that in making such representation
and warranty, the Company is relying upon the truth and accuracy of
the Purchaser's representations and warranties set forth in this
Agreement.
d. The Shares, when issued upon payment of the appropriate purchase
price, will be validly issued, fully paid and nonassessable and free
from preemptive rights.
e. (i) The Common Stock is registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
(ii) the Company files periodic reports pursuant to the Exchange Act
and has filed all reports required to be filed thereunder and (iii)
the Common Stock is quoted on The Nasdaq Stock Market (SmallCap
Market).
6. Representations, Warranties and Agreements of the Purchaser. The
Purchaser hereby represents and warrants to the Company, and covenants
and agrees with the Company, as follows:
a. The Purchaser understands and acknowledges that none of the Shares
offered by the Company pursuant to the Offering are registered under
the Securities Act of 1933, as amended (the "Securities Act"), or
any state securities laws. The Purchaser understands that the
offering and sale of the Shares is intended to be exempt from
registration under the Securities Act, by virtue of
<PAGE> 5
4
Section 4(2) and/or Section 4(6) thereof and the provisions of Regulation D
promulgated thereunder, based, in substantial part, upon the representations
warranties and agreements of the Purchaser contained in this Subscription
Agreement.
b. The Purchaser and the Purchaser's attorney, accountant, purchaser
representative and/or tax advisor, if any (collectively, the "Advisors") have
received, or had made available to it, copies of the following documents of
the Company (the "Disclosure Documents"): the Annual Report on Form 10-KSB of
the Company for its fiscal years ended September 30, 1994 and 1995, the
Quarterly Report on Form 10-QSB of the Company for the fiscal quarter ended
December 31, 1995, and all other documents reasonably requested by the
Purchaser. The Purchaser has carefully reviewed the Disclosure Documents and
understands the information contained therein.
c. Neither the Securities and Exchange Commission ("Commission") nor any state
securities commission has approved the Shares or the Offering, or passed upon
or endorsed the merits of the Offering or confirmed the accuracy or
determined the adequacy of this Subscription Agreement. This Subscription
Agreement has not been reviewed by any Federal, state or other regulatory
authority.
d. The Purchaser acknowledges that all documents, records, and books pertaining
to an investment in the Shares have been made available for inspection by
such Purchaser and the Advisors, if any.
e. The Purchaser and the Advisors, if any, have had a reasonable opportunity to
ask questions of and receive satisfactory answers from a person or persons
acting on behalf of the Company concerning the Offering, the Shares and the
Company and all such questions have been answered to the full satisfaction
of the Purchaser and the Advisors, if any.
f. In evaluating the suitability of an investment in the Company, the Purchaser
has not relied upon any representation or other information (oral or written)
other than as stated in this Subscription Agreement and/or as contained in
the Disclosure Documents.
g. The Purchaser is unaware of, is no way relying on, and did not become aware
of the Offering of the Shares through or as a result of any form of general
solicitation or general advertising, including, without limitation, any
article, notice, advertisement or other
<PAGE> 6
5
communication published in any newspaper, magazine or similar media or
broadcast over television or radio, in connection with the Offering and is
not subscribing for the Shares and did not become aware of the Offering
through or as a result of any seminar or meeting to which the Purchaser was
invited by, or any solicitation of a subscription by, a person not
previously known to the Purchaser in connection with investments in
securities generally.
h. The Purchaser has taken no action which would give rise to any claim by any
person for brokerage commissions, finders' fees or the like relating to
this Subscription Agreement or the transactions contemplated hereby.
i. The Purchaser, together with the Advisors, have such knowledge and
experience in financial, tax, and business matters, and, in particular,
investments in securities, so as to enable them to utilize the information
made available to them in connection with the Offering to evaluate the
merits and risks of an investment in the Shares and to make an informed
investment decision with respect thereto.
j. The Purchaser is not relying on the Company or any of its officers,
directors, employees or agents with respect to the legal, tax, economic and
related considerations of an investment in the Shares, and the Purchaser has
relied on the advice of, or has consulted with, only his own Advisors (if
any).
k. The Purchaser is acquiring the Shares solely for such Purchaser's own
account for investment and not with a view to resale or distribution
thereof, in whole or in part. The Purchaser has no agreement or arrangement,
formal or informal, with any person to sell or transfer all or any part of
the Shares, and the Purchaser has no plans to enter into any such agreement
or arrangement.
l. The Purchaser must bear the substantial economic risks of an investment in
the Shares indefinitely because the Shares may not be sold, hypothecated or
otherwise disposed of unless subsequently registered under the Securities
Act and applicable state securities laws or an exemption from such
registration is available. The Purchaser acknowledges that legends shall be
placed on the Shares to the effect that they have not been registered under
the Securities Act or applicable state securities laws and appropriate
notations thereof will be made in the Company's stock books. Stop transfer
instructions will be placed with the transfer agent of the Company.
<PAGE> 7
6
m. The Purchaser has adequate means of providing for such Purchaser's
current financial needs and foreseeable contingencies and has no need for
liquidity of the investment in the Shares for an indefinite period of time.
n. The Purchaser is aware that an investment in the Shares involves a number of
very significant risks and investment considerations.
o. The Purchaser meets the requirements of at least one of the suitability
standards for an "accredited investor" under Regulation D promulgated under
the Securities Act and as set forth on the Accredited Investor Certification
contained herein.
p. The Purchaser: (i) if a natural person represents that the Purchaser has
reached the age of 21 and has full power and authority to execute and deliver
this Subscription Agreement and all other related agreements or certificates
and to carry out the provisions hereof and thereof and has adequate means for
providing for his or her current financial needs and anticipated future needs
and possible personal contingencies and emergencies and has no need for
liquidity in the investment in the Shares; (ii) if a corporation,
partnership, limited liability company or partnership, association, joint
stock company, trust, unincorporated organization or other entity represents
that such entity was not formed for the specific purpose of acquiring the
Shares, such entity is duly organized, validly existing and in good standing
under the laws of the state of its organization, the consummation of the
transactions contemplated hereby is authorized by, and will not result in a
violation or breach of any law, regulation, agreement to which it is a party
or is otherwise bound or of its charter or other organizational documents;
such entity has full power and authority to execute and deliver this
Subscription Agreement and all other related agreements or certificates and
to carry out the provisions hereof and thereof and to purchase and hold the
Shares; the execution and delivery of this Subscription Agreement has been
duly authorized by all necessary action; this Subscription Agreement has been
duly executed and delivered on behalf of such entity and is a legal, valid
and binding obligation of such entity; and (iii) if executing this
Subscription Agreement in a representative or fiduciary capacity, represents
that it has full power and authority to execute and deliver this Subscription
Agreement in such capacity and on behalf of the subscribing individual, ward,
partnership, trust, estate, corporation, limited liability company or
partnership, or other entity for whom the Purchaser is executing this
Subscription Agreement, and such individual, ward, partnership, trust,
estate,
<PAGE> 8
7
corporation, limited liability company or partnership, or other entity has
full right and power to perform pursuant to this Subscription Agreement and
make an investment in the Company, and that this Subscription Agreement
constitutes a legal, valid and binding obligation of such entity. The
execution and delivery of this Subscription Agreement will not violate or be
in conflict with any order, judgment, injunction, agreement or document to
which the Purchaser is a party or by which it is bound.
q. Any information which the Purchaser has heretofore furnished or furnishes
herewith to the Company is complete and accurate and may be relied upon by
the Company in determining the availability of an exemption from registration
under Federal and state securities laws in connection with the Offering. The
Purchaser will notify and supply corrective information to the Company
immediately (and without a specific request therefor) upon the occurrence of
any change therein occurring prior to the Company's issuance of the Shares.
r. The Purchaser has significant prior investment experience, including
investment in non-registered securities. The Purchaser has a sufficient net
worth to sustain a loss of its entire investment in the Company in the event
such a loss should occur. The Purchaser's overall commitment to investments
which are not readily marketable is not excessive in view of his/its net
worth and financial circumstances and the purchase of the Shares will not
cause such commitment to become excessive. The investment is a suitable one
for the Purchaser.
s. No oral or written representations have been made, or oral or written
information furnished, to the Purchaser in connection with the Offering which
are in any way inconsistent with the information contained herein.
t. The Purchaser acknowledges that, even if the Maximum Amount is raised from
the sale of the Shares, the net proceeds thereof will provide the Company
with the funds to meet only its most immediate needs and that additional
funds will be required by the Company (with the consequent dilution of value
and/or ownership) through additional equity and/or debt financing(s), and no
assurance can be given as to the availability, adequacy or terms of any such
financing(s). In the event that the Company does not obtain the requisite
funds, it may be necessary for the Company to reduce, suspend or cease
certain of its operations. The Purchaser
<PAGE> 9
8
acknowledges that the Company intends to use the net proceeds of the
Offering for its working capital requirements.
u. Blue Sky Information:
FOR RESIDENTS OF ALL STATES:
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND ARE BEING
OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF SAID ACT AND SUCH LAWS. THE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR
RESOLD EXCEPT AS PERMITTED UNDER SAID ACT AND SUCH LAWS PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED
THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE MEMORANDUM.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
FOR CONNECTICUT RESIDENTS:
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER SECTION 36-485 OF THE
CONNECTICUT UNIFORM SECURITIES ACT AND THEREFORE CANNOT BE RESOLD UNLESS
THEY ARE REGISTERED UNDER THE CONNECTICUT UNIFORM SECURITIES ACT OR UNLESS
AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
FOR PENNSYLVANIA RESIDENTS:
THE SECURITIES REFERRED TO IN THIS SUBSCRIPTION AGREEMENT HAVE NOT BEEN
REGISTERED UNDER THE PENNSYLVANIA SECURITIES ACT OF 1972 (THE "1972 ACT")
AND PENNSYLVANIA RESIDENTS HEREBY AGREE NOT TO SELL OR OTHERWISE ATTEMPT TO
CONVEY OR ASSIGN THEIR SECURITIES FOR ONE YEAR FROM THE DATE OF PURCHASE
UNLESS THEIR SECURITIES ARE SUBSEQUENTLY REGISTERED UNDER THE 1972 ACT OR
UNDER THE SECURITIES ACT OF 1933.
UNDER PROVISIONS OF THE 1972 ACT, EACH PENNSYLVANIA RESIDENT SHALL HAVE THE
RIGHT TO WITHDRAW HIS ACCEPTANCE WITHOUT INCURRING ANY LIABILITY TO THE
SELLER, UNDERWRITER (IF ANY) OR ANY OTHER PERSON, WITHIN TWO BUSINESS DAYS
FROM THE DATE OF RECEIPT BY THE ISSUER OF HIS WRITTEN BINDING
<PAGE> 10
9
CONTRACT OF PURCHASE OR, IN THE CASE OF A TRANSACTION IN WHICH THERE IS
NO WRITTEN BINDING CONTRACT OF PURCHASE, WITHIN TWO BUSINESS DAYS AFTER
HE MAKES THE INITIAL PAYMENT FOR THE SECURITIES BEING OFFERED.
FOR VERMONT RESIDENTS:
EACH PERSON WHO ACCEPTS AN OFFER TO PURCHASE SECURITIES DIRECTLY FROM
THE ISSUER OR AN AFFILIATE OF THE ISSUER SHALL HAVE THE RIGHT TO
WITHDRAW HIS ACCEPTANCE WITHOUT INCURRING ANY LIABILITY TO THE SELLER,
UNDERWRITER (IF ANY) OR ANY OTHER PERSON WITHIN THREE BUSINESS DAYS
AFTER HE MAKES THE INITIAL PAYMENT FOR THE SECURITIES BEING OFFERED.
7. Indemnification. The Purchaser hereby agrees to indemnify and hold harmless
the Company and its officers, directors, employees, agents, control persons
and affiliates against all losses, liabilities, claims, damages, and expenses
whatsoever (including, but not limited to, any and all expenses incurred in
investigating, preparing, or defending against any litigation commenced or
threatened) based upon or arising out of any actual or alleged false
acknowledgment, representation or warranty, or misrepresentation or omission
to state a material fact, or breach by the Purchaser of any covenant or
agreement made by the Purchaser herein or in any other document delivered in
connection with this Subscription Agreement.
8. Irrevocability; Binding Effect. The Purchaser hereby acknowledges and agrees
that the subscription hereunder is irrevocable by the Purchaser, except as
required by applicable law, and that this Subscription Agreement shall
survive the death, disability or bankruptcy, as the case may be, of the
Purchaser and shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, executors, administrators, successors,
legal representatives, and permitted assigns. If the Purchaser is more than
one person, the obligations of the Purchaser hereunder shall be joint and
several and the agreements, representations, warranties, and acknowledgements
herein shall be deemed to be made by and be binding upon each such person and
such person's heirs, executors, administrators, successors, legal
representatives, and permitted assigns.
9. Modification. This Subscription Agreement shall not be modified or waived
except by an instrument in writing signed by the party against whom any such
modification or waiver is sought.
<PAGE> 11
10
10. Notices. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or delivered against receipt to the party to whom
it is to be given (a) if to the Company, at 556 Washington Avenue, North
Haven, Connecticut 06473, Attn.: Peter P. Phildius, Chairman of the Board,
or (b) if to the Purchaser, at the address set forth on the signature page
hereof (or, in either case, to such other address as the party shall have
furnished in writing in accordance with the provisions of this Section 10).
Any notice or other communication given by certified mail shall be deemed
given at the time of certification thereof, except for a notice changing a
party's address which shall be deemed given at the time of receipt thereof.
11. Assignability. This Subscription Agreement and the rights, interests and
obligations hereunder are not transferable, assignable or delegable by the
Purchaser and the transfer or assignment of the Shares shall be made only
in accordance with all applicable laws and this Subscription Agreement.
12. Applicable Law. This Subscription Agreement shall be governed by and
construed in accordance with the laws of the State of New York without
regard to its conflicts of laws principles. The Purchaser hereby
irrevocably submits to the non-exclusive jurisdiction of any New York State
court or United States Federal court sitting in New York County over any
action or proceeding arising out of or relating to this Subscription
Agreement or any agreement contemplated hereby, and the Purchaser hereby
irrevocably agrees that all claims in respect of such action or proceeding
may be heard and determined in such New York State or Federal court. The
Purchaser further waives any objection to venue in such State and any
objection to any action or proceeding in such State on the basis of a
non-convenient forum. The Purchaser further agrees that any action or
proceeding brought against the Company shall be brought only in New York
State or United States Federal courts sitting in New York County. THE
PURCHASER HEREBY AGREES TO WAIVE ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS SUBSCRIPTION AGREEMENT OR
ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY.
13. Blue Sky Qualification. The purchase of the Shares under this Subscription
Agreement is expressly conditioned upon the exemption from registration
and/or qualification of the offer and sale of the Shares from applicable
Federal and State securities laws. The Company shall not be required to
qualify this transaction under the securities laws of any jurisdiction and,
should qualification be necessary, the Company
<PAGE> 12
11
shall be released from any and all obligations to maintain the
Offering, and may rescind any sale contracted, in the
jurisdiction.
14. Piggyback Registration. If, at any time commencing after the date
hereof until such time as the purchaser has sold or otherwise
disposed of the shares, the Company proposes to register any of its
equity securities under the Act (other than in connection with a
merger or consolidation or pursuant to a Registration Statement
on Form S-8 or S-4 or comparable registration statement), it will
give written notice, at least thirty (30) days prior to the filing
of such registration, to the Purchaser of its intention to do so.
If the Purchaser notifies the Company within twenty (20) days after
receipt of any such notice of his/her desire to include the shares
in such proposed registration statement, the Company shall, subject
to the provisions set forth below, afford the Purchaser the
opportunity to have such shares registered under such registration
statement. If such registration statement is an underwritten
registration, and the managing underwriters advise the Company
that in their opinion the number of securities requested to be
included in such registration exceeds the number which can be sold
in such offering without materially adversely affecting such
underwriters' ability to effect an orderly distribution of such
securities, the Company will include in such registration first,
the securities proposed to be sold thereunder and, second, all
other securities having registration rights on a pro-rata basis.
The Company shall have the right at any time thereafter to elect
not to file any such proposed registration statement or to
withdraw the same after filing but prior to the effective date
thereof. The Company shall pay all such expenses relating to the
registration except sales commissions attributable to these
securities and except expenses incurred by the Purchaser such as
counsel for the Purchaser. Such sales commissions and other
expenses incurred by the Purchaser will be borne by the Purchaser.
15. Use of Pronouns. All pronouns and any variations thereof used
herein shall be deemed to refer to the masculine, feminine, neuter,
singular or plural as the identity of the person or persons
referred to may require.
16. Miscellaneous.
a. This Agreement constitutes the entire agreement between the
Purchaser and the Company with respect to the subject
matter hereof and supersedes all prior oral or written
agreements and understandings, if any, relating to the
subject matter hereof. The terms and provisions of this
Agreement may be waived, or consent for the departure
therefrom granted, only by a written document
<PAGE> 13
12
executed by the party entitled to the benefits of such terms or
provisions.
b. The Purchaser's representations and warranties made in this Agreement
shall survive the execution and delivery hereof and the sale and
delivery of the Shares.
c. Each of the parties hereto shall pay its own fees and expenses
(including the fees of any attorneys, accountants, advisors, appraisers
or others engaged by such party) in connection with this Agreement and
the transactions contemplated hereby whether or not the transactions
contemplated hereby are consummated.
d. This Agreement may be executed in one or more counterparts each of
which shall be deemed an original, but all of which shall together
constitute one and the same instrument.
e. Paragraph titles are for descriptive purposes only and shall not
control or alter the meaning of this Subscription Agreement as set
forth in the text.
<PAGE> 14
13
Accredited Investor Certification
---------------------------------
(Check the appropriate box(es))
/ / (i) I am a natural person who had individual income of more than
$200,000 in each of the most recent two years or joint income with
my spouse in excess of $300,000 in each of the most recent two years
and reasonably expect to reach that same income level for the current
year ("income", for purposes hereof, should be computed as follows:
individual adjusted gross income, as reported (or to be reported)
on a Federal income tax return, increased by (1) any deduction of
long-term capital gains under section 1202 of the Internal Revenue Code
of 1986, as amended (the "Code"), (2) any deduction for depletion under
Section 611 et seg. of the Code, (3) any exclusion for interest under
Section 103 of the Code and (4) any losses of a partnership as reported
on Schedule E of Form 1040);
/ / (ii) I am a natural person whose individual net worth (i.e. total
assets in excess of total liabilities), or joint net worth with my
spouse, will at the time of purchase of the Shares be in excess of
$1,000,000;
/ / (iii) The Purchaser is an investor satisfying the requirements of
Section 501(a)(1), (2) or (3) of Regulation D promulgated under the
Securities Act, which includes but is not limited to, a self-directed
employee benefit plan where investment decisions are made solely by
persons who are "accredited investors" as otherwise defined in
Regulation D;
/ / (iv) The Purchaser is a trust, which trust has total assets in excess
of $5,000,000, which is not formed the specific purpose of acquiring the
Shares offered hereby and whose purchase is directed by a sophisticated
person as described in Rule 506(b) (ii) of Regulation D and who has such
knowledge and experience in financial and business matters that he is
capable of evaluating the risks and merits of an investment in the
Shares;
/ / (v) I am a director or executive officer of the Company; or
/ / (vi) The Purchaser is an entity (other than a trust) in which all of
the equity owners meet the requirements of at least one of the above
subparagraphs.
FOR MASSACHUSETTS RESIDENTS:
/ / My investment in the Shares does not exceed 25% of my and my spouse's
joint net worth (excluding our principal residence and furnishings).
<PAGE> 15
14
IN WITNESS WHEREOF, the Purchaser has executed this Subscription Agreement this
_____ day of _________, 1996.
______________________ x $___________ = _________________________________
(Shares being purchased) (Share Price) Subscription (Minimum of $10,000)
If the purchaser is an INDIVIDUAL, and if purchased as JOINT TENANTS, as
TENANTS IN COMMON, or as COMMUNITY PROPERTY:
____________________________________ ____________________________________
Print Name(s) Social Security Number(s)
____________________________________ ____________________________________
Signature(s) of Purchaser(s)
____________________________________ ____________________________________
Date Address
If the purchaser is a PARTNERSHIP, CORPORATION, or TRUST:
____________________________________ ____________________________________
Name of Partnership, Corporation Federal Taxpayer Identification
or Trust Number
____________________________________
Date
By:_________________________________ ____________________________________
Name: State of Organization
Title:______________________________ ____________________________________
Address
<PAGE> 16
15
SUBSCRIPTION ACCEPTED AND AGREED TO this ____ day of __________, 1996.
AVITAR, INC.
By: ____________________________
Title: _________________________
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 918,856
<SECURITIES> 0
<RECEIVABLES> 868,170
<ALLOWANCES> 0
<INVENTORY> 227,617
<CURRENT-ASSETS> 2,067,380
<PP&E> 487,502
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,494,806
<CURRENT-LIABILITIES> 1,796,151
<BONDS> 0
0
12,752
<COMMON> 69,669
<OTHER-SE> 5,314,367
<TOTAL-LIABILITY-AND-EQUITY> 7,494,806
<SALES> 3,591,472
<TOTAL-REVENUES> 4,084,291
<CGS> 2,252,175
<TOTAL-COSTS> 4,686,509
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 96,652
<INCOME-PRETAX> (695,790)
<INCOME-TAX> 13,500
<INCOME-CONTINUING> (1,202,109)
<DISCONTINUED> 0
<EXTRAORDINARY> 492,819
<CHANGES> 0
<NET-INCOME> (709,290)
<EPS-PRIMARY> (.13)
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